ML20150D542
| ML20150D542 | |
| Person / Time | |
|---|---|
| Site: | Grand Gulf  |
| Issue date: | 12/31/1987 |
| From: | Cavanaugh W SYSTEM ENERGY RESOURCES, INC. |
| To: | |
| Shared Package | |
| ML20150D533 | List: |
| References | |
| NUDOCS 8807140042 | |
| Download: ML20150D542 (47) | |
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Support for Grand Gulf t! nit ;
System I:ncrgy hesources, Inc.
produced 30,930,000 kilowatt.
(SERI) was founded in 1986 as the hours of ciectricity during a was limited to the minimum re-newest operating company of Middle 2 i-hour period.
quired to maintain the unit as a South I'tilities, Inc. Since that time,
- G *and Gutt l' nit I established a viable option to meet the future the Company has made significant world record for continuous energy needs of the Middle South advan(ements in its nuclear opera-operation during the second cple System. Construction on l' nit 2 sns, reflecting the dedicated spirit for reactors of its type.
was suspended in 1985.
L: nit I completed its second The superior quality of our ai <
- acting professionalism of the tota,rgaintion.
nuc! car training programs was refueling outage on schedule an As we reported in 1986, our recognized in April by the Nation-within budget.
SERI employees colchrated a spc-commitment at SERI-both individu-al Academy for Nuclear Training ally and corporately-is keyed on be-w hen all of 5ERI's programs were cial landmark accomplishment last ing "the absolute best in an indmity accredited, and SERI was accepted
.luly: 3,000.n00 hours worked that daily demands the highest levels as a full member of the Academy.
withs ut a lost-time accident. In After an extensive awewment, the addition, the total collective radia-of excellence." l'ollowing 198", cur Hrst full calendar ) car at St RI, that Institute of Nuclear Power Opera-tion dose at Grand Gulf met the l
commitment continues to be our tions rated the Grand Gulf corpor.ac performance target, I
hallmark.
Nucicar Station in its second which is significantly under the With our new (orporate motto, highest category, stating that:
industry average for ilWR's. Iloth "I.xccIlence in l'nergy." serving as "Overall performance is exem-of these achiesements demon-our standard, we are building on our plary. Industry standards of cxcel-record of accomplisnoent and will lence are met in many arcat No l "1 e
~
-m
'h be constantl) striving to make our significant weaknesses noted!
Grand Gulf's equivalent availabili-f present and future plans results-oriented realities in l988 and ty for 19H' was in excess of "
bey ond.
percent. This high level of gencr-
%[g jh i4 ating performance far excceded Achievements the industry as crage, especially A number of 1987 operating w hen considering that the reactor l
s I
milcstones serse as nidence of the was refueled during this period.
wisdom and progrew of our manage-One of the most important indica-
- {q ment approach.
tors of a plant's performance, I
equisalent availability is the j
- Grand Gulf I' nit I set a world amount of time (expressed in per-l record for boiling u ater reactors u ot > that the plant was capable (llWR's) w hen. in lebruary, it of producing maximum power.
g
- Attual 198' cost of scrs ice w as 16 w-+,--
~~a percent belotr budgeted Icscis due to close control of finantial out-lay s and inc reased ef fit.icnty.
l l
1
- -, -. ~ - -. ~.. ~.. _.. _.. - _.- _ -. _.. - _ _.. - --,..-...,~- -. - -- - -
e strate inat SERI's commitment to regulatory and legal uncertainty.
The road ahead safety was in no way com-(These factors are discussed in-depth We at SERI believe that our promised by its continuing atten.
later in this report.)
record for 1987 indicates that we
' tion to cost reduction.
Ilowever, SERI's prospects for are on the right track and moving in
- Significant strides were made by impnered financial condition were a positive direction. While much re-the SER, iluman Resources fasorably affected in the fourth
' mains to be achieved, our view of Department in pursuing studies quarter-primarily by the October 5 the future continues to be influenced and systems to address important decision by the United States by unprecedented opportunity, personnel issues, such as pay Supreme Court to hear 31P&l's ap-Our challenge for the coming based on performance, planning peal. Ily year-end, this factor con-year is to take the accomplishments for management succession, and tributed to our successful completion of 1987 and build on them with the identifying and developing talent-of two Hrst mortgage bond issues for realistie expectation that we have ed employees with growth a total of $300 million.
the talent and tenacity to reach even potential.
Uncertainties continue to exert higher levels of operating su-unsettling and adverse effects on the periorit y.
Unquestionably, these notewor.
Company's financial condition.
We are grateful for the confi-thy advancements were the pn> ducts SERI's future financial performance dence and support you have shared of the energetic spirit of coopera-will be influenced significantly by with us and are committed to estah-tion. mutual respect and teamwork the resolution of certain pending lishing a benchmark of excellence that's alive at SERI. While we are financial, rate and regulatory issues that will be the pride and envy of justifiably proud of these first year (all of which are fully discussed else-the nuclear industry.
results, we beliese that "Excellence where in this report.)
in Energy" is just beginning to reflect our commitment to leadership New director in the nuclear industry.
An important addition was made n=~
to the SERI Board of Directors in C
Financial 1987 with the election of Dr. Joseph We entered 1987 expecting to
- 51. Ilendrie. A former chairman of W////am Cavana:sgh ///
make major progress on a plan to the Nuclear Regulatory Commission Pres / dent 6 Chief Executive Officer substitute long-term financing for and past prendent of the American sERl's substantial bank debt.
Nuc! car Society, Dr. llendrie is inter.
Ilowever, for most of the year, we nationally recognited as a leader in were precluded from effecting long-the field of nuclear energy. lie is term Anancing with SERI's financial currently senior scientist of the condition remaining relatively un-Ilrookhaven National Laboratory and changed. This situation was an-we are honored to have him as a chored to the l'chruary 25 decision part of the SERI team.
. by the allssissippi Supreme Court on Alississippi l'ower & Light Company's (51P&l.) retail rates and the resulting s
i 5
d.ly a
u 11 p
'A 's, _ 6 Em The management of System management maintains and enforces management meets its responsibility Energy Resources, Inc. has prepared a sy stem of internal accounting con.
for fairness of financial reporting.
and is responsible for the financial trols w hich is designed to provide They regularly evaluate the system of statements and related financial infor-reasonable assurance, on a cost effec-internal accounting controls and per-mation included in this annual tise basis, as to the integrity, objec.
form such rests and other procedures report. The financial statements are civity and reliability of the Snancial as they deem necessary to reach and prepared in accordance with general-records and as to the protection of express an opinion on the fairness of ly accepted accounting principles, assets. This system includes commu-the financial statements.
consistently applied. Financial infor-nication through written policies and Management belieses that these mation included elsewhere in this procedures and testing by a compre-policies and procedurc3 provide report is consistent with the financial hensive internal audit program.
reasonable assurance that its opera-statements.
The independent certified public tions are carried out with a high
'Ib meet its responsibilities with accountants provide an objective as-standard of business conduct.
respect to financial imormation, sessment of the degree to which
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Financial Condition decision (February 25 Decision),
the June 13 Decision, thereby uphold-The financial condition of Sys-which reversed and remanded ing the i ERC's jurisdiction to allocate tem 1:nergy Resources, Inc. (Compa-MP&lls Grand Gulf I rate order, (2)
Grand Gult I costs. Due principally ny) remained relatisely unchanged the rederal Energy Regulatory Com-to the f.tvorable impact of the l?nited during most of 1987. Ilowever, im-mission's (i1:RC) order on Nosember States Supreme Court's October 5, provement was evident in the fourth 30, 1987, which reaffirmed and rein-1987, decision, the Company suc-quartcr primarily because of positive stated the 1 ERC decision on June 13.
cessfully completed two issuances of developments in respect of sc,crat 1985 (June 13 Decision), regarding first mortgage bonds in the fourth uncertainties which have adscrsely the allocation of Grand Gulf I capac-quarter totaling $300 million.
af fected the Company's financial ity and energy among Arkansas Pow-liowever, the Company's finan-condition. Specifically, the Compa-cr & l.ight Company, l ouisiana cial condition was and will conti>ue ny's prospects for improsed financial Power & Iight Company, MP&l. and to be adversely altected by the t. i-condition were fasorably affected in New Orleans Public Service Inc.
certaintics related to (1) disputes in-the fourth quarter by (1) the October (NOPSI), collectively referred to as volsing rate structures implemented 5,1987, l'nited States dupreme Court the "System operating companies l by the System operating compmics decision to hear full argument of and (3) the 1:nited States Supreme w hit h hase (hanged, are in 1;tigation Mississippi Power & l.ight Company's Court's denial on De(ember 11.
(in particular, the outcome cf MP&lls (MP&l.) appeal of the Missiwippi 198 ', of petitions for certiorari filed pending appeal to the l'nitcd States Supreme Court's lcbruary 25,198?
by variou, parties in connection with Supreme Court of the ichraary 25 6
.s 7 -
f Decision) or. have been or' currently resolution of disputes'over adequate Public $ervice Commission (AlPSC) '
are subject to prudence reviews or.
retail rate relief for certain of the granting permanent rate relief to disallowances (in particular, the re-System operating companies has yet AIP&L with respect to its recovery of
' cent action of the Council of the to be achieved, and some of the rate Grand Gulf I costs. Subsequently,
' City of New Orleans, Louisiana structures as ialtially implemented SIP &L filed an appeal of the Febru-
. (CounciD imposing an additional have changed, are in litigation, or ary 25 Decision with the United prudence disallowance of $135 mil-have been or currently are the sub-States Supreme Court and also filed lion on NOPSI, which has had a ject of prudence reviews or disal-an application asking that Court to material advcrse effect on NOPSI's towances. Iurther changes to or stay the mandate of the lebruary 25 financial condition and, if not reversals of existing rate structures Decision pending final disposition of reversed, could renaer NOPSI insol-could occur, depending upon further the appeal. On June 1,1987, such sent in a short pertut of time), (2) actions of regulatory bodies or the stay was granted, conditioned upon the status of Grand Gulf 2, construc-courts.
the posting of a good and sufficient tion of which has lxen suspended, In this connection, a prudence bond, in a manner and amount to be (3) a FERC audit of the Company investigation conducted by the Coun-determined by the Mississippi and the Grand' Gulf Nuclear Generat-cil relative to NOP$1's Grand Gulf 1 Supreme Court. On June 10,1987, ing Station (Grand Gulf Station), and cost recovery resulted in a February the 51ississippi Supreme Court en-(1) the continuing controversies over 1,1988, decision by the Council to tered an Order Setting Bond with the Grand Gulf Station and the alto-require NOPSI to write off and not respect to the possible refunding to cation of capacity and energy from to recover from its retail electric cus-customers of amounts collected by Grand Gulf I'to the System operating tomers 5135 million of its deferred AIP&L pursuant to its Grand Gulf I companies.
Grand Gulf I costs, in addition to rate order (approximat(ly $279.8 mil-Under traditional utility regulato-the $51.2 million of such costs that lion as of December 31,1987). The ry principles and the doctrine of fed-NOPSI had previously agreed to ab-requirements of the 511ssissippi eral preemption, costs incurred sorb in its March 1986 rate settle.
Supreme Court's Order Setting Hond under w holesale rates approved by ment. NOPSI is seeking relief in the have been and are currently being the FERC should be allowed to be courts from this finding by the satisfied These bonding arrange.
recovered from retail ratepayers. As a Council of alleged imprudence, but, ments provide that, among other result of the FERC's June 13 Dect-as a result of its inability to obtain things, the Company shall make sion, all of the costs, capacity and injunctive relief that would stay the monthly payment 3 into a trust ae-
. cnergy associated with the Compa-effectiveness of the Councifs actions, count for the benefit of MP&Us
- ny's 90 percent share of Grand Gulf NOPSI was required to record the ratepayers equal to MP&Us Grand
- t were allocated to the System oper-write-off in 1987. If the Council's ac-Gulf I rate collections from June 1, ating companies upon commercia!
tions are not reversed, NOPSI may 1937, until final resolution of SIP &l's operation of the unit. All of the Sys-not be able to obtain the requisite appeal to the l'nited States Supreme tem operating companies have funds to meet its ongoing obliga-Court. Through March 15,1988, the received rate relief for their allocated tions, including its obligations to the Company had paid into the trust ac-share of costs associated (vith Grand Company, and could be rendered in-count approximately $138.5 million Gulf I which they believe will be solvent in a short period of time, under this requirement, and such
[
oufficient to allow them to meet possibly as early as the second quart-payments are estimated to aserage l
their r sective Grand Gulf I obliga-er of 1988. See Note ?, "Commit-approximately $1i million per month 1
y tem operating compa-ments and Contingencies!
through June 1988, at which time it tions t
Mes'.
- u...e financial condition in addition, on Icbruary 25, is expected that a decision shall hase l-rF ns d, pendent on the continued 1987, the Mississippi Supreme Court been rendered by the United States effc(tiveness of their respective rate reversed and remanded the Septem-Supreme Court in MP&l?s appeal.
orders, llowever, final and favorable her 1985 order of the Mississippi Further. the Company and Middle s
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b (Management's fiitancfas discussion will be decided by the end of June ing its November 30 order, the FERC and analysis, continued) '
1988. See Note 7, "Commitments found that the allocation of Grand and Contingencies."
Gulf I costs in the June 13 Decision l South Utilities, Inc. (MSU) have
. On June 24, 1987, the United -
was not unduly discriminatory. Re-
- provided corporate guarantees (in the States Court of Appeals for the Dis-quests for rehearing of the i ERC's
. amount of approximately $206 rml-trict of Columbia Circuit (D.C. Cir.
November 30 order were filed by
'llon as of June 30,1987) of SIP &Us cuit) reversed, in part, and remanded various parties (other than the Sp.
refund obligations for Grand Gulf I the June 13 Decision Gune 24 Re-tem operating companies), and by collections from September 1985 mand) to the FERC for reconsidera-order dated January 29,1988, the through June 1987 if refunds are re-tion of its decision to equalize the FERC denied these requests. Petitions
' quired. To the extent that either the capacity costs of all nuclear plants for review of the FERC's November Company or SISU makes payments to among the System operating compa-30, 1987, and January 29,1988, ord-discharge MP&l's obligatio'n to make nies. The D.C. Circuit also asked the ers have been filed with the DC, Cir-refunds to its customers as a result of.
FERC for an explanation of the cuit by various parties.
an adverse final judicial determina-criteria used to determine what con-It is not possible at this time to
' tion of SIP &Us ypeal of the febru-stituted "undue discrimination" un-predict the ultimate outcome of ary 25 Decision, the Company der the Federal Power Act and why these matters, including possible re.
- andAnr 515U, as the case may be, will the June 13 Decision was not unduly allocation, if any, or the effect there-have an immediate right of reim-discriminatory.
of upon the Company and the
- bursement imm MP&L. The Compa-Further, various parties filed pc-System operating companies, includ-ny has agreed, at the request of its titions for sertiorari with the United ing possible refunds. if any. Any creditor banks, to demand immediate States Su[,reme Court seeking review material modification of the alloca-trimbursement fmm SIP &L on ac-of that portion of the DC. Circuit's tion established by the June 13 Deci-count of all amounts paid by the decision that affirmed the FERC's sion, as reaffirmed by the FERC's Compar.y (whether directly or from jurisdiction to allocate Grand Gulf 1 November 30, 1987, order, could monies placed in trust) on behalf of costs. Certain of these parties re-give rise to additional litigation, dis-alp &L and to take promptly all quested that the United States putes and challenges in the affected reasonable actions necessary to col-Supreme Court consider their jurisdictions.
lect such amounts from SIP &L.
challenges to FERC jurisdiction at the In addition, the System operat-On October 5,1987, the United sarne time the Court considered ing companies have initiated a study.
States Supreme Court decided to hear AIP&Us rate case appeal. On Decem-currently scheduled to be completed full argument of NP&Us appeal of her 14,1987, the United States in the near future, to determine the Mississ el Supreme Court's Supreme Court denied. without com-whether a more equuable method of February 25 Decision but postponed ment, these petitians for certiorari, allocating future costs, including further conshieration of the United thereby leaving in place that part of those relating to Grand Gulf 1, States Supreme Court's jurisdiction to the D C. Circuit's decision upholding would be appropriate.
the hearing of the case on the the FERC's jurisdiction to allocate Also, prudence issues involving merits. The stay granted by the Unit-Grand Gulf I costs.
