ML20126K169
| ML20126K169 | |
| Person / Time | |
|---|---|
| Site: | Farley  |
| Issue date: | 03/12/1981 |
| From: | Farley J ALABAMA POWER CO. |
| To: | |
| Shared Package | |
| ML20126K166 | List: |
| References | |
| NUDOCS 8105120264 | |
| Download: ML20126K169 (42) | |
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,"ComparativsIIighlights." . ;'. A'? 79 WM,. M LRepoitof Management.T . '. SW ./ C c. . 17
.W. . . p.17 To the Stockholders. J ?W .' ?rG" Management Changesi," .7. ' *. MBd3 ~e. b MMahagenieiit's E MM2% Selected Discussioii Financial DataT,ls.i . .f. /. .t? W
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- L c ' M4 ~ ! , ,1of Operations'and Financial Co. nd. ition d Aiialysislof ..., :
Reditsf' 18 1 Farnings,; . . ,.; ; : . ^,. '. ,. O ",.4,.1. Financing n~..
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.20 Rates . :' .
.'. ; / c a. 4- J Balance Sheets. . . . . . . .
Planning. ' . ..
. , 6 .
- . Statements of Capitalization . . . .. .
. . 21 Fuel and Ibwer Generation.. , '7.'
f6l Statements of Income . . l
' lleat Wave. . . . . .
'.':8 ' Statements of Earnings Retained in l
.22
. 10 Construction. . .
. .... . ;, -the Business. ., . . .
Research and Development. . . . : .y . 10 Statements of Other Rid In Capital . . . . .22 Environmental Regulations. ..
. . .T . . ;10 ' . . Statements of Sources of Funds for
- Legislation . .
. . 3 ,
- 1. . . . .t, 510 C Gross Property Additions. . . . .: . .23 94
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.31 PublicInfonnation . . , 's , . ' .14 i Officers. . . ..
Human Resources. , ,
.' .14 - Directors . .32 An Essay . .. . ....' .16- System Map. , .Inside Back Cover J
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- AlabamaIbwer Company W one of the operatingL .
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. . s' : companies of The Southern Company. Others are Georgia Standing like sentries, giant pylons iuppdrt 'nearly ~ >
50,000 miles of lines carrying power to light the hoines f '" Rwer Company, Gulf Rwer Company Gening northwest and run the factories of the almost 3 million people served ' Florida) and Mississippi Rwer Company (serving by Alabama Rwer. m , n southeast Mississippi). Systeni affiliates also include a;. . . ;m < + Southem Company Services, Inc., which performs y',* ;', 1M.
- W d W specialized services at cost for syste,m compm)ies upon f '. ,
.y $ 7 M;p pl @eg1 M, -;
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, @@ avhich is owned in equal shares byl Alabama Swer and H[ request,'and .
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'- A copy of Form 10.K as fil$ with the S5$uiities and s ary. , 'I C [i,; d. h[ Exchange Commission will be availab s,
7 cupon.wtitten request to Richard Bowron, secretary.
" " A copy of the company's Financial and Statistical Review is also anilable on request.'
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Nabarna Power /IA
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Alahuna Ibwa G >mpanyrU'O Lth 1Rh St::eet/lbst OEcc Ik 2G41/Knningham. AL 35291/Tdephone 205/2501000 9 l
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Comparative Highlights i 1980" 1979 i i D.aars Expressed m Thousands Electric Energy Sales Imillions of kwh): Residential . . 9.511 8.679 All Other Retail . 20.141 19.964 Wholesale . 3.866 2.468 Total . , 33.518 _ 31.111 Average Annual Use Fbr Residential Customerikwh). 11,041 10.231 Customers Served Directly at End of Year 9S6.082 976.200 Operating Revenues. Electric: Residential Sales . S 489.031 S 385.224 All Other Retail Sales 808.066 691.182 Wholesale Sales 114.931 77.278 Total from Sales of Energy 1.412.028 1.153.6 &l Other Revenues . 9.969 9.939 Total. $1.421.997 $1.163.623 Operating Expenses. Electric: Fuel . S 439.488 5 365.628 Purchased and interchanged Iber. Set 124.163 124.929 Other. 569.347 466.516
'Ibtal ,
S1.132.998 3 957.073 Income Before Interest Charges. S 331.714 S 247.325 Interest Charges i Before credit of S79,839.000 in 1980 and S37.196.000 in 1979 for allowance for debt funds used during construction and related income tax effectt 250.836 215.S62 Dividends on Prefened Stock 31.013 31.219 Net Income After Dividends on Preferred Stock. 129.704 57.440 Total Utility Plant at End of Year S3.199.84S S4.814.504 Gross Additions to Utility P! ant During Year. 411.813 459.533 Construction Work in Progress at End of Year 1.147.650 950.210
- Resta>ed to reflect refund of retad revenues See Ste 2 ri" Lies to Emancal State rents" relatwe to restated 2 our.ti This termrt and accomparyrrg finanaal statements are subr".it'ed icr rne irier raa .n of stxkh..!ders ar.d are m a irter.ded t 'r x tr CinPta:!!on ultu riny Aa'ie nr purch'ide cf. T ar.y offCr of soi!Ctaunn of.dern U buy - r icil. dny seCunt:ti DISTRIBUTION OF REVESUE DOLLAR
- RETT'RN ON COMMON EQt'ITY t PERCENT: :n 1980 -
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$ mitted the sale of preferred stock in February 1981 for the first time since December 1977. The proceeds of I
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these sales and The Southern Company's investment of jp common equity capital enabled us to reduce short term
~' indebtedness substantially.
I e < In early 1981, the Alabama Public Service Commis-sion, Alabama Ibwer and certain intervenors agreed to a N, settlement in two previous retail rate cases. A petition t was filed in November 1980 with the Federal Energy q Regulatory Commission for an increase in wholesale rates. oj s i At the invitation of the company, Price Waterhouse & Co. returned to review and evaluate the progress made in implementing recommendations made by the indepen-
" dent audit firm in a management study and financial audit mandated by the state legislature and completed in 1978.
We were pleased at their overall conclusion that the actions taken by the company have been positive and timely. The Public Service Commission mandated audit s of fuel purchases and the energy adjustment rate by i Touche Ross & Co. also produced a favorable result. Our company is actively promoting conservation, but l
]$ even the present forecast growth of about 3 percent per year during the 1980s cannot be served by conservation alone. Further, the industrial and economic development of the state is being actively pursued by state and local governments and by private groups with which we a cooperate through our industrial development depart-ment. Without reliable electric service and fair rates, the economic growth and development sought by our state carmot be adequately sustained.
To the Stockholders The decade of the 1970s was a time of considerable ESPITE continued inflationary pressures change within our industry and our company. The late
. that affect every phase of our business and 1970s in particular found our company facing serious I the continued need to operate at less than financial problems from which we are only now beginning to recover. However, much work is yet to be done to regain
) desirable levels of maintenance and opera.
. s tions, there were in 1980 several reasons full financial stability. This period has also taught us for encouragement for Alabama Ibwer. again am1 again that Alabama lbur Company's basic The most noticeable were improved earnings follow. strength is its employees who have enabl.ed the company successfully to pass through this penod of stress and to ing rate increases and the high volume of energy sales make so much progress toward recovery. I also express during record breaking heat this summer. During the vear our return on average common equity rose from!ess the appreciation of all of us for the help and support l
of employees of douthem Company aernces. Inc., than 6 percent to 11.6 percent at year end. This is still below the desired level of earnings that we must through the year. All t us begm the new decade with hope and a achieve if our future public service responsibilities are renewed confidence that, de3pite all of the problems to be met. We therefore shall continue to seek adequate f cing our counuy we will meet the challenges or levels of rates. l For the first time in two years, we were able to go to the the 1980s. ! securities market to sell first mortgage bonds. In June 1980, we sold S100 million principal amount of h>ng term first mortgage bonds and an additional S150 million in N) M Yry ' "7 , Septemben A third issue, planned for December, was l deferred until January 1961 because of then prevailing Joseph M. Earley unstable market conditions. Earnings coverages per. President March 12,1981 l l
.)
~~~"" ~ ~ ~
; Management Changes pgg de g$u? ]f0 ~ * '
EVERAL significant management changes were made in 1980. These changes included a
- w ra
#"dhi ; We 9M@ f# ^ i realignment of responsibilities among the company s semor management staff.
Executive Vice Presidents Jesse S. Vogtle, William O. Whitt and Elmer B. Harris were involved in the reorganization. The realignment was necessary because of the election in May of former Executive Vice President Alan R. Barton as president of Mississippi Ibwer Company. Mr. %gtle retained responsibility for public affairs. including regulatory and legislative matters. corporate j real estate, claims, energy services and public informa-
- tion. He was also assigned division operations and power a delivery.
9 Alr. Whitt assumed responsibility for fuel procure-
'M ment system operations, system planning, construction 44:; activities and the company's power generation facilities.
;g Mr. Harris continues to have responsibility for cor-g porate planning and the company s fmancial acuvines.
wd New assignments include human resources. support and
- materials services and recurity. Mr. Harris was also '
elected a membec of the board of directors. Q. .e Robert E. Huffman, formerly general manager-g , 4-operations, services, was elected vice president for operations services which includes system planning. operations and interconnection activities. 1
; R. P. Mcdonald. formerly vice president of power
.! supply services, was named vice president for nuclear 3
- generation. He has responsibility for operation of the
~
company's nuclear energy program. J.T. Wung, formerly vice president of production. l R6 ll ' ' was named vice president for fossil / hydro generation. l P. 6 ' He oversees operation of the company's fossil and hydro generation units. f
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~7 ET income for 1980, after dividends on j preferred stcck, was S129,704,000, an
. increase of $72,264,000 from 1979. This increase resulted primarily from rate a increases and high energy sales during the record breaking heat wave experienced during the summer. As a result of improved earnings in 1980, the DISTRIBUTION OF REVENUE DOLLAR
- company's return on average common equity increased iPERCEST) from 5.82 percent for the year ended December 31, 1971 1980 , .m 1979 to 11.61 percent for the year ended December m=mmmmmmmm Na M y ' + ' [' ,-
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31,1980. 7 A] g [~ $ a 3 ]w! , na es ny "' u4 "2 t'2 Financing y g OR the first time since March 1978, the m n2 u2 y
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The issuance of first mortgage bonds and y [g $ C preferred stock is restricted by earmngs g 82 hg ge g j g g $"9 g , u coverage requirements contained m the company,s zu e - a a mortgage indenture and corixarate charter. Improved eam-ings in 1980 enabled the company to sell $100 million Q 3 dh as.3 33.s
*9 m2 a6 m9 ;6i -
and S150 million first mortgage bonds in June and Sep- *. ., ^
- tember, respectively. Due to the unstable financial market in December, the planned sale of an additional $100 mil- g g g g g g g g 7.g lion bonds was postponed until January 1981. In og,m, _ , , _ , ,,
February 1981, earnmgs coverages had improved suff,e wremn +-+ w:
- re ciently to pennit the company to issue S40 million of preferred stock for the first time since December 1977.
Interest expenses for Alabama Fbwer rose to an all. time high in 1980 as a result of record high interest ordered a phased in. S208 million annual rate increase-rates and the necessity to carry an inordinate amount of a decision which the company appealed to the Supreme short term debt. The major source of short term bor- Court of Alabama. In August 1980, the court returned rowings has been the company's revolving credit agree- thu case to the commission with instructions to " enter an ment with 10 out of state banks. While the company's order based on the evidence." The court declared that, borrowings peaked at $420.266,000 in May 1980, out- based on the evidence in the case, a 13 percent return on standing short term debt had been reduced to common equity was the lowest the company should be S96,501,000 by year end. allowed to earn. Total interest expense for the year was $250.836.000 As a result of the settlement, S19.7 million of revenues including S52,361,000 on short term debt. Dividends on which Alabama Ibwer billed under bond from October preferred stock totaled S31,013.000 in 1980. 1979 to January 1930 are no longer subject to refund. Alabama Ebwe: s 1979 request for higher rates sought Rates $122.3 mmior in annual revenues. The commission granted the company a $30.6-million increase, and the N March 12,1981, the Alabama Public c mp r y sppealed that ruhng to the state supreme court. Service Commission made a final ruling on rate increase requests which had been filed ( by Alabama Ibwerin 1978 and 1979. The s
\ / order placed into effect a settlement agree-ment whichhadbeenreachedamongthecommission the company and a number of other parties in the pnceedings.
