ML20151Q939
| ML20151Q939 | |
| Person / Time | |
|---|---|
| Site: | Hatch, Vogtle, 05000000 |
| Issue date: | 12/31/1987 |
| From: | Addison E SOUTHERN CO. |
| To: | |
| Shared Package | |
| ML20151Q930 | List: |
| References | |
| NUDOCS 8804270183 | |
| Download: ML20151Q939 (64) | |
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- '* HE SOUTHERN COMPANY IS THE Southern Compsey
.os,., e PARENT FIRM OF ONE OF THE NATION'S age, ones betetta LARGEST INVESTOR-0WNED ELECTRIC in i.a sa isirei. UTILITY GROUPS - SUPPLYING ENEROY TO I ;t", ,",,", ", MORE THAN 10 MILLION PEOPLE ACROSS l ai a ni . THE SOUTHEAST. THE SOUTHERN COMPANY'S COMMON STOCK IS ONE OF l-THE 20 MOST WIDELY HELD CORPORATE STOCKS IN AMERICA.
I ;
i 2 HIGHLIGHTS 3 YEAR IN BRIEF 4 TO OUR STOCKHOLDERS 7 SAVANNAH ELECTRIC htERGER 8 REPORT ON PLANT VOGTLE 11 REGULATION l 12 ENERGY USAGE l
15 SERVICE AREA 16 OPERATIONS 20 ENVIRONhtENT 22 CONSTRUCTION AND FINANCING 25 FINANCIAL REVIEW 58 THE SOUTHERN ELECTRIC SYSTEh!
$9 STOCKHOLDER INFORhtATION O OFFICERS AND DIRECTORS I
1 n
HIGHLIGHTS FINANCIAL IYrcent 1987 1986 Change Operating revenues (in thousanu's) $ 7,010,365 5 6,846,591 2.4 Consolidated net income (in thousands) $ 554,442* $ 882,860 (37.2)
Earnings per share $ 1.92* $ 3.17 (39.4)
Dividends paid per share $ 2.14 $ 2.06% 3.6 Return on average common equity (percent) 9.10* 15.57 (41.6)
Book value per :; hare (>mr-end) $ 20.89* $ 21.09 (0.9)
Matket price (>wr-end dosing) $ 225 $ 25% (11.8)
Total assets (>nt-end)
(in thousands) $19,177,583 $18,I41,116 5.7 1
OPERATING Nilowatthour sales (in thousands): '
Within system service area 109,835,293 106,863,941 2.8 Off system 21,507,929 16,548,419 30.0 Total 131,343,222 123,412,360 6.4 Total number of customers (far-end) 3,024,188 2,955,644 2.3
- Reflects an gfler-tax write-off of $229 millwn or 79 cents per share related to Georgia 1Mds in vestment in Plant Vogtle.
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r EARNINGS PER SHARE INVIDEND6PAIDPERENARE }
(&diers) j
.} (Mlars) t - !
j 8.m 3.20 3.17 j l J :q ;
1 230 }
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2
YEAR IN BRIEF i
a The Southern Company paid appealed the decision. If that dis- a For the first time in the history an annual disidend of $2.14 per allowance is not overturned by the of the Southern electric system, share in 1987, with the dividend courts, The Southern Company revenues topped $7 billion.
maintained each quarter at will have to take an additional 53 % cents a share, charge against earnings of some a The system companies invested
$200 million. $1.8 billion in new power plants, o The Southern Company's 1987 transmission lines, substations, results reflect an after tax charge a Unit I of Plant Vogtle began and other electric senice facilities, of $229 million which reduced commercial senice on May 31, Work on major generating units earnings by 79 cents per share. 1987. During its first seven months moved toward completion.
This write-off resulted from an of operation, the unit was avail-increase in the budget for Plant able more than 75 percent of the a In November, the boards Vogtle above the "cost cap" which time - surpassing the industry of directors of The Southern Georgia Power had set in discus- average for nuclear units. Company and Savannah Electric sions with the state public senice and Power Company announced commission. m Performance of the Southern an agreement to raerge Savannah electric system's coal-fired power Electric into the Southern electric 0 In October, the Georgia Public plants reached a record high in system.
Service Commission granted 1987 - marking the ninth con-Georgia Power S464 million of secutive year operating availability additional revenues. Because the was well above the industry commission's order disallowed average.
$951 million of Plant Vogtle con-struction costs, Georgia Power a Energy sales continued to grow l
in 1987, with total sales exceeding .
all records for a calendar year.
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- 3. ~
CONSOLiiMTED NDT INCOME : RETURN ON AVERAGE l
) (OPERATING t
billions qfdoliers) REVENUES '
.' (millions ofdoliers) . COMMON EQUl1Y D't'rLYRI) 3 ,
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TO OUR STOCKHOLDERS espite strong operating performance and of this magnitude will significantly erode our record electricity sales The Southern Company's earnings in the short term. But -in and of them-financial results for 1987 declined significantly selves - these write-offs will not prevent us from from the all-time highs of the proious two years. maintaining the dhidend we're now paying.
The downturn was caused in large part by an Dhidend Policy Reviewed l unsatisfactory rate dectston m Georgia and a .
i
$229 million charge against earnings related to in January of this year, the board of directors ap-proved a regular quarterly dividend of 53 M cents Plant Vogtle, Before taking this after tax charge, earnings for a share payable in March - maintaining the an-1987 were $2.71 per share, compared to $3.17 for nual rate of $2.14 a share. This marked the 161st
[
consecutive quarter, dating back to 1948, that l 1986. After the write-off, earnings amounted to
$1.92 per share, and return on stockholder imrst-The Southern Company has paid a dhidend to ts e mmon stockholders. By their action, the ment for the year was 9.1 percent, directors confirmed that protection and growth The $229-million charge resulted from an in-f the dividend is a matter of the highest pnonty crease in the construction budget for Plant Vogtle i f r the board and for management - as we know I above the cap that Georgia Power set in discus, sions with the state public senice commission - it is for you. ,
There's no quest,on i that we face a time of test-a cap establishing the maximum that the company l would seek to recover through retail electric rates. ing until the major issues relating to Plant Vogtle l In October, the commission acted on Georgia are resched - the outcome of the court appeal and the commission's rate treatment of Vogtle Power's request to begin recovering our investment in unit 1 of Plat t Vogtle and the facilities shared unit 2 in 1989. But this company has established with unit 2. Deta'h of the commission's order can a 40-year record of rewarding the imestors who've be found in a special section beginning on page 8. helped us meet the energy needs of a growing However, I must point out that the commission South. We have every intention of keeping that commitment in the >rars ahead, disallowed $951 million of the total construction As ! look to the future, I see a firm founda-costs. And this disallowance could result in an additional charge against Southern Company tion for optimism based on the strengths of the etrnings. Southern electric system. One of our greatest We believe the commission's decision ignores advantages is the area we serve - four states in i the strong esidence that the plant was built pru, the heart of the growing Southeast. l dently and denies a fair return to our stockholders. Economy Remains Strong Georgia Power asked the commission to recon- In System Senice Area sider, but that request was denied. The company These four states stand at the center of a region then appealed to the Superior Court of Fulton which spans from Virginia to Texas - a region County. A decision m the case is expected by the whose economy, considered by itself, would rank second half of this year. sixth in the free world. Our senice area, of course,
, fI the full disallowance ordered by the commis- includes Florida and Georgia - two states that ston is not overturned by the courts, ne Southern are among the nation's leaders in population and Company will have to take an additional charge economic growth, against earmngs of some $200 million. Write-offs By another measure of economic strength - in-vestment in new industrial facilities and expansion of existing ones - Mississippi has joined Florida and Georgia among the top 15 states in the nation.
Meanwhile, Alabama's economy grew at a faster rate than that of the country as a whole during the
>rars 1982 through 1986.
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t "THE EXPANSION OF OUR ENERGY SUPPLY NETWORK WILL POSITION Us WELL FOR AN INCREASINGLY CON 1PETITIVE ENVIRONh1ENT.
i 1-4 2
As you would expect, this economic vitality defines our business and draws a blueprint for has a major impact on our own business. Our our future.
companies began sening more than 68,000 new We've already begun to put that plan into customers in 1987. And total sales of electricity - action by aggressively seeking new opportunities including sales to neighboring utilities - rose for growth. An important step was our agreement more than six percent during the year, in 1987 to acquire Savannah Electric and Power Economic growth obviously is a key factor Company. This move will enable us to expand in in determining future energy needs. We're cur- a thriving area that includes Georgia's major rently projecting that peak energy demands in deep-water port.
our senice area willincrease at an average rate of We also see potential in less traditional sources 2.3 percent a year over the next decade. Even at of power production - such as cogeneration and that moderate rate of growth, demand for electric- small generating plants which we would build or ity would increase nearly 35 percent by the turn of operate for nonutilities. One of our subsidiaries -
the century. Southern Electric International - will focus its ef.
The region's strength also provides sound evi- forts ou project development in this emerging field.
dence of the need to complete the power produc-Critical Period Lies Ahead tion facilities we have under way. Our capital in closing, I'd like to stress that as we work to budget for the three-year period 1988 through solve the problems at hand we're preparing for a 1990 is $5.5 billion. This amount is down future that will be greatly different from our in-
$400 million from the 1987 through 1989 budget, dustry's past.
reflecting the fact that several of our major proj- ,
We've come through a difficult par with ects are moving toward completion. And our in.
our system operating well and with the dividend vestment in new construction should continue on sustam, ed. The next two years will be challenging a downward trend into the 1990s.
because of the remainir:g legal and regulatory Strategic Plan Developed uncertainty relating to our imestment in Plant For Competitive Futu." Vogtle.
We believe the expansion of our energy supply net- But, as we look beyond this critical period, I'm work will position us well for an increasingly com- genuinely optimistic. We have a strong, financially petitive environment in our industry. In a very real sound system - staffed by skilled and capable sense, we helped to pioneer this era of competition people - located in a growing region. Our basic years ago w hen we reached beyond our traditional business is electric energy. We're good at it. And '
markets and began to selllarge amounts of power we intend to grow and increase shareholder value to neighboring utilities under long-term contracts, by concentrating on our basic business, expand-Now we're preparing to take advantage of the ing our markets, and working to improve our opportunities that competition presents. We've profitability, studied our system, our competitors, and the With your support, I'm confident that we can changes that are beginning to reshape our in- accomplish these goals. I dustry. And we've developed a strategic plan that Sincerely, Edward L. Addison l President February 26,1988 6
SAVANNAH ELECTRIC MERGER 0 November 2,1987, Company will benefit through the 1
1 the boards of directors of The addition to its service area of a Southern Company and Savannah strong, economically attractive Electric and Power Company an- section of Georgia -including nounced an agreement to merge the state's major deep-water port.
Savannah Electricinto the Participation in the Southern Southern electric system. electric system power pool will al-When the merger is finalized, low Savannah Electric to cancel Savannah Electric will become an plans for a 70,000-kilowntt com-independent operating subsidiary bustion turbine that would have of The Southern Company. Sa- been needed to meet peak energy vannah Electric will continue to demands in 19S9 and beyond. In be headquartered in Savannah, addition, Savannah Electric will Georgia, and that company's realize other economies through current management will retain the merger which will help proside responsibility for operating the rate stability for its customers.
utility. The merger - which was ratiCed by Savannah Electric stockholders at a special meeting HIGH1JCH13 ub o os h n-
' * ^" ** I*
ties and Exchange Commission Operating revenues (in thousands) $176,092 and by the Federal Energy Regula-tory Commission. The merger is Net income after dividends on preferred expected to be completed during and preference stock (in thounmds) $ 22,086 March,1988.
Under terms of the agreement.
- Eamings per share $ 2.05 1.05 shares of Southern Company
' Dividends declared per phare $ 1.00 common stock will be exchanged '
i for each share of Savannah Elec- Average shares of corridon stock j tric common stock outstanding. outstanding (m thousands) 10,786 The merger offers immediate i and long term advantages for Common stockholders of record 9,671 both companies. The Southern l
'Ibtal number of customers 104,735 !
1 Total number of employees 633 Stock price: ~
High $ 22 l Low $ 14%
Year-end closing $ 21 Book value per share $ 12.58
, Totalassets(in thousands) $341,084 Kilowatthour sales (in thousands) 2,472,427 i
i
- 7 i _ _ _ .
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REPORT ON PLANT V0GTLE nit 1 of the Vogtle nudear Vogtle - the Georgia Pubhe Sen- .W:;;;r _
power plant near Augusta, Georgia, hegan commercial operation on ice Commission granted the com-pans $464 milhon of addihonal gp
--- p m y -- - a May 31,1987 resenues oser a phase-in period, During its first sesen months of with $291 milhon to be billed in i senice, the unit generated nearly the first year Howeser, the com-tour bilhon kilowatthours of elec. mission disallowed $951 million tricity and achiesed a capacity of insestment in unit 1 of Plant f actor of 'O.' percent. (Capacity Vogtle and the common facihties factor is the percentage of capac- at the site.
ity at w hich the unit operated By I he total cost l'or complet-comparison, the aserage capacity ing the plant is expected to be tactor for all U.S. nuclear plants $8 87 blihon, with Georgia ___m
- was 58 percent in 198' Operation Power's share amounting to of Plant Vogtle reduced fuel costs $3 S' billion. T he public sen he f or Georgia Power's customers by commiwonN order dealt with almost $23 million during 198' $2 '3 bilhon, or 70 percent, of compared with the cost of coal- t hat insestment. Georgia Power's l tired generation. remaining insestment in the plant (ieorgia Power ow ns 4 5.' per- -- $114 bilhon - has not yet been sent of Plant Vogtle. The company considered by the commission.
is twildmg the two-umt f acility Georgia Power expects to file a s under ioint ow nership agreements rate increase request by the spring ____
with municipahties and apera of 1989 to recoser that portion of tises m the state. (ieorgia Power its costs. 'M also is responsible lot operating Because the rate increase the plant Georgia Power was granted in
'8"N # ""E " "'# M
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Georgis Power Apptmis u ant \ogtle has been built .A ;
Decision on Rate Case prudently, Georgia Power asked .,
' i un ( )ctober 2,198' -- m response the commiwon to reconsider its to (ieorgia Power's request f or decision 1 hat request was denied higher electrN rates to begin re.
1 he company then appealed to cosermg its insestment in Plant the %penor Cot . of Lulton 4
( ount)
Seseral mterseners in the rate sase also base appealed the pubhc senice commission's decision. , ,
I he s ourt asked all parties in the ,
case to tile briefs in March and
\pril A decision is ewected by the setond hal of this ycar
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IN ITs FIRST SEVEN MUNTHS OF SERVICE, UNIT 1 OF PLANT VooTLE OPERATED AT A LEVEL WELL ABOVE THE INDUSTRY AVERAGE.
construction at the Vogtle site is is under way. Crews are installing If the full disallowance ordered by the commission is sustained in concentrated on the completion pipes, wiring, cable, and other the courts,The Southern Company of unit 2. Work is proceeding on equipment to prepare the unit for willhaveto take an after tax charge schedule, and commercial opera- numerous tests required by federal of some $200 million, tion of the second unit is planned regulations, The table on this page by .'une,1989. At > var end 1987, outlines th: major milestones that This write-off would be ln addi-tion to the $229 million charge un.t 2 was approximately 76 per- remain before unit 2 is completed, that The Southern Company dnt complete, recorded in 1987. The $229-million Pouring of concrete for unit 2 is charge reduced earnings per share virtually finished, and preopera-for 1987 by 79 cents. This write- tional testing on auxiliary systems off resulted from an increasein the budget for Plant Vogtle above -
the "cost cap" set by Georgia 'y* 1 Power in discussio.u with the pub- l
, MILESTONES AMEAD POR UNIT 2 OF PLANT VOGTIE l lic service commission in 1986.
Construction Proceeds ; Het W1 bet W ccC' n N,1988 Tourd Unit 2 Completion During this test, unit 2 wW pmduce its first With unit I now a part of the electricity - akhough the reactor will not j i
system's energy supply network, t =da naciser fuel.1b eset uudor non-nedeer systeens, power will W senerseed by - ;
using heat froen the unit's reactor cooient I
serecourellaeognity and ErpersedGi -- Denmaks; 19e8 :
tatsgreesd 14ek Roselhet These p : :: h, conducted to demonstrese 1 the structural soundness and airtightases of f the conesimment building, requise air pressure ,
to be raised to so pounds per aquem inch, 7
Egettic,i
- n Jenment 1989 h E((Ns^rNwmt Faglea nd seesey Feeswes Artensies Syseselbst 1his test enewee that the plant's safety-related i T coNsTarenos fk ExrENotTtats 0#8 t"81
. 3 Plant Vogile-6te systeene operate according to design requiresnents.
I e oiner syne rroien.-.m g ,
b Coeduct Imw powerlheelms lhe Nucteer Regulatory Cam =taalaa grants thelicense, foBowins reWions from 3 j the Atosnie Safety and Licensing Board.
w r
-g w helimedias EpersedicC --166ruent 1989 11 Workers will load the fuel esseenblies into a unit 2's reactor wesel owr sewrel weeks. 1
, CommercialOpemelos Evecent5 Ane,1999 ,
The unit must reach and sustain et least 1 90-percent pcwer for 100 consecutive hours j
before beins placed bio conumercial service.
j J
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REGULATION etail customers purchased Rates Remain Unchanged in a separate rate matter, the 74 percent of the electricity sold At Mississippi Power state supreme court issued a ruling by the system companies in 1987. An innovative ratemaking plan in December,1987,that overtumed Electric rates for these customers also has been established by the a 1985 public senice commission are set by state public senice htississippi Public Senice Com. order alloMng hiississippi Power l commissions. mission. During 1987, hiississippi to recover menues lost because of j Following is a summary of Power's retail rates remained un. Hurricane Elena.The storm struck -
major rate developments during changed under this Performance the Gulf Coast in September,1985.
the year - except for develop- hiississippi Power and the state
)
Evaluation Plan, which was put in ments in Georgia which are place in 1986. public service commission have costred in the Report on Plant The plan allows for rates to be both asked the supreme court to ,
Vogtle. (See page 8.) adjusted upward or downward by reconsider its ruling. However, j as much as two percent quarterly. if the decision stands, the com Ratemaking Concept Effective Adjustments are based on htissis, pany expects that approximats;y Into 1989 for Alabama Power
. sippi Power's financial condition $1.2 million might have to be re- l A rate stabilization and equaliza-and performance in sesen key funded to customers. The com-tion plan adopted several years areas. Each quarter, the com- pany has excluded the $1.2 million ago by the Alabama Public Serv- from 1957 restnues, pany's performance is rated for ice Commission has been extended until at least January,1989. This the preceding 12-month pen.o d. Commission Sets Ceiling plan prosides for small, periodic The plan is effective through For Gulf Power's Earnings h1 arch,1989. Howeser, the state rate adjustments based on Ala- in Florida, Gulf Power and the attorney general and two mter' bama Power's rate of return and state public senice commission I the commercial operation of new veners have challenged the plan in
"" "PP'"I to the Supreme Court agreed that if the company's !
generating facilities. Under the .
return on equity from its retail plan, Alabama Power has an IbliSSI55'PPI.
