ML20150D545

Mississippi Power & Light Co 1987 Annual Rept

ML20150D545
Person / Time
Site:	Grand Gulf
Issue date:	07/05/1988
From:	Lutken D MISSISSIPPI POWER & LIGHT CO.
To:
Shared Package
ML20150D533	List: AECM-88-0133, Forwards 1987 Annual Financial Repts for Sys Energy Resources,Inc,South Mississippi Electric Power Assoc & Mississippi Power & Light Co ML20150D542 ML20150D545 ML20150D569
References
NUDOCS 8807140043
Download: ML20150D545 (64)

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I LORPORATE PROHLE

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7-Slissluippi Power & Light PERFORSIANCE IIIGilLIGilTS

- Company is a regulated public utility 1 company engaged in the generation, 198/

1986 1985 purchase, distribution and sale of Total operating revenues (thousands)

. $ - 620,836 $ 673,918 5 605,129

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electric energy. The Company serves approximately 337,000 customers in 45 Total operating expenses (thousands)

$ 520,416 5 576,007 8 528,561 counties of western Sliuluippi with an

- Fuel expense (thousands) 94,649 $ 156,509 $ 180,293 estimated population of 1.3 million.

SIP &L is a wholly-owned sub,ldiary Purchased power expense (thousands)

$ 404,636 $ 424,172 5 295,149 cf Middle South Utilities, Inc., one of Rate deferrals-the largest investor-owned public utility net of recovery (thousands) holding companies in the United States.

~

8(182,739) $ (223,155) $ (142,958)

Operating income (thousands)

$ 100,420 97,911 5 76,568 Ranked fourth in assets among the nation's electric and gas utilities in AFUDC (thousands) 498 $

(22) $

2,217 1987, the SISU System is the leading

{}n electric supplict to the Sliddle South

--- e (busands)

,bbb53 860 50 913 region, which is comprised of Arkansas, Net utility plant at year end (thousands)

$ 778,821 5 768.523 $ 781,980 Ioulslana, Miuluippi, and southeastern Construction expenditures (thousands) 38,420 $

22.128 $

24,187 Slinouri, G.9 service is provided by the Retail customers at year end 336,780 332,805 328,996 System in New Orleans and portions of Arkansas and Siluouri.

Retail energy sales to Missinippi The System utillies a vast, customers (MKWil) 8,216,P29 8,096,899 7,852,766 interconnected transminion and Peak demand (megawatts) 2,017 2,132 1,858 dictribution network and s balanced

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= = = = =

sprem of fouil fuel and nuclear

, generating plants to meet the electric needs of 1.68 million customers in its AHHREVIATIONS AND TERM %

.91,000 square mile service area, encompaning 1,300 communities with an aggregate population of five million.

• '""""*"d'""""d'"'h"P"""d

At Ihe heart of the Syntem are four At Ut>c. _ ___ Anowne for rund. t ned nuring omstrutiain operating companies and one gener-APAL _._ __.- Arkansas Pumtr A Light (unpany F AsB -_ __ _

Finans tal Acounting standardi Itoard a'ing company working together. The trac _ _._ _ _ tederal rnergy acgulator3 commimon operating companies are AP&l., I P&L.

f ebru.ry n MP&L, and NOPSI. SERI is responsible d "l'I"" -- - - The Mismeppi supreme court's 19c dcchion rewrung 4

and remandmg Wat's Grand Gulf I rate order for the management of the G, rand Gulf ccand Guir i _._ t nit No I ur the Grand Gutt Nuticar statum

. Nuclear Station.

IsFS _._ __. Independence steam ticctric stauon junt 13 dectilon _. The flRCs 19845 dcctum alkwatmg Grand buff I 4

On the Cover

'"*"**""'""P'"*8""I'"

1 PAL _..___._ _ tou dana Puurr & 1 tght hampan)

Natenez meter reader Iluddy Givens Money Poul -.

N'U Money Pool abkh all"=s spirm comparuce

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programs data into a hand held

'" h""" """ "r icnd to othu sptnn tunipanics y:

MPAL or company.- Mmburpi Power A Light compari3

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computer while reading the meter at uPsc _,_. _ Mmnuppe Pubix sers ke (omriuuu j

the croning tower on the Miuinippi M s U -.--

. - - - - %ddle south t'tthttes, in(

• • • "*""""h*'3"'-

River at Natcher. Inset: Senior Vice s f C __ _ _'._.. _. sn uritics and i uhange s'ommmum d

Pr sident Pat Goff discuwes MPal/s seat..

._ sprem inergv ac ouses inc Grand Gulf I rate case prior to the st u. -. -

- wonent or itnandal bountw standab 4

hearing of oral argument by Ihe fj7]

('f*j"',"[('

United States Supreme Court, sptem.

MsU and ni uoous dmt and indmt subwhano l'alted. _._ _

l'nued (,a= Pipcline ( ompany 1

I

.-_ _._-_._ __ _,__ _ _. _ _ _ _.--, _._.,_._..._ _ _ __-~

Dear Sto(kholders:

favorable. O! tously, honeser, there Amid adversities associated with Some of the most adverse can be no awurance that the appeal will MP&Li n' ate case, uncertainties circumstances ever to face Mississippi be successful (Please see Notes 2 and H resurfaced in 1987 concerning the Power & l.ight Company occurred !n (9 the Financial Statements for a com-I ERC's allocation of the Company's 1987, producing an array of financial plete oiscussion of this matter).

share of costs associatcJ with Grand l

uncertainties that severely hampered The threat of a rate rollback and b ulf 1.

l the continued le",al challenge to An order iwurd in June by a three-our progress, But, even though 1987 wcs a year MP&l/s current retail rate structure judge panel of the l'.S. Court of w hich posed some serious chalb oges, it affected the Company % ability to Appeals for the District of Columbia aho was a time in which our ariange for tLe extensive financings Circuit required the FERC to review its Company % most important asset - its required by the Grand Gulf I rate plan allocating Grand Gulf I costs to people - demonstrated extraordinary phase-in plan and to conduct normal the fr r MSU operating companies.

resiliency and dedication in a unified operations.

Althi igh the FERC reaffirmed its plan effort to meet those challenges. Cited One effect of legal and regulatory in Nmember and again in January in this report are examples of that spirit obstacles can be seen by examining the 1988, this decision on the method of of excellence.

financings arranged by the Company cost allocawn is subject to further I:s reviewing the challenges of before and after the Mississippi judicial review. Iloweser, the FERC's 198"', the most serious ones stemmed Supreme Court's Fchruary 25 dechion.

authaity to allocate Grand Gulf cous

. from the February 25 decision by the in January, MP&L sold $35 million of has been upheld by the D.C. Court of Mksioippi Supreme Court in an appeal preferred stock at an annual dividend Appeah.

of the Company's september 1985 rap?

rate of 9.76 percent. In December, case, if upheld. that ruling would however, the Company sold $75 require MP&L to cease collection of million of first mortgage bonds at an "e

rates apprmed in the MPSC's interest rate of I i.40 percent.

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l September 1985 order allowing toc Another Grand Gulf matter that

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I Company to recmcr its Graad Ge'f I continued to hurt obstasles in the

.y costs. Moreover, Mr&L would 'c Company's path to financial stahdity in rsquired to refund such cons 1987 was the MPSC's Docket [M900.

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previously cellected. These actions in connection with initiation of the 4

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would bas e a material and adscrse docket in September 1986, MP&lfs 4

effect on MP&l.i financial condition.

1987 revenues were estimated to bc MP&L appealed the February 25 lowered by approximately 54 I million decision to the l'nited States Supreme via a temporary rate reduction rider.

D Court, which stayed the Missiwippi This rider, which was of fset by reduced court's order on June 6 pending final federal income taxes and other cost

- ?

judicial determination of the appeal.

savings, took effect in October 1986 On October 5, the l'.S. 5upreme when MP&L implemented the second

[

Curt agreed to hear 'he Company %

phase in of Grand Gulf 1 rates. The

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cppeal Oral argument was heard third phase in went into effect in l

February 22, and a decision is e.spectcd October 198~ w herchy the Company's m Jy, m % % % a _g d ia by the end of June 1988.

revenue' will increase by approxim,:ely 4 hile an unfavorable decision by

$ 29 milhon annually.

the U.S. Supreme Court w ould has e Donald C Lutken adverse effects on the Company, MP&L Chairman and President believes legal precedents support its pmulon and provide a basi 4 for optimism that the decision will be 2

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. mL The Energ) Plus program, begun in

, L o further complicate matters,..

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. Additio' ally, Bill F. Cossar, whol n

,StP&l/s Grand Gulf l' rate phase-in plan

!!986 with the goal of creating or

' previously served as the Company'si ihas been affected by a FASB statement

. attracting 14,000 jobs beyond projected director of governmental affairs, was finued in August.1987 which requires -

employment growth in western -

elected vice president of public affairs y that deferred costs under phase in plans 311ssissippi by.1990, has infh,enced in December.

J be recovered within 10 years from the,

L nearly 50 new hminesses arid 115 In ether organizational changes, date of a plan's amendment, expansions of existing businessesi

. George St. Ledlow, vice president of -

The nesy accounting standard b c the inception of the economic-special projects, and John D. IIolland,

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com4 ins transition provisions which development program,7,679 new -

vice president of governmental affairs,'

2 T L permit a delay in the application of the manufacturing jobs have been created, retired in September and October,,

statement if the Company has filed a On the educational front,51 Pot respectively.

rate application to amend its plan or has been just as successful.

As we look to 1988, we can be

' intends'to co so as soon as practicable, Perhaps the most visible of the -

certain that it will be a pivotal year for and if it is renonably possible that the Company's educational efforts in 1987 SIP &L. Let me assure you that the regulator will change the terms of the was the Council for the Support of Company is resolved to meet current 3 phase-in plan to meet the requirementsf ~ Public liigher Education which is challenges and move forward. We will of the statement.

' dedicated to improving higher educa-continue to expiore ways to lower l AIP&L is studying the transition.

. tion in 5tississippi. In its first year, the operating costs while continuing to

. provisions of the new FASI) statement.

council worked to get the Legislature to provide reliable service.

/ and, as soon as practicable, following-restore nearly half of the funds cut It would be unrealistic to say that the decision of the U.S, Supreme Court from colle;;c and university budgets a '

SIP &L will see the end of its financial on the Company's appeal,of the year earlier, uncerta!ntles in the near future, but Silssinippi Supreme Court's February in another area,51P&L joined SISU, some important questions will be

~ 25 decision, mtends to attempt to our parent company, in working to answered. Stany of the obstacles likely

restructure its inte phase in plan or take. solve some of Alississippi's staggering will.be les3cned, and it is hoped that otheigsteps to permit the continued

- illiteracy problems. Ily providing SIP &L will be establishing itself on

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recording of its deferred Grand Gulf I '

computer hardware toJackson State firmer financial ground. As I have costs as assets.

Ifniversity, we are part o' proven already noted, however, there can be Despite the financial aad regulatory. program that is teaching literacy skills no anurance that the Company 4 appeal

' difficulties experienced by SIP &L in to more than 150 Jackson. area adults.

of the February 25 decision will be

'1987, the Company recorded numerous Additional educational programs successful.

' accomplishments, were developed by 31P&L to address Adversity tends to bring members lOf particular significance was the.

the state's awesome dropout problem of an organizatun closer tagether, and '

Company's expanded marketing-and to encourage academic excellence.

the cha!!enges experienced by SIP &L in activities In which major emphasis was The Company was pleased to 1987 unified our people, perhaps to'the placed on I'mproving residential and announce in December four additions greatest extent in StP&L's history in

industrialuales. Through special to its lloard of Directors. James 11.

efforts to find solutions and move incentive programs, which are outlined Campbell, president and chairman of forward.

. clsewhere in this report 51P&L the board of Alissfulppi School Supply We are not minimizing the tasks

- experienced increased sales in each of and John N. Palmer, president of ahead, but we face the future with

,these areasc Slobile Communications Corporation of optimbm.

' Company wide efforts to enhanu America, were elected directors.

. the business environment in which we Former directors flerman liines, who Sincerely,

. operate, through improving economic previously served as chief executive

development and education, were also officer of Deposit Guaranty National

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~ broadened or initiated, llank, and Lawrence Adams, a Natchez m

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L attorney, were n;med advisory directors [

Donald C. Lutken Chairman and President Starch II,1988 3

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which led to oral argurner.t b

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hefore the l'.S. Suprerne Court,

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Demanding much 'of 31P&L's guarantees and' undertak'ings by condition of the Company and could-

concentration during 1987 and early.

the Company, SISU and SERI. Also render it insolvent.

1988 was an array of regulatory and included in the bonding arrangements The 51PSC's September 1985 rate financial. natters.- These included the was a monthly escrow by SERI of order provides a detailed plan under Company's Grand Gulf I rate case, the SIP &L's cash collections for Grand Gulf which all costs are assured of being FERC cost allocation plan for Grand 1 power. To the extent that either AISU recovered over the life of the plant. If Gulf. I, SIPSC Docket U 4900, SFAS No.

or SERI mahes payments to discharge the U.S. Supreme Court's decision is -

92, and United Gas contract litigation.

SIP &L's obligations to make refunds to adverse to alp &L's interest, the An overview of these issues its customers u a result of an adverse recoverability of these deferred costs follows. A more complete review of final judicial determination of the will be destroyed immediately.

SIP &L's regulatory and financial matters Company's appeal, SERI and/or SISU Current accounting standards then can be found in Afanagement's Financial will have an immediate right of would require SIP &L to recognizt all Discussion and Analysis and in the reimbursement from SIP &L.

monthly Grand Gulf I costs as Notes to Financial Statements conta8aed On October 5, the U.S. Supreme expenses and charge them against in the back section of this report.

Court agreed to hear SIP &L's appeal of current income instead of deferring and the February 25 decision. The stay recording a portion of those costs as an Grar.d Gulf I Hate Case gran.ed by the court on June I remains asset as they are now. All previous

.Following a June 1985 ruling by in effect and the Company is ca.ntinu-deferrals also would be charged against the FERC allocating SERI's 90 percent ing to collect Grand Gulf I rates, current income. (A more complete 3 hare of Grand Gulf I ccsts to the four subject to refund, pending a decision discussion of the accounting treatment SISU operating companics, the SIPSC by the court.

of rate deferrals is included under SFAS

' issued an order in September 1985 The U.S. Supreme Court heard oral No. 92 in this section).

approving a $327 million r s.ncrease argument in the Grand Gulf I rate case The effect of the possible cancella.

to cover SIP &L's 33 percent inotment.

on February 22,1988.

. tion of the Grand Gulf I rate rider,

- That order was appealed the following SIP &I., based on the opinion of its including the possible substantial refund month by the state attorney general and counsel and assuming the FERC has obligations of StP&L with regard to the 511ssissippi Legal Services Coalition.

jurisdiction to allocate Grand Gulf 1 previously collected amounts and the On February 25,1987, the costs, believes the 511ssiss.ppi Supreme loss of the ability to defer Grar ' Gulf c hlississippi Supreme Court overturned Court's decision should be reversed by 1.related costs and to recognize those the rate case and remanded it to the the nation's highest court on the basis deferred costs as an asset, would cause StPSC for a review of the prudence of

. of constitutional grounds if that court, immediate, substantial and irreparable the Grand Gulf project. This triggered a upon further consideration of the issue harm to the Company.

series of events that could have of its jurisdiction, accepts the appeal or in accordance with the provisions material and adverse effects on the otherwise agrees to decide the case on of the rate phase-in pin approved by Company.

the merits. Ilowever, there can be no the SIPSC in the September 1985 order, After being denied a rehearing by assurance that the Company's appeal the Company implemented its second the Slississippi Supreme Court in Stay, will be successful nor is it possible to annual increase in rates billed to SIP &l. requested a stay from the U.S.

predict what will be the ultimate customers beginning October 1,1987.

Supreme Court to keep the rate outcome of the Grand Gulf I rate The 4 percent increase in base rates increase in place pending an rppeal.

phase in plan and related appeals and will increase SIP &L's revenues by The stay was granted June I subject to proceedings or their effects upon approximately $29 million during the 51P&L meeting bonding requirements alp &L. A decision is expected by the period October 1,1987 through subsequently set by the Stississippi end of June 1988.

September 30,1988. In conjunction Supreme Court June 10.

Certain decisions adverse to with this rate increase, Grand Gulf StPL L called on the strength of the StP&L's interest in the angoing 1 related costs which are c:targed to System.and the bonding arrangements proceedings relating to its Grand Gulf I expense and colleued through rates, were met by a combination of rate order would impair the financial increased by approximately $2 million per month-s

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FERC Cost Allocation Plaa _

_ seeking, among other things, prelin -

company to delay application of the In November 1987 and January inary and permanent injunctive relief new nat_ement and to continue the

1988 the FERC reaffirmed and enjoining the AIPSC from implementing' deferral of costs under its existing

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reinstated its'1985 decision alk>cating and enforcing the order as proceedings phase in plan provided: (1) the

-Grand Gulf I costs to the four MSU to determine ratei

. company files a rate application to have

operatinic companies.

After a preliminary injunction was the plan amended to meet the require.

A three judge panel of the U.S Issued against the AIPSC by the Ilinds ments of the statement or intends to do -

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. so as soon as practicable, and (2) it is Columbia Circuit had ordered the FERC state Supreme Court issued an order reasonably possible that the regulator in June to reconsider the plan that vacating and setting aside the decree of will change the terms of the plan so (required MP&L to pay 33 percent of the Chancery Court, that it will meet the equirements of

- the costs for Grand Gulf It AP&L,36 in its order, the Mississippi the statement.

Supreme Court stated that the Chancery MP&L's current rate phase-in plan o percent; 1.P&L,14 percent; and NOPSI, _ L Court did not have jurisdiction to includes the recovery of significant 17 percentf in maintaining the previous alloca.

prevent the MPSC from conducting its amounts of deferred costs beyond the tion of c1pacity and energy among the rate hearings prior to the exhaustion of 10-year recovery period required in

. System operating companies, the FERC MP&L's legal and administrative SFAS No. 92. As soon as practicable, also concluded that the cost a;h> cation remedies. Additionally, the state court following the decision of the U.S.

plan was not unduly discriminatory.

remanded the procedural scheduling of Supreme Court on its appeal of the The.FERC's decision on the Phase Vil of Docket No. U4900 to the February 25 decision, MP&L intends to method of coat allocation is subject to MPSC for entry of a new scheduling attempt to restructure its rate phase-in further judicial review. Ilowever, the order pursuant to Mississippilaw. The plan during the transition period to C FERC's authority to allocate the Grand matter is pending.

bring it into compliance with the Gulf costs has been upheld by the D.C; vauirements of the new statement or

- Court of Appeals.

- SFAS No. 92 m Ae other appropriate action.

In addition, the System _ h'as

-In August 1987, the FASB issued The Grand Gulf I rate recovery initiated a study to determine whether SFAS NoJ 92 Regulated Enterprises -

order contains provisions which permit a more equitable method of allocating Accounting for Phase-in Plans, an MP&L to make application to the MPSC future energy costs, including those amendment of SFAS No. 71.

to amend the rate phase-in plan if the

, relating to Grand _ Gulf 1, may be possi-SFAS No. 92 requires, among other Company is not able to finance on

ble. The study is stated for completion things, the fop 9 wing conditions for reasonable terms. Additionally, the in the near future.

deferral of costs of a newly completed order permits MP&L to make applica-plant: (1) the costs deferred are tion to the MPSC to consider the effect

.MPSC Docket No. U-4900 scheduled for recovery within 10 years of a change in SFAS No. 71.