AIP&Us Grand Gulf I costs remain ed States Supreme Court on June 1, On November 30,1987, the unresolved. See Note 8 "Rate and 1987, remains in effect. Accordingly, FERC issued an order in re3ponse to Regulatory Statters-Rate Activity-MP&L is continuing to collect its the June 2 4 Remand w hereby the Sptem Operating Companies," for Grand Gulf.l~ rates, subject to refund, FERC reaffirmed and reinstated the more information regarding a pru-pending the Court's decision. Oral June 13 Decision, thus maintaining dence imestigation involving MP&L.
l argument before the l'nited States the presions alb> cation of Grand Gulf The outcome of this matter and Supreme Court was held on February I capacity an i energy among the whether MP&lls current rate struc-22, 1988. It is expected that the case System operating companies. In issu-ture will remain in effect cannot be 6
b
1 a
e predicted at this time.
tions, additional capital requirements proceeds nom such transactions in addition to the impact of the could result, See Note 7. "Commit-could be used to retire debt at par. In resolution of the hsues stated above, ments and Contingencies-Capital addition, the Company's nuclear fuct the Company *> net income, earnings Requirements and f inancing."
leases are likely to terminate during coverages and cash flow could be During the period 1985-1987 this period if the credit lines sup-significantly and adscrsely affected if the Company incurred construction porting the nuclear fuel leases ter-certain findings stemming from a expenditures totaling $411.0 million, minate, as scheduled. It is currently ifRC : udit of the Company and the including allowance for funds used assumed that either the credit lines Grand Gulf Station are ultimately sus-during construction (AFDC) of will be extended or that alternative tained. See Note 7, "Conmiitments
$ 120ci million. Funding for this con-credit lines will be ar.inged. 'Ib the and Contingencies-FERC Audit?'
struction activity was obtained extent, howcVer, that this does not Reference is hereby made to primardy from the sales of first occur, additional financing require-Note 7, "Commitments and Con-mortgage bonds and pollution con-ments of up to $215 million could tingencies-Suspended Construction trol revenue bonds, bank borrowings, result. Further, in connection with
- Project-Grand Gulf 2," for informa-payments received from certain of alp &lls bonding order from the Alis-tion concerning Grand Gulf 2, in-the System operating companics for sissippi Supreme Court, the Compa-cluding issues regarding the recovery advance power purchases and in-r.y is required to deposit each month by the Company of its imestment in come tax benefits. The Company's into a trust account for the benefit Grand Gulf 2 and information with total construction expenditures (ex-of 31P&lls ratepa rs an amount respect to adoption by the 1 ERC of cluding nuclear fuel expenditures, equal to SIP &l's cash collections its "50/50 sharing" policy regarding net of amourits assumed to be from its customers for its Grand Gulf recoscry of cancelled or abandoned financed under lease, estimated at I obligations from June 1,1987, until plant msts. Aho, see Note 7, "Com-50.i m liion during the period 1988-SIP &lls current appeal to the !!nited mitments and Contingencies-1990) for 1988,1989, and 1990 are States Supreme Court is resobed.
Statements of Iinancial Accounting expected to be approximately S 6 L7 During 1987, the Company was Standards Nos. 71 and 90," for infor-million. $ i3 3 million and $4 i.i mil-delayed in effecting permanent mation regarding the effect on the lion. respectively, for its 90 percent financing due to uncertainties sur-Company of certain new accounting ownership in the Grand Gulf Station.
rounding the System operating com-standards should Grand Gulf 2 he These estimated expenditures -wsume panics' retail rate relief with respect -
abandoned, no activities at Grand Gulf 2 cxcept to Grand Gulf I and uncertainties as-Ecference h made to Note 1 for demobilization and su pension.
sociated with the decision of the "Income Taxes." for information The Company estimates that it D C. Circuit reversing in part, and concerning the issuance of Statement will require approximately $613 9 remanding the June 13 Decision.
of financial Accounting Standards million from internal and external floweser, the Company's ability to No. 96, Acmunting for Income Tax.
sources for the period 19M8 through finance was enhanced by the !!nited es, and the potential cffect on the 1990 to refinance maturing indchtei States Supreme Court's decision in Company upon implementation.
ness (culudmg $158 million of unse-October 198"' to hear full argument cured short-term notes which of MP&lls appeal of the February 25 IIquidity and Capital 1(esources matured and were paid in January Decision. Subsequently the Company The Company's capital require-1988L to meet sinking fund obliga-issued and sold $200 million of first ments noted below are based on cer-tions and to finance its other capital 31ortgage ltonds 11% Series due tain assumptions and judgments with requirements (primarily the construc-199 L through a public offeriny on respect to, among other things the tion expenditures listed above). Fur-Nos ember 21, 1987, and on Decem-outmme of pending regulatory and thermore, the Company may enter her I,1987 the Company closed a judiual proceedings if future es ents into arr;mgements for the sale and prhate placement of $100 million of vary significantly from these assump-leas..back of property in which the f irst Mortgage llonds. Ii.34 % 5eries w
I i
1 4
- (3fanaf;ement's financial discussion external sources for this period, scheduled final maturities being in and analysis, continued).
Ilowever, many uncertainties con.
February 1989. The Company is tinue to confront the Company and presently current with respect to due 1992, The proceeds from these the Sliddle South System, and, de-scheduled semi-annual paymer.ts un-sales, coupled with internally gener-pending upon the ultimate resoluuon der these Agreements. See Note 3, ated funds, were used to repay those of such uncertaintics and the effects "Lines of Credit and Rel:.ted Ilor-payments deferred under the U.S.
thereof upon the Company and the rowings."
and Foreign llank Loan Agreements Sliddle South System, the Company The Company has amended the (discussed below), as well as the m y be required to obtain funds U.S. and Foreign llank I.oan Agree-
$158 million of unsecured short-term from external sources. If the Compa-ments to convert borrowings there-notes which matured in January ny is unable to obtain sufficient under to term loans. At December
- 1988, and for other corporate funds from external sources on a 31, 1987, the Company had outstand-purposes.
timely basis. the Company could de-ing $247 C million and $126.75 mil-In addition, on February 29, velop such liquidity constraints that lion tnder the U.S. and Foreign llank 1988, an agreement was entered into its ability to meet its obligations to Loan Agreements, respectively, and
- by the Company for the sale and its creditors might be impaired, had an obligation to collateralize leaseback of up to $50 milSon of the which could lead to acceleration of with cash the remaining $126.0 mil-unleased nuclear fuel on its balance the maturity of the Company's in-tion of the letter of credit under the sheet. The lease extends for one year debtedness (but only upon further Series C Pollution Control Revenue with monthly extensions thereafter action by the trquisite percentage ot llonds. In addition, in February until notice is given by either party the Company's creditors) unless 1988, the Company paid the sched-thereto. Also, on February 29, 1988, wahers were obtained. the debt were uled $4".25 million semi-annual in-the Company entered into an ar.
restructured or other arrangements stal! ment due under the Foreign rangement for the sale of certain of could be negotiated.
Ilank Loan Agr(ement. On Starch 1, its customer accounts receivable dur-In view of the above-mentioned 1988, the Company paid the sched-ing the period February 29, 1988, uncertainties, the delay in effectmg uled semi-annual installment of $125 through Stay 16, 1988. The terms of permanent financing and the need to million due under the U.S. Ilank this arrangement provide for the conser e available cash resomces, the Loan Agreement, $42.2 million of periodic sale 1 y the Company of up Company obtained the consents of which was paid into the escrow ac-to approximately $52.6 million the applicable creditor banks to defer count for the Series C Letter of through Starch 15, 1988, and up to the September 1,1987, payment of Credit llanks.
approximately $38A million there-
$125 million due the U.S. Ilanks and The Company is currently autho-after of certain of its customer ac-to further defer the August 31. 1987, rized by the Securities and Exchange counts receivable, including all payment (originally due August 5, Commhsion (SFC) to effect short-collections relating thereto, without 1987) of S C.25 million due the lor-term borrowings in an aggregate recourse to the Company. This ar-eign llanks, in each case to not later amount outstanding at any one time rangement is terminable by either than December 15,1987 The of up to 10% of its capitalization.
party upon thirty days written deferred installments were paid on The Company is lindted by certain of
- notice, November 25, 1987, upon receipt of its credit agreements to short term Subsequent to the above financ-the proceeds from the sale of first borrowings in an aggregate amount ing arrangements, the Company an-mortgage bonds. In connection with not exceeding the les.ser of 5% of ticipates that its projected cash flow these deferrah, the Company agreed, capitalization (approximately $23 4.5 for the period 1988 1990 will enable among other thmgs, not to pay disi.
million at December 31,198) or it to satisfy its cash requirements dends on its common vock to Alm 5200 million. At December 31. 1987 from internal sources and that no ad-umil all loans outstanding under the Company did not hase any avail.
ditional funds will be required from these Agreements are fully paid. the able bank lines of credit. Ilowever.
-8
. the Company received SEC authoriza-reduction to 1.25 with SEC ap-With the commercial operation 'of -
tion, effective January I,' 1987, to ef-
. proval). At December 31,1987, such Grand Gulf 1, the Company's net in-
- fect short term borrowings through earnings coverage for preferred stock come began reflecting cash earnings the System Stoney Pool (Aloney would have been 1.57, which would resulting from the allocation to the Pool), which allows certain System have allowed the Company to sell System operating companies of the
, companies to borrow from, or lend
$118 million of preferred stock, as-unit's capaci:y and energy. Net in-
- to, certain other System companies.
suming an annual dividend rate of come, exclusive of the equity com-The Company's participation in the 13%.
ponent of AFDC, aggregated $198.6 Aloney Pool is subject to the availa-In connection with the financing million, $188.2 million, and 597.6 hility of funds, which at any particu-of the Grand Gulf Station by the million, respectively, for the years far time may be limited. At Company,5150 has undertaken in the 1987,1986, and 1985.
December 31, 1987, the Company Capital Funds Agreement to provide, For the years 1987 and 1986, to.
had no outstanding borrowings from -
or cause to be provided to the Com-tal AFDC was insignificant. Total
' the Money Pool. On April 3n,1987, pany, sufncient capital, (1) to main-AFDC for 1986 decreased 5229.0 the Company issued and sold, to a tain the Company's equity capital at '
million from. the year ended Decem-
. group of domestic and foreign in-an amount at least equal to 35 per-ber 31,1985. Tbtal AFDC for 1985 stitutional investors, 5158 million of cent of total capitalization, (2) to was $221.4 million (5207.6 million unsecured promissory notes, which construct, own and place in com-of which accrued during the first matured and were paid in January mercial operation the Grand Gulf half of 1985). The higher AFDC 1988.
Station, (3) to provide for pre-amounts through Jane 30. 1985.
At December 31, 1987, the earn-operating expenses and interest reflected the increasing amount of
-ings coverage for the Company's first charges of the Company, (4) to per-construction work in progress at-mortgage bonds, which must be a-mit the continuation of commercial tributable to the Grand Gulf Station, minimum of 1.5 times the annual operation after commencement the increasing amount of long term mortgage interest requirements for is-thereof, and (5) to pay in full all in-debt outstanding, and higher prevail-suance of additional first mortgage debtedness for borrowed money of ing interest rates. Subsequent to June bonds, was 3.01. Assuming an annual the Company, whether at maturity, 30, 1985, the decreasing amounts of
-intercst rate of 13% and subject to on prepayment, on acceleration or AFDC reflect the cessation of the ac-the availability of bondable property, ot herw he.
crual of AFDC on Grand Gulf I con-the Company could base issued current with its July 1,1985.
51,685 million of additional fir >t Results of Operations commercial operation and, to a less-mortg. ige bondsjplus any bonds is-The Company began to report er extent, the cessation of the accru-sued for refunding purposesl.
results of operations subsequent to al of AFDC on Grand Gulf 2 Ilowever, at December 31,1987,un-the July 1.1985, commercial opera.
following the suspension of con.
funded bondable Grand Gulf I tion date of Grand Gulf 1. Prior to struction of that unit in September property would only support the is-that time, the Company's income 1985. lotal AFDC for the years 1987 suance of apprmimately $179 million statement reflected only non-and 1986 ako reflected the impact of of additional first mortgage bonds.
operating itemt normalizing the income tax effect of in the event of any issuan(c of Prior to the commercial opera.
utilizing state income tax loss carry.
preferred stock, it is expected that tion of Crar. I Gulf I. all of the Com-forwards.
the Company's Articles of incorpera-pany's net income had been the l'or the twebe months ended l
' tion will be amended to require a equity component of AFDC. w hich December 31.1987, operating minimum earnings cmcrage of 1.5 consisted solely of non-cash credits revenues and operating expenses re-l times the sum of the pro forma an-to the income statement that mained relatively unthanged, with nual interest sharges and annual represented a reasonahic return on an increase of only $2.8 million, or l
preferred stock dividends (subject to equity funds used for construction.
0.3 percent, and $2 4.3 million, or 9
t_ -
9 i
t
, (Management's financial discussion applied in a year of significantly low period, as a result of a full year of
'and analys/A continued)-
generation. For the year '1986, Grand Gulf I commercial operation depreciation expense increased $20.3 '
in 1986.
11,9. percent, respectively, over the million, or 53.6 percent, as compared Total interest ' expense declined same 1986 period, llowever, operat-to 1985, rtuecting a full year of com-
$26.l million, or 8.3 percent, in irig revenues and operating expenses.
mercial operation of Grand Gulf 1.
1987 as compared to 1986. Interest
~
. increased 5135.7 million, or 83.1 ~
Fuel expense increawd $21.6 expense for the year 1986 declined percern, and.5220.7 million, or Hla million, or 47.7 percent, in 1987 as
$57.2 million, or 15.2 percent, from percent, respectively, in 1986 over compared to 1986. During 1987, the the year 1985. The lower interest ex-1985 due to 1986 nuccting a full ~
plant consistently operated at a pense was due primarily to a decrease year of Grand Gulf I operation.
higher capacity level than in 1986, in amounts outstanding under the
' Net income for the year 1987 inJ resulting in an increase in the amount Company's U.S. and f oreign Ilank creased 59.7 million, or 5.1 percent.
'of fuel burned and a corresponding Loan Agreements and lower interest over the year 1986 due to a comhi-
= increase in fuel expense. An entire rates on such borrowings in 1987, as J nation of seve*al factors. The year of Grand Gulf I operation in compared to 1986, and in 1986, as decrease in metall interest expense, 1986 is reDected by the increase in compared to 1985. Also, the 1986 as discussed below, resulted in a fuel expense of $15.7 million, or decrease from 1985 reaccted a lower decrease in interest expense related 53.5 percent, in 1986 as compared balance in 1986 of power purchase to Grand Gulf 2, which is not :e-to 1985, advance payments on which interest
' covered through rates; in addition,.
Income taxes on the Company's accrued. These declines were partial-an increase in interest income on income statement prior to commer-ly offset by increaws in interest ex-temporary investments, which also is
'clal operation of Grand Gulf I pense associated with the issuance of not reaccred in rates, contributed to reDected the tax benefit that has additional first mortgage bonds and an increase in net income. These been or will be realized during the pollution control revenue bonds in -
changes, partially offset by an in-
' carryforward periods resulting from late 1985 and 1986, and the issuance
' crease in taxes on other income, the Company'a federal tax losses in-of first mortgage lxmds and short-were the primary factors which cluded in the MSU consolidated in-term notes in 1987.
resulted in a net income increase in
~ come tax return. In the years 1987, Interest on long term debt
- 1987 as compared to 1986. Net in-1986, and 1985, mspectively,,the decreased 510.5 million, or 12.9 per-come decreased $28.9 million, or Company charged approximately cent, for the year 1987, as compared 13.3 percent, for the twelve months
$201 million, $234 million, and 5119 to 1986, and decreased $36.6 mil-ended December 31,1986, mer the million of income tax expense to lion, or 10.4 percent, for the year same 1985 period, primarily as a operations due to the recognition of 1986, as compared to 1985. These result of the cessation of the accrual twahle earnings related to the com.
decreases were due to a smaller of AFDC, as discussed ab<we.
mercial operation of Grand Gulf I.
amount of long term debt outstand-Depreciation expense increased Income tax expense charged to oper-ing for most of the year and lower
$37.3 million or 66.2 percent. in ations in 1987 declined $32.7 mil-prevailing interest rates on both float.
1987 as compared to 1986. FJfecthe lion, or 16.0 percent, from 1986 due ing rate bank debt and refinanced January 1,1987, the depreciation primarily to the enactment of ti.e debt.
method was changed from the units-Tax Reform Act of 1986, which cf fec-Other interest expenw increased of-production. method to a straight-thcly reduced the maximum cor-
$14.1 million. or 276.6 percent, in line basis The use of the straight-line porate income tax rate from 46% to 1985, as compared to 1986, and method in 1987 resulted in increawd 34% effective July 1,198'7. Income decreased $20.6 million, or 80.1 per-depreciation expeme over the ptior tax expense ch trged to operations in cent, in 1986, as compared to 1985.
year, due primarily to the fact that 1986 increased $115.1 million, or The increase in 1987 was due the unitWf production method was 96.8 percent, over the same 1985 primarily to the iwuance in April
.ta.