In December 1978. Alabama Ihwer had filed for an addi- _ _ tional 5288.8 million in annual revenues. The commission
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i The court allowed Alabama Ibwer to place into effect the RESIDENTIAL ELECTRIC BILLS FOR entire $122.3 million rate increase as of July 30,1980. SELECTED U.S. CITIES FOR SiONTHLY That portion of the increase not granted by the commis. USE OF 1.000 KILOWATT-HOURS. , RATESIN EFFECT DECESIBER 1,1980 sion was billed subject to refund, pending a final ruling
~*
on the case. The final settlement gave Alabama Ibwer a $92.5-million annual increase from July 30,1980 to February
' ' 6" 28,1981. This will result in the company refunding approximately $17 million to.its retail customers. In ; ;
addition, the S92.5-million increase was reduced to $80 j , y 7 million annually, effective Alarch 1,1981, d g~ 4* c< On November 5,1980, Alabama Ibwer filed a S23.4- ! g[ million wholesale rate increase request with the Federal ! "1 Energy Regulatory Commission. The last request for an g .
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3 increase in wholesale rates was filed in December 1977. The increase, suspended on January 2,1981 for five N Eli Milf
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months by the FERC, would affect 15 municipal electnc . fg y ; i ] . 2ono h systems,11 rural electric distribution cooperatives and . - p yg[gg one airport and one industrial authority served by the , 7 company. _ m _
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EAIAND for electricity on Alabama Ibwer's electric system reached a new albtime peak during the summer of 1980 when pwer use
, ) reached 7.2 million kilowatts on July 15. Fuel and Power Generation' g ' Customers used 33.5 billion k,ilowatt-hours of 7 iIILE conservation, as well as load ncity during 1980, an increase of u, percent over management, is an integral part of Ala-bama Ibwer's load forecast, customer Projections of future demand for electricity directly energy demand cannot be met uithout affect the addition of generating and other facilities. dditional generation facihties. Today the In 1980, the long range forecast of electricity require- * " " n ludes cod, nuckar ments reflects the revised economic grwth ex'pected in d dr t fa l i the state over the next decade and the effects of price Alternate sources, such as solar power, are in the and conservation efforts on energy usage. Ftather developmental stage and could be added to the companv's '
growth m electric sales is now forecast to average about generation mix as they become technologically and 3 percent betwen now and 1990, compared with the economically feasible. 4 percent forecast for this penod made m 1979. Coal continues to be the primary fuel, accounting for Alabama Ibwer reviews its forecasts at least annually 71.7 percent of the total electricity generated by th'e and utilizes, among other techniques, an econometric company in 1980. Alabama Ibwer owns and operates forecast model based on the relationship between seven fossil fueled electric generating plants, including numerous national and regional economic factors and the the 500.000 kilowatt Greetie County Electric Generating use of energy. i'he model is continually revised and Plant, which is owned jointly with Alississippi Ihwer. updated as new economic data bec(>me available. Approximately 13.4 million tons of coal were pur-Despite a major reduction in projected chased by Alabama Ibwer in 1980. Alabama mines growth in encrby demand during the 1980s, u. , w =c w . w xm , utilities cannot stop building altogether .; , an-n e . . ~ a; w
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l supplied 93.3 percent of this coal through long-term con- PERCENT OF TOTAL KWH GENERATION At ye nJ t c p n hN3.4 million tons on 100 % 100 % 100 % 100 % 100 % 100 % hand, a 143 day supply based on anticipated reouire-ments. The reconstruction of Bouldin Dam was completed in
" " ~ '
1980, returning 225,000 kilowatts of electrical capacity to service. Alabama Nwer owns and operates 13 Q$ ' ' hydroelectric facilities, which accounted for 13.7 percent of the company's total generation during the year. Nuclear power supplied atx,ut 14.5 percent of Alabama Rwer's 1980 generation. The company's first nuclear unit began operation in December 1977. and the second is scheduled for commercial operation in mid 1981. Completion of the second nuclear unit will add 860,000
' kilowatts of new capacity to the system.
This additional capacity will not only keep reserve margins from falling dangerously low in theyearsjust ahead, but also save 1973 1970 1977 1973 1979 1930 moneyforcustomers through reducedfuel _~~~1 _ HYDRO COSTS-meniNUCLEAR The installed generating capacity of the ccmpany, m GAS AND OIL including 50 percent of the capacity of four units and a COAL small combustion turbine of Southern Electric Generat- NOTE: EXCLt' DES GENERATION RECEIVED FROM 5EGCO. ing Company at Gaston Electric Generating Plant and 60 percent of the capacity of the Greene County Plant, totaled 7,625,675 kilowatts at the end of the year. MONTHLY PEAK DEMAND Southern Electric Generating Company is owned equally 75m by Alabama Nwer and Georgia Nwer companies.
- ;mo Heat Wave ,
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3 OR more than 12 weeks last summer, people ' throughout the entire southem United smo States sweltered in record breaking temper- / atures. The increased demand severely strained the electrical system throughout k .. 4k-e' ' 55m the region. - - h , 5%" Every available source of generation, including pur- ~ w '
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chases of electricity from neighboring utilities when available, was called upon to meet energy needs of our 9 customers during the most intensive heat wave in the i comoany's history. p p p g- g f. 4 p g g p j j[ "" The heat wave had regional impact, straining utilities' - reserves throughout the Sun Belt region. Temperatures in Alabama exceeded 100 on 13 days during the c urs ]im - mo 12 week period. The company was deeply concemed with the health and safety of its customers during the emergency perkd hyment plans were worked out with individual cus-tomers experiencing unusually high electric bills and
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'O disconnection procedures were suspended during major efforts in solar, geothermal and nuclear fusion the emergency. energy. The institute was funded in 1980 by the industry An all. time high summer peak demand for electricity in the amount of $219.8 million of which Alabama on Alabama Ibwer's system was recorded on July 15, -Ibwer's share was $4.4 million.
9.7 percent higher than the previous peak demand set in During 1980. Alabama Ibwer continued for a second 1978 and 12.5 percent higher than 1979. year its study of the practical application of solar power This is the second consecutive year that nature has to residential requirements. The study is beingconducted had a tremendous impact on Alabama Ibwer's electric in two identical homes, one solar and the other conven-system. In 1979 Hurricane Frederic devastated the Gulf tional, to test the combined efficiency of a solar system Coast, destroying much of the company's electric and a heat pump for space heating and water heating. transmission and distribution facilities in that area and forcing 290,000 Alabama Ibwer customers to go without Environmental Regulations power for as long as several weeks. LABAllA Ibwer spent $16.5 million during
. 1980 to comply with environmental regulations Construction '
imposed on the company by various federal. ' ONSTRUCTION costs throughout the utihty state and local agencies, it is estimated that industry have escalated at an alarming and anotner $78 million will be required during unprecedented rate. While reductions in the the next five years to meet regulations now in effect or company's load forecast have allowed deferrals anticipated. Such expenditures by Alabama Ibwer since in the completion dates of new generating 1970 now exceed $357.9 million. plants, construction of additional facilities will be neces. sary to meet the existing electrical demand and the pro- Legislation jected growth in the future. N Alabama Department of Energy was created in 1980 by the Alabama 1.egistature. The Current projections callfor a 3-percent annualgrowth in peak demandon Ala- / department is responsible for formulatmg
/ energy pohey, recommending administrative bama Power,s system over the next decade, -.L - and legislative changes, coordinating enepelated activities and encouraging the conserva-in conjunction with previously imposed financial restraints, these revised forecasts have resulted in a deci.
ti n ad efficient use of energy resources. The legislature also established an Energy Advisory sion to delay the completion dates for several fossil and Guned, to which appointments are made by the governor bydro units. Planned commercial operation dates for A! iller Electric Generating Plant Units 2. 3 and 4 are f*" 1985,1989 and 1991, respectively. Commercial operation Phbusiness, government, educat ee bills to provide for the restructuring of the date for Harris Dam is 1983 and 1985 for Alitchell Dam. Bouldin Dam was returned to service in late 1980, Alabama Public Service Commission were introduced during the 1980 legislative session. While the session after u,ndergoing reconstruction folkswing a breach in ended without the enactment of any of them a senate 19ea. I'his 225.000 kilowatt plant has the largest gener-resolution was passed creating a jo' int interim committee aung capacity of Alabama Ibwer s hy droelectric plants. to continue to study the reorganization of the commission. The second unit at Farley Nuclear Electric Generating This committee will report its recommendations during Plant is expected to be completed m mid 1981. the 1981 legislative session. Research and Development
" AIPROVEAIENT of present methods of produc-ing electric power and development of new energy sources and technokigy are ongoing concerns of '
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the electric utility industry. Alabama Ibwer and the nation's other energy
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_ _ _ . . . Z Service to Customers and Area Growth AVER 5GERESIDENTIAL USAGE PER CUSTOMER Q ERVICE to customers takes many forms. a"
' Quality service is comprised of a myriad of ac- .
tivities, each evolving from personal concem g for customers. U In 1980, programs developed by Alabama Ebwer aided more than 1,300 businesses, factories. - 4 = a 3 hospitals, schools and government buildings in becoming more energy efficient. m *" t A* 8 Approximately 17,000 residential ? customers received individualized home
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energy audits and consenation information l. suggesting ways to control their energy . :.o A usage. In addition to performing energy audits, company , gg gy g., g,gg y,g , n,3 g g g, o specialists assist commercial and industrial customers m designing, can ying out and monitoring their tailor made conservation programs. Alabama Ibwer has also completed energy audits of all of its facihties. As a result. during a recent 12 month period, electric energy use in company facilities decreased by more than 21 percent compared with the preceding 12 months. Homebuilders, architects and realtors continued to promote the construction of Good Cents Homes. Each hou,se incorporates techniques, equipment and materials COST OF COAL CONSUMED - designed to ach,i eve greater energy conservation than is .,,
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possible in standard contemporary homes. Various tests are being conducted in homes to help determine the economic feasibility of new energy- : conservation equipment, materials and designs, and to mp assist builders and manufacturers in learning which ;; conservation methods are the most practical and cost g etfective. - n - 2 Alabama Ibwer also works closely with industrial 4
'); - f M5 development agencies actively seeking new and
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[ expanded industry for the state. Company specialists s
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y i jD (- nl . Dwing the year,59'T industrial firms announced plans - u
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tolocate or expand facilities in Alabama Ebwer's service area, creating 16.172 new jobs and an estimated annual -{th..
;%@h - {;h,[k,g .h{.g, payroll of approxtmately $144 milhon. When these additions and expansions are in full operation, total investment for new and expanded industries announced in 1980 will be $1.36 billion.
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ausw ..____ , __
e PublicInformation safety is an important aspect of the utility industry, nd Alabama hwer is committed to safe procedures
^
r g HE ability of Alabama Ebwer to serve its throughout its operation. The company completed the customers effectively is influenced, in large , pan, by the level of public understanding of the ye r with an occupational mjury and illness meidence ! ccmpanyand its rolein Alabamalife. rate f nly 0.48 for each 200,000 man hours worked. t
- The necessity of communication between the l'his record is well below the national average. , _
company and its customers and employees has continued In August 1980, the company and the Intemational to increase as the public has become more aware of the rotherhood of Electrical Workers agreed to new two-nation's energy problems. Continuing increases in the ye r contracts. The agreements included wage mc eases price of electricity, constant media attention to Alabama of 10.99 percent m the first year and 9 percent in the Rwer and questions about the future availability of S*[n pIoyee participation in the savings plan and s energy dominate pubhc and employee concerns. ownership plan reached record amounts during 1980. Natiomeide, public utilities are recognizing The pension plan and insurance programs also provided that customer and employee concems must * "'d' '"" E' I 0'"**', '* *
- PI"Y * '
be identified and addressed in a stmight- i foncard and timely manner t During 1980, Alabama Rwer's public information ' effort continued with an aggressive media relations program, a reorganized company wide public speaking program, services to state educational media, expanded employee information programs and extensive conserva-tion and public issue advertising. . in the 1980s, energy--and its cost and availability-will continue to increase in importance to Alabama and ' the nation. Also of increasing importance is an effective , and creditable channel of communication between the , company and those it is chartered to serve. Human Resources
, N electric utility is comprised of a network of I transmission and distribution lines, generating i plants and substations. These technological j and engmeenng marvels carry electricity to i - thousands of homes and businesses.
