ML20141H857

Southern Co 1985 Annual Rept

ML20141H857
Person / Time
Site:	Hatch, Vogtle, 05000000
Issue date:	12/31/1985
From:	Addison E SOUTHERN CO.
To:
Shared Package
ML20141H848	List: ML20141H845 ML20141H850 ML20141H857
References
NUDOCS 8604250221
Download: ML20141H857 (57)

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i Highlights i l 4 l Earnings Per Share Perant N'Ud'I 1985 1984 Change m Financial 4 l Operating revenues (in thousar.ds) 5 6,813,927 5 6,123,-35 11.3 ' 3' w Consolidated net income 3 00 nc (in thousands) 5 829,590 5 719,669 15.3 j ,u i Earnings per share 5 3.20 5 3.00 6.7 ,~3 l Dividends paid per share 5 1.95 S 1.83 6.6 i ai Average shares outstanding 259,543,429 239,784,035 8.2 Return on average common equity j (percent) 16.64 16.58 0.4 Book value per share (ycar-end) 5 19.83 5 18.55 6.9 e-l Market price (year-cnd closing) 5 22.25 S 18.875 17.9 Construction expenditures 0 iv. i m2 im im 1%3 (in thousands) 5 2,211,265 S 2,100,450 5.3 i Total assets (year-end) Ret..rra on As erage Common Equity (in thousands) 5 16,531,495 5 15,003,960 10.2 tre. cnt) s i F Operating ,m Total energy sales (ii thousands " 2" of kilowatthcurs) 126,056,839 114.484,812 10.1 i Total number of customers 12 (vecr-end) 2.880.552 2.800,532 2.9 i e i 4 j 0 1961 1982 Iv53 1954 1955 I Dividends Paid Per Share l (dollars) l 313 3 ti) l l 2 25 1 94 0 1991 1982 Iv43 1944 1v95 1 i i 2 i

= ~ ETo OufStockhblders ~ ~ ~ a .m Ln many respects,1985 was a year Economic growth, of course, is a Georgia Commission Studies f unprecedented accomplishment major element in projecting future Ratemaking Options for Wgtle for The Southern Company --- a year energy needs. And we're currently ex-As completion of the first Wgtle unit that produced the strongest fmancial pecting that peak energy demands in nears, Georgia Power and state regu-performance in our company's history. our region will increase at an average lators are addressing how the cost of And 1985 also was signifiant because rate of 2.4 percent annually over the the plant will be recovered. At the re-we began to position the company for next 10 years. Even at that relatively quest of the Georgia Public Service a future that promises to be vastly moderate rate, electricity demand Commission, Georgia Power has pro-different from any period in the h,s-would increase nearly 40 percent by posed alternatives for phasing the r tory of our mdustry. the turn of the century. cost of the plant into customer rates. Earnings per share for 1985 were We support this approach as a way of $3.20 - up 6.7 percent from the 1984 Construction Program Reviewed helping to moderate the immediate fit;ure. Return on stockholder invest-We believe the region's strength is rate impact of the facility. The com-ment dso increased, rismg from good reason to continue building the mission held hearings on the phasein l'.>.58 percent to 16.64 percent. power production facilities we have during late 1985 and early 1986, and Reflecting ourimproved finan-under way. Our construction budget the matter will be the subject of con-cial condition, the board of directors for the three-year period 1986-1988 is siderable debate this year, voted in September to raise the quar-56.6 billion. While this is a very large Meanwhile, the commission has terly dividend rate by three cents t sum, it represents a decrease of ap-hired a consulting firm to conduct a 51 cents a share -anincrease of more proximately $500 million from the prudence study that alls for a major than six percent. This marks the 1985-1987 budget. Our long-term review of the Wgtle project, in studies fourth consecutive year that the di-construction budget and outside affecting other utilities, this firm has rectors have raised the dividend. f nancing requirements are now on a said that significant amounts of con-downward trend, and they should struction costs were imprudent and Energy Sales Reflect continue to decline through the re-- should not be recovered through Region's Economic Strength mainder of the 1980s as we move customer rates. However, we believe A primary factorin the past year's toward completing our current pro-Georgia Power's costs have been pru-results was the 10.1-percent growth gram of power plant construction. dently incurred and the companyis we recorded in total energy sales. This Ourlargest project is Plant providing information to support this increase was prompted by record use Wgtle, a nuclear facility which position. The study is expected to be of electricity in our four-state service Georgia Power is building under joint complcted this summer. Additional arennd scheduled sales of energy to ownership agreements with coopera-information about Plant Wgtle an neighboring utilities. Add to this a tives and municipalities in the state, be found in a special report on record 80,000 new customers that our in August,1985, Georgia Power page 20. companies began serving in 1985 and announced that its share of the cost I also must point out that The there is solid confirmation of continu-of Plant Wgtle had increased by Southern Company's independent ing economic expansion across the 15.3 percent to $3.6 billion and that auditors have qualified their opinion Southeast. the total cost of the facility would be of our 1985 financial statements. This This expansion is especially $8.4 billion. In addition, the commer-qualification reflects uncertainty strong in Georgia, which is one of the cial operation of unit I was delayed about the regulatory treatment of nation's fastest growing states. About by three months to June,1987. Plant Wgtle and the recovery of r half of Georgia's growth is taking In the face of rising costs, some Georgia Power's investment in the place in metropolitan Atlanta where have questioned whether Plant Wgtle Rocky Mountain hydroelectric proj-some 25 million square feet of office should be completed, But based on the ect (see Note 3 to tl e financial space was opened in 1985 alone. I'm growth in electricity demands that I statements). pleased to report that more than cited earlier, I believe the need for the 80 percent of'his space is heated project is clear. Without Plant Wgtle, electrically. Georgia Power's margin of reserve generating capacity could fall below minimum acceptable levels as early as 1987. And that would pose a threat to l the reliable energy supply on which the state's economy and its people depend. 3 i

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,_~.~._m Coal Dominates Fuel Mix As ourindustry is being rede_ Prospects for 1986 Outlined ' Even when both Vogtle unit > are fined, Ican assure you that the The financial results of 1985 justify operating, coal will remain our sys. S uthern electric system does not in-looking back on the year as one of tem's primary fuel. This fact height-tend to miss opportunities. And we solid achievement. And we produced ens our concern about legislation that do see this as a time of opportunity-these results with our operating com-At the outset of this letter, I men-panies charging electric rates that are has been proposed in Congress to ad-dress the acid rain issue by further tic,ned that we took steps m 1985 to well below the national average. We restricting sulfur dioxide emissions position our company to meet and expect rates to remain relatively stable from coal-burning power planta profi: from these challenges. We're during 1986, and our prospects for To test a program that could streamlining our operations and de-the year appear favorable, given the prove more effective and economical VeI0 ping leaner, less bureaucratic continued vitality of the southeastern than costly emission regulations, we rganizations that can respend more economy. helped form during 1985 an organiza, rapidly to the needs of the looking further ahead, I believe tion to restore and restock sensitive arketplace* we've taken concrete steps to prepare lakes and streams. We're backing this in addition, we formed Southern for the competitive future, but I must Electric Investments. Inc., a new sub-point out that the regulatory treat- "Living Lakes" project with our own funds and soliciting support from sidiary that will participate financial-ment of Plant Vogtle will have a great other companies in the utility and ly and technically in the development bearing on The Southern Company's coalindustries. More information f alternative energy sources. This financial condition for the remainder about Living Lakes and theimportant c mpany already is engaged in a joint of the 1980s. As we bring Plant Vogtle environirental research being con-venture to produce and sell photovol' into service, we will do everything ducted appears on page 21. taic panels that convert sunlight possible to minimize the impact on directly into electricity. The project is the electric rates charged to our Competition Brings Chante being managed by Alabama Power customers while protecting your in-and marks the first involvement of an terests as stockholders of the com-While Plant Vogtle and the possibility American u ty in the actual manu-pany. I ask for your Support during of costly acid rainlegislation pose facturing of photovoltaic cells. the critical period ahead. challenges, they are f amiliar issues. Also during 1985, Southern Elec-Another challenge, and potentially a tric International, Inc. - the con-Sincerely, more far-reaching one, became clear sulting subsidiary we established during1985. We can now say that the several years ago - won a major con I () . nature of the electric utility industry tract for the design of a hydroelectric is undergoing fundamental change. project in Arkansas. While Southern ? The stimulus is competitien - Electric International is not expected Edward L Addison competition that is rapidly taking on to make a significant contribution to President the characteristics of a free market in our earnings in the immediate future, March 7,1986 the sale of power among utilities; its revenues are rising. competition from other energy sources On the advanced technology tnd from new energy technologies; front, we're involved in testing a and competition from cogenerators home energy management and infor-and from third-party investors and mation system. The system will allow producers who are not regulated in families to program their appliances the same manner as utilities, to take advantage of variable rates that encourage off-peak consumption of electricity. This experiment is an example of the forward-looking ap-proach we're taking to ensure a vital and profitable role for our company in the future. f At Harris Dam in Alabama. Southem Company President Edw*rd L Addison reviews the operations of one of the system's newest hydroelectric facilities. 5

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Financial Results ^ Rates ~ For the fourth consecutive year, in 1984, earnings were 53.00, based lectricity rates for the system's The Southern Company posted on 239,784,035 average shares retail customers are set by state improved financial results. Net in-outstanding, public service cc,mmissions. Approxi-come for 1985 rose to 5829.6 million In addition to gains in net in-mately 70 percent of the energy sold - an increase of 15 percent over the come and earnings per share, prog-by the system in 1985 was purchased prior year. ress also was recorded in another by retail customers. The following is Earnings per share were 53.20 in important financial measure. Return a summary of the major rate develop-1985 - based on 259,543,429 average on common stockholder investment ments which occurred during the shares of common stock outstanding. (consolidated return on average com-year. mon equity) rose to 16.64 percer.t for 1985, up from 16.58 percent for 1984. Innovative Ratemaking Concept Consolidated Net income The company's improved finan-Extended by Alabama Commission Imdlkms of Jollars) cial condition was largely the result of The Alabama Public Service Com-record electricity use across the re-mission voted to extend into January, um gion, scheduled sales of energy under 1989, an innovative ratemaking con-o long-term contracts with neighboring cept that has been in effect for ,~ utilities, and management's efforts t Alabama Power since late 1982. The achieve greater operating efficiencies, plan provides for small, periodic rate w adjustments based on the company's e Dividend Rate Increased rate of return and the commercial During 1985, dividend payments operation of new generating facilities. totaled $1.95 per share - up 12 cents Alabama Power will have an oppor-3" per share over dividends of 51.83 paid tunity to earn between 13.5 end during the previous year. For each of 15 perant on end-of-period stock-the first three quarters of 1985, the holder inveement in f acilities which o mi m mi m i-dividend rate was 48 cents per share. serve the company's retail customers. The fourth quarter dividend was The extension of the rate stabili-raised to 51 cents per share. This zation plan has been appealed to the marked the fourth time in as many state supreme court by a group of years that the directors have increased Alabama Power's industrial customers. the dividend rate. The new quarterly payment is equivalent to an annual Georgia Power Files Plans dividend of $2.04 per share. For Phasing in Vogtle Costs The entire amount of dividends At the request of the Georgia Public paid during 1985 is taxable as divi-Service Commission, Georgia Power dend income. (Through the 1985 tax filed proposals in September,1985, to year, stockholders who participated phase into rates the cost of the Vogtle in the company's dividend reinvest-nuclear facility which the company is ment plan may defer the payment of building under joint ownership agree-federalincome taxes on a limited ments with cooperatives and munici-amount of reinvested dividends.) palities in the state. All of the At their January,1966, meeting, proposals would spread over three the directors maintained the quarterly years the increase in rates which will dividend at 51 cents per share. This be needed when the plant goes into dividend was paid March 6 to stock-service. Hearings on the phase-in pro-holders of record February 3. The posals - which are not in the form of company now has paid a dividend to a formal rate request - began in its common stockholders for 153 con-secutive quarters. 8

u Lenitions,o_.,_ _ ~ _ _ _. m.- m-w. --~.-z=~ December,1985, and will continue peration and maintenance reports that, industrywide, the aver-during 1986. expenses rose to 9.3 billion in age operating availability of coal-fired in another rate matter in Georgia, 1985 - an increase of 12 percent over power plants was 82.6 percent in the state supreme court ruled that a the $3.8 billion spent in 1984. In terms 1984, the most recent year for which lower court must hear an appeal from of each kilowatthour sold, these ex-data are available. a consumer group asking that penses totaled 3.39 cents in 1985, A record established by Georgia Geort a Power refund a portion of compared with 3.33 cents in 1984. Power's Plant Bowen also is indicative i the $195.4 million in rate increases the The major factor contributing of the productivity of the system's company was granted in 1983. The to higher operating costs was an coal-fired facilities. The plant gener-consumer group is challenging the 11-percent rise in fuel expenses - ated some 21 billion kilowatthours in legality of the second increase which primarily as a result of increased fuel 1985 - more electricity than any the company received that year - burned to meet higher customer de-other electric generating plant in the some $86.5 million annually. mand for energy. nation. Mississippi Power Granted Coal Remains Primary System fuel Nudear Availability Rhes T;mporary Rate Increase Ibr more than three decides, coal has The system's nuclear units posted Mississippi Power asked the Missis. been the Southern electric system's significantly higher availability ratings sippi Public Service Commission in major fuel. Coal was the source for in 1985, following a decline in 1984. October,1985, for a two-percent in-some 84 percent of the electricity gen-The availability of these units aver-crease in rates. The company filed for erated by system power plants in 1985. aged 80.3 percent, up 13.4 percentage the increase to offset damages caused Through the end of this century and points from the le <el recorded during by Hurriame Elena, which struck the beyond, the system expects to main-the previous year. The 1985 rating is Gulf Coast on Labor Day. In Decem-tain la strong reliance on this fuel. the highest for the system's nuclear ber, the commission granted the com-Nearly 44 million tons of coal units since 1976 and is nearly 17 per-pany the full amount requested - were burned at system generating centage points higher than the latest $6.8 million annuo;ly -- stipclating facilities during 1985, up from 40 mil-comparable data for the industry. that it be collected over approxi-lion tons consumed in 1984. The NERC statistics for 1984 indicite that mately cne and a half years. Southern electric system continues to the average availability of nuclear rank among the three largest users of power plants in North America was coal in the United States. 63.5 percent. State Regulatory Commissions Mines in Alabama, Illinois, Indi-The increase in availability of the Alabama Public Service Commission ana, Kentucky, Tennessee, Virginia, system's nuclear units resulted in part Three commissioners (a president and and West Virginia provided some from im provements a t Georgia Power's two associate commissioners) - elected 95 percent of the coal delivered to the Plani Hatch. Both units of that fa-on a statewide basis for staggered four. Southern electric system in 1985. cility recorded their best performance year terms, in operating the system's coal-ever in 1985. Florida Public Service Commission fired facilitie>, a primary objective is The operating availability of to maximize availability - the per-Plant Hatch's unit 2 improved by some l Five commissioners - appointed for staggered four-year terms by the gov. centage f time a unit is available for 50 percentage points. The unit s ernor, subject to approval by the state service. Since the late 1970s, this per-availability reached 82.7 percent in senate. formance measure has been steadily 1985, compared to only 32.2 percent impr vms. In 1985, system coal-fired the previoins year when the facility Georgia Public Service Commission P '"IS set a new record f r average was ut f service nearly eight months Five commissioners - elected on a peratm.g availability - 89.4 percent for replacement of pipes that circulate statewide basis for staggered six-year c mpared wuh 88.4 percent in 1984. cooling water through the reactor. For

terms, And during the year. 46 of the sys-Plant Hatch's unit 1, operating availa-Mississippi Public tem's 66 rual-fired units had availa-bility rose to 76.4 percent in 1985, Service Commission bility ratings of 85 percent or higher compared to 62.3 percent the previous Three commissioners - elected by

- a level tha stands among the high-year. geographical districts for concurrent est in the industry. The National Elec-I ""Y""' tric Reliability Council (NERC) 9

