ML20141H850

Georgia Power Co 1985 Annual Rept

ML20141H850
Person / Time
Site:	Hatch, Vogtle, 05000000, 05000399
Issue date:	12/31/1985
From:	John Miller, Scherer R GEORGIA POWER CO.
To:
Shared Package
ML20141H848	List: ML20141H845 ML20141H850 ML20141H857
References
NUDOCS 8604250218
Download: ML20141H850 (39)

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s '5 '{; ,.. p. 'o -t' + l- - [.j . a >y. .{ l .,f f- ' f' ,l 9 A ?$ l _ i" Gemgia Power Compam A 1985 Ammal Report 8604250218 860418 PDR ADOCK 05000321 I PDR

l V. ~. ho Georgia Pbwer Company b 333 Piedmont Avenue. P. O. Ikn 4545 Atlanta, Georgia 30302 p Telephone 404 52M526 LU GeorgialhverCompanyis an imestor-owned electric utility serv-ing 57,000 of the state's 59,000 square miles.The Southern Companyis the parent firm for Georgia Rmer, as wellas AlabamaRnver, Gulf thver, and MississippiIhver.These com-panics, together with certain service and special-purpose suosidiaries, comprise the Southern electric h system. t [ A copy of Furm BK as filed with the Securities and Exchange Commis-i sion willbe pnwided upon written request to the office of the Corporate j Secretan. Acopyof theCompany's { Financialand Statistical Review also l is available. For additional informa. tion, contact theofficeof theCor-porate Secretary at 4045267450. Registrar,Transier Agent and p. Dividend Disbc rsing Agent I Allseries of Pref rred Stock [ Trust Companyllank Corporate Trust Department i P. O. Box 4625 j-Atlanta, Georgia 30302 Trustee, Registrar and Interest Paying Agent All series of Iirst Mortgage Bonds g T ChemicalBank I' Corporate Trust Department 55 Water Street New York, New York 10041 Dividends Paid it has been determined that all dividends paid on Gwrgialhver Company Preferred Stock and About the cover Class A Preferred Stock. ibr the year In the early morning mist, wo:k 1985, are 100 percent taxable. continues on the around-the-clock taskof topping the Unit 2 dome at This annual report is submitted as Plant %gtlelatein 1985.With the information forstockholders and is completion of the dome topping, the not intended for usein connection project's last major concrete place-with any sale or purchase of, or any ment,99percentof theconcreteat offers or solicitation of offers to buy - %gtle had been placed. The opposite or sell, any securities, except to the page shows commercialconstruc-extent incorporated by reference in tionin the booming Atlanta area. a prospectus. L.

t f Righlights Financial (in thousands of dollars) 1985 1984 % Change Operating revenues.... 53,444,298 $3,132,880 9.9 Operatingexpenses.. 52,902,477 $2,637,903 10.0 Net income after dividends on preferred stock.. S 493,717 $ 421,719 17.1 Gross property additions $1,384,792 $1,3%,846 (0.9) Electrie Operations 64,929 59.055 9.9 Kilowatthour sales (millions). Customers served (year-end).. 1,400,637 1,352,235 3.6 hiaximum system peak hour demand (megawatts) 13,291 12,061 10.2 i Capital Structure Ratios (year-end) Long-term debt 50.7 % 52.6 % Preferred smck.. 8.3oo 7.4% i Preferted stock subject to mandatory redemption 1.6% 1.9% Common equity 39.4 % 38.1 % Return on Average Common Equity 17.95 % 18.43 % Ratio of Earnings to Fixed Charges (SEC Alethod) 2.93 3.(N Contents s z Letter to Investors. 2 ,) 1 Growth in Georgia. 4 "W

, "y Growth at Georgia Power 6

~ ", l Selected Financial Data 14 s g hianagement's Discussion and Analysis.. 16 7 i Financial Statements .1 Income 21 Earnings Retained in the Business. 21 Other Paid-In Capital. 21 Balance Sheets. 22 Capitalization 23 Sources of Funds for Gross Property Additions . 24 i Notes to Financial Statements. 25 Auditors' Report. 35 Report of hianagement 35 l i Board of Directors and Company Officers. 36 t I l

Letter to investom %.j, (e ;.y._j. Totalenergy sales reached 64.9 announced that the Company's billion kilowatthours. More than cost of completing Plant \\bgtle, a Q.<y. 14 billion kilowatthours of this mp-two-unit nuclear facility of which 7.Q p,p}%chQ# resented off-system sales. Georgia Ibwer owns 45.7 percent, . ).% -.$ s.. Sti. During the year, two generat-will be some 15.3 percent higher ' h.D ;.O[ g.., '.. D . yg ing units at Bartletts Ferry came than was previously projected. .q. pI on line, bringing the Company's The total estimated budget in- ,.7 g..y.v:lpj total generating capacity to almost creased to 58.4 billion, reflecting gi y p ' > Off.&. + -- 12,000 megawatts, and notable lower than anticipated productiv- , i4y,d I EM.igh completion of major units at progress was made toward the ity rates and a re-evaluation of the 1a; y m p g amount of materials needed to M. .t,s Plants \\bgtle and Scherer. complete the plant. Georgia i p f. Qgy i:f Dramatizing the increasing Ibwer's portion of the new h, g.. -. f y ft ~ 7. i. need for elect icity in our state estimate is $3.6 billion. At the 6, U - *l 0 - aE were all-time records set in 1985 a.d of im Unit I was 88 per- -s hrt W. Scherer for both summer and winter peak cent complete, and Unit 2 we demands for electricity. Dunng more than 50 percent complete. ~L June, the territorial summer peak We continue to believe that The growth that Georgia Ibwer exceeded 13.000 megawatts, not Plant \\bgtle is a sound invest-J. experienced during 1955 only surpassing previous records ment. As we move into Plant directly reflects the economic pros-but exceeding the projected peak \\bgtle's finallicensing stage, we perity of Georgia and its neigh-for 1987. The winter peak, which continue our dedication to the boring states. was reached during sub-zero hi,; hest standards of quality an i It was in many ways a record weather in January, r-ached 11,350, safety. The plant has been evalu-year. Our totalassets reached 59 a record that exceeded the forecast ated favorably by the Advisory billion, and our earnings totaled for the winter of 1991. These fig-Committee on Reac'or Safe-5494 mil'ica. Much of our finan-ures combine the demand of cus-guards. an independent group cial success has come from the tomers of Georgia Ibwer, Ogle-that ad cises the Nuclear Regula- ~- continuing growth in our state thorpe Ibwer Corp., the Municipal tory Commission. and Georgia Ibwer's aggressive Electnc Authoritf of Georgia and While electricity rates will marketing strategics, which have the City of Dalton. increase oser the next few years, led to greater kilowatthour sales. In early August Georgia lbwer in part because of new generating capacity that will be brought into pg.'py f?gR jieg. q 7 fg,' - - ' ~; the rate baw, our rates still should ';sy.3 3, y,p my4 rt ~ " age. The immediate effect will be t. , sx r remain close to the national aver-y./,&.7 - ~g, f ~ ,7 y r s lessened for our customers if the Georgia Public Service Commis-( A% f sion allows the cost of Plant \\bgtle M.*. \\ .e 1 to be phased into the rate base ocer h3.. ./. several years, an approach the ?M 74 A M. Commission is now considering. . rk'WQl g7(. pf r Our future earnings will be affected by how Plant \\bgtle is (.(0.,9 E. e' N , g" M c:a (:..r, 9 handled for ratemaking purposes 9 hh ' ~ and whether our license to con- .1 f*4 strud Rocky Mountain, a pumped M03 storage hydro facility located north e James H. Miner, fr. of Rome, is extended by the Ibderal 2

Net income Dial Eriergy Sales (htillkms of Dollars) (Bullkms of KWIH 500 m 400 so 300 _. _ 4o 30 3'00 Energy Regulatory Commission 'O (FERC). m 1he announcement of a bud-To getincrease for Plant Wgtle did o o not affect the credit rating assign-wo 'st 's2 *s3 w s5 'so w 's2 83 84 's5 ed tc.GeorgiaIbwer bonds bs two national rating agencies-Moody'sinvestors Service and plete and se duled to gointo external affairs, is now headed by Standard &Ibor's Corp. A third commercial xration in 1987. Elmer Harris, formerly an exec-y rating agency, Duff & Phelps, Inc., The plant's fourth unitis about utive vice pn sident with Alabama lowereditsratingof theCom-17 percent complete. Also, major Ibwer, one of Georgia Ibwer's pany's securities following the redevelopment is continuing at affiliate compan.es. announcement. During the year, several hydroelectric dams and The years ahead willbe the Companyissued 5550 million was completed at Morgan Falls, among the most challenging we in pollution controlebligations, an 83-year-old hydro plant north have faced as a Company, as we The Company has also issued of Atlanta.This work would bring bring Plant Wgtleinto the rate S150 milHon of preferred stock. these dams up to new federal base. Employees at every levelin Generating plant perfvm-standards. every area olthe Company are ance during1985 was the bestin We have evervindication that being encouraged to perform at a the Company's history by two Georgia will need the energy that high levelof excellence while us-measures. Equivalent availability the plants we now have under ing as few resources as possible, reached an all-time high cf 8&6 construction will produce. The Specific programs, aimed at re-percent at coal-fired plants and rate at which Georgians are using ducing staff and budgets, have 75.9 percent at the Hatch nuclear electricityis expected toincrease been initiated throughout the plant. Ifeat rate has improved so an average of 3 percent a year be-Company. The overallgoalis to that we are now getting more tween now and the end of the continue making Georgia Ibwer energy from each ton of coalat century. If growth continues at a more efficient, tightly run orga-ourcoal-fired plants than ever this rate, we fully expect that by nization. before. Both of these mean that the year 2000 Georgians will re-On tvhalf of the officers, em-the Company has more electricity quire some 7 million kilowatts in playees and directors of Georgia available to meet our customers' additionalcapacity--three times Ibwer Company, we extend our needs withless additionalcon-the output of P! ant Wgtle alone. thanks to you, our investors. for struction and usingless fuel. We also expect that when your continued confidence and Programs toimprove the Plant Wgtle starts producing elec-support. 3erformance of existing plants tricity we willbenefit from the knv 3 ave been highly successful. Ile-cost of nuclear fuel, compared to Sincerely, cause of this and other factors, the cost of coalor oil. Over the 10 we have been able to revise the years that it has been operating, constructic schedule for Rocky Plant ilatch, a nuclearIacility in Mountair.. he 848-megawatt south Georgia, has saved more plant, prec.. sly scheduled for than 5700 million in fuelcosts. IM rt N Schercr comrercialoperation in 1991, There were changes in top Chainnart of the thuni nowi scheduled to go online in level management during the 199%ubject to FERC approval. year. Executive vice president Important progress has been George Edwards resigned to ac- / made on other Georgia Ibwer cept the position of president and / generating plant construction chief executive officer at United irres 11. Mi cr, Jr. projects. The third unit of Plant illuminating of New Ilaven, President Schereris now 86 percent com-Conn. IIis area of responsibility. Tcbruary 19,1986 3

Georgia: Progress and prosperib From the state's mountainous 1,lXX) kilowatts; a General Elec-northern regions toits sunny tric plant in Norcross with a de-l coast, thereis evidence of the 4, mand of 3,000 kilowatts; and Na-economic prosperity that places 4 >4-tional Wire in Shenandoah with Georgia among the fastest grow-t a 4,000-kilowatt demand. ing states in the nation. Commercial developers are Huge new indnstries, spa-planning the equivalent of two cious new shopping malls and . ![ additionaldowntown Atlantas modern housing developments to be constructed over the next 3 allindicate that growth continues ,C 10 years. The Atlanta area now unabated not only in Georgia but has about 49 million square feet throughout the Sunbelt. Last of major commercial space. It is year, a record 521 billion was in-more than doubling its present expected to have an additional vested ir new and expanded pri-size. 100 million square feet by IW5. vate bus; ness and industry in the Some counties in the metro-Some 23 million square feet of i state. Gec:gia Power expects de-politan Atlanta area are growing this new development will be in mand for electricity in its service even faster than the downtown the area north of Atlanta. The area ta grow at an average rate of area. Gwinnett County, just north-high-tech automated of tice com-i 3 percent a year over the neM H cast of Atlanta, is the fastest grow-plexes in this area will require years. ing county in the U.S. among more electricity than conven-i !n many ways, Georgia is thow with a population of itXtotX) tional offices. growing at a rate well above the or more. Cobb County, to the Examples oflary;e commercial national average. Since 1980, the northwest, is 20th in that same developments being built else-state's population increased by category. where in Georgia Ibwer's service more than 375,000 people. Since While Metro Atlanta showed - area are Glynn Place Mall, under l' 83, both employment and per the largest employment rate in-construction in Brunswick; Car-i capita income in Georgia have crease since 1983 of any portion mike Plaza, a 55 million all-elec-risen 8 percent. Ibr the foresee-of the state, there also were siz-tric of tice-retail complex being able future, Georgia is expected able increases among other Geor-b uilt in Columbus, and expan-to continue growing and becom-gia cities. Employment has been sion ef the ilatcher Point Mallin ing more prosperous. rising at a 5.3 percent rate in Co!- Waycrow. Atlanta, Georgia's capital, is umbus, for example, and more Georgia's population has r now the 15th largest metropolitan than 3 percent in Augusta and been growing in two major ways. area in the U.S. and regarded by Macon. Americans are movingin large many as the transportation, com-The movement to the South numbers from the Snow belt munications and financial capital by many industries and the ex-region of the Northeast to the of the Southeast. Ilome to one pansion and development of Sunbelt, which includes Georgia. of the two busiest airports in the others have contribeded greatly Also, more Geon;ians are remain-world and a popular center for to the region's continuing pros-ing in their home state to live, trade shows and conventions, perity. Georgia Pow r gained 33 work and raise their families. The Atlanta is gaining new jobs at a industrialcustomers in 1985 and nonagriculturalemployment 5.3 percent annual growth rate. increased its totalindustrhi rate in Georgia has t een incicas-l Downtown Atlanta alone now has kilowatthour sales 3.5 percent. ing steadily by more than 2 per-more than 10 million square feet Among the large industries that cent a year since 1979, making of office space and espects to gain bwame Georgia Ibwer customers Georgia's growth m this area se-another 11.4 million by 1994 - in 1985 are Nippon filectronics cond only to Ilorida's. Corp., a Japanese company that established a plant near McDon-ough with a demand of about 4 .~

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4 In partnership with Geegia The generating plants Georgia i,. ' 4 ; a.. -- 44 Ibwer now has under construc- , :4 1.. 2 ... o it M M l* a '"h' k J';g.( p i [ [