, in September 1986. the MPSC of the date when deferrals begin; and if the effort to modify its existing established Docket No U4900, the (2) the percentage increase in rates for rate phase-in plan is not successful, and J purpose of which was to obtain a each future year is no greater than the if the terms of SFAS No. 92 are applied, i

comprehensive review of all aspects of percentage increase in rates for each MP&L will be required to cease MP&I/s current rate requirements and immediately preceding year.

deferring Grand Gulf I costs and the current rate structure of its affiliate The new statement, subject to the instead record those costs as current

- and co-certificate holder, SERI.

transition rules discussed below, is operating expenses. In addition, certain In Februar) 1987, tue MPSC issued effective for fiscal years beginning after previously deferred costs (up to a schedulinr, order in Phase Vil of the December 15. 1987, and requires that approximately 554N million at

docket ordering MP&L to file testimony amounts deferred under plans that do December 31, 1987) will be required to supportlng its current revenue require.

not meet the requirements of the state.

be written off. Such action would have ments and any necessary adjustments.

ment be written off.

an immediate and materially adverse In March 1987. MP&L filed a complaint Transition rules for SFAS No. 92 effect on MP&L, particularly in light of its in the Ilinds County Chancery Court are designed to allow any affected already weakened financial condition.

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.E' United Gas Contract Litigation years after all credits have been in a private placement on in connection with the 1985 settle.

applied, it would be SIP &L's intention December 17, the Company sold $75 ment of a natural gas contract dispute to pay United for the deficiency and million of 14.40 percent first mortgage with United Gas Pipeline Company and take the gas paid for during the year bonds due Decem.'

"L Of the pursuant to a distribution plan following any such final judicial ruling.

proceeds of this sale,. v. million was approved by the StPSC in 1986, 51P&L The matter is pending.

set aside to retire first mo.:pge bonds refunded approxiwtely 5196 million to maturing in early 1988.

formee wholesale and current retail Financial Review On January 15,1988,545 million customers in two distributions in 1987 Primarily as a result of the of 1I 1/4 percent first mortgage bonds The rcfunds resulted from two Alississippi Supreme Court's February were redeemed. In additie 515 lawsuits in which StP&L claimed that 25 decision, which overturned the million of 41/8 percent first mortgage United breached the terms of a gas StPSCN 1985 Grand Gulf I retail rate bonds will be retired at maturity on sales agreement, order,1987 was a difficult year in the AFril 1,1988-Pursuant to this settlement agree-financial arena for StP&L.

On February 11,1988, SIP &L ment, United paid the Company $165 The N!PSC approved the 5327 privately placed $75 million of bonds million in September 1985 and 5 i7.5 million rate increase in September 1985 issued under a new secondary million in September 1987.

to cover StP&L's 33 percent share of mortgage. Of this amount, 520 million in January 1987, United invoiced costs associated with Grand Gulf 1.

was sold at 14.95 percent interest

$1P&L for approxiraately $24 'million During a lengthy appeals process, the maturing in 1995, and 555 million was for amounts allegedly owed under a Company has been able to continue sold at 14.65 percent interest maturing take or pay provision in the gas sales collecting the rates, subject to refund.

in 1993. The new mortgage under agreement. In February, the Company The Company's 1987 net income which the bonds were issued filed suit against United seeking a totaled $ 51.8 million, a decrease of constitutes a second mortgage lien on declaration that StP&!. does not have to 52.1 million or 3.9 percent compared substantially all the praperties and pay the invoice.

to 1986.

assets of the Company, subject and in Starch 1987, United filed its

'Ihc threat of a rate rollback and subordinate to the lien of StP&L's first answer and counterclaim for the the contmued legal challenge to mortgage indenture.

amount of the January invoice plus SIP &L's current retail rate structure Additionally, on October 2,1987, expenses. That filing was amended by affected the Company's ability to SIP &L began a program of selling its United in August to seek recovery of an arrange for the extensive financing customer accounts receiuble. The additional 14.6 million.

requiren ents in connection with the proceeds from the initial sale of billed United submitted a second invoice Grand Gulf I rate phase-in plan and to receivables totaled approximately 539 in February 1988 for approximately cc:Muct normal operations. In 1987, million. This process accelerates the

$ 100 million under the gas sales agree-approxir ately $ l83.4 million of capital receipt of cash from customer bills and ment. SIP &L is secking to amend its requiren ents resulted from thc operp lessens the need for external capital complaint in the declaratory judgment tion of t ic Company's rate phase in from other sources.

action to allege that it has no obligation plan The proceeds from the above sales to pay this invoice based on the same luwever, the Company was were used for the financing of a grounds it has asserted in respect to successfcl in accomplishing such financ.

portion of the costs associated with the United's January 1987 invoice.

Ing although at higher interest rate 3 Company's retail rate phase in plan in the event the court holds that after the February 25 decision.

related to its Grand Gulf I charges, for United did not overcharge 51P&L in January, the Company sold $35 the retirement of maturing long-term during 1986 and 1987 and that a million of preferred stock at a dividend debt, for the financing of AtP&L's defkiency occurred in the amount of rate of 9.76 percent.

construction program, and for other gas taken by the Company during those corporate purposes.

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.n Lightning danced in the distance, Energy Sales and Customers Other major 1987 construction illuminating the destruction caused a MP&L's total energy sales to projects included transmission capacitor few hours earlier by an impartial

. Mississippi customers in 1987 amounted

. bank additions at the North Greenville, tornado that had roared through -

to 8.2 billion kilowatt hours, an

. Rex Brown, Greenwood, Clarksdale -

and Greenville substations.

western Mississippi.

increase of 1.5 percent when compared Left in the path of the November with 1986, Major transmission projects 16 storm were downed utility poles Residential sales increased to 3.4 completed during the year included and lines, roofless homes, windcwless billion kilowatt hours while commercial MP&L's portion of the Richle-Tunica offices, and vigilant MP&L crews ready sales incretsed to 2.4 billion 230 kilovolt line. Work continued on

.to restore power in the downpour that kilowatt-hours.

the Tunica Freeport 230 kilovolt line

~ travels with such weather.

Industrial sales increased 3.6 and on the conversion and rebuild of "Anytime you get a call _that a percent to 2.1 billion kdowatt-hours.

the Rex 11rown Pickens 115 kilovolt tornado has hit, you know things are This growth reflects the seccess of the line. Preliminary design, survey work going to be real had," said Jim Watkins, industrial incenth e and indecemem and right-of way acquisition continued Rankin District censtruction foreman.

rates started by the Company in Imte.

on the Freeport Batesville and the who headed one of the crews that Offsetting a portion of ISese McAdams Indianola 230 kilovolt lines.

m.-tred around-the-clock to bring increases was a 2.5 percent decrease in customers back on line.

governmental and municipal sales New Office "When you get these; you lust feel which fell to.3 billion kilowatt hours In its efforts to better serve lost," he said, "The lights are off, so its in 1987.

customers, MP&L opened a business

. pitch dark. All you have is a hand light MP&L's average residential office in northwest Jackson in March.

22 you dig through the rubble ta assess customer used 11,724 kilowatt hours in Located in the Jackson Mall area, the damage and figure out what you've 1987 compared to 11,649 in 1986.

the office offers several services, got. The damage is unreal."

At year's end, the number of including receiving hill payments, The damage caused by this tornado customers was 336,782, an increase of applie tions for service and working and thunderstorms was among the 3,975 over those being served at the out terms for extended payment.

worst inillcted upon MP&L's senice.

end of 1986.

area in the last decade. At the height of Customers by classification were:

Fuels Management

'the ctorm, an estimated one-third of

' Residential-288,577 To better plan for fuel needs and MP&L customers were affected.

Commercial-12,095 more effectively work with suppliers, Warst hit was a corridor through Industrial-3,425 MP&L implemented in June a System Vicksburg, Clinton, Jackson and Rankin Government & municipal-2,683 reorganization plan for fuels planning

- County, but the storm affected every Other public utilities-2 and procurement.

division of the Company - from the Employing a Systemwide Team.

Louisiana state line to the south to Construction work approach to improving fuels Grenada to the north.

Expenditures for construction management, the plan centralizes fuels The ensuing performance proved during 1987 were $38.4 millica planning, procurement guidelines and typical of the quality service which has compared to $22.1 million in 1986.

contract approval for the System been a long-standing MP&L tradition as Two new 115 kilovolt distribution companies. After developing plans and

. crews and office personnel worked substations and the associated 115 guidelines for oil, gas, coal and nuclear tirelessly to assist customers and repair kilovolt ties were completed at fuels requirements of the System, a damages as quickly as possible.

Whitficid and Star.

System committee issues the fuels plan, "You work all night hoping against Work continued on the Tunica approves its implementation and hope that you've donc everything you 115/230 kilovolt substation and the monitors its administration.

- have to do to get the power back "

Freeport 500/230 kilovolt substation.

MP&L and the other System said Watkins. "Ilut, when the lights operating companies handle fuel come on and customers come by to contract negotiations and the contract thank you for your efforts, it makes administration.

any inconveniences you've had to go through all worthwhile."

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@h Janet Walsh, a Centreville (ustomer flunder/ developer incentives Industrial Starket Incentives service specialist, was planning to build included a variety of motivational items A key contributor in SIP &L's thrust a total electric home when a new for various types of builders and were for increased industrial sales in 1987 program encouraging employees to designed to encourage them to specify was its Industrial Customer Incentive promote StP&L products and services heat pumps in their new homes. A total Pricing program. The program, initiated was announced in February, of 110 builder >.&velopers participated in 1986, enables customers on the large The Employee Earned Energy in the program that produced more and alternate large general service rates program, v:hich awards employees tnan 25 perc(at of tb new total to receive incentive prices on their points toward a variety ci' merchandise e!cctric homes in SIP &L's service area, monthly bills for load additions.

and travel in exchange for valid sales Storeover, SIP &L completed the Existing industrial customers who leads, was one of several incentives year w!th total electric homes were on the large or alternate large introduced by SIP &L's Starketing constituting 30.3 percent o# all new general service rate and who increased Department in 1987. All are designed single family homes being built, up their energy use by 200,000 kilowatt-to solicit assistance from others in from 25.4 percent in 1986-hours per month were eligible for the increasing product sales, and ultimately, Real estate agents also were a incentive rate credit. New industrial Company profits.

target in the sales effort. A special customers who were willing to contract "lleing an SIPal employee, I was training video was developed and usel for the large or alternate large general familiar with the many advantages of a with a fredback system that channeled service rate also were eligible, total electric home," said 31s. Walsh.

questions from home buyers back to Since the program was started in "llut, as we began to make decisions

$1P&L's marketing personnel. This 51ay 1986,37 existing businesses and for our home relating to a heat pump program had 230 participants with fise new businesses have applied for and other items, we realized how information on 81 homes submitted.

the special rate incentives. In 1987, a efficient and reliable the Company's With the introduction of the dual total of 78,760 megawatt hours were products really are.

fuel heat pump program, SIP &l. broke discounted under the program, up "The 3E program made it easy to into the existing home market by offer-significantly from the 12,670 megawatt-for me to recommend the products to ing customers with older gas heatin8 hours billed in 1986.

others," she said.

units an opportunity to obtain more Ily the cod of 1987, 51s. Walsh had efficient electric hearing :,ystems.

Seasonal Credit Account earned the most points in the non-IIcating and air conditioning dealers AIP&I's i.evel Pay Plan received marheting category of the program, were included in this incentive program renewed emphasM and a new name in which drew nearly 700 panicipants.

to ensure their support of this relatively 1987 with the introduction of the Of the 3,513 referrals made, 3,359 new product.

Seasenal Credit Account, l'nder the resulted in sales totaling $506,305 in Stronger efforts to promote electric program, a customer's monthly bill is present value revenue, heat pump systems also were launched the adjusted average of their electric to protect the Company's existing hills for the past 12 months.

Residential 5f arket Incentives heating market. In August, information Of the more than 225,000 draw-Recognizing the importance of on the heat pumr 7tograms was mailed draft and total electric customers who builders / developers, real estate agents to i1,000 total elec ric customers and received information through two and heating / air conditioning dealers in 39,000 gas heat customers. Iloth direct mail campaigns, approximately influencing residential sales decisions, packages explained special financing 33,000 signed up.

SIP &L introduced several incentives arrangements. Additionally, rebates of At year's end. the Company had aimed at these individuals in 1937

$ 100 and $ 150. respectively, were approximately 37,5uo customers signed offered to customers who purchased up for the seasonal Credit Account.

the dual fuel heat pump and to dealers nearly six times the number of installing the equipment.

participants previously enrolled in the program.

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The year began on an uneasy note Industrial Recruitment projects - catfish projects in Itta llena for many Natchez residents. Armstrong industriti recruitment for a state and llelzoni and a dairy project in Tire and Rubber Comp:.ny, one of the known primarily for its agriculture is Kosciusko - received a total of 52.1 town's largest employers, had an awesome challenge, but the need for million in federal funds.

announced plans for closing, and more industry in Slissis31ppi is great.

Additionally, SIP &L, thro,n work-rumors were flying that a proposed Such recruitment is a key comp <>nent of ing with leaders from several counties, buyout was faltering. Employees, many AIP&L's area desclapment efforts.

established the Delta Regional Procure-of them 20 and 30-year veterans The scope ol' the Company's ment Center in Greenville and raised feared that when negotiations were industrial recruitnwnt is international.

547,700 for the first year of operation ovce, their jobs would be lost.

In 1987,31P&L contacted 258 U.S. and in an effort to increase marketing L'p the Slississippi River in 3 4 foreign companies to discuss the opportunities for existing industries.

Greenville, workers at 51ohasco Carpet prospects of locating facilities in A1111 were experiencing similar feelings Slississippi, while hosting 86 clients on 31155355IPPI River Sites Evaluation following the parent company's 122 visits.

StP&L, in conjunction with Deposit decision to shutdown its Alississippi During the year, 30 new businesses Guaranty National llank, unveiled in operation.

located in SIP &L's service area and 53 September the 511ssissippi River Sites Easing those fears fit squarely into businesses expanded operations, Evaluation Study aimed at promoting the goals of SIP &L's Energy Plus providing 3,535 new manufacturing additional industrial development along program, an aggressive economic jobs. The resulting megawatt load was 511ssissippi's 410 mile western border, development effort launched by the 47.5, a 14 percent increase over 1986's The study examined the industrial Company in 1986 with a goal of 41.6. Estimated annual revenue from potential of seven sites, including three attracting or creating 11,000 new jobs the added load was 59.2 million with undeveloped sites at Newport, Rosedale over and above projected employment the total investment in plant and equip-and Scott and the four developed growth by the end of 1990.

ment by the new and expanding 311ssissippi River ports at Greenville, "In both cases, the magnitude of businesses totaling nearly $ 162 million.

Natchez, Rosedale and Vicksburg.

the plant closings would have been Data sheets were compiled to show devastating to those areas," said Will Community Development how the sites can be developed or T.layo, StP&l.'s manager of economic Recognizing that area development modified to meet specific industrial development.

is dependent upon component needs. The information was mailed to "We didn't perceive the utility cost communitics being competitive for more than 1,000 target industries, to he the key item in either case," he industrial growth, 51P&L broadened its noted, "but their profit margins were assistance to local leaders in 1987.

Forum Two low, and we felt any savings we could A total of 20 intensive workshops Approximately 400 Alississippi pass along to them would improve and seminars were conducted or co-business, industry and government their chances of success.'

sponsored by the Company, attracting leaders participated in S!P&L's second Working closely with state and more than 600 participant.. Topics annual economic development local leaders, 51P&L helped develop a included small business development, conference - Forum Two - in Slay.

special package that included incentive existing industry committee training, The event featured presentations programs to encourage the plants to and community development, by George ilusbee, former governor of remain in operation.

Six awards, totaling 517,300, were Georgia; Dr. William Freund, senior Today, the former Armstrong made by SIP &L to assist Enterprise vice president and chief economist of operation is Fidelity Tire Company, and Zone co op projects. An Enterprise the New York Stock Exchange for 18 the former N!ohasco operation is U.S.

Zone initiatisc provides assistance, years; Dr. Jesse White,tr., executive axminister. Nearly 800 jobs have been including incentive rates and marketing director of the Southern Growth saved, and more than 200 added, support, for distressed communities.

Policies lloard; and State Treasurer The Company also recommended Ilill Cole.

four projects to receive l'rban Develop-mer Action Grants. Three of the data 15

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'thoices" program.

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A student, posing as a high school Adult Literacy Program The council's support for a respon-dropout, accepts a "job" and paper alp &L and 51SU joined forces in sible increase in state income taxes to money to symbollic one month's salary Stay with lackson State University to improve higher education funding as hl3 classmates discuss what hi$

establish a Continuing Education Learn.

gained majority support for the legisla-monthly expenses might be. After ing Center for employees of business, tion in the flouse of Representatives money is taken out for items suc h as government, and industry in the but fell five votes short of the require:1 rent, groceries, and gasoline, the Jackson area.

two thirds to pass the revenue bill.

dropout soon reallies that he is The learning center opened in flowever, much to the credit of the surprisingly out of money.

September in the llattlefield Park council's efforts, the Legislature voted it is no coincidence that this Industrial Complex.

to restore almost half of the higher episode taken from 51P&L's Choices Jackson State deveioped the education funding cut in 1986.

program is like a chapter from real life, literacy project utilizing concepts because real life choices are what the designed by 11151 for its Principle of the Energy Assembly Program program is all about.

Alphabet Literacy System (PALS) pro-Designed to provide a vivid Launched in 1987 by 5tP&L as part gram. PALS is an interactive, computer-demonstration of energy and conserva-of a major effort to improve education based instructional program that tion,51P&L's Energy Assembly Program in Slississippi, Choices consists of two, teaches alphabetic principles and letter was made avai!able to upper elementary one hour presentations for ninth sounds.

and secondary schooh in 1987.

graders. The program is designed to StP&L and SISU fulfilled their The program, which solicits encourage this group, which has a 40 portion of the partnership by furnishing audience participation, employs seem-percent dropout rate, to stay in school.

the computer equipment, including the ingly unrelated props and statistics.

"Students expect teachers and ir.aractive videos and videodise To illustrate how much energy is parents to convey a certain message,"

players. The investment totaled required to turn on a light, volunteers said Jim Stoore, vice president of approximately $75,000.

peddle a stationary two-seater bicycle corporate communications and with a generator connected to wheels.

coordinator of SIP &L's educational Support of Public Illgher Education To dernonstrate bow electrostatic efforts. "Ilut when someone from the SIP &L was a leading advocate of precipitatois at coal plants remove business community explains the effects higher education in 1987. The Council hazardous chemicals from smoke, a Van of dropping out cf school to a class, it for Support of Public liigher Education, de Gr32f generator is used.

seems to carry a lot more weight.'

spearheaded by 31P&L in 1986 and Additionally, a classroom program StP&l/3 close relationship with composed of 30 business representa.

highlighting conservation methods is education began years ago with home tives who recognize the role higher presen.ed to science students.

economics classes and expanded into education plays in the growth of mher arcat 51ississippi, was active in promoting Science Screen Reports Today, however, the Company's suf0cient funding for state universities.

An approach taken by SIP &L to educational efforts are much more Led by 5tP&L Chainnan and encourage student interest in science is thorough and comprehensive.

President Donald Lutken, the non profit through the Science Screen Reports.

"In many cases, there's a tendency council launched an intensive public This series of audiovisual presentations to stay away from working for relations effort for adequate funding for provides schools with a monthly educational improvements, because universities by the 198' legislature.

program on science and technical issues the results cannot be measured The group became highly visible with for eight montht The presentations immediate!y, ' said Sloore. "But the award winning telesision, radio and address topics such as robotics, important fact is that they can be newspaper advertising, and it computers and space exploration measured, and that's w hy SIP &L distributed through direct mail in addition to the video tapes, the decided to become involved, hundreds of thousands of informative Science screen Report provides a Educational improvement is important 0 crv teachers' guide which includes teaching for the long-term. best interest of strategies and the names of organiza-311ssissippi and SIP &L' tions to contact for more information.