If the court rules business exceeds 13.75 percent in opportunity to earn between that the plan is im alid, hiississippi P wer w uld have to refund ap- 1988 because oflower income tax 13.5 percent and 15 percent on rates, the excess will be refunded, end-of period stockholder invest- pr ximately $22 million collected through December 31,1937.
ment in facilities which serve t" company's retail customers.
Since rate stabilization has ~ ~~~~
been in effect, there have been l s
both increases and decreases in re- 'i tail rates. During 1987, Alabama ' STATE REGUtA10sT COROGsRONS N Power required no rate increases, f _
o en w s ac to ef eet H }
in October,1987, m renac Fi[ - W for W f
) Ser*, em four-year terms by the governor, sub)sca to . ;
.g by th, ,,,, ,,,,,,, v ;
1 I
! Cowsle Potte Fiw ra=='%-elected on a steeswide i i ser*e Commenden buis for stassered sia-year terms.
t m d irumme n ee , % - siscs.d by .o m ,ni .i ,
sn*er- diaricts for concurent four-year isrms. >
. _s 11
ENERGY USAGE l
{ ,
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1
,iE.iisghMW nergy sales to customers of their energy needs through .
, "NP"" g j i in the four-state region sersed in joint ownership of facilities with -
- the Southern electric system in- Georgia Power.
p creased 2.8 percent during 1987, surpassing all praious records Off-System Sales Increase for a calendar yt ar. In addition, After declining in 1986' energy w total energy sales - which include sales covered by contracts with
=
energy delivered to nonaffiliated noraffiliated utilities rebounded E utilities - set a new record. Total sharply. The increase in sales sales for 1987 reached 131.3 bil_ to this customer category was lion kilowatthcurs, up 6.4 percent prompted by two factors - warm -
from 1986. smnrn =r weather and higher prices
. for oil and natural gas, the pnmary ------me---
- Sales Growth Recorded fuel sources of these neighboring In Major Customer Categories utihties.
Sales to residential, commercial Lales tc rOities in Florida,
?
, and industrial customers grew in Louisiana, Mississippi, and i 1987, with the largest gr.in reg- Texas climbed to 21.5 billion kilo-( istered by commercial customers. watthours - an increase of And during June, July, and 30.C percent over the 16.5 billion August, the hot weather spurred kilowatthours sold in 1986. As a e energy sales across the Southeast iesult of this growth, off-system
[ to a new three-month record. mles amounted to 16.4 percent of i The energy needs of wholesale total energy sales in 1987, com-customers - municipalities and pared witn 13.4 percent in 1986.
cooperatives in the service area - Energy sales to other utilities
. dropped 7.4 percent below 1986 fall into two categories - unit y levels. These sales are expected to power sales and other long-term g remain below levels recorded in sales. Unit power sales provide for the late 1970s because many the sale of capacity and energy on wholesale customers in Georgia a noniterruptible basis from i are meeting an increasing portion specific coal-fired generating units.
ll The second type of transaction -
4 other long-term sales - covers the l delivery of specific amouus of SYSTEM SERVICE AREA ENERGY SALES BY CUSIDMER CLASS E i le ba s' b (billions ofkilowarrhours)
During 1987, some 3.1 million E kilowatts of capacity was sold
- Percent through unit power agreements, 1987 1986 Change compared to 2.5 million kilowatts Residential 29 5 28.5 3.7 in 1986. Contracts call for capaci-tv sales to remain at some 3.1 mil-Commercial 24.8 23.4 6.0 ijon kilowatts through May,1992.
Industrial 41.6 40.0 3.9 Amounts will decline to some two million kilowatts for the period Wholesale 13.3 14.3 (7.4) 12 w
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June,1992, until mid-1993 and from its obligations. Gulf States reached 22,739,200 kilowatts. The continue to decrease through hiay, has appealed the ruling to the full highest requirement registered 1995, when the agreements expire. commission. during 1987 was 22,647,000 kilo-Other long-term sales in 1987 For the year 1987, The Southern watts - one half of one percent totaled 450,000 kilowatts, down Company excluded $82 million af- below the all-time record. The sys-from 1.6 million kilowatts in 1986. ter taxes, or 28 cents per share, tem's reserve margin at the time of Under the current contracts, sales from its earnings to provide for the 1P87 peak was 16.2 percent. in this category are expected to the possibility that some amounts Dowth Rates Forecast total some 350,000 kilowatts m due from Gulf States may not be collectible - given the weakened Sales of electricity to retail cus-1988, some 400,000 kilowatts from financial condition of that utility. tomers served by the Southern 1989 through hiay,1992, and lesser electric system are expected to amounts through hiay,2000, 1987 Peak Approaches grow at an average annual rate Gulf States Suit Unresolved Previous Year's Record of 2.1 percent from 1988 through Sales to one off system customer In addition to overall sales, the 1998. During this period, energy - Gulf States Utilities Company other important yardstick of ener- sales in the region are forecast to of Beaumont, Texas - are the gy usage is peak demand - the increase at a rate of 2.0 percent subject of a lawsuit which that greatest requirement for electricity per year. These long-term projec-company filed in fuleral court in measured over a one-hour period. tions do not reflect the impact of 1986. The suit claims that the Because of heavy air condition- off-system sales. Southern electric system failed to ing use in the Southeast, the maxi- Growth in peak demand in the negotiate in good faith changes to mum peak energy demands on the four-state service area is expected the purchase power contracts be- Southern electric system occur to increase at an average rate of tween the two utility systems. during the summer months. The 2.3 percent annually from 1988 In August,1986, the court al- system's all-time record was set in through 1998. Iowed Gulf States to place in es- July,1986, when electricity demand crow some of the funds it owes the Southern electric system while the case is pending. But in late 1986, Gulf States discontinued most of E, TERRITORIAL PEAK DEMAND TOTAL ENERGY SALES the payments owed under the con- (mittions ofkilowits) 1 tbittionsofkitowithours) tracts, alleging that decisions by , 1 m orr-syun. . + the Texas and Louisiana public ;1 } " g aj y' utility commissions excuse it from . u nemeouai s oo* ul.3 : honoring the contracts. The case ;, 22. . 22.6 ni 2i.s i23a is still pending before the U.S. Dis- 20.5 _,,,, ,
, , (,
t trict Court in Texas. f
, :) ,,3 In a separate action in hiay, i j
1987, an administrative law judge q of the Federal Energy Regulatory 1 . 1 h Commission ruled that - under , 1 the Federal Power Act - the con- Lj , j l tracts are valid and reasonable and j ? found no merit in Gulf States' claim that it should be excused i q d 1 h m 3 m y 1983 19&4 1985 198- 1987 l 1983 1984 1985 1986 1987 .
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SERVICE AREA The fourstatesserved b a Virtually all Fortune 500 companies have offices or manufacturing facilities in the system senice area. Southern electric system make up one of the fastest-growing regions a Some 300 foreign-based companies have U.S. headquarters located in of the country- with strong ex- the four-state region. pansion occurring in the senice a Florida and Georgia are ranked among the top 10 states in the nation and transportation sectors. In in new job growth, addition, the area has a broad agricultural and industrial base " During the past five years, more than 330,000 new jobs were created and is an important center for in metropolitan Atlanta - giving the area the fastest rate of new job education and military activities. growth of any major city. The facts about the system serv- a Gwinnett County, located north of Atlanta, has been ranked the I ice area which appear on this page fastest-growing large county in America for three consecutive years. I illustrate the strength and diversity a Georgia placed fourth and Florida sixth in Inc. magazine's 1987 l of the four-state economy- standings of states that support entrepreneurial activities.
" In 1987, almost two billion square feet of retail and commercial floor htformation was ob.ained/ rom state andfederal agencies, local chambers space was opened in the system senice area.
ofcommerce, andindustry and trade a Since 1980, thera have been more than 730,000 housing starts in the associations. Atlanta HartsfieldInter- area served by the Southern electric system, national Airport, Ingall's Shipbuilding, and the Pensacola Nava/Al-Station a Atlanta's Hartsfield International Airport is the world's busiest - on also provided data. average, a plane lands or departs every minute of the day. The Atlanta airport also is the world's leading connecting point, a Alabama, Florida, Georgia, and hiississippi are home to more than 100 accredited colleges and universities. m Georgia is the nation's leader in pulp and paper manufacturing - with 150 mills and plants producing pulp, paper, or allied materials. yy a Some 26 million tons of coal are mined in Alabama each year. The
] state ranks lith in the country in terms of coal production.
[) .PERCENTAGE CHANGEIN e One in 10 people in Birmingham works in the health care industry. I GROSS STATE PRODUCT A /i Birmingham also has more engineers than any other city in the South. E. COMPARED TO . _ i JJ GROSSNATIONALPRODUcr {* m The facilities of USX Corporation near Birmingham - now under-s reme ma mnwned going major renovations - will become one of the most modern stal- { j =g'gi=*d)i ] j making complexes in the world by the end of 1988. e hiississippi produces more pond-bred catfish than any other state in M K .u.
;j the country. Eighty-five percent of the nation's catfish ponds - cover-d u j ing some 73,000 acres - are located in the state.
QI u ug j u The states of Alabama, Florida, Georgia, and hiississippi have 4 a 78 million acres of commercial timberland. a n' u 2'5 h' j- a The Naval Air Station at Pensacola, Florida, is the country's oldest fij -j naval air station. One of the largest shore commands in the U.S. Navy, h- ) it serves as the training center for all Navy, hiarine Corps, and Coast y tu)[ j Guard aviators. h# i e Ingall's Shipbuilding - located in Pascagoula, hiississippi - is the leading builder of cruisers and amphibious ships for the U.S. Navy. Since Pt 19 2 i9:3 . i9s4 -i9:5 i9s6 . I h Basedontatestintiation-adjusteddata.J 1983, the company has delivered nine missile cruisers to the Navy fleet.
& ~ "" K23 15 1
OPERATIONS 0perationand mainten expenses rose to $4.5 billion in generating plants in 1986. The Southern electric system continues 85 percent or higher - a level that ranks among the highest in 1987 - an increase of 7.7 percent to be one of the nation's three the industry. The National Elec-over the $4.2 billion spent the largest users of coal. tric Reliability Council (NERC) previous year. In terms of each Almost all coal deliveries in reports that, industrywide, the kilowatthour sold, operation and 1987 came from mines in Ala- average operating availability maintenance costs were 3.46 cents bama, Illinois, Indiana, Kentucky, for coal-fired power plants was in 1987, compared with 3.42 cents Tennessee, Virginia, and West 82.5 percent for 1986, the most in 1986. . Virginia. recent year for which information Georgia Power's contractual Because of coal's importance is available. agreements with the joint owners as a fuel source, the system com- A record established by Georgia of Plant Vogtle contributed to this panies work to maximize the per- Power's Plant Bowen is represen-increase. The contracts require the centage of time each coal-fired tative of the performance of the company to buy back significant plant is available for ser ice. Since system's coal-fired facilities. For amounts of Plant Vogtle's capacity the late 1970s, the performance of the third consecutive year, Plant during the facility's initial years of these facilities has improved sig- Bowen produced more electricity operation. nificantly, reaching what manage- than any other electric generating Fuel costs increased six-tenths ment considers to be optimum plant in the nation - some of one percent during 1987. The levels. 21.5 million kilowatthours, system companies expect overall The system's 67 coal-fired Nuclear Availability Rises fuel costs to remain relatively stable umts recorded an average operat-ing availability of 91.0 percent for With the completion of um.t I through the early 1990s in part be-of Georgia Power's Plant Vogtle cause of efforts to renegotiate and 1987, up from 88.5 percent the in mid-1987, the Southern elec-buy out several existing coal con- previous year. During 1987,53 units had availability ratings of tric system now has five nuclear tracts. These contract changes will reduce long-term coal costs by some $100million per year through 1994 and provide additional signifi- s- - - ~ >
; - y cant savings through the year 2008. jy '
jl m 2 ii OPERATION AND ' 190iSOURCES Coal Continues to Be + M AiNTENANcE EXPEN5ES l OF POWER GENERATION i System's Primary Fuel Ei PER xitowATTuovR sotn ; a co.i-32% . . For more than three decades, coal M/"""h , Mf_Y ! has been the Southern electric sys- ) ; ,A oita ca -t*- > tem's primary fuel. Coal was the 'j 3.33 - 3.39 3.42 3 46 i 3 Li([ ! source for some 82 percent of the 3 4 16 4~ electricity produced by system i i j power plants during 1987, and a ]j-
, j strong reliance on this fuelis ex- f ,
pected to continue wellinto the , 1 next century. 4 ii 9l i The operating companies ; y- ' f ; ' d burned 44.0 million tons of coal { in 1987, compared to the 42.6 mil- j + Q' { ! lion tons of coal used at system j i ; 1
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a units in service. In its first seven Unit 2 of the plant recorded an
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1# l1 3 l5y my months of commercial operation, availability level of 73.0 percent, y(4 the Vogtle unit recorded an aver- down from 85.1 percent in 1986 g age operating availability of because of a nine-week scheduled 76.3 percent. outage for refueling. }FE ~ The average o, ; rating per- During 1987, Plant Earley was formance for all of the system's one of six nuclear plants to receive nuclear units during 1987 was sig- an award of excellence from the _ nificantly higher than in the prior :nstitute of Nuclear Power Opera-year. Availability of these units tions. The award is given to planu averaged 84.5 percent, an increase w hich excel in nine key perf arm-of 10.3 percentage points from the ance indicators. -
'evel recorded in 1986. The 1987 At Georgia Power's Plant -
rating is the best for the system's Hatch, avai! ability of unit I was nuclear units since 1976 and is 80.4 per -nt for the year, up fror1 __ some 18.2 percentage points higher 59.0 percent in 1986. Unit 2's than the latest comparable results availability was 95.8 percent in for the industry. According to 1987, compared to 70.5 percent - NERC statistics, the average avail- the previous year. ability of nuclear power plants in Plant Hatch also was recog-North America was 66.3 percent nized for its operating record dur-for 1986. ing 1987. The plant's two units Operating availability of unit I were cited by General Electric . . of Alabama Power's Plant Earley Compan3 as the top performing was 93.6 percent for 1987, com- boiling water reactors in the ? pared with 82.4 percent in 1986. world. There were 16 General # Electric reactors of this kind oper- 9 ating during 1987. The ranking is ! y based on capacity factor - the 1 h COAL I' IRED UNITS percentage of capacity at which
;- AVERAGE OPERATING the unit operates.
t AVAILABILITY Q Pe# Hydro Generation increases ( Indou$n N sy - Generation at the system's hydro-hj as.4s ss.39 89 29 88.48 91p' electric plants increased signifi-
@j f; .c e w cantly in 1987 - reflecting near
$ i .' N %[h normal amounts of rainfallin
.hf k ;; [ {$ ; Alabama and Georgia, where sys-
@y .- } ;~%$ e j' (;L l q'. tem hydro facilities are located.
These states experienced a severe
'3. :
9 ;.. ?n t drought in 1986. _ __.w_,__ _ f O V 3 O Some 4.7 billion kilowatt- *'"Z--- " i d .. . j'! [@ hours was produced in 1987, a 63-percent increase from the
} [ /)
[ QQ .h ppj h' 2.9 billion kilowatthours gen-y i 6 $$i OA erated in 1986. P 198) 1984 1985 1986 1987 () 'Induary data not available. L T E E S2 M i G 5? I8 -- - -imeur ____ g m __ _
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ENVIRONMENT TheSouthern electricsys favors the development of new pollution is involved, scientists carries out a range of research technologies to burn coal more suspect that ozene is as likely a programs to minimize the environ. cleanly, contributor as sulfur dioxide emis-mentalimpact of generating elec- sions from coal-fired power plants Update on Acid Rain Research tricity. The system compames also . . and other sources. support national efforts under. EPRIis conductmg one of the To study the effects of acid rain taken by organizations such as the w rid's most extensive research on forests, the Southern electric Electric Power Research Institute eff rts on acid rain science and system and the Georgia Governor's (EPRI). hiany of the activities technology. EPRI has budgeted Task I;orce on Acid Rain began focus on acid rain - one of the $186 milhon for the period 1988 funding data collection in a lob-most intensely debated environ- through 1990, with contribution 3 lolly pine forest in middle Georgia, mentalissues of the decade, fr m the Southern electne sys-This is one of 13 sites worldwide Findings of major scientific tem comprising five percent of where such studies are being studies conclude that there is no the total.
. conducted.
environmental crisis in the United During 1987, the National Acid Precipitation Assessment Program Liming Treatments Continued States because of acid rain and no certainty concerning the precise - a major government study By Living L.s ies Project causes and effects of this phenom- funded by Congress - published During the past 50 years, a small enon. Yet Congress considered ts interim report. Among the number oflakes and streams, legislation during 1987 to further findings: primarily in the Northeast, have limit power plant emissions. These
- Theimpact of acid rain, at cur- become acidified from a variety of proposed laws wculd be extremely ent levels of air pollution, is not sources. For reasons not fully un-expensin to implement, and they likely to cause serious damage to derstood, other lakes in the same offer no assurance of achieving I kes and forests for some decades, area have become less acidic, while the desired emironmental benefits.
- Since the Clean Air Act became most show little change.
One widely discussed bill would effective in the early 1970s, sulfur To improve the condition of cost the Southern electric system dioxide emissions have been de- acidic waters, the Southern electric alone as much as $1.6 billion an. Clining. This trend has been estab- system played a leading role in nually beginning in 1996. This lished at the same time America's establishing Living Lakes, Inc., a proposal would require rate in- utilities increased their use of coal nonprofit organization that treats creases of approximately 15 per- by more than 80 percent. lakes and streams with limestone cent or more for system customers.