O l
l 1987 of $158 million of short term stated the June 13 Decision, and on "self insure" amounts collected notes, which matured and were paid December II,1987, the United States through June 30, 1987, under AIP&Us in January 1988. The decrease in Supreme Court, by denying petitions Grand Gulf I rate plan and (2) has 1986, as compared to 1985, was for certiorari filed by various parties, been depositing each month into a primarily due to the decrease in in-upheld the FERC's jurisdiction to al-trust account for the benefit of terest on power purchase advance locate Grand Gulf I costs. Due prin-AIP&l's ratepayers an amount equal payments made by certain of the Sys-cipally to the favorable impact of the to alp &Us cash collections from its tem operating companies to the United States Supreme Court's Oc-customers for its Grand Gulf I obli-Company between January 1981 and tober 5,1987, decision, the Compa-gations from June 1,1987, until final June 1985. All of the advance pay-ny successfully completed two resolution of SIP &Us appeal to the
- ments had been utilized as credits issuances of first mortgage bonds in United States Supreme Court. In ad-against the operating companies' the fourth quarter totaling $300 dition, the Company's financial con-purchased power billings by 51 arch million.
dition could be materially and 31,1986. The 1986 decrease in in-llowever, the Company con-adversely affected in the event all, or terest reflected the decrease in the tinues to be confronted with seseral a substantial amount, of its invest.
balance of the advance payments.
uncertainties which, if adsersely ment in Grand Gulf 2 is ultimately resolved, could affect its ability to not recovered. Also, the Company's Summary meet its finarcial commitments and net income, earnings coverages and The financial condition of the provide a reasonable return to 515U.
cash flow could be materially and Company remained relatively un-Certain of the System operating com-adversely affected if certain findings changed during most of 1987 Some panies' respective Grand Gulf I rate stemming from a FERC audit of the improvement was evident in the structures base changed, are in litiga-Company and the Grand Gulf Station fourth quarter, however, twcause of tion, or have been or currently an are ultimately sustained. Finally, the favorable developments in the resolu-subject to prudence reviews or disal-continuing controversies surrounding tion of sescral uncertainties. On Oc lowances. Further, as a condition of tbc allocation of capacity and energy tober 5,1987, the United States SIP &L obtaining a stay from the from Grand Gulf I could give rise to Supreme Court agreed to hear full ar-United States Supreme Court in con-additional litigation. See Notes 7 and gument of SIP &Us appeal of the nection with AIP&Us appeal of the 8 for a further discussion of these February 25 Decision. Further, the l'ebruary 25 Decision, the Company matters and other contingencies.
FERC issued an order on November has (1) unconditionally co-guaranteed 30, 1987, which reaffirmed and rein-a corporate undertaking by SIP &L to 11
~
i System Energy Resources, Inc., December 31 -
1987 1936 (in 7housands)
Assets Utility Plant (Notes I,'S and 7h Electric 5 3,359,430 5 3,328.964
'. Construction work in progress 24,662 28,664 Nuclear fuel (Note 9) 218,374 Total 3,602,466 3,357,628 Less-Accumulated depreciation 170,880 95.988 Utility plant - net -
3,431,586 3.261.640 Other Investmentu Letter of credit escrow (Note 5)-
108,562 19,162 Decommissioning trust fund (Note 1)-
2.774 Total 111,336 19,162 Current Assets: -
Cash 254 176 Temporary investments - at cost, whkh approximates market 234,279
.i2,586, 234,533 42,760 Total cash and cash equivalents
- tionding trust arrangement (Note 7) 101,2 G2 Accounts receivable:
j Associated companies 90,745 72,492 Other 2,849 6,275 l
Materials and supplies - at average cost _
37,796.
19,917 Prepayments _
_u 2,742 2,386
' l'namortized fuel expense ___.
1,575 2,860 Other 6,844 1.911 Total 478,286 148/>6 4 i
I Deferred Debits:
Suspended const ruction project (Note 7) ____________.__._ __
889,780 908,572 i
Future benefik related to AFDC (Notes I and 2) 492.755 589,883 l
~ Unamortized premium on reacquired debt _ __
13,424 16,250 Other 5,162 5.9 47 i
To.at 1,401,121 1.520.652 r
i T__o, t al "
5 5,422,329 5 4.950.118
- See No.es to l~1nancial Statements.
+
12
4 s,'
n; ti l,-
u 1987 1986' (In Thotisands) y.
' Capitalization and Liabilities
. Capitalization: :
Commun stock, no par value, authorized 1,000,000 shares;
-iwued and outstanding 789,350 shares (Note 4) 5 789,350 5
789.350 Retained earnings (Note 6) 1,359,905 1,161,101
. Total common shareholder's equity 2,149,255 i,950,151 Long-term debt (Notes 3, 5 and 7) 2,245,155 2,266,824 Total 4,394,410 4,217,278 Current Llabilities:
2 Currently maturing long term debt (Notes 3, 5 and 7) 260,177 277,025 Notes payable (Note 3) 158,000
- Obligations under capital lease (Note 9) 165,550 Accounts payable:
Associated companies 1,919 2,676 Other 32.413 45,771 Taxes accrued 25,685
.78,667 Interest accrued 54,327 56,073 Other 3,682 14,137 Total 701,763 474,369 Deferred Credits:
Accumulated deferred income taxes (Notes I and 2) 311,378 246,386 Accumulated deferred investment tax credits (Notes I and 2)_.
I1,828' 12,105 Other 2,950 Total 326,156 258,691 Commitments and Contingencies (Notes 7 and 81 Total 5 5.422,329 5 4,950,118 13
R_;<F>w
~
g T-
+,.
Systern Energy Resources, Inc.
lor the Years Ended December 31 1987 1986 1985 (in 7housands)
Operating Revenues 5 962,549 959.737 521,012 Operating Expenses:
Operation:
l'uel _. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _. _ _ _. _.
66,775 45,199 29.-i50 Other_____ ____ _ _...__ __. ____.__..___ _ ___. _ ___
95,888 98,172 57,iO3 St a i n t e n a n c e._ _._ _._ _ _.. _ _ __ _.._ _._. ___. _. _ _ _ _. _
28,675 31,801 19,597 Depreciation and deconunissioning _ _._ _ _ __ __ _ _._ _ _
96,545 59,215 38, i l 2 Taxes other than income taxes. ______ _ _ _ _ _ _ _. _ _ _. _ _
27,198 23,688
',568 income taxes (Note 2) 201.195 233,881 118.815 Total 516,276 491.986 271.Lis Operating Income 416,273 167 751 252,~g Other income:
Allowance for eqtdty funds used during l
const ruct ion (Not e 1 )..__. _ _ _. __ __ _ _
225 972 120.508 i
Sliscellaneous income and deductions - net __.. __ _ _ _ _ _. _
11,853 5,962 8,"07 Income taxes - credit (Notes I ar.d 2) 38,265 39,106 108.838 Total 50,343 66,310 238,053 Interest Charges:
1.ong-term debt _ _.__
273,781 311,297 350,9i6 Pawer purchase advances. _ _ _ _
802 24,256 Other - net.. _
19,193 1,296 1,403 Allowance for borrowed funds used during construction qNote 1) 4,841 5,563 (103,852)
Total 297,815 326,956 22 53 Net Income 198,801 189.135 5
218.067 Sy stem Energy Resources, Inc.
For the Years Ended December 31 1987 1986 198; (in lhousandy Retained Farnings, January I
$ 1,161,10 i 5
9't,969 5
~ 53,902 AdJ - Net income 198,80I 189.135 2I8.06' Retained Farnings December 31 (Note 6)
$ 1,3 59,90 5 5 1,161,104 5
9 1,969 5ee Notes to 1inancial Statements.
Is
.l System Energy Resources, Inc.;
For the Years Ended December 31 1987 1986 1985 (hi Thousands)
Operating Activities:-
' Net income 5
198,801 5
189,135 5
218,067 Noncash items included in income:
Depreciation 95,432 58,132 37,856
- Deferred income taxes 64,992 87,729 71,619 Investment tax credits - net _._
(277)
(213)
(122)
Allowance for funds used during construction 4,616 4,591 (224,360)
Amortization of debt discount 5,556 2,621 862 Changes in:
Accounts receivable (14,827) 1,18 i (78,799)
Accounts payable (14,105) 10,327 19,9 I I Unamortlied fuel expense _ _
I,285 (1,169)
(1,691)
Taxes and interest accrued (54,728) 66,015 (43,397)
Other current assets and liabilities (33,560) 6 f,323 (36,243)
Increase in bonding trust arrangement (101,202)
Change in future benefits related to AFDC 97,128 (57,523)
(23,587)
Increase in decommissioning trust.
(2,774)
Other 3,975 (18,566)
(13,638)
Net cash flow from operating activities 250,312 376,859 (73.492) s investing Activities:
Construction expenditures (24,194)
(40,782)
(335,656)
Allowance for funds used during construction _
(4,616)
(4,591) 224,360 Nuclear fuel expenditures _
(119,271)
(277)
(625)
Expenditures on suspended construction project (10,403)
Net cash flow used by investing activities-(158,484)
(45,650)
(I i 1,921)
Financing Activities:
l'roceeds from issuance of:
l'irst mortgage bonds _
5 300,000 5 1,050,000 5
100,000 Ilank notes and other long term debt __
90,000 265,000 Proceeds from sale and leaseback of nuclear fuel ___
66,446 31,119 I6,975 Retirement of first mortgage bonds (321,265)
(51,235)
- Retirement of bank notes and other !ong term debt.___.
(335,101)
(1,097,717)
(281,832) 1.ctter of credit escrow payments (89,400)
(19,162)
Chinges in short term borrowings __
158,000 (10,000)
Power purchase advance payments (51 152)
(I10,571)
Net cash flow from financing activitics 99,915 (317.877)
(76,663)
Net change in cash and cash equivalents _
191.773 11,332 (262,076)
Cash and cash equivalents at beginning of year 42,760 31,128 294,504 Cash and cash equivalents at end of year 5 234.533 5
i2,760 31 A28
(
Supplemental disclosures of cash flow informations
, Cash paid during the year for:
Interest (net of amount capitallied) 5 291,910 5
298,17"'
5 209.711 5
70,146 5
19,851 Income taxes i
l Supplemental schedule of noncash investing and financing activitiest l
Capital lease obligation recorded (Note 9) 5 165,550 l
See Notes to l'inancial Statements.
15
Organization Company records its investment as-Allowance for runds Used During
- System Energy Resources, Inc.
sociated with the Grand Gulf Station Construction L (Company); formerly Middle South to the extent to which it owns and In accordance with the regulato-Energy, Inc., is a wholly; owned sub--
participates in the generating station.
ry system of accounts, the Company sidiary of Middle South Utilities, Inc.
The Company had no operating.
capitali7es, as an appropriate cost of
- (MSU). The Company was created in revenues or expenws prior to July 1, utility plant, 'in allowance for funds ~
~
~ 1974 to finance and comtruct certain 1985. The Nuckar Regulatory Com-used during construction (AFDC).
~ base load generating units for the mission (NRC) issued a full power Under this utility industry practice,
- operating subsidiaries of MSU.
operating license for Grand Gulf 1' comtruction work in progress on the The Company is engaged in the on August 31,1984. This unit began balance sheet is charged and the in-
- management, operation and mam-commercial operation on July 1, come statement is credited for the
- tenance of, and financing of its 90%
IW5. Construction work on Unit approximate net composite interest owner hip interest in, a two-unit No.. of the Grand Gulf Station cost of borrowed funds and for a
. nuclear generating station 10. Med Wand Gulf 2) was suspended in reasonable return on the equity near Port Gibson, Mississippi erand 5 ptember 1985 funds used for construction. This Gulf Station),-The Grand Gutt 5tation procedure is intended to remove is designed as two 1250 megawit System of Accounts from the income statement the effect (MW) nuclear generating units. The The accounts of the Company of the cost of financing the construc-
' Company sells capacity and energy are maintained in accordance with tion program, and results in treating from Unit No. I of the Grand Gulf the system of accounts prescribed by the AFDC charges in the same man-Station (Grand Gulf I) to Arkamas the Federal Energy Regulatory Com-ner as comtruction labor and materi-Power & Light Company (AP&L)-
mission (FERC).
al costs. As non-cash items, these Louisiana l'ower & Light Company crtdits to the income statement have (LP&L), Mississippi Power & Light Postretirement Ilenefits no effect on current cash earnings.
Company (MP&L) and New Orleans The Company participates in an After the property is placed in ser-Putlic Service Inc. (NOPS!), collec.
MSU 5ptem postretirement plan vice, the AFDC charged to construc-tively referred to as the "5ystem cmering substantially all of its em-tion cmts is recoverable from operating companies."
ployees, The Company's policy is to customers through depreciatic. pro-
- On July 28, 1986, the name of.
fund pension costs in accordance visions included in rates charged for Middle. South Energy. Inc. was with contribution guidelines estab-utility service. During the first half changed to System Energy Resources, lished by the Emplo)ce Retirement of 1985, the Company used an ac-Inc. and, effective December 20, income Security Act of 1974 and to crual rate for AFDC based on a 1986, the Company assumed the fund other postretirement plan costs eturn on average common equity of primary responsibilities, previously as incurred.
14% plus actual interest cost net of assigned to MP&Li for the manage-related income tas es. As a result of ment, operation and maintenance of Income taxes the i ERC's decision on June 13, the Grand Gulf Station. On October The Company joins its parent 1985, the 11% return on common
,28, 1986, the Company changed the and affiliates in the filing of a con-equity rate was increased to 16% ef-
- h> cation of its principal business solidated Federal income tax return.
fcctive July 1.1985. See Note H.
- offices from New Orleans, Louisiana, income taxes are allocated to the "Rate and Regulatory Matters," for to Jackson, Missinippi; Company in proportion to its contri-information with respect to a settle-The Company and South Missis.
bution to the consolidated taxable in-ment w hkh, among other things, sippi Electric Power Association come in addition, the Company files reduced the 16% rate of return on
- (SMEPA) own undivided ownership a consolidated Nississippi state in-common equity to 11% retroactise interests of 90% and 10%, respec-come tax return with certain other to July 1,1987
- tively, in the Grand Gulf Station. The System companies.
.16 ~
AFDC attributable to Grand Gulf removal costs, less salvage, are.
things, decreased the depreciation
' I ceased accruing as of July 1,1985,
. charged 'to accumulated depreciation, rate in the !? nit Power Sales Agree-the wmmercial operation date of the Alaintenance and repairs of property, ment from 3.10% to 2.85%, retroac-
- unit, and the replacement of items deter-tive to January 1,1987. Such On September 18, 1985, the Alis-mined to be less than units of settlement was approved by the sissippi Public Service Commission property, are charged to operating FERC on September 15, 1987.
(\\lP5C) issued an Order Directing expenses. Substantially all of the util-The Company is recovering ap-Suspension of Construction of Grand ity plant is subject to the lien of the proximately $1.1 million per year for
' Gilf 2, which directed the Company Company's first mortgage bond in.
nuclear plant decommissioning costs and AIP&L to suspend construction
- denture, for Grand Gulf I and is depositing of Grand Gulf 2 as of the date of the Depreciation on Grand Gulf I these monics in a t.tx qualified exter-Order. Iollowing the ismance of the was computed 'ning the units-of-nal fund held by a trustee. The Com-Order, the Company suspended con-production method for the initial pany was permitted by the FERC to struction of Grand Gulf 2 and ceased twelve months of commercial opera-recoser the<e amounts based on accrui1g AFDC on the unit effective tion (which began July 1,1985) and, studies of the estimated costs of September 18, 1985. See Note 7, with FERC approval, for an addition-decommissioning Grand Gulf I.
"Commitments and Contingen-al six months thereafter. Subsequent eies - Suspended Construction to December 31,1986, depreciation Statement of Cash Flows -
Project - Grand Gulf 2," and Note has been compurid on a straight line The Company has adopted State-8, "Rate arid Regulatory Alatters -
basis. Depreciation provisions on ment of Financial Accounting Stan-Rate Activity - System Operating average depreciable property approx-dards (SFAS) No. 95. Statement of Companies."
imated 2.85% in 1987,1.8% in Cash I' lows, and accordingly has 1986, and 2.3% in 1985. On Oc-presented the statements of cash Utility Plant, Depreciation and tober 30,1986, the Company filed Hows for the years ended December Decommissioning an application with the FERC, 31,1985,1986, and 1987. For pur-t.'illity plant is stated at original preposing a 3.1% straight kne poses of the statements of cash cost The cost of additions to utility depreciation rate, and the FERC in-Hows the Company considers all plant includes contracted work, itiated a proceeding, to determine -
highly hquid debt instruments, pur-
- direct labor and materials, allocable the appropriate straight line deprecia-chased with a maturity of three
. overheads and AFDC. The costs of tion rate for Grand Gulf 1. On April months or less, to be cash r nits of property retired are removed 28, 1987, a settlement in principle equivalents.
- / rom utility plant and such costs plus was achieved which, among other l'
i
?
f y
?;??
4. e-
.Asu r-incomt tax expense (credit) consists of the follou ing:
For the Years Ended December 31 1987 1986 1985 (In Thousands)
Current:
Fede ral _.
$ 98,215
$ 106.989 5 (55,513)
State (6.007)
Total 98,215 106.989 (61.520)
Deferred - net:
Taxes capitalized in the financial statements ___ __ __
(152) 1,5 i6 5,731 Liberallied depreciation ___
73,315 76A46 69,160 Test energy __
50 27 (3.272)
Other (8,221) 9,710 lbtal 64,992 87 729 71,619 Imestment tax credit adjust-ments - net (277)
(243)
(122)
Recorded income tax expense
$ 162,930
$ 19 6,475 5
9,977 Charged to operations _ _..._..