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Islah Charleston doesn't pretend to Energy CONCERN Program SIP &L Women's Club he a musician, but he's the founder and AIP&L's Energy CONCERN Active, retired and part time female director of one of the best-known program, administered by The Salvation SIP &L employees in the Jackson area youth choirs in the llovina community Army, helps elderly and handicapped demonstrated their community service of Warren County.

Iow-income customers pay their utility interest in June by organizing the SIP &L The choir activities began i1 years bills. The Salvation Army works with Women's Club.

ago when Charleston, an apprentice 180 social service agencies in western Fund raising events were meterman in Jackson, was asked by a 5tississippi to certify applicants.

conducted by the group in 1987 to community church to assemble some in 1987, approximately 9,000 benefit programs such as CONTACT, a children for a fund-raising program.

customers and i,151 employees 24-hour crisis intervention service; "I got several kids together, and donated approximately 5183,000 for Community llospital, a treatment their enthusiasm got me enthusiastic,"

Energy CONCERN.

center for chemically dependent adults; said Charleston. "We wanted to sing a in addition, SIP &L, in conjunction and Energy CONCERN.

few more times, and so we decided to with SERI and the Salvation Army, keep it up."

spon3ored the third annual Energy Gatekeeper Program Tiffentown Community Choir, with CONCERN Run. Alore than 480 entrants SIP &L led the way for other its changing membership as older participated in the five-mile and one-community service minded groups in members become adults and younger mile runs, raising $3,000.

January by becoming the first partici-ones join, has been singing 3r special A total of 3,590 grants totaling pant in Gatekeeptrs, a program to assist occasions in area churches ever since.

more than 3247,000 were distributed Slississippi's elderly citizens.

The tie that brings the young to needy families through Energy Sponsored by the Slississippi people together is music, but from CONCERN in 1987. In five years of Council on Aging, Gatekeepers trains Charleston they also receive encourage-operation, the program has raised persons working in the community to ment to get a good education.

nearly 5760,000 for distribution to recognize potential problems smong the "Ily no stretch of the imagination needy citizens.

ciderly and instructs them to notify am I a musician," said Charleston. "I'm counselors if problems are suspected.

more of a disciplinarian. A lot of the llelping IIands Program Store than 50 referrals were made kids are from single parent homes or 3gpat s IIciping Ilands program in 1987 by meter readers and customer disadvantaged families. We have provides weatherization and conserva-service speciaHsts in the Company's discussions at rehearsals, and I urge tion assistance for homes of eligible, Central and Western divisions.

them to stay in school."

needy customers.

For his actiens, Charleston was In 19H7, n are than 582,000 was Citisenship Recognition awarded a Distinguished Service Award spent en weatherization projects for StP&L, in conjunction with two under SIP &L's Coinmunity Service approximately 466 qualified homes Jackson radio stations, launched a Awards Program. The program was through IIelping Ilands.

campaign in November aimed at introduced in August to recognlic full-During the program's five years of recognizit.g outstanding community time employees who perform operation, the Company has provided involvement.

outstanding community service, weatherization for 1,089 homes at a Via " A Silute io Aliss;ssippi " and joining Charleston as a total cost of more than $175,000 in "The Good New s Report," WJDX and Distinguished Service Awnd recipient materials. All labor is contributed AllSS 103, respectively, spotlight was llobby lloykin of Jackson.

through community service individuals who have made significant Community Service Award winners organizations.

contributions to their communities. The included Jim Schimpf, Carl Ray Smith, 60 second features air each weekday Rebecca llroome, John Johnson Jr. and during the morning, mid day and Stan Stuart of Jackson; llarbara Ingram afterr.oon commuting times.

of AlcComb; 15renda Olmi of Greenville; and Ray Tomlinson of Senatobia.

19

The management of 5fississippi.

augmented by a comprehensive internal and elsewhere in this annual report.

Power & Light Company is responsible audit function, appropriately balances

. The lloard of Directors pursues its

- for the preparation, integrity and objec-the cost / benefit relationship. The system oversight responsibility for reported

_tivity of the financial statements as well

.of internal accounting controls also financial information through its Audit.

as all other information contained in -

includes the selection and training of Committee. This committee, which is this annual report..The financial state

. qualified personnel, an organizational composed entirely of outside directors, ments have been prepared in conform-structure that provides for appropriate meets periodically with financial Ity with generally accepted accounting delegation of authority and segregation management, the internal auditors and principles applied on a consistent basis of responsibilities and the establishment the independent public accountants to and necessarily reflect amounts based and communication of written account.

make inquiry as to the manner in on management's best estimates and

- ing and business policies and proce-which the responsibilities of each are judgments with appropriate considera-dares throughout the organization.

being discharged. The independent tion given to materiality. The financial The Company's independent public public accountants and the internal Information included elsewhere in this accountants, Deloitte liaskins & Sells, audit staff have access to the Audit

' annual report is consistent with that in are engaged to provide an independent, Committee without management's 1the flnancial statements.

professional assessment of the degree to presence to freely discuss internal To meet its responsibilities with which management meets its responsi-accounting control, auditing and finan-respect to financial information, bility for fairness of financial reporting cial reporting matters.

management maintains and enforces a and to render an opinion as to whether The management of Mississippi

. system of internal accounting controls such financial statements, considered in Power & Light Company recognizes its designed to provide reasonable assur-their entirety, present fairly the responsibility for conducting the ance that transactions are executed in Company's financial position, operating Company's affairs according to the accordance with management authoriza-results and changes in its cash flows, in highest standards of personal and tion according to established polic!cs conformity with generally. accepted corporate conduct. Management

and procedures, that the financial accounting principles. Their examina-believes that its policies and procedures, statements are prepared in accordanct

- tion is conducted in accordance with including its sprem of internal accoum-with generally accepted accounting ~

generally accepted auditing standards ing controls, provide reasonable assur.

principles and the liniform System of and includes such procedures believed ance that the Company's operations are Accounts prescribed by the FERC and by them to be sufficient to provide carried out in conformity with high i

that the assets of the Company are reasonable assurance that the hnancial standards of business conduct.

properly safeguarded against loss. The statements are not materially misleading concept of reasonable assurance is and do not contain material errors. No based on the recognition that the cost material internal control weaknesses of maintaining a system of internal were reported to management by the

[

accounting controis should not exceed independent public accountants during s

tlye benefits expected to be derived 1987. The report of independent public

[

from the system. Mississippi Power &

accountants does not limit manage-G. A. Goff Light Company believes that its system ment's responsibility for information Senior Vice President &

of internal accounting controls, contained in the financial statements Chief Financial Officer 2n

Deloitte Haskins Sells 39th Floor One Shell Square New Orleans, Louisiana 70139-3997 To the Shareholders and the floard Company with respect to its recovery matter and no provision for any losses of Directors of Slississippi Power &

of Grand Gulf I costs pursuant to a that may result from its resoh tion has 1.ight Company:

multi-year phase in plan. The been made in the financial sta ements.

51ississippi Supreme Court found in our opinion, subject to the We have examined the balance rescrsible error in the SIPSC's rate effects on the financial statements of sheets of Slississippi Power & Light order based in part, on the assertion such adjustments, if 2ny, as m:ght have Company as of December 31,1987 that the 31PSC approved retail rates to been required had the outcome of the and 1986 and the related statements of recover Grand Gulf I expenses without uncertainty referred to in the preceding income, retained earnings, and of cash first determining that the expenses paragraph been known, the atove-flows for each of the three years in the v.cre prudently incurred. In connection mentioned financial statements present period ended December 31,1987. Our with this rate phase-f i plan, the fairly the financial pos' tion of the examinations were made in accordance

. Company has collecad 5280 million as Company at December 31,1987 and with generally accepted auditing of December 31,1987, and has 1986 and the results of its operations standards and, accordingly, included recorded a rate deferral of $548 million and its cash flows for each of the three such tests of the accounting records for future recovery. The Company years in the period cnded December and such other auditing procedures as continues to collect the rates approsed 31,1987, in conformity with generally we considered necessary in the by the 31P5C in its September 1985 accepted accounting principles applied circumstances.

order, which rates are subject to refund on a consistent basis.

As discussed in Notes 2 and 8 of and such related rate deferral may not the Notes to Financial Statements, on he collectible to the extent that a final February 25,1987, the Slississippi judicial determination may result in a

[.. eg [f Supreme Court reversed and remanded schedule of rates less than what the the September 1985 order of the 31P5C SlPSC allowed. The Company is unable granting permanent rate relief to the to predict the ultimate outcome of this F(bruary 19,1988 21

14 Financial Condition

. banks to demand immediate reimburse-

"collect the rates approved by the 51PSC Or.17ebruary 25, 1987, the SIPSC's ment from the Company on account of in the Final Oider on Rehearing, subject

' September 1985 Final Order on Rehear-all amounts paid by SERI (whether to refund. As of December 31,1987, the ing which granted annual retail rate directly or from monies placed in trust)

Company had billed approximately relief of $327 million to the Company on behalf of the Company and to 5280 million to its customers and with respect to its FERC-ordered alloca-prouptly take all reasonable actions recorded expense deferrals of approx-tion of Grand Gulf I-related costs was necessary to collect such amounts from imately $548 million punuant to the

. reversed by the Slississippi Supreme the Company. On September 17, the rate phase-in plan.

. Court and remanded to the SIPSC for Mississippi Supreme Court entered an At this time, it is not possible to further proceedings. On May 21,1987,

. order approving the bonding predict what will be the ultimate out-the Company asked the United States arrangtments. Through December 31, come of the Company's Grand Gulf 1 Supreme Court to stay the mandate of 1987, SERI has paid approximately rate phase-in plan and related appeals the February 25 decision pending final 599.4 million under the above-and proceedings or their effects upon disposition of the appeal to the U, S.

mentioned trust arrangement and such the Company. If the ultimate judicial z Supreme Court. On June 1, such stay payments are estima,ed to average resolution is adverse to the Company's was granted, subject to the Company approximately 514 m'llion per month interest, the Company's Grand Gulf I meeting the bonding requirements through June 1988, by which time it is rate order could be cancelled. If the subsequently set by the Mississippi expected that a decision shall have been Company's Grand Gulf I rates are Supreme Court on June 10. On rendered by the U. S. Supreme Court.

cancelled, in addition to the substantial September 16, pursuant to the On October 5, the U. S. Supreme refund obligations of the Company in Misshsippi Supreme Court's order set.

Court decided to hear full argument of iespect of previously collected amounts ting bond, the Company filed with that the Company's appeal of the February (up to approxiraately $280 million as of 1

court the Company's corporate under.

25 decis;on but postponed further con-December 31, 1987) as well as the taking in the amount of approximately sideration of the U. S. Supreme Court's Company's ceasing to collect, and to 5206 million for the refund of collec.

jurisdiction to the hearing of the case defer for future collection, its Grand tions from September 20,1985 through on the merits Oral argument was held Gulf l related costs, the Company June 30,1987 ("Past Collections"), the on February 22,1988 and a decision is would, under generally accepted

_ corporate guarantee of SERI for Past expected by the end of June 1988. The accounting principles, be required to Collection the corporate guarantee of Company, based on the opinion of its write off (record as a loss)(ertain pre-MSU for Past Collections, SERI's counsel and assuming the FERC has viously deferred costs (up to approxi-

. corporate undertaking for the possibic jurisdiction to allocate Grand Gulf I mately 5518 million at December 31, refund of collections after May 31, costs, is of the belief that the February 1987). A cancellation of its Grand Gulf 1987, a trust agreement between SERI 25 decision should be reversed by the I rates, without a commensurate reduc.

and Trustmark National llank, under U. S. Supreme Court on the basis of tion in costs, could render the w hich SERI will make deposits constitutional gmunds, if that court, Company insolvent in a short period of equivalent to the Company's cash upon further consideration of the issue time. (See Note 8F of Notes to Financial collections for Grand Gulf 1 related of its juri<, diction, accepts the appeal or Statements "Potential Debt costs beginning June 1,1987, and the otherwise agrees to decide the case on Acceleration, Ilankruptcy and System corporate undertaking of the Company its merits. While the Company has been Viability").

for the refund of all collectiom after successful in obtaining two stays from in September 1986, the MPSC June 30,1987, MSU or SERT has an the U. S. Supreme Court and the court bsued an initial order establishing immediate right of reimbursement from has heard full argument of the case, no Docket No. U-4900 directing the the Company to the extent either of assurances can be given that the opening of a multi-phased proceeding those companies makes payments to Company's appeal before the U. S.

designed to obtain a comprehensive discharge the Company's obligation to Supreme Court will be successful. The review of all aspects of the Compmy's make refunds to its ' customers as a stay will remain in effect until a final current rate requirements and the

- result of the final judicial determination decision is rendered by the U. S.

current rate structure of its affiliate and of the Final Order on Rehearing. SERI Supreme Court.

co certificate holcer, SERI, See Note 2C

- has agreed at the request of its creditor The Company is continuing to of Notes to Financial Statements.

'22

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o*51PSC Docket No. U-4900", for addi-96, Accounting for Income Taxes), see remains unchanged and the U. S.

tional information concerning this.

Note 3 of Notes to Financial Statements Supreme Court's determination of the matter.

- "income Taxes."

appeal of th' order approving the rate e

For information with respect to the phase-in plan results in a schedule of podible material and adverse effect on II.1.lquidity And rates less than what the SIPSC allowed the Company as a result of changes in Capital Hesources

. in September 1985, the Company's 9.

.accout ting Standards related to the The Company's principal capital liquidity and financial condition will O

accouining for rate phase-in plans, see requirements continue to be associated be materially. advenely and immediately d

Note HD of Notes to Financial _

.with the deferred recovery of Grand affected.

a ' Statements "Commitments and Contin, Gulf 1 related costs punuant to the The Company's current monthly

{ gencies - New Accounting Standard -

Grand Gulf I rate phase in plan ordered obligation to SERI for Grand Gulf S EAS No. 92."

by the SIPSC in September 1985. In the 1 related costs is approximately $26 For a discussion of the status of future, additional capital funds will be million. Approximately 5183 million.

)f Grand Gulf 2 and the possible material needed for construction expenditures,

$223 million and 5143 million of Grand Y and advene effect on the Compa'ny if a.

the refinancing of maturing long-term

. (lulf I costs were deferred in 1987,

. portion of Grand Gulf 2 costs were debt, and the satisfaction of preferred 1986 and 1985, respectively, under the allocated to the Company and it was stock sinking fund requirements.

terms of the Grand Gulf I rate phase in unable to recover such costs from its During the legal and regulatory plan. By deferring these costs to the customen, see Note 8E of Notes to prweedings referred to above, the future when they will be collected Financial Statements "Commitments Company's ability to obtain necessary through increased rates billed to i

' and Contingencies - Uncertainties long-term financing has been and may customen, the impact of the rate phase.

Rel'ated 'to Grand Gulf 2."

continue to be limited or may not be in plan on the statement of income has

'F.or information concerning the effected on a timely. basis, which may been removed. Since the actual collee-possible effect on the Company as a result in liquidity prob! cms. In the tion of revenues will not occur until the result of changes in accounting stan.

cient the Company's current 33 percent future, th' rate phase in plan results in e

^-

dards related to income' taxes (SFAS No.

allocation of Grand Gulf I costs'

, additional current capital requirements.

Capital Requirements and Funds Generattori 1987

986 1985 lbtal (in 5tillions)

'- Capital Requirements Associated with Rate Deferrals ___

$ 183.4 5217.6 5166.6 5517.6 Construction Expenditures i.____.__

38A 22.1 21.2 81.7 Alaturing 1.ong term Debt 10.1 10.1 10.1 30.3 Redemption of Preferred Stock 30 0 30.0 Total Capital Requirements

$ 231.9 5279.8 5180.9 5692.6 Internally Generated funds 5 72.9 5161.8 5130.9 5368.6 Externally Generated Funds:

- Sale of Common Stock ____. - _ _.._ ____ _

10.0 10.0 Sale of Preferred Stock _

35.0 35.0 70.0 Sale of Fint 5tortgage lionds _.. ___ _,_.___ __. _.

75.0 70.0 30.0 l's.O Remarketing of Other Long term Debt.__._ __.____ _

10.0 10.0 10.0 30.0 Sale of Ililled Customer Accounts Receivable 39.0 39 0 Total Externally Generated Funds

$ 159.0

$115.0 5500 5321.0 Total Funds Generation

$ 231.9 52'9.8 5180.9 5692.6 23

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' The following '19881990 estimates with the June 13 decision (See Note 28

. These estimates are also based on of the Company's capital requirements of Notes to Financial Statements -

certain other assumptions and

~

' with respect to deferred Grand Gulf I :

"FERC June 13 decision"), (3) that the judgments with respect to, among other

^

costs and internal and external Company's appeal of the February 25 thMgs, earnings, dividend policy, the t -

financing projectiom assume:

decision is successful and (4) no outcome of regulatory and judicial J(1)"the continuation of the Company's -

' changes to the Company's rate pha?.n proceedings and access to capital current 33 percent allocation of Grand plan for the recovery of Grand Gulf markets. Ahcration of rate and regu-Gulf I capacity and energy (2) the -

1 related costs as a result of the new latory orders could significantly affect

- allocation of other energy costs under

, accounting standards set forth in SFAS the Company's financing plans and No.92.

' capabilities.

the system agreement in accordance g

E ~ Estimates of Capital Requirements and funds Generation 1988 19H9 1990 Total (In Millions) g Capital Requirements Associated with Rate Deferrals

$ 127.3

$ 66.2

$ 14.1

$ 207.6

Construction Expenditures _

44.4 43.1-45.0 132.5 Maturing Long term Debt -

~0. 2 0.2 30.2 100.6 -

Preferred sinking Fund Requirements 0.5 1.3 1.3 3.1 Total Capital Requirements

$242.i

$110.8

$90.6

$ 413.8

- Internally Generated Funds

$ 92.2 5 77.6

$97.5

$ 267.3

- Utilization of Previous Year Cash 11alance ~

10.2 33.2 (6.9) 36.5' Externally Generated Funds 14 0.0 110.0

' Total Funds Generation

$ 2 4 2.4

$110.8

$90 6

$443 8 included in the above construction customer accounts receivable and such 1.related costs, the Company may espenditure estimates is AFL'DC of $1.5 other securities and such other methods experience delays in obtaining mlition, $1.6 million and $1.6 million of obtaining necessary funds as may be regulatory approvals for particular for the years 1988,1989 and 1990, determined to be available and financings or may have difficulties l.

- respectively.

appropriate. The Company may enter accessing the capital market on.

The Company's present plan is to into arrangements for the sale and reasonable terms in order to effect l

obtain the necessary externally gener.

leaseback of property in which the financing. Moreover, the Company's ated funds through the sale of general proceeds from such transactions could ability to obtain additional capital and refunding (G&R) bonds (See Note 6 he used to retire debt at par.

through the sale of common stock to L of Notes to Financial Statements -

As a trsult of uncertainties MSU is limited at this time because of "Long-term Debt"), and through sales surrounding recovery of its Grand Gulf the need for MSU to comerve available l-of common stock. In addition, the cash resources. If timely external financ.

Company may utillie short-term ing cannot be arranged, the Company's borrowings, sales of its unbilled liquidity could be severely jeopardized.

l 4

l 2

l

I 1

l In January 1987, the Company sold were issued ($55 million at an interest none of which was outstanding at

$35 million of $100 par value preferred rate of 14.65 percent and $20 mihron at December 31, 1987. As of February 29, stock at an annual dividend rate of 9.76 an interest rate of 14.95 percent). After 1988, the full amount of the Company's

~

percent. In December 1987, the taking into consideration these trans.

local bank lines is available. In the event Company privately placed $75 million actions and the retirement inJanuary of certain future adverse developments,

'of 14.10 percent first mortgage bonds.