- The effectiveness of further to reduce acidity. After treatment, The Southern electric system reducing emissions from power time can be reapplied, if necessary, believes there is time to conduct plants and other sources cannot to maintain water quality. Some additional research and answer the be determined at the present time, waters also are restocked with unresolved questions about acid Southeast Plays Key Role native fish species.
rain so that emironmental policy In Forest Research During 1987, Living Lakes can be based on sound scientific ## #" # " " ' Research published during 1987 - esidence. Meanwhile, the system in six states. Since the program be-showed little new evidence con- gan in 1986, more than 30 bodies cerning tree dieback and declines of water have been treated and m forest growth m the United continue to be monitored. States. Some damage has occurred at high elevations, but the cause has not been determined. If air 20 l
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IN 1987, A M AJOR SCIENTIFIC 3TUDY REPORTED TH AT THERE Is No ENVIRONNIENTAL CRISIS IN AN1 ERICA BECAUSE OF ACID RAIN.
CONSTRUCTION AND FINANCING TheSouthernCompany order. If the issues raised in the notice are not resolved, the NRC needed for capital spending, for the redemption of high-cost secu-its operating subsidiaries invested $1.8 billion in 198 / to continue may initiate a proceeding to deter- rities, and for other corporate pur-power plant construction and to mine if Alabama Power has nego- poses. Approximately $819 million build and upgrade transmission tiated in good faith and if the of the system's capital require-and distribution lines, substations, terms of sale offered by the com- ments was generated internally. and other facilities. This amount pany are reasonable. During 1987, The Southern - down from the $2.3 billion in- Company raised $245 million in
, Joint Venture Planned new c mm n equity through the vested in 1986 -is the first de- For Rocky Mountain Project ,
crease in annual construction , sale of 10.5 million additional In June,1987, Georgia Power shares of common stock. expenditures since 1978. signed a letter ofintent to transfer Some $190 million came from Vogtle Unit Begins Operation majority ownership of the Rocky the sale of 8.1 million shares On May 31,1987, unit 1 of Plant Mountain project - an uncom- through the Dividend Reinvest-Vogtle near Augusta, Georgia, be- pleted hydroelectric plant - t ment and Stock Purchase Plan. gan commercial operation. The Oglethorpe Power Corporation Approximately 46 percent of the addition of this facility brings the (OPC), a group of electric cooper- company's stockholders were par-system's total generating capacity atives in Georgia. The Georgia ticipating in that plan at year-end. to 27 million kilowatts. Public Service Commission had The remaining $55 million was Georgia Power - which owns refused to allow Georgia Power t supplied by the sale of 2.4 million l 45.7 percent of the Vogtle project obtain additional financing for shares through employee stock 1
-is responsible for operating the this facility. plans. j plant. Municipalities and coopera- Under the agreement, which tives in Georgia own the remain- requires approval of the Securities Bonds, Preferred Stock Sold l ing 54.3 percent of the facility, and Exchange Commission, OPC The operating companies ob- l The second and final unit of Plant will assume all responsibility for tained additional funds during l Vogtle is scheduled to begin serv- completing the plant, and Georgia 1987 through the sale of $700 mil- i ice by June,1989. Power will retain ownership of lion of first mortgage bonds and l ppr ximately 25 percent of the $125 million of preferred stock. In Resolution Still Pending plant s capacity. addition, Georgia Power and Gulf On NRC Order on Sale P "
Of Interest in Plant Farley Capital Budget Outlined p u f $17 mi on Resolution of a 1981 order of the The Southern electric system's , of tax-exempt pollution control Nuclear Regulatory Commission budget for capital expenditures m revenue bonds. (NRC) concerning the sale of ap- 1988 is $2.2 billion. Capital spend- Also in 1987, the operating proximately six percent of Ala- mg is expected to total $1.7 billion companies redeemed $639 million bama Power's Farley nuclear plant m 1989 and $1.6 billion in 1990, of bonds and preferred stock. By to Alabama Electric Cooperative, bringing the budget for the three- replacing higher cost securities that Inc. (AEC)is still pendmg. Al- year penod 1988 through 1990 t were issued primarily in the early though Alabama Power, AEC, $5.5 billion. This amount is down 1980s with financing obtained at and the NRC staff have held dis- from the $5.9 billion budgeted the lower rates prevailing in 1987, cussions about pncmg and other for the years 1987 through 1989 factors related to the sale, no set- because several major construc-tiement has been reached. tion projects are now nearing in June,1986, the NRC issued a completion, notice - following a complaint by 1987 Financing Reviewed AEC - that Alabama Power may The sale of new securities in 1987 have violated the terms of the NRC provided $1.2 billion of the funds 22
l
" - z ., + ,. . .. R~
Much of the
~
construction work 3:;u, l across the :) stem u W - yuser today involves apgrading and expanding trans-mission and distribution facihtks. l aw-.,= g t g
.. h . .
., l l'l \ N I \i h il I l ONI T J2( >l ~ R .\ L\ 1()R ( il NI- R \I IN( 1 l' Nils R f-\1 \lN UNI)i R ('< >Nv1 Ri a r ic)N
the operating companies will real- in its capital structure to a range and preferred stock during 1988. ize savings of some $28 million of 40 to 45 percent. Progress While the exact timing and annually. This is in addition to an- toward achieving that goal has amounts have not yet been deter-nual savings of some $52 million been made almost yearly since mined, these offerings could total resulting from similar redemptions 1979 when common equity was as much as $1 billion. in 1986. At the close of 1987, the 30.5 percent of capitalization. To provide the operating com-system's temporary cash invest- Further strides in reaching this panies with equity funds in 1988, ments totaled $909 million. objective will depend on whether The Southern Company expects The Southern Company's the operating companies earn to raise some $250 million primar-capital structure at year-end was sufficient returns on the equity ily from the sale of new common 52.2 percent debt,8.6 percent already invested in the business. stock through the Dividend Re-preferred stock, and 39.2 percent investment Plan and Employee 1988 Securities Sales Outlined Savings Plan. common equity. The company's goal is to raise The system operati% companies the percentage of common equity plan additional offerings of bonds
-n ~ , - ~~ . - - - -- - ---.n t
- j SYSTEM CONSTRUCTION PRGHEIS ,
_ a f Apprealmese j i ' Fleet Piemmed Eosimetod Ptseest 1btel R l (IYpe of Deer af. Generating . Cost . Essisseesd Compleesd at . Isvesement et j [ Fest/ Plant) . Comptodom Capacity . Perk 5ewett ' CoM ' .. 11/31/87 12/31/87. ; i j' the kBoweru) M shouwdnl h thaannedt! j [ Alabesse Feuer '{ j LMEer (coal) . . Unit No. 3 _ 660,000 $1,038 $ 685,000 76 % $447,61$ 1989
]
Unit No. 4 1991 660,000 $1,101 ' $ 727,000 10 % - $136,067 'j i l Georgie FWeer ll Vogele (nuclear) ij b' Unit No. 2 ,1989 . $30,120' $2,153' $1,141,000' : 76 % 8 5778,139' ] L . 1 j Schseer(coal) '
' .l
! Unit No. 4 1989- 818,000. $ 778' i $ ' 636,600' 84% - $467,825' j L -
'~ ]
l .g . : Rocky Meestein g
-l l
C (pumped storase) g. . q {. Unit Nos.1,2,3 ' 1999' 847,800W $1,429' . $1,211,200' l$% . - $i?0,306' j [ . Notes: 4 [-. f
]
j b _ _ . . . [* (1) Excludes the $4.3-percent interests sold to cooperatives and municipalities it. Georgia. Also excludes the -
. cost of nuclear fuel. 9 ]
[: (2) Figure is based on the earned value of work accomplished and reflects an alledWJ) of common facilities
' between Unit Nos. I and 2.
~
.20 .
j
. t W)D~
[ (3) Excludes }oint owners' portions of common facilities. g j j (4) Georgia Power has signed a lester of intent to transfer majority ownership of the pro}sct to Oglethorpe Power Corporation. If the joint wnture is finalized, the completion daic woald change to 1996. Costs are not
'lj t
shown on a per-unit basis for Rocky Mounta'n because the majority of construction costs to date is for j 5 l facilitiss common to all three units. (See Note 3 to the financial statements.) i -1 L _ - .. . .- . a -.a 24
FINANCIAL REVIEW 26 MANAGEMENT'S REPORT 27 AUDITORS' REPORT 28 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION 34 CONSOLIDATED STATEMENTS OF INCOME I 35 CONSOLIDATED STATEMENTS OF SOURCES l OF FUNDS FOR GROSS PROPERTY ADDITIONS 36 CONSdLIDATED BALANCE SHEETS 38 CONSOLIDATED STATEMENTS OF CAPITALIZATION 40 CONSOLIDATED STATEMENTS l OF EARNINGS RETAINED IN THE BUSINESS 40 CONSOLIDATED STATEMENTS OF AMOUNT PAID IN l FOR COMMON STOCK IN EXCESS OF PAR VALUE l 41 NOTES TO FINANCIAL STATEMENTS
$6 SELECTED CONSOLIDATED FINANCI AL DATA l
25
MANAGEMENT'S REPORT The management of The Southern internal controls, however, based Management believes that its Company has prepared - and is on a recognition that the cost of policies and procedures provide responsible for - the consolidated the system should not exceed its reasonable assurance that the financial statements and related benefits. The company believes its company's operations are con-information included in this re- system ofinternal accounting con- ducted with a high standard of port. These statements were pre- trols, together with its internal business ethics. In management's pared in accordance with generally auditing function, maintains an opinion, the consolidated finan-accepted accounting principles ap- appropriate cost / benefit cial statements present fairly the propriate in the circumstances and relationship. financial position, results of oper-necessarily include amounts that The independent public ac- ations, and sources of funds for are based on the best estimates countants provide an objective as- gross property additions of The and judgments of management. sessment of how well management Southern Company and its sub-Financialinformation throughout meets its responsibility for fair sidiaries, subject to the resolution this annual report is consistent financial reporting. They regularly of the uncertainties regarding with the financial statements. review the system ofinternal ac- recovery ofinvestments in the The company maintains a sys- counting controls and perform Rocky Mountain and Vogtle tem of internal accounting con- such tests and other procedures construction projects and recovery trols to proside reasonable they deem necessary to reach and of certain fuel costs related to assurance that assets are safe- express an opinion on the fairness Plant Scherer. guarded and that books and of the financialstatements. . records reflect only authorized The audit committee of the I l transactions of the company. board of directors, composed of Limitations exist in any system of four directors who are not em-ployees, provides a broad overview of management's financial report-ing and control functions. Periodi-cally, this committee meets with management, the internal audi-tors, and the independent public accountants to ensure that these groups are fulfilling their obliga-tions and to discuss auditing, in-ternal control, and financial reporting matters. The internal auditors and independent public accountants have access to the members of the audit committee at any time. 26
AUDITORS' REPORT i l To the Board of Directors and As more fully discussedin i To the Stockholders of Notes 2 and 3 to the financialstate- I The Southern Company: ments, uncertainties exist with ! We have examined the consolidated respect to the recoverability of balance sheets and consolidated Georgia Power Company's invest-statements of capitalization of mentsin the Plant Vogtle nuclear The Southern Company (a Dela. facility and the Rocky Mountain l ware corporation)and subs; diary hydroelectric project and the re-companies as of December 31, coverability of certain fuelcosts 1987 and 1986, and the related related to Plant Scherer. The out-consolidated statements ofin- come of these uncertainties can-come, earnings retained in the not be determined until the related business, amount paid in for com- regulatory proceedings and litiga-mon stock in excess of par value tion are concluded, and sources of funds for gross In our opinion, subject to the i property additions for each of the effect on the financialstatements l three years in the period ended of auch adjustments,if any, as December 31,1987. Our examina. might have been required had the tions were made in accordance outcome of the matters discussed with generally accepted auditing in the preceding paragraph been standards and, accordingly, in- known, the financial statements j cluded such tests of the account. (pages 34-55) referred to above ! ing records and such other present fairly the financial posi- ) auditing procedures as we con. tion of The Southern Company i sidered necessary in the and subsidiary companies as of circumstances. December 31,1987 and 1986, and the results of their operations and the sources of funds for gross property additions for the periods stated,in conformity with gen-erally accepted accc.mting princi. ples applied on a consistent basis. Arthur Andersen & Co. r Atlanta, Georgia, February 12,1988. 27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULu 0F OPERATIONS AND FINANCIAL CONDITION Results of Operations in The Southern Company's re. Revenues The Southern Company's finan- turn on average common equity Operating revenues rose 2.4 per-cial performance in 1987 was ad- to 9.10 percent in 1987, compared cent in 1987, compared to an in-versely affected by the following to 15.57 percent in 1986 and crease of one-half of one percent matters related to Plant Vogtle: 16.64 percent in 1985. Dividends in 1986 and 11.3 percent in 1985. (1) tlie write-off of $229 million, paid on common stock during The smallincreasein 1986 resulted after taxes, of Plant Vogtle costs 1987 totaled $2.14 per share, an primarily from the fact that a as a result of the construction increase of 16.9 percent above the 6.3-percent increase in revenues budget exceeding the cost cap $1.83 paid in 1984. from energy sales to customers in agreed to for retail ratemaking the senice area was partially off-NetIncome , purposes, (2)the reduction in set by a 2129ercent decrease in Consolidated net income for Georgia Power's authon, zed rate 1987 amounted to $554 million -
* * * " I * " " * *** '"87 of return on common equity from '# *** ""# E' * "
down 37 percent from 1986' com- . 15.5 percent to 13 percent effective . reflects a continued increase in re-
$ pe ent tail sales, a retail rate increase in October 2,1987, and (3) the disal-lowance of additional Plant Vogtle {^ff8 o t 851 - e
#8 8' " "" "
average number of shares of com-costs and related expenses for the system eneWm. Howmr, mon stock increased in each suc- these improvements were partially buyback of capacity from jomt cessive year, resulting in earnings offset by a decrease in sales to owners. Because no provision has been made for the additional dis-per of$l9 mun pMes and electric mem-3 }q n 198 anck 0in e.llowance, earnings will continue pc peraw, es beatd in 1985. Earnings for 1987 were sig- the senice area, to be adverselyimpacted until the . mficantly reduced by the matters disallowance issue is resolved. If Retail energy sales in 1987 discussed above. upheld upon appeal, the furth:r nereased primarily beause of deillowance could result in an ad- growth in the number of cus-diGonal write-off of approximately tomers and unusually hot weather $200 million, after taxes. These during June, July, and August. issues are described in more detail Energy sales to retail customers i in Notes 2 and 3 to the financial - are expected to grow at an average i statements. Also, earnings were REVENUES FROM annual rate of 2.1 percent during reduced by 28 cents per share on'-SYSTEM the period 1988 through 1998. ($82 million)in 1987 and nine cents per share ($25 million)in
$f[
a rm,y -
$ Energy sold to municipalities and cooperatives in the senice area 1986 to provide for the possibility 8 C=Pacar decreased by 7.4 percent in 1987
* and is expected to remain below that amounts due from Gulf States Utilities Company (Gulf States) presious levels as certain customers under disputed purchased power le are producing more of their own contracts may not be collectible. generation at facilities jointly The above factors were the prin- 777 owned with Georgia Power.
cipal reasons for the decline -- Revenues from sales to off-50s system utilities consist of capacity j , j and energy components. Capacity l 2$ nf
^ ^
Ai 1E l')83 A Q G 1984 1985 19 % 1987 55(( $ 28
revenues reflect the recovery of Unit No.1. Depreciation and long-term coal contracts were re-fi:ed costs and a return on invest- other operating expenses were negotiated to take advantage of ment under the contracts. Energy higher because additional facilities lower costs for coal supplies. The is sold at its variable cost. Off- were placed in service, including average cost of fuel per net kilo- 1 system sales, by component, have Plant Scherer Unit No. 3 and watthour generated decreased from been as follows: Plant Vogtle Unit No.1. Other 1.95 cents in 1985 to 1.89 cents in operation expense also includes 1986 and to 1.79 cents in 1987. 1987 1986 1985 charges to uncollectible accounts Under fuel cost recovery provi-of $143 million in 1987 and sions, billings to customers are ad-(in thousands) l Capacity $ 513,105 $523,100 5 534,102 $50 million in 1986 for revenues justed for fluctuationsin fuel and Energy 495,945 421,782 728,557 related to sales to Gulf States. net purchased energy costs. See Total 51,009.050 $944,882 $1,262,659 Fuelexpense did not increase in Note 2 to the financial statements proportion to the 7.7-percent m- for m, formation concerning the crease in total generation in 1987 possible disallowance of certain The above amounts include sig- because oflower coal costs and in- fuel costs by the Georgia Public nificant revenues from Gulf States creased nuclear and hydro genera- Service Commission (GPSC). l that may not be collectible, as tion. Nuclear generation increased The decreasein income taxes described further in Note 7 to the by 21.3 percent primarily because is attributable to lower taxable financial statements. Plant Vogtle Unit No. I began income and the decreasein the The increase in off-system en- commercial operation on May 31, federal corporate income tax ergy sales for 1987 resulted from 1987. Hydro generation was up rate. Income tax prosisions are unusually hot summer weather 62.7 percent, compared to the lev- detailed in Note 8 to the financial and higher prices for oil and els during 1986 when a drought statements. natural gas, the primary fuel adversely affected hydro genera-sources of these neighboring utili-tion. During 1986 and 1987, several AllowanceforFunds Used ties. Lower oil and natural gas During Construction (AFUDC) I prices were largely responsible for andDefermdReturn i the decreasein energy salesin 1986. AFUDC represents the cost of I capital charged to utility plant that Expenser is under construction and not in.