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w a r, E $JnC.~Q;V [JSage. n.--,_n.--,, y 7 ~ - - - au At Alabama Power's Plant Farley Energy requirements of the Off-System Sales Increase - the system's other operating nuclear 1.sSouthern electric system's Energy sales covered by contracts facility - availability for unit I customers surpassed all previous w th nonaffiliated utilities were the z reached 84.3 percent for 1985, up records for a calendar year during fastest-growing segment of total from 78.8 percent in 1984. Plant 1985. Total energy sales increased energy sales in 1985. These off-system Farley s umt 2 - which set industry-10 percent to 126 billion kilowatt-sales - to six utilities in Horida, wide performance records from 1981 hours, with usage up in every major louisiana, Mississippi, and Texas - through 1984 - was taken out of ser-customer category. climbed to 27.1 billion kilowatthours, vice for a period of approximately 75 an increase of 44 percent over the g days in 1985 to complete planned re-Sales Reflect Economy 18.8 billion kilowatthours sold in fueling and maintenance. As a result, Of System Service Area 1984. Off-system sales represented the availability rating for the unit Among the system's retail customery. 21 percent of total sales in 1985, com-dropped to 77.8 percent for the year, the largest gain in energy consump-pared to approximately 16 percent compared to 94.3 percent in 1984. tion was registered by commercial in 1984. Even with this down time for users - offices, stores, and other non-The Southern electric system's refueling and maintenance, Plant manufacturing firms. Sales to this energy sales to other utilities fall into Farley s unit 2 was the only U.S. group of customers grew eight per-two categories - unit power sales nuclear reactor whose performance cent during the year to 21.8 billion and other long-term sales. was ranked in the top 15 worldwide kilowatthours. This increase reflects Unit power sales provide for w by Nucleonics Week. an industry continuing growth in the sovices sec-delivery of power from specific gen-g publiation. That prestigious rankm.g tor of the southeastern economy. In erating units dedicated to these sales. 7 is based on the lifetime capacity fac-1984, sales to commercial customers The system's other long-tum sales all tor divided by the total years of amounted to 20.1 billion for the delivery of specific amounts of operation as of January 1,1986. kilowatthours. power over a given time period, if p Industrial requirements for elec-that power is not neetkxl in the four-Hurricane Uena Damages tricity rose hvo percent dur:ng 1985, state service area. Gulf Coast Service Area with ales advancing to 39.3 billion During 1985, some 2.4 million kilowatthours from 33.5 billion kilo-kilowatts of capacity were sold In early September, Hurrione Elena watthours in 1984. through unit power agreements. struck the Gulf Coast, leaving more than 270,000 customers of Alabama Residential energy use increased Under the current contracts, sales are Power, Gulf Power, and Mississippi 3.5 percent from 1984. Some 26.2 bil-expected to remain at about the same li n kilowatthours were sold to resi-level in 1986, then increase to 3.1 mil-Power without electricity. Repairs to dential customers m 1985, compared lion kilowatts from 1987 through with 25.3 billion kilowatthours the May,1992. Amounts will decline to o maged area pleted ere in about seven days - record time for previous year. some two milhon kilowatts for the Thunern needs of wholesale period May,1992, until mid-1993 and recovery following a hurricane of Elena's magnitude. And bemuse of cust mers - municipalities and c ntinue to decrease through May, Peratives - were slightly below 1995, when the agreements expire. C reserves maintained for storm 1984 levels. The 11.1 billion kilowatt-Other long-term saks m, 1985 damages and a special rate increase granted Mississippi Power to cover hours sold in this ategory was a drop totaled 1.7 million kilow.:tts, the storm losses, there was no matenal of one percent from the 11.2-billion same level recorded in 1984. Sales in kilowatthour mark set in 1984. These this category are expected to decrease impact on 1985 earnings. g gg g g;; g;, ,g levels recorded in thelate 1970s be-cause many wholesale customers now produce a portion of their own energy requirements. E r 12

to 450,000 kilowatts in 1037, and to in early June,1985, consecutive sum-spread over a greater number of some 400,000 kilowatts from 1988 mer records for peak e ergy demand kilowatthoms. through 1o92. were set in the service area. The Through marketing programs in a recent development, Gulf previous all-time high demand of such as Good Cent's Homes and States Utilities Company, which oper-20,517,600 kilowatts - established in Businesse, system employees are ates in Texas and Louisiana, has asked 1983 - was broken on June 3 and working with architects, builders, the Southern electric system to con-again each day through June 6. Peak manufactun rs, and ownen, to cer tify sider eliminating or suspending the demand on June 6 rose to 21,287,800 that buildings contain cost-effective, unit power sales which are specified kilowatts - an increase of four per-energy-efficient features. Among under contract because the energy cent over the 1983 record. The sys-those features is the electric heat needs of that company's customets tem's reserve margin was 17.2 percent pump, a one-unit system that pro-are below forecisted levels. Under the at the time. vides both heating and cooling. This terms of the unit power agreement, combination of energy-efficient Gulf States Utilities is scheduled to Growth Rates Forecast building standards and equipment of-purchase 500,000 kilowatts of coal-Sales of electricity to retail customers fers customers greater value for their fired generating capacity from the served by the Southern electric sys. energy dollar while maximizing the Southern electric system during 1986, tem are expected to grow at an average productive use of generating units. 600,000 kilowatts during 1987, and annual rate of 2.1 percent from 1986 700,000 kilowatts annually from 1988 through 1996. Total energy sales in through May,1992. the region are forecast to grow at a renwai Namm mniana The outcome of discussions with somewhat slower pace during this Gulf States Utilities cannot yet be period - 1.7 percent each year - be-2, determmed. However, the current cause many of the system's wholesale ni contract specifies that any changes customers are producing an increas-raust be agreed to by both parties. ng portion of their electricity needs. These long-term projections do not New Winter, Summer Peaks Set reflect the impact of off-system sales. F In addition to energy sales for the Growth in peak demand in the year, the peak demand for electricity four-state service area is expected to i" is an important gauge of energy usage. increase at an average rate of 2.4 per-Peak demand is the highest require-cent annually from 1986 through 1996. r-ment for electricity as measured over One of the system's goals is to in-a one-hour period. creaw energy sales by promoting n On January 27,1986, when cost-effective applications of electric freezing temperatures blanketed the energy. The system companies mu:t system service area, peak demand have in place sufficient generating reached 19,204,000 kilowatts, an all-capacity to meet peak demands time high for the winter months. This created by air conditioning require-figure surpassed by one percent the ment 3 in the summer. If that capacity previous winter record of 18,908,000 is used to produce more electricity at kilowatts set on January 21,1985. other times during the year, the However, the greatest peak de-power supply system can be operated mands on the Southern electric more efficiently and fixed costs can be system occurin the summer months with heavy air conditioning use. Dur-ing a four-day stretch of hot weather 13

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From the peak levels of the early 1970s, the Southern electric system has reduced the amount of generating capacity it has under construction by nearly 80 percent to some five million kilowatts. Total Generating Capacity Under Construction Imillions of Lilouutts> 25 22.- 20 N 15 I 4 l C y, .I 62 .y_ 5 r; l A fn 4 g ] I J 1973 1976 1979 IW2 IW5 i, f t_h Construction is progressing on un;ts 3 and 4 of Ihe Scherer Electric Generating Plant in middle Georgia. When com-pleted, the plant will Le the largest coal-fired facility in the Southern electric system. 15

n. - Constriction and Financing. e Southern Company and its conwrning the sale or approximately I unds Raned to Iinante A operating subsidiaries invested six percent of the Farley Nuclear Elec-Svstem ( onstrut tion At taitin $2.2 billion in 1985 for the continua-tric Generating Plant. During 1085-External sources provided $1 billion tion of power plant construction and further discussions among Alabama or 47 percent of the $2.2 billion re-for building and upgrading transmis-Power. AEC. and the NRC statt were quired in 1985 for new construction. sion and distribution lines. substa-held regarding pricing and other items Approximately $12 bdhon - or tions, and other facilities. This related to the terms of sale. It no set-53 percent of the runds needed f or compares with an investment of tlement is reached in the near future. construction - came f rom internal $2.1 billion in 1984. a proceeding may be initiated by the sources NRC to determine it Alabama Power New Generating Units Completed has negotiated in good taith-New ( omnion stot L issued in April.1985. units 5,6. and 7 of Alabama Power's Niitchell Dam were Rom. Ntoontam lauhts Delased Dunng 1985. The Southern Company caised $372 rnillion m new common ' ' ~ placed in service. The following The Southern electric system's con-equity through the sale of 18 8 mil-month, unit 2 of the Niiller Electric struction plans are reviewed regu-hon additional shares of common Generating Plant - a coal-tired ta-larly. takmg into account the system's sto(L cility in Alabama - began commer-abihty to obtain necnsary tmancing c,ome $258 milhon more than cial operation. and the proierted demand tor elec-two. thirds of the eq~ity raised dunng In Georgia. two new nydroelec-tncity. In November 1085. Georgu the year - came trom the sale of tnc units began eperatmg at Bartletts Power decided to delay completion or i3 7 milhon shares through the < om- ~ Ferry Dam. Units 5 and e of that the Rocky Niountam hydroelectnc pany s Dividend Remvestment and Geo gia Power facility went into project trom W91 to 1000 The Stock Purchase Plan Almc alt of serv.ce in October and November. Federal Energy Regulatory Commis-the company's stockholde. 4 re par-respecu vely. sion must approve an amendment to tiupating m the plan at yeir-end. These six new units which the hcense for the proiect allowmg an Approximately 1.o mdhon shares were all completed on schedule and extension of the construction sched-of the common stock issued m 1085 within budget - have a combined ule It an appropriate extension is not were sold through the Employee Sav-capacity of 918.000 kilowatts. How-obtained Georgia Power will con-ings Plan and the Employee Stoc k ever, with the retirement of three sider cancehng the Rockv Nieuntam Ownership Plan These sales supphed older units at N1itchell Dam m protect. The company also is explor- $31 milhon The remainmg tour mil-Alabama, the net increase in system ing the sale of the plant (See Note 3 hon new shares were sold m pubhc generating capacity for tae year was to the f mancial statements ' ottenngs with proceeds totahng 865 ;00 kilo catts. $83 milhon ( onstruttion Hudget ()utimed Plant Iarley Negotiatmns ( ontmurd The construction budget tor lo8e is Bonds Preterri d Stm L Sold As required by a 1981 order of the $2 o billior Expenditures a re expet ted (,corgu Power raised additional Nuclear Regulatory Commission to be $2 bilhon pe. year m 1087 and upiul tor its construc tion activities (NRC). Alabama Power and Ala-1088. brmging the total for the three dunng 1985 through sales ot $150 md-bama Electric Cooperative. Inc. year period lo8e through 1088 to hon of pref erred stoc k. Also. Alabama ( AEC) have conducted negotiations $6 6 bilhon down trom $.' 1 bilhon Power and Georgia Power were in-for the penod 1985 through 1087 volved m sales by pubhc authontie' This dethne reflet ts the tatt that of $702 5 mdlion of tax-exempt pollu-several of the system s maior proie( ts tion control revenue obligations. are now ne anng completion At the < lose at 1085. temporary ush mvestments totaled $o60 milhon The < ompany s capital structure at year-end was 52 percent debt eight a 16 ~ 2

percent preferred stock, one percent objective will depend on whether the to continue their construction pro-p eferred stock subject to mandatory operating companies earn sufficient grams, The Southern Company ex-redemption, and 39 percent common returns on the equity already invested pects to raise approximately $382 mil-equity. in the business. lion from the sale of new shares of The Southern Company's goal is common stock, In January,1986, to raise the percentage of common 1986 Securities Sales Outlined some $111 million of that amount was raised through the public sale of five equity in its capital structure t Offerings by the operating companies milli n new shares. 45 percent by 1993. Progress toward of bonds and preferred stock totaling achieving this goal has betn made 5515 million are being planned for each year since 1979 when common 1986. To provide the operasing com-equity was 30.5 percent of capitaliza-panies with the equity funds required tion. Further strides m reaching this System Construction Projects Approximate Plant Estimated Estimated Percentage (Type of Date of Generating Cost Estimated Completed at Fuel Plant) Completion Capacity Per Kilowatt Cost 12/31/85 lin Lslowatts) tin thousands) Alabama Power Miller (coal) Unit No. 3 1989 660,000 51,089 5 718,595 17 % Unit No. 4 1991 660,000 51,238 5 816.005 5% Georgia Power Rocky Mountain 51.4072 51,192,9748 21 % (pumped storage) Unit No. I 1999' 282,600 Unit No.2 1999 282,600 Unit No. 3 1999' 282,600 Scherer (coal) Unit No. 3 1987 818,000' 5 8705 5 711,9715 86 % Unit No. 4 1989 818,000 5 942 5 770,766 17 % Vogtle (nuclect) Unit No. I 1987 530,120* $4.81805 52,553.903*' 88 %

• Unit No. 2 1988 530,120*

51.893* $1,003.499* 53%* Notes: (1) To provide the company with additional (3) Indudes the 25-percent interest in Unit flexibility in its construction schedule, No. 3 owned by Gult Power. Georgia Power plans to petition the Federal (4) Excludes the 54 3-percent interests sold Energy Regulatory Commission for a license to cooperatives and municipalities in Georgia. extension to 1999 for Rocky Mountain. Costs exclude nuclear fuel. (2) Costs are not calculated on a per-unit (5) Includes cost of facilities common with l> asis for Rocky Mountain because the ma-Unit No. 2. jority of construction costs are for facihties (6) The percentage completed includes com-common to all three units. mon facilities allocated to each unit. 17

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nn,. Eubh -m = -A ~ Me Vogtle nuclear power plant is Reasons for increases Outlined for a coal-fired facility. Plant Vogtle is A the largest, most complex proj-Why have the cost projections for prejected to save $200 million to ect ever undertaken by the Southern Plant Vogtle risen so dramatically? S300 million in fuel costs each year electric system. Georgia Poweris The answer lies in the economic and from 1989 to 1995. building the facility near Augusta regalatory changes which have oc-Need for Plant Demonstrated under joint ownership agreements curred over the course of the con-with mumcipalities and cooperatives struction period. Inflation and Why is Georgia Power so committed m the state. interest rates reached double digits to finishing Plant Vogtle? Because . The cost of Plant Vogtle is ex-during the late 1970s - significantly more energy is clearly needed to sur-pected to be 58.4 bilhon, with increasing the cost of engineering, port the economic growth taking Georgia Powers share amountm, g to rraterials, labor, and borrowed place in Georgia. During the period $3.6 billion. Georgia Power an-money. As a result, finance charges 1980 to 1984, Georgia was the na-nounced this revised cost estimate in now account for approximately tion's fourth fastest-growing state. August,1985. It represents an m-53 billion of the total cost of the And the National Planning Associa-crease of more than 15 percent over plant. tion projects that more than two mil-the previous estimate - made m 1984 Regulatory changes also have had lion additional people will move to - and is three times the amount 3 tremendous impact. Hundreds of Georgia during the next 15 years. budgeted in 1978 when concrete was new requirements from the Nuclear Last year alone, Georgia Power first poured at the site. Regulatory Commissior.(NRC)h ve added more new customers than dur-resuhed in major revisions in the ing any other year in history - a Vogtle at a Glance design of the project and have added record 48,400. And the company was 40 to 50 percent to the cost estimate. asked to supply more energy than Ownen ever before. The peak demand for Georgia Power 45.7 % Feasibility of Project Examined electricity in January,1985, was p[E D es it make sense to complete Plant 16 percent above the previous winter c rec rd, and that new level was sur-Authority of Georgia 22.7 % Vogtle given the 58.4-billion price City of Dalton, Ca. 1.6 % tag? The benefits of completing Plant passed again in January,1986. An all-Vogtle must be weighed against other time high for peak energy demand m Projected CommercialOperation the summer also was set in 1985. ~1 his alternatives for supplying electricity Unit No.1 June,1987 figure was six percent above Georgia Unit No. 2 September,1988 stomers in a growing economy to - fo mple building coal-find P wer's previ us summer record. Without the addition of Plant ReactorType generating units of comparable size. Pressurized water reactor supplied by if the company started today to build V gtle to its power supp'.y network, Westinghouse Electric Corp. those coal-fired units, it would re-Georgia Power projects that reserve Capacity quire an investment of at least margms would fall belew the mini, Unit No.1 1,160,000 kilowatts $3.8 billion, and these units could not mum level necess ry to maintam reh-able service in 1987 and thereafter Unit No. 2 1,160,000 kilowatts be completed bcfone 1992. However, Projected Cost it's estimated that less than $1.5 bil- ""I'5s replacement cipacity is Georgia Power S 3.6 billion lion will be needed to complete the re. pr vided. Oglethorpe Power Corp. 5 2.7 billion maining work on Plant Vogtle. Municipal Electric Would it be cheaper to convert Impact on Rates Discussed Authority of Georgia 5 2.0 billion Plant Vogtle to a coal-fired generating What effect will Plant Vogtle have on City of Dalton, Ga. 5139 million plant? At the request of the public electric rates? If the company's Tot:1 5 8.4 billion service commission, Georgia Power $3.6-billion share c f the project were (including financing) recently examined the possibility but absorbed into rates all at once, the l determined that the most economical average price of electricity would go l Percent Complete as of 12/31/85 method of conversion would add up by approxima'.ely 40 percent. But, Unit No.1 88 % Unit No. 2 53 % $3.9 billion to ccnstruction costs and Georgia Power has submitted to the delay completion of the plant by at public service commission several least five years. proposals that would help lessen the l Another important factor to immediate impact on rates by phasing l consider is that Plant Vogtle's fuel in the cost of the plant over a period costs are expected to be far less than 20