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tion will be essential to the state's k<N w - d" economic development over the l next 40 years. Tf 7 f 1, q' Q 4*c ' - Units 5 and 6 cf the Bartletts .m ..,' *[ ' l Ferry hydro plant 14 miles north s b jf,3 of Columbus went into commer-s l cialoperation in October and l November of 1985. The recentiv completed units added 108.000 kilowatts to the 60-year-old plant, j more than doubling its capacity. ~ hiuch of this year's construc-3 j tion activity has been at Plant Vogtle, the two-unit nuclear fa-cility near Augusta, where Units j l and 2 are scheduled to go into ~. commercial c peration in 1987 and ~ j 19S8, respectively. In August, the budget for Vogtle, which it is building with jected $8 4 bilhon. Ibr cu mple, Vogtle was revised to reflect pro-Oglethorp, Ibwer Corp., the when Georgia Ibwer started de-ductivity rates that did not meet N1onicipal Electnc Authority of signing the plant in the early the Company's ambitious geals Georgia and the City of Dalton, '70s, there were few er than 10 and a re-evaluation of the amount is now estimated at $36 billion. federal regulations related to of materials needed to complete Economic and regulatory nuclear reac tor design. Now the the plant. Also, the construction changes, which have continued Nuclear Regulatory Commission schedule for Unit I was dela"ed to mount since construction first (NRC) has more than 2.Olx1 regu-by three months. Georgia Ibw er's began at Vogtle, have driven the lations related to the design of shareof the totalcost of Plant total cost of the plant to a pro-nuclear power reat tors. cer:tmued t I GENERATING UNITS UNDER CONSTRUCTION at December 31,1985 M h s M huneet Cadet I [ at r Plant S herer Unit 3 710 613,9M) 19M7 Ni0 513 rouil Plant 9 heter Unit 4 IlN) O HlH.tWNI 1"M9 17.0 771 i Plant Vogtle Unit 1 417 5N),120 1987 88 0 2,%I Nudear Plant Vogtle Unit 2 417 530,120 1988 51 0 1.003 I"" W Rmly Stount.un Uruts 1,2 & 3 100 0 887 M ) 19'N 21 0 1,19 i Storage un;w nw p4n.m onlv namtm e, m a rymr ib. ymm \\ \\

w h p g - we i kNh1, ;-. 'N 1 .;F-c,p __ ~* . 6,.. y; ,y s -.x ~ n _g I t ws s i i I l l L i 1 1 2 f 3 l i i t i I l 1 1 I l I l Qilhouetledly the morninpun. i u Com;uny and amtract employees l at Plant Wgtle uvrk toftnish plas ement of concrete atap the Unit 2 omtainment l'uilding l} tis majorconstntction s!cp l uus completed in Decemh r. 1 Thecompletion of Unsts 5and b at i Bartletts ferry o;7mutepuge. aJJed l lO8JXX) kilotratts to Gevrgta lVa Yr's generettng capuct!y I t .i J 4 I J I

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l l l I l f J ? 1 i 1 i f s 4 Kilowatthour sales this year developments in electricahech-Another customer relations reached M.0 billion, an increase nology and to encourage new achievement during 1%5 was the of 9.9 percent over the presious industrialcustomers tolocatein completion of audits on homes year's total. Especially successful the area. Located in Atlanta's certified through the Company's were our off-system sales, which Technology Park, the centeris a Good Cents program. The audits i represented more than 14 billion showcase for such products as were prompted by concern that I out of the total kilowatthour sales electrode boilers and heat pump some contradors were using too f l for 1983. water heaters. It alsoincludes a much air when bknving in insula-hiuch of the success in kilo-commercial cooking demonstra-tion, causing the insulation to watthour sales is attributable to tion area, a videodisk system for appear to be up to Good Cents the aggressive marketing pro-presentmg information about s*andards when it was not. grams continued in 1985. Among Georgia Ibwer and the area it ilomes ni question were re-l l these is a program to help dealers serves, and a seminar nx>m checked using the highly reliable j l sell electric heat pumps. At the where Georgia Ibwer employees core sampling method, which is i j end of the year, more than 16,900 can meet with customers to now used to certify homes for the such pumps had been installed. discuss their need,and how Good Cents designation. As a 2 I in south Georgia especialh*, Georgia Ibwer can serve them. result of the audits, more than electric heat pumps are a popular From March through Oc-5300,000 worth of additionalin-choice for new homes. An esti-tober, Georgia Ibwer opened to sulation was installed in Good mated 60 percent of the new build-the public three demonstration Cents llomes by contractors at ings in the Brunswick area will homes noith of Atlanta. Colk c-no npense to Georgia Ibwer or l have heat pumps. tively known as " Future II - its customers. The Good Cents The Energy Planning Center, The Energy Colony," the struc-llome program was praised by which Georgia Ibwer opened in tures were designed to show that the Georgia Of fice of Consumer late October, was designed to highly ene rgy efficient homes Af fairs and has become a model l help industrial and commercial need not be dull or h>ok ultra-for utilities across the cou:.try. customers keep abreast of the modern. All three featured heat l pumps and new insulation tech-niques, but varied inlevels of l innovation and energy cffick ncy. r 4

1. /

j m' ~ y% % n=. k f n* ~ 11

Eficienct for todat and tomorrow These successful marketing ef-and the 20-year constant matur-270000 people without electrical forts along with the economic ity rate for the divideriJ penod. service. gnnvth in Geomia Rnwr's service Capitalcontributions from Georgia Ibwer's employees, ama have contnbuted to the Com. The Southern Company totaled in addition to having a produc-pany's earnings Net income after $315 mi!! ion. twe year, had a safe year, as safety dividends on preferred stock for Georgia Ibwer is succeeding records were set among several 1985 was 5 494 million, an inemase in its efforts to find ways to im-employee groups. Plant ilatch, a of 572 millien over 1984 earnings. pnne the performance of generat. sonth Georgia nuc! car plant that During 1983, Georgia nmer's ing plants. lioth availability and has tw en in operation for 10 years, assets reached $9 billion. Assets heat rate reached record levels. reathed a milestone sis million have increased steadily over the An improvement in heat rate man hours without a lost work-years from 51 billion in 1%7 to means that a plant can produce day accident. Also, Nudear llegu-the present level. more electricity without burning latory Comroission data indicate The Company continued to more fuel. The average heat rate that radiation esposure at flatch takeadvantageof thelowerinter-this year for fossiliuel plant i is the lowest of any luihng water est rates available on pollution measured 9,945 UTUs, an im-reactor plant in the U.S. with a control bonds. Georgia Ibwer provement of 577 lilts over the capacity of at least 100 megawatts. sold 5550 million in such obliga-1975 as erage. Emplovees at Plant Wansley tions during 1983. Of this amount, Equivalent availability, an-a coal fired plant in west Georgia, 5393 milhon represented refi-otherivrformance factor, reached not only set a plant safety record, nancmgof pollutioncontmlnotes an all-time wcord of 86.6 percent but were the first Georgia Ibwer issued the previous year. The for the Company's coal 6 red gen-employees at a coal fired plant to Company also issued 5364 mil-erating plants. That's a jump of 20 reach three million man hours ! ion in pollution control notes in percentage points over the 1975 without a lost workday accident. lW5. No first mortgage bonds figure and places Georgia Ibwt r The Company also is at hiev-were issued during the year. well ahwe theindustry average, ing a favorable safety record in Preferred stock sales for the I'lant f latch, the oniv operating relation to other im estor-owned year totaled 5150 million. A 550 nutlear pl mt on Georgia l\\nser's util :ics. The Edison 1:lettric Insti-million issue in April carried a system alsoachieseditstest tutepre ented Georgia lbwer its dividend rate equivalent to 12 equivalent availability reconi crer inciuent l' ate Safety Award, based percent.Two adjustable rate -- 719 percent - with no major on 1984 performan(e. Georgia issues of 550 trillion were sold in outages during the year. Ily these Ibner's incident rate of 0.102 was October and December with a two important measures of effi-the kmest in its cctegory - utuities minimum dividend rate ("thmr") ciency, heat rate and equivalent with more than 8FtC employees. of 6.25 percent and a masimum availablity, Georgia Ibwer's The rate for 1985 was even better (" ceiling") af 12.75 percent The generating plants had an ewep-at 0 075. Octoter i ue had an initial rate of tmnal year l'f forts are contmuing to re-9.53 percent and the Decemtvr Af ter I turncane Elena struck duce Georgia lbw cr's operating issue had an initial rate of 4.30 the Gulf Coast in late August, expenses and inc rease its reve-percent. Ihr the adjustable rate more than mlGeorgia Ibwer kne nues. Allemployees arelying preferred stock, the dividend crew workers were dispatched to asked to contribute to the com-rate is adjusted quarterly based neighboring utihties to help re-panywide effort by finding ways on the highest among three var-store txnwr. Niost of these went to to reduce costs and to use fewer lables; the Treasury thl! rate, the help Gulf Ibwer and Nfississippi resources while keeping produc-10-year constant maturity rate, l\\ nwr, tw o sister i ompanies in tivity high. the Southern olettric system; others a ent to the aid of 1:lorida Ibwer Corp Ilena left more than 12 1

l i ^ I P t i t i l I' f r l F l ? l i l l r J j i 1 I i i i t 1 I 9 t ) s l N s l . e + 1 j 'n I o I l l i l ~ \\ j s trarrt rum fn,rrt I'lant Ikarr6 / [_ _/ N Itt ngt) rnantie n n >ltrt,g tou crs a s all fou r <s t urut.prnius e pu rr lht rurg IW, j IH fl2'l ll.nn vt generateel utore rics !vtt tly ,s i l t.'il.9 ntalltors r= rgainstt itou rs) thart p.m#"'* I arty cli er f artl vt line ll.S / ya p, t i 6, %0 llcal rate, shoicrt ut the < hart at PH ,A :.-. h it, trtcasts rn Ihr arrtou rtl of fuel nceslerl togeneratea L !vinstt 'Ihe Is u er the ratt. Ilte rriote ctfu sent the ~ ~ ^ ' ~~' r a ny, ~' gertcratutg sust nt. The r,jutntlertl l N M ~ 4 420 annlal11tly s Itart at rtght sitairs '81 '82 '81 '38 ' 5 ', litt p tt erttagr ef the 90+11 fuel svrient 31 52 '8 \\ Mi ei that taas anulal>lc for fulllati srn- ^ A nttual leus! Nrt IIcal llate e,ag,o,, ag a,79 p,u,y,ju rg,4 gju', vea, t ail I unt l*lant I.lutnah nt Annlahlity (Iris crit) tillllLWil) H l

Selected Financial Data <counsmuous-s> Wars Ended December 31 1985 19 44 19 &3 Condensed Income Statement: Operating Revenues. $ 3,444.298 $ 3.132.8M0 $ 2,730.574 Operating Espenses: Operation and maintenance..... 2,269,482 2,0t,136 1,773.903 Depreciation and amortization.. 201,524 191,205 176,735 Tases other than income tases 120,320 10n,908 95,797 lbderal and state income tases.. 311,151 26H.654 231.56% Total operating espenses.... 2,902,477 2.637.903 2,280,000 Operating Income.............. 541,821 494,977 4%054 l Othee income, Net............ 256,964 206,7.e 129,093 Income Before Interest Charges.... 79n,805 701,743 579.667 Net laterest Charges..... 2M,975 - 224,407 219 M4 Income Before Change in Method of Recording Resenues 559,810 477,336 3N1,123 i Cumulative effect as of January 1,1982 of accruing unhited i revenues less inmme too of $22.320(000).. Net income. 559,830 477,336 360,123 l Disidends on Preferred Stock 66,111 5%.617 55.%6M Net income After Dividends or6 Preferred Stock $ 491,717 $ 421,719 5 3al.5% - - =, r =-

m e

Pro Ibrma Net income Af ter Dividends on Preferred Sta k assuming change m method of recording re enues was applied retroactively. N/A N/A N/A Cash Dividende Declared on Common Stock. $ 277,500 $ 225,5i1) $ IM9.Nt) Return on Average Common Equity (pertent)..... 17.95 IM 4) 15.M6 Total Aseets... $ 9,030.618 $ 7.MMO.072 $6,746,247 Capitalisation: Common stock equity $ 3,013,707 $ 2,486,172 $ 2.0M9,171 Preferred stock....... 612,844 4M2.M44 412,M4 Preferred stock subject to mandatory redemptain. 120.000 127.5x1 111,250 tong. term debt, 3,478,066 3,412.60ti 3.12M,500 ~ Total capitalisatain.. $ 7,644,617 $ 6.529,122, 5 5,7Mt.765 mm=a n-w womm Croee rreperty Additions... $ 1,344,182 $ 1.396,Me $ 1,015,274 Kilowatthour Sales (in thouunds); t Residential.. 12,006,462 ll.54M,7N7 11,441,257 Commercial... 11,945,934 10.402.163 10,1N I,953 Industrial......... 19,517,543 14.Mr*2.511 17.415.441 Sales for resale. 6,762,694 7,113,291 6,919,4W Other...... 342,23n M2,n47 311,M04 Total territorial sales. 50,614,875 49.76M.M19 46,291.914 Sales to utihties outside territory. 14 311,679 10,2M,M92 7,116.061 Total kdowatthour ules 64,924,M 4 59.0%4711 51.407.97% m.na w mm.m sw a e= Operating Revenueu Residenttal...... $ 786,500 $ 74. lM $ 6M6.2n9 Commercial 797,540 739,035 649.912 Ind u st nal........,,...... 873,5 4 MM 51n 747, W Sales for reule..... 244,260 277.84M 275,14M Other......... 26,766 24 1xM 20.972 Total resenues from terntorial ules.. 7 *:n,620 2.M1.970 2.379,626 Ravenues from ules to utihties outside terntory 642.M2 _ 450.92M , 2,701.297 121,671 Total revenues from 541cs of elestrkity 3,411,252 3.104.M94 Other revenues.... 31,046 2,,*M2 _ 27.,27.7 Total operating resenues.... $ 3,444,2Sn $ 3.112.k80 $ 2,710.974 n n.. n ammm m nm Average Nevenue Per Kilowatthour-Total Sales kents).... 5.25 5 26 5 06 Average Coot ed f uel Per Net kilowatthout Generated (cente.... 1.80 1M 1 M2 Cuetomers (end of year) 1,400,M7