% AFUDCCOMPONENT Operating expenses for 1987, after W OFNETINCOME cluded m rate base. The equity reflecting a credit of $142 million y tmimom ersonan> portion represents noncash in.
for the short-term deferral of E Q,g amoc
,, g, y,,,, come. However, the normalization l Plant Vogtle expenses as explained 2 ;
of theincome tax effect of the in Note I to the financial state. M ss3 debt portion results in a noncash ments, totaled $5.8 billion, up
- charge. In addition, when facilities Q
2.1 percent from 1986. The most 720 are completed and included in rate significant increases in expenses in ($
- 1987 were for purchased power, $ 334 depreciation, and other operation S expense. The increase in purchased power reflects the contractual r buyback of capacity and energy from the co-owners of Plant Vogtle
[~ 3 19 4 '1985 1985 '1986 1987 225=L.x a 29
l I l l base, previously W italized investment in long-lived utility rate increase which became effec- . amounts significantly increase plant. Conventional accounting tive October 2,1987. The increase l cash flow because revenues are for historical cost does not recog- in retail base rates approved by the higher as a result of the increased nize this economic loss nor the GPSC was designed to increase rate base and additional deprecia- partially offsetting gain that arises annual revenues by approximately . tion expense. through financing facilities with $464 million under a phase-in ! In 1987, Georgia Power re- fixed-money obligations, such as plan intended to provide addi-corded a deferred return similar long-term debt and preferred stock. tional cash revenues of approxi-to AFUDC on Plant Vogtle Unit Any recognition ofinflation by mately $291 million during the No. I after that facility began regulatory authorities is reflected first year with the remaining in-commercial operation as described in the rate of return allowed. crease to be deferred and recovered in Note I to the financial state- within 10 years. In approving such I"'" "I"88 #"#I# increase, the GPSC reduced ments under the heading "Plant The results of operations for the Georgia Powe:N authorized rate Vogtle Phase-in Plan." . AFUDC net ofincome taxes, past three years are not necessanly of return on t ommon equity from indicative of future earmngs p - 15.5 percent to 13 percent and dis-as a percent of net income, was tential. Most sgnificantly, the suc- allowed apptcdmately $951 mil-50.2 percent in 1987, compared to cessful completion and inclusion lion of the total cost of Plant 50.6 percent in 1986 and 48.1 per- , cent in 1985. Although ARJDC in rates of the Southern etectne , yogtle Unit No. I and common decreased by $226 millionin 1987 system's construction projects, facilities (including co-owners' especially Georgia Power's Plant construction and financing costs). as a result of the completion of V stle, are critical to the compa- Unless modified through the ap-two major generating units, this ratio did not decrease significantly ny's future earnings and financial peals process, the disallowance health. would require Georgia Power to because of the reduction in earn- .. Georgia Power and certam m- write off approximately $200 mil-ings caused by the Plant Vogtle terveners have appealed the retail lion, after taxes,in addition to the write-off. Including the deferred return on Plant Vogtle described $229-million after-tax write-off above, the ratio was 66.5 percent taken in 1987. The above amounts in 1987. y include the effect of Georgia smEM NAMEPLATE Power's portion of the disallowed , F//ects ofht/7ation CAPACITY plant Costs 31d disallowed capacity l The Southern electric system is
, 'rf p
("ylgy']" "L buyback obligations. Earnings will cont,mue to be adverse!y im-subject to rate regulation and m, - come tax laws that are based on pacted untilthe disallowan:e issue the recovery of historicalcosts 1 is res lved. See Notes 2 and 3 to 27.o '7.o only. Therefore, inflation creates 25.7 the financial statements for fur-d, ther discussion of the above an economic loss because the matters and other regulatory un-company is recovering its costs of g certainties related to Plant Vogtle imestments in dollars that have c Unit No. 2, a radioactive waste less purchasing power. While the i rate ofinflation has subsided, S facility at Plant Vogtle, the Rocky inflation continues to have an ad-2 Mountain project, and the re-verse effect on the Southern elec- , covery of certain fuel costs. While the merger of Savannah tric system because of the large Electric and Power Companyinto q 1986 1987 1988 1989 IY90 w, w w w$Q
._ ,s _ =p w-
.30
the Southern electric system offers property taxes. The rule will also neighboring utilities, energy con-immediate and long-term advan- require the adjustment of ac- servation practiced by customers, tages for both companies, it is not cumulated deferredincome taxes the elasticity of demand, weather, expected to have a material effect to reflect changesin income tax and the rate of economic growth on the financial position or results laws and rates. The accounting for in the system service area. See of operations of The Southern and the impact on net income re- Note 7 to the financial statements Company. See Note 15 to the fi- lated to these adjustments will for information concerning at-nancial statements for information depend greatly on future rate- tempts by Gulf States to modify concerning the merger. making treatment. Changes to or void its obligations under unit The Thx Reform Act of 1986 depreciation-related deferred in- power and otherlong-term power provides for a reduction in the come taxes willcontinue to be sales contracts with the operating federalcorporate income tax rate, reversed over the lives of the re- subsidiaries. repeal of theinvestment tax credit, lated assets because of the require- Rates to retailcustomers served less fuorable depreciation rates, a ments of the Thx Reform Act of by the system operating companies new alternative minimum tax, and 1986. Changes to other deferred are regulated by the respective state other items. The net effect is to re- income taxes willbe reversed in public ser ice commissionsin duceincome tax expense because accordance with regulatory rate- Alabama, Florida, Georgia, and of the decrease in the tax rate, to making treatment as described in Mississippi. Rates for Alabama reduce cash flow because oflower Note 8 to the financial statements. Power and MississippiPower are deferred taxes and investment tax Future earnings will also de- adjusted periodically within cer-credits, and to increase external pend upon growth in energy sales tain limitations based on earned financing requirements as a result which willbe subject to a number retail rate of return on end-of-of reduced cash flow. Because of factors, including sales to period common equity compared these factors willbe considered by to an allowed return as described regulatory authorities in the rate- in Note 2 to the financial state-making process, net income is not ments. The most recent returns expected to be materially affected. allowed for Georgia Power and Also, the Financial Accounting -
~- . Gulf Power were 13 percent and Standards Board has issued new - si 13.75 percent, respectively.
rules for accounting forincome " rtannomersanova : taxes that will be effective in 1989. DEMAND xi The most significant impact on !"'#W*8'" w ' e Finamoh the Southern electric system will 3 The principal changes in the com-be to require the use of beforein- -?f1 pany's financialcondition in 1987 come tax AFUDC rates. Currently, ' n.7 . ~ af n. 'n.,fy , were additions of $1.8 billion to deferred taxes are not provided on - 0, i utility plant, including the com-the equity component of AFUDC, ,
, f pletion of two major generating and Alabama Power and Georgia 1 units, the financing of those Power capitalize the debt com- , , C] additions, and the write-off of
$229 million, after taxes, related ponent net ofincome tax. This , , .
change will not affect net rate , - - gj to the construction budget for base but could create additional ; W4 2 , 3 s - J
?)
I'N6 1945 1988 909 19eo4 31
l l Plant Vogtle exceeding the rate. costs by redeeming high-cost bonds CapitalRequirements making cap. Net funds from and preferred stock, hiaturities For Construction financings provided $1.0 billion and redemptions of bonds totaled The construction program of I of the 1987 construction require- $480 million during 1987 and the Southern electric system is I ments, and approximately $865 million during 1986. Retire- budgeted at $5.5 billion for the , $819 million - or 45 percent - ments of preferred stock totaled three years 1988 through 1990. Ac- l was generated internally, prin- $159 million during 1987 and tual construction costs may vary l cipally from earnings and noncash $52 million during 1986. As a re- from the above estimates because I charges to income such as depreci- sult, the composite interest rate of such factors as design changes ation, deferred investment tax on long-term debt decreased from to meet nuclear licensing require- , credits, and deferred income taxes. 10.21 percent at December 31, ments; changes in environmental l See the Consolidated Statements 1985, to 9.36 percent at Decem- regulations; revied load projec- l of Sources of Funds for Gross ber 31,1987. During this same tions; the cost and efficiency of l Property Additions, period, the composite dividend construction labor, equipment, rate on preferred stock declined and materials; and the availability l CapitalStructure from 9.31 percer : to 8.52 percent. and cost of capital. l The 1987 write-off associated with At the close of 1987, the com- Projects in the current genera-Plant Vogtle affected the com- l pany's common stock had a mar- tion expansion plan are Plant l pany's long-term goal of increas- ket value of $22.375 per share, Vogtle Unit No. 2 (nuclear), Plant ing common equity as a percent of compared to a book value of Sch:rer Unit No. 4 (coal), Plant total capitalization. At the end of $20.89 per share. The market-to- hiiller Unit Nos. 3 and 4 (coal), 1987, this ratio was 39.2 percent, book salue ratio was 107 percent and the Rocky hiountain pumped compared to 39.9 percent and at the end of 1987, compared to storage hydroelectric plant. Plant 38.9 percent at the end of 1986 120 percent at year-end 1986 and Vogtle Unit No. 2, Plant Scherer and 1985, respectively. 112 percent at the end of 1985. Unit No. 4, and Plant hiiller Unit During 1987, the operating No. 3 are scheduled for commer-subsidiaries sold $700 milh,on of cial operation in 1989, and Plant I first mortgage bonds and, through hiiller Unit No. 4 is expected to ! public authorities, $172 million of e begin service in 1991. Georgia ! pollution control bonds, at a com-bmed weighted interest rate of E cowuos srocx sAus Power has delayed the planned 4~ ~ ~ (mmas o/donarsj commercial operation date of the 10.13 percent, and $125 million of Rocky hiountain project and has preferred stock at a weighted divi- ', , g,j, yj m rubia orrerins' g and proposed a joint ownership ar-dend rate of 9.83 percent. In addi- stock rurcha,e riin ggyg g ggg gg tion, The Southern Company sold J, 372 218 Corporation. This proposalis 10.5 million shares of common described further in Note 6 to the stock with proceeds totaling O m 26 [ financial statements. 5245 million. The operatmg sub- Changes in environmental regu-U p sidianes contmued a program be- 245 lations could substantially increase gun in 1986 to reduce financing L? the system's capital requirements and operating costs. Various En-
!] vironm ntalProtection Agency regulations and recent legislation are described in Note 3 to the
))Et 9
198) 1984 1985 1986 1987 G h sk .4, h-&6 . slid 32
i i financial statements. The fullim- Sourrer offhndr mortgage indentures and corpor-pact of these requirements cannot The Southern Company and its ate charters. These coverages were, I be determined at this time pending subsidiaries plan to obtain the at the end of the respective years, ! the development and implementa- funds required for construction as foUows tion of applicable regulations. from similar sources to those used Other CapitalRequirements in the past. However, the type and Mongage ch.ner timing of financings wiU depend cowrsae conr se In addition to the funds needed n market conditions, mainte. for the construction program, ap-nance of adequate earnings, and y2 1 proximately $571 million will be . regulatory approval. 1987 1986 1987 1986 required by the end of 1990 for present sinking fund requirements To meet short-term cash needs Alabama Power 4.03 4.89 1.97 2.17 and maturities oflong term debt and contingencies, the system c mpanies had, at the begmmng gr r 2 3 1 42 1 and preferred stock. Also, addi- gi,,;,,g tional high-cost issues of first f 1988, approximately $955 mil- Power 4.57 3.94 2.23 1.99 mortgage bonds, pollution control U n f cash and temporary cash investments and $2.4 billion of
)
bonds, and preferred stock may be i redeemed. unused credit arrangements with The ability toissue securities banks. in the future will depend on The Tax Reform Act of 1986 , will significantlyincrease future Toissue additionallong term coverages at that time. The 1987 external financing requirements debt and preferred stock, the write-off associated with the con-because of reductions in capital perating subsidiaries must com-
, struction of Plant Vogtle or other previously provided through in- ply with certain earnings coverage write-offs mandated by regulators vestment tax credits and deferred requirements designated in their will adversely affect Georgia income taxes. Although lower taxes Power's preferred stock covemge, initially reduce the amount of As shown above, Georgia Power's revenues required to earn a speci. coverage at December 31,1987, is fied return on investment, the cost below the minimum required for of the increased capital require- ,
the issuance of additional pre-ments will ultimately exceed the - ferred stock. The 1987 write-off benefits of reduced tax rates, re- CAPITAL STRUCTURE did not affect the mortgage in-sulting in higher revenue require-ments. These factors will also l f#Y . E Preferred Ste:k denture coverage calculation. If the amount of funds that The reduceinterest and preferred stock dividend coverage ratios. M M 7 '"'d***
"Comum Equky Southern Company and the sub-sidiary Companies Can obtain The merger agreement be- from external sources, together tween The Southern Company l4 with internally generated funds, is not sufficient to continue con-and Savannah Electric calls for the exchange of 1.05 shares of struction, delays and possible can-The Southern Company's com- cellations may prove necessary, mon stock for each share of Delays in construction projects Savannah Electric's common f;i would result in significant addi-stock outstanding. At Decem- tional costs,
[ ber 31,1987, Savannah Electric # - had 10,826,303 shares of common stock outstandmg. . . 1983 1984 1985 1986 1987 Ubi.:.E!l TAM 2WM 33
i CONSOLIDATED STATEMENTS OFINCOME lbr the brs Ended December 31,1987,1984 and 1983 The Southern Company and Subsidiary Companics l 1987 1986 1985 (in thousands) \ i S7,010,365 $6,846,591 $6,813,927 < Operating Revenues (Note 7) Operating Expenses: I Operation - 2,285,224 2,271,784 2,385,815 Fuel Purchased and interchanged power, net 521,023 366,297 420,191 1,182,595 1,020,603 921,099 Other 559,940 563,382 549,905 Maintenance 545,163 493,722 454,871 , Depreciation and amortization I Deferred Plant Vogtle expenses (Note 1) (141,977) - - 339,599 306,739 2 % ,477 Taxes other thanincome taxes 500,381 650,352 634,021 Federaland stateincome taxes Total operating expenses 5,791,948 5,672,909 5,662,379 1,218,417 1,173,682 1,151,548 OperatingIneome Other Income (Expense): 189,041 312,001 268,875 ; Allowance for equity funds used during construction Deferred return on Plant Vogtle (Note 1) 115,028 - - l Disallowed Plant Vogtle costs (Note 3) (357,821) - - Income tax reduction for disallowed Plant Vogtle costs 128,923 - - 76,546 64,718 69,527 Interest income Other, net (59,412) (18,625) 42 Other income taxes applicable to other income 20,073 (21) (i8,800) , 1,330,795 1,531,755 1,471,192 l Income Before Interest Charges Interest Charges and Preferred Dividends: . Interest on long-term debt 748,587 765,012 736,973 Allowance for debt funds used during construction (156,856) (259,981) s253,617) Interest on notes payable 24,141 3,471 20,516 Amortization of debt discount, premium, and expense, net 8,076 5,951 3,216 Other interest charges 29,220 14,717 16,763 Preferred dividends of subsidiary companies 123,185 119,725 117,751 Net interest charges and preferred dividends 776,353 648,895 641,602 Consolidated Net income $ 554,442 $ 882,860 $ 829,590 Asernge Number of Shares of Common Stock Outstanding (in thousands) 189.347 278,897 259,543 Earnings Per Share of Common Stock $1.92 $3.17 $3.20 Cash Dividends Paid Per Share of Common Stock $2.14 $2.06M $1.95 The accompanying notes are an integralpart of these statements. 34
CONSOLIDATED STATEMENTS OF SOURCES OF FUNDS FOR GROSS PROPERTY ADDITIONS For the lhtrs Ended December 31,1987,1986 and 1983 The Southern Company and Subsidiary Companies 1987 1986 1985 (in thousands) Funds from Operations: Consolidated net income S 554,442 $ 882,860 $ 829,590 Add (deduct) principal noncash items - Depreciation and amortization 722,523 657,021 606,354 Deferred income taxes, net 1 % ,929 460,912 239,003 Deferredimestment tax credits 19,916 131,473 180,707 Allowance for equity funds used during construction (189,NI) (312,001) (268,875) Deferred Plant Vogtle expenses (Note 1) (141,977) - - Deferred return on Plant Vogtle (Note 1) (115,028) - - Disallowed Plant Vogtle costs (Note 3) 357,821 - - 1,405,585 1,820,265 1,586,779 Less dividends on common stock 617,414 574,264 503,447 Net fundsprosided from operations 788,171 1,246,001 1,083,332 { Funds from Financings: 1 Common stock - Public offerings - 150,745 82,605 Dividend reimestment and stock purchase plan 190,459 198,147 257,462 ; Employee savings plan 49,542 23,693 26,747 l Emplo>re stock ownership plan 5,388 5,11 *, 4,713 l 245,389 377,698 371,527 i First mortgage bonds 700,NO 710,000 - Bonds retired, reacquired, or refunded at maturity (357,922) (8M,776) (63,704) Preferred stock - 100,000 150,000 Preferred stock subject to mandatory redemption 125,000 - - Preferred stock reacquired or redeemed (159,000) (51,974) (5,611) - Proceeds from pollution control obligations, net 106,064 365,033 635,215 Notes payable to banks 313,260 (32,399) (72,956) ; increase in other long-term debt 29,136 315,895 31,779 I I; 4 note payable used for coal contract termination - (121,326) - l Net funds provided from financings 1,001,927 798,151 1,N6,250 Pcnds from Other Sources: Decrease (increase) in temporary cash investments (32,936) 83,607 (137,754) l I Decrease (increase) in other net current assets (excluding notes payable and long term debt and preferred stock due within one year) (228,676) 102,236 59,778 Sales of property, net book value 6,110 - - Advance payment under capacity contract - 100,000 - Other, net (including allowance for equity funds used during construction) 286,405 10,298 159,659 Net f mds provided from other sources 30,903 2%141 81,683 2 Gross Property Additions (including allowance for funds used during construction in the amounts of $299,995,000 in 1987,M80_4 000 1 in 1986, and $402,078,000 in 1985) 51,821,001 $2,340,293 $2t211265 1 The accompanying notes are an integralpart of these statements. 35
CONSOLIDATED BALANCE SHEETS At December 31,1987and 1986 The Southern Company and Subsidiary Compar,ies ASSETS 1987 1986 (in thousands) Utility Plant: Plant in sersice, at original cost $20,578,622 516,539,5 % Less accumulated provision for depreciation 5,199,359 4,748,231 15,379,263 11,791,365 Nuclear fuel, at amortized cost 478,985 519,993 Construction work in progress (Note 3) 2,639,478 5,157,897 Total 18,497,726 17,469,255 Less property-related accumulated deferred income taxes (Note 1) 2,321,711 2,165,615 Less provision for disallowed Plant Vogtle costs (Note 3) 279,953 - Total 15,8 % ,062 15,303,640 Other Property and Investments 69,644 69,378 Curnnt Assets: Cash 46,290 47,186 Temporary cash investments, et cost whit.h approximates market 909,049 876,113 Receivables, less accumulated provisions for uncollectible accounts of
$206,678,000 in 1987 and $61,747,000 in 1986 (Note 7) 808,615 719.092 Fossil fuel stock, at average cost 503,491 488,698
) Materials and supplies, at average cost 270,242 220,708 Prepayments and specialdeposits 137,625 75,340 Vacation pay deferred (Note 1) 58,573 56,361 Total 2,733,885 2,483,408 Deferred Charges: Deferred Plant Vogtle costs (Note 1) 172,990 - Debt expense, being amortized 24,500 23,833 Premium on reacquired debt, being amortized 95,133 69,485 Deferred fuel costs (Note 4) 111,778 121,326 Miscellaneous 73,591 70,q46 Total 477,992 284,690 gal Assets $19,177 583 $18,1411 116 The accompanying notes are an integralpart of these balance sheets. 36
CAPITALIZATION AND LIABILITIES 1987 1986 (in thousands) Capitalizatio n (See accompanying statements): Common stock equity S 6,170,475 $ 6,009,574 Preferred stock 1,136,820 1,211,820 Preferred stock subject to mandatory redemption 214,500 167,250 Long term debt 8,203.712 7,674,704 Total 15,725,507 15,063,348 Current Liabilities: Preferred stock due or to be redeemed within one year 8,368 14,618 Long term debt due within one year 183,363 236,320 Notes payable to banks 317,261 4,001 Accounts payable 731,943 726,512 Customer deposits 82,748 78,288 Tbxes accrued - Federal and stateincome 71,455 102,738 Other 146,331 151,808 Interest accrued 227,746 215,487 Vacation pay accrued 67,102 64,935 Miscellaneous 105,601 107,293 Tbtal 1,944,918 1,702,000 Deferred Credits and Other Liabilities: Accumulated deferred investment tax credits 1,159,295 1,186,373 Disallowed Plant Vogtle capacity buyback costs (Note 3) 79,376 - Prepaid espacity revenues 103,947 101,143 , Miscellaneous 164,540 88,252 i Tbtal 1,507,158 1,375,768 Commitments and Contingent Matters (Notes 2,3,4,5,6,7,12, and 15) 1 Total Capitalization and Liabilities $19,177,583 $18141,116 3 i The accornpanying notes are an integralpart of these balance sheets. 37
CONSOLIDATED STATEMENn OF CAPITALIZATION At December 31,1987and1986 The Southern Company and Subsidiary Companies 1987 1986 1987 1986 (in thousands) (percent of total) Common Stock Equity: Common stock, par value $5 per share-Authorized - 500,000,000 shares; Outstanding - 1987: 295,414,855 shares; 1986: 284,914,287 shares (a) $ 1,477,074 $ 1,424,57i Amount paid in for common stock in excess of par value 2,746,256 2,553,370 Premium on preferred stock 2,248 4,233 Earnings retained in the business (Note 13) 1,944,897 2,027.400 Total common stock equity 6,170,475 6,009,574 39.2 % 39.9 % Cumulative Preferred Stock of Subsidiaries:
$100 par or stated value -
4.20% to 5.96% 199,356 199,356 6.48% to 7.88% 147,000 147,000 8.(M% to 8.80% 225,464 225,464 9.00% to 9.52% 115,000 115,000
$25 stated value -
$2.30 to $2.47 100,000 100,000
$2.52 to $2.56 100,000 100,000
$3.00 59,000 50,000
$3.44 - 75,000 Adjustable rate - at January 1,1988:
8.12 % S0,000 50,000 8.57 % 50,000 50,000 8.64 % 50,000 50,000 9.12 % 50,000 50,000 ,
'ibtal_(annual dividend requirement - $92,880,000) 1,136,820 1,211,820 7.2 8.0 Cumuistive Preferred Stock of Subsidiaries Subject to Mandatory Redemption: $100 par value -
10.20% to 11.36% 52,868 61.868
$25 stated value -
$2.43 75,000 -
$2.50 50,000 -
$2.75 45,000 48,750
$3.76 - 71,250 Total (annual dividend requirement - $22,976,000) 222,868 181,868 less amount due or to be redeemed within one 3rar (Note 9) 8,368 14,618 Total excluding amount due within one year 214,500 167 250 1.4 1.1 38
1987 1986 1987 1986 (in thousands) (percent oftotal) Imag-Term Debt: First mortgage bonds of subsidiaries - Maturity Interest Rates, 1987 4X% to 8%% - 104,179 1988 3%% 23,000 23,000 1988 4% 8,A0 8,000 1988 4%% 24,000 24,000 1989 4%% to 5%% 30,823 30,823 1990 4%% to 5% 26,847 26,847 1991 4%% to 4%% 23,000 23,000 1992 4%% to 5%% 50,845 53,035 1993 thrcugh 1997 4%% to 10X% 636,449 386,449 1998 through 2002 6%% to 11%% 1,269,489 1,274,489 2003 through 2007 7%% to 11%% 1,190,968 1,190,968 2008 through 2012 9% to 16%% 910,778 1,155,831 2013 through 2017 9%% to 16% 1,340,097 891,597 Total first mortgage bonds 5,534,2 % 5,192,218 Other long-term d:bt (Note 10) 2,926,026 2,790,826 Unamortized debt premium (discount), net _ (73,247) (72,020) Total long-term debt (annual interest requirement - $798,693,000) ' 8,387,075 7,911,024 Less amoimt due within one year (Note i1) 183,363 236,320 Long teim debt excluding amount due within one year 8,203,712 7,674,704 52.2 51,0 Total _ Capitalization $15,063,348 100.0 % 100.0 %
$15 11 J57 (a) A t December 31,1987, a total of 8,469,207 shares was reservedfor issuancepursuant to the Dividend Reinvestment and Stock Purchase Plan and the Employer Savings Plan.