' and April 1988 of first mcsrtgage bonds the availability of these bank lines could A portion of the proceeds were applied as discussed above, the Company's be the subject of further negotiation.

to meet 1987 capital requirements while December 31, 1987 interest coverage The balance of authorized borrowings

$60 million was deposited with the first ratio under the new mortgage indenture can be obtaineo through the Aloney mortgage bond trustee to be applied to of 2.52 would have permitted the Pool, subject to the availability of funds, the early retirement prior to maturity of issuance of an additional $116 million which at any particular point in time

$45 million of 11 1/4 percent first mort-of G&R bonds assuming an annual may be limited. The Company made use gage bonds on January 15,1988, and interest rate of 13 percent.

of short term Imrrowings from the the retirement at maturity of $15 The charter coverage ratio, which aloney Pool in 1987 during the months million of 41/8 percent first mortgage must be a minimum of 1.5 times annual of January through October with a bonds dne on April 1,1988.

interest charges and preferred dividend maximum amotmt of $70.8 million

- On October 2,1987, the Company requirements to allow the issuance of utilized. There were no Aloney Pool entered into an agreement for the sale additional preferrtd stock, was 1.32 as borrowings outstanding at December of its billed and unbilled customer of December 31,1987, after taking into 31, 1987. The proceeds from these accounts receivable. Proceeds from the consideration the same transactions as aloney Pool and bank borrow;ngs are initial sale of billed accounts receivable discussed above in determining the utillied to finance the Company's totaled approximately $39 million. The bond interest coverage ratio. This would capital requirements on an interim basis, terms of this agreement allow for the base precluded the Company from pending permanent financing.

cafe and assignment by the Company, issuing additional preferred stock.

Temporary investments at on a daily basis, or its outstanding The Company has aethority from December 31, 1987, totaled approxi-customer accounts receivable, including the SEC to borrow in an amount up to mately $22.2 million, including $ i.2 all collections relating thereto, without a maximum of 10 percent of capitaliza-million received in September 1987 as recourse to the Company and is subject tion on a short term basis (approxi-proceeds of litigation with United to cancellat on by either party upon 30 mately $100.5 million at December 31, which was refunded to customers days written notice.

1987). 'lhe Company's new mortgage commencing November 12, 1987.

The Company's ability to issue also limits short term borrowings to an As a result of uncertainties facing additional first mor, gage bonds was aggregate amount not exceeding in the Company and the System, dividends zignificantly limited by the amount of general, the greater of 10 percent of on coinmon stock were not declared its availabic property additiont Ib cause capitalization or 50 percent of rate from mid-1985 through June 1987 i

of thesc constraints, the Company has deferrals available to support the lleginning in July 1987, common stock established a new mortgage indenture leuance of G&R boads (See Note 6 of dividends were declared' paid as follows:

to proside for future issuances of G&R Notes to Financial Statements "Long-g y;g;g g bonds, see Note 6 of Notes to financial term Debt"). Utilization of short term Statements for information concerning borrowings is subject to the availability July / August 1987

$3.8 this new mortgage and its issuance test of short-term credit resources. The October / November 1987 4.0 requiremenh inc:ading, an carnings Company has lines of credit with Januarglibruary 1988 to coverage test of twice the annual pro-Slissiwippi banks totaling $30 million, forma amount of bond interest charges All of the Company's preferred for issuance of additional G&R bondt stock dividend requirements have been in ' ebruary 1988, 575 million of met without interruption.

the two initial series of GAR bonds 25

4 -

s e

1 s

~ 111. Results of Operation 1987 Compared to 1986 increase or Percent Description 1987 1986 (Decrease)

Change (in Thousands) 4 Net income -

51,767 8

53,860

$ (2,093)

(3.9)

Operating Revenue 620,836 673,968 (53,112)

(7.9) fuel Expense 94,649 156,509 (61,860)

(39.5)

Purchased Power Expense _

404,636 424,172 (19,536)

(4.6)

Maintenance Expense -

28,407 32,639 (4,232)

(13.0)

Rate Deferral-Net of Recoveries (182,739)

(223,155) 10,416 18.1 income Taxes-Operations _

41,626 48,728 (7.102)

(14.6)

Interest Expense.

49,892 45,369 4,523 10.0

' Energy Sales to Slississippi Customers (SIKWil) __-

8,216,929 H,096,899 120,030 1.5 Net income The decline in the Company's 1987 Order on Rehearing, the Company siinnins

• t>onan) net income was due to a number of implemented its second annual increase 60 factors as discussed below.

In rates billed to customers effective Revenue associated with sales to October 1,- 1987. It is estimated that this g

Slississippi notomers decreased 4 percent increase in base rat ~s will 40 approximately $12.2 million compared increase the Company's operating to 1986 levels despite a small increase revenues by approximately $29.1 y'

of 1.5 percent in energy sales.

million during the period October I, 20 Of this revenue decrease, $10.2 1987, through September 30,1988.

million was due to the rate irduction in conjunction with this increaw, g

rider placed in effect in January 1987, Grand Gulf I costs which are charged

' O m gn ng ax fe m c.pnse and Mcd Wnm@ e, 1987 1986 19e 1984 19e corporate income tax rate from 46 per-increased by approximately $2 million cent to 40 percent, effective January 1.

per month.

in t

quarter M W, tk Operating Revenue Sales for resale declined $42.1 Company placed a temporary rate anna,ns or nonan, million or 16.6 percent in 1987 due reduction rider into effect which g

LN primarily to changes in the generation reduced the Company's non Grand Gulf 6@.

g. y.

requirements among the companies 1 related base rates previously appnned within the System.

by the SIPSC in June 1985. In 1987, this

- N

. a-

.y..

"' i

}

In accordance with the provisions temporary rate reduction rider reduced i#

g.g of the rate phase-in plan appnned by the Company's operating revenue by the SlPSC in the September 1985 final approximately $30 7 million, compared W

'~g 4.+

jj p/

to what operating revenue would have M

been had the rider not been in effect.

l#

.a.

h.

y

.l { g%

ia l

a q ;;q 8 ;g.

..a g

19 0 1986 19e 198i 19 4 36 -

-e.

1

. -e _

l 1

l t-

- Due to the reduction in the federal The decrease in the amount of-Fuel Espense corporate income tax rate from 40 per.

Grand Gulf I related costs deferred in twuions or nou2ro

' cent to 34 percent effectiveJanuary 1, 1987 (Rate Deferral Net of Recoveries) 20u a,

~ 1988,' the Company implemented a reflects the fact that the Company,

.180 ---

9 credit adjustment of 3.7 percent in its punuant t<iits rate phase-in pbn 160 rates which is expected ta result in a under the Final Order on Rehearing, 140 revenue decrease of approximately collected a greater amount of Grand.

120

$10.8 million in 1988 as compared to Gulf 1-related costs from its customers 100 1987.

than was recovered in 1986.

80 The reduction in 1987 fuel expense The 1987 decrease in inecme taxes 60 was due to a lower volume of gas was due primarily to the reduction in 40 purchased because of a decrease in.

the federal corporate income tax rate 20 generation requircments and lower from 46 percent to 40 percent effective o

gg3 gg, awrage unit prices.

january 1,1987. The increase in 1987 The decrease in purchased power interest expense reDects the curren-expense was primarily duc to a expense related to the financing of the

.%f aintenance Espense

. significant reduction in purchases of-inventery and phase-in portions of twum or nonaro energy from nonsssociated utilities in Grand Gulf 1-related costs and the 36

'1987, higaer interest rates recently incurred 32 Maintenance opense decreased in by the Company in connection with 28 1987 due to delays In the level of tho+e financings, primarily due to the 2.

maintenance performed at the uncertainty created by the February 25 2n Company's steam electric sta:lons.

decision and related appeals.

m l2 a

4 1987 19x6 1985 1981 1983

- 1986 Compared to 1985 Increase or Percent Description 1986 1985 (Decrease)

Change (in Thousands)

Net income __ __ __ _ _ _ _. - _ _ _. _ _ _

5 53.860 5

50.513 5

2,9 17 5.8 Operating iktenue__.. _. _.. _ _ _. _ _ _

673,918 605,129 68,819 11 i Fuct Espense._..

.. _ _ _.. _ _. ~ _ _ _ _ _ _ _ _ _.

156,509 180.293 (23.784)

(IL2)

. Purt hased INm er Expense.. _ _._ _ _. _ _ _._.

421,172 295.149 129,023 43.7 Maintenance Expense _

32.639 2i.808

".831 31.6 Rate Defereal-Net of Recoscries, _ _ - --

(223,155)

(162,958) 180.197)

(56.1)

Income Taxes-Operations. -._.

18."28 3" 750 10,978 29.1 Interest l'.spense _.. _. __

15,369 38.862 6,507 16.-

Fuergy hics to Mintuippi Customers (MKWil).

M,096.899

~,8 5 2.766 2i4.133 3.1 27

u

?

l u

Purchased Power Expense The increase in the Company's 1985 amount which cosered only the.

(wnmns of twim) 1986 net income was also due to-period subsequent toJuly 1.

several factors as discussed below.

The 1986 increase in income taxes 450 Revenue associated with sales to was due to a combination of several of 400

-~-

L (350 Slississippi customers increased the above factors causing a higher level

' ~ 1300 approximately 780.2 million compared of taxable income.

250

. to 1985 levels in conjunction with an The increase in 1986 interest 200 increase of 3.1 percent in energy sales.

expense was due to the financing of the L150 The increase in revenue was mainly the inventory and phase in portions of-100 result of increases in rates permitted by Grand Gulf 1-related costs es required

.50

. the 51PSC while the increase in energy under the terms of the Final Order on o

sales reflected economic improvement Rehearing.

'1987 1986 1985- :1986

'1983 and growth in the Company's service area.

IV. Summary In 1986, the temporary rate reduc-The Compsn> 4 future financial Hite Deferral - Net of Recoveries tion rider placed in effect in the third condition is dependent upon -

twnmn or tuum) quarter of 1986 reduced the Company's (1) obtaining a reversa' of the February 210 operating revenue by approximately 25 decision of the Mississippi Supreme 220 510.1 million compared to what Court. (2) the effect of changes related '

- 200.---

operating revenue would have been had to the accounting fo/ rate phase-iri

. ito the rider not been in effect.

plans pursuant to SFAS No. 92, (3) the 160 The decrease in 1986 fuel expense resoluuon of a multi phased proceeding 140 was due to lower gas volumes burned initiated by the MPSC to examine the ~

120 and lower average unit prices.

Company's rate requirements and struc-100 In 1986, purchased power expense ture, including prudence issues. (4) the so Lincluded Grand Gulf I charges for a full ability to secure the necessary external 60 year whereas 1985 did not since the -

financing in order to continue the to unit was pl:ced in service on July 1, Grand Gulf I rate phase-in plan and 2o 1985.

meet other capital requirements and n

The increase in 1986 maintenance (5) the ultimate resolution of the status 19n.

1986

-1984 1984 1983 expense was due primarily to work per-of Grand Gulf 2 and the possible alloca.

formed at the Company's steam electric tion to the Company of costs associated stations which had been postponed in with that unit. (See Notes 2 and 8 to Interest Expense earlier years.

the Financial Statements for additional tw%nws tute:

Rate deferral - net of recoveries discussion of the possible material and so reflected a full year of Grand Gulf adverse consequences to the Company 1.related deferrals as compared to the in connection with these matters.)

4o 30

.m 20 10 198*

1986 IOM 19M4 1983 2M

.t.

I n

i FOR Tile YEARS ENDED DECE3tBER 31,1987,1986 and 1985 1987 1986 1985 (In Thousanas)

OPERATING REVENUES (Notes 2 and 8)

$620.836

$673.918

$605.129 OPERATING EXPENSES:

Operation:

l'uct ___

94,649 156,509 180,293 Purchased power 404,636 424,172 295,149 '

Other 69,822 75,307 75,183 Staintenance 28,407 32,639 24,808 Depreciation 35,151 34,672 34,392 Yaxes other than income taxes 28.864 27,135 23,944 Income taxes (Note 3)

(36,952)

(59,948)

(31,871)

Rate deferral:

Rate deferral-net of recovery (Notes 1, 2 and 8)

(182,739)

(223,155)

(142,958)

Income taxes (Note 3) 78,578 108.676 69,621 Total 520.416 576.007 528.561 OPERATING INCO5tE 200,420 97,941 76,568 OTilER INCOklE AND DEDUCTIONS:

Allowance for equity funds used during construction i1 192 857 Gain on sale of gas pipeline system

• 975 Other-net 2,339 3,003 13,676 4

income taxes (Note 3)

(1,111)

(1,907)

(9,301)

Total I239 1.288 13.207 t

INTEREST CIIARGES:

Interest on long-term debt 47,073 43,245 38,447 Other interest-net __

3,306 1,910 1,775 Allowance for horrowed funds used during con <,truction (487) 214 (1,360)

Total 49,892 45,369 38,862 NET INCOME

$ 51.767 5 53,860

$ 50,913 RETAINED EARNING $, JANUARY I _

$ 147,099

$ 106.837

$ H5,788 ADD: Net income 51,767 53,860 50,913 Total 198,866 160,697 136,701 DEDUCT:

Dividends-cash:

Preferred stock __

2,679 11,300 10,884 Common stock (Note 7).__ _ _ ___

7.749 18,980 i

Premium paid on capital stock redemption 2.298 Total 20,428 13.598 29.864 RETAINED EARNINGS, DECDillER 31 (Note 7)

$ 178,438

$ 14 7,099

$106.837

$ce Notes to financial Statements.

29

. - - -.. - -... _..,,., ~.. -... -. -., -, - -., _,...

.v.

n o.

DECEMUER 31,198'; and 1986 1987 1986 (in Thousands)

. Asseto UTlllTY PLANT:

Electric (Note 1)._

$ 1,163,081

$ 1,133,199 Construction work in progress 16,852 3,947 Electric plant acquisition adjustments 953 1,135 Total 1,180,886 1,138,281 Less accumulated deprect: tion 402,065 369,758 Utility plant-net 778,821 768,523 OTIIER PROPERTY AND INVESTMENTS:

Investment in subsidiary company, at equity (Note 8) 19,444 19,444 Othe 702 702

'Iotal 20,146 20,146 CURREST ASSETS:

Cash and Apecial deposits 3,014 471 Temporary investments at cost which approximates market:

10,800

' Anociated companies Other 18,000 Gas contract settlement (Note i1) 4,274 180,497 Total cash and cash equivalents 25,288 191,768

- Funds held by first shortgage bond trustee (Note 6) 60,000 Notes receivable 109 l

Accounts receivable:

l:

Customer end other. less allowance for doubtful accounts (Note 4) 4,022 28,418 Associated companies ----

233 2,074 Materials and supplies-at average cost:

Fuel oil _

3,070 3.063 Other __

8,004 8,399 Rate deferra (Notes I,2 and 8) 11,765 24,397 17,500 Gas contract settlement (Note 1I)

Income taxes receivable 38,133 Other 8,606 8.67G Total 121,097 322,430 DEFERRED DEBITS:

. Rate deferral net of recoveries (Notes 1,2 and 8).__

035,851 339,837 3,489 2,236 Other 539,340 342,073 Total

$ 1,09,404 51,453.172 TOTAL-See Notes to Financial Statements.

t ec-.-

->e-,we

--v--eem----ww-e, g-

--.+w--e-+-tww m w %

w.

e.-pp.y 9

m-rwi --

-T

'-T--'

~ ~ - '

- 4_1 r'

1987 1986 (in Thousands)

Lichtlities CAPITALIZATION: -

' Common stock, no per value (stated value $23 per share)

. authorized 15,000,000 shares; issued and outstanding 6,275,000 shares (Note 5)

$ 144,325

$ 144,325

' Retained earnings (Note 7) 178,438 147,099 Total common shareholder's equity 322,763 291,424-

- Preferred stock (Note 5):

Without sinking fund _____ ___

38,077 38,077 With sinking fund.

90,689 56,193 Long-term debt (Note 6) 483,010 468,156 Total 934,539 853.850 OTIIER NONCURRENT LIAHILITIES (Note 1):

Obligations under capital leases 6,635 Accumulated provision for property insurance-597 3,509 Accumulated provision for injuries and damages

'242

- Total 7.232 3,751 CURRENT LIABILITIES:

Currently maturing long-term debt (Note 6) 70,150 10,100 Accounts ' payable:

Assaciated companies --

46,190 35,857 other I2,252 20,093 Gas contract settlemer.t (Note 11) 4,362 197,997 Customer deposits 17,027 15,989

~ Taxes accrued 20,317 20,459 Interest accrued _ _._.

16,563 15,149-Preferred dividen0s lettar-i 3,144 2,290 Accumulated eteerred income taxes (Note 3)___

7,277 11,882 Obligations und-t capital It ases (Note 1) _____ _ ___._ _______..__

1,688 Other 9,165 4.509 Total 208,130 334.325 _

DEFERRED CREDITS:

Accumulated deferred income taxes-net (Note 3) _____.___ _______

260,496 208,695 Accumulated deferred investment tax credits (Note 3)_.._ _

41,802 45,960 Other 7,905 6,591 Total 309,503 261.246 COMMITMENTS AND CONTINGENCIES (Notes 2 and 8):

TOTAL

$ 1,4 59,40 s 51,453,172 See Notes to P sndal Statements.

31

e

- FOR TIIE YEAM5 ENDED DECEMBER 31,1987,1986 and 1985 1987 (986 1985

, (In Thousands)

OPERATING ACTIVITIFS Net inconw._ _ __.~

$ $ t,767

$ 53.860

$ $0,913 Noncash lienw included in net intonr:

Rate deferral-net of recos cry (Notes 1, 2 and 8)....__, _ _ _.. _ _ _ _ _ _ _

(1 M2,739)

- (223,1 %)

(142,958)

Depreciation._- __

__._c_____._.

35,151 34.672 31,392 Defctml income tnes. _. _ _ _ _... _. _.. _ _ _... _ _, _. _. _ _ _ _.

43,74I 152,407

-(13.697)

Insentment in credits-nct _.

(4,858)

(5.033) 1.425 Allow ante for funds used during construction _ _ _. __ _.._ _ _... _ -.. _. _ _

(498) 22 (2.217)

Changes in.

Annunts and notes receivable (Note 4)_. _.. _ _ _

26,128 550 (H,091)

Materials and supplies.. _ _. _..._ _ _ _ _ _ _ __

3HF (324)

(83)

A(cumulated pros bions for lowes _.__._ __ _ _ ____._ _._ _... _ _ _. _

(3,154)

(3 655)

(2Jl4)

Accounts payable 2,492 (M,05 6) 39.690 Customer d(posits _. _ _ _ _ _ _ _ _ _ _ __ _

1,038 1,l M3 1,r'9

' Tncs accrurd _ _._.. _ _. _.. _ _ _ _ _ _.. _ _ _. _ _

(142)

(53.3171 5 6.h Inwmc ines rcccivabic...._._ _._.._. _ _ _ _ _. _

. ~.. _. _ _ _. _

38,133 (38,133)

Interest accrued _.-._ _ _ _ _. _... _ _ _ _ _. _.. _ _ -

1,414 4,349 (3.713)

Protreds from gas contract settlement (Nott il).

20,138 11.816 168.651

% funds to cut inwrs-gn ointra(t suticment (Note i 1).._ - _. _

(196,273) ver purchne adiance repa) nwnts. ~.____ ___ _. _._ -. _ _ _.

-~

25.H33 25,320 M,390 t i.H 4N 3.9'2

.cr u t (ash flow tuwd by) progided bjv operating a(thitics (I $N.HM 6)

( 52.7 H 5) 206 MI5 IN5 ESTING ACTIVITIES:

I C mt ruoion npendit ares.. _ _. _. _. _ _

(38,420).

(22.128)

(24,1H')

Allowance for funds used donng construction 49M (22) 2.217 Net cash flow uwd by ins csting actbitics (37,922)

(22,150)

(21.9'0)

FINANCING ACTIVITil.si Proceeds from hsuante of.