1. M2.211 1.111.06)

Employees (end of year), 14,947 14.562 14.9% 14

T Gvrxia !%r Compmy 1982* 1981 19M0 1979 1978 1977 1976 1975 $ 2.457,201 $ 2,015,810 $ 1,808.408 $ 1,519,942 $ 1,475.024 5 1.301.237 $ 1,170.n46 $ 1.079.175 i 1,622,310 1,326,359 1,087.3M9 935,210 921,465 813,9M7 f#0.953 61% M3 162,796 157,336 153,245 133,M8 118,208 ItN,944 100,347 89.677 93,271 83,780 73,454 67,736 65,364 58,939 53330 46,54M 183,944 141,196 178,032 118.424 126,953 11M,514 94.649 1[N,(trl 2,0M,211 1,708,671 1,492,120 1,255,258 1,231.440 1,101,3M 939,575 Meio.575 392.900 307,139 316,2M 2N,6M 243,0M 199,M53 230.471 218,NU 97,08 76,222 71,974 67.119 52,510 67,4'M _ 62 M7 75,1M 490,898 383,361 3M,262 331.M03 295.M4 267,253 293,32M 293,788 i 2th 495 170,901 157,693 151 N15 129.0 %) 125.0M7 144.34M 136,2M 284,C13 212,460 230,569 14),29M 166,494 142,1t* 148,9N) 157,5MI J 23.0tN 30'7,412 212.460 230,569 15),298 166,494 142,1t* 14M,980 157,5M1 48,46M 40,3ri6 35,224 M,786 3),4N) 3),4N) 27,%2 1M,4%1 $ 258,944 $ 172.(N4 $ 195.345 5 145.512 $ 116.014 $ li t. ten $ 121.11M $ 119.110 .,_._m m-m.- - mm m.= = _m = l $ 235,935 $ 175,515 $ 196,709 $ 140,706 $ 137,236 $ 117,086 $ 12 8,97M $ 142,761 $ 154,700 $ 131,000 $ 136,400 $ 111,100 % 119,225 $ 109,400 $ Im,40 $ 100,(110 16,14 12.41 15.47 12 21 12 04 10 51 12 06 14 '4) $ 6,159,663 $ 5,271.M6 5 4,728,977 5 4,MI,295 $ 4.04,794 $ 3,Nn,627 5 3,591,tw3 $ 3.M2 590 $ 1,751,186 $ 1,458,240 $ I,314.315 $ I,210,M M $ 1,173,0% $ 1.026,247 $ 1,0TM,961 9r,9 0%7 432,M4 357,M4 357,M4 357, 4 4 3r7,M4 A17,M4 307,M4 217,4 4 135,0tU 138.674 67,90 71,29) 75,000 75,0 0 75.nu 75,0m 2,997,760 2,667,372 2.326,627 2,16M,272 1.953,%) 1,8N),79M 1.M27,470 1.757,541 5 5,316,740 $ 4,622.1.10 $ 4,066,2% $ 3.NN.2M $ 3,509,411 $ 3,M9,M9 5 3.249,275 $ 3,059 4 82 = m t=2 = -

mme, mmm

$ 912,145 $ 730,4M $ 690,959 $ Nr7,616 $ 500,719 5 nl.151 5 4a4.4 % $ 43M.017 11.075,5N) 11,153,5M 11,297,518 10,MO,375 10.829,4M 10.470,674 9.512,592 9.2al,0M 9,N90,108 9,4M,443 9,1M.0% M,735,947 M,827,2M1 10,278.012 9,712,599 M,794,7M 16,203,691 16,M13,165 16,299,666 16,225.971 15,6M2,025 13.236,2'O 12.629.261 11,6 4.106 7,M2,957 7,361,961 7,127,310 7,612,216 M,5N),2] l 9,617,229 9.262,4 % 9 J95,wl 320,893 3 %,724 294.7tU 246,0% 226.111 216 621 21105M 204.n N 44,833,209 45,099,MI 44,201,2MO 41,1N0,%4 44,145,11M 41,81M.M26 41,329,9t* 39 nN,51M 4,869,513 2,M2,547 2,102.4 " M,128 49,702,722 47,742,42M 461U 41,2 4 692 44,14%,llM 41 MIN.M26 41,329,9ne 39.n N,51M i maa mm _uw m=, u w==~. w~r a w as =mn=n na m $ M5,2M9 $ 540.004 $ Sll, MN) $ 414,9U $ 417,696 $ 35M,911 5 315,226 $ 301, 4 1 625,446 499,653 44.n19 3M6,176 3t#,N N 3%M d 3%5,405 317,M79 711,085 60M,713 547,2 % 4 % 044 449,719 32M tr7 2u0,981 275,591 284.206 151,572 205.010 2nl.2N1 211,119 201.914 191,110 It*,777 l 19,419 15,428 14 169 10,971 9.8 % . M 9%7 M M2 M UI2 2,285,465 1,915,370 1,734,1M 1,90,971 1,4N1,39M 1,286, lm 1,161,2t* 1,0tN NU L 147,%65 M2,G4M %6.911 1,261 2,411,010 1,9'/7,418 1,792,275 1,Nri,232 1,460,19M 1,2M6,lm 1,161,266 1,0t#,N U 24,171 IN,392 16.131 14,710 14,626 19,1.17 M,7*) 9.175 $ 2,457,201 $ 2,01),M10 $ 1 MOM 40M $ 1,%I9,982 $ 1,479 024 5 1.101,237 $ 1,170.046 $ 1.(r79.17% 4 % $. NI*?b hl#MM

• ?15J 4 LT 44 4.90 4 IM 3 M7 3 (M 3 31 2.98 2 Ml 2 74 l.M i 66 1 51 1.42 1.17 1.27 1.12 1.11 j

1,272,M9 1,249,126 1,219,714 1,192,770 1,lM,M22 1,13M 470 1,112.061 1,OM 1.M6 14,076 13.45l 13,0M 12,522 12,067 11,4M5 10.194 9.052

• In I982, Ilre Comtuny Imn e e rumg revenun y unw renderrJ l'ut unhlird li

Management's Discussion & Anah sis 1935 0;vmting ihunues 1935 0;rmting Eqvnsa e m ay r,- , yr t' W. 3_f lucI 1? l'% v. ? L ' (f i Rs4all Sala ??.l'% 'I .l., b};,; ' .s. > %}%Q l';{. i T% 9 ;;h2i o ? k n Ag Rn . i,, i s 2 I ~ yf 7 ; i' ~ l -. ? .. hk j (, Pys k. Opra!,n tr f-Q:; ,,4 Afawter am e :3 4'% 1 1..., yj, E - ll1 Temtorul Resale 'T'" \\, ib' 9;n 7 g y 3_~' Ihyrn natnen t, Off-5vsten sala 198 % . W A*nettutton t> ?% z. ,ejfjfsty ' L {, %,+c -- tr. KD$si(. y . - -J ,9 Other Rttenur I tr% s g,,,, y g my g Q1r Revenues incre.tses in total operating res enues in er Residts of Operallons ihe enor year, aieng w iih ihe m.,or o,mponenis.ina iheir nintribution to the totalincreaws, b.we been as Georgia linver's net income af ter dividends on preferred follows On milhons of dollar @ stock for 1983 was $494 milhon which pnn ided a t* iwi iao 1795% return on average c.>mmon esputy I arnings for R. tac Her ~ ^ ~~~ ~ ~ 1985 increawd 572 milhon or 171% over l'M4 carnings in< redsn. 5 o $1st $ so aad $189 milhon oser 1983 results. Induded in PNI net H"" H [',,,,,'..,,,,,i, '2' "2 income was a $20.M million gain, net of tases, on the ,i s,i,., male < 'a 5% interest in I'lant V,; tic. g. pi, i e,, lif f %)sts en haln'% ] \\l ll? 17h oqi. v ogvratmg b'\\ P hus 4 {lik lUilthg f u. f i mt trone ts ) , (11( 27 _ 20p ( I* d 4l Ilh f e d w Sill 4 4d '2 %27 % l'rt, rnt Irw rea w 9 t% 14 7'% Il I % la, L,_

The Company was granted annual retail rate in-Increaws in depreciation and amortiration each creases of $108.9 millian and $A5 milhon in September year are due prmcipally to the continued growth in 1983 and October 1983, respntively, increases in retail deprniable plant in service.1he compmte straight-kilowatthour sales are due prima rily to an npanding line depreciation rate w as appnnimately 37% in 1985, economy within the Company's wrvice area.1he de-1984 and 1983. cline in territorial sales for resale to en ue in 1985 Fluctuations in income taws resulted fmm changes resulted from increased generation at plants the Com-in pre tas income. Federal and state income tas provi-pany owns jointly with its territorial resale customers. sions are detailed in Note 5 to the financial statements. Off-system sales increased 51.4%, to $682.6 mdlion, for Net interest charges increawd to $239 million in 1983 over 1984. due primarily to an additional customer 1983 from $219.5 mi!!mn in 1983. While tho Company has and increased capacity sales under unit pm er sales increawd long.ter m twrrowings to f man ce its construc-agreements.See"Off System Sales Agreements"in tion program, the cf fect of this has tven largely of twt Note 4 to the financial statements for additional infor-by an increase in the capitalised pirtion of internt matica on these agreements. charges. Total kilowatthour sales increawd 9.9% in 1985 While the rate of inflation has disreawd, inflation and 10.6't in 1984 for a cumulativeincreaw of 2:#b continues to have an adwrw cf fnt on the Company due from S3.4 billion kilowatthours in 1983 to M.9 bilhon to regulatory constraints and the large inwstment in kilowatthours in 1%5. The primary reawn for this in-utslity plant. See Note 10 to the hnancial statements for crease was more retail sales and additional salo to of f. supplementary information concernmg the estimated system utilities. isetail sales ruse ll.4't to 43 9 bilhon of tetts of inflation. kihnvatthours and of f system sales increawd 101.Pb to 14 3 bilhon kihnvatthours from 1983 to 1985. The com-Allowance for runds Used During Construction bined 1985demandof theCompanyacustomersand Alle ani e for i unds Uwd During Construc tion the customers of Oglet horpe nnver Corporation (OPL.), ( AFUDC) reprewnts the cost of capital for utihty plant thc htunicipal Eh ctric Authority ol Georgia (hll.AG), under construction whk h is prewntly not induded in b.ne. The cquit po non< ash intome. I bme. tion of thn dedit reprewnts and the City of Dalton reas hed a summer peak of 11291 megawatts in june,1985 and a wmter peak of ver, normahration et the in. II.M7 megawatts m January,1985. The 1944 summer and come tas etfat of the debt portion results in a non< ash winter peak demands were 12.061 and 10.tr73 megawatts, chw win income..t!ditionally, prn ioudy capital-n sputney tied amounts are increasing cunent (ash ihnv'sigmfi. cantly since revenues are higher tycauw of increawd 1:npenses Totaloperationand maintenanceopenses ra'e baw and additional depreciation npenw. AI UDC, including fuel and purchawd pm er, increawd in 1985 net of income taws, as a percent of net incorw af ter due primarily to increawd energy requirements. Thew dividends on preferred sto( k amounted to t#b in 19% npenses totaled $2.3 bilhon in 1985, an increaw of 57't in 1%4 and $2% in 1981. T his ratio has nwn trcause 9#% over 1984 and 2716% mer 1943 Net purthawd of an increasinginel of constrwtion work in progrew, a pwere pensesincreasedfrom$340miihonin 1983to significant portion of whk h is applicable to the Com-5455.4 million in 1985. This increaw was primarily Ihe panyhm nership internt in Plant Wgtle (nuclear) and resultof thepurchawof capacityandenergyfrom Plant S< heter (fouilh jointly owned plants in accordance w ith contra (tual rgreements. Fuel costs increawd $1931 milhon Irom omtm wil 1983 to 1985. Under f uelcost recovery provisions the Company ls entitled to recover the actual tmt of f uel burned and the energy portion of purthawd peer trenwtions. See Note 2 to the fina ncial statements for information concerning an application to the Georgia Public Servk e Coa minion (GPSC) for an int reaw in the furicmt rewwry rate. 1 i l 17

ManagemenYs Discussion & Anah sis l'uture Earnings tbtential Future earnings itential is ~ Financial Condition t contingent upon succewf ul complet;on an nclusion in rates of the Company's constraction program, in-ciuding Plant \\bgtle, a twwunit nuclear facthty cur. Grow property additions for the period 1983 through rently under construction. See Note 3 to the financial 1985 totaled $3 8 bilhon These additions miluded con-ttatements for f urther information about the construc-struction of major generating proinis and the installa-tion program. tion and upgrading el tranumulon and distribution The results of operations are not necewanly indic-hnes, substations and other tacihties The f unds for ative of future cartungt it is expetted that higher op-grow property additions w em provided as follows erating costs and carrying c harges on increased ins est-t Vilan m t hous.anifs IVn ent of total ment in plant, if not of f set by propor tionate incrcJses OM thnnyh IMI I u nits Pn n hint in operating res enucs (either by periodic rate increaws or increases in sales) or espense reductions, wall ad-No I una. Pnn i< tnt h On" anon' Sl**W "^ versely affcct future earnings in recent s ears, earnings have tended to dechne duttng periot% following the I"["'('Z '" $ 'P"' ,,g,, so i full 12 months re litationof generalrateincreasesand oise, soun,s s w n,. is i prior to the rescipt of turther rate increases. Uuture in-p.,i M.;; w no A creases in sales will be affected by the rate of economic growth in the Company's wryke area, the w eather. &c the ',taternents of 'sonn es ol f unds for (..niu the clastitity of demind, energy conservation, and Pn>perty Addinons for further det.uk market conditions applicable to neighlvring utibties Capital Structure Ihe Company's capitah/ation raum. tonlinued toimprose dunng 1455 'Ihc Company's common equity ratio t(as 39 4't at lies ember 31,19% as compared to 3M l'% at the end of 1984 and 36 l'b at t h emtwr 31,1981 Ihe (omposite interest ratc on long term debt det reased Irom 10 62'% at I hemtvr 31. 19%4 to 10 61't at thember 31,1985, and theiomp nite duidend rate on pref erred stix k dette swd f rom 9 9 P% to 9 NPb during thn same period, 11 n anticipated that the f unds required for 6 onstruc-tion and of her purpmes will be derived Irom sounr* in form and quantity similar to those uwd in the pao llow es er, the t) pc and timing of finanting w ill depend on market (onthfions, maintenan(e of adequate carn-ings and regulatory authoritv. ~l he abihty to maintain t he required ros erages, to generate f unds for day it. day ope ra' ions and to finant e the construttion program is dep ndent on retciting adequate and timely Iate increaws Ioc Company h mmmitted to mamtaming Imancial integrity by (on-tmued emphasn on operating etliciency.md by pur- %uit of rate int rt'aws w hen appropri.ite. Should the Company be unable to nbtam f unds trom esternal soun es in amounts w his h, together w ith internally generated f undt w ill be adequate to carry out the prewnt t onstrut tion program, delays or cam ellations of i ertam projet is t ouhl bcs otne net ewary. A delay muld result in ugnificant additional mnstr u, tion tosts In thc esent of t.im ellation of any project, there is no assurant e that the Cornpany wouhl be able to remser the msts ano iated with *ui h proies t, l't

