ML20151X964
| ML20151X964 | |
| Person / Time | |
|---|---|
| Site: | Farley  |
| Issue date: | 12/31/1987 |
| From: | Farley J, Whitson D ALABAMA POWER CO. |
| To: | Saltzman J Office of Nuclear Reactor Regulation |
| References | |
| NUDOCS 8805040296 | |
| Download: ML20151X964 (45) | |
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i Contents Corporate Profile Helping Develop Alabama Highlights 1 Alabama Po^er Companyis one Alabama and Alabama Power-To the Stockholders 3 of four operating companies of neither can be observed without Financial Review The Southern Company. Others seeing the other.
5 are Georgia PoAer Company, Gulf it seems almost axiomatic that Rates 5 Po^er Company (serving northwest those who have directed the company Electric Sales 7 Florida), and Mississippi Power over the half century have felt that it Generating Resources 9 Company (serving southeast M;ssis- could not prosper unless the state Capital Expenditures sippi). System affiliates also include prospered."
11 Southern Company Services, Inc., So stated thelate chairman and Research and Development 11 which performs specialized services counsel Thomas W. Martinin 1961 as l Productivity 13 at cost for system companies upon he was honored by the Alabama l l Economic Development 13 request; Southern Electric Interna- Legislatureontheoccasionof the l l tional, Inc., a consulting firm; The company's 50th anniversary.
! Customer Service 15 Southern Investment Group, Inc., "Helping Deselop Alabama," the l Employees 15 which dewelops new business op-
' company's trademark for almost a Helping Develop Alabama 17 portunities; and Southern Electric half-century, disappeared from the Report of Management 19 Generating Company,whchiso,vned companylogoinlatter years as the Auditors, Report in equal shares by Alabama Po^er company modernized. But through-19 and Georgia Po^er comoanies. out unprecedented grm/th of the Seiected Financial Data 20 A copy of Form 10-K as filed with 1960s and economic turmoil of Management's Discussion and the Secuntesand Exchange Commis- the 1970s, the ph!!osophy ne.er Analysis of Results of sion will be available to stockholders changed.
Operations and Financial upon written request to Richard A. Today, as stro g as ever be' ore, Condition 22 Bo.vron, Secretary. Acopyof the the commitment remains as Alabama Statements of Income 24 company's Financial and Statistical competes in natonal and international Statements of Earnings Retained Revievis also available on request. markets for economc expansion with in the Business 24 vibrant new business ch-mate evident in the state.
Statements of Other Paid-In Capital With a stated commitment 24 to become the competit ve I Statements of Sources of choice of the customer, Funds for Gross Property and the opening of Additions 25 our Alabama Resource Balance Sheets 26 Center, Alabama ,
5'tatements of Capitahzaton 27 " "
D p A aba Notes to Financial Statements 28 Officers 35 Directors 36 Management Changes 37 o upoenctre C coal e Nuclear A Orl or Gas 3 Semce Area
Highlights 1987t 1986 Operating Revenues (millions) $ 2,451 $ 2,426 Operating Expenses (millions) $ 1,991 $ 1,942 Net income after Dividends on Preferred Stock (mi!1 ions) $ 257 $ 273 Return on Average Common Equity (percent) 13.6 15.1 Allowance for Funds Used During Construction, net as a Percent of Net income after Dividends on Preferred Stock 16.2 14.7 Coverage Ratios:
Mortgage indenture (2.00x minimum requirement for issuance) 4.03x 4.89x Charter (1.50x minimum requirement for issuance) 1.97x 2.17x Energy Sales (thousands of kilowatt-hours):
Within System Service Area 37,761,913 35,809,128 Off-system 7,348,457 5,967,275 Territorial Peak Hour Demand (thousands of kilowatts)tt 7,886 7,892 Total Customers (year-end) 1,090,302 1,070,760 Total Gross Utility Plant (millions) $ 8,652 $ 8,108 Gross Property Additions During Year (milhons) $ 601 $ 554 tincluces IN e"ect of recognerg teynrung in February 1987, retad serxe renoc<ed tv not gH b%d b customers
? tinduces Sotreastern Pcu,er Arnrustraton anotment a e
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"It seems almost axiomatic that those u'ho hat e clitectect tnotpmsper uniess thestatep the company oi er the halfcentmy hat efelt that it coutcl E THOMAS W. MARTIN, SPEAKING BEFoRE THE ALABAMA LEGISLATURE, APRIL 11,1961.