fg g gw mmmm-wemy3 -~___ammamammw of thn=e years. Under one of the op-uring the 1985 Congressional in addition, The Southern Com-tions, the electric bill of a residential session, both the House and pany took a lead role during 1985 in customer using 800 kilowatthours per Senate were considering bills to ad-forming a new nonprofit corporation month would rise by about $7.00 a dress the problem of acid rain Iw - Living Lakes, Inc. This organiza-month during the first year of the placing further limits on power plant tion will carry out a program of lim-phasein. Increases would beless in emissions. These bills are still pend-ing and fish stocking to help restore cach of the following years. ing, and the Southern electric system sensitive lakes and streams in the Georgia Power's rates are well is concerned about the proposals eastern United States. The Living be'ow the national average. With the because they would be very costly Lakes project is expected to operate addition of Plant Vogtle, the com-without offering any assurance ef for a minimum of five years at an an-pany's rates will rise to near the na-achieving the desired environmental nual cost of some $4 million to tional average far several years. But in benefits. 54.5 million. the mid-1990s. after the cost of the One widely discussed proposal Specific lakes and streams will plant has been fully phased in, would result in an additional $7.9 bil-be identified for restoration, and ap-Georgia Powers rates should again lion in capital costs for the Southern provals for treatment will be obtained drop below the national average. electric system alone by 1993 - the from local or state authorities. Ulti-The public service commission first year of compliance. The increase mately, about 100 sites will be in-will determine exactly how the cost of in electric bills at that time would cluded. Treated sites also will be Plant Vogtle will be recovered in average 20 to 25 percent. monitored to ensure that acceptable customer rates. To assist with its water quality is maintained. deliberations, the commission has re-More Research Needed tained the consulting firm of O'Brien-Scientific studies indicate there is sd. Major rust Study Initiated Kreitzberg & Associates to conduct a ficient time to conduct additional To gain more knowledge about de-major review of Plant Vogtle. In research and answer the unresolved clines in forest growth and tree die-studies affecting other utilities, this questions about acid rain before cost-back throughout the United States, the firm has said that significant amounts ly legislative initiatives are under-Southern electric system is taking of construction costs were imprudent taken in 1985, data continued to part in an EPRI study to determine and should not be recovered through show that the acidity of rainfallin the how air pollutants may alter the ex-rustomer rates. However, Georgia eastern United States had remained change of nutricnts - nitrogen, sul-Power believes its costs have been essentially unchanged over the previ-fur, calcium, and phosphorous, for prudently incurred, and the company ous five years. Industry and govern-example - among the atmosphere, 15 providmg mformation to support ment research also confirmed earlier trees, soil, and soil water. The results that position. The study should be findings that there are many factors of this study willlead to an under-completed by July,19'A which may be responsible for the standing of how changes in nutrients acidity of lakes. In fact, many scien-affect the growth of forests. Lic:nsing Process Reviewed tists now believe that ozone and During 1986, a loblolly pine Where does the Vogtle project stand nitrogen oxides may be more damag-forest in middle Georgia is expected in th2 licensing process? After com-ing to vegetation - including forests to become one of 11 sites in the world pleting hearings during the summer - than sulfur dioxide emissions from which are part of EPRI's forest re-of 1985, the Advisory Committee on coal-fired power plants. search. A four-year study at the mid-Reactor Safeguards recommended The Southern electric system is die Georgia site will focus specifically that both Vogtle units be granted supporting the additional research on the type of forests found in the 100-percent operating licenses. This that's needed to develop a cost-system service area. recommendation to the NRC - con-effective national policy on the acid Through research, knowledge tingent upon the resolution of minor rain issue. Through the Electric about the environment is continuing items -is one of two critical steps in Power Research Institute (EPRI), the to broaden. The data being gathered the licensing process. The next major system is participating in one of the are changing many long-held concep-step involves a series of public hear-most extensive research programs in tions. And as more information be-ings before the Atomic Safety and the world on acid rain science and comes available, the Southern electric Licensing Board. These hearings technology. EPRI's five-year budget system will take any additional steps began in March,1986. for this work is nearly 5400 million, that are justified to help ensure air with system contributions making up and water quality. [ six percent of this amount. 21

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The Southern electric system is involved in advanced research to test promising new energy and environmental technologies. Systemwide Research and 1.. Development INpenditures tnullioris of dollarsI . - WW h4 I Tl 1 11 twl tw2 IW1 tw4 1%; Photovoltaic cells - whk h convert sunlight directly into electricit y - are moving (loser to bet oming a competitive source of cler ric power. The Southern ran tric 5ystem is investing $6.1 rmilion in a high-In hnology plant that will manuf at ture photovoltaic < rlls made of thin layers of slic on. Alabama l'ower is managing the system's participation in the project. 23

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/ Discussion and Analysisof Risults )Jb z-Of andfthancialCondition 27 . v- [ Capant ardStatementsofIncome, 32 ':' ~ Con.oudsieaSia nentsaSoon-aponds - 10 rwon. untions 33 -mt. ~..' 1,. ~ CopenlMan.d Sheets 34 o .[ 9 Cananitrinnert Sta' temeth of Capitalization 36 'i - Copenitetaned man n=vitp o( Earnings RetainedintheBusiness 38 .e. 7 CanapBdatedStatementsof AmountPaklin For'Conunon Stock in Excess of Par Value 38 . <lr g ,NotestefinancialStatements 39 / '. himensdConsoudated FinancialData 52 , s, i =. ,,(?: g 'O l 3.e.. 9 r: ;'. s d ~ ' j w t 44-

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~Audiio]rTRMrt [ ] 1 To the Board of Directors and records and such other auditing pro-have been required had the outcome To the Stockholders of cedures as we co tsidered necessary in of the matters discussed in the pre-The Southern Company: the circumstances. reding paragraph been known, the We have examined the consolidated As more fully discussed in Note 3 financial statements (pages 32-51) balance sheets and consolidated state. to the financial statements, ur.certain-referred to above present fairly the ments of capitalization of The ties exist with respect to the full financial position of The Southern Southern Company (a Delaware cor. recoverability of Georgia Power's in-Company and subsidiary companies poration) and subsidiary companies vestments in the Plant Vogtle nuclear as of December 31,1985 and 1984, as of December 31,1985 and 1984, facility and the Rocky Mountain and the results of their operations and and the related consolidated state. hydroelectric project. The outcome of the sources of funds for gross proper-ments of income, earnings retained in the uncertainties related to Plant ty additions for the periods stated, in the business, amount paid in for com. Vogtle cannot be determined until the conformity with generally accepted mon stock in excess of par value and related regulatory process is conclud-accounting principles, which, except sources of funds for gross property ed. Resolution of the uncertainty on for the change, with which we concur, additions for each of the three years the Rocky Mountain project depends in the method of recording revenues in the period ended December 31, upon a Federal Energy Regulatory by a subsidiary as described in Note 1, 1985. Our examinatiens were madein Commission license extension or were applied on a consistent basis. accordance with generally accepted other assurance that the project's Arthur Andersen & Co. cuditing standards and, accordingly, costs can be recovered. included such tests of the accounting In our opinion, subject to the ef-Atlanta, Georgia, fect on the 1985 financial statements February 14,1986. of such adjustments, if any, as might Management's Report The management of The Southern exceed its benefits. The company be-groups are fulfilling their obligations Company has prepared - and is re-lieves its system of internal account-and to discuss auditing, internal con-sponsib e for - the consolidated ing control, together with its internal trol, and financial reporting matters, financi. I statements and related infor-auditing function, maintains an ap-The internal auditors and independ-mation included in this report. These propriate cost / benefit relationship. ent public accountants have access to st:tements were preparec'in accor-The independent public amount-the members of the audit committee dance with generally accepted account-ants provide an objective assessment at any time, ing principles appropriate in the cir-of how well management meets its re-Management believes that its cumstances and necessarily include sponsibility for fair financial report-policies and procedures provide cmounts that are based on the best ing. They regularly review the system reasonable assurance that the com-estimates and judgments of manage-of internal accounting control and pany's operations are conducted with ment. Financial information through-perform such tests and other proce. a high standard of business ethics. In cut this annual report is consistent dures they deem necessary to reach management's opinion, the consoli-with the financial statements. and express an opinion on the fair-dated financial statements present The compant maintains a system ness of the financial statements. fairly the financial position, results of of internal accounting control to pro-Theauditcommitteeof theboard operaticas, and sources of funds for vide reasonable assurance that assets of directors, composed of five direc-gross property additions of The cre safeguarded and that books and tors who are not employees, provides Southern Company and its subsidia-records reflect only authorized trans-a broad overview of management's ries, subject to the resolution of the actions ci the company.1 imitations financial reporting and control func-uncertainties regarding full recovery l exist in any system of internal con-tions. Periodically, this committee of Georgia Power's mvestments in the I trol, however, based on a recognition meets with management, the internal Rocky Mountain and Vogtle con-thit the cost of the system should not auditors, and thc independent public struction projects. l accountants to ensure that these i i i 26 l

_._ --Management's Discussion and Analysis of Results _ _ _ _ _. _Of Operations and Financial Condition _. - - - Results of Operations Revenues The average revenue per kilo-The Southern Company's earnings Operating revenues increased each watthour for total sales increased improved significantly in each of the of the three years because of higher from 5.27 cents in 1983 to 5.31 cents past three years, primarily as a result energy sales, rate increases, and re. in 1984 and 5.36 cents in 1985. The of greater energy sales, rate increases, covery ofincreased fuel and pur. greater percentage of sales to off-higher construction-related credits, chased power costs through the fuel system utilities partially offset the ef-and a stringent cost-control program and purchased power provisions in fect of rate increases and the recovery coupled with the easing of inflation-rate schedules. The service area of the of.nigher fuel and purchased power ary pressures. The return on average Southern electric system has shared in costs included in the average revenue common equity also continued to in-the nation's economic resurgence of per kilowatthour, crease, rising from 15.65 percent in the past three years, as evidenced by a Expenses 1983 to 16.58 percent in 1984 and four-percent annualincrease in Operation expenses rose during each IS.64 percent in 1985. Dividends on energy sales to retail customers. The of the past three years because of common stock during 1985 totaled largest increases were in the commer-greater fuel usage related to increased 51.95 per share, an increase of cial and industrial sectors. Energy generation, increased levels of pur-17.5 percent above the $1.66 paid in sales to retail customers are expected chased power, and the escalating costs 1982. to continue to grow at an average an-of other operation expenses. Also, the nual rate f 2.1 percent during the cost of fuel per net kilowatthour gen. NctIncome peri d 1986 through 1996; erated rose from 1.90 centsin 1983 to Consolidated net income for 1985 " wever, the most sigmh. ant 1.95 cents in 1984 and 1985. Greater totaled $830 million, an increase of gr wth m. energy sales has been m, demand for energy in each of the past 15 percent from 1984, which, in turn' was 22 percent higher than net m.- sales to off-system utilities. The m, - three years was met by increased gen-creases in this category during each of eration and purchased power. Georgia come in 1983. Earnings per share of the past three years are the result of Power is contractually obligated to common stock also continued t sales under two types oflong-term buy back declining amounts of energy climb, although the percentage m-contracts. One covers the sale of from its joint ownus in certain cre:se each year was smaller m com-capacity and energy from specific generating plants for a specified parison to the gams m, net income foss I generating units (unit power period following commercial opera-ceflectmg the greater average number sales). The second (other long-term tion of the facilities. Plant Scherer of sha.es outstanding during each sales) represents apacity and energy Unit No. 2 began commercial opera-successive period. Earnings per share sales from system fossil units which tion in Februa ' 1984, and the bu were $3.20 in 1985, compared to S3.00 11 for the del very of specific, backs from this umt contributed in 1984 and $2.70 in 1983. Increases amounts of power over a given time significantly to increased purchased over the prior year were seven per-period, if that power is not needed in power expenses in 1984. The increases cent,11 percent, and 13 percent, re-the four-sta'e service area. Revenues n other operation and maintenance spectively. In 1984, earnings were from capacity and energy sales under expenses are attributable to various mcre: sed by nine cents per share these agreements during each of the factors, including additional facilities (some 521 million) from the sale of an past three years are as follows: and, to a lesser degree than in Previous additional five-percent interest m years, Matm.n. Georgia Power's Plant Vogtle. Earn-Unie other ings in 1983 were increased by five Yen Power LonsTerm Total --- Allowance for Famds cents per share ($11.8 million) as a un twwna Used During Construction (AFUDC) result of a change in the method of 1985 5878.622 sui 037 si.2e2.659 AFUDC represents the cost of capital recording revenues by Mississippi 1984 368.736 40s.153 776.889 charged to utility plant that is under 1983 251.392 256.517 507.909 Power and reduced by five cents per constructic n and not included in rate share ($11.1 million) because of the base. The equity portion of this credit See Note 5 to the financial state-refund of revenues billed subject to refund in prior years by that company. ments for capacity revenues - which represents nonash income. However, ggg; gg ha <e the most sigmficant impact on g g profitability - and for other details regarding these agreements. 27

t I ( I noncash charge. In addition, previ-nudear facility. See Note 3 to the j Revenues from Of f-System ously capitalized amounts significant-financial statements for information ^ Energy Sales ly increase current cash flow since concerning the possible phase in of miumns of hilars) revenues are higher because of the in-Plant Vogtle into rate base, prudence creased rate base and additional de-audits, and other related issues. The preciation expense. AFUDC (net of outcome of the regulatory process re-l '2 " income taxes), as a percent of net in-lated to Plant Vogtle cannot currently come, was 48.1 in 1985, compared to be determined. W m 43.9 in 1984 and 37.0 in 1983. This Future increases in energy sales ) ratio has risen each year because of will be subject to a number of factors, l increases in construction work in including the volume of sales to mu i progress resulting from the lengthy neighboring utilities, energy conser-construction periods and the large vation practiced by customers, the w amounts of capital required to build elasticity of demand, weather, and new generating facilities. the rate of economic growth in thc '*2 U Unalwn Effects ofInflation system service area. Rates to retail customers served [] other imn, nem Mile thuate of inflation has by the system operating companies decreased, inflation continues to have are regulated by the respective state an adverse effect on the Southern public service commissions in Ala- ] AFUDC Component of Net Income electric system due to regulatory con-bama, Georgia, Florida, and Missis-l (mdimo n M aN stramts and the large mvestment in sippi. In 1982, the Alabama Public utility plant. See Note 15 to the finan-Service Commission adopted a rate-cial statements for supplementary in-making concept which provides for ] formation concerning the estimated periodic rate adjustments based upon ~o w effects of inflation. l Alabama Power's rate of return on l futarc Earnings Potential end-of-period retail common equity i m j Although the results of operations and the placing of new generating j for each of the past three years have facilities in service. Alabama Power is l shown considerable improvement currently allowed to earn a return i l +u m j compared to prior periods, the im. ranging from 13.5 percent to 15 per-I provements are not necessarily in. cent under this ratemaking concept. w dicative of future carnings potential. In its most recent retail rate case, it is expected that higher operating Georgia Power was allowed by its o m tw m m im costs and carrying charges on the in. commission to carn up to 15.5 per-O """- creased investment in plant - if not cent on end-of-period equity. Gulf U^" offset by increases in revenues (by Power and Mississippi Power - in j either periodic rate increases, growth their most rennt permanent retail in energy sales, or a combination of rate cases - were allowed by their both) - will adversely affect future respective commissions to earn earnings. 15.6 percent and 16 percent, respec-I The level of future earnings also tively, on average common equity. i will be contingent upon the successful ] completion and inclusion in rates of financial Condition the Southern electric system's con-The principal changes in the com-i i struction progiam, especially Georgia pany's financial condition in 1985 Power's Plant Vogtae, a jointly owned were additions of $2.2 billion to utili-ty plant and the receipt of 51.0 billion in net funds provided from financ-ings. Internal and other sources pro- ] vided 53 percent of funds for gross i 28 1

property additions, principally from year-end 1084 and 93 percent at the carnings and noncash charges to in-end of 1983. To maintain a competi. Market-to-Book valu, natios come such as depreciation, deferred tive position in the marketplace, '1 * "" irwestment tax credi's, and deferred management will continue its efforts income taxes. The remaining funds to improve operating efficiency as