i f 1 t l At Devember 31,1985, the Company had $;S9 mil-changes in business conthrions, fluctuating rates of load [ lion of temporary cash investments to awist in meeting gnm t h; envinmmental nyuirements; design (hanges in i cash requirements. To r rovide additional financing tiev nudear plants to meet c hanging requirements; unfore-ibility, the Company also had revolving credit agree-seen nuclear plant licensing requirements; niuipment ments totaling $1.5o5 billion w ith elewn banks. The dehwry schedules; increasmg costs of lahir, equipment agreements cowr the sidyear period ending December and materials; cost of capital and the granting of timely i 31,1990. During the term of these agieements, the and adequate wholesale and retail rate increaws by ap-Company may convert short-term h,rnnvings into term propriate commiuionw Georgia l\\m cr's const ruction loans. Such term loans would be payable in 12 equal program indudes Plant Siherer tiood) hvated near for-quarterly installments during ihe years 1991 through svth. Plant Wgtle(nudear)hvated near Augusta and 1993, or at ar carlier date at the Company's option. the Rocky Mountain Hydro Project located near Romc. Such term loans are subject to aut horizatmn f mm the The construction budget estimatenet forth ahn e CPSC and the Securities and Eschange Commioion refityt the Company's announcement on August 5. j (SEC). Also, the Company has $120 mdlen in other hnes 1985 of an increaw of $472 million (15.3%)in the cost of credit subject to annual renewal. No short-term bank estimate for Plant Wgtle, a two unit nutlear generating loans associated with the revolving credit agreement or f aahty, and a three month delay in the planned fuel lines of credit were outstanding at year-end. Ioad and commercial operation dates for Unit No. I of To pnwide flesiblity, the Company issues senior the plant. Estimati d total plant additions at (omnle-securities in advance of actual cash requirements, tion for the entire plant (indudmg all co ow ner/ i pixing the proceeds from these sales in temporary cash financing costs a nd contingency alknvant c4 have t investments. To indicate the impact on the common h en increawd Irom S7.2 hlhon to $8 4 hllion. See i equity ratio w hkh results f rom t his prospet tive imanc. Note 3 to the financial statements for additional ing approach, this ratio also is computed on an adjusted information. basis. The adjustment c' educts temporary cash invest-ments, up to the amount of wnior accunties inued dur-conhnunt 3' ing the > var, from iong term debt and totalca before computing the common equity ratio. pitah/ation t his adjust-i ment would result in an increase in the reported 1985 common equity ratio from 394% to 41.8% j The Company must comply with (ertain earnings owerage requirements contamed in its mortgage inden. l i ture and corporate c harter to inue additional first mort-gage bmds and preferred stock. An earnings onerage 4 I of twotimesannualinterestchargeson first mortgage hmds is required for the luuance of additional hmds i and a cowras;e of one and one half times annualinterest charges and preferred stoc k dividends is nyuired for the issuante of additional pn ferred stot k. The ancrages for the years ended December 31,1985 and 1984. w cre 2.81 and 2.51, respn tiwly, for hmd, and I 89 and i 77, respectiwly, for preferred stm k. The impnn ement in ? first mortgage hmd and preferred stoc k coverages is primarily due to impnwed cart:ings in 1985. Capital Mcquirements The Company currently esti- { mates that gnns property additions du nng the period 19% through 1988 will total appnnimateiy $19 h!! ion. j These estimated additions are based upon the Com-j pony's current ownership interests in the generating i units under construition and indude Al UlX? (net of in-I come lawg of $MI million. T he construttion program is reviewed perknhcally, 1 ) and actual construction costs to be incurred may vary 3 f rom the ab r.v estimates becauw of fat tornu( h as 19 -. m. ^-

l ManagemenYs Discussion & Anah sis Appanimatelv $119 million will tv required in the I nergy Regulatory Comnuwion (FI FC) of an appropnate 1986 to 1988 period in connection w ith the present amenthaent to the Company's htense for the pro tt. The sinking fund requirements and matunties or long-term receipt of such amendment cannot tv awured. If the debt and preferred stock subject to mandatory redemp-Company divs not obtam an appnipnate amendment to tion. The short-term lbilution Controllhind Anticipa-its F1 RC lis ense, the Ra ky Mountain projett may tv tion Notes of $3M million are due during 1%. The cancelled. In such event, the recovery of the pnyesti Company intends to ref und the notes w ith long-tt rm ctwts cannot tv assured. The Company b also esploring Ibuution Control tionds. the sale i.f Ihe pmiett At themtvr 31, lum, the Com-P"" b *"*""II"N' W """'"E"#*"""'"""#P' Regulatory Matters The GPSC has engaged the con-P "" *'"" sultingfirmof O'llrien Kreitiberg& AmiciateslOKA) and its subcontractors to conduct a study of the Com-I uture Comiderations for Capital Requirements panyi construction program, including deciuons re-the U.S I mironmentalI'mtntion Agenty has prom. latmg to plar ning, design, hcensing and construction utgated new air quahty mntml regulatiom relating to the of Plant \\bgtle. See "I'ruttence Audits" in Note 3 to the stask height requirements of Ihe Clean Air Att. the financial statements for further information-ultimate impait of these regulations cannot be accurate. The GP%C aho has commenced a pro eeding con-Iv determined until the state em tronmental agenoes cerning a framework for a phase-in of Plant \\bgtlei determine w hat as tions must tv taken by the Company costs. The Company % hhng in such pniceed mg prewnts to comply w ith Ihe regulatiom f lowcWr, it n es pc.ted a plan under w hich its imestment in eac h un i of l'lant that either the uw of more espemnelowwulfur f uelor \\bgtle would be phased into rate base in equalincre-mmtruition of (ostty llue gas desulf urt/ation eqmp-ments over a three year pt riod lvginning w ith the date ment may be require'd at 5 crtain f at ilities of commercialoperationof suth unit Whilea phaw m in addition. legwlation tving (onsidered by Con-would moderate the etfest on the Companyi customers grew cont erning and ram would make additional pilu-of indusion of the plant in rate baw, the resultmg delay tion wntrol eqmpment compuhory for tertain mal-in the Company % recovery of its im estment may ad fi.vd eintnc power plantt 't he enactment of legnlation serwly af fect earnings, cash thv and cost of capital. See mandatmg reduitiom m sulf ur dimide enmuom in the " Phase-In I' lam" in Note 3 to the finant tal statementi for wru e area of the Company would substantially mcreaw further information. the Comp myi capital n qmrrments and olvratmg iosts It will tv nnewary for the Company to finance part Ias legislation has tren pm;wed that would chmb of its comtruction program f rom the Iwuance of pre-nate im estment tas (rcthis and cuttad cash flow dern ed ferred sto(k and long term debt. T he Company must f rom deferred int ome taws If tegnlation h ultimately receive approval of Ihe GPSC and Ihe St C tvfore inu-paswd w hn h mntams pnn isions w bx h redut e internal nh flow the Company w dily required to obtam the ing such wnior wcuntier See "I inancing" in Note 3 to u the hnancial statements for further information on the f unds f rom othe %ourm, pnmanly the(apital markett Company % fmancing appbcatiom. A study by a mmulting firm (ommnuoned by the ComumerV Utihty Counwlof the Stateof Georgia has wrkluded that cancellation of Plant \\bgt!c w dl pnn h!e substantial savings to ratepayers Management trhes es that the methodology and awumptiom uwd in this study are wrong and, anuth, the wrulusiom of the study are without me.it. i he GPSCi order cfin tn e May 16,1%, grant mg the Companyi ret ucst for f man (ing authority inc luth d rr stra tsom re' ate to the Ro.ky Mountain projett. t he UPSCi f manung order wra ludes t hat mmpletion of the R d y Mountain pum;vd storage pnynt h not n o-nomk ally Imtifiable and reastmable and withholds authort/ation for the Company to spend funds inim the appnived wcurities hsuant es on that projn t. The Com-pany has determined to delay Ihe planned mmmerdal operation date of the Hot ky Mountain pnyn t from IWI to 1m Su(h at tion h sub;nt to appn n al by Ihe lederal m

STATEhIEN1F OF TI n C O t n e,N m ece xm c_. e_, e,_ %ars Ended thember ~ 1 1985 19N4 1981 Operating Revenues. 5 3,444,298 > 3,132.8N) $ 2.730 574 Gperating Espenses Operatien - Fuel. 1,077,092 1.000,4'd 8s4 137 Purchawd and interchanged ptmer. net. 455,412 429,522 339,'t;M Other. 482,468 412,N13 361 t.42 Maintenance. 25 e,510 228 377 193,:66 Deprecation and amortintam. 201,524 191.205 176.; M Tases other than income taxes. 120,320 106.90N 93,7 17 federal and st ite incoue taws 311,151 264.e64 231.5 6 Totaloperato; espenses 2,902,4*7 2.617,903 2.2MO.04) Operatingincome. 541,821 444 977 4N),5; 4 Other Income tiNpense) Alkmance for equ:ty f unds uwd dunng tonstru4 tion 227,9 4) 162.057 107.6.*2 Gains on sa'es of fxthties 48.914 Interest mcome. 41,546 34 074 37.211 l Other. net. (1,398) (riol) (894) inctnne taws app lm able to other i wome. 19,114) (17.678) (14.92 9 l Income Refere IntercSt Charges,, 79N,805 701.741 579 pi Interest Ch rges Interest on teng term debt.. 421,764 351.MM 315,44: Alhmance for debt funds uwd dunog construitnin. (216,231) (IN) 911) (99,M4% i Amortintion of debt dnt ount, pren ou m and eyvnse, net. 2,335 16MO I,4M Inter,t on mtenm obhgations 20,516 11.387 l Other interest charges, 10,591 N,416 2.461 Net interest s harges.. 2?R,975 224.43/ 219,544 l Net income 559,Rio 477,11r> 3rd),121 Disidendson Prefstred Stock. _ _66,1_11 . _ _17 R S6M %6 Net income Af ter Dividends on Preferred Stock $ 491,717 % 421,,719 % M45% i t m 1=~ .a i STATEh!ENTS OF Earnings Retained in the Business,xwovsauna Years Fnded Decemtvr 31 1985 19 4 1981 Halance, beginning of period $ 723,064 $ 52M.221 5 413,2'*) Add (dedutt). Net income af ter dn idends on preferrrd stot k. 491,717 421.719 101. % 1 Cash dividends paid on s ommon stin k. 1277,4N11 (22%.N1t) (189,#d ul) Pr+rred stos k inuance es penw _ (1,69n1 _ 1,1 ty (11) ( Halance, end o! period.. S 9 n, Sal 5 721w 4 $ 52N 221 y_ STATEh,ENTS OF Other Paid-In Capital,xwousaxos Y'ars I nded Da emtvr 31 1985 1984 19M i Halance, beginning ol period. l l,415,MN) $ 1,211.N O $ '7% N 10 Cash contribution to opital by parent t ompany _.115,tk)0 _ 202.0h] _ _ 221M MI Halance, end of period 1 1,710,fuM1 51,41% Mm % l.211 Ma) 28 1% uw qway,y rwoe. m an,nreya! wr ef us,<w <tarr,,wnr.

Bahnce Sheets mwovs-s c,n-c0,,f, Decembee." 1985 19')4 A5ha.N Utility Plant Plant in service, at original cost................................ 96,573,090 $6,195,791 1,859,166 1,701,4M Less-axumulated provision for depreciation...... 4,713,924 4.494 307 Nuclear fuel, at amortized cost...... 253,41s 231,456 Construction work in progress: Plant Wgtle.......... 2,435,310 1,H91,550 Plant Scherer......... 599,996 372.663 Other..... 545,762 430.415 Total 3,581,0s8 2.694.628 920.047 873.024 t less-property-related accumulated deferred income tases Total.. 7,628, % 3 6.547.367 Other Property and Investments Southern Electric Generating Company, at equity...... 16,946 16,804 22,411 21.339 Nonutility property net... 39,357 38,143 Total.... Current Assets Cash............... 13.996 22.608 5a8,543 462,403 Temporarycashinvestments atcost t Receivables-Customer acrounts rneivable... 231,591 233,505 55,403 44,5N t Accrued utility revenues......... Other accounts and notes receivable... 108,544 86,665 i 32,614 32,627 Affiliated companies...... Accumulated 15,%3) (2.600) Ibstil fuel stock, provision for uncollectible accounts.... 210,604 289.807 at average cost............ Materials and supplies, at average cost 69,397 67.861 8,506 6.697 Prepayments..................... 28,700 2ri.t<10 Vacation pay dcferred....... Total.... 1,342,%5 1.270 677 l .4 Deferred Charges Debt espenses-being amortized.......... 12,490 ll,21M Miscellaneous 8,0n3 12.667 Total... 20,533 23.M85 Total Aseets 59,030.618 $7,MMO,072 CAPITALIZATION AND LIABILITIES Capitalisation (See accompany ing statements) $3,013,707 H,486,172 Common stock equity...... Preferred stock...... 632,644 4M2,444 Preferred stock subject to mar.datory redemption.... 120,000 127,900 long-term dett... 3,878,066 3.432.606 Total.. 7,644,617 6,%29,122 Current Liabilltt s a 7,500 3,750 Preferred stock sinking f und requirement........ 44,229 21,324 Long-term debt due within one year l'btlution control bond anticipaton notes payable (Note (). %,400 IW 356 Accounts payable-Affiliated com 24,020 22.417 Other.......panies... 330,551 3th.759 Nuclear fuel duposal fee.......... 1,295 25,452 29,752 34.M38 Customer deposits..... Tases accrued-federal and state income... 23,747 98,2M Otner.......... 68,281 53.174 Interest accrued........ 1%,279 117,754 28,700 26.rd10 % cation pay accrued...... 60,%_5_ 37.874 Misc ellaneous..................... Total........ 795,719 M7.9M7 Deferred Credite and Other Liabilitles 5?2,509 471,640

• Accumulated deferred investment tas tredits....