The accompanying notes are an integralpart of these statements. 39
CONSOLIDATED STATEMENTS OF EARNINGS RETAINED IN THE BUSINESS for the 1kars Ended Dumber 31,1987, INS a~f 1%$ The Southern Compaq and St.bsidiary Companies 1987 1986 1985 (in thousands) Balance at beginning of period $2,02?,400 $1,726,449 $1,404,756 Consolidated net income 554,442 882,860 829 t5_90 2,581,842 2,609,309 2,234,346 Cash dividends on common stock ($2.14 per share in 1987, $2.06% per share in 1986, and $1.95 per share in 1985) 617,414 574,264 503,447 : Capitalstock issuance expense 6,162 4,417 4,450 P_ referred stock redemption expense 13_,369 3,228 - Balance at end of period 1 Note 13) $1,94J 1897 $2,0271400 $ 1,72_6,449 CONSOLIDATED STATEMENTS OF AMOUNT PAID IN FOR COMMON STOCK IN EXCESS OF PAR VALUE I For the )hxis Ended thremhr 31,1937,1984 and 1%$ 7he Southern Compaq ard Subsidiary Companies 1987 1986 1985 (in thousands) Balance at beginning of period $2,553,370 $2,255,823 $1,978,458 Proceeds from sales of common stock over the par value thereof - 10,500,568 shares in 1987,16,030,301 shares in 1986, and _l,8,832,359 shares in 1985 192,886 297,547 277,365 ' Balance at e_nd of pericd $2,746,256 $2,5531370 $_2,2.55,823 The accompanying notes are an integralpart of these statements. 40
[ NorES To FINANCIAL STATEMENTS At Drumber31,1%7,19d4 and1%$ The Southern Company and Subsidiary Companies
- 1. Summary of Sigalficant Accounting Policies: February 1,1987, is being amortized to revenues ,
over the ensuing 18-month period. Such amorti-O'"#*# , zation amounted to 530.2 million in 1987.
. The Southern Company is the parent company of four operating companies, a system senice com. EkelCosts ,
pany, Southern Electric he.ernational, Inc. (SEI). Fuel costs are expensed as the fuel is used. The and The Southern Imtstment Group, Inc. (SIG). operating companies' electric rates include prmi- ' The operating companies provide electric service sions to adjust billings for fluctuations in fuel and 4 in four southeastern states. Contrets among the net purchased energy costs. Rewnues are adjusted , companies - dealing with jointly owned generat- for differences between recoverable fuel costs and ing facilities, interconnecting transmission lines, amounts actually recovered in current rates. See and the exchange of electric power - are regulated Note 2 for regulatory cwnts concerning fuel cost ,
- by the Federal Energy Regulatory Commission recovery by Georgia Power. '
(FERC) or the Securities and Exchange Commis- Fuel expense includes the amortization of the ! sion (SEC). The system service company provides, cost of nuclear fuel and a charge, based on nuclear l at cost, specialized senices to The Southern generation, for the permanent disposal of spent j Company and to the subsidiary companies. SEI nuclear fuel. The total charges for nuclear fuel in- ' markets to utilities and industrial concerns the cluded in fuel expense amounted to $156,754,000 technical expertise of the Southern electric system in 1987,5121,311,000 in 1986, and $128,435,000 in in planning and operating electric power facilities. 1985. Alabama Power and Georgia Power have SIG was formed in 1985 to research and develop contracts with the U.S. Department of Energy new business opportunities. that provide for the permanent disposal of spent i The Southern Company is registered as a hold- nuclear fuel which is scheduled to begin in 1998. ing company under the Public Utility Holding Pending permanent disposition of the spent fuel, Company Act of 1935. Both the company and its sufficient storage capacity currently is available subsidiaries are subject to the regulatory provisions through the year 2001 at Plant Hatch and into of the Act. The operating companies also are sub- 2007 and 2011 at Plant Farley Unit Nos. I and 2, ject to regulation by the FERC and their respective respectively, and will be available at Plant Vogtle state regulatory commissions. The companies fol- through the year 2003. low generally accepted accounting principles and comply with the accountmg pohcies and practices gNDg prescribed by their respective commissions. Utility plant is stated at original cost. This cost All material intercompany items have been includes appropriate administratiw and general eliminated in consolidation. Consolidated re, costs; payroll-related costs such as taxes, pensions, tained earnings at December 31,1987, include and other benefits; and the estimated cost of
$1,669,665,000 of undistributed retained earnings funds used during construction. The cost of main-of subsidiaries. tenance, repairs, and replacement of minor items of property is charged to maintenance expense.
Revenues The cost of replacements of property (exclusin The operating companies accrue for service ren- of minor items of property)is charged to utility dered but unbilled at the end of each fiscal period. plant. Prior to February,1987, Alabama Power recog-nized revenues concurrent with billings to cus-tomers on a cycle billing basis. In February,1987, Alabama Power began accruing for service ren-dered but unbilled at the end of each fiscal period. In accordance with retail rate treatment, the cu-mulatise accrued amount of $49.4 million as of 41
Plant Vogtle Phase In Plan Allowancefor Amds Used During Construction in 1987, the Georgia Public Senice Commission (AFUDCJ and DeferredReturn (GPSC) ordered that the costs of the recently AFUDC represents the estimated debt and equity completed Unit No. I of Plant Vogtle, a two-unit costs of capital funds which are necessary to fi-nuclear facility of which Georgia Power owns nance the construction of new facilities. While 45.7 percent, be phased into rates under a plan cash is not realized currently from such allowance, that meets the requirements of Financial Account- it is realized over the senice life of the plant ing Standards Board (FASB) Statement No. 92, through increased revenues resulting from a higher Accounting for Phase In Plans. The plan includes rate base and higher depreciation expense. The deferral of financing costs and depreciation ex- composite rates used by the companies to calcu-pense for the portion of the approved imestment late AFUDC during the years 1985 through not yet in rates. See Note 2 for additionalinforma- 1987 ranged from a gross rate of 9.59 percent tion on these cost deferrals in addition, pursuant to 11.62 percent for Gulf Power and Mississippi to a December,1986, accounting order by the Power and from a net-of-income-tax rate of GPSC, Georgia Power deferred substantially all 8.31 percent to 10.01 percent for Alabama operating expenses and financing costs related to Power and Georgia Power. The income tax ef-Plant Vogtle Unit No.1, which began commercial feet of capitahzed debt cost was $67,533,000, operation on May 31,1987, for the period June 1, $125,429,000, and $123,720,000 in 1987,1986, and 1987, through October 1,1987. Such deferrals un- 1985, respectively, in 1987, Georgia Power imput-der the accounting order amounted to $78.1 mil- ed a return similar to AFUDC on its imestment in lion, after taxes, for operating expenses and Plant Vogtle Unit No. I after it began commercial
$67.9 million, after taxes, for financing costs. The operation, under a short-term cost deferral and a deferred expenses are shown as a credit against the phase-in plan as discussed above. AFUDC and the costs actually incurred during the period. The ac- deferred return on Plant Vogtle, net of income tax, counting order presides for the inclusion of these as a percent of consolidated net income were deferred costs in Georgia Power's rate base and 66.5 percent in 1987,50.6 percent m 1986, and i recovery through rates over 10 years beginning 48.1 percent in 1985.
Depreciation and Amortimtion Disallowed Cast 3 Depreciation of the original cost of depreciable FASB Statement No. 90 was implemented in 1987. utility plant in senice is presided primarily using It requires the write-off of costs of newly com- composite straight-line rates which approximated pleted plants that are disallowed for ratemaking 3.4 percent in 1987 and 3.6 percent in 1986 and purposes. Georgia Power recorded a provision in 1985. Depreciation includes a factor to provide for 1987 for the amount by which the cost of its share the expected costs of decommissioning nuclear fa-of Plant Vogtle is expected to exceed the cost cap cilities. This factor is based on estimated decom-established for retail ratemaking purposes. See missioning costs of approximately $146 million Notes 2 and 3 for information on the Plant Vogtle and $99 million for Georgia Power's ownership cost overrun and other possible disallowances. interest in Plant Hatch and Unit No.1 of Plant Vogtle, respectively, and a total of $250 million for Alabama Power's Plant Farley. Estimated decom-missioning costs are adjusted periodically to re-flect changing price levels and technology. When property subject to depreciation is retired or other-wise disposed of in the normal course of business, its cost - together with the cost of removal, less salvage - is charged to the accumulated provision for depreciation. 42
Income Tm Employers' Accounting for Pensions, which re-The companies provide deferred income taxes for quires use of the "projected unit credit" actuarial all income tax timing differences. Investment tax method for financial reporting purposes. This credits utilized are deferred and amortized to in- change did not have a material effect on net in- ! come over the awrage lives of the related property, come. The funded status of the plans at Decem- , Provisions for property-related deferred income ber 31,1987, is as follows (in thousands): ) taxes reflect consumption of part of the value of Actuarial present value of benefits obtisations: the plant and equipment to which the provisions vested benefits s 833,346 relate. Accordingly, the related accumulated Nonvested benefits 60,349 deferred income taxes (ADIT) are a valuation Accumulated benefit oblisation 893,695 reserve which is deducted from plant investment in ^dditional amounts related to projected the Consolidated Balance Sheets. Other ADIT are "#y'* ; ,, meluded in taxes accrued. FASB Statement No. %, 93,. Accounting for income Thxes, which must be im- Fair value of plan assets, primarily equity plemented by 1989, will require, among other and fixed income securities 1,70s,217 things, conversion to the liability method of ac- yyy pransition asset counting for ADIT. This change will necessitate (2N) Prepaid pension cost recosnized in the recording ADIT for all book tax basts differences s 136
-consolidated salance sheets and restating ADIT at the rates at which they are expected to be settled. Certain ADIT have been The discount rate used to measure the projected recorded at rates higher than the rates specified in benefit obligation was 7.5 percent, the assumed ;
the Thx Reform Act of 1986. The amounts result- annual rate of salary increase.t was 6.0 pen:ent, I ing from the change in tax rates will be used to and the assumed long-term rate of return on plan l reduce future tax expense for accounting and assets was 8.5 percent. The components of net ! ratemaking purposes. 'Ihx law requires that these pension cost for 1987 were (in thousands). ! amounts related to accelerated depreciation be l used to reduce tax expense over the lives of the Benefits earned durins the year s 70,252 ' Interest C st on Projected benefit obligation 103,891 related assets. Amounts not related to accelerated
. Actual return on plan assets (63,480) depreciation are not covered by normahzation re' Net amortization and deferral (67,163) quirements, and they will be reversed in accor- Netpension cost 5 43,500 dance with regulatory ratemaking treatment. The statement also precludes netting of deferred tax Pension cost amounted to $83.634,000 in 1986 liabilities against assets. See Note 8 for further in- and $73,102,000 in 1985. Of pension costs re-formation regarding income taxes. corded, $28,122,000 in 1987, $54,P M in 1986, and $46,365,000 in 1985 were charged to operating expenses, and the balance was charged to con-The companies have defined benefit, trusteed, struction and other accounts. Also, the companies noncontributory pension plans which cover sub- have incurred additional costs to pay retirees un-stantially all reguler employees. Benefits are based der early retirement programs. The costs related to on the greater of amounts resulting from two these programs were $11,161,000, $17,434,000, and different formulas: years of service and final pay $12,181,000 for the years 1987,1986, and 1985, or years of service and a flat-dollar benefit. The respectively, companies use the "entry age normal method with The actuarial present value of accumulated frozen initial liability" actuarial method for fund- plan benefits as of January 1,1986, based on an ing purposes, subject to limitations under federal income tax regulations. On January 1,1987, the companies implemented FASB Statement No. 87, 43
l eight percent assumed rate of return, totaled 2. Rate Matters:
$715,831,000, of which $679,370,000 and $36,461,000 represented vested and nomested Alabama Nwer Rate A4/urtment Procedures benefits, respectively. Plan net assets available for In November,1982, the Alabama Public Sem.ce benefits at January l 1986, were $1,431,669,000. Commission (APSC) adopted rates which provide i
The system companies also provide certain for penodic adjustments based upon Alabama health care and life insurance benefits for retired Power's earned return on end-of-pen,od retail employees. Substantially all employees may be- common equity. The rates also provide for adjust-come eligible for these benefits when they retire, ments,to recogmze th,e placmg of new generating Prior to 1987, the costs of such benefits were facilities in retail service. Both increases and de-recognized as payments were made. in 1987, to creases have been placed into effect since the reflect the full cost of such benefits, the system adoption of these rates. In June,1985, the APSC companies, except for Georgia Power, began extended the retail ratemakmg concept into 1989, recognizing these benefit costs on an accrual basis and the extension order was affirmed by the using the "auregate cost" actuarial method, Supreme Court of Alabama m October,1986. which spreads the expected cost of such benefits Alabama Power's rate schedules provide for ad-over the remaining periods of employees' service justments in retail electric rates to reflect changes as a level percentage of payroll costs. Accrued in both state and federalincome tax rates. As a costs for medical benefits will be funded to the ex, result of the decrease m the federalincome tax rate tent deductible under federal income tax regula- by the Tax Reform Act of 1986, retail electric rates tions; accrued costs of life insurance benefits, were reduced approximately two percent and one other than current cash payments for retirees, are percent in January,1987 and 1988, respectively. not currently being funded. This change did not Appeal of1983 Georgia hwer Rate Decision have a material effect on net income because most Effective October 1,1983, the GPSC granted l of the $14.3 million increase in expense was recog- Georgia Power an annual increase in retail reve-mzed in the ratemaking process. Consistent with l nues of $86,500,000 in addition to a $108,900,000 the regulatory treatment adopted in its 1987 retail increase effective September 7,1983. A consumer rate proceeding, Georgia Power recognizes these group appealed the GPSC's final order to the costs on a cash basis as payments are made. De Superior Court of Fulton County, alleging that total costs of such benefits recognized by system the $86,500,000 additional increase resulted from companies amounted to $34,589,000 in 1987, procedural irregularities. The court dismissed the
$9,315,000 in 1986, and $8,746,000 in 1985.