• N,22 2 (47 percent) were from the sale of well as to aggressively pursue fair and I

common and preferred stock and adequate rate increases when % "" si l l E proceeds from pollution control necessary. n. obligations. See the Consolidated Capital Rcquirements R Statements of Sources of Funds for R,r Constru.-tion E l f Gross Property Additions. I w The construction program of the s CapitalStructure Southern electric system is budgeted j h l As a result of the stronger financial at 56.6 billion for the three years 198o a performance during each of the past through 1988. However, plans for new E g j three years, the company continued facilities are subject to costly revision o m i: i-, iw to progiess toward b long-term goal and delay because of factors such as of increasing coir..non equity as a the granting of timely and adequate percent of total capitalization. At rate increases, new cost estimates, common stock sales year-end, this ratio reached 38.9 per-revised load projections, design o,un,,,,,,, p ea m cent, compared to 32.7 percent at the changes in nuclear plants to meet end of 1982. Correspondingly, the changing requirements, unforewen w ratio oflong-term debt fell from nuclear plant licensing requirements, 56.9 percent in 1982 to 51.7 percent in changes in environmental regula-n, r, 1985. During 1985, the operating sub-tions, and the availability and cost of ,,n m, sidiaries sold $150 million of pre-capital. (As a result of changing con-ferred stock with a weighted dividend ditions during the past several years, rate of 9,96 percent and, through Georgia Power has sold undivided in-public authorities,5702.5 million of terests in certain power plants as well tax-exempt pollution control bonds, as transmission facilities, and the at a weighted interest rate of system companies have contracted to W 10.07 percent. This compares to a sell substantial amounts of capacity 9.82-percent composite interest rate and energy from coal-fired units as o m m m im on first mortgage and pollution con. discussed under *Revei.ues" above.) g trol bonds and 9.24 percent for pre-Some 18 percent of the Southern g ferred stock at the end of 1982. In electnc system s construction budget g '* " ""'""" addition to these sales, The Southern for the next three years will be dedi-l Company sold in 1985 approximately cated to the completion of Georgia 18.8 million shares of common stock Power's Plant Vogtle. Plant Vogtle l with proceeds totaling 5372 million, consists of two nuclear generating l At the close of 1985, the com-units with planned commercial opera-l pany's common stock had a market tion dates of June,1987, and Septem-value of 522.25 per share, compared ber,1988, for Unit Nos. I and 2, to a book value of $19.83 per share. respectively. At December 31,1985, The market-to-book value ratio at Unit No. I was approximately 88 per-year-end continued to improve, cent complete and Unit No. 2 was ap-climbing to 112 percent at the end of proximately 53 percent complete. I 1985, compared to 102 percent at 1 29

l 1 i l i Actual construction expenditures power plants. The enactment of legis-l capita 1 structure through the end of 1985 (including lation mandating redactions in sulfur 4""O AFUDC) applicable to Georgia dioxide emissions would substantially l Power's 45.7-percent ownership in-increase the system's capital require-terest were $2.1 billion for Unit No.1 ments and operating costs. and common facilities and $382 mil-N'" C,dF 'dl RC4"I'#*#"'5 i lion for Unit No. 2. Georgia Power's portion of the total estimated con. In addition to the funds needed for struction costs of the plant at com. the construction program, approxi-to pletion(including AFUDC)is mately $593 milhon will be required i estimated to be 52.6 billion for Unit by the end of 1988 for present sinking 4o I No. I and common facilities and fund requirements, maturities, and 51.0 billion for Unit No. 2. redemptions of long-term debt and The construction budgets set preferred stock. Included in this forth abme reflect Georgia Power's amount are the redemption and re-announcement in August,1985, of a tirement of certain high-cost issues of o i+t m tw i+4 i* O 04, $472-million increase (15.3 percent) in first mortgage bonds (5149 million) the costs estimated for completing its and preferred stock (540 million) in $""Y$amx,a,mrmn share of Plant Vogtle, and a three. 1986. month delay in the planned fuel hiad. Tax legislation has been pro-rm,m.a s,a O com-,o r ing and commercial operation dates posed that would eliminate invest-e for Unit No.1 of the plant. The ment tax credits and curtail cash flow estimated cost at completion for the derived from deferred income taxes. entire Vogtle plant (including all co. If Lgislation is ultimately passed con-fyEl,NN]'*h'" owners' financing costs and contin. taining provisions which reduce inter-gency allowances) has been increased nal cash flow, the Southern chctnc w from 57.2 billion to 58.4 billion. system will be required to obtain The U. S. Environmental Protec. f unds from other sources, primarily tion Agency has promulgated new air the capital markets. w 2a l 2 "' quality control regulations related to Sourrcs of Fimd4 m m the stack height requirements of the The Southern Company and its sub-Clean Air Act.The ultimateimpact sidiaries plan to obtain the funds re-of these regulations cannot be ac-quired for construction from similar iN curately determined until the state en-sources and in comparable amounts vironmental agencies decide what to those used in the past. However, j F actions must be taken by the system the type and timing of financings will companies to comply with the regula-depend on market conditions, main-tions. However, either the use of tenance of adequate earnings, and i o m im e,.e more expensive low-sulfur fuel or regulatory approval, _ _ p,,y.,,,a _ _ construction of costly flue-gas desul-To meet short-term cash needs g furization facilities c uld be required and contingencies, the system com-O, at certam plants. In addition, legnia-panies had, at the beginning of 1986, tion being considered by Congress approximately 51.0 billion of cash concerning acid rain would make ad-and temporary cash investments and ditional pollution control equipment $2.2 billion of unused credit arrange-4 ] compulsory for certam coal fired ments with banks. In order to issue additional long-term debt and preferred stock, the J operating subsidianes must comply i 30 1

l l 1 l with certain earnings coverage re-which its investment in each unit of i quirements designated in their mort-Plant Vogtle would be phased into SP'em Mm'P a'e Capacity i l gage indentures and corporate rate base in equal increments over a charten. These coverages were, at the three-year period beginning with the l y end of the respective years, as follows: date of commercial operation of such unit. While this approach would '2 I M utnase C h* "" moderate the effect on Georgia m 8 "~ Powe s customers of including the _'8" l 2 Requireth Required, plant in rate base. the resulting delay 24 10] in recovery of its investment may f 1985 1984-1985 adversely af fect Georgia Powers F Alabama Power J.70 3.30 1.87 IE earnings, cash flow, and cost of Georgia Power 2.81 2.51 1.89 1.' culf Power 3.3s 3 01 i.94 1 80 capital. See ~ Phase-In Plans" in Mississippi Power 4.18 3 07 2.23 2.ls Note 3 to the financial statements for I further information. l The ability to maintain these The GPSC's order granting coverages and to generate sufficient Georgia Power's request for 1985 amounts of internal funda for con-financing authority included restric. E en m em m, m j e struction depends upon the receipt of tions relating to the Rocky Mountain .l timely rate increases that allow an pumped storage project. The order l ( adequate return for investors and off-concluded that completion of the Territorial Pea k llour Demand set the rising costs caused by additions Rocky Mountain project would not '"""'""""do"""" l to utility plant, inflation, and other be economically justifiable and factors. Should The Southern Com-reasonable and withheld authoriza-pany and the subsidiary companies tion for Georgia Power to opend be unable to obtain sufficient funds funds from approved security issu-2' ?' 1 2 from external sources which - to-ances on that project. Georgia Power i gether with internally generated funds has delayed the planned commercial T-1 j j - would be adequate to continue operation date of the project from I j construction, delays and possible 1991 to 1999. This action is subject to r i I cancellations may prove necessary. the approval by the Federal Energy j Delays in construction projects could Regulatory Commission (FERC) of an result in significant additional costs. appropriate amendment to the project i license, the receipt of which cannot be Regulatory Matters assured. If Georgia Power does not The Gcorgia Public Service Commis. obtain an amendment to its FERC " " " " " + sion (GPSC) has engaged the firm of license or negotiate a sale of the proj-t O'Brien-Kreitzberg & Associates and ect, the Rocky Mountain project may its subcontractors to conduct a study be canceled. In such event, the re-of Georgia Power's construction pro. covery of the project's costs cannot bc gram, including decisions related to assured. At December 31,1985, f planning, design, licensing, and con. Georgia Power's investment in the struction of Plant Vogtle. See prmect amounted to approximately " Prudence Audits"in Note 3 to the 5163 million. financial statements for further information. The GPSC also has begun a pro-ceeding concerning a possible phase in of Plant Vogtle's costs. Georgia l Power has presented plans under l 31 i wwge'_

1 l Consolidated Statements of Income kr the Wars Ended D5x~tn5r 31, :985.1954, an]iNU ^ The Southern Company and Subsidiary Companies I 1985 1984 1983 (in thousands) Operating Revenues (Notes 1 and 5) 56,813,927 56,123.985 55,418,043 Operating Expenses: Operation - Fuel 2,385,815 2,152,830 1,900.084 ~ Purchased and interchanged power, net 420,191 351,450 164,548 Other 921,099 821,821 740,776 Maintenance 549,905 483,126 418.148 Depreciation and amortization 454,871 429,404 407,072 Taxes other than income taxes 296,477 276.690 249,747 Federal and state income taxes e34,021 561,191 519,057 Total operating expenses 5,662,379 5.076,512 4.399.432 Operating income 1,151,548 1,047,473 1.018,611 Otherincome(Expense): Allowance for equity Iunds used during construction 268,875 211,583 145,833 Interest income 69,527 59,634 60,150 Other, net (Note 4) 42 46,310 (7.633) Income taxes applicable to otner income t 18.800) (41,847) (19,793) lacome Before Interest Charges 1,471,192 1,323,153 1,197,168 Interest Charges and Preferred Dividends: Interest on long-term debt 730,973 0o0,996 e24,283 Allowance for debt funds used during construction (253,e17) (198.937) (141,272) Interest on notes payable 20,516 16.097 1.261 Amortization of debt discount, premium, and expense, net 3,216 2.461 2.308 Other interest charges 16,763 14,826 11,732 Preferred dividends of subsidiary companies 117,751 108.041 104.189 Net interest charges and preferred dividends 641 co2 603,484 602,501, Consolidated income before refund of retail revenues billed subject to refund in prior years and cumulative cffect of a change !n method of recording revenues 829,5m) 719,669 594,667 Refund of retail revenues billed subject to refund in prior years -less income taxes of $10,367,000 (Note 2) (11,140) Cumulative effcct as of January 1,1983, of anruing unbilled revenues - less income tases of $6.326,000 (Note 1) 6.799 Consolidated Net income - as reported 5 829,5W) 5 719,669 5 590,326 - pro forma (Note 1) 5 829,590 5 719,669 5 58_3.527 Average Number of Shares of Common Stock Outstanding (in thousands) 259,543 239,784 218,556 Earnings Per Share of Common Stock: Before cumulative effect of a change in method of recording revenues 53.20 $3.00 52.67 Cumulative cffect of accruing unbilled revenues 0.03 Total Earnings Per Share of Common Stock - as reported 53.20 f 00 $2.70 - pro Iorma (Note 1) 53.20 v.00 52.67 Cash Dividends Paid Per Share of Comm$m stock $3 53 _ $32% The accompanying notes are an integral part of ihese itatements. 32 L_

Consolidated Statements of Sources . _[ Of Funds ~for Gross Property Additions ~ For the Years Ended December 31,1985, ! ?84, and 1983 The Southern Company and Subsidiary Companies 1985 1984 1983 (in thousands) Funds from Operations-Consolidated net income $ 829,590 $ 719,669 $ 590,32o Add (deduct) principal noncash items - Depreciation and amortization coo,354 So7,034 510,240 Deferred income taxes, net 245,o94 237,371 288.501 Deferred investment tas credits 180,707 242,989 195,057 Allowance for equity f unds used during construction (2os.8751 (211,583) (145,833) 1,593,470 1,555,480 1,438,291 l ss dividends on common stock 503,447 436,007 374,371 y Net funds provided from operations 1,090 023 1,119,473 1,0o3,920 Funds from Finandngs: Common stock - Public offerings 82.co5 40,303 78,893 Dividend reinvestment and stock purchase plan 257,4o2 231,288 198,170 Employee avings plan Zo,747 35,258 23,907 . Emplov e stock ownership plan 4,713 9,213 22,320 371,527 316,062 323,290 Fir *.nortgage bonds 150,000 125,000 lLnds retired, reacquired, or ref unded at maturity (o3,m4) (o0,658) (41,146) Preferred stock 150,000 50,000 50,000 Preferred stock reacquired (5.o11) (5,329) (10.186) Proceeds from pollution control obligatiors, net e35,215 364,535 57,005 increase (decrease)in pollution ctmtrol bond anticipation notes payable (72,95e) 109,356 Increaw (decrease)in other long term debt 31,770 (68,479) 80,478 Net funds provided f rom financings_ _._1p4o,2 50 855.487 593,441 Funds from Other Sources: Decrease (increase) in temporary cash investments (137,754) (283,173) 95.211 Decrease (increase) in other net current assets (excluding notes payable and long term debt and preferred strck due within ene year) 59,778 167,103 (69,491) Sales of property, net book value 181.330 Other, net (including allowance for equity f unds used during construction) 152,o M 60,230 2_3J59 o Net funds provided from other wurces 74 992 125,400 410_7_0 Gross Property Additions (including allowance for funds used during construction in the amounts of $402,078,000 }n_19yf,_=$3JQ,000in}984, anf$2 Jog _} qnyfL_=f12y},2vy= =)2 l00,450==t_y}06fy The actompanying notes are an integral pari of the w statements. 33 L.