Misc ellaneous....................... 17,773 _ 11.323 Total..................... 590,2n2 4x2.9tp f Commitmente and Contingent Matters (Notet 3,4. 7, and N) ou-m2 $7 MHO 07 $9,010,618 Tntal Capitalisation and Liabilities.......... 22 1ht et wm;wnysng notre ntr emntegreigwrt pflhor statemente

STATEMENTS OF Capitalization,xwovsaxos a0w., n-, co,, tnt,, Decemtvr 31 1985 % of Total 1984 %of Total Cor. mon Stock Equity Common umk (w ithout pa* ulue) authorized 15 000J100 shares, outstanding 7,761,500 shares $ 344,250 $ M4.2R) Otner paid-in capital 1,730,800 1.415.8t O Premium on preferred staL. 3,074 3.0;8 Earnings retained in the busmess 935,583 723.0e>4 Total common stak equity 3,013,707 39.4 % 2;4Fo,172 38.1 % Cumulative Preferred Stock (without par ulue) authoriicd 2ts900.000 shares. outstanding 17,578.439 shares Class $100 stated value- $4 60 to$oRISenes. I17,844 117,M4 $7.72 to $7.80 Senes. 105,000 10;,tt o $8.20 to 'r91i8 Senes. 35,000 3;.a O $25 stated salue- $2,52 Senes 50,000 50.0lO $2.56 Senes 50,000 N).0i10 $33) Series. 50,000 $3 44 Senes. 75,000 7;j1 0 Ad ustable Rate - at January 1,19% i 9 72 %. 5J,000 N)J1tO 872%. 50,000 9 17 %. 50,000 Totallannual dividend n qvirement $37.475t000)j. 612,844 8.3 482.844 7.4 Cumulatise Preferred Stock Subject to Niandatory Redemption (w ithout par value) authonied and outstand ng 5,100,000 5 hares $25 stated u'ue- $215 Senes 52,500

6.250

$356Senes. 75,000 75.0t0 [ annual dn idend requirement $17.ONiO)J Ins amount due w ithin one year. _ 7,%00 3.750 Total, culuding amount due withm one year. _ 120,000 1.6 127,N10 19 Inng Term Debt First Niortgage Bonds hiaturity Interest Rates N1iy 1 1%5. .3',%. t1,9xx A pnl 1.19% . 3' a3. 12,000 12.000 June 1,19<'. .5%% s,97s M.97M Alarc h I,199 . 4',%. 24,000 24.fo) Novemter 1,1WO. 4',%. 12,u00 12.n 0 Ottoter1,1WI. .17 5 %. 121,250 122,N 0 IW1.lW5 . 4',% to 4',% 127J00 127, N 0 1W6 2010. . %',% to 11',%. 402,R21 402 H21 20rJ12105. . 7',% to 11',%. 525,964 N25,96M 20t v>-2010. 9',% to ll')% 548,000 54Uxo 20!!-2015. .13'it to 16',%. 649,500 698010 Total first mortgage tunds 2,772,019 2.789.7;7 Other long term debt (Note 6) 1,201,065 702,986 Unamortved debt premium (diu ount), net. , (as,789) _ (JMJ71) Totallong term debt lannualinterest n quirement $465.714 (000)! 3,92ti,295 1.451,910 Ins amount due w ithm one year. 48,229 _ 21 }28 Iung term debt, culuding amount due within one ) var _3,M7A,066 50.7 l.412 tiO6 y2 f Total Capitalliation (Note 6) $ /,6-8 4,617 100.0'% $6.529.122 100 0 % 23 T hr au,,,,qws w n narn arr a runtmal ow t,1 tl,r.e starroneros

STATEMENTS OF Souwes ofFundsfor Gross ditions mwovsasos c a w, n. n a -,m,,y 'ke'rs Ended December 31 1985 1984 1983 Funds from Operations: Netincome. $ 559,830 $ 477,3 % $ 360.123 Add ; deduct) principal noncash items-Depreciation and amortiution. 248,25o 219. Nil 2*N,733 Deferred income taics, ivt 104,102 14i.266 141,511 Deferrtd imestment tas tredits. I15,14 I bl.232 83,266 Allowance for equity funds used dunng constructun (227,9'0) J62,057) (107,6M2) 799,3A2 741,098 te8.951 less-i Dividends on common stock 277,500 225;00 189,ta) Ch Vends on preferred stock. _ 66,113 55 617 %,Me 343,613 2NI,J 17 243,lte Net funds prtn ided from operations. 455,769 4 w,981 441J81 Funds f rom Financings and Capital Contributions: First mortgage bonds. IN),000 125,(n10 Bonds rettred, reacquired, or ref unded at maturity. I17,73M) (26,084) (18,273) Preferred stock. 150,000 90,(u) l Preferred stock reacquired (3,750) (2.3N)) (4,37M) Capital contnbutions from parent company 315,000 202Jx10 223,10) Ibtlution control bonds. 500, % 2 190.577 2M M27 Increase (decrease)in other long-term debt. (h43) (276) 3,617 (72,956) 109,3 % lbilution control bond anticipation notes pay able Net funds provided from f mancings and capitalcontributions. 870,t>75 673.193 3;7,791 Funds fmrn Other Sources: ( Decrease (increase)in temporary cash imestments. (128,140) (It4.%40) 23MJ4n Decrease (increase)in other net current awets (evludmg notes payable and long-term debt and preferred stot k due w ithm one year) 21,165 tox 40n (64287) 2ri9,2M i Sales of property, net book value Other - net (includmg alknvante Ior l equity funds used during construction). 1W,393 N).%29 39 239 Net funds pros ided from other sourt es. 57,73M 261.672 213.698 Gross Property Additionslindudmg al' mance for f unds used during construction in the amount of $337,67)(000)in 19M;, $240,79M(Uno)in 1951 and $158.455(000)in 1981). $1,la8,1M2 $ 1,T%k46 $1.01%,274 2I Ilw + vmownvun.g netes arr en snrecal urt of thew state nents. t

\\ Notes to Financial Statements 1 5 Note Summaryof S. n,ificant The ast of nu'Iear 'uel is amo"i'ed 'o 'ue' aren'e ], Accounting Poi cies: based on the estimated thermal units utilved to gener-ate elettne energy and inclu.les a pnwision for the posal o t nuclear fuel. Total charges for nuclear t ~ General. T ne Company is a w holly owned subsidiary tuel mclude in fuel expense amounted to $39,722JW m of the Soutn, ern tompany w hich is thc parent company of four operating compames, a system seruce company' 1485, $17,851JW n 1984 and $22,240AW m 1983 The Southern Electric International, Inc. (International) Company has a contrect with the Department of Energy and Southern Electric investments, Inc. (Investments)^ (DOL)th]atnm des for the permanent disposal of s[vn't h W ices pnn ided by DOE are sched-The operatmg comp 2mes provide electric service in four southeastern states. Contracts among the com-uled to tygin in NM IVndmg permanent dnpositum of parues dealmg with jointly owned generating facdities, the spt nt tuel, suliicient storage capacity is presently a ailable at I'lant f latch until the year 20i)1 and w ill tv g mterconr a ting transmission lines, and eschange of elect-ic power are regulated by the Tvderal Em rgy AW M Plant Wgtle untd the hear 2l01 Regtlatory Commission (FERC) or tb Securities and Pension Costs. Ihe Company has a dehned beneht, = Exchange Commission (SFQ The system service com-trusteed, and noncontnbutory pension plan w hich E pany provides, at cost, tr6nical and other specialized ciners substantially all regular employees. The pohey of sers ius to The Southern Company and to each of the the Company is to 'tund each year's accrued pension cost subsidiary companies. International markets to utdities as determined using its attuarial cost method, the ~ entry L and industrial concerns the techmcal expertise of the age normal method w ith fnven initialliabihty." In 19M. 5 Southern electric system in plant ing and operating elec-c hanges were made in certain actuanal assumptions tric power facilities. Investments was formed in 1985 for used in determining annual plan cost and contnbutmns the purpose of researching, develeping, and investmg in to rt flett plan experience. The most significant (hange., k new business opportunities. w cre an increase.n the awumed rate of return on plan The Southern Company is registered as a holding investments f rom 5'% to 7'% and an increase in the company under the Public Utihty lloiding Company assumed annual rate of salary increases from 4'% to 6't. L Act of 1935. Both The Sou thctn Company and its sub-These changes decreased 1984 contnbutions to the plan sidiaries are subject to the regulatory provisions of the by $15]A9AMO. Atcrued pension cost amounted to Act. The Company also is subject to regulation by the $RMMJW in 19% $31617,0t 0 in 194 and $46,3aljW in FERC and the Georgia Public f ervice Commission 1983 whk h represented 7.1'L,7.3'% and 112't, respec-(GPSC). The Company follows generally an epted ac-tively, of emp.oyee salaries and wages in each year. Of counting principles and complies with Ihe accounting these amounts, $16.535JWin 1985, $16,407JXMhn 1981 policies and prxtices pre cntvd by the respettive and $25,672JW in 1983 w cie c harged to operatmg ev commissions-penses, and the balance was charged to construttion Utility Plant. Utility plant is stated at original cost. This and other aaounts. In 1985 and IWl, the Company also provided appnnimately $12,181,000 and $13,tmjW, cost includes apbropnate admmntratn e and general costs; p avroll.re ted costs such as taxes, penuons, and n spe(1:vely, to cos er the estimated cost of early n tire-other berichts; and the estimated cost of funds used dur. ment incenove pngrams. Amunulated pension bencht ing construction, The cost of maintenance, repairs, and infonnation as of the valuation dates (January 1 of cat h replacement of minor items of property is charged to year) follow 5 (in Ihousand+ w maintenance expense accour.ts. The cost of pniperty re- ^""'"'4""",""'l"""'*'""'""4-- - - - - - -m placements (exclusiveof nunoritemsof property)is charl ed to utility plant. plan bemea - Raveauen. The Company accrues revenues for service V"'e f $rs.n2s 52se,710 rendered but unbilled. Nonment , yas _ 94 m Fuel Costs. Fuel costs are expensed as the f uct is used. Mai aou.nal rn~nu alue or 1he Company is authoriied by state law and i I:RC reg. .o umulaent plan b. nehn $ m niz 52m w ulations to recover fuel costs and net pun based energy w,ghtnt e er m.r,en ornturn costs tbrough fuel cost recovery provisions which may n umed m deternumnotuanal be adjusted as necessary to refht increases or decreases P"*"h *1"" 4 *" """d d'"i in such costs. Revenues are adjusted for differences tv-P"h""* " tween recoverable f uel costs and amounts actually [ recovered in current rates. (See Note 2 for retent regu-Not awn n.dable b., t+not ti %i I,052 $4% H4 latory events concerning fucl cost recovery.) = 25 wntiaun!

He actuarial present value or accumulated plan Income Taxes. The Company, w hich is induded in the benefits was determined on the basis of accrued benefits consolMated federalincome tax return hied by The as of January l of the respective years, whereas the plan Southern Company, folkm defeard income tax account. is funded based on the premise that the plan will con-ing for all income tax timing dif ferences. Investment tax tinue in existence, which requires that future events be credits utilized are deferred and amortized over the awr-considered. Financial Accounting Standards Board State-age liws of the related property. Provisions for property-ment No. 87 (" Employers' Accounting for IVnsions). related deterred income taxes (e g. act clerated cost re-which must be implemented in 1987 and 1989, or earlier, covery and hberahied depreciation) retkct consumption will require changes in the Company's accounting for of part of the value of the plant and equipment to w hich pension costs. These changes are not expected to materi-thq relate. Consequently, they are simdar to depreciation ally impact the Company's financial position er the pnnisions. and the related accumulated deferred incame results of operations. However, pension costs are ex-taxes, hke the accumulated pnwision for depreciation, is a pected initially to be somewhat lower but more volatile valuation reserve deducted from the plant im estment in than in the past. the accompanying Balance Sheets and in arriving at the ne Company also provides certain health care and hfe rate base used in ratemaking proceedings. Other deferred insurance benefits for retired emph3yees. Substantiary all income taxes are included in taxes accrued. See Note 5 employ ees will become eligible for these benefits if they for further information regarding ircome taxes. reach normal retirement age whde still workmg for the Allowance for Funds Used During Construction Corr.pany. The costs of such benefits are recognized as (AFUDC). AFUDC represents the estimated debt and payments are made and amounted ta 56,041,000 and equity msts of capital funds which are applicable to utility 55,550,000 for 1983 and 19M respectively plant while under construction. While cash is not rea- ' Vacation Pay. The Company's employees earn their lized currently from such allowance, it is realized over vacation in one war and tak'e it in the' subsequent year. the service hfe of the plant through increased rewnues However, for rat'emaking purposes vacation pay is 'recog-resulting from a higher rate base and higher depreciation nized as an allowable expense only when paid. Consistent expense. For the years 1983 through 1985, the AFUDC with this ratemaking treatment, the Company accrues a rate was adjusted monthly and compounded semi-current liability for earned vacation pay and records a annually and ranged from 8.74% to 9.61%, net of income current asset representing the future recowrability of tax. The Company accounts for the income tax effect of this cost. Such amounts were 528,m0,000 and $26l600,000 capitalized debt cost as a charge to income tax expense at December 31,1985 and 19S4, respectively. In 1986. ap. associated with operations and a corresponding credit proximately 59% of the 1985 vacation liabihty will be ex-to allowance for debt funds used during construction. pensed, and the balance will be charged to constn2ction The income tax effect of capitalized debt cost was and other accounts. $106,512.000, 572,190,000 and $49,072,000 in 1985,194 and 1983, respectively. AFUDC, net of inceme taxes, as Depreciation. Depreciation is provided on the onginal a percent of net inco51e after dividends on preferred cost of depreciable utility plant in service, principally stock amounted to 68%,57%, and 52% for 1985,1984 on a straight-line basis over the estimated composite and 1983, respectivelv. service life of the property. The depreciation provisions approximated 3.7% in 1985,1984 and 1983 of the average cost of depreciable utility plant. Such provisions in-clude a factor to pros ide for the expected cost of decom-Note Rate Proceedings: missioning nudear facilities. This factor is currently based y on an estimated decommissioning cost (based on rate- ~ making treatment) of approximately 532,000.000 each Effective October 1,1983, the GPSC granted the Com-for the Company's portion of the two units at Pict pany an annual increase in retail revenues of $86,500.000 Hatch. He Corrpany's current estimate of the decom-in additbn to a $108,900,000 increase previously granted missioning cost is apprcximately 573,000,000 for the effective September 7,1983. A cons umer group ap-Company's portion of each unit. An updated estimate pealed the GPSC's final order to tt e Superior Court of will be induded in the next retail rate application. When I ulton Countv, alleging that the $56,500,000 additional property subject to depreciation is retired or otherwise increase resuited from procedural irregularities. The disposed of in the normal course of business, its cost Court dismissed the case, finding that the group lacked together with its cost of removal, less salvage, is charged standing to seek judicial review. After further appeals, l to the accumulated pronsion for depreciation. on December 2,1985, the Supreme Court of Georgia j affirmed a decision by the Court of Appeals to permit the consumer group to pnx eed w ith its appeal to the Superior Court of Fulton Cour.ty. On April 16,1984, the Company filed a request for an increase in the fuel cost recovery rate with the GPSC. The GPSC granted an allowance which was deficient in covering the Company's prior tuel cost by approximately 512,3W00. Disallowed costs related to coal procure-i ~ ment policies for Plant Scherer and to higher cost re-placement energy w hile Plant Hatch Unit No. 2(nuclear) 26

was out of service for replacement of recirculation materials; cost of capital and the granting of timely and pipe. Fc!!owing appeals in the courts, the matter was re-adequate w holesale and retail rate increases by appro-turned to the GPSC for further consideration. In Jan-priate commissions. uary 19865 the GPSC vacated its original disallowance On August 5,1%5, the Company announced an in-order pending results of a prudence audit being con-creased cost estimate for Plant %gtle, a tw Nnit nuclear ducted (see Note 3). In management's opinion, the out-generating facility under construction near Augusta, come of this issue will not have a material impact on the Georgia, and a three-month delay in the planned fuel financial position and results of operations of the load and commercial operation dates for Unit No.1 of Company. the plant. The Company now estimates that total plant additions at completion for its 45.7% ownership interest Note in Plant Wgtle will be approximately $3.6 billion (in-cluding $1.1 billion of AFUDC), an increase of $472 mil-

3. Constmetion rmgramt lion (15.3%) from the prior estimate. ne revised budget for Plant Wgtle incluus a contingency allow mce of 10%