case, finding that the group lacked standing to Vacation my seek judicial review. After further appeals, in The operating companies' employees earn their December,1985, the Supreme Court of Georgia vacation in one year and take it in the subsequent affirmed a decision by the Court of Appeals to year. Howewr, for ratemaking purposes, vacation permit the consumer group to proceed with its ap-pay is recognized as an allowable expense only peal to the Superior Court of Fulton County. A when paid. Consistent with this ratemaking treat- prehearing conference was held in February,1986, ment, the companies accrue a current liability for before the Superior Court of Fulton County. The earned vacation pay and record a et'rrent asset court has not set a date for hearing the case, representing the future recoverability of this cost. Georgia NwerhelCast Recovery Such amounts were $58,573,000 and $56,361,000 in April,1984, Georgia Power filed a request for at December 31,1987 and 1986, respectively. In an increase in the fuel cost recovery rate with the 1988, an estimated 68 percent of the 1987 deferred GPSC to cover estimated increases in fuel cost and vacation cost will be expensed, and the balance unrecovered fuel cost from prior periods. The will be charged to construction and other accounts. GPSC granted an allowance which was deficient in covering Georgia Power's prior period fuel costs 44
( 1 by approximately $22,300,000. Following appeals through rates within 10 years besmning October 2, in the courts, the matter was remanded to the 1987. De costs deferred under the phase-in plan - ' GPSC for further considemtion. In January,1986, amounted to $27 million, after taxes, in 1987. the GPSC vacated its original disallowance order pf,,, ggfg g pending results of a prudence audit at Georgia Power. In July,1987, consultants for the GPSC In its 1987 rate order, the GPSC disallowed ap-Issued a report concluding that mismanagement proximately $951 million of the totalcost of Plant i by Georgia Power of its coal procurement for Vogtle Unit No. I and common facilities (includ-Plant Scherer has resulted in higher costs totaling ing the co-owners' construction and financing
$63.8 million (including $48 million in fuel costs costs). Unless modified through the appeals process, the disallowance would require Georgia !
and $15.8 million in interest). The consultants fur. , ther recommended that the GPSC scmtinize the Power to, write off an estimated $200 million after retail portion of a $35 million payment Georgia taxes. This would be in addition to the $229-million Power made in June,1987, to terminate a contract after-tax write-off recorded in 1987 as a result of with a coal supplier. The consultants contend that a ratemaking cost cap for Plant Vogtle. The rate-the contract had been imprudently entered into by making cap is further described in Note 3. The Georgia Power. On September 30,1987, the GPSC above amounts include the effect of Georgia approved Georgia Power's application for a de. Power's portion of the disallowed plant costs and ) crease in the fuel cost recovery rate to reflect, the present value of related disallowed capacity among other things, the lower cost of nuclear fuel buyback obligations. Georgia Power and certain for Plant Vogtle. In approving the revised rate, the of the interveners in the pr* lass have ap-GPSC did not decide any of the pending prudence pealed the decision of the GPSC to the Superior issues relating to fuel costs. Hearings on these is- Court of Fulton County. The outcome of this sues are expected in 1988. The outcome of this matter cannot now be determined. matter cannot now be determined. Appeal ofMississippi Amr Rate A4)ustment Plan Georgia Pbwr 1987 Rate Order; Phase In Plan In August,1986, the Minniuippi Public Service The GPSC voted to approve an increase in retail Commission (MPSC) issued an order directing base rates for Georgia Power designed to increase that Mississippi Pbwer's retail rates be set accord-annual revenues by a total of approximately ing to a Performance Evaluation Plan for a three- ! $464 million. The approved increase covers Plant year period. Under the plan, a change in rates Vogtle Unit No. I and common facilities and was will be based on quarterly reviews of Miuiuippi placed into rates beginning October 2,1987, under Power's earned retail return on end-of period l a phase in plan intended to provide additional common equity, compared to an allowed return, , cash revenues of approximately $291 million dur- in conjunction with an evaluation of Mississippi l ing the first year with the remaining increase to be Powr's performance in specified areas. The plan deferred and recovered within 10 years. As ordered also allows rate adjustments for material changes by the GPSC, the phase-in plan includes approxi- in firm capacity sales. However, a change in rates mately 49 percent, 84 percent, and 100 percent is limited to two percent of retail revenues per of Georgia Power's allowed investment in Vogtle quarter. The MPSC order made the plan effective Unit No.1 in rates in the first, second, and third retroactive to the first quarter of 1986. Por 1986, years, respectively. The portion of Georgia Power's the second-quarter evaluation required a two-allowed investment not included in rates earns a percent increase, or $6,538,000 annually, effective deferred return, calculated at Georgia Power's cost September 23,1986. The MPSC also granted an of capital, including a 13-percent return on com, increase in retail revenues of $6,556,000 annually, mon equity. This deferred return will be recovered or two percent, effective December 23,1986, to offset the scheduled reductions in off system ca-pacity sales. No rate changes were required under 45
the plan in 1987. In October,1986, the Attorney $8.87 billion. The revised budget estimates for General of hiississippi and two interveners ap. Plant Vogtle reflect the additional labor costs in-pealed the plan to the Supreme Court of hiissis. curred over presiously budgeted amounts to main-sippi. If the court rules that the plan is imnlid, tain ttie schedule for Unit No.1, as well as the hiississippi Power would have to refund approxi. delay in the completion date for Unit No. 2. The mately $22 million collected through December 31, resised budget also assumes construction installa-1987. In management's opinion, the outcome of tion rates for Unit No. 2 that are better than those this matter will not have a materialimpact on the experienced in the construction of Unit No.1. The financial position or results of operations of h!is- total cost of Georgia Power's 45.7 percent interest sissippi Power. in the plant is estimated to be approximately
$3.87 billion at completion, an increase of
- 3. Construction Program: $313 million (8.8 percent) from the presious esti-Geneml mate. Because the plant's cost for ratemaking pur-The subsidiary companies are engaged in continu- poset has been capped at the presions budget ous construction programs, currently estimated to level, Gcongia Power wiu not record $33 million of total some $2.2 billion in 1988, $1.7 billion in AFUDC and wrote off the remaining $280-million 1989, and $1.6 billion in 1990. The estimates in. increase in 1987. A related $78 million, represent-clude AFUDC of $216 million in 1988, $132 mij, ing the present value of increased future pa>Tnents lion in 1989, and $111 million in 1990. The for the buyback of capacity from joint owners construction programs are subject to periodic resulting from the cost increase, was also written resiew and revision, and actual construction costs off. The effect of the write-off on 1987 income may vary from the above estimates because of was $229 million, after taxes. Future earnings will ,
numerous factors. Particularly with respect to new be reduced by approximately $37 million during I nuclear units, it has been the experience of the the capacity buyback periods, about half of which electric utility industry that actual construction should occur during the first four >vars as a result costs have exceeded estimates. In addition, planned of the interest factor on the discounted buyback costs, completion dates often have not been met as a re. sult of, among other factors, design changes and The GPSC's 1987 rate order disallowed addi-rework required by regulatory bodies and delays tional Plant Vogtle Unit No. I costs as described in the progress of construction and in obtaining in Note 2. If sustained upon appeal, that order necessary federal and other regulatory approvals. would require Georgia Power to write off approxi-Any delay in commercial operation of a new gen, mately $200 million, after taxes, in addition to the crating unit or in recovering its costs through $229-million write-off taken in 1987. There is also higher rates results in an increase in the total cost the possibility of additional cost disallowances for of such unit. At December 31,1987, substantial Unit No. 2, as described under "Nuclear Con. purchase commitments were outstanding in con. struction Status" below. nection with the construction program. Nuclear Construction Status Plant Vogtle Cost Overmn; Write-Off Georgia Power was granted a full-power operating On hlarch 9,1987, Georgia Power increased its license by the Nuclear Regulatory Commission cost estimate for Plant Vogtle and announced a (NRC) for Plant Vogtle Unit No.1 in h1 arch, nine-month delay in the planned commercial 1987, and the unit began commercial operation on operation date of Unit No. 2. The total estimated 51ay 31,1987. Construction of Unit No. 2 is cur-cost of the plant at completion, including the co. rently on schedule for commercial operation by owners' financing costs and contingency allow. June,1989. If there is a delay in the commercial ances, was increated from $8.35 billion to operation of Unit No. 2 resulting from NRC li-censing or for any other reason, financing costs of Georgia Power's share of the unit will continue at 46
an estimated rate of approximately $9 million per EnvironmentalRequirements month and could also result in substantial increases In 1985, the U.S. Emironmental Protection in direct costs. Any additional costs might have to Agency (EPA) promulgated air quality control be written off as a result of the ratemaking cost regulations related to stack height requirements of cap previously described. There is the possibility the Clean Air Act. The U.S. Court of Appeals for that the GPSC will disallow costs of Plant Vogtle the D.C. Circuit issued an opinion in litigation con-Unit No. 2 that would require a write-offin addi- cerning the EPA's stack height rules on January 22, tion to the one recorded in 1987 and the one that 1988. At this time, the impact of that decision on may be required as a result of the GPSC's 1987 final rules and the impact on the system companies order regarding Unit No.1. cannot be determined. In addition, legislation be-Georgia Power has suspended construction of ing considered by Congress concermng acid rain the facility for the compaction and other process- and other air quality issues would make additional ing of radioactive waste at Plant Vogtle, pending pollution control equipment compulsory for cer-resolution of problems with the technology in- tain coal-fired power plants. The enactment of volved. No completion date is currently estab- legislation or new stack height rules mandating lished, and the future of this facility at Plant reductions of sulfur dioxide emissions in the sys-Vogtle is uncertain. Georgia Power is no longer tem's senice area would substantially increase recording AFUDC on its $67-million investment capital requirements and operating costs. in the facility. Recent legislation amending the Clean Water DeferralofRockyMountain Project; Act, the Resource Consenation and Recostry Act, Joint Ownership Propmal the Comprehensive Environmental Response, Compensation, and Liability Act, and the Emer-In its 1985 financing order, the GPSC concluded gency Planning and Community Right-to-Know that completion of the Rocky Mountam pumped Act affects many areas of system operations, in-storage hydroelectne project in 1991 is not eco-cluding the generation, transmission, and distribu-nomically justifiable and reasonable and withheld tion of electric energy. The fullimpact of these authonzation for Georgia Power to spend funds requirements cannot be determined at this time i from approved securities issuances on that project. pending the development and implementation of The managements of Georgia Power and Ogle-applicable regulations. l thorpe Power Corporation (OPC) have entered l into a letter of intent for a proposed joint owner- Stockholder Derivative Suit ship arrangement for the project, as described in On April 30,1986, a stockholder of'Ihe Southern Note 6. If this proposed arrangement is not com- Company brought a derivative action suit against pleted, Georgia Power plans to delay commercial certain current and former directors of The operation of the project to 1999, which would re- Southern Company and Georgia Power. The com-quire an amendment to the current joint FERC plaint alleges that the directors breached their license for the project. If such amendment is not fiduciary duty and were negligent in connection received, the project may be canceled. In the esent with the construction of Plant Vogtle and the the project is canceled or if Georgia Power cannot Rocky Mountain project. The suit seeks damages demonstrate that it is economically justifiable, from the directors of not less than $800 million recovery of the project's costs cannot be assured, which, if awarded, would be payable to The and part or all of such costs may have to be writ- Southern Company and Georgia Power. The ten off. As of December 31,1987, Georgia Power's defendants have filed motions to dismiss the suit, investment in the project amounted to approxi- based in part upon the report of the Independent mately $170 million. Effective December,1985, AFUDC accrued on the Rocky Mountain project is not being credited to income. 47
Litigation Committee of the boards of The Power may comert short term borrowings into Southern Company and Georgia Power that term loans, payable in 12 equal quarterly install-found it is not in the best interests of the compa- ments during the years 1991 through 1993, or at an nies to pursue the litigation. earlier date at Georgia Power's option. Rese term loans would be subject to authorization from the GPSC and the SEC. In connection with these The outcome of various uncertainties described credit agreements, Georgia Power has agreed to above related to the construction program cannot pay certain fees and/or maintain compensating now be determined. balances with the banks.
- 4. Financing and Fuel Commitments: ne $200 mEon expiring in April,1991, is un-der Alabama Power's revohing credit agreements Financing with 10 banks. These agreements require the pay.
To the extent possible, the subsidiary companies' ment of a commitment fee based upon the unused construction programs are expected to be financed portion of the commitments which, in the case of from the issuance of additionallong-term debt eight of the agreements and at the option of and preferred stock, from the receipt of additional Alabama Power, may be offset in whole or in part paid in capital provided by he Southern Company by maintaining balances with the respective banks. from the sales of common stock, from drawdowns In connection with all other lines of credit, the of funds from pollution control bonds already is- companies have the option of paying fees or main-sued, and from internal sources. Should The taining compensating balances, which are substan-Southern Company and subsidiary companies be tially all the cash of the companies except for daily l unable to obtain funds from these sources, the working funds and like items. These balances are ! companies would have to use short-term indebted- not legally restricted from withdrawal. ness or other altctnative, and possibly costlier, The amounts of long-term debt, preferred means of financing, or it could become necessary stock, and common stock which can be issued in to cancel or delay certain construction projects. the future will be contingent on market condi. Delays in constniction projects could result in sig- tions, the maintenance of adequate earnings levels, nificant additional costs, regulatory authorizations, and other factors. See At the beginning of 1988, unused credit ar. hianagement's Discussion and Analysis for infor-rangements with banks totaled some $2.4 billion, mation regarding the operating subsidiaries' earn-of which approximately $236 million expires at ings coverage requirements, various times during 1988 and 1989, $500 million on hiay 1,1990, $1.453 billion on December 31, 1990, and $200 million on April 30,1991. Y To supply a portion of the fuel requirements of The $500 million expiring on hiay 1,1990, is the system's generatmg plants, the subsidiary com-under The Southern Company's revohing credit panies have entered into various long-term com-agreements. Rese agreements require the pay-stments for the procurement of fossil and ment of a commitment fee for the unused portion nuclear fuel. In most cases, these contracts con-of the credit commitment which in most cases tain provisions for price escalations, minimum may be partially or completely offset by maintain- production levels, and other financial commit-ing compensating balances, ments. Additional commitments for coal and Georgia Power's revolving credit of $1.565 bil- melear fuel will be required in the future to supply lion, of which $113 million was outstanding at the subsidiary companies' fuel needs. December 31,1987, expires in December,1990. In rder to take advantage oflower cost coal During the term of these agreements, Georgia supplies, agreements were reached in December, 1986, for the termination of two contracts for the supply of coal to Plant Daniel, which is jointly owned by Gulf Power and hiississippi Power. The 48
i l unamortized amount of payments made to suppli- In connection with these sales, Georgia Power ers totaled $111,778,000 at December 31,1987. His has entered into agreements whereby it is required amount is being amortized on a per ton basis to to purchase declining fractions of OPC's and the cost of the replacement coal to match costs hfEAG's capacity and energy of the respective with savings achieved. generating units during periods of up to 10 years following commercial operation (and, with regard
- 5. Facility Sales and Joint Ownership to a portion of the five-percent additionalinterest Agreements: in Plant Vogtle owned by MEAG, until the latter Georgia Power has sold undivided interests m. of the retirement of the plant or the latest stated maturity date of hfEAG's bonds issued to finance Plants Hatch, Wansley, Scherer, and Vogtle in varying amounts, together with transmission facil- such ownership interest), with the payments for ities, to OPC, the hiunicipal Electric Authority of such capacity made whether or not any capacity is Georgia (hfEAG), and the city of Dalton, Georgia, available, ne energy cost of these purchases is a In 1987, a gain, after income taxes, of $3,851,000 function of each entity's sariable operating costs.