But what really sustains this huge flow of power is another kind of energy- human energy, generated by more than 9,500 employees. In ways often unnoticed. the men anc vomen of Alabama hwer have been providing reliable service to this state for almost 75 years. Many empkyees also carry a tradition of service into their private lives. Some serve on city councils and school boards. Others are involved with youth work, charity drives, church activities or other programs to .a , ., . xu.~
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1 An Essay The New Decade
\ S we begin the 1980s, great uncertainty over Governmental and regulatory uncertainties surrounding
\ the energy future of the United States still the engineering and construction of facilities have
~k hangs like a threatening cloud. It is appmpri- stretched the lead time toward actual completion of a
\ ate,therefore,for AlabamaIbwerCompany generating plant to more than 10 years.
- d. to ask these questions: As a company Finally. when a project is completed and in service, it charged with providing energy, in what direction should must be operated in an efficient and economical manner we go? How, and to what extent, are we planning for the to ensure maximum use of our investment.
future? All ingredients in the cycle of producing and supply-Alabama Ibwer is striving to answer those questions ing power are critical because the overall financial in a meaningful way in its own operations. strength of the enterprise must not be diminished in the Electricity doesn't just happen. Aluch time, effort and process, money must be expended to provide basic energy to in the larger perspective, our dilemmas are symptom-nearly one million customers. Iblicy issues involved with atic of the energy problem facing the nation as a whole. the financing, planning, engineering, construction and operation of our electric system must be coordinated so Hard decisions must be made now to a void that subsequent decisions can be made and implemented sho/Tages in the/uture, to provide the needed facilities m time to meet customer demands. Rational choices must be made now about future sources The choices are often difficult when weighed against of energy that are practical, safe and economical. regulatory constraints and the force or political and As a nation, we have had years of debate. of study, of pubhc opimon. indecision about energy. Those who believe the solution Financing the operations and construction needs of lies in a no-growth ethic and in exotic but impractical the enterprise has been particularly difficult. If the forms of energy could win by default. Their simplistic decade of the 1970s taught us anything,it provided a answers are unreachable panaceas. preview of the future for the utility mdustry. We can no longer take energy for granted. The lesson that it will never again be cheap and used without RegulatoO> delays, unparal/c/cd increases
. thoue,n t for the future is abundantl> clear. L tilities must in costs, publiefrustrah.on and an crosion be aflowed to charge a fair price for their product so oferedibility in all/onns of business that an adequate supp!y of electricity is available for evolved during thepast decade, this decade- ,
The challenge is to make those hard decisions about ' Forecasting the future energy needs of our customers where we are going-and the best path to travel to get is a difficult task at best. We are the supplier of there. We must solve our energy problems, both at home electricity for a major portion of Alabama and, as public and as a nation. in the midst of the severest kind of servants, we must assure our customers that their current economic strain. and future needs are being met. Alabama Ibwer is committed to do its part to make Alabama has grown over the past 10 years and this new decade a time of progress toward workable continues to grow That means we've had to grow too. solutions to the problems that must be :esolved if we are Building for the future is another difficult task. to survive as a nation.
17 Reportof Management The management of Alabama Ibwer Company has prepared evaluate the system of internal accounting control and perform and is responsible for the financial statements and related such tests and other procedures as they deem necessary to financial information included in this report. The financial reach and express an opinion on the faimess of the financial statements were prepared in accordance with generally statements. accepted accounting principles appropriate in the circum- The Board of Directors pursues its responsibility for stances, and necessarily include amounts that are based on reported financialinformation through its Audit Committee, best estirnates and judgments with appmpriate consideration composed of directors who are not employees. The Audit to materiality. Financial information included elsewhere in this Committee meets periodically with management, internal annual report is consistent with the financial statements. auditors and independent public accountants to assure that The company maintains a system of internal accounting they are carrying out their responsibilities and to discuss controls to provide reasonable assurance that assets are auditing, intemal control and financial reporting matters. Both safeguarded and that the books and records rettect only internal auditors and independent public accountants authorized transactions of the company. Limitations exist in periodically meet alone with the Audit Committee and have any system of internal control based upon the recognition that free access to the Committee at any time. the cost of the system should not exceed the benefits derived. We believe that these policies and procedures provide The company believes its system of internal accounting reasonable assurance that our operations are conducted with controls, augmented by its internal auditing function, appro. a high standard of business conduct and that the financial priately balances the cost / benefit relationship. statements reflect fairly the financial position, results of Independent public accountants provide an objective operations and sources of funds for gross property additions assessment of the degree to which management meets its of thecompany. responsibility for fairness of financial reporting. They regularly Selected Financial Data Years Ended December 31, _ 1980* , 1979 1978 1977- 1976 Operating Revenues, Electric (Thousands). $1,421.907 S1,163,623 $1,014.443 S 968,693 S 699,667 NetIncome After Dividends on Preferred Stock (Thousandst S 129,704 S 57,440 $ 42,903 S 117,276 6 56.424 Total AssetstThousands). . S4,617,943 $4,292,736 $3,967,906 $3,581,456 S3,031,349 Long term Debt t Thousands). S2,159,793 S1,883,684 S1,851,394 S1,652,013 $1,294.731 Preferred Stock Subject to Mandatory Redemption (Thousands). S 47,500 S 50,000 $ 50,000 S 50,000 S 50,000 Cash Dividends Declared on Common Stock (Thousandst S 115.300 S 54,000 S 108.800 S 94,900 S 60,000 Construction Expenditures (Thousands). S 411,813 $ 459.533 S 483,430 $ 540,076 S 443.951 Kilowatthout Sales (Millions 1. 33,518 31,111 31,118 29.854 27,597 Customers (End of period). 986,082 976,200 961,440 938,576 921,208 Average Revenues per Kilowatthour-Total Sales tCents). 4.21 3.71 3.23 3.22 2.51 Average Cost of Fuel per Net Kilowatthour Generation tCents) 1.61 1.56 1.20 1.21 1.05
- Restated to reflect refund of retail reven,'es See Note 2 of " Notes to Financial Statements" relative to restated amounts.
Additional financial and statistical information for the period 1970-1980 is provided in the company's Financial and Statistical Review. This report will be provided upon written request to Richard Bowron, secretag. . _ . - - . - - . . , - - - ~ - -, ., - - .- - -
18 fvlanagement's Discussion and Analysis of depreciation rate was approximately 3.37 percent in 1978 3.46 percent in 979 nd 3.43 percent in 9s0. Results of Operations and Financial Condition Fluctuattons m mcome taxes resulted from changes in Results of Operations jncome before income taxes and reduction of the federal income tax rate from 48 percent to 46 percent in 1979. Federal nd state income tax provisions are detailed in Note 5 to the The company's financial performance significantly improved in 1980 over the severely depressed earnings of the past two financial statements. The company capitalizes as part of the cost of property and years. Net income after dividends on preferred stock totaled $129,704,000 for the year 1980, compared to $57.440,000 in plant an allowance,for the cost of funds required to finance 1979 and $42,903,000 in 1978. Return on average common c nstruction work in progress. Such amount also is recorded m, the Statements ofIncome as " allowance for equity funds used equity for 1980 was 11.61 percent compared to 5.82 percent in 1979 and 4.46 percent in 1978. duringconstruction in nonoperatinginc,ome and allowance f r debt funds used during ccnstruction , meluding the tax Increases in operating revenues in each period are effect of debt funds, as a reduction in interest charges. This attributable principally to rate increases, recovery of increased allowance becomes part of construction work in progress and, fuel and purchased power costs through fuel and energy when a construction project is placed in service, the allowance adjustment provisions contained in rate schedules and is included in the rate base itogether with construction labor, increased energy sales in 1978 and 1980. Rate increases material and related costs capitalized L amounting to approximately $92.500.000 on an annual basis This accounting treatment thus provides for the cash were placed into effect during 1980, of w hich approximately $36,600,000 is included in 1980 revenues. (See Note 2 to the recovery of such costs through rates, which mclude depreciation of those capitalized amounts over the semce life of property financial statements for further detailsJ Kilowatthour sales and plant. Therefore, the allowance for funds used during increased 4.23 percent in 1978 from 1977, compared to a 0.02 construction, net of income taxes, as a percent of net income percent decrease in 1979 from 1978, and an increase of 7.74 after dividends on preferred stock, amounted to 130.a percent percent in 1980 over 1979. The increase in sales in 1980 was
- 1978' 102.0 percent m 1979 and a t .1 percent in 1980.
due primarily to increased demand from residential and . , inflation has a sigmficant ef fect on the company due to the commercial customers resulting from an extended heat wave regulatory environment in which the company operates and during the summer and the implementation of contracts for the sale of capacity *through The Southern Company System the large investment tapproximately 91 percent of total assets) in utility plant. See Note 13 to the financial statements for Ibwer fbol to neighboring utilities. The company's po'tio'n r of supplementary information concerning the approximate effects , these bulk sales amounted to 1.3 billion kilowatthours and ofinflaton, revenues of $37,182,000. The all time maximum demand on The results of operations discussed above are not necessarily the company's system occurred on July 15,1980, and was
. dicative of future eamings. It is expected that higher m
7,199,500 kilowatts. 9.7 percent higher than the previous peratmg costs and carrymg charges on mcreased investment record set in 1978. The small decrease in 1979 kilowatthour m plant, if not offset by proportionate increases in operating sales resulted p imarily from conservation efforts by residential customers. Increased billings resulting from the recovery of revenues teither by penodic rate relief or increases m sales), will adversely arfect future eamings. Increases m sales m the increased fuel and purchased power cost and the results of rate future will be affected by the extent of energy conservation relief have increased the average revenue per kilowatthour from 3.23c in 1978, to 3.71c in 1979 and 4.21c in 1980. practiced by custorners, the elasticity of demand, weather and the rate of economic growth in the company's service area. In The rise in operation expenses occurring each year since recent years, eamings have tended to decline during periods 1977 has resulted primarily from increased generation and escalations in the cost of fuel and other operation expenses, { 11 wing the full 12 months reahzation of general rate mereases and prior to receipt of further rate relief. partially offset by reductions in purchased power. Fuel cost per kilowatthour generated was 1.20c in 197S,1.56c in 1979 and . Fm.ancial Condit. ion 1.61c in 1980. Purchased and interchanged power expenses declined in both 1980 and 1979, reflecting increased The company's continuing construction program to build an availability of generating capacity, and increased economy and energy supply network with a sufficient margin of reserve emergency energy sales to neighboring utilities. Increases in capacity to ensure an adequate, economical power supply, other operation and maintenance expenses are largely due to required the expenditure of $1.3 billion during the three years escalating costs of labor, materials and services. 1978 through 1980, As shown on the Statements of Sources of increases in depreciation and amortization each year are due Funds for Gross Property Additions, the primaiy sources of principally to the continued growth in depreciable plant in funds for construction expenditures are sales of long-term service, and the amortization of costs related to a cancelled debt, capital contnbutions from The Southem Company and generating plant amounting to S7,116.000 in 1978. internal sources. 57,145.000 in 1979 and S7,071,000 in 1930. ( See Nute 1 to The company's capitalization ratios have remained the f'mancial statementsJ The composite straight-line approximately the same in recent years, but the composite interest rate on long-term debt has increased from 8.1 percent at December 31,1977 to 9.7 percent at December 31,1980.