( -Consolidated Balance Sheets At December 31,1985 and 19tH The Southe m Company and Subsidiary Companies Assets 1985 1984 (in thousands) Utthey Plant: I'lant in service, at original cost $15,392.890 $13,927,029 issa accumulated provision for depreciation 4,352.626 3,950,212 11,040,264 9,976,817 Nuclear fuel, at amortized cost 496,886 455,274 Construction work in progress 4,27o,613 3,820,286 Total I5,813,7c3 14,252,377 Isso property-related accumulated deferred income eases (Note 1) I,935,290 1,750,016 Total 13,878,473 12,493,361 Other Property and Investments (Principally nonutility property, net) 36,035 31,499 Current Assets: Cash 44,577 55,872 Temporary cash investments, at cost which approximates market 959,720 821,966 Receivables, less accumulated provisions for uncollectible accounts of $10,697,000 in 1985 and $7,700,000 in 1984 e43,339 596,431 Accrued utility revenues 92,4co 75,649 Fossil fuel stock, at average cost 4n9,031 629,303 Materials and supplies, at average cost 181,o28 162.681 Prepayments and special deposits 47,404 20,389 Vacation pay deferred 53,671 49 g Total 2.511,830 2.411.017 Deferred Charges: Debt espense, being amortised 23,583 22,478 Miscellaneous 81,574 44 705 t Total 105,157 67,183 Total Assets S t o,531,4 *5 $15,00M,60 The accompanying notes are an integral part of these balance sheets. 34

Capitalisation and Liabilities 1985 1984 (in thousands) Capitalisation (See accompanying statemertts): Common stock equity 5 5,332,401 5 4,639,227 Preferred stock 1,111,820 1,001,820 Preferred stock subject to nandatory redemption 183,000 194,224 tong-term debt Total 7,091,672 6,638.085 13,718.893 12.473,356 Current Liabilities: Preferred stock sink.ing fund requirement 10,842 5,229 Preferred stock to be redeemed 40,000 long-term debt due within one year 290,547 153,153 Pol'ution control bond anticipation notes payable 30,400 109,356 Accounts payable 672,508 579,461 Nuclear fueldisposal fee 3,833 61,502 Customer deposits. 7o,4o2 80,200 Taxes accrued - Federal and state income 37,565 112,078 Other 102,393 86,910 Interest accrued 221,249 202,589 Vacation pay accrued 01,5o8 56,692 Miscellaneous II4.oe2 88,271 Total 1,6o7,429 1,535,441 Deferred Credits and Other Liabilities: Accumulated deferred investment iau credits 1,091,397 947,977 Miscellaneous 53,776 47,18e Total 1,145,173 995,163 Commitments and Contingent Matters (Notes 2,3,4,5, and 11) Total Capitalisation and Liabilities 516,531,495 515,00 3 6() r The anon panying notes are an integral part of ihese balance sheets. 35

m . _ _. ~. _ _ _ _ i Consolidated Statements of Capitalization At Dmmber31,1985 and 19M The Southern Company and Subsidiary Companies 1985 1984 1985 1984 (in thousands) (percent of total) Common Stock Equity: Comrron stock, par value $5 per share-Authorized - 375,000,000 shares: Outstanding - 1985: 268,883,986 shares: 1984: 250,051,627 shares (a) $1,344,420 $ 1,250.258 Amount paid in for common stock in excess of par value 2,255,823 1,978.458 Premium on preferred stock 5,709 5,755 Earnings retained in the business (Note 12) 1,776,449 1,404,756 Total common stock equity 5,331,401 4,639,227 33.9 a6 37.2 % Cumulative Pnferred Seock of Subsidiaries: $100 par or stated value - 4.20% to 5.96% 199,356 199,356 6.48 % to 7.88 % 147,(xx1 147,000 8.04% to 9.52% 340,464 340,464 $25 stated value - $2.52 to $2.56 tott000 100,000 $3J4 to $3.44 125,(xx) 75.000 15 68 % 40,(xx) 40,000 Adjustable rate - at January 1,1986: 8.72 7o 50,000 9.12 % 50.000 50,000 9.17 % 50,(xx) 9.72 % 50.000 50,000 Total (annual dividend requirement - $101.072,000) I,15 t,820 1,001,820 Isss amount to be redeemed 40,otX) Total excluding amount to be redeemed I,.l.1M20 1,001,820 s.I 80 Cumulative Preferred Stock of Subsidiaries Subject to Mandatory Redemption: $100 par value - 10.20% to 11.36% t.e,342 68,203 $25 stated value - $2.75 52,500 56,250 _ $3.76 75,txx1 75,000 Total (annual dividend requirement - $24,240,000) 193,842 199,453 Less amount due within one year (Note 7) 1OA42 5,229 Total escluding amount due within one year IN3,ixio 194 224 I.3 1.6 36 (

1985 1984 1985 1984 (in thousands) (pescent of total) First mortgage bonds of subsidiaries - Maturity Interest Rates 1985 3%% 11,988 1985 3%% 15,000 1986 3%% 4,000 4,000 1986 3%% 13,725 13,725 1986 3%% 12.oim 12,000 1987 4*i% to 8'.% 104,179 104,179 1988 3%% to 4%% 55,000 55,000 1989 18%% 97,000 98,000 1989 4%% to 5%% 30,823 30,823 1990 4'i% to S% 26,847 26,847 1991 tbrough 1995 4'.% to 17%% 499,575 504,221 1992 through 2000 5';% to 11'i% 642,244 642,244 2001 through 2005 7%% to 11%% 1,631,171 1,631,171 2006 through 2010 8%% to 15%% 1,443,930 1,469,500 2011 throuah 2015 13%% to 17%% 786,500 792,000 Totalfirst mortgaae bonds 5,34e,994 5,410.698 Other long term debt (Note 8) 2,109,898 1,442,904 Unamortized debt premium (discount), net (74,673) (62,364) Totat iong-term debt (annual interest requirement - $806,016,000) 7,382,219 6,791,238 1.ess amount due within one year (Note 9) 290,547 153,153 !.ong term debt escluding amount due within one year 7,001,672 6 638,085 51.7 53.2 TyagaMalisation 513J18:893 $12 4Z3,356 Im.0% 100.0 % t j (a) At December 31,1965, a total of 21,943,005 shares was reserved for issuance pursuant to the Dividend Reinvestment and Stod Purchaw Plan and the Employee Savings Plan, The accompanying notes are an intcaral part of these statements. a 8 4 37

~ ConsolidateTStatements Of Earnings Retained in the Business-~ For the krs Ended December 31,1985,1984, and 1983 The Southern Comp.my and Subsidiary Companies 1985 1984 1983 (in thousands) Rataare at beginning of period $1,404,756 $1,123,414 $ 909,189 Connolidated net income 829,590 719,669 590,326 2,234,346 1,843,083 1,499,515 Cash dividends on common stock ($1.95 per share in 1985, $1.83 per share in 1964, and $1.72% per share in 1983) 503,447 436,007 374,371 Capital stock issuance expense 4,450 2,320 1,730 Balance at end of period (Note 12) $1,726,449 $1404,756 _ $122321,4, t Consolidated Statements of Amount Paid in For Common Stock in Excess of Par Value For the krs Ended December 31,1985,1984, and 1983 The Southem Company and Subsidiary Companies 1985 1964 1983 (in thousands) Balance at beginning of period $1,978,458 $1.764,706 $1,545,245 Proteeds from sales of common stock over the par value thereof - 18,832.359 shares in 1995, 20,462,127 shares in 1984, and 20,765,675 shares in 1983 277,365 21.\\752_ 219,461 Balance at end o{pe,r,iod $2. 255,823 $lg8 458 _ gg06 The accompanying notes are an integral part of thew statements. i l 38 i i

Notes to Financial Statements December 31,1935.1934. and 1983 The Southem Company ami Subsidiary Companics

1. Summary of Significant Accounting Iblicies:

Reecmecs Geneml Alabama Power recognizes revenues concurreat The Southern Company is the parent company of with billings to customers on a cycle billing basis four operating companies, a system service company, Culf Power, in 1975, Georgia Power, in 1982, and Southern Electric International, Inc (International), Mismppi Power, m 1983, began actruing for ser-and Southern Electric Investments, Inc (Invest. vice rendered but unbilksi at the end of each fiscal ments). The operating companies provide electric period to match more closely revenues and expenses. service in four southeastern states. Contracts among The effect of this change in the method of recording the companies - dealing with jointly owned gener. revenues by Mississippi Power was to increase 1983 ating facilities, interconnecting transminion lines, income by 54,987,000 before the cumulative effect and the exchange of electric power - are regulated f r prior periods. The cumulative effect of this by the Federal Energy Ikgulatory Commission change and pro Iorma ef fect on 1983 income, (FERC) or the Securities and Exchange Commission assuming the change had been applied retroactively, (SEC). The system service company provides, at are shown in the Consolidated Statem, nts of cost, technicil and other specialized services to The income. Southern Company and to the subsidiary companies. fact Costs International markets to utilities and industrial con-Fuel costs are expensed as the fuel is usal. The cerns the technicil expertise of the Southern electric operating companies' electric rates include provi-system m planning and operating electric power sions to adjust billings for fluctuations in fuel and facilities. Investments was formcd in 1985 for the purchased power costs. Revenues are adjusted for purpose of researching, developing, and investing m differences between recoverable fuel costs and new business opportunities. amounts actually recovered an current rates. The Southern Company is registered as a Fuel expense includes the amortization of the holding company under the Public Utility Holding cost of nuclear fuel and a charge, bami on nuclear Company Act of 1935. Both the company and its generation, fo. the permanent disposal of spent sebsidiaries are subject to the regulatory provisior, nuclear fuel. The total charges for nuclear f uel in-of the Act, The operating companies also are suf ect cluded in fuel expense amounted to $128,435,000 in to regulation by the FERC and their respective state 1985, $113,402.000 in 1984, and 579.707.000 in regulatory commissions. The companies follow gen-1983. Alabama Power and Georgia Power have erally accepted accounting principles and comply s gnal contracts with the U. S. Departmerit of with the accounting policies and practices pre-Energy that provide Ior the permanent disposal of scribed by their respective commissions. spent nuclect fuel which is schnluled to begin in All material intercompany items have been 1998. Pending permanent disposition of the spent climinated in consolidation. Consolidated retained fuel, sulficient storage capacity currently is available earnings at December 31,1985, include through the year 2001 at Plant flatch and into 2007 51,447,550,000 of undistributed retained earnings of and 2010 at Plant Farley Unit Nos. I and 2, respec-subsidiaries. tively. Storage capacity for spent fuel will be availa-ble at Pl.mt Vogtle through the year 2003 Utihty Plant Utility plant is stated at original cost. This cost in. cludes appropriate administrative and general costu payroll related costs such as taxes, pensions, and other benefits; and the estimated cost of funds usnl I

L b during construction. The cost of maintenance, re-is charged to the acrumulated provision for de-pairs, and replacement of minor items of property is preciation. The cost of canceled plants was amor-charged to maintenance expense. The cost of re-tized and recovered threugh rates over five year placements of property (exclusive of minor items of periods. This amortization amounted to 5855,000 in property) is charged to utility plant. 1984 and $1,446,000 in 1983. The canceled plants Allowance for Fimds Used During Construction were fully am rtized at the end of 1984. (AFUDC) Income Tancs This allowance represents the estimated debt and The companies provide deferred income taxes for all i equity costs of capital funds which are necessary to income tax timing differences. Investment tax crnlits L finance the construction of new facilities. The com-utilized are deferral and amortized over the average posite rates used by the companies to calculate lives of the related property. Provisions for property-r AFUDC during the years 1983 through 1985 ranged related deferred income taxes reflect consumption of [ from a gross rate of 9.69 percent to 11.72 percent for part of the value of the plant and equipment to Gulf Power and Mississippi Power and from a net-which the provisions relate. Consequently, the re-g E of-income-tax rate of 8.74 percem to 9.61 percent lated accumulated deferred income taxes are a for Alabama Power and Georgia Power. The income valuation reserve which is deducted from the plant c tax effect of capitalized debt cost was $123,720,000, investment in the Consolidated Balance Sheets. P 594,702.000, and 568,759,000 in 1985.1984, and Other deferred income taxes are included in taxes l 1983, respectively. AFUDC, net of income tax, as a accrued. See Note 6 for further information regard. percent of consolidated net income was 48.1 percent ing income taxes. [ in 1985, 43.9 in 1984, and 37.0 in 1983* Pension at:d Otlicr Post-Rctirement Fcnchts Depreciation and A mor tt:ation The companies have defined benefit, trusteed, and Depreciation of the originalcost of depreciable noncontributory pension plans which cover sub-utdity plant in service is provided using composite stantially all regular employees. The policy of the g P straight-line rates which approximated 3.6 percent in companies is to fund each year's accrued pension 1985 and 3.7 percent in 1984 and 1983. Depieciation cost as determined using the " entry age normal includes a factor to provide for the expected costs of method with frozen initial liability ~ actuarial cost w decommissioning nuclear facilities. This factor is method. Certain actuarial assumptions used in de-E based on estimated decommissioning costs of ap-termining the annual plan costs and contributions proximately 564 million for Georgia Power's owner-were changed in 1984 to reflect plan esperience. The ship interest in Plant liatch and a total of most significant changes were an increase in the F $250 trillion for Alabama Power's Plant Farley. assumed rate of return on plan assets (from five per-Georgia Power has updated the estimate to 5146 mil-cent to seven percent) and an incre.se in the as-lion for its share of decommissioning Plant Hatch, sumed annual rate of salary increases (from four which will be included in Georgia Power's next retail percent to six percent). These changes resulted in a I rate application. Estimated decommissioning costs reduction of $31,817,000 in the 1984 contributions i will continue to be adjusted periadically to reflect to the plans. Accrued pension costs amounted to R changing price levels and technology. When proper-573,102,000 in 1985, 571,569,000 in 1984, and 9 ty subject to depreciation is retired or otherwise $95,326,000 in 1983, which represented 7.1 percent, disposed of in the normal course of business, its cost 7.5 percent, and 11.0 percent, respectively, of L - together with the cost of removal, less salvage - employee salaries and wages each year. Of these E amounts, $41,514,000 in 1985, $40,496,000 in 1984, 1 and $58,501,000 in 1983 were charged to operating i expenses, and the balance was char >;ed 'o construc-( tion and other accounts. Also, Mississippi Power, in M P E K E 40 F E

A, = r I r s V 1983, and Georgia Power. in lo84 and 1985, in- [ curred additional costs to tuy retirees under one-The operating companies emplovees earn vacation time eat y ;etirmnt programs. The costs related to in one year and take it in tbc subsequent year liow-E thw progams were $5Aa.00.:. $11000 000 and ever toc ratemaking purpo.es vacation pay is ree $12181000 for the years 1o83.1984. ano 1o85, ognad as an Awable evense only when paid regxtively. Accumulated pension benefit inf orma-Consntent with tbi, raremakmg treatment. the com-tie i as of the valuation dates danuary 1 of each pames accrue a current liabihts for earned vacation yur ) follows: pay and rewrd a current asset representing the ys - _ ss tutt.re recoverabihty of ths cost Such amcunts m twas were $53 o71000 and W e2e 000 at December 31. ~ Actuanal present s du of ]Q85 and 1084 respectively. In 1080 an estimated ulated plan trra.ts - o4 percent of the cost ot vacation pay will be ex- = g 3g g33 Nonvested u 41 w pensed and the balanw will be charged to mnstrue [_]. s < + + 5 sm 08-tion and other accounts j Total [ Weighted average cates et return assumed m determmmg tW dB - rtuanal present value et in November.1082 the Alabama Pubhc Service f aaurnulated l f an benet t_s 8~ s Commission ( APSC: adopted a ratemaking concept Net amts ayapagl ter benehts M 1u " OFW y which provides for periodic adjustments based upon Alabama Power's earned return on end-of-The actuerial present value of acemnulated period retail common equity and the placing of new plan bendas was determined on the imsis of act rued g ne ating f acihties in serv ct. Both mcreases and ~ .~ benefits as et January 1 of the respecuve years decreves have been placed into ettect since the whereas the plans are 'unded based on the premise adoption of these rates in June 1085. the APSC ex-that the plans will cor.tinue in existence which re-tended this ratemakmg concept into 1080. Among quires that future events be considered. Changes in th( modifications implemented by the APSC exten-accounting for pension costs required by Financial sion was that the sum of all increases and decreases Accounwg Standards Board (FASB) Statement under this ratemaking conept shall not total more No. 87, which must be implemented by 1o87 o' than 14 percent f or the period July.1085. through earlier. are not expected to materially impact the Januarv.1080. A group of industrial customers and compar v's financial position or results of opera-one individua' have appealed the extension order to tions. However. pension costs are expected imtially the Supeme ( ourt ct Alabama. to be somewhat lower but more volatile than in o,, Aprd la 1084. Georgia Power tiled a re-the past. quest for an.nuease in the tuel cost recovery rate The system companies also provide cenam with the Georgia Pt.bbc Service Commission health care and life insurance benefits f or retired (Gi'SCL The GPSC granted an allowana which empiovees. Substantially all employees may become was deficient m co +rir,g the company s prior period eligibM for these benefits when they reach norma! tuel cmts by approximately $22 3 million Dis-f ret % ment age while still working for a system com-allowed costs related to coal proc urement policies pany. The costs of such benefits are recognimi as for Plant Scherer and to higher cost replacement payments are made. The cost of providing such energy while Unit No 2 of the flatch nuclear plant benefits was $8.746.000 in 1085 and $8.001.000 was out of service ti e replacement of recirculation in 1o84-pipes Following appeals in the courts. the matter was returned to the GPSC for f urther mnsideration h 41