$ 201,195 5 233.881 5 118,815 Credited to other income (38,265)
(39.106)
(108.838)
Recorded income tax expense __
162,930 196,175 9,97?
Income taxes applied agair.st the debt component of AFDC 0,652)
(5,281) 98.589 lotal income taxes
$ 159,278 5 189.19s 5108,566 l
l 1
Deferred income taxes are benefits are paid to the Company Investment tax credits allocated provided for differences between when reali/cd in the consolidated to the Compmy have been deferred book and taxabic income to the ex-return of.\\tsU or are realiicd as and those relating to Grand Gulf 1 tent permitted by the F1 RC for reductions of income tax liabilitics are being amortired based upon the ratemaking purposes. AI:DC is ex-arising from the ammercial opera-average useful life of the related cluded for purposes of determining tion of Grand Gulf 1. ~lhe income property. I'nused in estment tax saxable income.
tax beneFts realized in 1985 and credits at December 31,198' The balance sheet account 198' amounted to approximately $10 amounted to $137.9 million after the l
described as "future benefits related million and $95 million. ropettively.
35% reduction required by the Tax to AFDC" represents the tax benefits No benefits were realized in 1986 If Reform Act of 1986. Ihese credits of the Company's portion of the not utili/cd to offset consolidated may be applied against rederal in-conso.idated federal tax losses that federal taxable income, future come tax liabilities in future years if l
are expected to be realized during benefits related to Al DC will expire not used, they will expire in the the loss carryforward period Such in the years 1993 through 2000.
3 cars 1992 through 2001.
18
- ~.
The Alternative Alinimurn Tax balances will be based on enacted deferred tax liability relating to
' (AMT) credit at Decerr.ber 31, 1987,'
tax laws at tax rates that are expected AFDC.
was 51.3 million. Th;s AAIT credit to be in effect when the temporary it is expected that reductions in can be carried forward indefinitely differences reverse. SFAS No. 96 ex-deferred taxes resulting from the and will reduce regular income tax pands the requirement to record lower corporate federal tax rates will in the future.
deferred income taxes for all tem-he reflected as liabilities to customers in Decemb'er 1987, the Financial porary differences that are reported since the Company's regulator may
- Accounting Standards lloard (FASil) in one year for financial reporting require any such savings to be pused issued SFAS No. 96, Accounting for purposes and a different year for tax on to the ratepayers. The impact of Income Taxes, which is effective for purposes. This will require the recog-SFAS No. 96 on the financial position years lxginning after December 15, nition of deferred tax balances for or results of operations of the Com-1988. Under the liability method certain items not previously reflected pany has not yet been determined.
adopted by SFAS No. 96, deferred tax in the financial statements, suc5 as a 7t>talincome ta.ws differfrom the amounts computect by applying the statutory Federal income tax rate to incorne bdore tax:,. The reasonsfor the differences are asfollous:
for the Years Ended December 31 1987 1986 1985 (in 7bousands)
- 4 of
% of
% of Pre Tax Pre-Tax Pre Tax Amount income Amount income Amount Income Computed at statutory rate 5144,692 40.0 4 176,461 46.0 3101,900 46.0 Increases (reductions) in tax resulting from:
'AFDC 1,846
.5 2,111
.5 (103,206)
(15.2)
Depreciation __
16,484 4.6 11.337 3.0 7,815 3.4 State income taxes net of Federal income tax expense S,384 1.5 5,18 1 1.1 961
.4 Other (5,476)
(1.5)
(618)
(.2)
(523)
(.2)
Recorded income tax expense 162,930 45.1 196,475 50.7 9,977 4.4 Income taxes applied against the debt component of AFDC (3,652)
(.6)
(5,281)
(1.4 )
98.589 28.8 Total income taxes 5 159,278 44.5
$ 189,19 4 49.3 5108,566 33.2 19
IINES OF CRliDIT AND RELATisD HORROWINGS 4
Prior to June 28, 1985, the Com-In March 1986, the Foreign 11ank operating compr.nes' retail rate relief
. pany had two revolving credit agree.
Lo:n Agreement was amended to (1)-
with respect to Grad Gulf 1 and un-ments with various banks providing increase the interest rate on borrow-certa:nties asswed with the ~leci-for borrowings totaling $2,089 mil-ings thereunder by 1% effective from sion of the United States Court of lione One agreement, for $1,711 mii-February 5,1986, and (2) change -
Appeals for the District of Columbia
- lion, was with a group of U.S. !!anks certain provisions of the Fortign Circuit (D.C. Circuit) reve; sing, in (U.S. Ilank Loan Agreement), the llank Loan Agreement relating to part, and remanding the FERC's deci-other agreement, with a group of Grand Gulf 2 such that prepayment sion issued on June 13,1985, Gune Foreign Llanks (Foreign llank Loan of outstanding borrowings under this 13 Decision) affirming the allocation
. Agreement), was for $378 million.
agreement would not be required for of capacity and energy among the on August 2,1985, and August 9, corriemnation, abandonment or non-System operating companies.
I 1985, respectively, the foreign and completion of Grand Gulf 2. These in view of ttic above-mentioned
~
1 U.S. Ilank Loan Agreem:nts were amendments relating to Grand Gulf 2 uncertaintles, the delay in cifecting amended, effective as of June 28, became effective in June 1986.
permanent financing for the Compa-1985, to convert the borrowings in January 1987, the Company ny and the need for the Company thereunder to term hans. At Dece.n-prepaid $52.82 million of bank notes and the Middle South System to con-ber 31,1987, the Company had out-under the U.S. Llank Loan Agreement serve available casb resources, the l
standing borrowings of $247.6 and $15 million under the Foreign Company determined to seek defer-million and $126.75 million, resrc-Ilank Loan Agreement and paid ap-rals from the Foreign and U.S. llanks tively, under the US and Foreign-proximately $12 million into the es-of the payments scheduled to be llank laan Agreements. The loans crow account for the benefit of the made to : hem on August 5 and Sep.
with U.S. Ilanks have a scheduled Series C Letter of Credit flankt.. In tember 1,1987, respectively. The maturity date of February 5,1989, addition, the Company paid in Company obt.ined the consent of subject to mandatory semi annual February 1987 att 517.2s million the loreign llanks to initially defer payments of $125 million due on the semi-annual installment due under its scheduled payment of $ 17.25 mil-first day of each March and Septem-the loreign llank Loan Agreement, lion from August 5 to August 31,
. ber, with the unpaid balance due on on March 2,1987, the Company 1987. In connection : herewith. 'he
' the maturity date. A portion of these paid the scheduled semi-annual in.
Company agreed to pay the loreign semi annual payments will be applied stallment of $125 million due under llanks an tddition il 1% per annum to an escrow account for the benefit the US Ilank L.an Agreement, $35.1 interest on the deferr-d amount
}l f
of certain banks participating in the million of which was paid into the through August 31, 1987, and a fee US Ilark Loan Agreement that escrow account.
of 1/8 of 1% on outstanding borrow-j provided a letter of credit in connec-L'nder its Foreign and US 13ank ings under the Foreign llank Loan tion with the Series C Pollution Con.
Loan Agreements, the Company was Agreement, and not to declare or pay l
trel Revenue llonds (Series C Letter required to make scheduled pay-any dividends on commor. sto< k un-of Credit llanks). The uncollateral-ments of principal in the amounts of til the deferred amount is paid in fred amount needed to fund the es-5 67.25 million on August 5,1987, to full.
crow account was approximately the Foreign llanks and $125 million With the consent of its creditor
$126.0 million at Decemtv r 31,1987.
(including $ 42.2 million to be paid banks, the Compan) further deferred The scheduled maturity dare for the Nio the escrow account for the Sc.
the $ 67.25 million installment due to soans with Foreign llanks is February rics C letter of Credit li nks) on Sep-the f oreign Banks and deferred the t
5,1989, subject to mandatory semi-tember 1,1987, to the US Ilanks.
$125 million instalknent due to the annual payments of $47.25 mihion The Company had been delayed in U1 Ilanks (such deferred install-to be made on February 5 and Au.
effecting permanent financing due to ments herein referred to collecthcly gust 5 of each year.
uncertainties surrounding the System as "Deferred Installments") in each 2n
case to not later than December 15, bank loan agreements. The Co.upany domesti and fo.vign institutional in-1987. In connection therewith, the is currently authorlied by the Securi-vestors. nacceds from these notes Company agreed to pay the l'oreign ties and Exchange Commission (SEC) were used to repay the outstanding and (LS. Uanks an addittor.at 1% per to effect short term horrowings in an borrowings from the blonev Pool.
annum interest on the Deferred in-aggregate amount outstanding at any Such notes, w hich matureu and were stallments and to pay the U.S. Ilanks one time of up to 10% of its capi:ali-paid January 25, 1988, bore ir.;erest a f.'e based upon arranwnts slmi-ntion. The Company is limited by at 91/2% per annum through Oc-lar to. hose previous!y agreed upca the terms of its bank loan agree-tober 27,1987, when the rate w1s between the Company and the For-ments to short-term borrowings in an reset to 9.6875% per annum for the cign llanks. In addition, the Compa-aggregate amount not exceeding the remainder of the term.
ny agreed not to pay any dividends lesser of 5% of capitalization (ap-on in common stock :o AISU until proximately $231.5 million at De-all loans outstanding under the U.S.
cember 31,1987) or $200 million.
and l'oreign llank Loan Agreements The Company does not have any are fully paid, the scheduled final bank lines of credit currently avail-maturitics being in lebruary 1989.
rhie. Short tcrm borrowings of the On Nosember N 1987, permanent Company up to the authorized financing wn obtained by the Com-amount can be effected through the pany, urid o. November 25, 1987,
$ystem Stoney Pool (Money Pool),
the Deferred Installments were paid.
which allows certain System compa-As of December 31,1987, the nics to borrow from, or lend to, cer-Company had two separate "interest tain other Sprem companies, subject rate swap" agreements, each with a to the availability of funds which at banx, through February 1989 %
any particular time may be limited.
S'/8.75 million and $63 million. The Prior to 1987, the Company par-Company has agreed to make wmi-ticipated only as a lender / investor annual interest pay ments based upon with (crtain other companies of the an 11.5% and 11.16% fixed rate, Sliddle South System in the Stoney respectively, ln exchange for semi-Pool. Effective January 1,1987, the annual interest payments by the Aloney Pool arrangement was amend.
banks based upon the london Inter-ed to allow the Company to borrow bank Offered Rate (LillOR). These funds, subject to its maximum autho-agreements serse to offset fluctua-ri/cd level of short term borrowings tions in variable rates to be paid un-and limitations in its bank loan der the Company's l'oreign llank agreements, as well as lend'imest an loan Agreement. They do not aggregate amount of up to $10 mil-change the Company's c.bligations to lion thmugh the Stoney Pool, in ac-the loreign llanks for interest pay-cordance with limitations in its b.tnk ments of I.lilOR plus 2%
loan agreements. At December 31, The Company is subject to limi-1987, ch. Company had no outstand-tations on the maximum amount of ing borrowings from the Stoney short term borrowings outstanding Pool.
under both the Public l'tility lloid.
On Apnl 30. 1987, the Company ing Company Act of 1935 (lloiding iwued and sold $158 mihion of unse-Company Act) and the terms of its cured prominary notes to a group of 21
- - --,.y I
t iv (Note three, continued)
The sbarr-terrn Ix>rrincings and the interest rates (deterrnined by die iding applicable interest expense by the average arnatent bonstred)for the Company trere as follou s:
for the Years Ended December 31 :
1987 1986 1985 (in Thousands).
Lines of credit
' 31aximum borrowing _
$ 188,100 5
10,000 Year-end borrowing 5 158,000 Average borrowing:
Lines of credit _
5 I,342 Unused *.hort-term notea
$ 106,488 S
4,275
/'
Associated companies 5 22,790
' Average interest rate:
During period-Lines of credit _
10.4 %
linused short term notes 9.6%
9.4%
Anociated companies 6.3%
At end of period-thes of credit Unused short term notes.
9.7 %
Associated companies.,
There were no changes in the poration will be amended in conn <cc-
.a number of shares of the Company's tion with any issuan(c of preferred 4,
f.
common stock during the years stock to eff(ct a split of its comraon j
1987,1986 and 1985. It is expected stock 100 to 1.
that the Company's Articles of incor-4' $TOCK COMMdN je
..i
The long-term clebt of the Company at skcember 31,1987 and 1986 uas asfollotes:
A December 31.
1987 1986 (in 1bousands)
First 51ortgage Bonds Due 2000,16% Se les S 300,000 300,000 Due 2000,15 3/8% Series 100,000 100,000 Due 2000,11% Series 300,000 300,000 Due 1991,9 7/8% Series 300,000 300,000 Due 1996,101/2% Series 250,000 250,000 4
Due 2016, i13/8% Series-200,000 200,000 Due 1994, i1% Series 200,000 Due 1992,14.34% Series 100,000 Total 1,750,000 1,450,000 flank Notes (Note 3);
Domestic bank line-Due.19881989, at i10% of the sum of prime and 1 x,
247,599 473,200 Foreign bank line-Due 1988-1989, at LillOR plus 2%
126,750 236,250 Total 374.349 709.450 Pollution Control Regenue Ilonds:
Claiborne County,31ississippi-Due 20l3, at 7.0% adjustable / fixed rate 49,500 49,500 Due 2014, at 5.25% adjustable / fixed rate 27,100 27,100 Due 2014, at 8.25% adjustable / fixed rate ___
206,000 206,000 Due 2015, at 12.5% ____
44,000 41,000 Due 2016, at 9.5%
90,000 90,000 Total 416,600 116,600 4
/
L'namortlied discount on debt (35,617)
(32,201)
Total Long-Term Debt 2,505,332 2,513,819 Lew-Amount due within one p-ar 260,177 277,025 Long Term Debt Excluding Amount Due Within One Year S 2.245,155 5,1.266,821 1r
l:,
o f
7 (Notefire, continued) 7
. 8.25% (Series C) are secured by let-the Company to make semi-annual ters of cudit which terminate in De.
, payments into an escrow account.
The Pollution Control Revenue:
cember 1988iJune 1989, and The uncollateralized amount needed
-flonds due 2015 at'12.50% and those
. December 1989, respectively. See
'to fund the escrow account was ap-
- duc 2016 at 9,50% are collateralized Note 7, "Commitments and Contin-
-- proximately 5126.0 million at De-
[ by' 547.2 million and 5d5.6 million, gencies - Capital Requirements and cember 31, 1987.
respectively,'of non-interest bearing -
Financing."
Sinking fund requirements and.
first mortgage bonds. The Po"ution In connection with the Series C maturities for the ensuing five years Control Revenue llonds duc 2013 Pollution Control Revenue lionds due for the Company's long term debt at currently at 7.0% (Series A), those 2014, certain banks that participated December 31, 1987 were as follows:
due 2014 currently ct 5.25% (Series in the U.S. Dank Loan Agreement II), and those due 2014 currently at -
provided a letter of credit requiring Cash Sinking Fund Maturities' (In 7bousamis) -
)
5 260,177 1988 1989 5
53,500 114,172 1990 5
53,500 1991 5
68,500 5
300,000 3
1992_
68,500 5
100,000 I
l
- Licludes remaining rvquirementsfor escrote paywents of $126.0 million through 1989for the benefit of the Series C letter of Credit Banks.
Substantially all of the Company's utility plant is subject to the lien of its first mortgage bond indenture.
i
~
6 FARNINGS HEIAINED The provisions of certain of the make other distributions on or acqui-capitalization. In addition, banks Company's financing agreements and sitions of, its stock (except w here which are parties to the Company's
' its first mortgage bond indenture re-concurrently certain contributions or U.S. and Foreign llank Loan Agree-
^
strict the amount of retained earn-stock proceeds are received) unless ments soted in 1986, pursuant to ings available for cash disidends on the Company is not in default under such Agreements to deny the Com-cornmon stock. Under its mortgage, certain of its financing agreements, pany the right tu pay any cash divi-the Company may not declare divi:
and the sum of certain indebtedness dends on common stock. According-dends, other than stock dividends or does not exceed 65% of adjusted ly, prior to January 1987. all of the
- 24 l
hummmm en mm a is i s us rn mi n -..