19 - . - . - . - . . .. .-.. - - - _ - .- - As further evidence of the increasing cost of capital, the - $164,839,000 will be required through the end of 1983 ir, company's annual interest requirement o'n long-term debt has - connection with maturities of long-temi debt and preferred stock subject to mandatory redemption. increased 57.8 percent since 1977. .. At December 31,1980, the company had $9,017,000 of it is anticipated that the funds required will be derived from temporary cash investments and $331,584,000 of unused . sources in form and quantity similar to those used in the past, credit arrangements with banks to meet its short term cash However, in order to issue additional long term debt and needsJSee Note 4 to the fmancial statements.) Short term preferred stock, the company must comply with certain bank loans outstanding at December 31,1980 wre earnings coverage requirements contained in its mortgage 596,501.000, a decrease of $255,977,000 from December 31, indenture and corporate charter. The ability to maintain these 1979. Also, fuel stock inventories were increased in anticipation coverages and to generate adequate amounts ofinternal funds of acoalminers' strike. for constmetion is dependent on receiving adequate and The company's construction expenditures are estimated to timely rate increases to offset the continuir.g cif -t of inflation, total $1.5 billion for the three years 1981 through 1983. These Should the company be unable to obtain funds from external constmction programs are subject to revision because of sources in amounts which, together with intemally generated factors such as granting of timely and adequate rate increases, funds, will be adequate to carry out the present construction new estimates of increased costs, revised load estimates and program, further delays and possible cancellations would be the availability and cost of capital. These factors forced necessary. substantial reductions in construction programs in recent On the basis of the requirements contained in the company's years, resulting in a combination of postpwements and mortgage indenture and corporate charter, the bond and pre-cancellations of generating units and other facilities. See Note ferred stock coverages of the company at December 31,1980 3 to the financial statements for further details. In addition to were 2.59 and 1.51, respectively. the funds required for the constmetion program, approximately Auditors' Report To the Board of Directors of Alabama Pbwer Company: We have examined the balance sheets and statements of capitalization of ALABAMA POWER COMPANY (an Alabama corporat' ion and a wholly owned subsidiary of The Southern Company) as of December 31,1980 and 1979, and the related statements of income, earnings retained in the business, - other paid-in capital and sources of funds for gross property additions for each of the three years in the . period ended December 31,1980. Our examinations were made in accordance with generally accepted auditing standards and, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. In our report dated February 15,1980, our opinion on the 1979 financial statements was qualified as being subject to the effect of any adjustments that may result from the final outcome of a pending rate matter. As ; 1 explained in Note 2 to the financial statements, the rate matter was settled and no refund of revenues was required. Accordingly, our present opinion on such financial statements, as presented herein, is different from that expressed in our previous report, In our opinion, the financial statements referred to above present fairly the financial position of Alabama Fbur Company as of December 31,1980 and 1979, and the results of its operations and the sources of funds for gross property additions for the periods stated, in conformity with generally accepted accounting principles ; applied on a consistent basia. l l 1 Arthur Andersen & Co. Birmingham, Alabama, 1 March 12,1981. I l 1 I 1 l
20 Balance Sheets at December 31,1980 and 1979 1980 1979 Assets (In Thousands) UTILITY PLANT (Notes 1 and 3): Plant in service , and held for future use, at original cost $3,854,627 $3,695,721 Less- Accumulated provision for depreciation , 934,606 818.279 2,920,021 2,877,442 Nuclear fuel, at amortized cost. 131,442
. 130.373 Construction work in progress-Nuclear, 684,945 548,575 Other. 462,705 401.635 OTHER PROPERTY ANDINVESTMENTS:
Southern Electric Generating Company (Note 8) . 16.400 16,400 Nonutility property, net. 2,372 2,345 Miscellaneous. 993 860 19,765 19,605 CURRENT ASSETS: Cash (Note 4). . . 13.429 9,048 Temporary cash investments, at cost . 9,017 - Receivables-Customer accounts receivable . . . . . 90,745 79,708 Other accounts and notes receivable . 7,132 6,992 Intercompany accounts . . .. .... 9,871 17,609 Accumulated provision for uncollectible accounts. (542) (1,047) Refundable federal income tax (Note 5). 20,000 3,154 Fossil fuel stock, at average cost. 161,593 123,752 Materials and supplies, at average cost . 21,734 20,913 Prepayments. 24,871 15,651 357,850 275,780 DEFERRED CHARGES: Cost of cancelled plant, being amortized (Note 1). ' 12,402 19,403 Debt expense, tang amortized , 6,878 6.287 Miscellaneous . 21.935 13,636 41,215 39,326
$4.617,943 $4.292,736 Capitalization and Liabilities CAPITALIZATION (See accompanying statements):
Common stock equity . $1,211,417 $1,022,533 Preferred stock ... ... ... .... ... 334,400 334,400 Preferred stock subject to mandatory redemption (Note 7) . 47,500 50,000 Long. term debt. 2,159,793 1,883,683 3,753,110 3,290,611 CURRENT LIABILITIES: Notes payable to banks tNote 4). .. .. 96,501 352,478 Long term debt due within one year (Note 6) . 47,424 24,305 Accounts payable-Intercompany accounts . 38.922 29.616 Other. .............. .. 108,294 129,262 Revenues to be refunded (Note 21. 11,978 - Customer deposits. 19,891 18,254 Taxes accrued-Federal and state income . 22,M5 5,284 Other. 10.462 8.177 interest accrued .... 54,061 49,093 Miscellaneous. 11,707 18,134 DEFERRED CREDITS, ETC.: Accumulated defened income taxes ... 370.439 302.831 Accumulated deferred investment tax credits . 53,030 44,017 Miscellaneous. 19,479 20.668 442,948 367,516 COMMITMENTS AND CONTINGENT MATTERS (Notes 3,4 S and 10) N,617,943 S4,292,736 The accompanying notes are an integral part of these balance sheets.
l l l 1 21 - - -. . . . . . -- .-. - Statements of Capitalization at December 31,1980 and 1979 Percent of Amount Total ; 1980 1979 1980 1979 (In Thousands) COMMON STOCK EQlJITY: Ccnnmon stock, par value $40 per share, authorized 6,000,000 shares, outstanding 5,608,955 shares . S 224,358 8 224,358 Other paid in capital , , 866.145 692,145 Premium on preferred stock (Note 7). 941 461 Earnings retained in the business (Notes 2 and 9). 119,973 105,569
. Total , ,
1,211,417 1,022,533 32.3'"o 31.1"; CUMULATIVE PREFERRED S'IDCK (Note 3): 81 par value, authorized 27,500,000 shares-none outstanding. - -
$100 par value, authorized 3,850,000 shares-Series 4.2076 to 4.52E 41,400 41,400 4.60*o to 4,921 29,000 29,000 5.96"; to 8.041 32,000 32,000 8.16*; to 9.44E 232,000 232,000
'Ibtal(annual dividend requirement $25,719,000L ,
334,400 334,400 8.9 10.2 Subject to mandatory redemption (Note 7): 11,00"6 (annual dividend requirement $5,225,000L - 47,500 50,000 1.3 1.5 LONG TERM DEBTiNotes 3 and 6): . First mortgage bonds-Maturity Interest Rates September 1,1981. 3%% 15,000 15,000 April 1,1982 3%% 12,000 12,000 May 1,19S3 4%1 11,939 11,939 March 1,1984 3%E 17,000 17,000 June 1,1985 3hi 15,000 15,000 1986 through 1990 3H"6 to 8%E 153,182 153,182 1991 through 1995 4%% to4%5 98,567 98,567 1996 through 2000 6%% to 9"6 162,298 162,298 2001 through 2005 7%";to 10%i 683,500 683,500 2006 through 2010 8M% to 15M1 725,000 475.000 Total first mortgage bonds . 1,893.4S6 1,643,486 Other long. term debt t Note 6). 329,066 276,487 Unnmortized debt premium idiscount), net . (15.335) (11.9%
'Ibtal long term debt i annual interest requirement $215,305,000L 2,207,217 1,907,989 1,ess amount due within one year 47,424 24.305 Long tenu debt, excluding amount due within one yea- ') 159,793 1,883,684 57.5 57.2
'Ibtal capitalization S3,753,110 S3,290,617 100.0"6 100.0*5 The accompanyQg notes are an integral part of these statements.
22 Statements of Income for the Years Ended December 31,1980,1979 and 197S 1980 1979 1978 (In Thousands) OPERATING REVENUES, ELECTRIC (Note 2). $1,421,997 $1,163,623 $1,014,443 OPERATING EXPENSES, ELECTRIC: Operation-Fuel, , 439,488 ' 365,628 295,186 Purchased and interchanged power, net . 124,163 124,929 161,602 Other. 153,552 129,430 122.511 Alaintenance . . 99,040 80,660 76,085 Depreciation and amortization. 127,840 123,075 109.315 Taxes other than income taxes 74,488 74,592 63,737 Federal and state income taxes (Note 5) . 114.427 58,759 25,080 Total operating expenses. 1,132,998 957,073 853,516 OPERATING INCONIE, ELECTRIC. 288,999 206,550 160,927 OTFIER INCOME: Allowance for equity funds used during construction (Note 1) . 32,189 28,554 38,927 Income from subsidiary (Note 8) . . 2,466 2,425 2,511 Other, net. 8,060 9,796 3.454 Income before interest charges. 331,714 247,323 205.819 INTEREST CHARGES: Interest on long-term debt. - 184,557 163,343 155.353 Amortization of debt discount, premium and expense, net . 593 610 . 841 Other interest charges. 65,686 51,909 13.451 Allowance for debt funds used during constmction i Note 1) . (79,839) (57,196) (37,948) Net interest charges. 170,997 158,666 131.697 NET INCO,\IE. 160,717 88,659 74,122 DIVIDENDS ON PREFERRED STOCK. 31,013 31,219 31,219 NET INCOME AFTER DIVIDENDS ON PREFERRED
- STOCK (Note 2) . , S 129,704 S 57.440 $ 42,903 Statements of Earnings Retained in the Business for the Years Ended December 31,1930,1979 and 197S 1980 1979 1978 iIn Thousands)
Balance, beginning of petiod . S 105,569 S 102,129 S 163,307 Add (deduct): Net income after dividends on preferred stock INote 2) 129,704 57,440 42,903 Cash dividends paid on common stock - f 115,300) t 54,000) (108,800) Preferred stock issuance expense - - 1281i Balance, end of pethd i Notes 2 and 9) S 119,973 S 105.569 S 102,129 Statements of Other Paid-In Capital for the Years Ended December 31,1980,1979 and 1978 1978 3930 1979 (In Thousands) - Balance, beginning of period. S 692,145 3 625.700 3 575.500 Cach contribution to capital by parent company . 174,000 66.445 47,200 Balance, end of period . S 866.145_ S 692.145 3 625,700 The accompanyirg notes are an integral part of these statements.
23 .----.- -_ . -- .. .. . .. Statements of Sources of Funds for Gross Property Additions for the Years Ended December 31,19S0,1979 and 1978 19S0 1979 1978 l (In Thousands) l Net income (Note 2). $160,717 S 88.659 $ 74.122 ; Add (deduct) principal noncash items - 160,669 137,275 140,087 1)epreciation and amortization. Deferred income taxes, net. 105.299 61.970 25,151 Defened investment tax credits. 10,700 - - Allowance for equity funds used during constnaction . (32.189) (28.554) (38.927) 405.196 259.350 200,433 Less-115,300 54.000' 108,S00 Dividends on common stock. . Dividends on preferred stock. 31.013 31.219 31.219 258.883 174.131 60.414_ Decrease (increase) in net current assets, excluding long-term debt due within one year and notes payable to banks-Cash and temporary cash investments. (13,398) 8.742 (9,556) 13.944) (14.915) (9,805) Receivables . Refundable federalincome taxes. (16.846) (3,?.54 ) 25.985 (37,841) 3.932 (37,846) Fossil fuel stock . . Materials and supplies. . . t821) (498) (2.038) Accounts payable. (11,662) 48,910 26.082 11,978 i2.547) (12,855) Revenues to be refunded. Interest accrued . 4,968 4.734 9.688 Taxes accrued. 19,646 (442) 6.208 Other, net . , (14.010) 2.069 (6.798) 161.930 > 46.831 (10.935) f 3.242) 25.811 5,722 Other net, including a!!owance for equity funds used during construction 193.711 246.773 55.201 Totalinternal sources. External Sources-250.000 - 200,000 First mortgage bonds.
- (18,433 (10.3451 Bonds retired.