Common sto(L lu.oM Prcferred su)(k. __

35,000 35000 I arst mortgage bonds _

75,000 "O.tMM) 30.0ml Othu long term debt,

10,000 10.000 I n,-193 Redrmption of preferred stock.

( 30,t M Wi)

Retirement of othcr long term dcht.. _

(10,100)

( 10. ; 00)

(12.624)

I 1un h held by first mortgage bond trustcc (Note 6).

(60,000) l Prclerrrd dhidcnth paid (11,H25)

(1),"32)

(10,NM. )

4 Common disidends paid (7,?49)

(28.3%6)

Net ceh flow from finansing a(thithes 30,326 M.168 2.635 i

i Net (dctrease) increase in (ash and coh njun alents (166,4 MO) t i 1.'6')

IM*,6Mo Cab and (eh equhalents at bronning of t rar 191,76M 103.545 16.0%9 Cash and cash rquh alentt at end of ) car 8 2 5,2 M H 5191. 6M 5203.535 m-

_s--

5t'PPI DIENTAL 1315C1Ost'Rt S OF CAsti FLOW INIOR%I4 TION:

Cnh paid during the 3cJr for; interest _.

$ iM,519 8 40.t*2

$ 41,*86 Intonr inct

( %,C ',

(%922)

L 626 r

Sl'PPIDIENTAL 5011IDl'l E Of NONCAsti INVI' STING AND FINANCING AC11VITIF%

Capnalleasc obhgathms resorded (Note I) h,4 2 3 bec botc5 to IInJnt al Matrntents 32 P

.m

..-,_,_-._.--y.

-,.m

a w

=

SUMMARY

OF renewal of items determined to be less expenses by the amount of the deferral SIGNIFIC ANT '

than units of property are charged to

. and incurs additional current capital gCOUNTING operating expenses. Substantially all.of requirements in order to finance the

-J.. POLIClliS the utility plant is subject to the lien of deferral. The carrying charges the Company's first mortgage bond associated with the financing of the indenture and the second lien of the deferral are being recovered crirrently A. Regulation.

"*E*"b "## * "E*E#

II * #"'I "#I' U##

"" 8b indenture.

. The Company is subject to regula.

Depreciation is computed using the tion by the MPSC and the FERC and straight line method at rates based on E. Postretirement Benefits maintains its accounts in accordance the estimated service lives of the The companies of the System have with the Uniform System of Accounts various classes of property. Deprecia.

various postrctirement hent.

• plans.

prescribed by those agencies.

tion provisions on average depreciable covering substantially all of acir -

property approximated 3.3 percent in employees. The pension plan is non.

3. Revenues 1987,1986 and 1985.

contributory and provides pension The Company records revenues as benefits that are based on employees

• billed to its customers on a cycle billing credited service and average compensa.

basis. Revenue is not accrued for D. Rate Deferrals tioit, generally during the last five years

.unbilled energy delivered at the end of

.In September 19H5, the MPSC before retirement. Pension costs have the fiscal period. The rates of the issued its Final Order on Rehearing been funded in accordance with con-Company include fuel adjustment which granted the Company full tribution guidelines established by the clauses under which fuel costs above or recmery of its Grand Gulf I costs.

Eniployment Retirement income below the base levels allowed in the flowever, in order to mitigate the Security Act of 1974.

r various rate seedules are pcanitted to immed? ate effect upon ratepayers of the be billed or required to be credited to inclusion of Grand Gulf I costs in retail custo ers.

rates. the Final Order on Rehearing F. Iacome Taxes provides for a rate phase-in plan under The Company joins its parent in which portions of the Company's filing a consolidated federal income tax C; Utility Plant and Grand Gulf 1-related costs are to be return. Income taxes are allocated to Depreciation inventoried or deferred in the early the Company in proportion to its Utility plant is stated at original years of commercial operation of the contribution to the consolidated taxable cost The costs of additions to utility unit and collected in later years. By income. Deferred income taxes are plant include contracted services, direct deferring costs to the future when they provided for differences between book labor, materials, allocated overheads will be collected through increased and taxable income to the extent and allowances for borrowed and rates billed to customers, the impact of permitted by the regulatory bodies for equity funds used during construction.

the rate phase in plan on the statement ratemaking purposes. Investment tax The costs of units of property retired of income has been remmed. Elecause credits allocated to the Company have are removed from utility plant, and the actual collection of revenue to been deferred and are amortlied based such costs plus removal costs, less recover the deferred costs will not up(m the average useful life of the satrage, are charged to accumulated occur until the future, the Company related property.

t

. depreciation. Maintenance and repairs records a deferred asset ("Rate deferral-

+

F of property and replacement and net of recmcries"), reduces operating a

3

e y~

4 1

y H

)

l

~ G. Allowance ior Funds Used costs is recoverable from customers -

ac'curnulated provisions for uninsurcJ During Co tstruction.

- through depreciation provisions -

property risks and claims for injuries :

In accordance wi h the Uniform

' included in. rates charged for utility.

. and danuges as ordered by the MPSC in L

1985-

' System of Accounts, the Company.

service. The effective composite

,capitallies AFUDC.as an appropriate AFUDC rates were 7.09 percent,7,25 :

4.th respect te; the accumulated cost of utility plant.l Under this utility percent and 11.34 percent for the years -

'f"

"'g[ P#

""'","C' E

E d

4 l Industry practice, construction work in 1987,1986 and 1985, respectively.

sion will continue through June 1988

progress on the balance sheet is or until such time as the accumulated -

g

'eharged and the statement of income is

. II. Statement of Cash Flows provision is exhausted by current '

'. credited for the approximate composite The Company has adop.ed SFAS charges, whichever is earlier, interest cost of borrowed funds and for No; 95, Statement of Cash Flows and

. a reasonable return on the equity funds accordingly has presented the State-

- J. Capital Leases used during construction. Thi$

ment of Cash Flows for the years 1985,

. Effective Jam.ary 1,1987, the a procedure is intended to remove the 1986 and 1987, I or purposes 'of the Company began complying with the effect of the cost of financing the con-Statement of Cash Flows, the Company provisions of SFAS No.13 and SFAS

~ of income and results in treating the

~ considers all highly liquid debt No. 71 with respect to the accounting I

struction program from the statement instruments purchased with a maturi'y for lease obligations.

AFUDC charges in the same manner as of three months or less to be cash As of December 31,1987, the

- cotwruction labor and material costs in equivalents.

Company had assets and obligations that each is capitallied rather than under capitalized leases of approxi-expensed. As non-cash items, these.

1. Other Noncurrent mately $8.3 million.

credits to the statement of income have Liabilities The reccrding of these capital

- no effect on current cash earnings.

During 1987, the Company con.

Icases in 1987 did not affect the

After the property is placed in service, ginued the suspensiot: of "urrent amounts reported as either expenses or

- the AFUDC charged to construction provisions and the amortization of the net income.

e t

s e

P Company. The Company, thereupon, of this rate increase, the Final Order on JLATt ANI became obligated to make substantial Rehearing provides for a rate phase-in 2MEGt'lAIURY _

payments, approximately 120 million plan which is structured as follows. The MAri1RS s

per month currently, to S IRI for whole-Company is required to (1) inventory

- sale pour from Grand Gulf 1.

one-third of its 33 percent allocation of A. Grand Gulf 1 Rate Order Following extenshe proceedings Grand Gulf I costs for a ten year On July' f,1985, Grand Gulf I was before the MPSC with respect to the period (Ten Year Inventory Period),

placea into commercial operation.

Company's recove:y through retail rates (2)invemory the remaining portion of Pursuant to the unit power sales agree, of the FERC-allocated wholesale power Grand Gulf I costs that exceed a 14.5 costs associated with Grand Gulf 1, the

- percent allocation (7.5 percent) for a ment among SEP.I and the System operating companies, as modified and MPsc in September 1985, issueu its three year period (Three Year Inventory Final Order on Rehearing which gra'ued Period), and (3) phase-in over a three approved by the FERC in the June 13 deciaien (See part' Ilbf this Note). 33 the Company a total annual retail rate year period a portion of the 14.5 percer of 3FRI's share of the capacity increase of approximately $327 million, percent allocation. lleginning in the and enirgy and ams of Grand Gulf I theichy providing the Company with fifth year, the Company will be allowed

. wa allocated by the IIli to the full recoury of ir Grand Gulf 1-related to reemer through rates the defe-costs, in order, however to mitigate the costs accumulated in the Three Year immediate effect upon retail customers 3p

N V

Lfb v,

fx inventory Period and the phase-in rate case to the Al?SC for further pro.

U. S. Supreme Court, therchy effectively period in equal amounts over years five

. ceedings not inconsistent with the

. staying the AIPSC's 5tay 26 suspension

> : through ten. Ileginning in Scar eleven court's opinion. The Stississippi and refund order. The court order and continuing over the remaining Supreme Court found reversible error in granting the stay was "conditioned

. depreciable life of Grand Gulf. I or such the Final Order on Rehearing on. the.

upon the posting of a good and suffi-she,rter period of time as the 51PSC may grounds, among others, that the 31PSC cient bond, in manner and amount to

~

sub3equently determine to be appro-adopted retail rates to pay Grand Gulf I be determined by the Supreme Cow of priate, the Company will be permitted expenses without first determining that Slississippl."

to include the balance of the accumu-the expenses were prudently incurred.

After review of filings made by the

-lated costs included in the Ten Year On Alay 20, the $lississippi Compan7, the SIPSC, the Stississippi

-Inventory Period in its rate base used Supreme Court denied the Company's attorney general and the 5thsissippi for determining its revenue require-petition for rehearing and aho over-Legal Services Coalition, the Alississipp!

- ments and to recover through rates such ruled the Company's motion for stay of Supreme Court issued an order setting accumulated costs in equal annual the mandate.

bond on June 10, which provided that amounts.

On the same day, the Company the C, mpany file an undertaking to "the Final Order on Rehearing also fCed its notice of appeal of the refund past collections from September provides for the Company to recover February 25 decision with the U. S.

20, 1985, to June 30, 1987 such under.

'through rates during the first three years Supreme Court. Furthermore, on taking to be co-guaranteed by SERI and of the deferral plan, all Grand Gulf 1 Stay 21, the Company Gled with the StStt This order further provided that coats incurred by the Company during U. S. Supreme Court an application the Company's potential refund obliga-the period July 1,1985 through.

asking the U. $. Supreme Court to stav tion related to future Grand Gulf I September 19,19H5. Through December the mandate of the 51isshsippi Supreme collections would be guaranteed and 31, 1987, 554.6 million of these costs Court's dechion pending final disposi-secured by SERI placing the amount of have been recovered leaving $17.2 tion of the appeal to the U. S. Supreme those collections in escrow on a million to be recovered through Court. The 5thsissippi Supreme Court's monthly bask.

September 19H8. The Company aho h mandate was inued on h!ay 22, On June 17, the 31PSC filed in the permitted to recover on a current t. asis reinvesting the 5tPSC with jurisdiction Chancery Court of the First Judicial the costs of financing the inventoried in the matter.

District of Ilinds County,51(ssissippi, a

and deferrett portions of the Grand On Stay 26, the StPSC r.atered an complaint seeking, among other things, Gulf I costs. (See Note HD for a discus-order suspending the rate i der a temporary restraining order and sion of pnnisions contair.ed in the schedules approved in the l'nal Order preliminary injunction requirbg the Final Order on Rehearing for powibly on thhearing, effective immediately. In Company to comply with the AlPSC's amending the rate phase-in plan if the its order, the 31PSC directed the Stay 26 order suspending the rate rider Company is unable to reasonably Company to prepare and file with the schedules approved in the Final Order Gnance the rate deferral or for changes 31PSC, within 30 days, "an appropriate on Rehearing. On June 17, the Chancery

,nade in accounting standards related to refunding plan to be completed within Court held a hearing on the 31PSC's phase in plans).

90 days of the date of thh Order." As of request for mandatory temporary In Oct)ber 1985, the Stiuissippi December 31,19H7, the Company had restraining order, and, at the conclusion attorney general imu a notice of appeal billed approximately 5279.M million of the hearing, demed such request.

with the Stissluipp; Suprer.se Court, under the affected rate schedules.

On June 18, the 517:C petitioned and the Stinhsippi Legal Services Coali.

On June I,19M7, the il S. Supreme

% hiisshsippi Supreme Court to vacate tion filed a notice of appeal with the Court granted the Company's applica-mi set nide the Chancery Court's StPSC, ca(h giving notice of its appeal tion for stay pending the timely filing rubg. On June 19, the 5thsinippi of, among other things, the Final Order and disposition of the appeal by the Supre ne Court granted that petition, on Rehearing. On February 25, 1987, The St.wiwippi Supreme Court al o the 5tksioippi Supreme Court hsued a granted Ae StPSC's request for e mat deci lon reversing and remanding the datory e.aporary restrain? g order 35

e

^

u

-J.

w r

I requiring the Company to comply with

.1 related costs for the period Sept mher and a decision is expected by the end L the terms of the SIPSC's Stay 26 order ;

20, 1985, through December 31,1987-of June 1988. The Compat.y, based on the opinion of its counsel and assuming until the. Company provided !o the totaled approximately $279.8 million.

r 511oinippi Supreme Court a bond for To the extcot that either SERI or SISU the FERC has jurisdiction to allocate approval as contemplated by the terms makes payments to discharge the

-Grand Gulf I costs, is of the belief that of the Slississippi Supreme Court's june -. Company's obligation to make refunds the February 25 decision should be 10 lxmding order. On June 22, the.

to its customers as a result of a final

. reversed by the ti S. Supreme Court on L Company. applied to the U. S. Supreme, judicial determination of the final the basis cf constitutional grounds if

. Court for a stay of the Slioissippi.

Order on Rehearing, SERI anddor SISU, that court, upon further consideration Supreme Court's June 19 order. On June as the case may be, will have an of the inue of its jurisdiction, accepts.

23, the l!. S. Supreme Court granted the immediate right of reimbursement from the appeal or otheruise agrees to Conipany's application for stay pending the Company. Through December 31, decide the case on the merits. While further order of that court.

1987, SERI had paid approximately the Company has been successful in On September 10, the SEC . 599.4 million'under the alxne-obtaining two stays from the LL S.

approved the participation by SisU and '. mentioned trust arrangement and such Supreme Court and that court has heard SERI in the h<mding requirements of the.

payments are estimated to average full argument of the case, no assurances 511uinippi Supreme Court. On approximately $11 million per month can be given that the Company's appeal September If, the Company filed with through June 198' by which time it is before the U. S. Supreme Court wir be the blininippi Supreme Court its corp-expected that a decision shall have been successfuE orate undertaking in the amount of rendered by the LL S. Supreme Court.

See Note 8 for a Jiscussion of thc approximately $206, lion for the SERI has agreed at the request of its pouible material and adverse conse-refund of collections hom September creditor bank; to demand immediate quences of a failure by the Company to 20,1985 through Jime 30,' 1987 ("Past -

reimbursement from the Company on maintain in effect retail rates adequate Millections"), the corporate guarantee

- account of all amounts paid by SERI to recover its Grand Gulf 1 related of $1.RI for Past Collections, SERli (whethcr directly or from monies sts, including a possih!c bankruptcy corporate undertaking for refund of placed in trust) on behalf of the finng by the Company.

i collections after May 31,1987, the Company and to promptly take all As noted alxne the terms of the corporate guarantee of 515U for.Past rewmable actions necessary to co lect Final Order on Rehcaring have remained Collectiom, a trust agreement hetueen

, such amounts from the Company in full force and effett during the SERI and Trmtmark National llank.

On October 5,1987, the E N pendency of the rclate j litigation. In

~under w hich SERI will make deposits dupirme Court decided to hear full accordance with the p ovisiom of the equivalent to the Company's cash argument of the Company's appeal of Final Order on Rehearing, the Company

collectiom beginningJune 1,1987, and the February 25 decision but postponed implemented its secor d annual increase the corporate undertaking of the further comideratan of the LL S.

in rates billed to custonars effective

. Company for the refund of all Supreme Court's jurisdiction to the October 1,1987. It is estimated that this collectNm afts r June 30,198-', On hearing of the case on the merits. The 4 percent increase 'a base rates will September 17, the Sliululppi Supreme stay of the ' bruary 25 decision and of increase the Comuny's rvvenues by Court entered an order apprming these the Missiolpp Jupreme Court % June 19 anproximatr4 #29 mDlion during.he bonding arrangemen's.

order noted above remain in effect.

period October 1,1987 through The CompanyN billings to its retail Accordingly, the Company is (ontinuing Sept <.mber 30, 1988. In conjunction customers with respect to Grand Gulf to collect Grand Gt,1f 1 alated rates, will. ibis increase, Grand Gulf I costs mbject to refund, pursuant to the Final exremed currently rather than deferred Order on Rehearing, pending the LL S.

incrtsed by appmximately $2 million Supreme Cortt's decision. Oral argu-per momo.

ment was held on lehruary 22, 1988, y-

y r

t-lf C. FERCJune 13 deelslon -

things that the FERC has authority to On July 17, SERI filed a brief with On June 13, 1985, the FERC issued review and modify the allocation of the FERC in which SERI urged the FERC lts June 13 decision in the proceeding power frora Grand Gulf I and to estab-to find that the alh> cation cf costs relating to the unit power sales agree-lish an allocation of such power which established in the June 13 decision is ment, under which SERI would sell its -

the FERC found to be just 1nd reason-just, reasonable and not unduly 90 percent share of the capacity and able under the Federal Power Act.

discriminatory. Various other parties energy from Grand Gulf 1, and in the Various parties filed requests for rehear-also filed briefs with the FERC in some proceeding relating to the system agree-ing with the Court of Appeals and-of which, positions were taken which ment, which provides for the coordi.

petitions for, ertiorari to the U. S.

were different from serfs.

nated planning, construction and opera-Supreme Court.

On November 30. the FERC issued tion of generation and transmiss on On June 24, the Court of Appeals an order in response to the June 21 facilities by, and establishes the terms reversed, in part, the June 13 decision remand whereby the June 13 decision and conditions for the sale and and remanded the June 13 decision to was affirmed and reinstated, thus main-enhange of energy and capacity the FERC (June 2 6 remand) for recon-taining the previous allocation of Grand among, the System operating sideration of its decision to equalize the Gulf I capacity and energy among the

companiet s apacity costs of all System nuclear System operating companies. In issuing in theJune 13 decision, the FERC plants and for an explanation of the the November 30 order, the FERC found affirmed the initial decision of an criteria used to determine what cons-that the allocation in the June 13 deck administratise law judge in the unit titutes "undue discrimination" under sion was not unduly discriminatory.

power sales agreement proceeding the lederal Power Act and why the June Various parties filed requests for rehear-allocating capacity and energy from 13 decision is not unduly discrimi-ing of the FERC's November 30 order.

Grand Gulf I and the cost thereof as natory. In roersing, in part, the June 13 Hy order dated January 29,1988, the follows: the Company,33 percent; decision, the Court of Appeals did not FERC denied these request ( Petitions APAL, 36 percent; I P&l., Ii percent; change that part of its January 6 deci-for review of the FERC's November 30, and NOPSI,17 percent. The June 13 sion upholding the FERC's authority to and January 29, 1988 orders hase been decision also affirmed the review and modify the allocation of filed with the DC. Circuit Court of administrative law judge's decision on power from Grand Gulf 1.

ppeals by vasious parties.

all other loues, with minor modifica As noted alm ce, various parties it is not powible at this time to tions. Further, the June 13 decision filed petitions for certiorari with the predict the ultimate outcome of these generally approved the system agree-U S. Supreme Court seeking rniew of matters, including possible reallocation, ment as filed. v f" 7 ein minor the primiple underlying that portion of if any, or tne effect thereof upon the modifications the Court of Appea!s' decision that Company, SFRI and the otr rr System Yariout parties to these proceedings affirmed the FERC's jurisdiction m operating companies, including pooible requested rehearings and, after the alh>cate Grand Gulf I costs. Certain of refunds, if any Any material modifica-FERC denied all requests for rehearing, these parties requested that the U. S.

tion of the allocation established by the various parties, including the Comp.my.