A_...
h<
{@
s
?<
e:
[u
,4
.{<
Company's retairied earnings were under the Foreign and I'.S.11ank stock (other t'an dividends payable
~
~restrictcd as to the payment of cash loan Agreements the Company solely in shares of common stock dividends on common stock.
agreed not to declare or pay any and dividends payable in cash where, The provisions of the U.S. and dividends on common stock until all
- concurrently, the Company receives a foreign.13ank Loan Agicements al-
. loans outstanding under these Agree-capital contribution or sells shares of Iowed the Company the right to pay
- ments are fully paid, the scheduled its common stock)in an amount,
cash dividends on common stock.
final maturities being in l'ebruary equal to its accumulated net income
. upon making sufficient prepayment 3 1989. See Note 3, "Lines of Credit for the period July 1,1985, to the to the 11S. llanks to reduce the and Related florrowings," for infor-date of the payment. Such amount
' amount owing under the (LS.-Ilank marion with respect to the deferral was approximately 5498.4 million at Loan Agreement at maturity to $125 of scheduled payments under the December 31, 1987. The Company million or less On January 5,1987,
. Foreign and U.S. Ilank Loan has paid no dividends on its capital the Company made a payment under -
~ Agreements.
stock to date. In the event the Com-the U.S. Ilank Loan Agreement in the -
After these final maturities are pany experienced a loss that exceed-amount of $65 million, which was paid, the Company would continue ed such accumulated net income, less sufficient to reduce the obligations
. to be simited in the payment of cash the sum of certain dividends paid, if thereunder to an amount which, dividends on common stock by pro-any, since July 1,196* iividends -
among other things, cancelled the visions of the Foreign llank Loan could not be p:Jd ~
ch a deficit
. suspension pursuant to the llank Agreement and Reimbursement was restored by a ib.
.cntly earned Loan Agreements of the Company's Agreements for its Series A and Il net income, except There concur-right to pay common sto(k divi-Pollution Control Revenue Honds.
rently the Company i'cei es a capital dends.. llowever, In connection with Under these Agreements, the Compa-contribution or sells st tres of its the subsequent deferral in August ny is presently limited in the amount common stock.
1987 of the scheduled payments of dividends it may pay on its capital 9
OMMITMENTS 7 (AND CONTINGENCIES P
General States Supreme Court from the Slis-Louisiana (Council) imposing an ad-As of December 31,1987, the dissippi Supreme Court % l'ebruary ditional prudence disallowance of Con.panyS most significant commit-25, 1987 decision liebruary 25 Deci.
5135 million on NOPSI, which has ments and contingencies related to ston) rentsing and remanding a retail had a material adverse effect on (1) disputes invohing rate structures rate order of the SIP 5C), or hase NOP51's financial condition and, if implemented by the System operating been or currently are subject to pru-not reversed, could render NOPSI in-companies which hase changed, are dence reviews or disallowances (in sohent in a short petiod of time), (2) in litigation (in particular, the out, particular, the recent action of the the status of Grand Gulf 2, construc-come of AIP&l's appeal to the l'nited Council of the City of New Orleans tion of which has been suspended, is
y
- r h
' 3. I k 1
(Note seven, cont / mart!
As a condition of a stay obtained of collections after Stay P,1987, a
. by SIP &L while it pursues an appeal Trust Agreement between the Com.
(3) a FERC audit of the Company
.of the Febrviry 25 Decision, AISU pany and Trustmark National Bank, and the Grand Gulf Station, and (f)-
and the Comp.ny have uncondition-under which the Company began the continuing controversies over the ally co-guaranteed (in the amount of making deposits equivalent to Grand Gulf Station and the allocation approximately 5206 million as of AIP&lls cash collecuons beginning as
. of capacity and energy from Grand June 30,1987) a corporate undertak-of June 1,1987, and the corporate Gulf I to the System operating com-ing by MP&L to "selfin<ure" undertaking of SIP &L for refund of
' panies.
amounts previously collected under all collections after June 30, 1987.
The Council has conducted a its rate plan from September 1985 On September 17, 1987, the Slissis-prudence inquiry into NOPSI's in-through June 1987. In addition, the sippi Supreme Court entered an or-volvemem in G;,nd Gulf 1. On Company has been depositing each der approving this bonding l'ebruary 4,19d8, the Council adopt; month into a trust account for the arrangement. 'Ib the extent that ed a resolution requiring NOPSI to.
benellt of MP&Us ratepayers an either the Company or A150 makes
. write off and not to recover from its amount equal to SIP &Us monthly payments to discharge AIP&Us obliga-retail electric customers $135 million cash collestions from its customers tion to make refunds to its customers of its deferred Grand Gulf I costs,
' for Grand Gulf I costs from June I, as a result of an adverse final judicial tin addition to the $51.2 million of 1987, to the date of final adjudica-determination of SIP &lls appeal of
. such costs that NOPSI had pr viously tion of MP&Us appeal to the United the february 25 Decision, the Com-agreed to absorb in its March 1986 States Supreme Court. Through rany and/or MSU, as the case may rate $cttlement, NOPSI is seeking.
Afarch 15, 1988, the Company ex-be, will have an immediate right of relir in the courts 2.om this finding pects that payments into the trust ac-reimbursement from MP&L. The by the Council of alleged impru-count under this requirement will Company has agreed, at the request dence, lloweser, as a result of NOP.
- approximate $138.5 million, and of its creditor banks, to demand im-Sl's inability to obtain injunctive such payments are estimated to aver-mediate reimt'ursement from MP&L relief that would stay the effective-age approximately ill million per on account of all amounts paid by t
nesa of the Council's action, NOPSI month thmugh June 1988, at which the Company (whether direct!y or was required to record the write-off time it is expected that a decision from monies placed in trusO on be-in 1987, thereby resulting in a loss shall have been rendered by the Unit-half of MP&L and to promptly take for the year and a deficit in its re-ed States Supreme Court in MP&Us all reasonable actions necessary to tained earninga at December 31, appeal. On September 10,1987, the collect such amounts from MP&L.
1987. The ultimate comcquences of SEC approved the participation by On October 5,1987, the United the Council's actions, should they re-MSU ar'd the Company in the bond.
States Supreme Court decided to hear main in effect, are that NOPSI's abili-iny requirements of the Mississippi full argument of MP&Us appeal of ty to obtain the requisite funds to Supreme Court. On September li, the February 25 Decision but pmt-meet its ongoing obligations, includ-1987, MP&L filed with the Mississip-poned further consideration of the ing its contractual obligations to the pi Supreme Court its corporate un-United States Supreme Court's juris-Company in ropect of the Grand dertaking for the possible refund of diction to the hearing of the ca*c on Gulf Station, will be severely im-rollections from September 20, 1985 the merits. The stay granted by the paired and NOPSI could be rendered through June 40, 1987 iPast Collec-United States Supreme Court on June insolvent in a short period of time, tions), the corporate guarantee of the I,1987, remains in effect. According-perhaps as early as the second quart-Company for Past Collections, the ly, MP&L is continuing to m11ect its er of 1988 See "Putential Debt Ac-corporate guarantee of MSU for Past Grand Gulf I rates, subject to refund.
L celeration, llankruptcy a'nd Middle Collections, the Company's corporate pending the Court's decision. Oral South System Viability" below.
undertaking for the possibic refund argument before the United States S
4
'i i
Supreme Court was held on f(bruary-the Company with ropect to Grand SM is unable to meet these obliga.
- 22, 1988. It k expected that the case Gull I and could be rendered in-tions or to otherwit satisfy these will be decide 6 by the end of June soh ene.
r*Aigations through the sale of the
' 1988. The Company cannot nredict Failure of try System operating collateral securing such obligat;ons.
the outcome of this matter or company to ma ntain its current rate In addition, insolvency of a System whether the current rate structure of structure, or to meet its contractual company would affect the terms of MP&L will remain in effect. Without obligations to the Company with financing, including an increase in adequate rates to recover Grand Gulf
. respect to th: Grand Gulf Station, cost of financing, or could preclude I charges, MP&L could suffer such li-could, undt r certain agreements financing, for other Middle South quidity constraints that it would, in relating to the Company's indebted.
System companies.
a short perh>d of time, he unable to ness (but only upon further action in the event of any of the fore-
' meet its contractual obligations to by the re.luisite percentage of the going adverse developments, the the Company with respect to the Company's creditors), Icad to ac.
continuing viability of the Middle Grand Gulf Station.
celeration of such indebtedness un-South System would be placed in less (1) wahers were obtained, (2) the '
jeopardy, and it could be difficult to Potential Debt Acceleration, debt were restructured or (3) other avuld a bankruptcy filing by the Ilankruptcy and Middle South arrangements could be negotiated in Company or other affected MidJle
. System Viability addition, in the absence of such South System companics, in this con.
Adverse regulatory or Judicial de-wahers, debt restructuring or other nection, the Company and certain cisions involving the System operat-negotiated arrangements, acceleration Middle South System companies have ing companies' retail rate structures of such indebtedness could occur if a each retained independent special relating to their reco cry of Grand System operating company were ren-counsel experienced in bankruptcy Gulf I cNts could produce varying dered insohent as a result of a seb-matters and have been studying the consequences that could lcopardire stantial reduction in rates. Given the relief and protection that might be the Middle South System, including substantial amount of the Company's available to them under Chapter 11 those sct forth below.
debt, it would not be able to meet of the t'nited States Itinkruptcy If the tinited States Supreme its onligations, if accelerated. L'nder Code. While no decisions with Court, on the appeal to it of the the Company's financing agreements, regard to bankruptcy filing; have yes February 25 Decision, renders any the System operating companies been made, it must be recognized, in dechion adse to the Middle South would not be responsible for the light of the rhks dircussed herem, System's position, the application of payment of the Company's accelerat.
that future nents, either singly or in the doctrine of federal preemption ed obligations if the Company could combination, may result in such ad-could be severely undermined. The not meet them. MU, with its rman-verse changes in businen circum-doctrine of federal preemption h cial resources currently limited, stances or such a decrease in necewary in order to secure im-would not at this time be in a posi-liquidity as to make it prudent for picmentation of the Comp.iny's fed-tion to satisfy the Company's obliga-the Company or one or more other erally mandated w holesale rates tions, if accelerated.
affected Middle South System compa-thruugh the retail stractures of the Certain of System fuels, Incls nics to file a petition for reorganiza.
S) stem operating companics.
(Sfi) financing agreements and leases tion under Chapter 11. ?.lany or-se Without adequate rates to may require paymems by the System future events are beyond the r 91 recover Grand Gulf I charges. MP&L operating comp.mics, MSti, or the of the Middle South System.
and NOP51 could sufter such liquidi-Company in the event $11's obliga-The effects of a bankruptcy ro-ty constraints that they would, in a lions under such agreements are ac-ceeding invohing one or more Mid-short period of time, he unable to celerated as a rnalt of the insolvency die South 5) stem companies and the meet their contractual obligations to of a System operating company and extent of the jurisdiction of the SEC
(Note seren, contim4ed)
Capital Requirements and Court, the Company is required to Financing deposit each month into a trust ac-under the lloiding Company Act and The Company's capital require-count for the benefit of MP&Us of other federal and state regulatory ments noted below are based on cer-ratepa) cts an amoum equal to bodies over the bankrupt entity or.
tain assumptions and judgments with SIP &Cs monthly cash collections entitics and mer any other Middle respect to, among other things, the from its customers for its Grand Gulf South System companies not in outcome of pending regulatory and I obligations from June 1,1987, until bankruptcy cannot be predicted. In judicial proceedings. If future events MP&Cs current appeal to the United any event, security holders and cred-vary significantly f rom these assump-States Supreme Court is resolved itors of the company or companies tions, additional capital requirements Through March 15, 1988, the Com-involved in bankruptcy proceedings could result, pany expects that paymems into the
, could be significantly affected by The Company will require ap-trust account under this requirement such proceedings. The proceedings proximately $613.9 million from in-will approximate $138.5 mit! ion, and could last for years, and there are ternal and external sources for the such payments are estimated to aver-many uncertainties as to how provi-period 1988 through 1990 to age approximately $11 million per clons of the law would be applied.
refinance maturing indebtedness (ex-month through June 1988, at which Rights and remedies of security ciuding $158 million of unsecured time it is expccted that a decision holders and creditors may be altered, short-term notes which matured and shall have been rendered by the Unit-denied or limited undcr such laws.
were paid in January 1988), to meet ed States Supreme Court in MP&Us The obligations of MSU and the Sp-sinking fund requirements and to appeal. The Company's 1988 capital tem operating (ompanies under the finance its other capital require-requirements assume that MP&Cs ap-Capital Iunds Apreement and the ments. Furthermore, the Company peal to the United States Supreme Availability Agreement, respect!Vely, may enter into arrangements for the Court will be resobed on or before and the awignments thereof, could sale and leasebuk of property in June 30,1988, and that cash deposit-alto be litigated and powibly reduced w hich the proceeds f.om such trane ed by the Company will be returned or climinated. There could be no as-actions could be used to retire debt to the Company upon succewful surance that any creditors wou J be at par. In addition, the Company's completion of the appeal, able to recover the full amount of nuclear fuel leases may terminate The Series A, !! and C Pollution their claims, and securities and stock during thk period if the credit lines Control Resenue liond, are secured with inferior rights could be sub-supporting the nuclear fuel leases by letters of credit w hich terminate otituted fnr those with priorities.
terminate. as scheduled. It is current-on December 11,1988. June II, Moremer, it is uncertain as to ly awumed that either the credit 1989, and December 11, 1989, whether the bankrupt entity or enti-lines will be extended or that alter-ecspectively, at which time such ties could be suc(cufully reorganized native credit lines will be arranged.
bonds will be remarketed. The Com-in their present form, whether the To the extent, howeser, that this pany anticipates that eithcr the exht-curtrnt relationships between and does not occur, additional capital re-ing letteri of credit will be extended, among various Middle South Sptem quirements of up to $215 million new letters of credit v di be twurd comp.mics would be significantly al-could result. The Company abo coti-or the Company's financial condition tered or whether the Middle South mates that approximatet) 50. i mil-will permit rrmarketing without let-Sptem would continue to exht in its lion will be required durmg the ters of credit. In the event the remar-present form after bankruptcy of one period 1988 1990 to acquire nuclear Lcting h unsuctruful, the Company or more Middle South System com-foci in addition to amounts awumed would require additional funds of up panics.
to be financed under lease, l'urther, to approximaitly 550 mdlion and ap-in connection with MP&Us hondmg proximately 528 mill on within one order from the Miniwippi Supreme
) car of the respntise termination u
I-
-a s
dates in order to repay amounts ad-used to repay amounts deferred un-Middle South System, the Company vanced by banks under the letters of der the U.S. and Foreign flank loan may be required to obtain funds credit to enable the Company to Agreements, as well as the 5158 mil-from external sources. If the Com-reacquire the Series A and Il Pollu-tion of unsecured short term notes pany is unable to obtain sufficient tion Control Revenue Honds, respec-which matured in January 1988, and funds from external sources on a thcly. In the event the Series C for other corporate purposes.
timely basis, the Company could de-Pollution Control Revenue Honds in addition, in February 1988, velop such liquidity constraints that cannot be remarketed or the letter of an agreement was entered into by the its ability to meet its ohiigations to credit extended or replaced, the Company for the sale and leaseback its creditors might be impaired, amount held in escrow for the of up to $50 million of the unleased which could lead to acceleration of benefit of the Series C Letter of nuclear fuel on its balance sheet.
the maturity of the Company's in.
Credit T,anks will be used to repay The lease extends for one > ear with debtedness (but only upon further amounts advanced by banks under monthly extensions thereafter until action by the requisite percentage of the letter of credit to reacquire the notice is given by either party there-the Company's creditors) unless Series C Pollution Control Revenue to. Also, in February 1988, the Com-waivers were obtained, the debt were Bondt See Note 5, "Long&rm pany entered into an arrangement restructured or other arrangements Debt," for additional information.
for the sale of certain of its customer could be negotiated.
During 1987, the Company was accounts receivable during the peri-In connection with the Grand delayed in effecting permanent od February 29, 1988, through May Gulf Station, MsU has undertaken, to financing due to uncertainties sur-
- 16. 1988. The terms of this arrange-the extent not obtamed by the Com-rounding the System operating com-ment provide fo; the periodic sale by pmy from other sources, to furnish, panies' retail rate relief with respect the Company of up to approximately or cause to be furnished to the Com-to Grand Gulf I and uncertainties as-
$52.6 million through March 15, pany, sufficient capital for construe-sociated with the decision of the 1988, and up to approximately $38. 6 tion and operation and related D C. Circuit reversirg, in part, and million thereafter of certain of its purposes. Through December 31, remanding the June 13 Decision. See customer accounts receivable, includ-1987, MSU had imested $789.4 mil-Note 8, "Rate and Regulatory Mar-ing all collections relating thereto, lion in the common stock of the ters - l' nit Power Sales Agreement,"
without recourse to the Company.
- Company, for more information regarding the This arrangement is terminable by At December 31, 1987, the Com-June 13 Decision. Iloweser, the Com-either party upon thirty days written pany estimated construction expendi-pany% ability to finance was en-
- notice, tures (excluding nuclear fuel) of hanced by the United States Supreme Subsequent to the above financ-appnnimately $ W million in 1988, Courti October 5,198, decision to ing arrangements, the Company an-
$43.3 million in 1989 and 54 i.1 mil-hear full aigument of MP&L's appeal ticipates that its projectcd cash flow lion in 1990 in connection with its of the lebruary 25 Decisiot.. As a for the period 1988 1990 will enable 90% interest in the Grand Gulf $ta-result, the Company inued and sold it to satisfy its cash requirements tion. Grand Gulf I expenditures are
$200 million of First Mortgage from internal sources and that no ad-estimated to be (including minimal Bonds,14% series duc 199 4, ditional funds will be required from amounts of AFDC) 5319 million in through a public of fering on Novem-external sources for this period.