Prefenui stock reacquired (Note 7). (2,5001 - - 174,000 66.445 47,200 Capital contribution by parent company . Ebtlutionc;ntrol obligations, net 8,803 8.688 26.565 Obligations under capitalized leases . 43.776 22.835 t754) Increase t decrease) in notes payable to banks . i255.977) 133.225 _165.563 218.102 212.760 428.229 lbtal external sources . Gross Property Additions (includes net AFUDCin the amount of
$74.110,000 in 1980. S58,586,000 ir.1979 and 358.134,000 S411.813 S459.533 S483.430 in 1978).
1 The accompanying notes are an integral part of these 3tatements. i f
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24
' Notes to Financial Statements
- 1. SU3 DIARY OF SIGNIFICANT ACCOUNTING for the income tax effect of capitalized debt cost as a charge to POLICIES: income tax expense associated with operations with a General- corresponding credit to allowance for debt funds used during The company is a wholly owned subsidiary of The Southern construction.
Company (SOUTHERN) which is the parent company of four Depreciation and Amortization- , operating companies and a system service company. The Depreciation of the original cost of depreciable utility plant ' operating companies are engaged in the business of providing in service is provided using composite straight 4ine rates which electric utility service in four southeastern states. Operating approximated 3.43% in 1980,3.46% in 1979 and 3.37"L in contracts among the cor.ipanies, covering interconnection 1978, and includes a factor to provide for the expected cost of arrangements, interchange of electric power and joint owner, decommissioning nuclear facilities. The cost of decommission-ship of generating facilitics, are subject to regulation by the ing, based on decornmissioning promptly after the unit is taken Federal Energy Regulatory Commission (FERC) and the out of ser ice. is estimated at approximately $30,000,000 per Securities and Exchange Commission (SECL The system unit at Plant Farley This estimate will be adjusted periodically service company provides, at cost, technical and other considering changing price levels and technology, When specialized services to the parent company and to each of the property subject to depreciation is retired or othenvise disposed operating companies, of in the normal course of business, its cost, together with its The parent company is registered as a holding company cost of removal, less salvage,is charged to the accumulated under the Public Utility Holding Company Act of 1935 ( Holding provision for depreciation. Company Act), and it and its subsidiaries are subject to the The construction of Plant Barton was cancelled in 1977. regulatory pmvisions of the Act. The company is also subject Obligations related to equipment design and engineering and to regulation by the FERC and the Alabama Public Service termination of contracts applicable to this plant amounted to Commission i APSC) and follows generally accepted accounting approximately $34,000,000. The company has received principles and the accounting policies and practices prescribed regulatory approval to amortize and recoser these costs as an by the respective commissions. operating expense, ratably over a five. year period. Such Revenues- amortization is included in " Depreciation and amortization"and Revenues, including those subject to refund, are included in amounted to 87,071,000 in 1980, S7,145,000 in 1979 and income as billed monthly to customers on a cycle billing basis. 67,116,000 in 1978. Fuel Costs- .
~
Maintenance-Fuel costs are expensed as the fuel is consumed. The The cost of maintenance, repairs and replacements of minor ; company's rates include fuel and net purchased energy items of property is charged to maintenance expense accounts. adjustment clauses under which fuel and net purchased energy The cost of replacements of property (exclusive of minoritems costs above or below certain base levels are biiled, or credited, to of property)is charged to the utility plant accounts. L customers on a current basis. The cost of nuclear fuel, including Pension Costs-the estimated cost of anticipated permanent storage of spent The company has a trusteed and non contributory pension .
- fuel, is amortized to fuel expense based on the quantity of heat plan which covers substantially all regular employees. The produced for generation of electric energy. Such amortization policy of the company is to fund each year's accrued pension was $27,505.000 in 1980, $8.500,000 in 1979 and cost for the plan, which amounted to $14,849,000 in 1980, S24,945,000 in 1973.
S13.111,000 in 1979 and $11,993.000 in 1978. Of these Final disposition of spent fuel may require adjustments to amounts, 59,466.000 in 1980, S8,712,000 in 1979 and fuel expense. Ibnding ultimate disposition, the company has $7,258,000 in 1978 were charged to operating expensee, and sufficient storage capacity at Plant Farley for storage of the the balance was charged to construction and other accounts. spent fuel into 1991 and 1994 for Plant Farley Unit Nos.1 The actuarial present value of accumulated plan benefits at i and 2 respectively. January 1,1980, totaled S130,322,000 for vested benefits and Utility Plant- S6,946,000 for nonvested benefits. These amounts were Utility plant is stated at original cost. Such cost includes determined on the basis of accrued benefits as of January 1, applicable administrative and general costs; payroll related - 1980, whereas the plan is funded based on the premise that , costs such as pensions, taxes and other fringe benefits; and the plan will continue in existence, which requires that future allowance for funds used during construction, events be considered. The net assets available for benefits at Allowance for Funds Used During Constniction- January 1,1980 amounted to $154,373,000. The weighted The allowance for funds used during construction represents average rate of return assumed in determining the actuarial the estimated debt and equity costs of capital funds which are present value of accumulated plan benefits was 5%. The applicable to utility plant while under construction. The unfunded prior senice cost under the plan and supplemental composite rate used to detennine the amount of the aHowance, contracts amounted to approximately S16.290,000 and net of the income tax effect of capitalized debt cost. was S.3% S 17,476,000 at December 31,1980 and 1979, respectively, and in 1980, 8.1% in 1979 and 82's in 1973. The company accounts is being amortized over a period of approximately 15 years.
25 Income Taxes- 3. CONSTRUCTIONPLAN, FINANCING AND The company provides deferred income taxes for substan. FUEL CO31311T3fENTS: tially allincome tax tinsng differences as permitted by the Construction Plan-appropriate regulatory agencies. The company is included in The company's estimated constmction additions, as the consolidated federal incorne tax return of SOUTHERN of October 17,1980, amount to $4S7,318.000 in 1981, isee Note 5). S513.385,000 in 1982 and $525.758,000 in 1983. The construction program is subject to periodic review and revision, and actual construction costs incurred and commercial
- 2. RATEMATTERS: per tion dates may vaty fmm estimates because of factors On December 20,1978, the company filed with the APSC a such as granting of timely and adequate rate increases, new rate increase request estimated to increase retail revenues by estimates of mcreased costs, revised load estimates and the approximately $288.8 mi!! ion annually. On Julv 19,1979, the vailabih.ty and cost of capital. Because of these factors, the APSC issued an order making pennanent a 9-1/2"5 emergency mmpany s mnstruction program has been reduced in recent increase granted in March and granted an additional 5?o ,
years, pnmanly through postponements of planned generating increase effective July _19,1979 and an 8% increase effective units and other facihues. January 1,1980;These increases in retail revenues aggregate , As a result of madequate earnings and , insufficient cash, the approximate!y $208.3 million annually. On appeal, the c mpany began implementing delays in construciton of its Supreme Court of Alabama, on October 19,1979, permitted major generatmg plants and other constructio,n projects in the company to bill, subject to refund. the Sfo increase which December 1978. Although constructwn acavities were ; was otherwise not effective until January 1,1980. The Court -
.resun ad at Unit No. 2 of Plant Farley and Walter Bouldin Dam subsequently remanded the pmceeding to the APSC with the in August 1979 and at Harns Dam m August 19S0, construction admonition to " enter an order based on the evidenc,e and delays continue at the other major projects. Unless adequate thereby meet its statutory obligation to the public/ rate increases are granted from time to time, additional con-On December 28,1979, the company filed with the APSC a struction cutbacks will have to be made resultmg m substantial rate increase request estimated to increase retail revenues by increases in ultimate construction costs. These cutbacks may approximately $122.3 million annually based on a test year adversely affect future reliabihty of e!ectric service and could ended November 30,1979. On July 28,1980, the APSC issued result m increased amounts of purchased power.
an order granting an increase in retail revenues of $30.6 million On October 23,1980, the Nuclear Regulatory Commission annually effective August 1,1980. In connection withits appeal (NRChssued an operatinglicense for Unit No. 20f Plant of such APSC order to the Supreme Court of Alabama. the Farley. and it is expected that it will be placed in commerciai company received, on August 13,19S0, an order of the Court peration in mid 1981 authorizing the company to bill, subject to refund pending final On February 10,19, a, a break occurred at the company,s determination of the appeal, the balance of the requested B uldin Dam caus ing extensive damage and resultingin the
$122.3 million increase effective July 30,19S0. remov i from semce of the hydroelectdc generating facilm,es On March 12,1981, under remand orders by the Supreme 4225.000 kilowatts) at the dam. The costs of reconstruction Court, the APSC entered a final order in both proceedings and repair are estimated to be approximately $42,500,000 and implementing a settlement agreement among the APSC. the $22.180.000, respectively. In the ensumg prosecution of company and certain other parties. As a result, $19.7 million of claims and litigation, the company settled with machmery revenues from the S208.3 million increase granted in July 1979 are no longer subject to refund. Additionaily, an increase of greakdown insurance carners and all.dsk insurers for a total of approximately S92.5 million annually was inade effective from D.33.850,000 and its litigation against the contractors respon.
sible for construction of the dam is still pendmg. The facthn,es July 30.1980 through February 2S,1981. Refunds of approxi. at the dam were returned to semce m late 1980. ; mately $17 million will be made from revenues billed during such period under the August 1980 order of the Supreme Court Fmancmg-The ability of the company to carry out its construction plan i of Alabama. The S92.5 million increase is lowered to SSO million annually effective March 1,1981. depends on the amount of funds generated intemally and the { The settlement resulted in a decrease in the company's funds it can raise by external financing. The company's primary l sources of external finaneir.g are sales of long tenn debt and earnings from those previously released for the year ended Decetriber 31,1980, to reflect a refund of $11.978,000 of preferred stock to the public receipt of additional paid-in capital revenues billed during the year, which. after giving effect to from SOUTHERN, sa!e ofpa!!ution-control revenue bonds by pubhc authonnes and leasmg of nuciear material. applicable taxes, reduced net income by SG,018,000. On November 5,1980, the company filed a wholesale rate Paid in capital is planned to be provided, to the extent increase application with the FERC estimated to increase possible, by SOUTHERN from the sale of additional common stock in amounts and at times not yet determined: however. wholesale revenues by S23.4 million annually based on the test year 198L On January 2,1981, the FERC suspended the there is no assurance that 50t'THERN can continue to sell additional shares of its comann stuck in the amounts and with ; company's filed rates until June 5,1981. The outcome of this the frequency that would be required to provide funds for the ( pending rate pmceeding cannot now be determined. company s construction program. l
- . . _ ~ , _ _ . _ _ , - . _ _ _ . _ . _
26 In orcer to issue additional first mortgage bonds and pre- group of ten banks outside its service area, terminating ferred ;,tock, the company must comply with certain earnings September 30,1981. In January 1981, the company exercised coverage requirements contained in its mortgage indenture its option under the Revolving Credit Agreement to reduce the maximum commitment to $200,000,000. The agreement and corporate charter. The most restrictive of these provisions containsu l) restrictions which among other things, t a) limit require for the issuance of additional first mortgage bonds that before income tax eamings, as defined, cover pro forma the amount of certain types of additionalindebtedness which annual interest charges on outstanding first mortgage bonds the company may incur, and (b) require that a substantial at least twice; and for issuance of additional prefened stock, portion of the proceeds from sales of propenies or securities, with certain exceptions, be applied to repayment of the notes, that gmss income available for interest cover pro forma annual interest charges and preferred stock dividends at least one and and (2) requirements for the payment of fees. These fees amounted to $6.356,000 in 1980, S6,693.000 in 1979 and one half times. These coverages, for first mortgage bonds and
$4,832,000 in 1978.