In January,1986, the GPSC vacated its original

3. Construction Program, financing, disallowance order pending results of a prudence and Fuel Commitments:

audit being conducted (see Note 3). In manage-Cor struction ment's opinion, the outcome of this issue will not Th( subsidiary companies are engaged in con-have a materialimpact, ort the financial position and tinm us construction programs, currently estimated results of operations et Georgia Power. to tot il some $2.6 billion in 1986 and S2.0 billion Effective October 1,1983, the GPSC granted per ys ir for 1987 and 1988. These estimates include Georgia Power an annual increasa in retail revenues the AFUDC and reflect the present cwnership per-of $86.5 milhon m addition to the $108.9-milhon in-centage in all generating facihties under construc-crease effective September 7,1983. A consumer tion. The construction programs are subject to 7% group appealed the GPSC's final order to the periodic review and revision. and actual construc- ,,p. Superior Court of Fulton County, allegmg that the tion costs incurred may vary from the above esti-c .,p3 586.5-million additional increase resulted from pro-mates because of numerous factors. Particularly ,j cedural irregularities. The Superior Court dismissed with respect to new nuclear units, it has been the ex- .g the case, finding that the group lacked standing t perience of the electric utility industry that actual 3 seek judicial review. After further appeals, on costs of construction have exceeded estimates and 4-December 2,1985, the Supreme Court of Georgia planned completion dates often have not been met affirmed a decision by the Court of Appeals to per-as a result of, among other factors, design changes y* mit the consumer group to proceed with its appeal and rework required by regulatory bodies, delays in 39 to the Superior Court of Fulton County. the progress of construction and in obtaining neces-p in August,1983, on remand from the Supreme sary federal and other regulatory approvals, rising g Court of Mississippi, the Mississippi Public Service labor and materials costs, limits on the ability to y Commission (MPSC) granted Mississippi Power an finance, and difficulties in obtaining rate increases. g annual increase in retail revenues of approximately Any delay in commercial operation of a new gener-4 S18.6 milhon of the 539.3 milhon reque=ted in 1980. ating unit, or in recovering its costs through higher p In November,1983, Mississippi Power made refunds rates, results in an increase in the total cost of such to its customers of amounts which had been col-jg unit. At December 31,1985, substantial purchase lected subject to refund, resultmg in a charge of. commitments were outstanding in connection with ,.{ 11.1 milhon (net of taxes) to consolidated earnings the construction program. During 1985, Georgia Power delayed the "n On October 28,1985, Mississippi Power filed P amed commercial operation date of the Rocky l ~I with the MPSC a request to increase retail revenues Mountain pumped storage hydroelectric project ~' ' by approximately 56.8 million annually to recover (W 'd damages caused by Hurricane Elena in September, 'S "C" " S appmv 1 f an appr priate amendment t Georgia 1985. On December 20,1985, the MPSC issued an Powers license for the project. The receipt of such "O order approving the rate request. The new rates amendment cannot be assured. If Georgia Power were placed into effect on December 20,1985, for a does not obtain an appropriate amendment to its temporary period not to exceed 19 months. On.. FERC license or negotiate a sale of the facility, the January 17,1986, the Attorney General of Missis-project may be cinceled. In such event, the recovery sippi and a consumer group filed a petition for of the project's costs cannot be assured. As of reconsideration which was demed February 14,1986. December 31,1985, Georgia Power's investment in the project amounted to approximately $163 million. Effective December,1985, AFUDC accrued on the Rocky Mountain project is not being credited to in-come or included in gross property additions. The outcome of this matter currently cannot be determined. 42

.~. C.~. J.. The U. S. Environmental Protection Agency Unit No. 2 has not been changed. If there is further has promulgated new air quality control regulations delay in commercial operation of either unit, then related to stack height requirements of the Chan Air the AFUDC charged to Georgia Power's share of Act. The ultimate impact of these regulations cannot Plant Vogtle will increase approximately $21.0 mil-be accurately determined until the state environ-lion per month (based on the current cost estimate) mental agencies decide what actions rnust be taken for Unit No. I and common facihties and $8.0 mil-by the system compania to comply with the regula-lion per month for Unit No. 2. Further delay in com-tions. However, either the use of more expensive mercial operation of either unit may also result in a low-sulfur fuel or construction af costly flue-gas substantial increasa in the direct construction costs desulfurization facilities could be required at certain of such unit. plants. In addition, legislation being considered by In view of the cumulative developments occur-Congress concerning scid rain would make addi-ring during 1985, as discussed in this note, the final tional pollution control equipment compulsory for outcome of the regulatory process related to Plant certain coal-fired power plants. The enactment of Vogtle amnot currently be determined. legislation mandating reductions in sulfur dioxide PMnce Audits emissions in the system's service area would sub-R stantially m, crease capital requirements and In June,1985, the GPSC engaged the firm cf O'Brien-Kreitzberg & Associates (OKA) and its sub-peatmg costs. contracton to conduct audits examining the pru-Plant Vogtle dence of Georgia Power's decisions relating to The construction budget estimates set forth above planning, design, licensing, and construction of reflect Georgia Power's announcement in August, Plant Vogtle and Plant Scherer Unit Nos. 3 and 4, as 1985, of an increased cost estimate for Plant Vogtle, well as the prudence of Georgia Power's load fore-a two-unit nuclear generating facility under con-cast and generation expansion plans. Certain fuel-struction near Augusta, Georgia, and a three-month related matten are also being examined, including delay in the planned fuel loading and commercial Georgia Power's coal procurement policies and prac-operation dates for Unit No. I of the plant. Georgia tices, its decision to burn low-sulfur coal at i sant Power now estimates that total plant additions at Scherer rather than install flue-gas desulfurization completion for its 45.7-percent ownership interest in equipment, and certain aspects of Georgia Power's Plant Vogtle will be approximately $3.6 billion (in-operation of Plant Scherer Unit Nos. I and 2. In ad-cluding $1.1 billion of AFUDC) - an increase of dition, the cracking and subsequent replacement of $472.0 milli'on (15.3 percent) from the prior estimate. the recirculation system piping at Plant Hatch Unit The revised budget for Plant Vogtle includes a con-No. 2, an operating nuclear facility, are being tingency allowance of 10 percent of unexpended reviewed. estimated direct construction costs and associated Management believes that Georgia Power's financing costs. This allowance for Georgia Power's construction costs have been prudently incurred. interest in the plant a.nounts to $84.0 million (in-However, similar studies of other utilities' construc-cluding $10.0 million of AFUDC). The estimated tion programs, including all such studies performed total cost of the plant at completion (including all by OKA, have recommended exclusions of signifi-co-owners' financing costs and contingency allow-cant amounts from rate base and cost recovery. Any ances) has been increased from 57.2 billion to costs said to have been imprudently incurred by $8.4 billion. The current budget estimates for Plant Georgia Power may be excluded from rate base and Vogtle reflect, among other factors, a downward cost recovery. Under present accounting rules, such revision of projected productivity rates and greater exclusion would not require a write-down of the quantities of electrical materials (wire, cable, and plant cost if Georgia Power sustains an earnings conduit). Unit No.1 of Plant Vogtle is now planned for commercial operation in June,1987. The planned commercial operation date of September,1968, for 43

capacity related to the plant that justifies carrying property taxes, and nuclear fuel, as well as related the plant at its full cost. However, the FASB has pro-investment tax credit amortization and accumulated posed changes in the accounting for rate-regulated deferred income taxes, would be recovered through emespdaes that would require, among other things, the normal ratemaking pronss. 4 immediate write-off of such excluded costs. In December,1985, the GPSC held preliminary A study released in December,1985, by a con-hearings regarding the above phase-in proposals sulting firm commissioned by the Consumers' Utili-and further hearings were held in February,1986. ty Counsel of the state of Georgia concluded that While a pha',e in would moderate the elfect on cancellation of Plant Vogtle would provide sub-Georgia Power's customen of inclusion of the plant stantial savings to ratepayen. Georgia Power's in rate base, the resulting delay in recovery of the management believes that the methodology and company's investment may adversely affect earnings, assumptions used in this study are wrong and, as a cash flow, and cost of capital. In addition, the FASB result, the conclusions of the study are without has issued proposed rules for phase-in plans. The merit. implementation of a phase-in plan that is not in conformity with any such rules could adven,ely af-Phase-in Plans (,c, eam 85. By order dated July 25,1985, the GPSC directed Georgia Power to file a proposed plan for phasing Licensing Plant Vogtle's costs into retail rates. Georgia Power's Before a nuclear unit can begin operation, an response presented a base case under which its in-operating license for the unit must be obtained from vestment in each unit of Plant Vogtle would be the Nuclear Regulatory Commission (NRC). Pio-phased into rate base in equal increments over a cedures for obtaining operating licenses afford an three-year period beginning with the date of com-opportunity for interested parties to request a public mercial operation of each unit. Additional financing hearing on health and safety, environmental, and costs resulting from the deferral would be deferred antitrust issues. Issuance of operating licenses by the and amortized over years four through 10 following NRC may be conditioned upon requiring substantial commercial operation. Georgia Power also pre-changes in proposed operation or upon installing sented three options to its base case. additional equipment to meet upgraded or new safe-Under the first option, Georgia Power's con-ty or environmental regulations, with consequent tractual obligations to purchase declining fractions delay and added cost. of the capacity of Plant Vogtle owned by Oglethorpe Georgia Power applied for operating licenses Power Corporation (OPC) and the Municipal Elec-for Plant Vogtle Unit Nos.1 and 2 in September, tric Authority of Georgia (MEAG) would be level-1983. Fellowing its August,1985, meeting, the Ad-ized over the term of such obligations. The second visory Committee on Reactor Safeguards issued a option would divide costs associated with common report advising the NRC that there is, subject to facilities equally between each unit. The thi d op-completion of construction, staffing, preoperational tion proposed by Georgia Power is a combination of testing, and resolution of the remaining open issues options one and two. identified by the NRC staff, reasonable assurance Georgia Power's investment in each unit, in-that the Plant Vogtle units cm be operated to full cluding its direct construction and associated in-power without undue risk to the health and safety terest costs, as well as the capacity costs of the of the public. declining buy backs from OPC and MEAG, would The Atomic Safety and Licensing Board (ASLB) be subject to the phase in. Other Plant Vogtle costs, of the NRC will ultimately recommend to the NRC including operation and maintenance, depreciation, whether the Plant Vogtle licenses should be granted. The ASLB held a Prehearing Conference in May, 1984, to define the issues to be addressed in the Plant Vogtle licensing hearings. Subsequently, the ASLB granted intervener status to two organiza-tions and docketed certain of their contentions for 44

u %) M _ h consideration during the public licensing hearings. may be offset in whole or in part by the mainte-All but three of the contentions have been dismissed nance of balances with the respective banks. = by the ASLB. The contentions admitted by the ASLB The $1.565 billion cxpiring in 1990 represents for public hearing involve possible ground water revolving creiit arrangements of Georgia Power. g contamination, the ability of certain valves to During the term of these agreements, Georgia Power operate under emey;ency conditions and of certain may convert short-term borrowings into term loans, T organic materials to withstand long-term exposure payable in 12 equal quarterly installments during to radiation, and the adequacy of Georgia Power's the years 1991 through 1993, or at an earlier date at 1 emergency planning. Georgia Power's request for Georgia Pewer's option. These term loans would be summa y judgment on the cmergency planning con-subject to authorization from the GPSC and the tention is currently pending. The public hearings SEC. In connection with these credit agreements, ) were scheduled to begin in March,1986. Another Georgia Power has agreed to pay certain fees and/or b step in the licensing process is an emergency drill in-maintain compensating balances with the banks. k volving Georgia Power personnel and various gov-In connection with all other lines of credit, the ernment agencies, now planned for May,1986. companies maintain compensating balances, which Interveners will have the opportunity to file addi-are substantially all the cash of the companies except i tional contentions based on the results of that drill. for daily working funds and like items. These i If the licensing process proceeds on schedule, fuel balances are not legally restricted from withdrawal. loading at Unit No.1 is expected to take place in The amounts of long-term debt, preferred r December,1986. Georgia Power would then begin stock, and common stock which an be issued in the low-power testing and move to full-power operation future will be contingent on market conditions, the i and commercial start up as early as June,1987. maintenance of adequate earnings levels, regulatory authority, and other factors. At December 31,1985, ." " '"8 each of the operating companies had sufficient L_ To the extent possible, the subsid.iary compames coverages to permit the sale of additional bonds and Z construction programs are expected to be financed preferred stock. from the issuance of additionallong-term debt and b preferred stock, from the receipt of additional paid-Plant Farley in epital provided by The Southern Company from An order of an appeal board of the NRC in an anti-the sales of common stock, and from internal trust review resulted in conditions being imposed on sources. Should The Southern Company and sub-the NRC licenses for Alabama Power's Plant Farley sidiary companies be unable to obtain funds from which require Alabama Power to sell an ownership i-these sources, the companies would have to use interest of approximately six percent in Plant Farley E short-term indebtedness or other alternative, and to Alabama Electric Cooperative, Inc. (AEC) and to g-possibly costlier, means of financing, or it could provide transmission services to AEC and municipal become necessary to oncel or delay certain con-electric distributors. Alabama Power has engaged in g struction projects. Delays in construction projects negotiations with AEC for such sale. On June 29, could result in signifiant additional costs. 1984, AEC filed with the NRC a request that the At the beginning of 1986, unused credit ar-NRC institute a proceeding which could lead to im-F rangements with banks totaled some 52.2 billion, of position of sanctions against Alabama Power for ( which approximately 5465 million expires at various alleged violations of such license conditions. Settle-a times during 1986 and 1987, $200 million on ment discussions among the parties, the NRC staff, 7 April 30,1989, and $1.565 billion on December 31, and NRC's director of regulation were held in 1985; 1990. however, no agreement has been reached. If no set-E The S200 million expiring in 1989 is under tiement is reached with AEC, it is probable that the E Alabama Power's revolving credit agreements. NRC staff will initiate such a proceeding which, L. These agreements require the payment of a commit-under the NRC regulation, is accomplished by the ? ment fee based upon the unused portion of the com-i_ mitments which, in the mse of eight of the [ agreements and at the option of Alabama Power, y_ M E E 45 g f

i issuance of a Notice of Violation. This notia would Georgia Power has contracted to complete those

commence a hearing to determine whether Alabama jointly owned units under construction and to Power has negotiated in good faith with AEC and operate and maintain the units as agent for the joint whether the terms of sales offered by Alabama -

owners. Each participant provides its own construc-Power are reasonable. tion financing. Georgia Power would have to obtain ] Fuct Commitments additional financmg in the event of a participant be-ing unable to obtain sufficient financing. Georgia - To supply a portion of the fuel requirements of the Power's proportionate share of plant operating ex- ~ system's generating plants, the subsidiary companies penses is included in the corresponding operating have entered into various long term commitments experwes in the Consolidated Statements of income. for the procurement of fossil and nuclear fuel. In in connection with these sales, Georgia Power most ases, these contracts contain provisions for has entered into agreements whereby it is required to price escalations, minimum production levels, and purchase declining fractions of OPC's and MEAG's otherfinancialcommitments. Additionalcommit-capacity and energy of the respective generating ments for coal and nuclear fuel will be regtued,n units during periods of up to 10 years following i . the future to supply the subsidiary companies' fuel commercial operation (and, with regard to a portion "dS-of the additional five-percent interest in P1 nt Vogtle

4. Facility Sales and Joint Ownership Agreements:

purchased by MEAG, until the latter of the retire-ment of the plant or the latest stated maturity date Georgia Power has sold undivided interests in Plants of MEAG's bonds issued to finance such ownership Hatch, Wansley, Scherer, and Vogtle in varying interest), with the payments for such capacity made amounts, together with transmission facilities, to whether or not any apacity is available. The energy OPC, MEAG, and the city of Dalton, Georgia. cost of these purthases is a function of each entity's These sales resulted in a gain, after income taxes, of variable operating costs. The cost of such capacity $21,250,000 in 1984. There were no such sales in and energy is included in purchased and inter-1985 or 1983. The gain in 1984 resulted primarily changed power in the Consolidated Statements of from the sale of a five-percent additional undivided Income. The capacity pavments totaled interest in Plant Vogtle to MEAG. $187,131,000, $211,352,000, and $115,737,000 for At December 31,1985, Georgia Power's per-1985,1984, and 1983, respectively. The current pro-centage ownership and investment in jointly owned jected capacity payments for the next five years are facilities with the above entities were as follows: as follows: $148 million in 1986; $372 million in ~ c,,,,i, % 1987; $528 million in 1988; $546 million in 1989; Construction and $459 million in 1990. The increase in capacity i Total Percent Plant in Work in payments in 1987 through 1990 reflects the addi-Capacity Ownership Service Progrns tional buy backs resulting from the scheduled com-(megawatts) (in thousands) mercial operation of Plant Vogtle Unit Nos. I and 2. Plant Hatch ' (nuclear). 1,630 50.1'4 5650,926 $ 61.102 Plant Wansicy 5.Off-System Sales Agreements: (fossil) 1,779 53.5 288,939 440 The operating subsidiaries of the Southern electric system have entered into long-term contractual Unit Nos.1 & 2 1,636 8.4 82,358 83 agreements for the sale of capacity and energy to Common certain nonaffiliated utilities looted outside of the facilities 23.5 68,325 9,619 Southern electric system's service territory. Certain ucle 2,320 45.7 15,733 2,435,310 of these agreements are nonfirm commitments and 'are based on capacity of the system in general. Other agreements are firm commitments and pertain to apacity related to specific generating units. Sina 46

the energy is generally sold at cost tnder these Light Company, the Southern electric system's agreements, revenues from the capacity sales pri-largest single customer, provided revenues of marily impact profitability. Off-system cipacity 5753 million or 11 percent of consolidated revenues revenues have been as follows: during 1985. Unit Other