1988, $30.7 million in 1989 and tier 21,1987, and on De(ember I, lloweser, many uncertainties con.
$29.9 million in 199n.1 he ahme 1987, the Company closed a private tinue to confront the Company and construction expenditures assume no placement of $100 million of First the Middle South System, and, de-activities at Grand Gulf 2 except for Mortgage llonds, 1-lj W, Series due pending upon the ultimate resolution demobih/ation and suspension.
1992. The proceed from these sales of such uncertainties and the ef fects Through Detember 31.1987,the and internally generated funds were thereof upon the Company and the Company had invested $ l.2i mil-m
i; (Note seven, continued)
Board of Directors concurring)
Middle South System. The Company adopted the group's recommendation believes, however, that it is justified
. Ilon (excluding nuclear fuel) in the that suspenshn of construction be.
In carrying Grand Gulf 2 at its full J Grand Gulf Station. The Company continued and that a further decision value because the property currently estimates, pending a final review of be made by 1990 on the future status comprising Grand Gulf 2 is of the the cost allocation between the two of Grand Gulf 2 in light of alterna-same design as that of Grand Gulf I units, that of this total, 53,381 mil-tives available at that time. During and is being properly maintained and lion was invested by the Company in -
the period of suspension, the energy is therefore suitable for its intended Grand Gulf I and 5890 million in-needs of the region served by the purpose. Certain issues relating to Grand Gulf 2.
Middle South System, as well as the value of the Company's invest-some of the uncertainties surround-ment in Grand Gulf 2 also exist in Suipended Construction Project -
ing the costs of constructing nuclear connection with an audit by the
.' Grand Gulf 2 power plants, should be further FERC of the Company and the Grand As of December 31,1987, the clarified.
Gulf 5tation discussed below.
Company had invested approximately IJnder the Foreign Ilank Loan As a result of the decision of the
$890 million in Grand Gulf 2 (in.
Agreement, the Company has Company's lloard of Directors with ciuding approximately $392 million covenanted to limit capital expendi-respect to continuation of suspension of Al DC), which was approximately tures (other than those required by of construction, the Company does 34% complete based on the estimat-regclation) to not in excess of $80 not intend to make an application to ed man-hours needed to complete million per annum in the aggregate, the FERC during the period of sus-the unit.
1:nless waived, this covenant would pension with respect to the recovery in September 1985, following an preclude resumption of full construc-through rates of the Company's in-order of the MPSC, the Company tion on Grand Gulf 2 prior to 1989.
vestment in Grand Gulf 2.
suspended construction activities at During the period of continued While the Company believes that Grand Gulf 2 and ceased accruing suspension, the Company's expendi-all of its investment to date in Grand AFDC on the unit. Since that time, tures on Grand Gulf 2 will be limit-Ge'f 2 has been prudent, in connec-the Company has limited expendi.
ed and it will continue not to tion with any subsequent decision as tures to only those activities which accrue AfDC on its investment in to the value of Grand Gulf 2 or the are absolutely necessary for suspen-the unit, Consequently, during the ultimate decision with respect to the sion and demobilization of the unit.
suspension period, the increase in future of Grand Gulf 2, the Company A r.pecial group of Middle South Sys-the Company's investment in Grand will, at an appropriate time, make a tem officials and outside consultants Gulf 2 will be limited and the Com-determination as to the appropriate completed in late November 1986 its pany will forego any return on this recovery of its investmetit. In making evaluation and review of Grand Gulf investment, such a determination, the Company
- 2. Among the possibilities evaluated The Company will continue, would consider, among other things, were (I) car "uion of the unit, (2) during the suspension period, to the regulatory environment generally, continued
.on of construction evaluate various alternatives for the and legal standards then applicable.
on the unit.
- gh 1989 or he'/ond future of Grand Gulf 2 and will also Any action to seek recovery of Grand when future load and energy require-continue to assess whether (crtain Gulf 2 costs v.ould likely invohe a ments are more definite and the Mid.
equipment or facilities should con-filing by the Company with the die South System's financial tinue to be carried at their full cost.
I ERC trquesting such recmery over capabilities are expected to be less Any deV.mination that the value of a period of years through charges to restricted, and (3) conversion of the the Company's investment should be the system operating ccmpanies, and unit to an alternathe fuel sourec. In reduced, and the amount of any such related filings by the System operat-December 1986, the Company's reduction w ritten off, could adverse-ing companies before state or local Board of Pirectors (with the MsU ly affect various companies in the regulatory authorities to recognlie y
y.
t I
the FERC-allowed charges in retail ing treatment of issues similar to Gulf 2 costs incurred subsequent to rates in view of the contnwersies those discussed herein.
July 31,1985, and future costs for oser the Grand Gulf Station, includ-During the per4od to 1990, cer-suspension and demobilization of the ing the adverse reaction of various tain issues, as described above, could unit up to a maximum of $L951 mil-rate regulatory bodies to allocation cause a decrease in the valuation of lion but will no longer be obligated of costs, and regulatory uncertainties.
the investment in Grand Gulf 2.
to pay costs of construction on includmg rate making, attendant to a failure to obtain rate relief for all or Grand Gulf 2 should construction of delay in the decision as to the future a substannal portion of the cost of tht unit resume. Any Grand Gulf 2 of Grand Gulf 2, there can be no av Grand Gulf 2 could base a nuterial costs applicable to SMI PNs interest surance that the full cost of Grand and adverse effect upon the financial in excess of this amount would be Gulf 2 will be recoscred or as to the condition of the Company, MSU and paid by the Company. Should the timing of any recovery. As was the possibly the System operating com-Company decide to resume full con-case with Grand Gulf 1, proceedings panics, dcpending upon, among stiaction of Grand Gulf 2,5MEPA before the FERC and, with respect to other things, the timing of the reali-will have the option of having recognition in retail rates of IIRC-zation of any such lost refunded to it all payments made un-apprined rates, before state or local in January 1988, the 1 ERC is-der the settlement agreement for regulatory authorities, could be pro-suru an order which modified its costs incurred subsequent to July 31, tracted and sinmgly (ontested on policy regarding recovery of can-1985, w hich could result, if neces-various grounds, induding impru.
celled or abandoned plant costs by sary, in the periodic adjustment of dence. If costs awo(iated with Grand utilities subject to its jurisdiction.
MIEPNs and the Company's owner-Gulf 2 were allocated to the System
't he revised policy pnnides for a ship interests in proportion to their operating companies and they were "5060 sharing" of prudently in-respective insestments in Grand Gulf unable to recover these costs from curred costs of a cancelled plant be
- 2. The settlement agrcement rtiates their customers, the sy stem operating tween the owner and the ratepayers, solely to Grand Gulf 2 and does not companici financial condition could w herchy 50 percent of the prudently apply to SMEPNs ow ncrship interest b( materially and adversely affc(ted.
incurred costs of the cancelled plant or investment in Grand Gulf 1.
Any nonrean try of the Company's would be amorti/ed and recostred imestment in Grand Gulf 2 would from ratepayers over the expated FERC Audit result in a (harge against earnings for life of the plant as if it had been The FERC has performed an au-any unrecmcrable imestment u hen completed. 'l he currently unamor-dit of the Compan) and the Grand that es ent becomes probahic. In the ti/cd portion of such amount would Gulf Station as part of its regulatory event such a (harge w ere substantial, also be included in rate base thereby function in auditing utilitics subject the finantial condition of tbc Com-allowing for a rctuen thereon. The to its jurisdiction. The audit report, pany ould be materially and ad-remaining 50 per ent of prudently which pertains to the period from ser<ly affected (ahhough its cash incurred costs would be w ritten of f.
the Company 's inception through position would not be adscrsely af.
In ine third quarter of 1985, De(cmber 31, 1985, was iwucd on fcctedh and the Company's abihty to 5MIPA. w hich has a 10% ow nership June 18. 198' In the report, the pay dnidends on its capital stock interest in Grand Gulf 2, (cased mak-Il RC 5taff states, among other could be impaired. bec Note 6. "Re-ing payn'ents for its pmportionate things, that the Grand Gulf 5tation's tained Earnings," for further informa-share of Grand Gulf 2 costs incurred Al DC is oserstated by $152 8 million tion regardmg these restrictiont subsequent to July 31,1985. I f fectis e
($12n? milhon relating to Grand Also, referente is made to "State-lebruar) ~ 1986, Mil PA and the Gulf I and 5321 million relating to ments of linancial Accounting $ tan-Company adopted a settlement agree.
Grand Gulf a because the "Al DC dards Nos 'I and 90" below for ment. I'nder the terms of the settle-calculation failed to take into ac-infonnation concerning accounting ment agreement, 5MI PA will pay its count all cost-free capital generated standards w hith addrew the au ount-proportionate share of the Grand by 51 Rt [the Company] expenditures
g
- (Note seven, continued) sion (LPSC), the MPSC and the Coun-regulators of a recently completed
. cil have intervened in this proceeding, plant for rate: making purposes. The -
and claimed on consolidated income if the Staffi findings are ulti-new statemen't is effective for fiscal tax returns." The FERC Staff recom-mately sustained, the resulting years begir ning after December 15, mends that the Company record an charges against net income and re-1987, wit'i retroactive application for accounting entry to charge the al-fund requirements would have a sig-prior tra*isactions. SFAS No. 90 will
.leged AFDC overstatement against nificant material adverse impact on not have any current effect upon the
-net income, recompute billings to the Company. The Company est;-
Comptny in light of the decision to customers since July 1,1985, to mates that as of December 31,1987, contiraue suspension of Graad Gulf 2 reflect adjustd plant and equity the impact on net income could be (see above). The provisions of SFAS g
-balances, and refund, with interest, as high as approximately $290 tail-No. 90 would apply should the Com-the difference between the recom-tion (net of tax effect), and the Com-pany decide to abandon Grand Gulf 2.
puted billings and amounts previous-pany could be obligated to refund ly charged customers. Further, the approximately $250 million, includ-shareholder Litigation
. FERC Staff recommends that $345.6 ing interest, to its customers. In addi-In 1985, MSU, certain other Mid-million of "Recoverable Taxes" (clas-tion, the Staff's proposed adjustments die South Sptem companies, includ-sified on tue Company's records as would adversely impact the Compa-ing the Company, and indhiduals be-
"Future llenefits Related to AFDC"),
ny's prospective net income, carnings came defendants in a purported class representing a significant portion of coverages and cash flow. The Com-action suit. The initial complaint was the Company's unreafired rewrded pany cannot predict the ultimate r,ut-filed in August 1985 by an MSU income tax benents, should be come of the examination.
shareholder (purporting to represent recianified to "Accounts Receivable a class that purchased MSU common From Associated Companies," the net Statements of Financial Account-stock), followed by four similar com-effect of whkh would be a 5270.0 Ing Standards Nos. 71 and 90 plaints filed by MSU shareholders in million reduction of Grand Gulf I's The accounting standards relat-August and September 1985. The five rate base. The Staff recommends that ing specifically to public utilities and actions were consolidated h1 the llS.
the Company refund, with interest, certain other regulated enterprises District Court for the l> tern District the change in billings since July 1, are set forth in SFAS Nos. 71 and 90.
of Louisiana. The consolidated, 1985, due to this rate base reduction.
SFAS No. 90, Rcgulated Enterprises -
amended and supplemental com-The Company has strongly dis-Accounting for Abandonments and plaint alleged violations of the dis-agreed with the Staff's poshion, as.
Disallowances of Plant Costs, was is-closure requirements of the Securities serting that the Staff's position is in sued by the FAMI in December 1986 Exch.nge Act of 1934 and the Securi-violation of the SEC's tax allocation as an amendment of SFAS No. 71. It ties Act of 1933, common law fraud regulations applicable to holding provides that, when an abandonment and common law negligent mis-company systems and contrary to the of a plant or a disallowance of costs representation in connection with I ERC's own accounting rules. Pur-with respect to a newly completed the financial condition of MSU and suant to a FERC Order Establishing plant becomes probable, the follow-prayed for compensatory and puni-llearing Procedures, an administra-ing amounts. net of related tax tive damages, legal costs and fees tive law judge (Alj) held a prehear-benefits. v.ould be reported either by and other proper relief against M5U, ing conference on October 20, 1987, restating the appropriate prior years' various other Middle South System at whkh a procedural whedule for financial statements or by charging companies, including the Company, the case was estahlkhed. A hearing such amounts against current in-and certain officers (and former has been set for May 16,1988. Vari-come: (1) the cost of an abandoned officers) and directors of MSU, the ous parties, induding the Arkansas plant in excess of the present value Company's outside auditors and cer-Public Service Comminion (APSC),
of estimated recoveries or (2) the tain underw rit. *> of M5U cor.imon the louisiana Public Servke Commis.
amount of a partial disallowance by stock. In April 1986, MSU and the H
w:
F i
O other defendants, including the Co;n.
Note 8, "Rate and Regulatory Mat-retroacti e to July 1,1987, and for pany, filed a motion to dismiss or, in ters," the FERC's June 13 Decision information regarding the "equity re-the alternathe, a motion for sum-was reversed, in part, and remanded opener" issue.
mary judgment. On January 12, for reconsideration. On November 19H7, the District Court entered a 30, 1987, the FERC issued an order Capital Funds, Availab!!!ty and judgment granting defendants' mo-w hich reaffirmed and reinstated the Reallocation Agreements
- tions for summary judgment and div June 13 Decision, thus maintaining Under the Capital Funds Agree.
mhsed the suit. On February 6, the previous allocation of Grand Gulf ment, as supplemented, MSU has 1987, the plaintiffs in the consolidat-I capacity and caergy among the agreed to supply or cause to be sup-
- ed action filed a Notice of Appeal in System openting companies.
plied to the Company (1) such the I'nited States Court of Appeals The Unit Power Sales Agree-amounts of capital as may be re-for the Fifth Circuit. Oral argument ment, as currently in effect, specifies quired in order to maintain equity was held on November 5,1987. The the rates to be charged to the System capital at an amount equal to at least defendants have been vigorously op-operating companies for their respec-35% of the Company's total capitali-
< pming the appeal of the District tive entitlements to receive capacity ration (excluding short-term debt)
Court's decision.
and energy from Grand Gulf 1. Such and (2) such amounts of capital as rates are computed monthly on the shall be required in order for the Unit Power Sales Agreement basis of the Companyi total cost of Company, (a) to construct, own and On June l'h 1982, the Company service, w hich is based on the Com-place in commercial operation the and the System operating companies pany's operating expenses, deprecia-Grand Gulf Station, (b) to provide for entered into a Unit Power Sales tion and capital costs attributable to pre-operating expen es and interest Agreement pursuant to which the the unit for the month. These rates charges of the Company, (c) to p-r-Company agreed to sell all of the ca-are paid in consideration for the mit the continuation of such com-pacity and energy available to it from respective entitlements of the system mercial operation after commence-Grand Gulf I and Grand Gulf 2 to operating companies to receive such ment thereof and (d) to pay in fuit LP&L, MP&L and NOPSI in accur-capacity and energy, and are payable all indebtedness for borrewed money dance with percentages specified irrespective of the quantity of energy w hether at maturity, on prepayment, therein, which conform with the delisered so long 3 thr unit remains on acceleration or otNrwise. In ad-percenages set forth in the Realloca-in commercial operat:on. Generally, dition, GU has agreed to make cash tion Agreement described below. As operating expenses are computed by caphal contributions to enable the discussed under Note H, "Rate and reference to amounts chanteable to Company to make payments when Regulatory Matters," the Unit Power the Company's operating espense ac-due on its borrowings Sales Agreement was, with (ertain countt Prior to July 1,1987, capital The system operating companies modifications (including an alloca-cmts were computed by allowiag a are severally obligated under the tion of capacity and energy from 16% return on the Company % com-Availability Agreement in accordance Grand Gulf 1 to AP&L), approved by mon equity funds and adding to with stated percentages (AP&L, the F1 RC in its June 13 Dechion and such anwunt the effective interest 17.1 LP&L, 26S%; NP& L, 31.3%
ordered to become effective upon and dividend cost to the Company NOPSI, 2 U%) to make payments or l
the initiation of setsice of Grand during the billing period fc,r its subordinated advances adequate to Gulf 1, which occurtrd on July 1, respective long-term debt and cover all of the operating expenses, 1985. The FERC did not rule on the preferred stock. See Note H, "Rate including depre(iation, of the Com-l Grand Gulf 2 allocation and ordcred and Regulatory Matters" for informa.
pany. In November 1981, the system I
the Company to remove the pro-tion with respect to a settlement operating companies entered into a j
pme I Grand Gulf 2 percentage allo-w hich, amoag other things, reduced Reallocation Agreement w hnh would l
cation from the Unit Power sales the 16% return on the CompanyN have allocated the capacity, energy Agreement. Also. as discuwed under common equity funds to 11%
and the related cmts available to the u
I
- (Note set en. continued)
Nuclear Insurance United States Senate has under con-At December 31, 1987, the Price-sideration a similar bill relating to
~
Company from the Grand Gulf Sta.