for prefen ed stwk for the year ended December 31,1980, were 2.59 and 1.51, respectively. Arrangements with respect to the $78,000,000 remaining Because the company has been unable to fund fully its lines of credit expire at various times during 1981 and provide for average annual compensating balances primarily equal to construction program with sufficient amounts oflong-term either 15*6of the line, whether used or not, or 10To of each line securities, its short term unsecured borrowings have been outstanding for longer periods of time and in larger amounts plus 1075 of amounts borrowed. Because the arrangements are based on an average balance, the company does not consider than would otherwise be the case f see Note 4L The company's ability to obtain funds from extemal sources any ofits cash balances to be restricted as of any specific date. Including compensating balances, the company has maintained and generate adequate amounts of internal funds which will enable it to finance its construction program is dependent on ope rating account balances in these banks averaging approxi. receiving adequate and timely rate relief f see Note 21. Should mately S9,858,000 in 1980 and $9.091,000 in 1979. the company be unable to obtain funds from extemal sources in amounts which, tugether with internally generated funds, 5, INCO31ETAXES: would be adequate to carry out the present construction A detail of the total federal and state income tax provisions program, funher delays and possible cancellations u ould is set forth below: be necessary. 1980 1979 1978 , Fuel Commitments-To supply a portion of the fuel requirements of its generating lin ThousandM plants. the company has entered mto vanous long-temi commitments for the procurement of fossil and nuclear fuels. Federal-In some cases, such contracts contain provisions for price Currently (refundable) $ t4.6783 - S (3.154) $ - Deferred 110.871 68.540 33.918 escalations and minimum pmduction levels. In addition, contracts with certain coal contractors require reimbursement Defenedin ptior years i10.091) (10.178) (10,483) or purchase, at net book value, of their investments in mines or (credit) equipment upon termination of the contrac Additional . Deferredinvestment tax credits . 10.700 - - commitments for coal and for nuclear fuel will be required in the future to supply the company's fuel needs. 106.802 55.203 23.435 State-
- 4. NOTES PAYABLE'IT) BANKS: Cunently payable. 3,151 - -
The size of the company's construction program necessitates Deferred ' 5.205 4.259 2.388 substantial amounts of short term unsecured borrowings. Deferredin prior years (731) C08) 743) Under the provisions ofits charter, the company's preferred (credit) stockholders have approved an increase in the amount of 7.625 3.551_ l.645 secunties representing short-terrn unsecured indebtedness, Total applicable to electric which it may have outstanding until January 1,1982, from 10?; 114.427 5&759 25.030 operations . of secured indebtedness and other capital to 20"o thereof. At Income taxes applicable to December 31,1980, such 20To limitation amounted to approxi. (1.273) t1.s64) 2.389 other mcome mately S769,480.000. The company has been authorized by the SEC under the Holding Company Act to have outstanding Totalincome taxes 5113.154 i 56.895 5 27.469 through September0,1981 up to $575.000.000of short term unsecured indebtedness. At December 31.1980, the company had lines of credit with banks totaling approximately S428.000,000 of which $350.000,000 tepresents cornmit. ments obtained under a revolving credit agreement with a
27 _ The company received a federal income tax refund of 6. OTIIER LONG-TEIO! DEBT: 83,256,000 for the year ended December 31,1979, and has The annual first mortgage bond sinkm.gfurd requirement accrued a refund of federal income taxes of $20,000,000 at due on June 1,1981 (1% of the aggregate amount of bonds, December 31,1980, attributable to the company's utilization other than refunding bonds, authenticated pnor to January 1) of net operating loss carry-forwards from 1978 and 1979, mounts to S21.014,000. This requirement may be satisfied ahich were recorded as a reduction in the provision for deferred by the deposit of cash or reacquired bonds or by the dehvery taxes in those years, and from the estimated use of investment f bonds specifically authenticated for such purpose agamst tax credits in SOUTHERN's consolidated income tax return unfunded property additions. Satisfactmn of the sinkmg fund for 1980 requirement by delivery of bonds against unfunded property The provision for deferred income taxes results from the addiuons is dependent upon comphance with certain eamings company's tax deduction of accelerated depreciation and other c verage requirements discussed in Note 3. write-offs of property costs, as provided for by the income tax Details of other long-term debt are as follows: laws, being significantly greater than the straight-line depre. ciation of such costs. Income taxes deferred in prior years are December 31, credited toincome when straight line depreciation of those 1980 1979 property costs exceeds the related tax deductions. The total provision for federal income tax as a percent of (In Thousands) income before income tax was less than the statutory federal Obligationsincurred in connection income tax rate for the following reasons: with the sale of tax exempt 1980 1979 197S ?" by pubhc authonties-7"# Effective federalincome tax December 1,1980,7.401 $ - $ 1,000 rate as reported 39.6% 37.7 % 25.8 % December 1,1981,7.55% 500 500 Reductions in tax expense December 1,1982,7.70% 500 500 resulting from statutory December 1,1983. 7.855 500 500 exclusions from taxable December 1,1984,81 3,500 3,500 income- December 1,1995 to 2004 Equity component of the Idue serially),9% to 9hi 18,700 18,700 allowance for funds used 2003-2010,6% to 9HS 175,950 171,700, during construction . 5.6 9.2 18.7 Less funds e,n deposit with Wrcentage depletion on trustee. < 25,514) (31,067) coal reserves mined . .7 .1 3.1 174,136 165.333 Other. 1.6 1.8 3.0 Capitalized lease obligations-Effective federalincome tax Nuclear fuel . 130.340 84,656 rate before effect of timmg . Vehicles. 12,913 14.558 differences. 4.,, -.o 48.8 00.6 Office buildings 10,556 10,661 Timing differences " flowed Other. 1.121 1,279 thmugh' for accounting and 154,930 111,154 rate-making purposes-Using different depre- $329.066 $276,487 ciation bases and rates than are used for book (3,0) (2.5) Rllution control obligations representinstallment purchases purposes net. (1.8)
.3 .2 ( .1 ) of pollution-control facilities financed by funds de:ived from Other.
sales by public authorities of revenue bonds. The company is Federalincome tax statutory regmred to make annual payments suificient foi the authorities rate. 46.0% 46.0% 48.0 % to meet principal and interest requirements of such bonds. With mspecuo S32E,000 of such pollution-contml obligations, Investment tax et edits utilized in the consolidated tax retum the company has authenticated and dehvered to the trustees a are alketed to the members of the SOUTHERN system gen- like pnncipal amount of first mongage bonds as security for, erating such credits. Deferred investment tax credits are amor. -i s,o@adon under the installment purchase agreements. So tized over the life of the propedy which gave rise to the credits. pnn p 1 or interest on these first mortgage bonds is payable Such amortization is applied as a credit to reduce depreciation unless and until a default occurs on the mstallment purchase in the Statements of Income and amounted to S1.687,000 in 1980,51,713#)0 in 1979 and S1.666,000in 1978. At Decem- #ihe co pany has capitalized leased nuclear matetial and ber 31,1980, investment tax credits tctahng approxinzely recorded the related lease cbligations. One arrangement e232,000.000 expiring at various times from 1985 to 195 provides for the payment of interest monthly,in advance, based have not 1seen utilized and are available to reduce federal on the prime interest rate, as defined. plus 1% 18.125% at mcome taxes payable m future years. December 31,1960 ar.d 17.375% at December 31,1979L The 1 I _ . , , ~ , _ _ _. . . _ , _ __ _ _ _ . _._._ __ _ . _
28 other arrangement provides for the payment of interest at the the purchase of certain pollution control facilities at SEGCO's time of each extension of credit at an interest rate based on the generating units, pursuant to which $17,400,000 principal secondary market bid discount rate for time certificates of . amount of pollution control revenue bonds have laeen issued. deposit, plus certain additional charges (approximately GEORGIA has agreed to reimburse the company for the pro-23.31% at December 31,1980 and 16.65% at December 31, rata portion of such obligation corresponding to its then 1979t Principal payments are required under both arrange- proportionateownershipof stockof SEGC0if thecompanyis ments based on the cost of fuel burned. called upon to make such payment under its guaranty. The company has also capitalized certain vehicle, office At December 31,1980. the capitalization of SECCO building, equipment and other leases. Monthly principal consisted of $32,800.000 of equity and $47,215.000 of long-payments plus interest are required, and at December 31,1980, term debt on w hich the annual interest requirement is the interest rate was 18.0% for vehicles,9.5"L for office $3.037,000. Through December 31,1980 SEGCO has paid buildings and the composite interest rate for other leases was dividends equal to its net income. 17.51%. Corresponding interest rates for 1979 were 17.25% for The company and one of its affiliates. Mississippi Rwer vehides,9.5% for office buildings and the composite interest Company, own as tenants in common in the proportions of 60% rate for other leases was 13.24%. and 40%, respectively, a 500,000 kilowatt steam electric The estimated aggregate annual maturity of the company s generating plant in Greene County, Alabama. The plant was capitalized lease obligations through 1985 is as follows: placed in service in 1965 and the company's investment at S31,924.000 in 1981, $52.503.000 in 19S2, $34.973.000 in December 31, :1980 amounted to S53,606.000. The company's 1983. $19.51L000 in 1984 and S4,737,000 in 19S5. share of expenses is included in the corresponding operating Long-term debt due within one year at December 31,1980, expense accounts in the Statements of Income. consists of $15,000.000 of first mortgage bonds, S500.000 of pollution-control obligations and S31.924,000 of capitalized 9. DIVIDENDRESTRICTIONS: lease obligations. The company's charter contains provisions which pmhibit
- 7. PREFERREDSTOCK11H6 TTO the payment of cash common dividends (except those paid MANDATORY REDISTU concurrently with the receipt of a cash capital contribution in like amount)in cases where retained earnings are not at least The 11% preferred stock is subjei a cumulative sinkins equal to two times annual dividends on the outstanding fund requiring the company to annuu.y redeem or purchase Preferred Stock and Class A Prefened Stock. At December .
25.000 shares iS2.500.000) of the stock commencing JanuaD' 31.1980. this restriction amounted to S61,888.000. In addition. 1,1981. The company has the option to double the number of various series of the company's outstanding first mortgage shares redeemed in any one year beginning January 1,1986. bonds are entitled to the benefits of covenants restricting the The stock is redeemable for smking fund purposes at $100 per payment of cash dividends or mnunon stock. However, under share, plus accrued dividends to the date of redemption. Dunng the terms of such covenants. Ihe entire amount of earnings 1980. the company reacqu: red 25,000 shares to be used t retained in the business at December 31,1980 is available for satisfy theJanuary 1,1981 s,mkmg fund requirement. The the payment of cash conunon dividends. gain on reacquisition of S480,000 for 19S0 is included with premium on preferred stock as shown in the Statements of 10. .WCLEARINSURANCE: Capitalization. Under the Price Anderson Act, the company maintains
- 8. INVESTMENTIN JOINTLY OWNED agreements of indemnity with the NRC which. together with FACILITIES: private insurance cover third-party liability arising from any nuclear incident occming at its nuclear power plant. The Act The company and one of its affiliates, Georgia Rwer limits publicliability : aims that could arise from a single Company (GEORGIAL own equally all of the outstanding nuclear incident to Sa60.000.000. Each ieactor at the gpital stock of Southem Electric Generatmg Company companv's nuclear plant is insured against this liability to a i dEGCo r, which owns electnc generating units with a total maximu'm of $160.000,000 by ptivate insura;1ce ( the maximum rated capacity of 1.019.630 kilowatts, together with assuciated amount presently available) and the remainder is provided by transmission facihties. The capacity of these units is sold ndemnity agreements with the NRC. In the es ent of a nudear equally to the company and GEORGI A under a contract incident, the company and each other licensee of a nuclear expiiing in 1994 which, m substance, requires payments power plant could be assessed up to $5,000.000 per incident sutticient to provide for the operating expenses, taxes and debt for each licensed reactor operated by it, but not more than service. including a return on investment, whether or not S10.000 000 to be paid in a calendir year. On the basis of its dEGC0 has any capacity and energy available. The company.s ownership of one reactor in service and one reactor licensed for share or such amounts totaled $68.882 000 in 1980- service, the company could be assessed a maximum of e64.549.000 in 1979 and $50.171.000 in 1973. and is included S10.000.000 for any such incident. but not more than in " Purchased and interchanged power. net"in the Statements S20 000.000 to be paid in any one year.