Supreme Court conside-their chal-June 13 decision could give rise to tiled appeah, of thew orders with the lenges to FFRC Jurisdiction at the same additional litigation, disputes and U. S. Court of Appeals for the District time that court comiders the challenges in the affected jurisdictions.

of Columbia Circuit (Court of Appealg Company's appeal of the February 25 In addition, the System has initiated On January 6,1987, a three judge decision. On December 16, the U. 5.

a study, currently wheduled to be panel of the Court of Appeals affirmed Supreme Court denied, without completed m the near future, to deter-the June 13 decision, including that comment, these petitions for certiorari, mine w hether a more equitable method part relating to allocation. In the thereby leaving fr place tha' part of the of allocating future energy cmts.

January 6 decision, the panel of the January 6 decision upholding the including those relating to Grand Gulf Court of Appeals held, among other FERC's jurisdi(tion to allocate Grand I, would be appropriate.

Gulf I rovs.

k e

V e

y i

I C. StPSC Docket No U-4900 On May 20, the S!!ssissippi On Stay 16, the District Court in September 1986, the S!PSC Supreme Court issued an order over-denied SERl's motion for a preliminary issued an initial order establishing turning a preliminary injunction injunction. In its opinion, the District Docket No. U-4900 for the stated obtained by the Company in April with Court recognized that the FERC has purposes, among other things, of respect to this proceeding. The exclusive lurisdiction over rates to be examining the prudenct of actions of 311ssissippi Supreme Court remanded charged by SERI to interstate wholesale the Company andbr SERI relating to the procedural scheduling of Phase Vil customers. Ilowever, the District Court the comtrudion and operation of the of Docket No. U-4900 to the 31PSC for found that this authority "does not har Grand Gulf Nuclear Station and the entry of a new scheduling order the statutory authority of the appropriate regr'atory treatment of the pursuant to hiississippi law. This matter Slississippi Public Service Commission associated costs; obtaining FERC review is pending.

to have access to and the right to of SERl's rate of retut.1 on common On February 3,1987, the MPSC inspect and examine all accounts, equity; obtaining FERC revision andbr issued an order in Phase 11 of this records, memorar.da and property of modification of various aspects of the docket directing SERI and the Company SERI...for whatever other proper Company's Grand Gulf I e*penses -

to show cause why their Certificate of purposes the Slississippi Public Serv. t established by the FERC, including the Public Convenience and Necessity Camre!ssion may have." Furthermore, allocation of Grand Gulf I costs; (Grand Gulf Certificate) relating to con-the District Court opine I that such an

. inquiring generally into the appropriate-struction and operation of the Grand audit of SERI's books and records "is ness of the Cempa,yi general rate Gulf Nuclear Station should not be clearly a proper exercise of state

- structure; and performing a detailed cancelled for the failure of SERI and the regu tory authority so long as it makes audit of the books and records of SERI.

Company to allow the StPSC to audit no attempt to interfere with the rate On January 28, 1987, the SIPSC over-the books and records of SERI. SERI amounts mandated by

• ERC" and that ruled separate motions to dismiss filed had objected to the SIPSC auditing its

"(!)nsofar as the audit is conducted to

by SERI and the Company.

books and records on jurisdictional and ascertain and clarify matters pertaining in connection with the initiation of other grounds, to the intrastate rates imposed by 5tP&L the docket in September 1986, the On April 29, SERI filed a complaint (the Company), it is reasonable and Company's annual revenues were against the MPSC in the U. S. District within the regulatory limits left to the estimated to be lowered by approxi-Court for the Southern District of states by congress." The District Court mately $41 million via a temporary rate 511ssissippi, seeking declaratory relief further stated that SERI could avoid the reduction rider. This rider, w hich was and preliminary and permanent injunc-suspension of the Grand G alf Certificate offset by reduced federal income taxes tise relier. gainst the 31PSC in connec-hy agreeing to allow its books to be and other cost snings, took effect in tien witn the initial order establishing audited by the MPSC. On Stay 18, ba cd October 1986 when the Company Docket No. U 4900 as it related tr SERI on its May 16 opinion, the District implemented the second phase-in of and the order entered ordering SERI Court entered an order denying SERI's Grand Gulf I rates.

and the Company to show cause why motion for temporary restraining order On February 12, the MPSC inued a the Grand Gulf Certificate should not and preliminary injunction.

scheduling order in Phase Vil of this be cancelled for failure of SERI to allow On May 19, the Company and SERI docket ordering the Company to file the MPSC to conduct a detailed audit of filed with the MPSC separa e but similar testimony supporting the Company %

the books and records of SERI. South supplemental responses to show cause "current revenue requirernents and any Miwiuippi Electric Power Association, order and reservations of rights. In its adjustments thereto ccmsidered by the the owner of 10 percent of Grand Gulf supplemental response, SERJ, in light of Company to be necewary and proper."

1, and various other parties intervened the District Courti May 16 decition The order further established a schedule in the federal court action.

and in order to avoid the irrrmble for filing testimony by the Company, harm that could result from the the MPSC and interwnors and for threatened cancellation of the Grand public hearings in May 1987 Gulf Certificate in a show cause hearing i

W

(

O, :

s before the \\lPSC, agreed to cooperate show cause order. SERI also stated in its cooperate in an audit of its books and with the MPSC staff in an audit of the supplemental response that it intends to records. In light of the supplemental j

books and records of SERI relating to pursue its request for declaratory and response filed by SERI agreeing to Grand Gulf I whoicsale rates approved permanent injunctive relief in the cooperate with the MPSC in an audit, by the FERC. This agreement was made federal court action. Both the Company the MPSC,'on May 19, continued the with ful: reservation of all of SERI's and SERI requested that the show cause show cause hearing until further order rights under state and federal law and order entered February 3,1987, he dis.

of the MPSC, The federal District Court

.under the condition that such agree.

.nissed in light of SERI's compliance action seeking an injunction and ment satisfies the requirements of the.

with the order of the MPSC that SERI declaratory relief is pending.

J 3 INCOME TAXES s

Income tax expense (credit) conshts of the following:

1281 1986 1985 (in Thousands)

J.

. Current:

Federal

$ 3,72 5

$ (96.617)

$ 53,043 State 129 (122) 6,280 Total 3,854 (96,739) 59,323 Deferred-net:

Rate deferral-net of recoveries (Notes I, 2 and 8).__

78,578 108,676 69,621 Federal reclassification due to tax loss carryforward (24,852)

(35,767)

State reclassification due to tax loss carryforward (3,864)

(15,387)

Alternative minimum tax (2,171)

Gas contract settlement (Note 11)_

1,037 81,096 (82,133)

Unbilled revenue _

(5,051) 750 (2,909)

Liberalized depreciation 6,221 8,612 5,129 Engiacering and design costs-delayed generating stations

= end proposed FERC audit adjustments (6,473) 5,361 (5,544)

Other 316 (934) 2,139 Total 43,741 152,407 (l3,697) i investment tax credit adjustments-net (4,858)

(5,033) 1,425 Income tax expenw

$ 42,737

$ 50,635

$47,051 l

Charged to ope,ating expenses.

$ 41,626 8 48,728

$37,750 Charged to other income and iktluctions 1,111 1,907 9,301 Total income tases 842,737 5 50,635

$ 47,051 w

n.-

y 4

Total income taxes differ from the amounts computed by applying the statutory federal income tax rate to income before taxes.

'The reasons for the differences are as follows:

1987 1986 1985 (In Thousands)

% of

% of

% of Pre-Tax Pre-Tax Pre-Tax Amourit incoine

/ mount Income Amount income Computed at statutory rate

$ 37,802 40.0

$48,067 46,0

$ 45,064 46.0 increaws (reductions)in tax resulting from:

Depreciation 1.563 1.7 2,678 2.6 (597)

(0.6)

Etate income taxes-net 2,969 3.1 2,761 2.6 2,687 2.7 investment tax credit amortization (1,979)

(2.1)

(1,732)

(1.7)

(1,680)

(1.7)

Gas contract settlement 975 1.0 Other-net 1,407 1.5 (1,139)

(1.1) 1,577 1.6 Total income taxes

$ 4 2,737 45.2

$ 50.635 48.4 547,051 48.0 The tax effects of the portion of 1986 against federal income tax liabil! ties in requirement to record deferred Mcome and 1987 federal net operating tax future years.11 not used, they will taxes for all temporary differents that losses that are carried forward have expire in years 1992 through 2002, are reported in one year for financial been recorded as reductions of deferred Cumulative income tax timing dif-reporting purposes and a different year income taxes. These tax losses totaling ferences for which deferred income for tax purposes. This will require the

$161.6 million are available to offset taxes have not been provided are $80.4 recognition of deferred tax balances for taxable income in future years and, if million, $69.9 millian and $72.8 ces 41n items not previously reflected in not utilized, will expire in the years million in 1987,1986 and 1985, the financial statements, such as a 2001 and 2002.

respectively.

deferred tax liability relating to aft:DC.

The alternative minimum tax (ASIT)

In December 1987, the FA5B issued it is expected that reductions in credit at December 31,1987, is $2.2 SFAS No. 96, Accounting for income deferred taxes resulting from the lower million. This AhlT credit can be carried Taxes, which is effective for years corporate federal tax rates will be forward indefinitely and will reduce beginning after December 15 '988.

reflected as liabilities to customers since regular income tax in the future.

t!nder the liability method adopted by the Company's regulators may require l'nused investment tax credits at SFAS No. 96, deferred tax balances will any such savings to be passed on to December 31,1987, amounted to $5.8 be based on enacted tax laws at tax ratepayers. The impact of SFAS No. 96 million after the 35 perccnt reduction rates that are expected to be in effect on the financial position or results of required by the Tax Reform Act of when the temporary differences operations of the Company has not >ct 1986. These credits may be applied reverse. SFAS No. 96 expands the been determined.

Au

4 The Company has authority from cf the Company's local bank lines is accoimts receivable. Proceeds from the the SEC under the Public littlity available. In the ever t of certain future initial sale of billed accounts receivable llolding Company Act of 1935 to adverse developments, the availability totaled approximately $39 million. The borrow in an amount up to a maximum of these bank lines could be the subject terms of this agreement allow for the of to percent of capitalization on a of further negotiation.

sale and assignment by the Company, short term basis (approximately $100.5 The Company also participates on a daily basis, of its outstanding riti!! ion at December 31,1987). The with certain other companies of the customer accounts receivable, including Company's new mortgage also limits System in a Money Pool arrangement all collections relating thereto, without short term borrowings to an aggregate whereby those companies with recourse to the Company and is suNect amount not exceeding in general, the available funds can lend those funds to to cancellation by either party upon 30 greater of 10 percent of capitalization other participating companies in the days written notice.

ot 50 percent of rate deferrals available System having short term borrowing in light of the February 25 decision to support the issuance of gener9 and needs. The availability of Money Pool and pending final disposition of the refunding bonds (See Note 4 l'tiliza-funds at any particular point in time appeal of that decision, the Company's tion of si.irt-term borrowings is subject may be limited. The Company may bor-ability to obtain externally generated to the availability of short-term credit row from these sources subject to its funds may be limited. (See Note 2A.)

resources. At December 31,1987, the maximum authorized level of short-The short term borrow!ngs and Company had $30 million in lines of term borrowings, applicable interest rates (determined by credit with Missiwippi banks, none of On October 2,1987, the Company dividing interest expense by the average whkh was outstanding at that date. As entered into an agreement for the sale amount borrowed) for the of February 29,1988, the full amount of its billed and unbilled customer Company were as follows:

.lR8.7_

1986 1985 (In Thousands)

Maximum borrowing:

llank loans __._____ _ _.__~_

$ 10,000 A ssociated companies _ _ _ _. _ ___ _ _ _. _ _-

$ 70,800

$ 50,700

$ 22,000 Average borrowing:

11ank loans._._ _

$ 4.535 Awociated companies _ _. _ _ _ _ _

$ 17,050

$ 4,629

$ 2,692 Average interest rap: during the period.

Ilank loans _ _.

8.11 %

Awociated companies..

6.87%

6 di%

8.48 %

11

Preferred itock at December 31,1987 and 1986 con 31sted of the following:

E Shares (in Thdusands)

Call Price Authorized Shares Outstanding Amount Outstanding Per Share at 12/31/87 1987 1986 1987 1986 at 12/31/87 Without sinking fund ($ 100 per sharch

~ 4.36% Series 60,000 59,920 59,920

$ 5,992 5 5,992 5103.86' 4.56% Series 44,476 43,888 43,888 4,389 ~

4,389 107.00 4.92% Series -

100,0(X) 100,000 100,000 10,000 10,000 102.88 7.44% Series 100,000 100,000 100,000 10,000 10,000 101.67 9,16% Series __-

75,000 75,000 75,000 7,500 7,500 101.06 Premium 196 196 Tot al._.___ _ _ __.

379,476 378,80S 378,808

$ 38,077 538.077

- With sinking fund (5100 per share):'

19.00% Series 350,000 350,000 350,000

$ 3 5,000

$35,000 109.00 9,76% Series 350,000 350,000 35,000 109.76 12.00% Series ___..

100,000 100,000 100,000 10,000 10,000 112.00 16.16% SerieL______

150,000 150,000 150,000 15,000 15,000 116.16 Discount (4,311)

(3,807)

Total.

950,000 950,000 600,000

$ 90,689 556,193 Unissard 375.000 Total 1,701,476

- 'These series are to be retired in full through the operation of sinking funds in accordance with the schedule shown below.

Number of Series Redemption Date Shares per Year 9 00 %

July 1,1991 and each July I thereafter through 1995 70.000 9.76%

January 1,1993 and each January I thereafter through 1997 70,000 12.00 %

March 1,1988 and each 3 rch I thereafter through 2007 4,000 16.16 %

November 1,1989 and each November 1 thereafter through 2008 7,500 in addition, for the 12.00% and the 16.16% series, the Company has the non-cumulative option u redeem an additional like amount of said shares each year commencing in the first > car of redemption for each series.

Number of Shares Sold 1987 1986 1985 l

Common st(Kk.

435,000 P re ferred st<x k _ __. _ _ _ ___ _.. _.. _ _ _ _ _ _ _

350,000 350.000 1

i 42 4

,--rr,

.,,n.-...,

--., - ~ - - - - - - -. - -, -, - -

Long term debt at December 31,1987 and 1986 consisted of the followingi 19.81

_1986 (In Thousands) l'irst Mortgage Bonds:

.41/H% Series duc 1988

$ 15,000

$ 15,000 11 1/4% Series duc 1988 4 000 45,000 151/8% Series due 1990 30,000 30,000 121/1% Series duc 1992 30,000 30,000 14.10% Series due 1992 75,000 4 5/8% Series due 1995 _

20,000 10,000 51/H% Series due 1996 -

25,000 25,000 6 3/H% Seria due 1996 10,000 10,000 9 5/H% Series due 1999 _

20,000

'20,000 91/1% Series due 2000 17,500 17,500 7 3/1% Series due 2002 15,000 15,000 7 3/1% Series duc 2003 30,000 30,000 M 1/4% Series due 2003 _ __

20,000 20,000 9 7/H% Series duc 2001 25,000 25,000 10 7/H% Series due 2005 25,000 25,000 I4 1/2% Series due 2014 __.___

35,000 35,000 9 5/8% Series due 2016 70,000 70,000 Total First Mortgage 11onds 507,500 432,500 Pollution Control Revenue llonds:

71/1% to 8 t/2% due 19H'3 to 1995 1,400 1,500 71/29C duc 2006 9,400 9,400 M l/2% duc 2001 8,575 8,575 7 7/10% duc 2012 '. _ ___ _

10,000 10,000 9% duc 2013 10,000 10,000 91/2% due 2014 10,0_00 10,000 Total Pollution Control Revenue Bonds 49,375 49,475 Unamortlied Premium on Debt ______

664 725 Unamortlied Discount on Debt (4,379)

(1,441)

Total Long-term Debt. _______

_ _ _ _ _.. _ _ _ _ _ ~. _ _ - _ _

553,160 178,256

[

Less-Amount Duc Within One Year

• 70,150 l a,100 I.ong term D:bt Excluding Amount Due Within One Year

$ 483,010

$ 168,156 i

i t

I f

e B

,,,_,.,y,_

y.,. _.,,,,,,, -. _,,., _.. _ _. _....

A 4

4 b

-.At December 31.1987, the sinking fund requirements and maturities for long-term debt for years 1988 through 1992 were i as follows:

- Sinking Fund'

• Maturitk s Year.

(in Thousands) 1988 1,987

$ 70,150' 1989.

2,037 150

-t990 2,037 30,I50 1991 __ _

2,03' I992 --

2437 105,000

• This series of pol'lution contro' l and the retirement at maturity of 515 bonds under the first mortgage

- resenue bonds reaches its next fixed million of 41/8 percent first nortgage indenture, except for such bonds as

. Intercst rate date on July 1,1988 and bonds on April 1,1988.-

may be luued to provide additional the Company has therefore included As of February 1,198H, the security for G&R bonds. Consequently,

- thia series as a current maturity. The Company established a new general and any future mortgage bond financing

Company intends to request authority

. refunding (G&R) mortgage to provide will be affected pursuant to the new from the SF.C to wala its optional for the issuance of G&R bonds. On mortgage. Ti.: new mortgage

. redemption rights on July 1,1988 with rebruary 11, 1988, the Company issued constitutes a second tien on substan-

- respect to these bonds in order to fix a

$75 million in aggregate principal tially all the properties and awets of the long-term interest rate on and to amount of two initial series of G&R Company, subject and subordinate to economically price the bonds. The bonds in accordance with the provi-the ikn of the Company's first holders of the bonds will have the right. sions of the new mortgage. The stated mortgage indenture.

to have their bonds repurchased by the fixed annual interest rates are 14.65 The issuance af G&R imnds is Company on the above fixed rate date.

percent for the first series ($55 million) subject to a test permitting the

The intent of the Company will be to and 14.95 percent for the second series Company to issue G&R bonds in an remarket these Ixmds on July 1.1988.

($20 million). The first series Imnds aggregate principal amount not to mature on February 1,1993 and the exceed 70 percent of property

• Sinking fund requirements may second series bonds matere on additions since December 31,1987, be sailsfled by certification of property February 1,1995. After giving effect to plus the lerer of 50 percent of the idditions at the rate of 167 percent of the issuance of the G&R imnds and the cumulative balance of deferred Grand such requirements.

redemption and retirement of first Gulf I costs recorded as an awet on the mortgage bonds in early 1988 as books of the Compaay or up to an in December 1987, the Company described above, the maximum amount aggregate principal amount on this bash twued $75 million of 14.40 percent of G&R bonds issuable at December 31 of $400 million. In addition, the new first mortgage bonds of which 560 1987 under the terms of the new mor.

mortgage contalm an earnings coverage million was deposited with the first tgage described below wou?d have been test requiring minimum carnings mortgage bond trustee to be applied to

$ 116 million.

coverage of twice the pro forma annual the early retirement prior to maturity The Company is pr.cluded from lxmd interest charges for the iuuance of $45 million of 11 1/4 percent first luuing any additional first mortgage of additional G&R bonds.

mortgage lwnds on January 15,1988, 44

L The Company's bond indentures As a result of uncertainties facing (In Stillions)

' relating to long-term debt provide for the Company and the System,

- restrictions on the payment of cash dividends on common stock were not July / August 1987

$ 3.8 October / November 1987 4.0 dividends on common stock. As of dectued from mid 1985 through June December 31,1987, $35.9 million of.