Except as noted below, the cost of such capacity resulted from the sale of certain transmission facil-ities to the city of Dalton. There were no sales of and energy is included in purchased and inter-changed power in the Consolidated Statements of 31,1987, Georgia Power's owrier- nc um apasy payments tow $329,E,000, ship and investment (exclusive of nuclear fuel)in , , 00, anG8 ,131,000 for B87, B86, and jointly owned facilities with the above entities were 1985, respectively. Pro}jected capacity pay 1nents 88 I N *S for the next five years are as follows: $399 million in 1988; $417 million in 1989; $445 million in 1990; ceorsk rmr $357 million in 1991; and $298 million in 1992, conuruction The 1987 and projected pa>Tnents include the c[ oYen"$p MQ f,,b additional buybacks resulting from the commer-m m; n,, ,w,,4,j cial operation of Plant Vogtle Unit No.1 in hiay, Plant Vogtle 1987, and the scheduled operation of Unit No. 2 UN: N$ 1 1,160 45.7r. 52,657,470 s 66.853 . ns CW pay.ms @ nm W No. 2 1,160 45.7 - 77s,139 recoverable m rates as a result of exceeding Plant Plant Hatch Vogtle's ratemaking cost cap. As described in (nuclear) 1,630 50.1 760.210 15.888 Note 3, the discounted value of the capacity pay-Ic$ 1,779 53.5 285,085 1,529 ments resuhing from the cost everrun was written Plant Scherer off in 1987. There is the possibility of further (coan disallowances of buyback costs as described in Unit Nos.1 & 2 1.636 8.4 82.364 13 Notes 2 and 3. Common facilities - 23.5 76.3M 5,869
- 6. Possible Sales of an Interest in Plants:
Georgia Power has contracted to complete the Vogtle unit under construction and to operate and An order of an appeal board of the NRC in an maintain the units as agent for the joint owners. antitrust review resulted in conditions being im-Each participant provides its own construction posed on the NRC licenses for Alabama Power's financing. Georgia Power would have to obtain Plant Farley which require Alabama Powrr to sell additional financing if a participant were unable an ownership m, terest of approximately s,x i percent to obtain sufficient financing. Georgia Power's in Plant Farley to Alabama Electric Cooperatist, proportionate share of plant operating expenses is Inc. (AEC) and to proside transmission sersices to included in the corresponding operating expenses AEC and municipal electric distributors. Alabama in the Conschdated Statements of Income. Power has engaged in negotiations with AEC for such sale. On June 29,1984, AEC filed with the 49 $
NRC a request that the NRC institute a proceed- by the boards of directors of Georgia Powtr and ing which could lead to imposition of sanctions of OPC, the negotiation and execution of a mutu-against Alabama Power for alleged violations of ally satisfactory definitive agreement, approval such license conditions. Discussions among the by the Rural Electrification Administration, and parties, the NRC staff, and the NRC's Director of approval by the SEC under the Public Utility Nuclear Reactor Regulation have been conducted; Holding Company Act of 1935. In January,1988, howeser, no agreement has been reached. On the FERC approved an amendment to Georgia June 16,1986, the NRC Director of Nuclear Reac- Power's license for the project adding OPC as co-tor Regulation issued a notice of violation which licensee and extending the commercial operation pertains solely to the license conditions associated date to 1996. with the antitrust hearings and has no relation to safety or emironmental matters. Alabama Power 7, Off System Sales Agreements: responded to the notice on August 27,1986, deny-
, The operating subsidiaries of the Southern electric mg violation of the license. Under NRC proce-dure, the notice of violation must be issued before system have entered into long-term contractual agreements for the sale of capacity and energy to a proceedmg is mitiated to determine the ex,stence i
certain nonaffiliated utilities located outside of the of an alleged violation of the license. If satisfac. system's service territory. Certain of these agree-tory resolution of the issues raised in the notice is not reached with the NRC staff, a shew cause or- ments are nonfirm and are based on capacity of the system in general. Other agreements are firm der could be issued and a proceeding begun to de-termine whether Alabama Power has negotiated in and pertain to capacity related to specific generat-ing units. Because the energy is generally sold at good faith with AEC and whether the terms of the sale offered by Alabam.4 Power are reasonable. cost under these agreements, revenues from capac-ity sales primarily affect profitability. Off-system Rocky Afourtain capacity revenues have been as follows: } The managements of Georgia Power and OPC g ,,, g,,,, have entered into a letter of intent regarding a pro- h h l - u.a. Term Total posed joint venture in the 848 megawatt Rocky
, gy ,3,,,,,,,;
Mounta,mpumped storage hydroelectric project. Under the proposed joint venture, Georgia Power 3987 $480,343 $ 32,762 $513,105 would retain its present imestment in the project 1986 408,163 114,937 523,100 and OPC would finance and complete the re- 1985 411,180 122,922 534,102 mainder of the project. Upon completion, Georgia Power would own an undivided interest in the Long term nonfirm power has been sold to I project equal to the proportion its imestment Florida Power & Light Company (FP&L), Jack-bears to the total imestment in the project (ex- sonville Electric Authority (JEA), Florida Power cluding each party's cost of funds and ad valorem Corporation, and Mississippi Power & Light i taxes). Current cost estimates project Georgia Company. These contracts expired at the end of Power's ownership at approximately 25 percent 1986. Similar contracts with Gulf States Utilities of the project. Company (Gulf States) and the city of Tallahassee, The letter of intent also pro ides that Georgia Florida, expire in 1992 and 2000, respectively. Power would agree to a unit power purchase from Unit power from specific generating plants is the project, during years one through 10 following being sold to FP&L, JEA, and Gulf States. Under commercial operation, in an amount equal to these agreements, approximately 3,100 megawatts 350 megawatts less the number of megawatts at- of capacity is scheduled to be sold during the tributable to Georgia Power's ownership interest. period 1987 through May,1992. Thereafter, these Completion of the proposed joint venture is sales will decline until the expiration of the con-subject to several conditions, including approval tracts in May,1995. 50
On July 2,1986, Gulf States filed suit in the respectively. Of these amounts, some $144 million U.S. District Court for the Eastern District of and $75 million, respectively, were deposited with Texas against The Southern Company, its operat- the court or withheld by Gulf States. Because of ing subsidiaries, and the system senice company, disclosure in reports filed with the SEC by Gulf The complaint seeks a judgment declaring that States concerning its financial condition, approxi-Gulf States is excused from further obligation mately $82 million and $25 million, after taxes, for under its unit power and other long-term power 1987 and 1986, respectively, have been excluded sales contracts with the operating subsidiaries from The Southern Company's consolidated net and awarding Gulf States unspecified damages. income through charges to the provision for un-Gulf States alleges, among other things, that the collectible accounts. In management's opinion, Southern electric system failed to negotiate and the outcome of the lawsuit will not have a material l renegotiate in good faith to reduce the amount of impact on the company's financial statements; capacity purchases under the contracts and en- however, the ultimate outcome of this matter can-gaged in fraudulent conduct in entering into the not now be determined. contmets. The court permitted Gulf States to Capacity and energy sales to FP&L, the make payments due under such contracts by Southern electric system's largest single customer, depositing funds with the court pending the out- provided revenues of $656 million in 1987, i come of the suit. However, during October and $556 million in 1986, and $753 million in 1985, or l November,1986, Gulf States received orders from nine percent, eight percent, and 11 percent, respec-the Public Utility Commission of Texas and the tively, of operating revenues, louisiana Public Senice Commission which disal- 8, Income Taxes: lowed the recovery of the capacity charges to Gulf States under the unit power and other long-term A detail of the federal and state income tax prosi-power sales contracts. As a result of this action, sions is shown below: Gulf States advised The Southern Company's operating affiliates that such capacity charges 19s7 1986 1985 applicable to the Texas and louisiana jurisdictions (in thousands) would not be deposited with the court or paid to ['*lj'"I5i"I"C"'****5 the operating affiliates. The case is still pending currently payable 5119,299 5 43,272 51 % ,121
- before the U.S. District Court in 'Ihxas. Deferred-current > ear 290,578 492,424 307,787 l By order dated May 12,1987, an administrative -mersal or law judge of the FERC, in consolidated proceed- Imestment t crest $s ings amtiated by Gulf States and The Southern Deterred 40,301 131,473 180,707 I Company's operating subsidiaries, found the con- Amorthauon- !
tracts not to be unjust or unreasonable, granted J anti costs written off (20,385) - - the declaratory relief sought by The Southern 31453 587,222 587329 j Company's operating subsidiaries, and dismissed s e-the complaint filed by Gulf States. This decision 25,043 53,820 35,312 Deterred-current > ear l has been appeeled to the full commission where it -mersal or is pending. The FERC had previously ruled it does ririor years (2,902) (5,385) (7,410) not have jurisdiction over the question of whether 37,3s2 63,181 % 892 The Southern Company negotiated in good faith Total 351,3ss 650,403 652,821 to reduce the amount of capacity purchases and engaged in fraudulent conduct in entering into the N7 toter e- (12s,923) Disallowed plant costs - - contracts, Other (20,073) 21 18,800 Revenues for 1987 and 1986 include unit power Federal and state income and other long-term power sales to Gulf States -uqarge41 wations sm,3si 5650,382 $634A21 amounting to $186 million and $178 million,
$1
Deferred income taxes result primarily from the $37,315,000 in 1986, and $35,773,000 in 1985. In- , companies' use of accelerated methods of depreci- vestment tax credits totaling $20,385,000 applica-ble to certain plant costs were included in the ; ation and other wTite-offs of property costs, as I provided for by th: income tax laws, being g. rater income tax reduction applicable to the write-off of than the book depreciation of such costs. Other such costs. At December 31,1987, allimestment ; deferred income taxes are provided for certain tax credits available to reduce federal income taxes i I costs or revenues that are recognized for income payable had been utilized. tax purposes in periods different from those used The provision for income taxes currently paya-for book purposes. Income taxes deferred in prior ble includes the tax effects of the reversal of prior years are reversed and charged or credited to in- 3 ears' timing differences for which deferred in-come when the book depreciation of property come taxes were not provided. At December 31, costs exceeds the related tax deductions or when 1987, the remaining balance of such timing differ-other timing differences reverse. As explained in ences was approximately $246 million, for which Note 1, certain amounts resulting from the change deferred income taxes of some $91 million (at 1988 in tax rates will be reversed in accordance with tax rates) have not been provided. regulatory ratemaking treatment. In accordarice The total provision for federalincome taxes as a with the GPSC's 1987 rate order, Georgia Power percentage of income before federal income tax began amortizing approximately $64 million of amounted to 31.7 percent,36.9 percent, and 38.3 such amounts over a three-year period. Approxi- percent for 1987,1986, and 1985, respectively. The mately $5.3 million of such taxes was amortized in difference between these rates and the federal 1987. See Management's Discussion and Analysis statutory rate (40 percent in 1987 and 46 percent in for further information on the impact of the 'Thx 1986 and 1985) resulted primarily from the exclu-Reform Act of 1986 and the new rules on account- sion from taxable incorr.e of the AFUDC and the ing for income taxes, deferred return on Plant Vogtle (10.1 percent in Deferred investment tax credits are amortized 1987,9.1 percent in 1986, and 8.1 percent in 1985). over the life of the related property with such l amortization normally applied as a credit to 9. Cumulative Preferred Stock Subject to reduce depreciation in the Consolidated State- Mandatory Redemption: ments of Income. Such credits amortized in this The requirements for preferred stock subject to manner amounted to $46,7%,000 in 1987 mandatory redemption total $8,250,000 per >rar through 1991 and $14,500,000in 1992. At Decem-ber 31,1987, $882,000 of preferred stock had been reacquired, which will be used to meet future years' sinking fund requirements. Also, in January,1988, Gulf Power exercised an option to redeem additional preferred stock amounting to $500,000, 53
- 10. Other long Term Debt: The subsidiary companies have authenticated Details of other long-term debt are as follows: and delivered to trustees a like principal amount of first mortgage bonds as sxurity for obligations December 31, under collateralized installment sale or loan agree-19s7 1986 ments made in connection with pollution control (in thousand5) revenue bonds The principal and interest on the d"
$$*thed* NbbcIuthNe"s first mortgage bonds will be payable only in the of tax-exempt pollution control event of default under the agreements.
rewnue bonds- Assets acquired under capital leases are recorded collateralized-
* "* as utility plant in service and the related obligation oS1 s s25,530 $ $65,530 is classified as other long-term debt. 'Ihe net book i Noncotiateralued- value of capitalized leases was $303,000,000 and '
5.9% to 6.0%- due serially $262,514,000 at December 31,1987 and 1986, re-85 an 11% due 1994 yy p y. M M, , h composh Interest rates for nuclear fuel, coal rail cars, build-9% and 9.125% due 1995 and 20G4 18,700 18,700 7.25% to 9.5 % due 2003-2006 51,200 51,200 ings, and other were 8.46 percent,9.49 percent, 7.2% to 9.2% due 2007 2010 92,250 92,250 9.58 percent, and 12.66 percent, respectively. Sink-0 .to 12.2!k ueb 68 68 ) ing fund requirements and/or serial maturities 9.25% to 10.6% due 20!$ 681,500 681,500 through 1992 applicable to other long-term d<bt 7.4% to 8% due 2016 77,400 77,400 are as follows: $69,597,000 in 1988; $78,631,000 in 8.375% due 2017 90,000 - less funds on derou,t with trustees 14,749 130,913 g9g9; $91,242,000 in 1990; $89,839,000 in 1991; 2,243,521 2,137,517 and $64,741,000in 1992,
'~
4 NcNuN" 142,614 105,079 11. Long Term Debt Due Within One Year: NidNs "" ish,3$ 15k00l A summary of the improvement fund require-Other 4,491 4.987 ments and scheduled matuiities and redemptions 313.300 278,464 of long-term debt due within one year is as Notes payable- followr 8.75% duc 19871989 4,850 7,300 l
, 9.5% due 19871990 600 800 1987 1986 9.75% due 1987 2010 10,937 11,119 8.25% due 19871995 Ii1,778 (in thousands) 121,326 Bond sinking fund requirements 5 66,732 5 63,802 Noninterest bearing due 1988 -
700 1,ss _ 10% due 1968-1992 130 - Portion to be satisfied by bonding 12.375% due 1990 30,000 30,000 property additions 4,820 2,860 11.5% due 1991 20,000 20,000 Reacquired bonds 3,196 3,935 8.5 due 1 1 Cash sinking fund requirements 58,766 57,007 Adjustable interest rates Mt monsage bond snaturides due 19871988 and redemptions $5,000 125,838 (7. 30,300 23,100 Ot term debt maturities 8 75% at 1/1/88) (8.09% to 8.875% at 1/1/88) I13.000 113,000 ptal s183,363 5236,320 due 2001 0.335% at 1/1/88) 2.500 2,500 1 349,145 374,845 ptal s2,926,026 52,790,826 1 1 1 53 i
The first mortgage bond improvement (sinking) Alabama Power and Georgia Power are mem-fund requirements amount to one, percent of each bers of Nuclear hiutual Limited (NhiL), a mutual outstanding seriet of bonds authenticated under insurer established to provide property damage in-the indentures prior to January 1 of each year, surance in an amount up to $500 million for mem-other than those securing pollution control obli- bers' nuclear generating facilities. The members gations. The requirements may be satisfied by are subject to a retrospective premium adjustment depositing cash or reacquiring bonds, or by pledg- in the event that losses exceed accumulated resene ing additional property equal to 166M percent of funds. Alabama Power's and Georgia Power's such requirements. maximum assessments per incident are limited to
$30.7 million and $29.2 million, respectisely, un-
- 12. Nuclear Insurance: der current policies.
Additionally, both companies have policies Under the Price-Anderson Act, Alabama Power which currently provide coverage up to $1.0 bilh,on and Georgia Power maintain agreements ofin- f sses in excess oW $NWon M demnity with the NRC which, together with pri- c verage Thisexcessinsuranceisprovidedby vate insurance, co tr third-party liability arising Nuclear Electric Insurance Limited (NEIL), a from any nuclear incident occurring at the com- mutualinsurance company, and American panies' nuclear power plants. The Act limits to Nuclear Insurers /hiutual Atomic Energy Liability
$715 million public liability claims that could arise Underwriters. The NRC requires that, no later from a single nuclear incident. Each company's than October 4,1988, on site property damage in-nuclear plant is in:ured against this liability to a smance poUa,es for connercial uclear power maximum of $160 million by private insurance plants be amended to provide that all proccuis (the maximum amount currently available), with fr m such insurance shall be paid to a separate the remaining coveinge provided by a mandatory trust established for the sole purpose of placing program of deferred premiums which would be as- the reactor m , a safe and stable condition. Any re-sessed, after a nuclear incident, against all owners maining proceeds are first applied toward the costs of nuclear reactors. A company could be assessed f decontammation or debns removal operations up to $5 million per incident for each licensed rdered by the NRC, and second, paid to either 1 reactor it operates but not more than an aggregate the company or its bond trustees as may be ap-of $10 million to be paid in a calendar year for propriate under applicable trust indentures. NEIL each reactor. The maximum assessment for Ala- also e vers the extra costs which would be in-bama Pewer and Georgia Power (based on its curred in obtaming replacement power during a ownership interests) is $10 million and $7.3 mil- pr lonted accidental outage at a member,s lion, respectively, per incident but not more than nuclear plant. hiembers can be msured agam, st m, -
an aggregr.te of $20 million and $14.6 million, creased costs of replacement power in an amount respectively, to be paid in any one year. The Price- up to $3.5 million per week (starting 26 weeks af-Anderson legislation expired in 1987 but remains ter the outage) for one >rar and up to $1.75 mil-applicable to nuclear units licensed by the NRC li n per week for the second >rar. Under each of or under an NRC construction permit prior to the NEIL polices, members are subject to assess-August 2,1987. Bills to amend the Price-Anderson ments if losses with respect to each policy year Act, including proposals to substantially increase, exceed the accumulated funds available to them ,- modify, or eliminate the limitation on liability surer under that policy. The present maximum as. provisions, are currentiv under consideration by sessments per madent under current polices for Co"I*** Alabama Power and Georgia Power for property damage would be $8.4 million each and for re-placement power $10.6 million and $11.3 million, respectisely. 54
- 13. Common Stock Dividend Restrictions: 16. Quarterly Financial Data (Unsudited): !
The income of The Southern Company is derived Summarized quarterly financial data for 1987 and primarily from equity in earnings ofits operating 1986 are as follows* i subsidiaries. At December 31,1987, $367,018,000 First Second Third Fourth of consolidated earnings retained in the business qu ner nu.ner ou.ner nu.ner l was restricted against the payment by the operat- r, mounts in thousands exepiforper.,Aar, date) l ing companies of cash dividends on common ps7,, , ,,, ,,,,,,,,,9 ,,9,,,,,,,,,,,,,,9, stock under tenns of bond indentures or charters. oper,tio, income As reported 270,563 305,492 434,601 205,816
- 14. Assets Subject to Lien: "
conjidItNet The operating companies' mortgages, as amended '"'J,*,'eponed 191,i32 205,o69 69,678 318.057 j and supplemented, which secure the first mort. As restated (38J25) 204,382 318,507 69,678 ; gage bonds issued by the companies, constitute a Pu comm o share p n, direct first lien on substantially all of the compa- As reported 0.67 0.71 1.10 0.24 nies' fixed property and franchises. ^ (jjj)g gjjg jj0 3 Ojjg g ,$,,relytyi, ! 15. Sannnah Electric Merger: 1986 l operating restnues si.585,592 si,667,748 s1.988.471 si,604,780 The Southern Company and Savannah Electric operating income 272.273 266,190 388,322 246,897 d and Power Company have signed an agreement to C ,o"' llnl'*d "" 195,739 188,726 317,298 181,o97 merge Savannah Electric into the Southern electric Per common share system in a business combination accounted for as Ms paid 0$! $ b$ $$n a poohng of interests. The merger - which is ex-pected to be completed during March,1988 - is guarterty earnints/cr 1987 Aave been restated to reDect the sub}ect to approval by the stockholders of Savan- pro vWon un ' hell'" e"*'te' lor di'*!!* **d Plant V**'le co ** nah Electric, the SEC, and the FERC. Under the ' #' ' " '
",',""#'8n,7uN'^#
, e1*!a###INtc[#
e terms of the agreement,1.05 shares of Southern the company 's business is iguenced bi seasonal i vatArr Company common stock will be exchanged for conditions ent' the ttmens of rate increases-each share of Savannah Electric conunon stock
, outstanding. Savannah Electric will tuome an
- op rating subsidiary of The Southern Company.