of Income. The company is a member of Nuclear Mutual Limited, a in addition. the company has guaranteed unconditionally the mutual insurer established to provide property damage obligation af SEGC0 under an installment sale agreement for insurance for members' nuclear generating plant s. In the event of catastrophic loss payments by the insurer, the members are I
, _ _- _. , _ , _ . _ __ _ __ _ . _ . . ~ _ _
29 subject to assessments in proportion to their participation in 13. SUP%E31ENTARYINFOIDIATION the mutual insurer, The prevent maximum assessment for the CONCERNING THE EFFECTS OF company would be approximately S33,000,000. CI1ANGING PRICES (UNAUDITED): Also, the company is a member of Nuclear Electric Insurance The following supplementary information concerning the L,mited, i a mutual msurer which provides insurance to cover effects of changing prices is presented in accordance with the members extra cost of replacement power resulting from a . general concepts set forth in Financial Accounting Standards prolonged accidental outage of nuclear units. The company is p,oard Statement No. 33, as modified to reflect the economic insured against such mereased costs in the amount of up to effects imposed on the company by regulatory authorities. It e2,000,000 per week (starting 26 weeks after the outage) for should be siewed as an estimate of the approximate effects of one year and $1,000,000 per week for the second year. inflation, rather than a precise measure. Slembers are subj,ect to, assessments of up to five times the.ir Constant dollar amounts represent historical cost stated in respective annual premiums if losses exceed the accumulated terms of dollars of equal purchasing power, as measured by the funds available to the msurer. The present maximum assess. Consumer Price Index for all Urban Consumers. Current cost ment for the company would be approximately SS,000.000- amounts reflect changes in specific pnces of plant from the date the plant was acquired to the present. They differ frony constant
- 11. ASSETS SUl3JECTTO LIEN: dollar amounts to the extent that specific prices have mereased The company's mortgage, as amended and supplemented, more or less rapidly than the general rate of inflation. The securing the first mortgage bonds issued by the company, current cost of plant was determined by indexing each major constitutes a direct first lien on substantially all of the class of plant using the HandyMhitman Index of Public Utility Construction Costs. Current cost does not necessarily represent company's fixed property and franchises.
the replacement cost of existing pnxluctive capacity because
- 12. QUARTERLY FINANCIAL, DATA the utility plant is not expected to be replaced precisely in kind, The accumulated provision for depreciation for current cost (UNAUDITED):
was developed by applying, for each major class of plant, the b.ummarized quarterly financial data tor 1980 and 1979 are same percentage relationship that existed between gross plant as follows; and accumulated provision for depreciation on a historical Net income basis to the adjusted plant data. Depreciation expense for both Operating Operating After Dividends methods was determined by applying the current depreciation Revenues, incom , on Preferred rates to the respective indexed plant amounts reduced by the Elecuic Electric Stock amortization of inves tment tax credits which were first adjusted (In Thousands) to average 1980 constant dollar ainounts by year of addition. Increases in the coat of electric generating fuel are recov. 19S0Ia) erable in revenues through operation of fuel cost recovery First $297,639 $62,129 $22,043 mechanisms. such mereases effecuvely are receivables from Second 302,226 56,391 12,982 94,374 customers. Therefore. such mereases are not mcluded m Third 457,313 57.526 inc me but instead are treated as monetary assets. Income tax Fourth 364,819 _ 76.105 37,153 expense was not adjusted because only historical costs are deductible for income tax purposes. 3979 Holding assets such as receivables, prepayments and inven. First S244,657 547,058 S 8.401 tory, results in a loss of purchasing power during periods of Second 271,178 42,889 3.343 inflation because the amount of cash received in the future for Third 353,489 59,950 27,012 these items will purchase less. Conversely, holding monetary Fourth 294.299 56.653 18.684 liabilities, primarily long term debt. results in a gain because the payment in the future will be made with nominal dollars ta>The amounts for the first three quarters of 1980 have been having less purchasing power. The company has a net gain due restated from those previously reported to reflect a reclassi- to the significant amounts of long-term debt outstanding. fication of bulk power sales made under long-term contracts Under the ratemaking prescribed by the regulatory , initiated in 1980 and the settlement of a retail rate matter commissions to which the company is subject, only the as explained in Note 2. The effect of the reclassification historical cost of plant is recoverable in revenues and deprecia. i' of bulk power sales was to increase operating revenues, tion. and plant in rate base is limited to original cost. Therefore. electric for the first three quarters by $3.949.000, the cost of plant stated in terms vf constant dollars or current ,
$5.929,000 and $14,422,000, respectively, with a cor- cost that varies from the historical cost of plant is not presently !
responding increase in purchased and interchanged power. recoverable in rates as depreciation. The amount of this vari- 1 The effect of the rate settlement on the third quarter was ance that accrued as a result of inflation in the current year is j to reduce operating revenues, electric by $4.453,000 and retlected as an adjustment to net recoverable cost. While the use , operating income, electric and net income after dividends of debt financing reduced the effect of this loss on the common I on prefen ed stock by S2,237,000. stockholder, earnir.gs were not adequate to offset the erosion in the purchasing power of its investment.
30-Statement of Income Adjusted for Changing Prices for the Year Ended December 31,1980 Constant Current Dollar Cost (In Thousands of Average 1980 Dollars) Income applicable to common stockholder, as reported S 129,704 5 129,704 Erosion of common stockholder's equity because of changing prices: Cost in excess of the origina! cost of productive facilities not recoverable in rates as depreciation-Reportable as an additional provision for depreciation . 106,323 133,690 Reportable as a reduction to net recoverable cost . 319,117 182,468 425,440 316,158 Excess of the generallevel of prices (S814,672)in the current year over increase in specific price changes ($725,390)* 109,282 Offsetting effect of debt financing. -(305,406) (305.406) Net erosion of common stockholder's equity , 120,034 120.034 Income floss) applicable to common stockholder, as adjusted ** (including the effect of debt financing). , S 9.670 S 9,670
*At December 31,1980, current cost of property, plant and equipment, net of accumulated depreciation, was $8.2 billion, and historical cost or net cost recoverable through depreciation was M.1 billion.
** Adjusted income (loss) applicable to the common stockholder would be $23.4 million on a constant dollar basis and ($4.0 million) on a current cost basis if only the amount reportable as an additional provision for depreciation were deducted from the reported amount of such income.
Five-Year Comparison of Selected Supplementary Financial Data Adjusted for Effects of Changing Prices 19SO 1979 1978 1977 1976 Operating Revenues, Electric: (In Thousands)
- Historical cost. ,
$1,421,997 S1,163,623 $1.014,443 S 968,693 S 699.667 As adjusted * .
1,421,997 1,326,530 1,278,198 1,317,422 1,014.517 income (loss) applicable to common stockholder: Historical cost. $ 129.704 S 57,440 As adjusted for the net erosion of common stockholder's equity
- 9,670 (68,824)
Common stockholder's investment (net assets), at year end: Historical cost . S1.211.417 51,022,533 5 952,648 S 971,626 S S58.300 As adjusted * , 1,162,960 1,094,110 1,162,231 1,292,263 1.218,786 Excessof thegenerallevelof prices over increase in specific price changes
- S 109.282 $ 295,136 Effect of debt financing
- S 305,406 S 363.154 Return on average common equity:
Historical 11.61% 5.S2% As adjusted for the net erosion of common stockholder's equity
- 0.86 % (6.97)% ;
Cash dividends declared: Historical cost . S 115.300 3 54,000 S 108,800 3 94,900 S 60.000 As adjusted
- 115,300 61,560 137,088 129,064 87,000 Average consumer price index 246.8 217.4 195.4 181.5 170.5
- Adjusted amounts represent average 1980 dollars.
l - , . . _ . _ _ . . . . . . - _ . - . . _ . . , . _ . , - . _ . . ~ . _ _ . . _ , , . . . _ _ _ _ _ - . . _ . ,- . _ . . . , - . _ - . - -
31 _ _ _ _ _ _ _ General Officers ' Division Officers ' Joseph M. Farley, President W,D. Bolton, Vice President, Anniston Alan R. Barton, Executive Vice President (1) John B. Byars, Jr., Vice President, Eufaula Elmer B. Harris, Executive Vice President .Hugh P. Foreman, Vice President, Montgomery Jesse S. Vogtle, Executive Vice President William L. McDonough, Vice President, Mobile - William O. Whitt, Executive Vice President A. C. Rogers. Jr., Vice President, Tuscaloosa Fred L. Clayton,Jr., Senior Vice President ' H. H. Turner, Jr., Vice President, Birmingham John D. Jones, Senior Vice President Kenneth L. Allums, Group Vice President Bob Andrews, Vice President, Human Resources ansfer Agents S.H. Booker, Vice President Energy Services Alabama Ebwer Company To S J, Bowden. Vice President and Treasurer ng 1.Ala n a 35291 W:qi ab :licInformationE. Bradley, Vice President, Chemical Bank 55 Water Street Rayford E Davis Vice President Ebwer Delivery New York, New York 10041 R. E. Huffman, Vice President Operations Services (For the 8.72% Preferred Stock and the 15.68% Class A Preferred Stock) R. P. Mcdonald, Vice President, Nuclear Continental Stock 'I,ransfer & Trust Company Generation 19 Rector dtreet Jackson W. Minor, Vice President and Comptroller New York, New York 10006 G. Thornton Nelson, Vice President. Industrial ( All series except 8.72% Preferred Stock and the 15A8% Development Class A Preferred Stock) Ollie D. Smith, Vice President, Corporate Real Estate Alvin W. Vogtle,Jr., Vice President Registrars J.T. Young, Vice President, Fossil / Hydro Generation The First National Bank of Birmingham Birmingham, Alabama 35288 Richard A. Bowron, Secretary Citibank, N.A. Charles M. Deason, Assistant Comptroller New York, New York 10015 Emest E. Glass.Jr., Assistant Comptroller Chemical Bank Dale W. Ohver, Assistant Comptroller New York, New York 10041 Robert C. Ford, Assistant Secretary and (Only for the 15.68% Class A Preferred Stock) Assistant Treasurer E. Ray Fbrry, A:sistant Secretary and Assistant Treasurer (1) Resigned June 1,1980 to become president of MississippiIbwer Company Dorothy L. Essig, Assistant Secretary John H. Snyder, Assistant Secretary W. L. Sanders,Jr., Assistant Treasurer William L. Smith, Assistant Treasurer All executive officers are full time employees of the company with the exception of Mr. Alvin W. %gtle.Jr., The Southern Company; and Mr. Robert C. Ford and Mr. E. Ray Ebrry, Southern Company Services. Inc.
32 William J. Rushton. III, Birmingham (1970it Directors President Joseph M. Farley, Bimaingham (1965)t Protective Life Insurance Company President ~ Sales and Service of Life and Health Insurance Frank M. Moody,Tuscaloosa(1956)** John W. Woods, Birmingham (1973)t Chairman of the Board Chairmanof the Board The First National Bank of Tuskakosa Alabama Bancorporation Commercial Banking Multibank Holding Company D.H. Morris,III, Enterprise t1956) Ernest E Ladd,Jr., Mobile (1974) President Chairman Emeritus FabricsAmerica Division Southland Bancorporation , Bama Mill Multibank Holding Company Allied Products Corporation ' Manufacturer and Finisher of Textile Products Emil Hess, Birmingham (1975)t Chaimaan of the Board T. Massey Bedsole, Mobile (1963)* Parisian,Inc. ! Rutner Apparel Hand, Arendall, Bedsole, Greaves & Johnston Attorneys Fred Morgan Clark, Eufaula (1977)* Senior Vice President and Director Howard Murfee, Prattville (1963) United Federal Savings and Loan Association Chairman of the Board Financial Service of Savings and Loan Association McQueen Smith Farms,Inc. Diversified Far ners and Ginners John C. Webb. IV, Demopolis (1977) President
- James C. Inzer, Jr., Gadsden (1965)* Webb Lumber Company,Inc.
Ihrtner Wholesale Lumber Inzer, Suttle, Swann & Stivender, P.A. Attorneys Jesse 3. Tbgtle, Birmingham (1979) Executive Vice President Alan R. Barton, Birmingham (1968)tt1) Executive Vice President Willian O. Whitt. Birmingham (1979)t Executive Vice President " Alvin W. \bgtle,Jr., Atlanta (1968) President Elmer 3. Harris, Birmingham (1980) The Southern Company Executive Vice President Electric Utility Holding Company Crawford T. Johnson, III, Binningham i1969)t , President Coca-Cola Bottling Company United. Inc. Bottlers of Soft Drinks G. Thornton Nelson, Binningham (1969)t Vice President Frank A. Plummer. Montgomery (1969) Chainnan of the Board
- First Alabama Baneshares,Inc. Audit Committee member Multibank Holding Company ** Audit Committee alternate member t Executive Committee member S. Eason Balch, Birmingham (1970) (1) Resigned June 1,1980 to become president of Partner .