Anderson Act (Act) limited the public the ext-lon of the Act. Until a bill tion to LP&L. MP&L and NOPSI, liability of a licensee of a nuclear is adopted by both the Senate and These companies thus agreed to as-power plant to 5720 million for a llouse of Representatives and signed sume all the responubilities and obli-single nuclear incident. The Act in its imo law by the President, the provi-gations of AP&L with respect to the present form provides that this limit sions of the Act which expired Au-Grand Gulf Station under the Availa-will increase by $5 million for each gust I,1987, will continue to apply bility Agreement and Power Purchase additional operating license issued by to all currently licensed reactors Advane Payment Agreement, with the NRC. Insurance for this exposure (induding the Grand Gulf Station).
is pnnided by private insurance and The Company is unable to predict AP&L relinquishing its rights r a
pacity and energy from the Gwd an indemnity agreement with the w hat action Congress might ultimate-Gulf StJtion. Each of the System NRC. Every licensee of a nuclear ly take regarding the Act and what operating companies, including pc ver plant is obligated, in the event effect such action might have on the AP&L, however, would have re-of a nudear incident invohing any Company's potential liability.
mained primarily liable to the Com-commercial nuc! car facility in the The Company is a member.
pany and its assignees for pa>ments United States that results in damages insured of Nuclear Llectric Insurance or advances under these agreements.
In excess of the private insurance, to Limited, an industry mutual insurer AP&L was obligated to rnake its share pay retrospective assessments of up that, as of December 31,198',
of the payments or advances only if to 55 million per incident for each provided its members with insurance the other System operating compa-licensed reactor it operates or up to coverage of 5775 million for nies were unable to meet their con-a maximum per reactor owned of property damage sustained by the in-tractual obligations. Ilowever, the
$10 million in any calendar year. The sured in excess of $500 million FERC's June 13 Decision allocating a Company has a 90% undivided caused by radioactive contamination portion of Grand Gulf I capacity ownership interest in one licensed or other specified damage. The Com-and energy to AP&L supersedes the reactor.
pany has an additional $120 million Reallocation Agreement insofar as it Certain prosisions of the Act ex-of excess property and decontamina-relates to Grand Gulf 1.
pired in August 1987, and Congress tion insurance with American Amounts receised by the Compa-is considering sescral proposah to Nudear Insurers, a pool of private ny under the Unit Powxt Sales Agree-amend and extend the Act. In this insurance carriers, thus giving the ment hase exceeded the amounts connection, the United States llouse Company a total of 5895 million ex-payable under the Availabihty Agree-of Representatises, on July 29, 1987, cess property and decontamination meut and, consequenti), no pay ments passed a bill which would, among insurance above the 5500 million under ti.e Availability Agreement have other things raise the public liability primary an.ount. The Company is eser been sequired. Should ure tw a limit awociated with any nuclear in-also a member insured under a shortfall in any month as a roult of cident to approximately 5' billion primary property damage insurance the (nability of any System operating The hill further prmides that each program provided by Nudear Mutual company to make a payment under reactor licensee is responsible to Limited, an industry mutual insurer, the Unit Power Sales Agreement bec share in this maximum liability providing $500 million of coverage.
"General" abme). amounts receised (therefore. licensees are required to As a member-insured with these in-by the Company from any other share in the awcwment). I ach reac-dustry mutual insurers, the Company sources (induding finandngs sales of tor licemcc would be liable for ap-is subject to awewments if lowes ex-property and the hke) and available at proximately $66 million per cred the accumulated funds atadable that time would be credited toward incident, pnnided that not more to the insurer. The Company's pnn the obligations owing under the Avail-than $10 million would be required posed maximum awessment for inci-I ability Agreement.
to tw paid per incident per ) car. The dents occurring during a policy year si a
L
--e 5 h
'+
p was approximately $37 million at for in a safe and stable condition available above the amount required
. December 31,-1987.
must be used first to complete those by the NRC to be set aside for reac.
Effective October 5,19H7, the decontatnination operations that are.
tor stabilization and cleanup is $465 -
NRC amended its regulations to re-ordered by the NRC, Property insur-million. Ilowever, the Company is quire nudear power plant licensees ance proceeds subject to the decon-unabie to predict what effect the -
to obtain property insurance cover-tamination priority must be payable
-NRC's new ugulation may have at Lage in the minimum amount of $1.06 to a separate trust established for the the time when insurance proceeds billion. The regulations further pro-sole purpose of paying for costs in-would be made available to it or the vide that the proceeds of this insur-curred in decontaminating the reac-trustec for the Company's bond.
ance shall be used to first ensure that
- tor and removing radioactive debris.
holders.
the licensed reactor is in a safe and The NRC further requires that the stable condition and can be main-decontamination priority and trust Spent Nuclear Fuel tained in thtt condition so as to pre-requirements set forth in the regula-t?nder :he terna of its nuclear vent any significant risk to the public tion be incorporated in on site fuel lease, the Company is responsi-health and safety. Within 30 days of property damage insurance policks ble for the disposal of spent nucicar
- stabilintion, the licensee is required not later thitn October 4,1988, and fuel. The Company has executed a t!> prepare and submit to the NRC a apply uniformly to all required on-contract with the U.S. Department of cleanup plan for approval, The plan site property damage insurance ;'oli.
Energy (DOE) whereby the DOE will is required to identify all cleanup cles for nuclear power plants.
furnish disposal service for the Com-
-operations necessary to decon-Effective as of January 1,1988.
pany's spent nudear fuel at a cut of ~
taminate the reactor sufficiently to.
the aggregate amount of pioperty one mill per kilowatt hour of net permit the resumptwn of operations and decontamination expense insur.
generation. The Company includes or to commence decommissioning..
ance available for nuclear generating this one mill per kilowatt hour cost Any property insurance proceeds not plants increased to $1.525 billion, as a component of its nuclear fuel already expended to place the reac-With this increase, the coverage expense.
g.
u
==
b4 ? REGULATORY
(
j e a d-M..
Unit Power Sales Agreement gy: 1 P&L, 38.5"% and 26.23%;
Commission, and the Council, inter.
On June 18,1982, the Company MP&l., 3163% and 43.97%; and sened in the proceedings, and some tendered for filing with the FERC, as NOP51, 29.80% and 29.8n%, respec-of these intervenors propmed, an initial rate xhedule. the t' nit fively. The rates and charges after among other things, resised alloca Power Sales Agreement under w hkh commercial operation commenced tions of capacity and energy to the the Company would sell from its were to be based on the cost of ser-System operating (ompanies, indud-90% share of Grand Gulf I and vice of ca(h unit. Various parties in-ing an allocation of capacity and Grand Gulf 2 the following percen-duding the AP5C, the I P3C. the energy to AP&l..
tage allocations'of capacity and ener.
MPSC, the Missouri Public Service H
E =
n e
I s
=
E k
i, y
j(Note right; contintwel)
Various parties to these proceed-allocation of power from Grand Gulf :
ings requested rehearings of the June.
- 1. Subsequently, on July 24, 1987, i,
O
[On February.3,1981[the ALJ in 13 Dechion, On September 26, 1985, the FERC hsued an order which, the Unit Power Sales Agreement the FERC issued an order denying all among other things, stated that the proceeding issued his initial decision.
requests for rehearing of the June 13 rates currently in effect pursuant to
-Principally,'the decision upheld, Decision.' Various parties, including the June.13 Decision would remain
~ with certain modifications, the Com-
. AP&L and StP&L, filed appeals of in effect during the FERC's recon-
'pany's request for the use of an auto-these orders in the D C. Circuit. On sideration thereof. The Company -
matic cmt of serv' r adjustment January 6,1987, the DC. Circuit af-filed a brief urging the FERC to find clause for Grand Gulf 1. The ALJ firmed the FERC's June 13 Decision.
ihat the allocation of costs estab-Jalso affirmed a proposal made by the In its opinion, the D C. Circuit held, lished in the June 13 Decision was LP5C, an interrenor in the proceed-among other things, that the alloca-just, reason 2 hic and not unduly dis-ing, to allocate capacity and energy tion of Grand Gulf I capacity and criminatory.
from Grand Gulf I and the cost -
costs was within the FERC's jurisdic.
As noted above, various parties thereof as fo'iows: AP&L,36%
- tion, that state commissions may not filed petitions for certiorari with the l
LP&L,14%; AIP&L; 33% and interfere with the FERC's plenary United States Supreme Court seeking
~
NOPSI,171 On June 13.1985, the
' power to allocate Grand Gulf I ca-review of that portion of the D.C.
FERC issued the June 13 Decision af-pacity and costs, and that the FERC's.
Circuit's January 6,1987, decision firri._tg the heation of capacity June 13 Decision "was both rational that affirmed the FERC's jurkdiction and energy as proposed by the LPSC.
and within the Commission's range to allocate Grand Gulf I costs. Cer-In the June 13 Decision, the of discretion to remedy unduly dis-tain of these parties requested that.
FERC affirmed the ALJ's dechion on criminatory rates." Petitions for re-the United States Supreme Court con-all hsues except for rate of returnc hearing and for a writ of certiorari sider their challenges to I ERC juris-
' depreciation, annual amount of '
to the L'nited States Supreme Court diction at the same time the Court
~ decommissionin,t expense, amorilta+
were filed. On April 3,1987, the considered AIP&l's rate case appeal.
uon of limited-term electric plant DC. Circuit ordered rehearing of two On December 14, 1987, the United and use of an income tax formula.
hsues related to the allocation of the States Supreme Court denied, The FERC held that the ( ompany be capacity and energy from Grand Gulf without comment, these petitions for granted a 161K)% return on common I raised in its January 6,1987 dect-certiorari, thereby leaving in place equity instead of 16 04% as pro-sion. On June 24, 1987, the D C. Cir-that part of the DC. Circuit's January posed by the ALJ, that the units-of-cult reversed, in part, the June 13
- 6. If r, decision upholding the prodaction depreciation method be Decision and remanded the June 13 FER(.
- jurodiction to allocate Grand allowed for up to twche months Decision (June 24 Remand) to the Gulf I costs.
(later extended to eighteen months)
FERC for reconsideration of its dect-On November 30,1987, the with straight line depreciation being sion to equali*e.he capacity costs of FERC issued an order in response to re<pired thereafter, and that the an-all Sptem nuclear plants and for an the June 2i Remand whereby the nutt amount of decommbsloning ex-explanation of the criteria used to FERC reaffirmed and reinstated the pem be set at $1,113,188 rather than determine w hat constituted "undue June 13 Decision, thus maintaining
$1,236,876 as proposed by the ALJ dhcrimination" under the Federal the pres tous alh> cation of Grand Gulf
. and be accumulated in an external Power Act and why the June 13 De-I capacity and energy among the fund. The FERC did not rule on the cision was not unduly diwriminato.
S) stem operating companies. In issu-allocation of Grand Gulf 2, and or-ry. In reversing. in part. the June 13 ing the November 30 order, the dered the Company to remove the Dechion, the D C. Circuit did not i ERC found that the allocation in the
- proposed Grand Gulf 2 percentage change that part of its January 6 June 13 Decision wn not unduly dis-alh> cation from the Unit Power Sales 1987, decision upholding the I FRC's criminatory. Requests for rehearing
/.greement.
authority to review and modify the of the FERCN Nmember 30 order 4
i:
._g.
y#
y were filed by various parties (other complaint and ordered that hearings rate relief for certain of the System -
than the System operating coinp.t-be held on the justness and reasona-operating companies has yet to be nies), and by order dated January 29, bieness of such amount. On April achieved, and some of the rate struc-1988, the FERC denied thue re-28, 1987, a settlement in principle tures as initially implemented have
. quests Petitions for review of the -
was achieved uhich, among other changed, are in litigation, or have
- FERC's November 30,1987, and things, reduced the rate of return on been or currently are the subject of January 29, 1988, orders have been common equity in the Unit Power prudence reviews or dhallowances, filed with the D.C. Circuit by various Sales Agreement from 16.00% to as discussed below and in Note 7,-
parties.
1L00%, effective July 1,1987. Such "Commitments and Contingencies -
It is not possible at this time to settlement was approved by the General," and Note 7, "Commit-predict the ultimate outcome of this -
FERC on September 15, 1987.
ments and Contingencies - Potential matteriincluding possible realloca _
The one issue that the settle-Debt Acceleration, llankruptcy and tion, if any, or the effect thereof ment on the Company's return on Middle South System Viability."
. apon the Company and the System equity did not resolve is whether the Under their current rate struc-operating companies, including pos-Unit Power Sales Agreement should tures, AP&L, LP&L and NOP51 are re-1
- sible refunds, if anyi Any material be modified to include a clause quired to retain permanently and not
- modificatior of the allocation estab-which would permit an annual inves-recover certain costs, and AP&L, Ikhed by theJune 13 Decision, as af-tigation of the return on equity in NP&L and NOPSI are required to firmed by the FERC's November 30 the Unit Power Sales Agreement with phase-in certain costs associated with order. could give the to additional special refund procedures which are Grand Gulf I. In connection with litigation, disputes and challenges in not currently provided for. This NOP51's request for permanent retail the affected jurisdictions.
clause h referred to as the "equity electric rate relief, the Council, on In addition, the System operat-reopener" Even if the FERC ultimate.
October 17, 1985, initiated an inves-ing companies have initiated a study, ly approves such a provision, under tigation into all aspects of NOPSI's currently scheduled to be completed the settlement agreement discussed prudence regarding its involvement in the near future, to determine above, im change in the return on with Grand Gulf 1, On lebruary 4, u hether a more equitable method of equity would go into effect any caril-1988, the Council a;topted r. resolu-allocating future costs, including er than January 1,1990. A prehear-tion requiring NOP51 to,s rite off those relating to Grand Gulf 1, ing conference was held on and not to recover %m its retail would be appro rlate.
November 10, 1987 O al argument electric customets $135 million of its r
on september 17,1986, the was held on February 11,1988. The deferred Grand Gulf I sosts, in addi-LP$C sent to the FERC for filing a matter is pending.
tion to tac 551.2 million of such complaint against the Company al-costs that NOP51 had pr(viously leging that the 16.00% rate of return Rate Activity - System Operating agreed to absorb la its Ma*ch 1986 on common equity under the Unit Companies rate settlement. NOPSI is veking Power Sales Agreement authoriicd by All of the System operating com-relief in the courts from th,5 finding the June 13 Dechion had become an panies have recched retail rate in-by the Council of alleged ineptu-
- unjust and unreasonable rate, and crease authorizations approved by dent e, but, as a result of its nability seeking the reduction thereof "to a their respective regulatory authorities to ob ain injunctive relief that would
_ just and reasonable level based on which they believe will be sufficient stay the ef fectheness of the Coun-current conditiont" Wrious parties to enable them to meet their respec-cili actions, NOPSI was requirest to intervened in thk proceeding. On tive Grand Gulf I obligations to the record the write-off in 198?. If the January 27, 1987, finding that the Company if these rate structures re-Council's actions are not resersed.
16% return on common equity "may main in effat ir their present form.
NOPsl may not be able to obtain the he excessive," the I LRC denied the lloweser, fmal and (norable resolu-requhite funds to meet its ongolg Company's motion to dismiss the tion of dhputes over adequate rrtail obligations. including its obligations r
L t
0 p
F
' (Note eight, continueE/)
Supreme Court l> sued an Order Set-of StP&L andbr the Company relat-ting Bond w hich provided that ing to the construction and opera-
. to the Company, and could be ren.
StP&L execute an unconditional cor-tion of the Grand Gulf Station and dered insolvent in a short period of porate undertaking to "self insure" the appropriate regulatory treatment time, possibly an early as the second any refunds that may be required to of the associated costs; obtaining quarter of 1988. See Note 7, "Com.
be made with respect to Grand Gulf ITRC review of the Companyi rate mitments and Contingencies."
I costs previously collected by StP&L of return on common equity; obtain-The SIP 5Ci September 16, 1985, (approximately $279.8 million as of ing i FRC review andhr modification order, establishing a phase in plan al.
December 31, 1987). The order fur-of various aspects of SIP &Us Grand lowing recovery by StP&L of its pay.
ther stated that SIP &Us undertaking Gulf I expenses established by the ments to the Company wPh respect be fully and unconditionally co-FERC, including the allocation of
- to costs associated with Gtand Gulf guaranteed (in the amount of approx.
Grand Gulf I costs; and performing 1, was appealed to the Slississippi imately $206 mill.on as of June 30, a detailed audit of the books and Supreme Court by the SlisGsippi At.