The Company is engaged in a continuous construction of unexpended e3timated direct construction costs and program and presently estimates gross property addi. associated financing costs. Such contingency allowance tions to be approximately $1.74 billion in 1986; $1.12 for the Company's interest in the plant amounts to $84 billion in 1987; and $1.02 billion in 1988. nese estimated million (including $10 million of AFUDC). The esti-additions include AFUDC (net of income taxes) of $416 mated totai cost of the plant at completion (including all million in 1986, $269 million in 1987 and $166 million in co-owners' financing costs and contingency allowances) 1988. At December 31,1985, substantial purchase com-has been increased from $7.2 billion to $8.4 billion. The ritments were outstanding in connection with the wn-current budget estimates for Plant Wgtle reflect, among struction program. Major Pmjects. He chart below shows the status of ma-confinued jor construction projects as of December 31,1985: i Generating Units mn, w,gtie m under Construction Plant Scherer Unit Na l and Unit Unit Common Rocky (dollarsin thousands) Na3 Na4 r m ht-s Unii sa 2 Mountam f 2> FuelType.. Coa! Coal Nuclear Nuclear Pumped Storage Itnned Cucu&rcia! Ope.v.*mn Date..... Current Company Ownersh2p. 1987 1999 1987 1988 1999 Kikwattsof Nameplate 75.0% 100 9% 45.7 % 45.7% 100.0 % Capacity (current cwnership). Tc3a!mnt Additionstbrough 613,500 818,000 530,120 530,120 847,800 Dt cember 31,1985. $3%349 $203.M7 $2.068,619 5 382,424 $ 163,077 Estmrted Nnt Additions at CerrWionexchaJmg AFUDC... $416,000 $617,000 $1.773.000 $ 706,000 $ 818,000 Estimatec AFUDCat Completon t3). $ 97,000 5 t54,000 $ 781,000 $ 297.0u0 $ 375.000 Estimated Tota 1 Plant Additions at Compk tic.. Estimated Percentage of $513,000 $771,000 $2,554.000 51,003,000 $1,193,WO Completion at December 31,1985(4). 86 % 17 % 88 % 53 % 21 % i MOTES: (1) Dollar amounts for Plant Vogtle exclude nuclear fuel. (3) Estimated AFUDC at completion auumes no phase in of plants into rate base tyfore or after completion of construction. (2) .e I the Rocky Mountain project has been deferred Plant Vogtle estimated percentage of completon figures are based on quantities of materials installed and reficct an equal alkraticm of common facihres between Unit No. I and Unit Na 2. I The construction program is reviewed periodically, and actualconstruction costs to be incurred and planned commercial operation dates may vary from current esti-mates because of fac* ors such as changes in business conditions; fluctuating rates ofload growth; environ-mental requirements; design and licensing changes to meet regulatory r quirements; equipment delivery schedules; increasing costs oflabor, equipment and 27

other things, a dowmvaal revision of pmjected produc-The Atomic Safety and 1.icensing floard (ASLll) of tivity rams and an increase in costs tot greater quantities the NRC will :titimately recommend to the NRC of elettrical materials (wire, cable and conduit). whether the Wgtle licenses should be granted. The In August 19S5, the Company also decreased its esti-ASLB held a Prehearing Conference in hiay 1984 to mated expenditures telating to non-generating cate-define the issues to be addressed in the Plant Wgtle gories and other major generating projects for the re-licensing hearings. Subsequently. the AStil granted in-maining period of construction of Plant Vogtle tw tervener status to two organizations and docketed cer-amounts which more than offset the increase in the cost tain of their contentions for consideration during the estimate for its interest in Plant Wgtle. publiclicensinghearings. Allbut threeof theconten-Unit No.1 of Plant Wgtle is now planned for com-tions haw tven dismissed by the ASLB. De contentions mercial operation in J une 1987. The planned commercial admitted by the ASI.B for public hearing involve pos-operation date of September 1988, for Unit No. 2, has not sible ground water contamination, the ability of certain been changed. If there is further delay in commercial valves to operate under emeigency conditions and of cer-operation of either unit, then the AFUDC charged to the tain organic materals to withstand long term exposure Company's share of Plant Wgtle will increase approxi-to radiation, and the adequacy of the Company's emer-mately 521 million per month (based on the current gency planning The Company's request for summary cost estimate)in the case of Unit No. I and common judgement on the emergency planning contention is cur-facilities and SS million per month in the case of Unit rently pending. The public hearings are now scheduled No. 2. Further delay in commercial operation of either to beginin Alarch 19% Another stepin thelicensing unit may also result in a substantialincrease in the direct process is an emergency drill involving Company per-construction costs of such unit. sonnel and various government agencies, now planned During 1985, the Company has determined to delay for hiay 1986. Interveners will have the opportunity to the planned commercial operation date of the Rocky file additionalcontentions based on the results of that h1ountain pumped storage hydroelectric project frdm drill. If the licensing process proceeds on schedule, fuel 1991 to 1999. Such action is subject to approval by the loading at Unit 1 is expected to take place in December FERC of an appropriate amendment to the Com'pany's 1986. The Company would then begin low-power testing license for the project. The receipt of such amendment and move to full-power operation and commercial start-cannet be assured. If the Company does not obtain an up as early as June 1987. appropriate amendment to its FERC license or negotiate a sale of the project, the project may be cancelled. In Phase-In Plans. By order dated July 25,1985, the GPSC such event, the recovery of the pro [ect's costs cannot be directed the Company to file a proposed plan for phas-assured. As of December 31,1985, the Company's in-ing Plant Wgtle costs into retail rates. The Company's vestment in the project amounted to approiimitely nwponse presented a base case under which its mvest- $163,000.000. Effective December 1985 AFUDC acc'ued ment m each unit of Plant Wgtle would be phased into r on the Rocky N1ountain project is not being credi!2d to rate base in equal increments over a three-year penod income or included in gross property additions. The begmmng with the date of commercial operation of each outcome of this matter currently cannot be determined. unit. Additional financing costs resulting from the defer-ral would be deterred and amortized over years four Licensing. Before operation of a nuclear unit, an oper-through ten fo!!owing commercial operatidn. The Com-ating license for such unit must be obtained from the pany also presented three options to the base case. Nuclear Regulatory Commission (NRC). Procedures for ~Under the first option, the Company's contractual obtaining operating licenses afford an opportunity for obligations to purchase declining fractions of the capacity l interested parties to request a public hearing on health of Plant Wgtle owned by Oglethorpe Ibver Corporatio'n and safety, environmental and antitrust issues. Issuance (OPC) and the Alunicipal Electric Authority of Georgia of operating licenses by the NRC may be conditioned (NIEAG) would be levelized over the term of such obliga-upon requiring substantial changes in proposed opera-tions. The second option would divide costs associated tion or upon installing additional equipment to meet with common facilities equally between each unit. The upgraded or new safety or environmen:al regulations, third option proposed by the Company is a combination with consequent delay and added cost. of cptions ore and two.~ The Company applied for operating licenses for The Company's investment in each unit, including Plant Wgtle Unit Nos. I and 2 in September 1983. Follow-its direct construction costs and associated interest costs, ing a detailed review of the applications, the NRC staff as we!! as the capacity costs of the declining buybacks issued the required Final Environmental Statement and from OPC and A1EAG, would be subjed to the phase-in. Safety Evaluation Report in h1 arch 1985 and June 1985, Other Plant Wgtle costs, including operation ard mainte-respectively. In August 985, the Advisory Committee nance, depreciation, property taxes and nuclear fuel, as on Reactor Safeguards issued a report advising the well as related irwestment tax credit amortization and ac-NRC, that subject to completion of construction, staff-cumu!ated deferred income taxes, would be handled ing, preoperational testing, and resolution of the re-through the normal ratemaking process. maining open issues identified by the NRC staff, there in December 1985, the GPSC held preliminary hear-is reasonable assurance that the Wgtle units can be ing3 regarding the above phase-in proposal and further operated at full power without undue risk to the health hearings were held in February 19% While a phase-in and safety of the public. would moderate the effect on the Company's consumers of inclusion of the plant in rate base, the resulting delay in recovery of its investment may adversely affect earnings, 28

cash flow and cost of capital. In addition, the Financial A delay could result in significant additional construc-Accounting Standards Board has issued pmposed rules tion custs in the emnt of cancellation of any project, them for phase-in plans. ne adoption of a phase-in plan that is is no assurance th.d the Company would be able to re-not in confermity with those rules could adversely affect cover the costs assocated with such project. earnings. During 1985, the Company issued 5550 million in At the commencement of the 1986legis atiw session, long-term pollution control obligations and 5150 million a bill was pending before the Georgia House of Represen-in pmferred stock. As of December 31,1985, the Com-tatives which wuuld nyuire the GPSC to phase the pany had remiving credit agreements aggmgating $1.565 Company's prudently incurred construction costs for billion with 11 banks. The agreements are effectiw until each unit of Plant Wgtle into ;ts retail rate base in equal December 31,1990. During the temt of these agreements, annual installments over a period of not less than three the Company may convert short-term borrowings into nor more than six years from the date of commercial op-term loans. Such term loans wuuld be payable in 12 equal cration of such unit.The bill was passed by the Georgia quarterly installments during the years 1991 through Senate in the 1985 session. Further action on the bill is not 1993, or at an earlier date at the Company's option. Such expected in light of the aforementioned action by the term k>ans wuuld be subject to authorization from the GPSCrep,arding Wgtle phase-in. GPSC and the SEC. Additionally, the Company has 5120 million in ther lines of credit subject to annual renewal. Prodence Audits. In June 1985, the GPSC engaged the in connati n with the credit agreements and the consulting firm of O'Brien-Kreitzberg & Associates (OKA) arid i9 subcontractors to conduct audits examin-lines f credit, the Company has agreed to pay certam fees and/or mamtam ccmpwtmg balances with the ing the prudence of the Company's decisions wlating to banWMalances am mt kgauy msW as to planning, design, licensing, and construction of Plant withdrawal by the Company. Awrage compensating bal-Wgtle and Plant Scherer Unit Nos. 3 and 4, as well as the an unng wem appmumatcW2 m%on and at prudence of the Company's load forecast and generation Dwemkr 31, N, wem appnnimately $2.8 million. l ~ exP""5 ion P ans. Certain fuel-related matters are also be-The GPSC's htav % 1983 order authonzmg the Com-ing examined, m.cluding the Company's coal pmcun' pany's 1985 financin'gs provides that "no portion of the ment pohcies and practices, its o,ccuren to burn.cw-approved securities or any monies associated with these sulfur coal at Plant Scherer rather than mstall flue-gas securities be allowed for ratemaking purposes until such desulfurization equipment and certain aspects of the time as there has Iven a thorough study of the prudence Company s operation of Plant Scherer Unit hos.1 and 2, of (the Company's) construction programs which have as well as the cracking and subsequcnt replacement of been used to justify the need for these securities." The the recimulation system piptng at Plant Hatch Unit No. 2, order further states the Company "is placed on notice an operating nuclear facility. that the (GPSC) will scrutinize chisely any future financ-Management believes that the Company's construc-ng application, especially one based on increased pn - tion and other costs have been prudently mcurred. jected costs to complete Plant Wgtle...to ensure that (the However, similar studies of other utilities construction Company) has sought sources of financing other 'han programs, induding all such studies performed by OKA, (GPSC) approved secunties." De GPSC's 1985 financing luve recommended exclusions of sigruficant amoun s order also concludes that completion of the Rocky hfoun-from rate base and cost recovery. Any costs said to have tain pumped storage project is not economically justifi-been imprudently m, curred by the comp any may be ex-able and reasonable and withholds authorization for the cluded from rate base and cost recovery Under present Company to spend funds fren the approved securities accountmg rules, such exclusion would not require a issuances on that project. write-downof theplantcostif theCompanysustamsan In its pending GPSC financing application, the Com-earrungs capacity remed to the plant that justifies carry-pany requests authorization to issue up to 5550 million in mg the plant at its full cost. However, the Fmancial. first mortgage bonds or pollution contml obligations and Accountmg Standards Board has proposed a change in up to 5100 million in preferred stock through March 1987, the accounting for rate regulated enterpnses that would The application also seeks permission to borrow up to 51 require immediate write-off of such excluded costs. billion in term loans from the banks participating in the , A study released in December 1985 by a consultm.g revolving credit agreements. The amount of term loan firm commissioned by the Consumers' Utility Counsel of authority available to the Company will subsequently be the State of Geory,ia has concluded that cancellation of reduced by the net cash pro &eds malized fmm the sale of Plant Wgtle will provide substantial savings to ratepayers. first mortgage bonds or pol;ution control obligations, Management beheves that the methodok>gy and as-preferred stock, or capital contributions from its parent, sumptions used in this study are wrong and, as such, the The Southern Company. A hearing was held in January conclusions of the study are without ment. 19% The Company is currently preparing, at the mquest Financing. The Company's gross property additions are of the GPSC, additional economic justification of the expected to be financed from the issuance of preferred Company's construction program. Hearings am scheduled stock and long-term debt, the receipt of common equity to resume in late March. contributions from The Southern Company and internal In view of these cumulative developments occurring soumes. Should the Company be unable to obtain funds in 1985, the final outcome of the regulatory process related from such methods of financing, the Company would to Plant Wgtle currently cannot be determined. use short-term indebtedness or other alternative and confit.ued possibly costlier means of financing or it could become necessary to cancel or delay certain construction projects. 29

Note Ficility Sal:s, Joint Owntrship In connection with these sales, the Company has Agreements and Off-System entered into agreements whereby the Company is re-

4. Sales Agreements:

quired to purchase declining fractions of OPC's and j Facility Sales. The Company has sold undivided interests MEAG's capacity and energy of the respective generat-in Plants Hatch, Wansley, Scherer and Vogtle in varying I"8 ""I'* d"""8 P*" d' "I "P '" '#" Y"# f II *I"8 c mmercial perati n(andwithregardtoaportionof a amounts, together with transmission facilities, to Oglethorpe Ihve-Corporation (An Electric Membership f% interest in I lant \\bgtle owned by MEAG, until the Generation & Transmisaion Corporation) (OPC), the .ater of the wtirement of the plant or the latest stated