Mississippi Pt;wer Company Balch, Bingham, Baker, Hawthorne, Williams & Ward Attorneys Years in parentheses indicate date of election.
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March 1981 1980 Assets and other Debits (Thousands of dollars) Utility plant $5,089,730 $4,734,920 Accumulated provision for depreciation (967,406) (850,296) Nuclear fuel 225,385 178,229 Accumulated provision for amortization (66,129) (45,761) Net utility plant 4,281,580 4,017,092 Nonatility property (net) 2,392 2,272 Investment in subsidiary companies 17,403 17,278 Other investments and special funds 12 14 Total other property and investments 19,807 19,5o4 Cash and marketable securities 20,898 13,752' Working funds and special deposits 666 464 Receivables less provision for uncollectibles 120,831 93,875 Fuel stock 167,542 149,090 Other materials and supplies 22,110 19,904 Prepayments 58,683 35,654 Total current assets 390,730 312,739 Deferred debits '81,219 60,408 Total assets and other debits $4,773,336 $4,409,803 Liabilities and Other Credits
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Common capital stock $ 224,358 $ 224,358 Preferred capital stock 421,900 381,900 Premium on preferred capital stock 461 461 Gain on cancellation of reacquired preferred capital stock 479 479 Miscellaneous paid-in capital 881,145 725,145 Earnings retained in the. business (Note) 117,098 99,613 Total proprietary capital 1,645,441 1,431,956 Long-term debt-bonds 1,993,486 1,643,486 Other long-term debt 323,176 280,533 Unamortized premium and discount (15,838) (11,856) Total capitalization 3,946,265 3,344,119 Notes payable 30,700 393,996 Accounts payable 163,796 151,007 Customer deposits 20,231 18,615 Taxes accrued 39,386 21,842 Interest accrued 57,269 55,493 Other current liabilities 22,517 25,621 666,574 Total current liabilities 333,899_ 333,236 Accumulated deferred income taxes 413,501 Accumulated deferred investment tax credits 56,236 43,592 Other deferred credits 21,642 19,892 491.379 396,720 Total deferred credits 2,390 Injuries and damages reserve 1,793 Total liabilities and other credits $4,773,336 $4e409t801 Restated to reflect refund of retail revenues. The accompanying notes are an integral part of these balance sheets,
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ALABAMA POWER COMPANY
, ,. -> . m, 4... Statements of Income
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u__ __ Twelve Months Ended March 1981 1980 (Thousands of dollars) Operating revenues - ) Sales of electricity $1,508,950 *$1,207,026 Other operating revenues 10,537 9,579 Total operating revenues 1,519,487 1,216,605 Operating expenses - Operation 792,702
- 631,602 Maintenance 105,065 87,414 Total operation and maintenance 897,767 719,016 Depreciation 'and amortization 129,074 123,832 Taxes other than income taxes 73,760 77,615 Income taxes 118,908 74.520 Total operating expenses 1,219,509 994,983 Total electric operating income 299,978 221,622 Steam heat operating income 272 482 Total operating income 300,250 222,104 Other income and deductions -
Allowance for funds used during construction-Other 38,000 25,884 Other income 8,823 10,733 Other income deductions - 607 797 Taxes (149) (2,515) Total other income and deductions 46,365 38,335' Incone before interest charges 346,615 260,439 Interest charges - Interest on long-term debt 199,419 164,760 Amortization of debt discount, expense and premium 658 518 Other interest expense 46,788 62,697 Total interest charges 246,865 227,975 Allowance for funds used during construction - Borrowed - Credit (38,410) (36,670) Income tax ef f ect - AFUDC - Borrowed - Credit (34,741) (33,168) Net interest charges 173,714 158,137 Net income 172,901 102,302 Dividends on preferred stock 31,554 31,219 Net income af ter dividends on preferred stock (Note) $ 141,347 S 71,083 o Operating revenues for 1980 were reclassified to include bulk power sales, made under long-term contracts with neighboring utilities, which were previously recorded as a credit to purchased and interchange power. Restated to reflect refund of retail revenues. The accompanying note is an integral part of these statements of income.
. . .- - . - _ - .-.~. . .- ..
AI,ABAMA POWER COMPANY
- Statements of Retained Earnings l
l Twelve Months Ended March i 1981 1980 (Thousands of Dollars) j Balance at first of period S 99,613 $110,530 i Add (deduct): Net income after dividends on preferred stock '141,347 71,083 Cash. dividends on common stock (122,000) (82,000). Preferred capital stock expense (1,862) - Balance at.end of period $117.098 $ 99,613 Restated to reflect refund of retail revenues. The accompanying note is an integral part of these statements of retained earnings.
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ALABAMA POWER COMPANY NOTES TO INCOME ACCOUNT AND BALANCE SHEET March, 1981
- 1. The financial statements include increased revenues resulting from revised rates applicable to sales for resale in effect from September 12, 1974 to October 1,1976, subj ect to refund, as shown below:
1974 Case To Date (Thousands of Dollars) Sales For Resale 1 Revenues $29,333 2 Income Taxes 14,448 3 Other Taxes 77 4 Net Income $141 808
- 2. On December 20, 1978, Alabama Power Company (COMPANY) filed with the Alabama Public Service Commission (APSC) a rate increase request estimated to increase retail revenues by approximately $288.8 million annually. On July 19, 1979, the APSC issued an order making permanent a 9-1/2% emergency increase granted in March,1979 and granted an additional 5% increase ef fective July 19, 1979, and an 8% increase effective January 1, 1980. These increases in retail revenues aggregate approximately $208.3 million annually. On appeal, the Supreme Court of Alabama, on October 19, 1979, permitted the COMPANY to bill, subject to refund, the 8% increase which was otherwise not ef f ective until January 1,1980. The Court subsequently remanded the proceeding to the APSC with the admonition to " enter an order based on the evidence and thereby meet its statutory obligation to the public."
On March 12, 1981, under remand orders by the Supreme Court, the APSC entered a final order implementing a settlement agreement among the APSC, the COMPANY and certain other parties. As a result, $19.7 million of revenues from the $208.3 million increase granted in July,1979, are no longer subject to refund.
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_ - . - - - - - . - . . - ~ ~ ALABAMA POWER COMPANY NOTES TO INCOME ACCOUNT AND BALANCE SHEET (Continued) March, 1981
- 3. On December 29, 1979, the COMPAFY filed with the APSC a rate increase request estimated to increase retail revenues by approximately $122.3 million annually based on a test year ended November 30, 1979. On July 28, 1980, the APSC issued an order granting an increase in retail revenues of $30.6 million annually effective August 1, 1980. In connection with its appeal of such APSC order to the Supreme Court of Alabama the COMPANY received on August 13, 1980, an order of the Court authorizing the COMPANY to bill, subject to refund pending final determination of the appeal, the balance of the requested $122.3 million increare ef fective July 30, 1980.
On March 12, 1981, under remand orders by the Supreme Court, the APSC entered a final order implementing a settlement agreement among the APSC, the COMPANY and certain other parties. An increase of approximately $92.5 million annually was made effective from July 30, 1980, through February 28, 1981. The $92.5 million increase is lowered to $80 million annually effective March 1, 1981. The settlement resulted in a decrease in the C0FTANY's earnings for the period July 30, 1980, through February 28, 1981, to reflect a refund of $17,134,000 of revenues billed during the period, which, after giving effect to applicable taxes, reduced net income by . $8,609,000. Below is an analysis of the estim'ated refund which was recorded in the current month. Of the net refund, $6,019,000 was recorded as an adjustment to e retained earnings for the period July 30, 19b0, through December 31, 1980. The effect on net income fcr 1981 is $2,591,000. Estimated Refund Recorded in Current Month Retail 5 Revenues $(17,134) 6 Income Taxes (7,786) 7 Other Taxes (739) 8 Net Income S ( B . 609_) l 4 ige = hety-- , g- g.-r- - - .,s e m w -.q -.m+---- --.p,p-c...y yw--yy- ----4 , -y-. yyrw 9 -
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ALABAMA POWER COMPANY Statements of Sources of Funds for Cross Property Additions Twelve Months Ended
, March 1981 1980 (Thousands of Dollars)
SOURCES
$172,901 $102,302 Net income Less - Dividends on common stock 122,000 82,000 Dividends on preferred stock 31,554 31,219 19,347 (10,917)
Add (deduct) principal noncash items - 154,761 140,854 Depreciation and amortization 77,728 Def erred income taxes, net 102,507 14,384 - Deferred investment-tax credits Allowance for equity funds used during (38,000_) (25,884) construction 252,999 181,781 Decrease (increase) in net current assets, other than long-term debt due within one year and notes payable to banks - Cash and temporary cash investments (7,17 1) 35,345 Receivables (27,134) (11,961) Materials and supplies (20,657) (44,141) Accounts payable 15,705 '22,466 Taxes accrued 17,545 (195) Intersst accrued 1,775 3,681 (27,433) (5,633) Other, net (47,37 0) (438) Other, net * (2,284) 12,638 Total funds from internal sources 203,345 193,981 Sales of securities - First mortgage bonds 350,000 - Less - bonds retired - 18,433 Preferred stock 40,000 - 2,500 Less - pref erred stock redeemed - 390,000 (20,933) Capital contributions by The Southern Company 156,000 99,445 Pollution control obligations 6,107 6,645 73 415 Sales of property, net book value 19,950 Obligations under capitalized leases 36,536 Increase (decrease) in interim obligations (363,296) 155,193 Total funds from external sources 225,420 260,715 S4?S 765 S454.696 CROSS PROPERTY ADDITIONS
- Includes allowance for equity funds used during construction, ew
s . . ALABAMA PO'4ER COMPANY Internal Cash Flow for Joseph M. Farley Nuclear Power Station (Dollars in Thousands) 1980 1981 Actual Projections Net income After Taxes $160,717 $131,425 Less Dividends Paid' (146,313) (172,703) Retained Earnings 14,404_ (41,278) Adjustments: Depreciation and Amortization 160,669s 211,573 Deferred Income Taxes and Investment Tax Credits 115,999 81,932 Allowance for Funds Used During. Construction (Gross) (112,028) (89,100) Total Adjustments 164,640 204,405 Internal Cash Flow $179.044 $163.127 Average Quarterly Cash Flow $ 44.761 S 40,782 Percentage Ownership in all Operating Nuclear Units: Joseph M. Farley Units 1 and 2 100% Maximum Total Contingent Liability $20,000 Note: Includes Farley Unit 2 which is estimated to be in commercial operation in mid-1991.
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' AQoima Power Com'pany 600 N?rth 18th Street Post Othce Bax 2041 Sirmingham. Atacama 35291 Telephone 205 323-5341
%s Travis J. Dowden b Wee President and Treasurer the southern elecinc syctern May 5, 1981 Mr. Jerome Saltzman Chief, Antitrust and Indemnity Group Nuclear Reactor Regulation Nuclear Regulatory Commission Washington, D.C. 20555
Dear Mr. Saltzman:
Enclosed is the annual submission of Alabama Power Company with respect to the retrospective premium guarantee required under the Price-Anderson Act, as amended, applicable to its Joseph M. Farley Nuclear Plant. We have elected to satisfy this' guarantee requirement by submitting annual certified financial statements and cash projections, showing that a cash flow can be generated and would be available for payment of retrospective premiums up to $20,000,000 within three months after submission of the statement. In this connection, enclosed are the following:
- 1. 1980 Annual Report which includes financial statements for the calendar year 1980, together with the report on such statements by Arthur Andersen & Co., independent public accountants;
- 2. Unaudited Financial Statements for the quarter ended March 31, 1981;
- 3. Cash Flow Projections for the period January 1,1981 through December 31, 1981, showing that cash flow for
$20,000,000 can be generated and would be available ror payment of retrospective premiums within three months after submission of the statement.
Please acknowledge receipt of the enclosures by signing and returning copy of this letter. Yours very truly, X). L L Travis J. Bowden TJB:ba ' Enclosures
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