1987) by the corporate undertakings records of the Company.
torney General and the 51ismsippi of Imth 515U and the Company. In Furthermore, on February 3, i.egal 5er ices Coalition. On Febru-addition, the Company guaranteed 1987, the SlP5C issueC an orde* in ary 25,1987. the Slissiwippi and secured potential refunds of all this docket directing the Company Supreme Court rendered a decision Grand Gulf I costs collected by and StP&L to show cause why their resersing and remanding the rate StP&L from and after June I,1987, Certificate of Public Convenience case to the StP5C for further to the date of final adjudication of and Netessity relating to the Grand proceedings not inconsistent with SIP &Cs appeal to the United States Gulf Station should not be cancelled the Courti opinion. The Slississippi Supreme Court by placing such for the failure of the Company and Supreme Court found revenible error amounts in a trust account each SIP &L to allow the 5tP5C to audit in the StP5C's September 16, 1985, month for the benefit of StP&Cs the books and rewrds of the Compa-order on the grounds that the SIPSC ratepayers. Through Starch 15, 1988, ny. The Company had objected to (1) adopicd retail rates to pay Grand the Company expects that payments the 51P5C auditing its books an f Gulf I expenses without first deter-into the trust account under this re-records on jurisdictional and other
- mining that the expenses were pru-quirement will approximate $138.5 grounds. On f ebruary 23,1987, the dently incurred,(2) failed to join million, and such payments are esti-Company and StP&L, in response to 515U and the Company as parties to mated to average approximately $14 the Show Cause Order, filed with the the rate proceeding, and 13) should million per month through June StP5C separate Slotions to Dismiss, tmt have allowed intenention in the 198H, at whkh time it is expected Response and Rescrution of Rights.
proceeding by security hokien of that a decision shall have been ren-These filings asked the StP5C to dis-
- 3150. Subsequently, StP&L filed an dered by the l'nited States Supreme miss the show cause procceuing on appeal of the icbruary M Decision Court in StP&Cs appeal. See Noie 7 jurisdictional, constitutional and with the United Statro Supreme "Commitments and Contingencies --
other grounds. On March 3,1987, Court and also filed an application General."
the NtP5C allowed 5MEPA to inter-aning that Court to stay the mandate in a separate proceeding, the vene in the show cause pro (ecding.
of the fchruary 25 Decishn pending SIPSC initiated. among other things, MIEPA also filed a Slotion to Dismiss final dispmition of the appeal On an investigation of the prudence of and Response to the Show Cause June I,1987, such stay was granted.
SIP &lls intohement in the Grand Order with the MP5C. The motions A conthfion of the stay wm the pmt-Gulf Station. On September 16, 1986.
to dismiw liled by the Company, ing of a good and sullhicot bond in the MP5C inued an initial order es-MP&l., and %ILPA hase been us er-a manner and amount determined by tabihhing a docket for the stated ruled by the MP5C. On April 29, the Miniwippi Suprvme Court. On purpmes, among other things, of ev 198-* the Company filed a Com.
June 10,1987, the Miniwippi amining the prudence of the actions plaint for Declaratory and injun(tive
Relief in a l'nited States District Sptem Viability."
dendum to the order, the SIPSC ad-Court seeking a temporary restrain-The 51P50 on September 26, vised StP&L and the Company that it ing order, a preliminary injunction, 1983, issued a Citation to Show was the SIPSC's position at that time and a permanent injunction enjoin-Cause to alp &l. and the Company to that any potential plan for recovery ing the SIPSC from all further show why they should not be or-by SIP &L of "sunk costs" in Grand proceedings in the docket with dered to adhere to representations al-Gulf 2 through retail rates was un-respect to the Company. The District legedly relied upon by the alPSC in justifiable. Since September 1985, the Court denied the Company's motion determining the need and economic Company has continued suspension for temporary restraining order and justification for additional generating of construction on Grand Gulf 2 and -
permanent injunction. The Company, capacity in the form of the Grand has limited expenditures on the unit in light of the District Court's deci-Gulf 5tation. On January 5,198 f, the to only those activities which are ab-sion and in order to avoid irreparable SIP 5C issued an order in which it (1) solutely necessary for demobilization harm that could result from the limited the proceeding to relate sole-and suspension. On December 5, threatened cancellation of the Grand ly to Grand Gulf 2 and (2) ordered 1986, the Company's Board of Direc-Gulf Certificate, agreed to cooperate the Company and SIP &L to show tors (with the 515U Hoard of Direc.
-with the SIPSC stafiin an audit of cause for the conthued constructien tors concurring) adopted the the books and records of the Compa-and need for Grand Gulf 2. On Sep-recommendation of a special group ny retaring to fl RC-approsed Grand tember 18,1985, the 51PSC issued an of Sliddle South Sptem officials and Gulf I rates. The Company has stated Order Directing SuspenCon of Con-outside consultants that suspension that it intends to pursue its request struction of Grand Gulf 2, which of construction activities be con-for declaratory and permanent in-directed the Company and SIP &L to tinued and that a further decision be junctise relief in the federal court ac.
suspend construction of Grand Gulf made by 1990 on the future status of tion. This action is pending. See 2 as of the date of the order and to Grand Gulf 2, in light of alternatives Note 7. "Commitments and Contin-formally report to the 51PSC before available at that time, gencies - Potential Debt Accelera-the end of the year regarding their tion, llankruptcy and Sliddle South future plans for the unit. As an ad-u NUCLEAR ('UEL
,WW At December 31,1987, the Com.
million upon its renewal in I~cbruary was $58.8 million, 5 41.0 million, pany had a nuclear fuel lede permit-1988. lease payments, based upon and $31.5 million, respectis ely. The ting a mnimum of $175 million in nuclear fuel use, are treated as a cost unrecovered cost haw of the lease at nuclear fuel undet lease. The mni-of fuel. lease expense charged to December 31.1987 and 1986 was mum amount of the lease w2s operations for the > car ended De-
$166 million and $147 million, decrea ed from 5175 million to 5165 (ember 31,1987 1986 and 198%
respectisely. T his lease, w hich was to w
,e
~
j; w
E >!
)
/ i' o
m d
'h I
(Note nInc, contamed) '
~million of the unleased nuclear fuel
.however, that this does not occur, on its balance sheet. The lease ex-additional financing requirements of continue through 2029, l5 likely to tends' for one year with monthly ex-up to $215 m'illion could result.
~
I terminate in August 1988 (f the credit tensions thereafter until notice h I ffective in 1987, the Company line supporting the nuclear fuel lease
_ ghen by either party thereto.
began complying with the prorhions.
terminates at that time, as hcheduled.
The Company currently assumes of SFAS No.13 and $FAS No. 71 with.
In yebruary 1988, an agreement '
that either both credit lines will be.
respect to accounting for lease ohil-
.was entered into by th4 Company for extended or that alternathe credit gations.
'the sale and leaseback of ~up to $50 lines will be arranged.1b the extent, i-s 4
?
~
POST ;
RETIR$ MENT BEMEFIT5 i
1 The Company parikipates in an assets. In addition, an independent subject to a final true-up of estimated e MsU System postretireme.it plan actuary performs the necessary actu-aweis, to a postretirement benefit cmering substantially all of its em.
arial valuations for the Company's plan adminhtered by MSU.1hese lla-playees. The pension plan is noncon.
- plan, bilities and assets will be trand tributory and prtwides pension Prior to January 1,1987. the ferred to a separate Company plan benefits that are based on the em-Company did not directly employ w hen established.
. ployees' credited senice and aserage any personnel and substantially all of Total pension cost (income) of 4
compensation, generally during the the Company's employees were etw-the Company for 1987,1986, and last five years before retirement. The cred under a postretirement benefit 1985 was approximately 5(1.8) rail.
a Company's policy is to fund pension plan administered by SIP &L. In lion, $l," million, and 51.7 million, costs in accordance with wntribu-return, the Company reimbursed respecthely. Total pension cost for
. tion gtddelines established by the MP&L for the emt of this plan ap-1987 includes a 51.2 million reim-Implo)ce Retirement income Securi-plicable to its emplo)ces Effc(the bursement from SIP &L for merfund-ty. Act of 1974.
January 1,1987, approximately 950 ing in 1986 Pension emt decreased The pemion plan is administered MP&L employees transferred to the in 1987 primarily as a result of the by a trmtre who is respomible for Company. The related pension liabili-adoption of the provhium of SFAS
_ pemion payments to retirees. Wrious ties and estimated assets a of that Nu 87, I mplo) cts' Accounting for
- investment managers base responst-date of S I A million and $15? mil-Pemium, used to determine net pen-bility for management of the plani tion, respecthcly, were tramferred, sion cmt for the year 4
- 44
-l s
i
- _ g -
I3
_l The components of the Company's total 1987 pension cost (income), including amotents capitall:ed, uere as follates:
(in Th<msands)
~ Service cost - benefits earned during the period _
996 Interest cost on projected benefit obligation __
355
- Actual return on pla'n awets
' 115 Net amortisation and deferral (1.0 15)
Net pension income (581)
The aswts of the plan comist primarily of common and preferred stocks, fixed income securities and insurance con-tracts.
Thefunded status of the Company's pension plan at December 31,1987, u as as fullmes:
(in ?bousam.s)
Actuarial presene value of accumulated pension plan benefits:
Vested ____. _
633 Nonvested 1.524 Accumulated benefit obligation S
2.156 Projected benefit obligation
~.____
4,788 Plan awets at fair nlue 13,585
. Plan anets in excess of projected benefit obligation _
8,797 l'nrecognized transithn asset __
(10,660) t*nrecognized net lou 2.46i Accrued pemion awtt 581 The weighted aserage discount The Company also provides cer-these benefits by expensing the rate and rate of increase in future tain health care and life insurance amounts as incurred. While the compemation used in determining benefits. Sutwtantially all employen Company had no rctirees as of De-the actuarial prewn: value of the may become eligible for these cember 31,198', the cost of provid-abmc projected benefit obligation benefits if they reach retirement age ing these benefits for future retirees w ere 9.0% and 5 6%, respectively.
while still working for the Company.
may not be separable fnim the cost The expected long term rate of These benefits and similar benefits of pnniding benefits for acthe em-return on plan awer, was M.5%.
for aalve employees are prmided plo)ces. The cmt of providing thesc
. Transition awets are being amortised through payments of premiums to in-benefits for 1987,1986, and 1985
- over the aserage remaining setsice surance companies, and the Compa-w as $1,60 4.000 $9 6 5,000, and period of active participants.
ny recognizes the cost of providing
$ 671,000, respect h cly.
p
i The Company sells all of the ea-tion. See Note I, "Summary of Sig-51P&L and 315U System Services, Inc.
]
pacity and energy from its 90%
nificant Accounting Iblicies." In for technical and aJvisory services i
share of Grand Gulf I to the System return, the Company paid SIP &L the totaling $11.1 million in 1987, $ 4 5.8 operating companies under rate actual cost of rendering thesc ser-million in 1986, and 5-i0.7 million in uhedules approved by the FERC in sices and granted to SlP&L the pow-1985.
its June 13 Decision regarding the er and authority to act on the in addition, certain materials and 4
Unit Power Sales Agreement. Accord-Company's behalf as agent, until De-services required for fabrication of Ingly, all of the Company's o scrating cember 20, 1986, when the Compa-nuclear fuel are acquired ad.
revenues consist of billings a the ny awumed the responsibilities financed by SFI and then sold to the System operating companies, previously assigned to 51 Pal.. In ad.
Conipany, as needed. Charges for Pursuant to a service agreement, dition, pursuant to another service these materials and services amount-AIP&L provided technical and adsiso-agreement, the Company receives ed to approximately $101.9 million
.ry ser las to the Company for the technical and adviwry services from in 1987 and $0.3 million in 1986.
design, construction, maintenance AlSU System Services, Inc. Operating No purchases were made in 1985, and operation of the Grand Gulf Sta-expenses included charges from A
e QUARTERLY
!~
l RESULTS
.R.
(UNALIOITED) s Results for livfour quarters of 19M' cmd 1986 u ere as follou's:
Quarter Operating Operating Net Ended Revenues Income Income fin 7bousands) 1987-Starch.__ _
$ 262,564 5 116.532
$ $ 2,526 Junc_
$ 21H,537 5 115,'73 52,881 Se p t e mbe r _ __._._ __ _. __ ___ _.__._
$ 221.519
$ 105.910
$ 44,i31 De c ember _. _ _ _ _ _ _ ___.. _. _ _. _. _ _ _._
$ 216,929
$ 108,0$M
-68,963 1986:
Alarch __,__.._ _ _ _ _ _ _ _ _ _ _ _.... _ _
$ 2 4 H,99'
$ 121.719 16,106 June _. _... _. _ _ _ _ _ _. _ _ _. _._
$ 251,523
$ I l ',897 16.190 September __._.
$ 239.563
$ 113," 6 l',95 H Dec e mbe r _ _. __ _ _ _ _.___... _ __ _ _ _. _ _. _._.. _ _ _
$ 219,M i
$ 11i,359 18,5 H 3 12
Years Ended December 31 1987 1986 1985 198i 1983 (In Thousandy Operating Res enues.. _
$ 962,549 959,73" 52 j,012 Allowante for l'unds Used During Comtruction
( AI DC). _ __
(4,616)
(i,591) 221,360 376,677 29J,179 Net income._. _..
198,801 189,135 218,06' S
188,125 151,581 Construc tion l%penditures (includes AI DC) _ _ _ _ _ _ _ _ -.
34,597 5
10,782 335.656 5
581,184 572,468 Total Assets -
$ 5,422,329 5 4,950,118 5 4,917,i18 5
i,'80,656 5 3,747,945
- { ' ' * -6 J
e
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'Wh
- ca-Sy stem Energy Resources. Inc.:
ters im oh ing the powible adjust-resolution has been made in the We base cummed the balance ment of certain existing rate fmancial statements.
sheets of Sprem l~ncrgy Resources struuures (w hit h are being contested in our opinion, subject to the ef-Inc. (hirmerly Middle South 1.ncrg),
or are subject to prudente imotiga-fcco on the financial statements of loc.) as of Drumber 31,1987 and tions) implemented by the Middle suc h adjustments, if any, as might 1986 and the related statements of South Spicm operatmg companics to hase been required had the outcome income, of rctained earnings and of recoser their Grand Gulf I related of the uncertaintics referred to in the cash Dow s for cach of the three tosts; the potential a(cclcration of second paragraph been known. the 3 cars in the period ended December (crtain indchtednew of the Company abus e mentioned financial statements 31.198', Our cuminations w ere as a result of the powible failure of present fairly the financial position made in accordan(c with gener.dly tertain of the Middle south Sprem of the ( ompany at Desember 31.
accepted auditing standards and, ac-operating companies to maintain ade-198' and 1986 and the results of its corthngly, included suth tcsts of the quate rates to recoser their Grand operations and its cash flows for accounting ru ords and suc h other Gulf I rel.urd (osts and an audit c.ath of the threc 3 cars in th( perux!
auditmg procedures as we considered report iwurd by the 5tatt of the led-coded De(cmher 31.198" in confor-necewary in the (irc umstances cral i ncrgy Regulatory Commiwinn mity with g(ncrally auepted ac-As diwuwed in Notes ' and 8 of on June 18,198' w hit h states.
counting prm(ipis s applied on a Notes to f inantial Statements there among other things that the Grand consistent basis are un(crtaintics awouated with the Gulf 'st.uioni allow an(c for funds Grand Gulf Nutic ar Statioa These used during tonstruction is userstat-untertamtio imohe: the recm cry of ed t he Company is unable to
[
g g /
d the imestment in Grand Gulf 2. a prcdu t the ultun.uc outcome of suspended t onstruttion proiett; the these m.utcry anti no pros ision for N m(o! ant /outuana resolution of rate and regulatory mat-any lown that m.n result from their G hroart lu /mN
<r
i Directors Executive Officers EDWIN LUPilERGER EDWIN LUPBERGER Chairman of the Board of the Chairman of the lhsrd Company s Chairman of the Board and WILLIAM CAVANAUGil, til President of Middle South Utilities, President and Cbhf inc Executit e Officer WiiLIAM CAVANAUGil, !!!
GLENN E. IIARDER Pttsident and Chief Execuffre Vice President - Accounting Officer of the Company and 1reastavr Senior Vice President, System E.wcutive - Nuclear of Middle RICllARD J. LANDV South UtiHties, Inc and MSU Vice President - Human System Sert'kes, inc Resources and Administration JAMES M. CAIN OLIVER D. KINGSLEY,JR.
. President and Chief Execurit e Vke President - Nuclear Officer of Louisiana (buvr &
Operations Light Company, President of Nere Orleans Public Service Inc TED EI CLONINGER Vice President - Nuclear DONALD C. LUTKEN Engineering and Support Chairman of the IMard and President of Mississippi (Uuvr &
DAN E. STAPP lsght Company Secretary i
I l
_ JERRY L. MAULDEN President and Chief Executive Officer of Arkansas lhtver &
The Company's 1987 Annual Report Light Company to the Securities and Exchange Com-minion on Form 10-K (including l
JOSEPil M. IIENDRIE financial statement schedules) is j
Nuclear Engineertng Consultant, available to any interested parties l-Bellport, N); Senior Scientist -
without charge. Interested parties can f~
.?esearch anki Detr/opment, obtain a copy hy writing to:
j Brookinnyn National Laix>ratory Glenn E. liarder Vice President - Accounting and 3
Treasurer l
System Energy Resources, Inc.
P. O. Ilos 23070 l
Jackson. Missluippl 39225 3070 Telephone: (601) 984 9600 ss I
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Ikl%l OfflCC l50% 23{)7()
Jhk.on, Miniwipp) 392 24,,3(37g) s i
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