1987. Ileginning in July 1987, common January / February 1988_ _ -

4.0 retained earnings were free from such stock dividends were declared / paid All of the Company's preferred restrictions, as follows:

stock dividend requirements have been met without interruption.

e o

~

S CONTINGENCIES COMMITMENTS AND in addition, various matters, 1988,5.2 million in 1989 and $30.2

-including retail rate matters of certain million in 1990.

other System companles, continue to Preferred stock sinking fund threaten the viability of the System (See requirements will total $3.1 million

- A. Overview Note 8F).

during the period 1988 1990. During A number of significant contingen-the legal and regulatory proceedings cies threaten the Company. The most II. Capital Requirements and referred to above, the Company's significant relates to obtaining a reversal Financing ability to obtain necessary long-term from the U. S. Supreme' Court of the The Company's obligation for financing has been and nuy continue to e

e or may nm e c Uecte in a February 25 decision rendered by the pay ments to SERI for Grand Gulf-l 511saissippi Supreme Court, which over-related charges is approximately $26 timely nasis, which may result in liquidity problems, turned the Company's 1985 retail rate million per month. Deferred purchased pow' r costs in connection with the It is presently estimated that order. This inue, if not favorably e

resolved for the Company, could render Company's rate phase-in plan were appr ximately $140.0 million of the the Company insolvent in a short approxinutely $182.7 million, $223.2 abow capital requirements will be period of time (See Notes 2A and 8F) million and $143.0 million in 1987, externally financed during the years 1988 1990. The above external financ.

Other significant issues facing the 1986 and 1985, respectively. The Company include (1) the possible effect Company estimates that it will incur ing estimate assumes (1) the continua-on the Company of recent changes in total capital requirements of approxi-tion of the Company's current 33 per-accounting standards related to the mately $127.3 million in 1988, $66.2 cem aHocation of Grand Gulf I capacity accounting for rate phase-in plans (see million in 1989 and $14.1 million in and eortgy, (2) the allocation of other Note HD), (2) the resolution of a multi-1990 in connection with the deferral or energy costs under the system agree-phased proceeding initiated by the phase-in of Grand Gulf 1-related costs ent in accordance with the June 13 StPSC to exarntne the Company's pursuant to the Final Order on Rehear-decision, r3) that the Company's apyal current rate requirements and Etructure, ing, as discuoed in Note 2A.

of the February 25 decision is including prudence issues ($ee Note The Company's construction pro-successful and (4) no changes to the I

2C), (3) the need to ac en the capital grum (including AITDC)is currently Company's rate phase-in plan for the markets for external financing @ce forecast to total approximately $ 4 ( A tecovery f Grand Gulf I related costs Note 811), and (1) the ultimate resolu-million, 513.1 million and $45.0 as a result of the new accounting standards set forth in SFAS No. 92,

'lon of the status of Grand Gulf 2 and inillion in 1988,1989 and 1990, These estimates are also hawd on the powible alh> cation to the Company respectively.

. of costs awociated with that unit (see The Company will have maturing certain other awumptions and 1

Note 81:).

long-term elebt of $70.2 million in is

x 5;

I d

- judgments with respect to, among other amounts deferred under plans that do with the transition provisions of SFAS things carnings dividend policy, the not meet the requirements of the state-No. 92. If tbc effort to modify its rate outcome of regulatory and judicial prm ment be written off. SFAS No. 92 has phase-in plan is not successful and if ccedings and access to capital markets.

transition rules designed to allow any the terms of SFAS No. 92 are applied.

Alteration of rate and regulatory orders affected company to delay application the Company will be required to cease could significantly affect the Company's of the new statement and to continue deferring Grand Gulf I costs on its

- financing plans and capabilities.

deferral of costs under its existing books and instead to record these costs The Company may enter into phase in plan provided that both of the as current operating expenses. In addi-arrangements for the sale and leaschack following conditiore are met: (1) the tion, certain previously deferred costs of property in which the proceeds from company has filed a rate application to (up to approximately $547.6 million at such transactions could be uwd to retire have the plan amended to r. eet the December 31, 1987) will be required to debt at par.

requirements of the statement or it be written off, which will have an intends to do so as soon as pulcable immediate and materially adverse effect C. Grand Gulf I Rate Order and (2) it is reasonably possible nat the on the Company, particularly in light of See Note 2A for information regard.

regulator will change the terms of the its already weakened financial ing this matter.

phase-in plan so that it will meet the condition.

requirements of the statement.

D. New Accounting *tandard-The terms of the Final Order on E. Ncertainties Related to SFAS No. 92 Rehearing provide for the recovery of a Grand Gulf 2 significant amount of deferred costs As of December 31, 1987, SERI had The accounting standards relating beyond the 10 year recovery period invested approximately 5890 million in specifically to phase in of rates awociated with the costs of newly com-required in SFAS No. 92. The Company Grand Gulf 2 (including approximately is studying the transition provisions of

$392 million of AFUDC), which was pleted generating plants are set forth in SIAS Nos. 71 and 92 promulgated by the new statement and, as soon as prac-approximately 31 per(en; complete the FAstl. The final Order on Rehearing ticable, following the decision of the based on the estimated man-hours U. S. Supreme Court on the Company's needed to complete the unit. From late includes a phase-in plan for recovery of costs related to Grand Gulf I which appeal of the February 25 decision.

1979 until September 1985, only a meets the requirements of SFAS No. 71, intends to attempt to restructure its rate limited amount of construction was before subsequent amendment by SFAS phasedn plan during the transition performed on Grand Gulf 2.

period to bring it into compliance with in September 1983, the SIPSC, in No.92.

In August 1987, the FASil issued SFAS No. 92 or take other appropriate Docket No. U-4387. issued a citation to action. The Final Order on Rehearing show cause to the Company and SERI SFAS No. 92. Regulated Fnterprises-does contain provisions which permit to show why they should n9t be Accounting for Phase-in Plans, an amendment of SIAS No. 71. SFAS No. 92 the Company to make application to ordered to adhere to representations requires, among other things the the SIPSC to amend its rate phase-in allegedly relied upon by the $1PSC in following conditions for deferral of plan if the Company estal;lishes the determining the need and economic existence of an inability to finance on justification for additional generating costs of a newly completed plant:

(1) the costs deferred are scheduled for reasonable terms and also permits the

apacity in the form of the Grand Gulf recosery within 10 years of the date Company to make application to the Station. In January 1984, the SIP 5C SIPSC to consider the effect of a change (1) limited the proceeding to relate w hen deferrals begin and (2) the in SFAS N. 71. During the pendency of solely to Grt.nd Gulf 2 and (2) ordered percentage increase in rates for each future year is no greater than the the Compann appeal of the February SERI and the Company to show cause 25 dechion to the U. S. Supreme Court.

for the continued construction and percentage increase in rates for each the Company intends to continue to need for Grand Gulf 2. In September immediately preceding year. Subject to record its deferred Grand Gulf I costs 1985, the $1PSC inued an order direc-the transition provhlons discuwed as awets on its books in accordance ting suspension of construction of below, the new statement is effective Grand Gulf 2, which directed SFRI and for fi cal years beginning after December 15. 1987 and requires that a

On 1

the Company to suspend construction During the period of continuation appropriate recovery of its investment.

-of Grand Gulf 2 as of the date of the of suspension,'SERI's expenditures on in making such determination, SERI will order and to formally report to the Grand Gulf 2 will be limitcd, and it will consider, among other things, the SIPSC before the end of the year regard.

continue not to accrue AFUDC on its regulatory environment, generally, and

-ing future plans for the unit. As an investment in the unit. Consequently, legal standards then applicable. Any addendum to the order, the SIPSC during the suspension period, the action to seek recovery of Grand Gulf 2 advised the Company and SERI that it increase in SERl's investment in Grand costs would likely involve a filing by t

was the 51PSC3 position at that time Gulf 2 will be limited and SERI will SERI with the FERC requesting such-that any potentia' plan for recovery by forego any return on this investment.

recovery, over a period of years,

. the Company of "sunk costs" in Grand SERI will continue during the through charges to the System operating Gulf 2 through retail rates was suspension period to evaluate various companies, and related filings by the unjustifiable.

alternatives for the future of Grand Gulf System operating companies before state in September 1985, following the 2 and will also continue to assess or local regulatory authorities to suspension order of the SIPsC in whether certain equipment or facilities recognize the FERC-allowed charges in Docket No. U-4387, SERI suspended should continue to be carried at their retail rates, in view of the controversies construction activities on Grand Gulf 2.

full cost. Any determina:lon that the over the Grand Gulf Station, including Since that time,51.R1 has limited value of SERI's irwestment should be the adverse reaction of various rate.

expenditures to only those activities reduced and the amount of any such regulatory bodies to allocation of costs, which are absolutely necessary for reduction written off could adversely and regulatory uncertainties, including suspension and demobilization of the effect various companies in the System.

ratemaking, attendant to a delay in the unit.

SERI believes. however, that it is decision as to the future of Grand Gulf

. In late 1986, a special group of justified in carrying Grand Gulf 2 at its 2, there can be no assurance that the System officials and outside consult.ints full value because the property full cost of Grand Gulf 2 will be completed a comprehensive evaluation currently comprising Grand Gulf 2 is of recovered or as to the timing of any and review of various possibilities as to the same design as that of Grand Gulf recovery. As was the case with Grand the future of Grand Gulf 2 and made 1, is being properly maintained and is Gulf 1, proceedings before the FERC recommendations to the floard of therefore suitable for its intended and, with respect to recognition in Directors of 5ERI, in December 1986, purpose.

retail rates of FERC-approved rates, SERI's lloard of Directors (with the SISU As a result of the decision of SERI's before state or local regulatory floard of Directors concurring) adopted Ik>ard of Directors with respect to con-authorities could be prutracted and that group's recommendation that tinuation of suspension of construction, strongly contested on various grounds, suspension of construction activities he SERI does not intend to make an including imprudence. If costs continued and that a further decision application to the FERC during the associated with Grand Gulf 2 were be made by 1990 on the future status of period of suspension with respect to alk>cated to the System operating Grand Gulf 2 in light of alternatives the recovery through rates of SERI's companies and they were unable to asallable at that time. During the period investment in Grand Gulf 2.

recover these costs from their of centinuation of suspension, the While SERI believes that all of its customers, the System operating energy needs of the region served by investment to d.tte in Grand Gulf 2 has companies' financial condition could be the System as well as some of the been prudent, in connection with any materially and adversely affected.

uncertainties concerning the cost of subsequent decision as to the value of constructing nuclear power plants Grand Gulf 2 or the ultimate decision should be further clarified.

with respect to the future of Grand Gulf 2, SERI will, at an appropriate time, make a determination as to the c

r-w

[

t During the period to 1990, certain An adverse determination by the would be responsible to pay SERI's inues could cause a decrease in the U, 5. Supreme Court on the Company's accelerated obligations if SERI could not valuation of the investment in Grand appeal of the February 25 decision meet them. (See Note 811 for a discus-

' Gulf 3, failure to obtain rate relief for enutd render the Company insolvent in sion of the obligations of the System all or a substantial portion of the cost a short period of time (See Note 2A).

operating companies, including the of Grand Gulf 2 could have a material Furthermore, the Council of the City of Company, to make payments or ano adverse effect upon the financial New Orleans, on February 4,1988, advances to SERI under the Availability condit!on of SERI MSU and possibly after a lengthy prudence investigation, Agreement.) Storeover, MSU, with its the Syctem operating companics, adopted a resolution requiring NOPSI to financial resources currently limited, depending upon, among other shings, absorb, and not recover from its retail would not at this time be in a position the timing of the realization of any such electric customen, $135 million of its to satisfy SERI's obdgations, if loss. -

Grand Gulf I costs in addition to the accelerated.

In January 1988, the FERC i sued

$51.2 million of such costs that NOPSI Certain of SFI's financing an order which modified its policy had previously agreed to absorb. Sho,ld agreements and leases may require regarding recovery of cancelled or aban-NOPSI fall to maintain in effect retail payments by the System operating doned plant costs by utilities subject to rates to recover its Grand Gulf 1 related companies (including the Company),

its jurkdiction. The reyhed policy costs, NOPSI would not have adequate MSU, or SERI in the event SFI's obliga-prosides for a "50MO sharing of resources to meet its contractual obliga-tions under such agreements are prudenth incurred cmts of a cancelled tions to SERI in respect to Grand Gulf I accelerated as a result of the insolvency plant between the owner and the and could, in a short period of time, he of a System operating company and SFI r+tepalers, whereby 50 percent of the rendered insolvent.

is unable to meet these obligations or prudently incurred costs of the can-Failure of the Company or any otherwhc to satisfy these obligations celled plant would be amortlied and other System operating company to through the sale of the collateral secut-recovered from ratepayers over the maintain hs current rate structure or to ing such obligations. (See Note 81 for expected life of the plant as if it had meet i contractual obligations to SERI information regarding certain financial been completed. The currently unamor-in resp ct of the Grand Gulf Nuclear undertakings by the Company and the tired portion of su(h annount also Station. could, under certain agreements other Sys;em operating companies on would be included in rate base thereby relating to SERI's indebtedness (but, in behalf of SFl.)In addition, insohency allowing for a return thereon. Tha most cases, only upon further action by of the Company or any other System remaining 50 percent of prudently the requisite percentage of St RI's operating company wuuld affect terms incurred cmts would be written off.

crediton), lead to acceleration of such of financing, includirg an increase in indebtedness unless (1) waivers were cmt of financing, or could preclude F. Potential Debt Acceleration, obtained, (2) the debt were restructured financing for other System companies.

Etnkruptcy and System or (3) other arrangements could be in the event of any of the foregoing Vlability negotiated. In addition, in the absence advene developments, the continuing The February 25 dechion has been of such waiven, debt restruturing or s tability of the System would be placed appealed to the U. S. Supreme Court, other negotiated arrangements, acceler-in jeopardy, and it could be difficult to w here the matter h pending. Further, atl<'n of such indebtedner could occur avoid a bankruptcy filing by the certain other System operating if the Company or any other Sptem Company or other affected System companies' retail rate stru(tures relating optrating company were rendered companies. In thk connection, the to their renur) of Grand Gulf I cmts imolvent as a result of a substantial Company and certain other System are bring challenged or may be reduction in rates. Ghen the substantial companies have each retained inde.

amount of SI RI's debt. It would not be pendent special coun el experienced in thallenged in the future. Advene regulatory or judicial decisiom u to able to meet its obligatium, if acceler-bankruptcy matten and h,ne teen these matten could produce var 3 ng ated. L'nder SFRI's financing agree-studying the relief and protection that t

ments, neither the Company nor the might be asallable to them under comcquences other System operating companies Chapter 11 of the U. S. llankruptcy Code.

6

O

(

While no decisions with regard to inferior rights could be substituted for agreement and the power purchase bankruptcy filings have yet been made, those with priorities. Further, holders of advance payment agreement, with AP&L lt must be recognized, in light of the equity $ccurities may not be able to relinqubhing its rights to capacity and risks discussed herein, that future events recover any substantial amount on their energy from the Grand Gulf Nuclear either singly or in combination, may investment, Storeover, it is uncertain Station. Each of the System operating result in such adserse changes in whether the bankrupt entity or entities companies, including AP&L, however, business circumstances or such a could be successfully reorganized in would have remained primarily liable to decrease in liquidity as to make it pru-their present form, whether the current SERI and its assignees for payments of dent for the Company or one or more relationships between and among advances under these agreements. AP&L other System companies to file a peti-various System companics would be wuuld have been obligned to make its tion for reorganization under Chapter signliicantly altered or whether the share of the payments or advances only

11. 31any of these future events are Sprem would continue to exist in its if the other Sprem operuing companies beyond the control of the System.

present form after bankruptcy of one or had been unable to meet their contract-The effects of a bankruptcy pro-more Sptem companies.

ual obligatinns. Ilowever, the June 13 ceeding involving the Company or any decision alk>cating a portion of Grand other System company or companies G. Unit Power Sales Agreement Gulf I capacity and encryy to AP&L and the extent of the jorbdiction of the and System Agreement supersedes the reallocation agreement SEC under the lloiding Company Act See Note 211 for information insofar as it triates to Grand Gulf 1.

and of other federal and state regulatory regarding these agreements.

bodies over the bankrupt entity or I. System Fuels, Inc.

entities and over any other Sprem II. Availability and Heallocation The Company has a 19 percent companies not in bankruptcy cannot be Agreements interest in SFI, a jointly-owned predictsd. In any event, security holders The Sprem operating companies subsidiary of the four operating and creditors of the enmpany or an scelly obligated to SERI under companies (the Company, AP&L, I.P&L, corapanies invohed in bankruptcy pro-the availability agreement in accordance and NOPSO of SISU. SFl operates on a credings could be significantly affected with stated percentages (the Company non. profit basis for the purpose of by such pruccedings. The proceedings 31.3 percent, AP&L 17.1 percent, LP&L planning and implementing programs could last for ) cars, and there are many 26.9 percent, NOPSI 2 6.7 percent) to for the procurement of fuel supplies for uncertainties as to how provisions of make payments or subordinated all of the $ptem operating companies the law would be applied. Rights and advances adequate to cmcr all of the acid SERI. SITS costs are primarily remedies of security holders and operating expenses, including deprecia.

recmcred through charges for fuel creditors may be altered, denied or tion, of SERI. The Sptem operating delivered.

limited under such laws. The obliga-companics, including the Company, in The parent companies of SFI had tions of 515U and the Sprem operating Nmember 1981, entered into a realloca.

agreed to make loans to SFl to finance companies under the availability agree-tion agreement which would have its fuel supply business under a loan ment and the assignments thereof, allocated the capacity and energy agreement dated January 1,1984, as could aho be litigated and powibly available to SERI (and the related costs) amended January 1,198", which reduced or climinated There can be no from the Grand Gulf Nuclear Station to provided for SFI to borrow up to awurance that any creditors would be tlic Company, LP&L and NOP51. These 551 million from its parent companies able to recmcr the full amount of their companies thus had agreed to assume through December 31,198' This loan claims and securities and stock with all the responsibilities and obligations agreement was not amended in 1988 of AP&L with respect to the Grand Gulf Nuclear 3tation under the availability a

and consequently, the Comnany may or invohement under the contract violations of the disclosure requite-not he requid to make f" er loans effective December 31,1987. L'nder the ments of the Securities Exchange Act of to SFI at this time. As of December 31, contract with the joint venture, invest-1934 and the~ Securities Act of 1933, 1987, the Company had loaned SFl ment in the mine for leases, plant and common law fraud and common law approximately $19A million under this equipment is the responsibility of the negligent mhrepresentation in connec-agree nent and other previous loan joint venture, in order to limit the joint tion with the financial condition of agreements. Notes mature in 1992, 2002 venture's investment rights and hence, SISU and prayed for compensatory and and 2003 under provisions of these the amount to tw paid to it as a punitive damages, legal costs and fees loan agreements.

component of the price of coal, the and other proper relief against SISU In connection with certain of SFI's contract provided that SFI im st any various other System companies, outside borrowing arrangements, SFI's funds for plant and equipment in excess including the Company, and certain parent companies, including the of a specified amount. The Company, officers (and former officers) and direc.