Historical financial information in future reports will be restated to include Savannah Electric. The following summarized operating data give effect to the merger as ifit had occurred on January 1, 1985 (excluding operating efficiencies which are expected to occur as the systems are integrated): 1987 1986 1985 (unoudited) Operating retnues (in thousands) s7,186,4s7 s7,022,176 s6,972,654 Consolidated net income (in thousands) s576.s23 s903,312 s844,869 Earnings per share s1,92 s3.11 s3.12
SELECTED CONSOLIDATED FINANCIAL DATA The Southern Comparty and Subsidiary Cornpanies 1987 1986 1985 0perstlog Revenues (in thousandst Residential $1,%2,214 $1.915,804 $1,754,763 Commercial 1,631,354 1,553,205 1,457,705 Industrial 1,842,5.?9 1,817,415 1,801,748 Sales for resale 461,411 510,768 436,328 Sales to utilities outside territory 1,009,050 944,882 1,262,659 Other 47,398 45,984 44.125 Total revenues from sales of electricity 6,953,957 6,788,058 6,757,328 Other revenues 56,40x 58,533 56,599 Tbtal $7,010,365 $6,846,591 $6J13,927_ Consolidated Net locome (in thousands)- as reported $554,442 $882,860 $829,590
-pro forma' 5554,442 $882,8_60 $829,590_
Total Earnings Per Share of Common Stock - as reported $1.92 $3.17 $3.20
- pro format $1.92 $3.17 $3.20_
Cash Dividends Paid Per Share of Common Stock $2.14 $2.06% $1.95 Return on Average Common Equity (percent) 9.10 15.57 16.64 Total Assets (in thousands) $19,177,583 $18,141,116 $16,531,495 ImagTerm Debt (in thousands) $8,203,712 $7,674,704 $7,091,672 Preferred Stock Subject to Mandatory Redemption (in thousands) $214,500 $167,250 $183,000 Gross Property Additions (in thousands) $1,821,001 $2,340,293 $2,2_ l_l,26_5_ Common Stock Data: Book value per share (yearvnd) $20.89 $21.09 $19.83 Masket price (year-end) 22 % 25% 22 % Shares outstanding (in thousandst Average 239,367 278,897 259,543 Year-end 295,415 284,914 268,884 Stockholders of record (year-end) 286,408 287,237 307,878 Kilontthour Sales (in thousandsk Residential 29,538,323 28,478,855 26,161,247 Commercial 24.817,679 23,419,553 21,817,973 Industrial 41,f t6,092 39,987,141 39,290,289 Sales for resale 13,281,869 14,346,938 11,078,592 Sales to utilities outside territory 21,507,929 16,548,419 27,082,537 Other 641,330 631,454 626,20L Total 131,343,222 123,412,360 126,056,839_ Customers (year-end) 3,024,188 2,955, % 1 2,880,552 Employees (year end) 31,957 31,700 31,701 Maximum Pesk Ilour Demand (kilowutts) 22,M7,000 22,739,200 21,287,800 System Capsbility" (kilowatts) 25,703,200 14,768,300 24,931,700 Plant Assilability(percenft Fossil steam 92.1 90.6 90.4 Nuclear 81.5 74.2 80.3 Annualload Factor (pernnt) 58.3 57.2 57.4 Average Revenue Per Kilontthour (untst Total sales 5.29 5.50 5.36 Resider.tial sales 6.M 6.73 6.71 Awrnge Cost of Fuel Per Net Kilown.ttbour Generatedjunts) 1.79 _, 1.89 1.95
- Georgia lbwer, in 1982, and MusissippiIbwer, in 1983, began accruingfor service rendered but unbilled at the end of each jiscalperiod.
The effect of this change was 'o 'acrease income before the cumulative effectforpriorperiods by $498,000 in 1982 and $4,987,000 in 1983. Proforma amounts assume retroactive opphcotion of this change in method of reconting revenues. 56
1984 1983 1982 1981 1980 1979 1978 1977
$1,685,706 $1,577,742 $1,469,107 $1,286,103 $1,186,206 $ 952,085 $ 914,625 $ 828,200 1,359,343 1,236,007 1,173,323 985,106 879,291 742,865 689,349 689,945 !
1,763,202 1,573,116 1,480,187 1,367,715 1,199,2N 1,056,675 922,288 773,447 l 455,842 439,038 446,199 397,585 336,984 326,309 324,351 298,834 1 776,889 507,909 278,234 161,581 110,243 2,955 12,460 19,846 , 41,N1 37,0N 34,206 29,385 26,216 22,050 20 18,760 2 252 l 6,082,023 5,370,816 4,881,256 4,227,475 3,738,144 3,102,939 2,883,325 2,629,032 l 41, % 2 47,227 45,927 28,762 25,339 25,230 23,347 23,053 i _$6123,985 1 $51 4181 N3 $41927,183 $4,256_,237 $3,7_631 483 $3128169 1 1 $2,906,672 $21 652,085_ l
$719,669 $590,326 $472,331 $325,979 $344,395 $219,127 $201,568 $245,067
$719,669 $583_tS27 _$449,401 $330,951 $345,829 $215t$$4 $2021253 $250,998 l
$3.00 $2.70 $2.38 $1.81 $2.23 $1.51 $1.45 $1.95 l
__$3.00 $2.67 $2.26 $1.84 $2.24 $1. 49 $1.46 $1.99
$1.83 $1.72% $1.66 $1.62 $1.56 $1.54 $1.54 $1.48 j 16.58 15.65 14.26 10.M 12.91 8.90 8.44 11.10
$15,003,960 $13,475,388 $12,301,201 $11,198,120 $10,378,699 $9,568,610 59,011,366 $8,332,620
$6,638,085 $6,293,732 $6,1N,179 $5,754,200 $5,226,851 $4,769,066 $4,522,888 $4,221,694
$194,224 $201,784 $211,234 $217,963 $152,000 $149,750 $155,000 $155,000
_$2,100,450 $1706,440 3 $1,490,529 $1,_288,022 $1,229,932 $1,164,956 $1,082,431 $1,218,4N
$18.55 $17.60 $16.78 $16.35 $16.80 $16.80 $17.05 $17.21 18% 16% 15% 12 12% 11% 13% 17%
239,784 218,556 198,800 180,139 154,392 145,038 139,005 125,846 250,052 229,590 208,824 190,957 168,697 148,745 142,102 136,772 1 321 200 339,978 346,595 347,119 345,335 341,401 342,482 328,135 l 25,279,N9 24,580,329 24,095,512 24,239,470 24,651,737 22,M5,723 23,606,119 22,829,156 20,147,559 18,881,778 18,409,993 17,714,872 17,282,986 16,433,689 16,586,919 17,763,462 l 38,536,6 % 35,121,845 33,369,042 35,451,363 34,833,6M 34,912,745 33,524,232 30,067,083 11,192,588 l 10,828,900 11,109,091 11,138,306 11,154,735 11,503,407 12,486,242 13,338,339 1 18,750,335 12,029,933 9,254,302 5,145,292 4,023,960 M,102 392,240 934,978 578,585 5M,947 5481803 527,828 512,159 461,008 439,235 420,487 Il4d84,812 1021 007,732 96,786 1743 94,217,131 92,459 1241 86,0201674 87,034J87 85,353,505 2,800,532 2,723,923 2,659,494 2,619,673 2,565,461 2,522,284 2,472,646 2,415,939 31.121 30,875 29,882 28,944 27,940 26,540 26,465 24,632 19,771,600 20,517,600 17,840,100 19,412,500 19,553,100 18,015,300 18,172,900 16,973,700 l 26,165,200 25,877,400 26,435,300 25,834,000 23,694,600 23,986,500 23,356,400 21,988,100 90.9 90.8 89.8 87.3 86.5 84.9 83.9 78.7 66.9 75.8 67.9 61.7 69.6 47.5 79.6 66.4 58.9 53.9 $9.8 56.5 $$.6 58.3 58.1 60.6 5.31 5.27 5.N 4.49 4.N 3.61 3.31 3.08 6.67 6.42 6.10 5.31 4.81 4.20 3.87 3.63 1.95 1.90 1.93 1.81 1.61 1.52 1.36 1.27 "Excludes 3,149,004 2.337,000, 2,4:3,00Q 964.000, and 634,000 kilowatts of capabilityfrom specific generating units sold under long-terrn contracts to three nonqffiliated utditiesfor the years 1987,1986,1983,1984, and 1983, respectively. 57
THE SOUTHERN ELECTRIC SYSTEM 1 AAA A AAA 4 > 4 > 4 Y A le m. msi.
. . . . , , ,,,.--,-c., . - - - - - - , , .m._ -, _r,.., ,,s _ . ~ .
~
( 1987desa , NoeImesme ~ Bnere ee . l t . Oposselse _ Afest Dieldeeds . Asunge 1 Seed . ESeeumour 1 l' 1 beal Aenes Emones O m Puutused Seesti r - Eq ~ anSugn*[ Sales .. . l}
. th doisseW sh ahomesa w th moussi g emmeng b
>desesse 1 J
b Aishama Fweer' $ 5,912,000 $2,450,532 $257,239 13.56 qAl/A/6 45,110,370 :) l i
! Geesgle Power . $11.197,494 $3,614,561 $240,057" 6.85"- Ben 2/BBB/9 68,510,446 9 j
[ ,Gelf Power $ 1,051,182 $ !531,905 - S 42,217 .13.23 '. Al/A/4 9,034,935 ~
+ ~
[ W Peeer $. !64,068 $ 423,459 5 35,200 / ~ 14.68 Y Al/A+/5
- ~
' 8,721,220 El
- 1 1: j
, Southern Company Services - an orsanlaation of sosne 3,000 esaployees who provale -j- i and tecludcalservices, -
? at coet, to the other mesnbers of the Southern electric systeen. ,
)
. Southern Electric Internatical- a consulting subsidiary formed la 1982 to market the Southern thetric system's - l l
technical emportise to utilities and ladustrial firms worldwide. :5. j i The Southern investment Group - an investment subsidiary estabbshed in 1985 to droelop new business opport=h f
'a,rrent retken onjsest mortsene bonds eseirend by Moody s inneers servke, seenderd & ?>er's C, , emiDigtf a PIbehie ;)
Inc. rarectinty. . 1
, "Jterhets en #ser wree-caqrun m# Hon reheare coorsk Amer's imietmeat h Pasat Wedr. :
m -s 4
._ a . _ .- . ~ . _-..
38
STOCKHOLDER INFORMATION Listed below are materials that Exchange. In addition, the stock quarter. The company charges no may be helpful to investors. is traded on regional exchanges senice fee or commission, and all across the United States. (The stockholders of record are eligible FonnI M
, ticker symbol for Southern Com- to participate. A prospectus de-A copy of Form 10-K as filed with pany stock is SO. The symbol scribing the plan and the method !
the Secunties and Exchange Com- SouthCo is used in newspaper for determining the price of the mission will be provided without stock listings.) shares may be obtained from the ; charge upon request to the Cor* Corporate Secretary. l porate Secretary. The company's Common Stock Data ' Financial and Statistical Resiew Dividends Price Range Direct Deposit of Dinidends and annual reports of the system Per Share High imw Upon request, The Southern ' operating companies are also 39g7 Company will maila stockholder's available on request. First Quarter 5 .53 % 29 25 % dividend check directly to a finan- , I Cassette Recordings See nd Quarter .53% 26% 21% cial institution for deposit. Direct Third Quarter .53% 25 21% deposit order forms are available Audio recordings of the 1987 .53% 23% Fourth Quarter 17% from Stockholder Services. . annual report are available with- ' out charge as a senice to the Total 5244 Annual Meeting visually impaired. Direct requests The 1988 annual meeting of The entire amount of dividends to Corporate Information. paid during 1987 is taxable as or- stockholders will be held on dinary income. Wednesday, May 25, at 10:00 a.m. Malling List for Publications (CDT) at the % ynfrey Hotel at The Southern Company main- Disidend Payments Riverchase Galleria in Birming-tains a mailing list for stock. ham, Alabama. A report on the The board of directors sets the holders whose shares are not held record date and payment date for meeting will be mailed to stock. in their own names and for other quarterly dividends. At their holders and also will be avall-mterested parties. Requests to be January,1988, meeting, the direc- able on request to Corporate added to this list should be sent to tors declared a dividend of b% Information. Corporate Information, cents a share payable March 5 to Stockholder Inquiries stockholders of record February 1. , gde d Pa g Agent, Questions regarding ownership For the remainder of 1988, the ! Disidend Reingestment Agent, ! I of Southem Company stock, the record dates are May 2, August I, And Registrar i status of an account, or inquiries ' about the company s opemtions {d mbe, ; Pa durlng the Southern Company Senices, Inc. Stockholder Senices may be directed to Stockholder remainder of 1988 are June 6, September 6, and December 6. P O Box 88300 Senices (404) 668 2774. Atlarkta, Georgia 30346 Institutional Insestor inquiries Disidend Reinvestment Plan (404) 668-2774 The Southern Company main. The Dividend Reinvestment and Auditors tains an investor relations office Stock Purchase Plan provides a in New York' New York - e nvenient method for stock- - holders to acquire additional 133 I,eachtree Street, N.E. (212) 269-8842 - to meet them- Atlanta' Georgia 30303 formation needs ofinstitutional shares through the investment of investors, quarterly dividends and through Isgal Counsel optional cash payments. For each Troutman, Sanders, Common Stock Listing account, stockholders can make Lockerman & Ashmore The common stock of The optional cash payments from a 127 Peachtree Street, N.E. Southern Companyis listed arid minimum of $25 per payment to a Atlanta, Georgia 30043 traded on the New York Stock maximum of $6,000 in a calendar 59
THE SOUTHERN COMPANY OFTICERS DIRECTORS Edwrd L Addison Edurd L Addison Jack Edwards William J. Rushton, Ill President President Partner Chairman and Chief Age 57; 33 years of service The Southern Company Hand, Arendall, Bedsole, Executive Offleer Atlanta, Georgia Greaves & Johnston Protective Ufe Corporation W.L Westbrook Age 37; elected 1978 (Attorneys) (Ufe and health insurance) Financial Vice President hfobile, Alabama Birmingham, Alabama Age 48; 23 years of service Alar. R. Barton Age 59; elected 1y87 Age $8; elected 1971 President Alan R. Barton hiississippi Power Company Joseph M. Farley Robert W. Scherer Vice President Gulfport, hiississippi President Chairman of tbt Board Age 62; 39 ) tars of service Age 62; elected 1982 Alabama Power Company and President Birmmgharu Alabama Georgia Power Company William J. Csbaniss, Jr. Ag 60; e!ceted 1970 Atl nt , i A.W. Dahlberg Vice President President Age 47; 27 years of senice Precision Grinding, Inc. LG. Harciman,III (hietal machining) Chairman o the Board, Dr. Gloria M. She(to Birmingham, Alabama President, and Treasurer President 30seph M. Farley h, ice President Age 49; elected 1985 Harmony Grove hiills,Inc. Berry College (Textile manufacturing) hiount Berry, Georgia Age 60; 35 > tars of senice Charles H. Chapman, Jr. Commerce, Georgia Age $6; elected 1984 Chairman of the Board Age 48; elect-d 1986 Douglas L McCrary Chapman Corporation Vice President Herbert Stockham Age 58; 34 years of service (Construction, real estate) Douglas L McCrary Chairmanof the Board Dothan, Alabamb Pres! dent and President Age 67; elected 1984 Oulf Power Company Stockha;n Valves & Flrtings,Inc. Robert W. Scherer Pensacola, Florida Birmingham, Alabama Vice President Age $8; elected 1983 Age 59; elected 1978 Wi!Ilam P. Copenhaver Age 62; 41 years of senice President Columbia Nitrogen Corp. Earl D. Mclsen, Jr. Vince Whibbs Tommy Chisholm (Agricultural and industrial Principal Partnee Chairman of the Board Secretary and Assistant chemicals) T.C. Griffith Vince Whibbs Pontiac-Gh!C Treasurer Augusta, Gorgia insurance Agenc/,Inc. Trucks, Inc. Age 46; 23 ) tars of service Age 63; elei;ted 1986 Columbia, hilssigsippi Vince Whibbs h!arda Company Age 62; elected 1985 AmSouth Bank of Florida i William A.Maner,Ill A.W. Dahlberg Pensacola, Florida Treasurer and Assistant President William A. Parker, Jr, Age 67; elected 1986 Secretary Sou:nern Company Chairman of the Board Age 48; 22 > tars of senice Services, Inc. Cherokee Imtstment Birmingham, Alabama Company, Inc. Age 47; elected 1985 (Private investments) Atlanta, Georgia Viqinia A. Dw>er Age 60; elected 1973 Retired Senior Vice President - Finarce H.G. Pattillo American Telephone & President and Telegraph Co. Chairman of the Board New York, New York Pattillo Construction Age 66; elected 1986 Company, Inc. Decatur, Georgia Age 61; elected 1972 60
ADVISORY DIRECTOR SYSTEM COMPANIES , Alsin W. Vogtle, Jr. Former Chairman of the Board The Southern Company 64 Mrneter Center ht g g g l Atlanta, Georgia 3M g The Southern Company y , Atlanta, Georgia (W)9@$0 s Age 69; elected 1%2 T l Alabama Power , Named Adsisory Director.1983 600 North 18th Street . 1988 COMMITTEES OF Tile BOARD (; ); h*** g ' ] " i Georgia Power - Audit Committee 333 Piedmont Avenue, N.E. t I
}
~
Earl D. McLean, Jr., Atlanta, Georgia 30308 - Chairman (448)526-6526 T William J. Cabaniss, Jr. j , Jack Edwards Gulf Power William J. Rushton, Ill 500 Bayfront Parkway Pensacola, Florida 32501 - l ' i Compensation Committee (948) 444-6111 f. William A. Parker, Jr., Mississipd Power Cha le i Chapman, Jr.
N -
Gunport, Minnsippi 3M01 - - L'G. Flardman' ill (601) 864 1211 System Chief Excestives -(standag,left to rigb0 Develas L McCrnry, 1 Joacpb M. Farley, Robert W. Scherer: (sested) Edwned L. Adenos; j Esecutige Committee Southern Company (fst rigbo A.W. Dabberg. Not pktured - Alsa R. Bartos. Edward L. Addison, Sersices, Inc. I i Chairman 64 Perimeter Center East I William A. Parker, Jr. l Atlanta, Georgia 30346 l 11.G. Pattillo (444)393 0650 l William J. Rushton,111 800 Shades Creek Parkway Independent Litigation Birmingham, Alabama 3$209 Committee (205)870-6011 William P. Copenhaver, One Wall Street Chairman
, ^'
- Si 00 f,(..'8'" New York, New York 10005 nce 'hib s (212)269 8842 Nominating Committee The 1937annualreport is 1130 Connecticut Avenue tierbert Stockham, Suite 830 submittedfor stockholders' Chairman Washington, D.C. 20036 igormation. It is not intended William J. Cabaniss, Jr. g:02)71$.oggs for usein connection with any L.G.13ardman, IlI saleorpurchaseof orany William J. Rushton,111 Southern Electric solicitation ofoffers to buy Gloria M. Shatto Inteinstional, Inc. of 3 ell. 3eckrities.
100 Ashford Center North Suite 400 Atlanta, Georgia 30338 (444)261 4700 The Southern Insestment Group, Inc, 64 Pecimeter Center East Atlanta, Georgia 30346 (404)393-0650 61
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