• ^'"# N'.te o EAG's bonds issued to fm, ance such Y

Municipal Electric Authority of Georgia, a public corpora-tion and an instrumentality of the State of Georgia .wnership mterest), with the payments for such capa-(MEAG) and the City of Dalton, Georgia. These sales re-y ma whether or not any capacity is available. The energy mst f such purchases is a function of each sulted in a gain, after income taxes, of $21,250,000 in 1984. nere were no such sales in 1983 or 1983. De gain in 19M entity's variable operating costs. The cost of such resulted primarily from the sale of a 5% additicnal un-Capacity and energy is included m urchased and inter-divided interest in Plant \\bgtle to MEAG. The Company changed power in the Company's tatements of In-has also sold a 25% interest in Plant Scherer Unit No. 3 t'o c me. The capacity payments totaled 5187,131,000, $211,352,000 and $115,737,000 in 1985,1984 and 1983, GulfIhver Company, an affiliate. respectively. The cun ant projected capacity payments Joint Ownership Agreements. At December 31,1985, far the next five years are as follows: 5148 million in the Company's percentage ownership and irwestment, 1986; $372 million in 1987; $528 million in 1988; SM6 exclusive of nuclear fuel, in these jointly owned facili-million in 1989; and $459 million in 1990. The increase in ties were as follows (dollars in thousands): capacity payments in 1987 through 1990 reflects the ad-ditional buybacks from the scheduled commercia! Total Percent comtructon operation of Plant \\bgtle Unit Nos. I and 2. stegawatt company Plant work m The Company and an affiliate, Alabama Nwer Type tapacity Ownership insernce Progress G h &WwedwW Yuclear stock of Southern Ele [tric Generating Company 1,630 50.1 % seso 926 s 61,102 Plant Wanslev (SEGCO), which owns electnc generating units with a .... Coal 1.779 53.5 288.939 440 toit rated capacity of 1,019,680 kilowatts, together with ~ Plant schemr-associated transmission facilities. The capacity of the .ioal units has been sold equally to the Company and Ala-2 1.636 84 82,338 83 Umt No. 3... bama Nwer Company under a contract expmng m 1994 .... coal 818 75.0 356.211 which, in substance, requires payments suf ticient to Facihties provide for the operating expenses, taxes and debt serv-common to ce, including return on investment, whether or not ts. 23.5 es.325 9.619 SEGCO has any capacity and energy available. The common to Company's share of such amounts totaled 593,908,000 Umt Nos. $82,570,000 and 580,R000 in 1985,19M and 1983, n spec-3 and 4. 87.5 33,762 tiveh, and these amounts are included in purchased and ^YP* " "** M ear 2,320 45.7 15,733 2.435,310 cember 31, im, the capitalization of SECCO consisted of ' Joint Owners are OPC, MEAC and the City of Dalton except for $33,892.(X10 of equity and 550,467,000 of long-term debt on Plant scherer Unit Not 3, and faahtes ccrnmon to Unit Nos 3 and 4 which the annual interest requirement is M,062,000. of which Gulf Ibwer Company, an affihate, owns interests of 25% and 12.5% respectiwly Off-System Sales Agreements. De Company and its three affiliated operating companies of the South-n The Company has contracted to complete those electric system have entered into severallong-term jointly owned units under construction and to operate agements for the sale of capaaty and energy to other and maintain the units as agent for the joint owners. Each utilities. Some of these agreements are non firm and participant provides its own construction financing. The are based on capacity of the system m general. Others Company would have to obtain additional financing in are firm and are specific to certain generating units. the event of a participant being unable to obtain sufficient Since the energy is generally sold at cost under these financing. De Company includes its prcportionate share agreements, it is the capacity revenues that pnmanly of phnt operating expenses in the corresponding operat-Impact the Company's profitability. Off-system capacity revenues have been as bliows (in thousands): ing expenses in the Statements of Income. 1 ear L.; rut t'ower Sales lencTerm Non Firm 1982 $ 41.R31 1983 92M 41.0"o 19s4 112,352 % 972 1985 229,647 68,297 30 o

l_ong-term power is being sold to Rorida lhver & come tax laws, being currently greater than the beak de-Light Company, Jacksonville Bectric Authority, Rorida preciation of such costs. Other deterred income taxes are Ibwer Corporation and Mississippi Ihver & Light Com-provided for certain costs or revenues that are recog-pany under contracts that expire in 1986. Similar contracts nized for income tax purposes in different periods than with Gulf States Utilities Company (Gulf States) and the for book purposes. Income taxes deferred in prior years City of Tallahassee, Florida, expire in 1992. are reversed (credited to income) when the book depre-Unit pwer from Plant Scherer is being sold to Flor-ciation of pioperty costs exceeds the related tax deduc-ida Ibwer & Light Company, Jacksonville Bectric Author-tions or whe n other timing differences reverse. The pro-ity and Gulf States. These agreements average 952 mega-vision for income taxes currently payable includes the watts for 1986t They reach a maximum of 1,M6 megawatts tax effects of reversals of prior years' timing differences in mid-1989, decline gradually thereafter, and expire for which deferred income taxes were not provided. At in 1995. December 31,1985, the remaining balance of such tim-Gulf States has requested that negotiations com-ing differences was approximately $132 million for mence and pmceed quickly for consideration of the elim-which deferred income taxes of approximately $65 mil-ination or suspe nsion of capacity sales and purchases lion have not been provided. under its unit pawer sales agreement. That agreement The total provision for federal income tax as a per-pnwides for the purchase by Gulf States of approx mately cent of income before income tax amounted to 33.5%, i 190 megawatts of the Company's capacity during 1986, 36.1%, and 37.6% for 1985,1984 and 1983, respectively. rising to a peak of 439 megawatts in 1%9, declining there-The difference between the 1985,19M and 1983 rates and after and ending in May 1992. In making its request, Gulf the federal statutory rate of 46% was due primarily to the States indicated that the electric requirements for its cus-exclusion from taxable income of the allowanee for tomers are beknv forec asted lewis. During 1985. Gulf equity funds used during construction (12.5% in 1985, State > purchasal approximately IS5 megawatts of capac-10.0% in 1984 and 8.6% in 1983). ity under the agreement, providing revenues of approxi-mately $63.3 mJ1 ion (including associated energy charges of $25 million). The Company intends to discu.,s this Note matter with Gulf States, the outcome ai which cannot Capitalizah.on: b-now be determined. Capacity and energy sales under unit power and Common Stock Dividend Restrictions. The Compam's other long-terrr power contract + with Florida Power & first mortgage bond indenture contains various common Light Company prowded revenues of M07,302,000 in stock dividend restrictions which remain in effect so long 1985. These reve nues accounted for ILS% of the Com-as the bonds are outstanding. At December 3L 1985, pany's total 1985 operatmg revenues. 5273,575,000 of retained earnings was restricted against the payment of cash dividends on common stock under terms of the mortgage indenture. The terms of the sink-Note ,,com,7,,,,.* ing funds for the Company's presently outstanding $2.75 and 5376 an A Preferred Stock pmhibit the payment of 5* cash dividends on common stock during a default in the A detail of the federal and state ir.come tax pmvisions performance of the sinking fund obligations. No such is set forth as follows (in thousands): default has occurred. The Company's charter limits cash dividends on 1985 1%4 1%3 common stock to 75% of net income available for such Stal provision for income taxes stock during a prior period of twelve months if, calcu-1 deral-lated on a corporate basis, the ratio of common stock fYr -cWent year. ,'6 equity t total capitalization, including retained eamings, 9 -Rewrsalof pnorpars (65,681) (82.114) (67,366) adjusted to reflect the payment ot the propo3ed divi-ferred mvestment tax credits. 115,144 61.252 83.266 dend, is below 25% and to 50% ;f such net income if such 281,962 270.142 217,184 ratio is less than 20% At Dnember 31,1985, the ratio was 39 % State-currently payable. 22,171 18,114 13,M7 Cumulative Preferred Stock Subject to Mandatory Deferred-Current year. 24,916 29.182 24,w7 Redemption. The $2.75 Class A Preferred Stock has a -Reversalof pnoryears (8,784) (11,106) (9,145) cumulative sinking fund provision requinng the redemp-38,303 36.190 29,309 tion of 150,000 shares annually through 1999 at the stated Total 320,26s 306.332 24e,493 value of $25.00 per share. The Company has the option to Les5-purchase and cancel the required number of shares an-Income taxes charged toother nually. The gains on such reacquisitions amounted to mcome. 9,114 37,678 14.928 M 00 h & years 1%5,1984 and 1983, respectively, and are included with premium on pre-a r ns $311,151 $26R.654 $231.565 harg ferred stock m the Company's Statements of Capitah.za-tion. Deferred income taxes result from the Company's mntinued use of accelerated methods of depreciation and other write-offs of property costs, as provided for by the in-31

f The Company issued 3.000,000 shares of $3.76 Class payable unless and until a default occurs on the install-A Preferred Stock in 1981. On or before June 1,19t% and ment punhase or kian agreements An aggregate of $1.125 annually through 2005, a total of 150,000 shares must be billion of the authorities' hmds are secured by a subordi-recteemed through the operation of a cumulative sinking nated interest in specific property of the Company. fund at the stated value of $25.00 per share. The Com-Assets acquired under capitalleases are recorded in pany his the option to pun-hase and cancel the required the Company's Balance Sheets as utility plant in service i number of shares annually, and the related obligation is classified as other long-term debt. De net book value of assets acquired under capital-Adjustable Rate Preferred Stock. The Company has ized leases was $106,877,000 and $106,878,000 at December issued three series of Adjustable Rate Preferred Stock, 31,1985 and 19M, respectively. At December 31,1985, the each comisting of 2,000,000 shares with a stated value of composite interest rate for the leased rail cars was 9.54%, $23 per ; hare. The dividend rate for each issue, deter-the int.: rest rate for the corporate headquarters lease was mined a the month pnor to each dividend period, is the 8.23% and the composite interest rate for the other leased I highest of the Treasury Bill Rate, the Ten Year Constant buildin8s was 5.44% Maturity Rate, and the Twenty Year Constant Maturity The current portion of other long-term debt for each Rate (each as defined); minus a factor as indicated belkv year tbrough 1990 is as follows: 52,836,000 in 1986; fg, each issue. Homver, the applicable rate for each issue 52,198,000 in 1987; $2,798.000 in 1988, 53,039,000 in 1989; shall fall within the mmimum and maximum rates mdi-and $3,164,000 in 1990. cated beknv: The lease agreement for the corporate headquarters issue building prevides for payments which are minimalin Dec.194 oct.155 Dec.195 carly years and escalate through the first 20 years of the Rate reducten factor. .25% L25% K% lease. nrough October 1986, for the first six years of the Mirumum rate. 6.50 % 6.25 % 6 25 % lease, the payments are not sufficient to cowr the interest Maximum rate. 14m 12.75 % 12.75 % requirements. The accrued interest in excess of the lease Rate for 4th Qtt 1%5. 10.55 % 9 53V 9w payments is included in the lease obligation. Beginning Rate for 1st Qtt 1%6. 9.72 % 8.72% 9.17 % in the year 2009, the aggregate lease payments will be suf- 'Inttialrates ficient to cot er the accrued interest and begin to reduce the capitalized lease obligation. Fur ratemaking purposes, Other long-Term Debt. Details of otherlon8-term debt the GPSC has treated the lease as an operating lease and are as follows(in thousands): Ms Miowed only the lease payments in cost of service. 1985 19ai The difference between the accrued expense and the lease payments alkMved for ratemaking purposes is being Obhgatuns incurred m connection with the sale by pubhcauthontiesof tas-defetTed as a cost to be rrawered in the future as ordered esempt pollution control and industnal by the GPSC. At December 31,1985 and 19M, the dewtopment rewnue bonds-amounts deferred and included in plant in service in the 5.05% to 13.75% due 2902 to 2012. 5 417,500 $417,500 Balance Sheets are $34,650,000 and $30,145,000, 11625% to 12.25% due 2014. 540,000 e.40.n o 10.125% to 10.6% due 2015. 550,0tM respectively 1,5c7,500 957,5n0 tong-Term Debt Due Within One Year. The current por-tion of the Company's long-term debt is as folknvs (in less funds on deposit with trustee. 414,863 3n3.825 thousands): 1,092,637 591/ 75 1985 19 4 Capitahzed lease obt.gations-Rad cars.... 11,354 13A07 Bond improvement (sinkmg) fund Corporate headquarters budding. 95,341 92.577 requirement. 528,677 535,352 Otherofhce buddings. 3,418 3.9m 1,ss _ 110,113 110.172 Portion to be satisfied by pledgmg pmputy a ditions.... 24+02 Misce!!aneous 6% note payable - B nds reacqut-ed toward requirement 5,000, due through 1%6. 315 1.0W ema ng(ment ca eqmrene 28,677 SR j 51,203,065 5732.946 11%% senes sinking fund requirement, 5,000 5,000 ) The Company has authenticated and deliwred to Less bonds reacqmred toward trustees a-aggregate of $382,500,000 of its first mortgage "I*'"**" bonds which are pledged as security for its obligations R'*^mm8 current cash requ rement. 4,7!6 under pollution control and industrial dewlopment con-First mortgas,e t=md rnatunties. 12,000 11.9m i l tracts. No interest on these first mortgage bonds is Current portton of otherlong. term debt. 2,836 3.5% Totat - 548,229 521.324 'the indenture's first mortgage hmd improvement (sink-ing) fund requirement amounts to 1% of each outstand-ing series of bonds authenticated under the indenture prior to January 1 of each year, other than those securing 32 L

pollution contro! obligations. It must be satisfied by June 1 bihty to a maximum of 5160,000,000 by private insurance of each year by depositing cash or reacquiring bonds, (the maximum amount presently availa9!e) and the re-or by pledging additional pmperty equal to one and two maining coverage is provided by a mandatory pmgram of thirds times the requirement. He 1986 requirement was deferred premiums which would be assessed, atter a met in January 1986 by deposititig cash subsequently nuclear incident, against all owners of nudear n actors. A used to reacquire bonds. A separate sinking fund re. company could be assessed up to 55,000,000 per incident quirement of 55 million per year exists specifically for the for each licensed reactor operated by it but not more than 11%% bonds. Satisfaction of this requirement can, at 510,000,000 per reactor to be paid in a calendar year. On the Company's option, also be applied toward satis-the basis of its ownership interest in the two nuclear faction of the bond improvement fund requirement. The reactors now in service, the Company could be assessed gains on reacquisitions of debt to satisfy sinking fund a maximum of 55,010,000 for any incident, but not more requirements are included in miscellaneous deferred than 510,020,000 to be paid in any one > var. credits in the balance sheets and are being amortized he Company is a member d Nudear h!utual Limited over the remaining life of the original issue. (Nh1L), a mutual insurer establi3hed to pnwide property Assets Subject to Lien. De Company's mortgage dated damage insurance in an amount up to 5500 R 4000 for "/ nudes generatmg facilities. He Company is suts as of hiarch 1,1941, as amended and supplemented, securing the first mortgage bonds issued by the Com-jat to a retnspatne prenuum adjustment in the esent that pany, constitates a direct lien on substantially all of the losses exceed accumulated funds. He Company's maxi-Corspany's fixed property and franchises. - mum amment is hmitMW,Mor the cunent polig > var. Pollution Control Bond Anticipation Notes Payable. Add.tionally, the Company has policies that pnwide During 1984 and 1985, the Company incurred obliga-coverage up to 5635,000,000 for losses in excess of the tions in connection with the sales by public authorities 5500,000,000 NhlL coverage. This excess insurance is pm. of tax-exempt, short-term Pollution Control Bond vided by Nudear Electric Insurance Limited (NEIL), a Anticipation Notes to various banks as follows (in mutualinsurance company and American Nudear thousands): Insurers;hlutual Atomic Energy Liability Underwriters and carrs both decontamination and debris removal and less ius4 excess property damage. NEIL also covers the extra costs Amount outstandmg January 1. 54e9,000 $ which would be incurred in obtaining replacement Notes issued. %.400 595.000 power dunng a prolonged accidental outage of a mem-Notes retm d or refunded with btr's nuclear plant, hfembers are insured against the in-long-term debt. 1469,000) (126.0to) creased costs of replacement power up to 53,000,000 per Arrount outstanding at Decerrh r 31 (due unit per week (starting 26 weeks after the outage) for one December 26,1+6). %,400 4

• 000 year and up to 51,500,000 per unit per week for the less funds on deposit with trustee.