6. Income Tases:

Year t h er Longterm Total (in thousands) A detail of the federal and state income tax provi-sions is shown below: 1985 5411.180 5122.922 5534.102 1984 165,210 119,098 254.308 toss 1984 1983 1983 122.475 74,276 196,751 (in tn.ouwnds) T I provision for income taxes: Capacity and energy are bdng sold to Rorida Power & Light Company, Jacksonville Electric currently payable s t ac,iio 5 76.823 5 22.993 Authority, Florida Power Corporation, and Deferred-cumnt year 313 oo 341,126 348,875 Mississippi Power & Light Company under long- -revenal of term contracts that extend through 1986. Similar Defemd inNn'e'n't contracts with Gulf States Utilities Company (Gulf tax credits isomo7 242,989 195,o57 States) and the city of Tallahassee, Rorida, expire 58.229 537,628 480.153 in 1992. seare _ Unit power from specific generating plants is currently payable mo 45.855 28,258 being sold to Horida Power & Light Company, Defemd-cumnt year Je 000 30,351 37,941 Jacksonville Electric Authority, and Gulf States. ]',"'I ', u n, 43o,7963 <i3,343, Under these agreements, approximately 2,500 mega-c4 842 65,41o 54.656 watts of capacity is proposed for 1986. This in-Total es2 82: 603,038 534.800 creases to a maximum of 3,100 megawatts during less income taxes charged the period 1987 through May,1992. Themafter, (credited) to: these sales will decline until the expiration of the Di"L*lg,,,,,,, ' " 8"" 41 847 l' 7'3 contracts in May,1995. January 1 of aaruing Gulf States has requested that negotiations unbilled revenues 6,326 commence and proceed quickly for consideration of Refund of retail revenues the elimination or suspension of capacity sales and [ [',{am (1.367) purchases under its unit power sales agreement. taxes charged to operations sm 02: 5561,191 5519,057 This agreement provides for the purchase by Gulf States during 1986 of approximately 500 megawatts Deferred income taxes result primarily from the of capacity,600 megawatts during 1987, and 700 companies' use of accelerated depreciation methods megawatts thereafter through May,1992. In making and other write-offs of property costs, as provided its request for negotiations, Gulf States mdicited for by the income tax laws, being greater than the that the electric requirements of its customers are book depreciation of such costs. Other deferred in-below forecisted levels. During 1985, Gulf States come taxes are provided for certain costs or purchased approximately 400 megawatts of capacity revenues that are recognized for income tax pur-under the agreensent, providing revenues to the poses in periods different from those used for book Southern electric system of approximately 5120 mil-purposes. Income taxes deferred in prior years are lion (including associated energy charges of approxi-mately 551 million). The outcome of discussions with Gulf States cinnot yet be determined. Capacity and energy sales to Horida Power & 47

t s reversed (credited) to income when the book de-

8. Other Long-Term Debt:

preciation of property costs exceeds the related tax Details of other long-term debt are as fc!!on deductions or when other timing differences reverse. Deferred investment tax credits are amortized over Dewmber 31, the life of the relatcd property with such amortiza-l'85 l'84 U" O "5d"M tion applied as a credit to reduce depreciation in the d. Consolidated Statements of Income. These credits $;Ij','d,"$7blIcIu$o$tI". i amounted to $35,773,000 in 1985, $23,356,000 in of tax-pt r>ollution control 1984, and $19,514,000 in 1983. At December 31, reverwe M - 1985, all investment tax credits available to reduce C"ll t" 2'd-5s tc 13.75% due 2w2 federal income taxes payable had been utilized. 0x3 5 sos,s o 5 565,33o The provision for income taxes currently Noncellateralized-payable includes the tax effects of the reversal of 5.9% to 7.4% due s'rially prior years' timing differences for which deferred in-98 ' $1% due1994 Nx$ N a5% n come taxes were not provided. At December 31, 9.0% and 9.125% d.se 1985, the remaining balance of such timing dif-1995 and 2004 18.700 18,700 ferences was approximately $274 million, for whicli 7.25% to 9.5% dae 2003-2005 40.600 40.600 deferred income taxes of some $133 millien have not 7.2% to 9.2% due 2moto 102.850 102 m 9.375% to 12.25% duc 2011-2015 1,421.o M 739,500 been provided. The total provision for federal in-Adiustable interest rate - come tax as a petrent of income before federal in-due 1985 (6.45% at 12/31/84) 50,000 come tax amounted to 38.3 percent,39.4 percent, due 1086 (5.7% at 12/31/85) 21,000 Less funds on deposit with trustees 439.64J 422.461 and 40.9 percent for 1985,1984, and 1983, respec-1,772.484 1,137,269 i tively. The difference between the rates and th l federal statutory rate of 46 percent was due pr?capitalized lease obligations-l- Nuclear fuel 53,051 75,059 marily to the exclusion from taxable income of the Coal railcars 11,354 13.607 allewance for equity funds used during construction Buildings 15e,90s 113,690 Other s.875 8,972 (8.1 percent in 1985, 7.2 percent in 1984, and 227.185 211.32s 5.7 percent in 1983). Notes payable-- 8.75% due 1985-1989 9,75') 12,200

7. Cumulatw.e Preferred Stock Subject to 9.75% due Isas-2010 11,240 11.349 Mandatory Redemption:

6.0% to 16.cs due 1985-1986 739 1.558 $55,375Ud)8N NJ 3$~000 The requirements for preferred stock subject to mandatory redemption through 1990 total 11.5% de 1991 20.000 20.000 $12,000,000 per year. At Decembei 31,1985, 11.25% eue 1993-1995 20,mx) $1,658,000 of preferred stock had been reacquired, Adjustaole interest rates which will be used to meet future years' sinking d"}318[I'87 I ,125% an2/31/85) 17.500 19.200 fund requirements. 110.229 94.307 T $2,109,898 51.442.904 g The subsidiary companies have authenticited and delivered to trustees a like principal amount of first mortgage bonds as security for obligations under collateralized installment sale or loan agree-ments. The principal and interest on the first mort-gage bonds will be payable only in the event of default under the agreements. 48

Assets acquired under capital leases are re-at 57.5 percent of the prime rate of interest. Georgia corded as utility plant in service and the related Power intends to refund the notes during 1986 with obligation is classified as other long-term debt. The proceeds from the sale by public authorities of addi-net book value of capitalized leases included in tional long-term pollution control bonds; however, utility plant in service was $220,431,000 and the issuance of long-tenn securitbs requires the ap- $190,529,000 at December 3t 1985 and 1984, preval of the GPSC and the SEC. respectively. At December 31,1985, the composite interest rates for nuclear fuel, coal rail cars, build.

11. Nuclear Insurance:

ings, and other were 9.49,9.54,9.55, and 13.78 per-Under the Price-Anderson Act, Alabama Power and cent, respectively. Sinking fund requirements and/or Geon;ia Power maintain agreements of indemnity serial maturities through 1990 applicable to other with the NRC which, together with private insur-long-term debt are as follows: 551,526,000 in 1986; ance, cover third-party liability arising from any $32,755,000 in 1987; S18,472,000 in 1988; nuclear incident occurring at the companies' nuclear $13,043,000 in 1989; and $39,050,000 in 1990. power plants. The Act limits to $650 million public liability claims that could arise from a single nuclear

9. Long-Term Debt Due Within One Yean incident. Each reactor at the companies' nuclear A summary of the improvement fund requirements plants is insured against this liability to a maximum and scheduled maturitRs and redemptions of long-of S160 million by private insurance (the maximum term debt due within one year is as follows:

amount currently available), with the remaining coverage provided by a mandatory program of de-1988 1984 ferred premiums which would be assessed, after a nuclear incident, against all owners of nuclear reac-Bond sinking fund requirement 5 211 526 tors. A company could be assessed up to 55 milhon Portion to be satisficu % > eding per incident for each licensed reactor it operates, but property additions 26.634 not more than $10 million to be paid in a calendar Reacquired bonds 3,943 8.571 year. On the basis of Alabama Power's ownership of nImatu$ ties two reactors in service and Georgia Power's current rst ort g and redemptions 178,753 26,983 ownership interest in two reactors now in servie. Other long-term debt maturities the companies could be assessed a maximum of (Note 8) 51,526 92.844 $10 million and $5 million, respectively, for any Total 5290,547 5153.153 such incident, but not more than $20 million and $10 million, respectively, to be paid in any one year. The first mortgage bond improvement (sinking) Alabama Power and Georgia Power are mem-fund requirement amounts to one percent of each bers of Nuclear Mutual Limited (NML), a mutual outstanding series of bonds authenticated under the insurer established to provide property damage in-indenture prior to January 1 of each year, other than surance in an amount up to $500 million for mem-those securing pollution control obligations. It may bers' nuclear generating facilities. The members are be satisfied by depositing cash or reacquiring bonds, subject to a retrospective premium adjustment in the or by pledging additional property equal to event that losses with respect to each policy year ex-166% percent of such requirement. ceed accumulated funds. Alabama Power's and Georgia Power's maximum assessments are limited

10. Pollution Control Bond to 530.7 million and $18.6 million, respectively, Anticipation Notes Payable:

under current policies. At December 31,1985, Georgia Power had $36.4 million of pellution control bond anticipation i notes outstanding, all of which had been drawn down. These notes are due in 1986 and bear interest 49

Additionally, both companies have policies

13. Assets Subject to tien:

which currently provide coverage up to Se35 million The operating companies' mortgages, as amended for losses in excess of the $500-million NML cover-and supplemented, which secure the first mortgage age. This excess msurance is provided by Nuclear bonds issued by the companics, constitute a direct Electric Insurance Limbed (NEIL), a mutual insur-first lien on substantially all of the companies' fixed ance company, and American Nuclear Insurers / property and franchises. Mutual Atomic Energy Liability Underwriters. These policies cover both decontamination and

14. Quarterly Financial Data (Unaudited):

debris removal, as well as excess property damage. NEIL also covers the extra costs which would be in-Summarized quarterly financial data for 1985 and 1984 "S f II "S curred in obtaining replacement power during a prolonged accidental outage at a member's nuclear First h nd Durd Fourth plant. Members are insured against increased costs cuaner cuaner ouaner ouaner of replacement power in an amount up to 53.0 mil-fanwunts in thousands e2 cert for ver-share data) lion per week (starting 26 weeks after the outage) $5ratmarm nues 5.392.3o0 si.697.aso 51.920.243 si.co3 320 for one year and up to $1.5 million per week for the operating income 274.oss 278 843 357.602 240.14s second year. Under each of the NEIL policies, mem, c iidated nei bers are subject to assessmants if losses with respect rer common share to each policy year exceed tlie accumulated funds Earnmgs 0.7s 0 73 i.00 0.63 available to the insurer under that palicy. The pres- Mends paid 4s 48 as si ent maximum assessments under current policies for 1984 O "i"8 "'*a"" s1.433.531 ti.484.335 51.732.113 51.454.006 Alabama Power and Georgia Power for property P Operatmg income 23sJs3 237.836 337.670 236.182 damage would be 59.8 million and 54.7 milh.on, re-consolidated net spectively, and $14.7 million and $9.4 million, inwme 165.59s 143.139 253 327 155.18s respectively, under the replacement power policy. regommon sha" ng, 0 i o1 io o.62 Dividends paid 0.45 0.45 0.45 0.48

12. Common Stock Dividend Restrictions:

The income of The Southern Company is derived The company's business is influenced by sea-mainly from equity in earnings of its operating sub. s nal weather conditions and the timing of rate increases. sidiaries. At December 31,1985,5418,693,000 of consolidated earnings retained in the business was restricted against the payment by the operating companies of cash dividends on common stock under terms of bond indentures or charters. 50

15. Supplementary hformation on Reporting The Southern electric system is subject to rate The Effects of Inflation (Unaudited):

regulation and income tax laws that are based on The following information is an estimate of the the recovery of historical cost only. Therefore, infla-economic impact inflation had on The Southern tion creates an economic loss because the company Company and the common stockholders' invest, is recovering its cost of investments in dollars that ment during 1985. The information is presented in have less purchasing power. Conventional account-accordance with the general concepts set forth in ing for historical cost does not recognize this eco-FASB Statement No. 33, as amended, and should be n mic loss or the partially offsetting gain that arises viewed as an estimate of the approximate effects of through financing facilities with fixed money obli-inflation, rather than as a precise measure. The cur-sations, such as long-term debt and preferred stock. rent cost information is expressed in average 1985 dollars as measured by the Consumer Price Index for All Urban Consumers. Current (in millions of dollars) Cost Net utility plant at year-end (historical cost or net cost recowrable through depreciation was $15,291.2) 527,678.3(a) Erosion of common stockholders' equity due to inflation: Additional depreciation S 533.6 Adjustment ot utility piant to net recoverable cost (283.0) Ecoromic gain from ho' ding fixed money obligations (342.1) Excess of general level c,i prices (51,024.2) in the current year owr increase in specific price changes ($733.3) 200.9 Net erosion of common stockholders

• equity due to inflation S 199.4 Percentage Increase (Decrease)

Average 1985 Dollars From (in millions of dollars except per-sharc amounts) 1985 1984 1983 1982 1981 1981 to 1985 Operating revenues 56,813.9 6,368.9 5,851.5 5,469.3 5,034.1 35.4 % Earnings on common stock (b) S 630.2 574.1 467.1 355.7 110.2 471.0 Economic gain from holding fixed money obligations S 342.1 325.3 322.9 310.6 626.1 (45.4) Excess of the general level of prices over increase in specific price changes S 290.9 176.0 132.1 14.2 52.0 459.4 Common stockholders' investment (net assets) at year-end 55,225.8 4,732.0 4,284.1 3,8o1.8 3,594.0 45.4 Retum on average common equity (b) 12.66 12.74 11.47 9.54 3.07 312.4 Earnings per common share (b) 5 2.43 2.39 2.14 1.79 0.61 298.4 Cash dividends per common share 5 1.95 1.00 1.86 1.84 1.01 2.1 Market price per common share at year-end 5 21.81 19.26 17.36 17.19 13.68 59.4 Average consumer price index 322.2 311.1 298.4 289.1 272.4 18.3 (a) Current cost of utility plant was detcrmined primarily by applying the Handy-Whitman Index of Public Utihty Con-struction Costs to the applicable historical costs. (b) Adjusted to reflect the net erosion af common stockholders

• equity as shown above. If only the additional depreciation were deducted from the reported amount of such earnings. adjusted earnings (loss) would be 5206.0. 5210.7,580.3, (554.3L and (5158.1), respectively.