Company, have covenanted and agreed AP&L, Arkansas Electric Ceoperative tors of 515U, the Company's outside severally in accordance with their Corporation and the City of Jonesboro, auditors and certain underwriters of re;pective shares of ownership of SFI's Arkansas, as co-owners in part of ISES, SISU common stod.. SISU and the other common stock, that they will take any agreed to make the investments rather defendants have asserted all available and all action necessary to keep SFI in a than SFI and accordingly, reimbursed defenses thereto and believe that SISU's f

sound financial condition and to place SFI for investments previously made.

disclosure of its financial condition was SFI in a position to discharge, and to See Note 9 for additional discussion of in compliance with applicable SEC cause SFI to discharge its obligations the coal mine.

requirements. In April 1986, SISU and under these arrangements. At January 1, the other defendants, including the 1988, the total loan cornmitment under J, Shareholder Litigation Company, filed a motion to dismiss or

. these arrangements amounted to SISU, certain other System in the alternative, a motion for sum.

appmximately $105 million of which companies, including the Company, and mary judgment. On january 12, 1987, approximately $97 million was out-individuals were defendants in a the District Court entered a judgment standing at that date. Also, SFI's parent purported class action suit. The initial granting defendants' motions for sum-companics, including the Company, complaint was filed in August 1985 by mary judgment and dismissed the suit.

have made similar covenants and an SISU shareholder (purporting to on February 6, the plaintiffs in the con-agrtrments in connection with long-represent a class that purchased SISU solidated action filed a notice of appeal term leases by 5FI of oil storage and common stock) followed by four similar in the U. S. Court of Appeals for the handling facilities and coal hopper cars.

complaints filed by SISU shareholders in fifth Circuit. Oral argument we held At December 31.1987, the aggregate August and September 1985. The five on November 5. The defendants intend discounted value of these arrangements actions were consolidated in the U. S.

to vigorously oppose the appeal of the was approximately 573.5 million, District court for the Eastern District of District Court's decision. In the event SFl coritracted with a joint venture Louisiana. The consolidated, amended the dismissal is reversed on appeal, the for a supply of coal from the North ar.d supplemental complaint alleged eventual outcome and impact on the Antelope Coal Stine in Wyoming. This System's financial condition cannot be contract has been assigned to AP&l predicted, with SFI having no further obligations su

A. Jointly Owned Facilities of AP&L's capacity and energy from the coal mine equipment and facilities ISES Unit 2 for a five-year term which at December 31,1987, was $ 15.7 The C.ompany owns 25 percent of began in December 19H4.

million, less accumulated depreciation ISES, a two-unit, coal fired generating station located near Newark, Arkansas.

The Company owns certain coal of $3.1 million.

AP&L owns 31.5 percent of the station mining equipment and facilities at the and operates the facility. The Company North Antelope Coal Mine which is B. Other Affiliated

- records its investment in and expenses located near Wright, Wyomi,ig. The Transactions

- awociated with this station to the I w sulphur coal produced at this mine is dedicated exclusively to ISES and the The Comt-y buys from and/or extent of its ownership and participa.

mine's estimated reserves are presently sells electricity.o the other operating tion. The Company's investment in ISES at December 31,1987, was $226.1 expected to provide for at least 30 subsidiaries of MSU (including SERI)

. million, less accumulated depreciation years of the projected requirements of under rate schedules filed with the of $31.2 million.

ISES. The Company records its invest.

FERC. In addition, the Company The Company and AP&L have ment in the equipment and facilities of purchases boiler fuel from SFI and entered into a unit power purchase the mine to the extent of its ownership receives technical and advisory services agreement for the Company's purchase interest. The Company's insestment in from SSI.

l 1987 1986 1985 (in Thousands)

MEVENUES:

Power sold to the System.__

$ 42,821 5 80,925

$ 97,581 PURCilASED POWEH EXPENSES:

Power purchased from the System (excluding GGNS !)_

82,546 86,233 73,995 Power purchased from SERI (GGNS I) _

317.519 316,713 181,933 Power purchased from SERI (GGNS 1)(Deferredi_

(182,739)

(223,155)

(142,958)

FUEL EXPENSE:

Fuel purchased from $11 21,973 33,610 32,748 OLIER:

Technical & advisory sersices purthased f rom Ssl ____ _..__._

13,532 12,003 10.939 i

i 5I i

4

-.~. ---- -

i o

The companies of the System have payments to retirees. Various invest.

' Includes $(250) pertaining to the various postretirement benefit plans ment managers have responsibility for 2mortization of the special early retire-covering substantially all of their -

management of the plans' assets, in ment program offered in 1985 and employees. The pension plans are addition, an independent actuary other miscellaneous adjustments.

noncontr'butory and provide pension performs the necessary actuarial valua.

The Company adopted SFAS benefits that are hawd on the tions for the individual company plans.

No. 87, Employers' Accounting for employees' credited service and average -

The Company's total pension cost Pensions, effectiveJanuary 1,1987.

compensation, generally during the last (income) for the last three years was as Adoption of SFAS No. 87 reduced 1987 five years before retirement. The policy follows:

pension cost by rpproximately $6.5

.of the Company is to fund pemion million. This decrease was partially off.

costs in accordance with contribution (In Thousanda set by various immaterial increases in guidelines estabihhed by the Employ-pension costs.

I907

~ I(093) ment Retirement Income Security Act 1986 4,895**

org974 1985 _

6,375**

Pension plans are adnunktered by a

' trustee who is responsible for pension The Company's total 1987 pension cost (income) included the following components:

(In Thousands)

Service cost. benefits earned during the perkxl

$ 2,2 53 Interest cost on projected benefit obligation ____.-

5,521 Actual return on plan assets _

(4,718)

Net amortization and deferral (3,699)

Net pension cost

$ (643)

The assets of the plan consist primarily of common and preferred st(xks and fixed income securities.

i l

l l

i u

t

].

~ m

a i

h i

i i

The funded status of the Compa ty's pension plan at December 31,1987, was as follows:

(in Thousands)

Actuarial present value of accumulated pension plan benefits:

Vested

$ 51,924 Nonvested 3,400 Accumulated benefit obligation -

$ 55,324

-Projected benefit obilgation

$ 66,947 Plan assets at fair value 87,124 Plan awets in excess of projected benefit obligation.

20,177 Unrecognized transition awet (17,504)

Unrecognized net gain (5,492)

Accrued pension liability 5 (2,819)

The weighted aserage discount rate and rate of increase in future compensation used in determining the actuarial present value of the above prolce' 4 benefit obligation were 9.0 percent and 5.6 percent, respectively. The expected long term rate of return on plan anets was b t percent. Transition assets are being amortfred over 15 years.

The actuarial present valuiof accumulated plan benefits at January 1,1986 was $48,008 (of which $3,323 was nonvested),

compared with net awets available for pension benefits of $H9,113. The awumed rate of return used in determining the actuarial proent value of accumulated plan benefits at that date was 9 percent.

The Company provides certain Company. These and other similar of providing benefits for active health care and life insurance benefits benefits for acilve employees are pro-employees. The total cost of providing for retired employees. Substantially all vided through payments of premiums these benefits and the average number employees may become eligible for and fees to insurance companies. The of active employees and retirees for the these benefits if they reach retirement cost of providing these benefits for last three 3 cars were as follows:

age while still employed by the retirees is not separable from the cost 1987 1986 1985 Total cost of heahh care and life insurance (in thousands)___

$ 2,212

$ 2,57 2 ' '

52,423**

Number of acth e employ ees _._._ _ ___________ _

1,512 2,431**

2,275

N umber of ret iren _.___ _._ _ __ _ __. _. _.._

391 375 320

• Figures for 1986 and 1985 include employees auigned to and costs allocated to SERI. Effective January 1,1987, approximately 950 employees of the Company transferred to SERI. The related pension liabilities and estimated aucts as of that date of 5 4.4 million and $15.7 million, respectively, were transferred, subject to a final true-up of estimated awets, to a post retirement benefit plan admini tered by MSU.

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A.1985 Settlement Agreement made with 51.7 million and 516.1 United which seeks, among other With Gas Supplier

- million refunded to the Company's things, a declaratory judgment that the former wholesale customers and Company does not have to pay the Two lawsuits between the current retail customers, respectively.

January 1987 invoice.

Company and United arising from the In March 1987, United filed its

. Company's claim that United breached

11. Additional Litigation Against answer and counterclaim for the t

the terms of a gas sales agreement were Gas Supplier amount of the January invoice plus settled by the execution of a settlement expenses, and in August, amended its agrament between the parties in Two additional lawsuits filed by September 1985. United paid the the Company against United in October filing to seek recovery of an additional 54.6 million.

- Comparky $165 million in September 1986 and February 1987 are pending.

1985 and 517.5 million in September in October 1986, the Company in February 1988. Uni'ed submitted 1987 Upon receipt, the funds and filed a lawsuit against United in connec.

a sepond invoice under the gas sales subsequently, the interest earneri on tion with United's pricing calculations.

agreement for approximately $100 those funds were invested in Urhted In the suit filed in U. S. District Court, million. The Company is seeking to States Government Repurchase the Compan~ contended that United amend its complaint in the declaratory should include the purchase prices and judgment action to allege that it has no.

1 Agreements, obligation to pay this invoice based on In August 1986, the Company filed volumes purchased by United's sub.

with the MP5C a propmed plan for sidiaries and marketing affiliates in the the same grounds it has asserted in

. distributing these funds. The MPSC mathematical formula it uses to deter.

respect to United's January 1987

invoice, entered an order in October 1986 mine the Company's cost. This would In the event the court holds that whkh established a distribution plan result in fuel cost savings for the United did not overcharge the whereby the settlement proceeds were Company which would be passed on to Company during 1986 and 1987 and a!!ocated between the Company's '

f.4 customers.

wholesale and retail customers, in January 1987, United submitted that a deficiency occurred in the In January 1987, the Company an invoice to the Company for approxi, amount of gas taken by the Company refunded approximately $18.1 million mately $24 million for amount, during those ye rs after all credits have to 12 former wholesale customers. In al!cgedly owed United under a take-or.

heen applied, it would be the March, the first distribution was pay prosiston in the gas sales contract.

Company's intention to pay United for completed with the refund of approxl.

In February, the Company filed a the deficiency and take the gas paid for mately $ 160A million to (Se declaratory judgment suit against during the year following any such judicial ruling.

Company's current retail customers, In This matter is pending.

November, the second distribution was L

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11naudited operating results by quarters were as follows:

_ Quarter Ended March June.

September December (in Thousands) 1987 Operating revenues.

$ 134,011

$ 148,048

$ 184,105

$ 154,672 Operating income 20,578 21,315 36,354 22,173 Net income 8,664 8,824 24,058 10,221 1986 Operating revenues

$ 1-16,167

$ 149,163

$ 218,687

$ 159,931 '

Operating income 22,459 20,788 31,254 20,440' Net income -

12,434 10,110 22,811 8,475'

'rourth quarter I!)M6 operwing revenues reacct an increaw of approximately $5.0 million in connection with the rtversal of provisions made in 1985 for adjustments resulting from issues raised during the IERC's normal periodic review of Company operations.

This increase in revenues increased operating and net income by approximately $3.2 million. Operating and net income were reduced by approximately $3 6 million due to the recognition of engineering and design costs auociated with indefinitely delayed future fouil fueled generating facilities.

The business of the Company b subject to seasonal Ductuations with peak periods occurring during the summer months.

Accordingly, earnings information for any three month period should not be considered as a basis for estimating the results of operations for a full year.

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SEl.ECTED FINANCIAL DATA (000% OS11TTED) e Ell'.CTHIC OPERATING HEVENUES:

Residential _ _ _ _

Commercial _

Intlustrial._ _ _

_ _ _ _ _ _ _ _. ~ -

Goverr. mental & municipal Cooperathes & municipatines Total from energy sales ($1issinippi area) sales to other public utilities Tatal from energy sales _.

Aliscellaneous res t:nues.

l Deferred fuel adjustment revenues Total cles.n et opstann3 res enue _

NET INC051E TOTAL ELECTRIC UTil.lTY PLANT:

Production Transmiwion Distribution General & other Total utility plant completed Plant held for future use. _

Construction work in progress -

Eicctric plant acquisit:on adjustments Total ut;lity plant TOTAL ASSETS -

RATE DEFERRAL-NET OF RECOVERY LONG TER3! DEllT PREFERRED STOCK, WITil SINKING l'UND 15cc Note 1 (D)-Sumnury of significant accounting policiet

i 198'l 1986 1985 1984 198,}

$ 240,867

$ 246,150

$ 207,'38 186,296 185,917 l 7 5,41 M l78,260 152,007 13i,2*6 129,863 121,999 115,133 113.064 106,924 108,365 22,001 22,967 19,480 17,694 19,593 i,189

",996

%O,285 5'2, l'O 492,269 i 49,3~9 151,734 4H,310 90, i l 1 101,38i

'3.2 I N 51,171 60H,595 662,881

$96,653 522,59' 502,905 12,129 10,302 6,100 10,422 9,788 112 "65 2,376 (l.092) 7,410

$ 620,836

$ 6'3,9 i 8

$ 605,129 531,92' 520,103

$ 1.767 53,860 50,913 18,333 13,i95

$ 573,3'9

$ 572,H28

$ 5"2,616 5

5'2,938 i82,17' 255,010 2 IH,6's 217,1'6 21 H,383 215,575 296,305 2Hi,036 26',162 256,116 212,433 34,449 26,'21 25,383 10.233 36,592 1,359,!43 1,129,260 1,i12.667 I,OH7 7(K) 9? 6,7 '"

3,93 H 3,939 3,939 3,939 3,939 16,N 52 3,9 17 2,365 l 6,613 H3,590 953 1.135 1.31' l.498 1,640

$ 1, I MO,HM6

$ 1,138,2 H 1

$ 1,120,28N

$ 1,109,*HO

$ 1,065,986

$ 1,4 59,40 4

$ 1,4 5 3, l"2

$ 1,3 42, i M2 938,220 M62,2 49

$ 547,616 5 364,234

$ 146.608

$ 4 H 3,010 168,15'i 5 401.065 5

369,200 310,506 90,6M9 56,193 54,802 55,000 10,000 P

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. ' : OTIIER DATA '

L ELECTRIC ENERGY SAI.ES (MKWII):

Resid'ential Commercial _____c In d ust ria!. ______ _,____._ __ _

Governmental & municipal _.-._____

Cooperatives & municipalities Total energy sales (Slississippi area) ______..-____

Sales to other public utilities

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Total electric energy sales __._.-_..___._ _ __.__

ELECTRIC CUSTO51 ENS (END OF PERIOD):

Residential.

Commerical industrial Governmental & municipal

' Cooperatives & municipalities Total customers (5!ississippi area).:__

Other public utilities Total electric customers._______

ENERGY SOURCE AND 'OISPOSITION:

Total generation.____..

Furchased and net interchange _.______ __

f Total I.ess: Company use, losses and unaccounted for I

1 Total energy sold _.

NET INPUT (MISSISSIP PI AREA)-f,1KWII.___._____________

PEAK LOAD (MISSISS!PPI AREA)-KW__._._______

LOAD FACTOR (MISSISSIPPI AREA)-PERCENT ____..__

N ET P LA NT CA PA RII.ITY-KW.__

CIRCUIT MILES OF ELECTRIC LINES.___.._..__ __

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1987

~1980 I985 I.98 I I98_3

-3,365,404 3,336.5 r, 3,191,980 3,051,947 2,935,883 2,440,477 2,412,868 2,318,726 2,172,115 2,026,136

,, _, _ _ 2:481,977 2,009,932 2,018,793 2,085,639 2,013,737 329,071 337,557 323,269 315,885 313,789 91,295 178,08i 8,216,929 8,096,899 7,852,766 7,719,881 7,527,626 n,_;,_

966,351 2,389.355 2,272.493 1.605,347 980,031 9,18,>,2 80 10, f 86,251 10,125,259 9.325,228 8,50',657 238,377 285,100 282,013 276,586 272,281 42,095 41,308 41,016 10,290 39,403 3,425 3,461 3,i11 3,387 i,216 2,683 2,636 2,525 2,4 18 2,363 5

3 3C,780 332,805 328,996 322,711 317,298 2

2 2

2 2

r 336,782 332,807 328,998 322,713 317,300

.. _ '4,583,486 6,5,26,689 6.171, lo s 6,721,721 5,145,661 5,376.143 4,372,089

-1,635,969 3,291.151 3,914,796 9,95 h629 11,198,778 10,907,371 10,018.8 5 9.360, f 57 y_,_ _,

776,349 712.521 782.I15 693.6i?

852,800 9,183,280 10,186,251 10,125,2,9 9,325,228 8,507,657

___ __ 8,993,278 8,809-123 8,631,881 8,413,528 8,380,-126

., _ _ _ 2,037,000 2,132,000 1,858.000 1,758,000 1,891,000 50 47 53 5'i 50 3,136,000-3,136,000 3.136,000 3, t 83.000 2,972,000 20,284 20.016 19,8'l 19,578 19,387 l

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Board of Directors' E. II. Robinson Ir.

Officers Chairman of the lloard & CEO David C. Ilramlette III.-

Donald C. Lutken Deposit Guaranty National llank Chairman of the lloard Attorney at Law: ' Adams, Forman, Truly, Ward, Smith & Ilramlette and President Dr. Walter Washington ~

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President.

Senior Vice President

' James 11 Campbell

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'Auministrative Services

- Chairman or the'lloard & President Alississippi School Supply George A. "Pat" Goff Robert 31. Williants Jr.

Senior Vice Pre 3ident, Chief

- Frants R. Day Financial Officer, and Corp. Secretary -

Reeves Williams lluilders Chairman of the lloard and CEO -

Ilill F. C.ossar Trustmark National llank Vice President Jackson Public Affairs

1. I

-Nornun II. Gillis Jr.

Frank F. Gallaher

. Attorney-at Law Lawrence Adams Vice President

- Gillis & Gillis A t torney-at. Law: Adams, Forman.

.ind Chief Engineer AlcComb Truly, Ward, Smith & 11ramlette James L. Sloore Dr4 J. liarvey Johnston Jr, Natchez Vice President Physician

. llerman Illnes Corpoiate Communications Surgical Clinic Ass 0ciates, P.A.

Chairnun Emeritus C. Iliram Walters

~ Jackson -

' Deposit Guaranty Nattor.al llank Vice President Robert E. Kenningto.: 11 Jackson Customer Senices

~ Chairman of the Hoard & CEO James R. 51artin Sunburs. Ilank Division 51anagers Treasurer and Grenada Assistant Secretary Edjin Lupberger Allan 11. 51 app North Central, G.reenville Chairnun of the lloard & President Assistant Treasurer

- Allddle South Utilities, Inc.

and Assistant Secretary Central, Jackson

' New Orleans -

James S. "i' grim

- Donald C.-Lutken Plant 31anag.rs y

Chairnun of th'e Board & president Graham 11. l.empel Atalcolm A. Allred Alississippi Power & Light Company Southern, Ilrookhaven llaxter Wilson, Vicksburg Ric ar hicRae Sr.

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Chairman of the floard & CEO SicRae's, Inc. (Department Stores)

Rex flrown, Jackson

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- John N. Palmer

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President: Slobile Rex AI. Shannon Communications Corp of America DA NM Jackson j-LeRoy 1. Percy j.

President Greenville Compress Company i

. Greenville L

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.w, u<:u....z: G :3 SEC Forrn 10 K Available Tax Status Of Preferred Registr.d (for preferred stock):

Dividend Payments Deposit Guaranty National llank A copy M 51 Missi i Power &

IJght Company's 1987 annual report to' The Company's 1987 distributions Post Office llox 1200 the Securities and Exchange on all outstanding series of its preferred Jackson, Mississippi 39215-1200 Commission on Form 10-K (including stock were entirely a return of capital financial statements and financial state-and, therefore, were not taxable to Transfer Agent (for preferred stock):

ment schedules)is available without stockholders as dividend income for Trustmark National llank charge to stockholders upon written federal income tax purposes. The tax Post Office llox 291 request to.

basis of st.ch outstanding shares shou ld Jackmn, 51iwbstppi 39215-0291 he reduced by the amount of the 1987 Miulssippi Power & Light Company distributions.

G. A. Goff, Senior Vice President.

The Company presently believes Chief Financial Officer, that it is likely that 1988 distributions and Corporate Secretary on all outstanding shares of its Post Office llox 16io preferrtd stock will constitute a return Jackson. Slissinippi 39215 1640 of capital and not be taxable to Telephone 601 -969.'t31 t shareholders as disidend income for federal income tax purposes.

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Mississippi l'ower & Light Company BulX RATE Pmt Office !!ox 1610 U.S. POST *,GE Jackson, Mississippi 39215 ilo Ig]p JACKSON, MS PERMIT NO. 21 k

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