359 644 second year. Under each of the NElL policies, the Com-5 %,400 sim.3;n pany is subjecc to retroactive assessments if losses exceed the accumulated funds available to the insurer under that policy. He present maximum assessments for the Com-pany for the current policy > var wuuld tv appmMmately 0 Fuel Commitments: 2000 under the pmperty damage policy and 59A4000 Z under the replxement power policy. To supply a portion of the fuel requirements ofits gen-erating plant <, the Company has entered into various Note Quarterly Financial Data (Unaudited): long-term commitments for the procurement of fossil S and nudear fuel, In most cases, such contracts contain provisions for price escalations, minimum production Summariied (follows (in thousands): uartcrly financialinformation for 1985 levels and other financial commitments. Additional and 1984 is as commitments for coal and for nuclear fuels will be re-quired in the future to supply the Company's fuel first Second Third f ourth g Quarter Quarter Quarter Quarter 19N5 Operatmg revenues $816,271 $h61,167 $9%3nd $810.500 gg[g Operating inceme 132.173 138.xxo 162,165 108.597 NuclearInsurance: Net income after dnidends 8, on prefcri -d sem k 112,247 122.295 155.5ns 103.67: M8 Under the Price-Anderson Act, the Company maintains Operating revenues $742.102 $773.748 5%4.285 $732,695 agreements of indemm.ty with the Nuclear Regulatory Operating income 105.083 115,917 159,702 114.275 Commission which, together with private insurance, Net income atter dividends cover third-party liability arising from any nuclear inci-on preferred stm L to:Mo m 779 137,739 92,40 dent occurring at the Company's nuclear power plant. mntuned The Ac limits public liability claims that could anse from a single nuclear incident to $650.000,000. Each reactor at the Company's nudear plant is insured against this lia-33

e7f cts fI fla ion ed in average 1985 dollars as measured by the Consuraer R ig I'nce Index for all urban Consumers. 10. iunaudited): The Company is subject to rate regulation and in-The fellowing information is an estimate of the economic come tax laws that are based on the recovery of historical impact inflation had on Georgia Ibwer and the common cost only. Therefore, inflation creates an economic loss stockholder's inwstment during 1985. The information is because the Company is recovering its cost of invest-presented in accordance with the general concepts set ments in dollars that have less purchasing power. Con-forth in Financial Accounting Standards Board Statement ventional accounting for historical cost does not recognize No. 31 as amended, and should be viewed as an estimate this economic loss or the partially offsetting gain that of the approximate vffects of inflation, rather than as a arises through financing f acilities with fixed money obli-precise measure. The current cost information is express-gations, such as long-term debt and preferred stock. Supplementary Information on the Effects of Inflation (Unaudited) Current (in millions of detlars) Cost Net utility plant at year-end (historical cost or net cost recoverable through depreciation was 58,269.3). . $13,940.3 (a) Erosion of common stockholder's equity due to inflation: Additional depreciation. S 243.6 (173.9) Adjustment of utility plant to net recoverable cost Economic gain from holding fixed money obligations.. (178.1) Excess of generallevel of prices (S508.8) in the current year over increase in specific price changes ($290.4). 218.4 f Net erosion of common stockholder's equity due to inflation .5 110_.0 Percer.tage Increase (Decrease) Average 1985 Dollars From iin millions of dollars) 1985 1984 1983 1982 1981 1981 to 1985 53,444.3 3,258 2 2,949.0 2,727.5 2,386.8 44.3 % Operating revenue. Earnings on common stock (b).. S 383.7 M7.6 246.0 193.1 76.0 4N.9 Economic gain from holding fixed money $ 178.1 161.9 155.6 141.7 276.6 (35.6) obligations... Excess of the generallevelof prices over increasein specific price changes. $ 218.4 72.6 97.8 31.9 34.5 533.0 Common stockholder's irwestment (net 52,953.4 2,535.9 2,214.5 1,926.3 1,688.6 74.9 assets)at year-end. Return on averagecommon equity (b) . % 13.98 14.63 11.88 10.68 4.53 208.6 $ 27.5 234.5 2M.8 171.7 154.6 79.5 Cash dividends declared 322.2 311.1 298.4 289.1 272.4 18.3 Average consumer price index. (a) Cunent cost d utaty plant was determined pr. manly by app:ying the (b) Ad;usted to refht the nd enmon d common st =kholder's equey as shawn Handy-Wtutman Inden d Put4r Utaty Constnatam Costs h3 the apptrable atw if onIv the additamal deprenatum war deducted in,m the trported amount d out h earnmgs, ad usted earnings imuld be $2501. $N41,5 U historralcosts. i SUT and5t54 2) respectnety-34

Auditors' Report To the&mrdofDirectorsef Georgia nrar Com;uny: We have examined the balance sheets and statements certainty on the Rocky hfountain project depends upon of capitalization of Georgia Ibwer Company (a Geor-the extension of the Company's federal Energy Regula-gia corporation) as of December 31,1985 and 1984, and tory Commission license or other assurance that the the related statements of income, earnings retained in projeds costs can be recovered. the business, other paid-in capital and sources of funds In our opinion, subject to the effect on the 1985 for gross property additions for each of the three years financial statements of such adjastments, if any, as in the period ended December 31,1985. Our examina-might have been required had the outcome of the mat-tions were made in accordance with generally accepted ters discussed in the preceding paragraph been known, auditing standards and, accordingly. included such tests the financial statements referred to abos e present fairly of the accounting recerds and such other auditing pro-the financial position of Georgia Power Company as of cedures as we considered necessary in the circumstances. December 31,1985 and 1984, and the results of its opera-As more fully discussed in Note 3 to the financial tions and the sources of funds for gross property addi-statements, uncertainties exist with respect to the full tions for the periods stated, in conformity with gener-recowrability of the Company's investments in the Plant ally accepted accounting principles applied on a con-Wgtle nuclear facility and the Rocky hfountain hydro-siste nt basis. electric project. The outcome of the uncertainties related ARTIIUR ANDERSEN & CO. to Plant Vogtle cannot be determined until the related Atlanta, Georgia regulatory process is concluded. Resolution of the un-Fe+ruary Z 19S6 Report ofManagement The management oiGeorgia Power Company has pre-controls and performs auch tests and other procedures pared this report and is responsible for the financial as deemed necessary to reach and express an opinion statements and related information. These statements on the fairness of the financial statements. were prepared in accordance with generally accepted ac-The Audit Committee of the Board of Directors, counting prir.ciples appropriate in the circumstances, which is composed of four outside directors, provides and necessarily include amounts that are based on the a broad overview of management's financial reporting best estimates and judgments of management. Finan-and control functions. At least three times a year this cialinformation throughout this annual report is con-committee meets with management, the internal audi-sistent with the financial statements. tors, and the independent public accountants to en-The Company maintains a system of internal ac-sure that these groups are f uffilling their obligations counting controls to provide reasonable assurance that and to discuss auditing, internal control, and financial assets are safeguarded and that the books and recorde reporting matters. The internal auditors and indepen-reflect only authorized transactions of the Company. dent public accountants have access to the members of Limitations exist in any syttem of internal control based the Audit Committee at any time. upon the recognition that the cost of the system should Afanagement believes that its policies and pro-not exceed its benefits. The Company believes that its cedures provide reasonable assurance that the Com-sptem of internal accounting control, together with the pany's operations are conducted with a high staridard internal auditing function, maintains an appropriate of business ethics. In management's opinion, the cost / benefit relationship. financial statements present fairly the financial posi-The Company's independent public accountants tion, results of operations, and sources of funds for (Arthur Andersen & Co.) provide an objective assess-gross property additions of Georgia Ibwer Company ment of how well management meets its responsibility subject to the resolution of the uncertainties regarding for fair financial reporting. Arthur Andersen & Co. full recovery of the Company's investment in the Rocky regularly reviews the system of internal accounting N1ountain and Plant Wgtle construction projects. 33

Board OfDirec Ors Edward L Addison William A. Fickling, Jr. James II, h1 iller, Jr. President Chairmanof theBoardand President llonorary DirCClor$ The Southern Company Chief Esecutive Officer Georgia Power Compam Atlanta,1983 Charter hiedical Corporation Atlanta,1975 W. E.Ehrensperger hiacon,1973 ^'I'" I H. Grady Baker, Jr. William A. Parker, Jr. Executive Vice President Langdon S. Ilowers Chairman of the Board John W. Langdale and Generalhianager Chairmanof theikurd Cherokee Investment President i Georgia Power Company Flowers lavestments Company The ungdale Company - At!anta,1980 - "Ihomasville,1982 (re.il estate and investments) Valdosta,1983 Attanta.1%5 Allen B. Wilson Bennett A. Brown J. A.Gantt Chairman of the Board and Senior Vice President

11. G. Pattillo Atlanta,1982 Chief Executive Officer Division Operations Chairmanof thelkurd

/ Citizens & Southern Georgia Power Company Pattillo Constructicn Georgia Corporation Atlanta,1976 Company, Inc, 80drd ComHHilffS Atlanta,1980 L G.11ardman, til Decatur,1972 President and Treasurer Robert W. Scherer Esecutive Committee liarmony Grove Ahlls,Inc. Chairmanof theBoardand Rotvrt W. St herer, Chaire (textiles) Chief EsecutiveOfficer James 11. Kiiller, Jr. Commerce,1979 Georgia Power Company Wilham A. Parker, Jr. Elmer B. liarris Atlanta,19n9

11. G. Pattillo EwcutiveVice President Dr. Gloria h1. Shatto Rolyrt Strick%d CarlWare Georgia Power Company President Atlanta Berry Colhy,e, Inc.

Audit Committee (effective 12/185) Rome,1980 L. G. llardman, Ill. Charmian Warren Y.Jol e Robert Strickland Bennett A. Brown Executive Vice President Chairman of the Board and Langdon S. Flow ers Gloria hl. Shatto Finance Chief EsecutiveOfficer Georgia P.)wer Company SunTrust Banks, Inc. Compensation Co.nmittee Atlanta,1982 Atlanta,1979

11. G. Pattillo, Chattman WIIII'" A fi'kli",8'If-Richard J. Kelly William B. Turner Wdliam A. Parker Jr.

Executive Vice President Chairman of the ikurd and Wuham B. Tumer Power Sapply Chief Executive Officer Thomas R. Wdliams Georgia Power Company W. C. Bradley Company Atlanta,1981 tmanufacturing) Nuclear Operations Columbus,1%5 Overview Committee I.. G. Ilardman,111, Chairman Carl Ware Vice Prmident Wdliam A. Fic k!mg, Jr. bngdon S. Flowers The Coca-Cola Company ll. G. Pattdlo Atlanta,1980 Thomas R. Williams Chairmanof theBoard First Wachovia Corporation and First Atlanta Corporation Atlanta,1982 36

, GenerulOfficers Division Officers Robert W.Scherer Romney E. Scott R.C.I; ester J.O. Rittenhouse Chaimunof the Board and SeniorVice President Vice President Vice President - ChhtExecutiveOfficer Economic Services Land East Metro Division I* I"'W" 8" ea iService:39 Yea of Service:9 Vice President Wre President - . James H. Miller, Jr. W. L. Westbrook Risk Management West Metro Division President SeniorVice President C. B. McM>. sus, Jr. Ben H. Williams . Age:63 Accountingand Finance Vice President Vice President YearsofService:39 and Secretary Bulk Power Delivery Athens Division " Y * "' I I ea f Service:21 J. A. Parramore,Jr. B. W. Rainwater Executive Vice Pre-:. dent and VWP idd V'a P m id s GennaWanaga p Beckham,Jr. CustomerAccountingand Augusta Division Age:56 Vice President and Accounting Services I '""' I'* YearsofService:35 General Manager (effective 5115!85) We Pwsident - Elmer B. Harris Nuclear Operat,ons Richard J.Pershing Augusta Division ExecutiveVicePresident I. Otis Berkhan Treasurn (e M W W

Age

46 Vice President (effective 12/1/85)

Procurement and Materials R. H. Pinen Freeman R. O'Neal, Jr. Years of Service: 27 (effective 7/17/85) Vice President Vice President I WarrenY.Jobe Thomas G. Boren Pr jectConstruction Columbus Division ExecutiveVice President Vice President Paul D. Rice E. C. Barineau Finance e Corporate Performance Vice President Vice President Vogtle Project Engineering Macon Division Age:45 Robert D.C nier . Years of Service: 15 (cffective 5!!5'85) Vice Preside John A. Roberts Richard J. Kelly Regulatory and Vice President T.J. Allen, Jr. ExecutiveVice President Consumer Affairs Residentialand Commercial Vice President . Power Supply (effective 5/15/85) Marketing Rome Division Age 63 Jack C.Causey J. W.Talley, Jr. J.J.Cordova ' ;an f en ce 6 Vice President and Vice President Vice President R. E. Conway General Manager Economic Development Valdosta Division SeniorVice President and Fossil and Hydro Operations Ruble A. Thomas ' Pro;nt Dirntor Wayne T. Dahlke Ytce President 8 7 Vice President and Project Licensing y,an of Senice.29 General Manager Fred D. Williams J. A.Gantt Fossiland Hydro Projects Vice President I'*" vis Bulk Power Markets io O r p Age 62

• * *"' I'*

Yearsof Service:38 Corporate Relations Assistant Comptroller D.E.DuMon George F. Head R.R. Cook Vice President Senior Vice President Assistant Comptroller Fossiland Hydro Power Generating Plant Projects - A e:56 - V gtle,Schererand W. B. Poss Y rs of Service:31 Hydroelectric Projects Assistant Comptroller E. G. Ellingson Guerry P.Strickland R. P. Head, Jr. Vice President Assistant Secretary SeniorVicePresident Administrative Services atarketing Services p,,g, p, gi,, Age:58 (effective 3/20185) Assistant Secretary Y:ars of Service:38 Donald O. Foster Charles O. Rawlins Vice President John C.Hemby, Jr. Assistant Treaturer Senior VicePresident V gtleProjectSupport row. Ford Marketing J. M.Griffith Age: 57 VicePresident ^ "!# " ' 7 ' Assistant Treasurn Years of Service:35 GovernmentalRelaions ayne Boston James P.O'Reilly C. B. Harreld Senior Vice President Vice President and ^"!#" ' T "" Nuclearoperations Comptroller hf$"c'2/186f" Agr: 57 (effective 2/19/86) Y arsof Service:1

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