51

Selected Consolidated Financial Data The Southern Company and Subsidiary Companies 1985 1984 1983 Operating Rewnues (in thousands): Residential 51,754,763 51,685,70o $1,577,7-Commercial 1,457,705 1,359,343 1,236,0t Industrial 1,801,748 1,763,202 1,5 73,1: Sales for resale 436,328 455,842 439,0: Sales e utilities outside territory 1,262,659 776.889 507,9( Other 44,125 41,041 37,0( Total revenues frc,m sales of electricity 6,757,328 6,082,023 5.370,8 Other revenues 56,599 41, % 2 47,2; Total 56,813,927 56,123.985 55,418.0 Consolidated Net income (in thousands) - as reported 5 829,590 5 719,669 5 590,3. - pro forma (Note 1) $ 829,500 5 719,6e9 5 583,5. Total Eamings Per Share of ComIon Stock - as reported $3.20 53.00

52. '

- pro forma (Note 1) 53.20 53.00

52. <

= Cash Dividends Paid Per Share of Common Stock 51.95 51.83 51. Return on Average Common Equity (perwnt) 16.64 16.58 15.4 Total Assets (in thousands) 516,531,495 515,003,960 513,475,3< Longterm Debt (in thousands) 57,091,672 56,638,085 56,293,7 Preferred Stock Subject to Mandatory Redemption (in thousands) 5183,000 5194,224 5201,7 Gross Property Additions (in thousands) 52,211,265 52,100,450 51.706,4-Common Stock Data: Book value per share (year-end) $19.83 518.55 517. Market price (year-end) 22% 18% Shares outstanding (in thousands): Average 259,543 239,784 218,5 Year-end 268,884 250.052 229,5 Stockholders of record (vear-end) 307,878 325,200 339,9 Kilowatthour Sales (in thousands): Residential 26,161,247 25,279,049 24,580,3 Commercial 21,817,973 20,147,559 18,881,7 Industrial 39,290,289 38,536,696 35,121,8 Sales for resale 11,078,592 11,192,588 10,828,9 Sales to utilities outside territory 27,082,537 18,750,335 12.029,9 Other 626,201 578,585 564,9 Total 126,056,839 114,484,812 102.007,7 Customers (year-end) 2,880,552 2,800,532 2,723,o Employees (year-end) 31,701 31,121 30,8 Maximum Peak-Hour Demand (kilowatts) 21,287,800 19,771,600 20,517,e Sptem Capability * (kilowatts) 24,931,700 26,165,200 25,877,4 ~ Plant Availability (percent): Fossil-steam 90.4 90.9 9( Nuclear 80.3 66.9 7: Annualload Factor (percent) 57.4 58.9 5: Average Revenue Per Kilowatthour (cents): Total sales 5.36 5.31 5. Residential sales 6.71 6.67 6. Average Cost of Fuel Per Net Kilowatthour Generated (cents) 1.95 1.95 1.

• Excludes 2.423,000,964,000, and 654.000 kilowatts of capability from specific generating umts sold under long-term contracts to threi nonaffiliated utilities for the years 1985,1984, and 1983, respectively.

52

1982 1981 1980 1979 1978 1977 1976 1975 . $1,469,107 51,286,103 51,186,206 5 952,085 5 914,625 $ 828,200 5 673,653 5 632,765 1,173,323 985,106 879, 3 1 742,865 689,349 689,945 589,680 531,25e 1,480,187 1,367,715 1,199,204 1,056,675 922,288 773,447 619,640 558,7N 446,199 397,585 336,984 326,309 324,351 298,834 265,957 233,603 278,234 161,581 110,243 2,955 12.460 19,846 19,050 12,844 34,206 29,385 26,216 22.050 20,252 18,760 16,516 15,141 4,881,256 4,227,475 3,738,144 3,102,939 2,883,325 2,629,032 2,184,4 % 1,984,313 45,927 28,762 25,339 25,230 23.347 23,053 15,035 14,509, 54,927,183 M,256,237 53,763,483 53,128,169 52,906.672 52,652,085 52,199,531 51,998,912 5 472,331 5 325,979 5 344,395 5 219,127 5 201,568 5 245,0e7 $ 194,573 5 238,169 5 449,401 S 330,951 5 345,829 5 215,554 5 202,253 5 250.998 5 1 %,357 5 242,380 $2.38 51.81 52.23 51.51 51.45 51.95 51.62 52.26 $2.26 S1.84 52.24 51.49 51.46 S1.99 51.64 52.30 $1.66 51.62 51.56 51.54 51.54 $1.48 51.41% S1.40 14.26 10.94 12.91 8.90 8.44 11.10 9.91 13.62 $12,301,201 511,198,120 $10,378,699 $9,568,610 59,011,366 $8,332,620 57,473,500 56.735,120 r 56,104.179 $5,754,200 55,226,851 9,769,066 54,522,888 54,221,694 53,744,495 53,408,210 5211,234 5217,963 5152,000 5149,750 $155,000 $155,000 5155,000 $105,000 $1,490,529 $1,288,022 51,229,932 51,164,956 51,082,431 51,218.4N 5994,839 So02,087 $16.78 516.35 $16.80 516.80 $17.05 517.21 $16.81 $16.89 15% 12 12 % 115 13% 17% 16V. 14% 108,800 180,139 15*,392 145,038 139,005 125,846 120,072 105,264 208,824 190,957 168,697 148,745 142,102 136,772 122,807 110,246 346,595 347,119 345,335 341,401 342,482 328,135 292,759 264,652 24,095,512 24,239,470 24,651,737 22.645,723 23,606,119 22,829,156 20,985,791 20,275,134 18,409,993 17,714,872 17,282,986 16,433,689 16,586,919 17,763,462 16,741,455 15,556,668 33,369,N2 35,451,363 34.833,664 34,912,745 33,524,232 30,067,083 28,334,488 25,955,374 11,109,091 11,138,306 11,154,735 11,503,407 12,486,242 13,338,339 12,745,214 12,429,959 9,254,302 5,145,292 4,023,960 64,102 392,240 934,978 1,138,673 931,397 548,803 527,828 512,159 461,008 439,235 420,487 410,239 392,189 %,786,743 94,217,131 92,459,241 86.020,674 87,034,987 85,353.505 80,355,860 75,540,721 2,659,494 2,619,673 2,565,461 2,522,284 2,472,646 2,415,939 2,363,877 2,305,216 29,882 28,944 27,940 26,540 26,465 24,632 22,385 20,684 17,840,100 19,412,500 19,553,100 18,015.300 18,172,900 16,973,700 16,683,500 16,185,500 26,435,300 25,834,000 23,694,600 23,986,500 23,356,400 21,988,100 21,002.900 20,324,400 89.8 87.3 86.5 84.9 83.9 78.7 75.4 83.4 67.9 61.7 69.6 47.5 79.6 66.4 83.1 59.8 56.5 55.6 58.3 58.1 60.6 58.2 56.7 5.04 4.49 4.04 3.61 3.31 3.08 2.72 2.63 6.10 5.31 4.81 4.20 3.87 3.63 3.21 3.12 1.93 1.81 1.61 1.52 1.36 1.27 1.13 1.11 53

m iThe South 4rn Co@panyi C"ficers Directors i Edward L Addison Edward L Addison Earl D. McLean, Jr. Robert W. Scherer President President Principal Partner Chairmariof the Board Age 55: 31 years of service The Southern Company T.C. Griffith and Chief Executive Officer Atlanta, Georgia Insurance Agency, Inc Georgia Power Company WL Westbrook Age 55; elected 1978 Columbia, Mississippi Atlanta, Georgia Financial Vice President Age 60; elected 1985 Age 60; elected 1977 Age 46: 21 years of service Alan R. Barton President William A. Parker, Jr. Dr. Gloria M. Shatio Alan R. Barton hlississippi Power Cor.cany Chairman of the Board President Vice President Gulfport MisMppi Cherokee Investment Berry College Aer ^^. dected 1982 Company, Inc Rome, Georgia Age 60; 37 years of service (Private mvestments) Age 54: elected 1984 William J. Cabaniss, Jr. Atlanta, Georgia 4 M,Nmpbell. President Age 58: elected 1973 lierbert Stockham Age 63: 45 years of service Precision brinding, Inc Chairman of the Board and (Metal machmmg) H.G. Pattillo President Birmingham, Alabama President and Stockham Valves A.W. Dahlberg Age 47; elected 1985 Chairman of the Board & Fittings, Inc Vice President Pattillo Construction Birmingham, Alabama Age 45: 25 years of service Charles H. Cha an, J r. Company, Inc Age 57; elected 1978 Chairmanof the oard Decatur, Georgia Joseph M. Farley Chapman Corporation Age 59; elected 1972 ,y Vice President (Construction, real estate) Age 58: 33 years of service Dothan, Alabama Robert H. Radcliff, Jr. Advisory Directors Age 65: elected 1984 Chairman of the Board Douglas L McCrary Midstream Fuel Service, Inc. V.J. Daniel, Jr. Vice President A.W. Dahlberg (General marine services) Ibrmer Chairman of the Board ' Age 56; 32 years of service President Mobile, Alabama Mississippi Power Company Southern Company Age 68; elected 1966 Gulfport, Mississippi Robert W. Scherer Services, Inc Age 69: elected 1973 Vice President Birmingham, Alabama Crawford Rainwater" Named Advisory Age 60; 39 years of service Age 45: elected 1985 General Partner Director,1982 Durnford Enterprises, Ltd. 'Rea estate Tommy Chisholm IO5ePh M. Farley Alvin W. Vogtle,)r. pe c9, 9, Secretaryand Assistant President Treasurer Alabama Power Company Age 69; elected 1975 The Southern Company Age 44: 21 years of service Birmingham, Alabama Atlanta, Georgia Age 58; elected 1970 William J. Rushton,111 Age 67: elected 1962 Chairman and Chief Named Advisory William A. Maner,111 Executive Officer Director,1983 Treasurer John W. bn8 ale d Protective Life Corporation Age 46; 20 years of service ngd eCompany (Life and health insurance) (Fo d Birmmgham, Alabama Judy M. Anderson m ufacturing) Age 56; elected 1971 Assistant Secretary Valdosta, Georgia Age 37: 5 years of service Age 68; elected 1977 "Crawford Rainwater will

• Retires May 1,1986.

Douglas L McCrary retire on April 23.1986, and President be replaced by Vincent 1. Gulf Power Company Whibbs, Sr., Chairman. Pensacola, Florida Viro z Whibbs Pontiac Co., Age 56: elected 1983 Pensacola. Florida. 54

1986 Committees Of the Board System Companies Audit Committee Alabama Power J John W. Langdale, Chairman 600 North 18th Street William J. Cabaniss, Jr. Birmingham, Alabama 35291 l Earl D. Mciran, Jr. (205)250-1000 Crawford Rainwater Gloria M. Shatto Georgia Power 1 T 333 Piedmont Avenue, N.E. /

• g, 3

/ Compensation Committee Atlanta, Georgia 30308 l Robert H. Radcliff, Jr., (404)S26-6526 Chairman r l Gulf Power Charles H. Chapman, Jr. 75 North Pace Boulevard i William A. Parker, Jr. l Pensacola, Florida 32505 i (004)434-8111 Executive Committee Edward L Addison, Mississi i Power Chairman 2902 % t Beach l William A. Parker, Jr. Gulfport, Mississippi 39501

1. h adcliff Ir-System Chief Executives def a to right)- A. W Dahlberg, (601)864-1211 gg Joseph M. Farley. Alan R.14arton. Fdward L Addison, Crawford Rainwater Southern Company Robert W. Scherer, and Douglas L McCrary.

l William J. Rushton,111 Services, Inc. l 64 Perimeter Center East l Nominating Committee Atlanta, Georgia 30346 i Herbert Stockham, (404)393-0650 Chairman l William J. Cabaniss, Jr. 800 Shades Creek Parkway John W. Langdale Birmingham, Alabama 35209 William J. Rushton,111 (205)870-6011 Gloria M. Shatto i One Wall Street Suite 4200 New York, New York 10005 (212)269-8842 110117th Street, N.W. Suite 405 Washington, D.C. 20036 (202) 775-0944 Southern Electric j International, Inc. 3500 Piedmont load, N.E. Suite 500 Atlanta, Georgia 30305 (404)261-4700 L Southern Electric Investments, Inc. i 64 Perimeter Center East Atlanta, Georgia 30346 (404)393-0650 l i I 55 i ,-----.----a, _.,,.o,

~ TSEohkholdE16formaiioh^ ~ Listed below are a number of StockholderInquiries Dividend Reinvestment Plan materials that may be helpful to Questions regarding ownership of The Dividend Reinvestment and investors-Southern Company stock or inquiries Stock Purchase Plan provides a con-about the company's operations may venient method for stockholden to Form 10-K be directed to Stockholder Services acquire new shares through the in-A copy of Form 10-K as filed with the (404)393-4498. vestment of quarterly dividends and Securities and Exchange Commission through optional cash payments. The will be provided without charge to Common Stock Listing price of shares purchased with stockholders upon request to the of-The common stock of The Southern reinvested dividends and with op-fice of the Corporate Secretary. The Company is listed and traded on the tional cash payments is equal to 100 company's Financial and Statistical New York Stock Exchange. In addi-Percent of an average market price. Review and annual reports of the sys-tion, the stock is traded on regional Optional cash payments can be made tem operating companies also are stock exchanges across the United monthly from a minimum of $25 to a available on request. States. (The ticker symbol for maximum of 56,000 per account for Southern Company stock is SO. The each calendar quarter. The company Cassette Recordings symbol SouthCo is used in news, charges no service fee or commission Cassette recordings of the 1985 an-papcr stock listings.) for the purchase of stock, and all nual report are available without stockholders of record are eligible to charge as a service to the visually im-Common Stock Data paired. Requests should be directed to the plan and the method for Corporate Information. Dividends Price Range calculating the average market price Per Share High low may be obtained from the office of Mailing List for Publications 1985 the Corporate Secretary. First Quarter S.48 20% IT' Through the 1985 tax year, the The Southern Company maintains tax code allowed individuals who direct mailing list for stockholden Second Quarter.48 22% 19% whose shares are not held in their Third Quarter .48 23% 18% participated in The Southern Com-own names and for other mterested Fourth Quarter .51 23 % 19% Pany's dividend reinvestment plan to defer payment of federalincome taxes parties. Requests to be addM to this Total S1.95 on reinvested dividends. A maximum list should be sent to Corporate of $750 annually may be deferred on Information. Dividend Payments an individual return for 1985; 51,500 The board of directors sets the record annually on a joint return. This pro-date and payment date for each visi n of the federal tax law expired quarterly dividend. For 1986, the December 31,1985. record dates are February 3, May 5, August 4, and November 3. The pay-ment dates for 1986 quarterly dividends are March 6, June 6, September 6, and December 6. 56

. - - - - - - - - - -] ]"~p ~P g- { sym]Ty t];'y To deveiog a demo 8raghic grofile The Southern Company 64 Perimeter Center East A of The Southern Company's - Atlanta, Georgia 30346 individual stockholders and to obtain (404)393-0650 information about how their needs and interests might be better served, the company has periodially asked Traitsfer Agent, Dividend Paying Agent, an independent research firm to con-Dividend Reinvestment Agent, duct a nationwide survey. Nearly 1,700 randomly selected stockholders and Registrar Southern Company Services, Inc were polled via telephone and mail Stockholder Services during thelatter part of 1985. P. O. Box 88300 The survey results showed that a Atlanta, Georgia 30346 majority of the company's stockhold-ers own between 100 and 500 shares (404)393-4498 and have held the stock for more than Auditors five years. Some 93 percent gave posi-Arthur Andersen & Co. tive ratings to the company as an in-133 Peachtree Street, N.E. vestment vehicle. When asked about Atlanta, Georgia 30303 specific nvestment criteria, stock-I4galCounsel holders rated quality of management Troutman, Sanders, and safety of the investment as the lockerman & Ashmore most important factors they consider - 127 Peachtree Street, N.E. when making decisions to buy or sell Atlanta, Georgia 30043 stock. More than 90 percent of the company's stockholders own stock in other publicly held companies with almost 80 percent owning stock in Annual Meeting other electric utilities. The1986 annual meeting of stock-holders willbe held on Wednesday, May 28, at 10:00 a.m. (CIX) at the Birmingham-Jefferson County Civic Profile of Individuals Who Own Center, Birmingham, Alabama. A Southern Company Stock report on the meeting will be mailed 1985 1983 to stockholders and also will be Median Age 66 63 available on request to the Corporate Information office. Median Household Income $36,501 $35,238 Percentage Who Are Retired From The1985 annualreport is submitted ."fP o 53 4g forstockholders'information. It is notintendedfor usein connection Percentage with any sale orpurchase of, or any Holding Shares solicitation of offers to buy orsell, 5, securittes. Percentage Who Have Acquired Additional Shares Since Initial Purchase 54 50 57

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