To The Stockholders: objectives. Construction was begun ments to keepthe company within on the Alabama Resource Center, that range. During 1987 rates were Alabama Power Company con- which willpro ide moreinfccmaton to adjusted once under the plan, a de-tinued to experience growth and assist economic developmentin Ala- crease of approximately 1.9 percent financial stability during 1987, a year bama than has ever been gathered in October. highlighted by planning and prepa- under one roof, using thelatest The system's generating p' art ration to meet competition and face performance continues to be an out-technology available. The Resource changesin the regulatory environ- Center willsupport our strategy of standing indication of attention to ment. The quahty of the company's increasing sales by acting as a major efficiency and productivity. Availa-earnings, common equityinvest- forcein the economic development bikty of the system's fossil-fueled unas ment as a percentage of total capitah.- of areas served by Alabama Power. was 89.5 percent, while availabikty zation, and the security ratings all Economic development has been of the hydroelectric generating units remained stable. However, net income a constant force within the company was 95.4 percent and nuclear units, declined primarily as the result of since it began a new industries divi- 83.3 percent. These numbers are an ongoing dispute with Gulf States sion in 1921. "Helping Develop well above the national averages. Utilities Company of Beaumont, Alabama" has been associated with Several assistance programs have Texas, concerning purchase power Alabama PoAer for years. been initiated to help ease the contracts and the expirationinlate Improved marketing strategiesand financial burden of energy costs for 1986 of certain o'f-system poAer con-advances in productivity continue to low-income customers. Of these pro-tracts with other utikties. keep the companyin a more com- grams, the most widely known and We reportedlastyearthatourVision petitive position as more energy successfulis Project SH ARE, nation-and Values statement, the corporate choices become available to our ally recognized as the best program philosophy and goal to be more customers. of its kind in theindustry. competitive in the future, provided 11is significant to note that while As we moveinto a tme of change a clear corporate direction and the compound annualgrowth ratein in ourindustry we are confident that recognized theimportance of our electric energy suppiied in the com- our strategic planning and dedica-employeesin achieving the objec-pany's service area was 1.9 percent tion to corporate values, coupled with taes to which our ccmpany is for the past 10 years, the groAth rate the recognition of theimportance of ! dedicated. during thelast five years has been dedicated employees, will guide us Consistent with our vision to be 3.8 percent. successfully toward our vision of be-competitive in the future, we have The rate stabilization procedure coming the best electric utikty in the developed a strategic plan which .is a used for setting retail electric rates, United States. l step to ensure our successin pro-which the Alabama Public Service I viding quahty electric service at a Commission in 1985 extended into reasonable cost while earning an ad- 1989, condnues to be beneficial. This - equate return for you. The plan also concept establishes a range for the supports the strategic objectnes of our Joseph M. Carley company's rate of return on end-of. parent firm, The Southern Company. President period retailcommon equity and A major event took place in 1987 February 29,1988 allows for small, periodic rate adjust-which is a significant example of progress toward one of our strategic
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aw&G "Neu r inclustries hat e receit eciexcellent cooperationpom state, city : ancicountygot ermnents oi er inanyyears. It is essential to our continnect tstimulatton ofsuchg1owlb, grou'th that this coopemtion be evicient at alllet els ifinclustrial expansion is to continue.... nshall continue to u ork tvitb othem in the El FRoM THE 1957 ANNUAL REPORT l Financial Review The company's security ratings re- Stabdization and Equalization (Rate mained stable during 1987, reflecting RSE) procedure adoptedin 1982 by Netincome for 1987 after divi- the financial community's contnued the Alabama Public Service Com-dends on preferred stockwas$257.2 confidence in the company's finan- mission. In 1985 that commission, minion, a decrease of $16.2 million cialcondition. which has jurisdiction over the com-from 1986. This decrease resulted First pany's retail electric rates, extended primarily from reserves associated Mortgage Preferred the procedureinto 1989. The with the ongoing dispute wth Gulf Bonds Stock Supreme Court of Alabama affirmed States Utiktaes Company concerning Mood /s A1 a2 this extension in 1956. During 1987 purchase poner contracts and the Standard & Poor's A A-rates were adjusted once under Rate expiration in late 1986 of certain off- Du'f and Phelps 6 7 RSE, a decrease of 1.88 percent system power contracts with other in October. in November 1987 the company 4tikties. The company s 1987 return Rate RSE estabhshes a range of old first mortgage bonds totaling on averagecommon equity was 13.5 percent to 15 percent for the
$200 milkon at aninterest rate of 13.56 percent as compared to 15.12 10% percent. Additiona!!y,in Febru. company's rate of return on end-percent for 1986. The reduction is the ary 1988, the company sold 2 mdlion of-period retai! common equity resultof the dec easein netincome investment.Small periodicrate shares of Adjustable Rate Class A and anincreasing cornmon stock Preferred Stock totahng $50 miHion adjustments are allowed to keep the equity investrnent.
eWd The dividend rate companywithin the approved range. The company s common equity A rate decreaseis requiredif the on the new preferred stock win be investment, as a percentage of total adjusted quarterly based upon a per. annual return at the end of a quarter capitahzaton, remained stable at centage of U.S. Treasury security exceeds 15 percent. If the return fa!!s approxsmately 41 percent. The quahty rates. This was the first sale of pre. below 13.5 percent, a rate increase of the company's earnings, as ferred stock since 1983. Proceeds is warranted. measured bv the aHowancefor funds The plan also provides for rate from the sales of these secunties used dunng construction as a per-were used to finance a portion of the adjustmems upon the commercial centage of netincome, also remained company's capital needs and to operation of certificated neu generat-stable at 16.2 percentin 1987. repay short term indebtednes. ing plants (Rate CNP). There were no Minimum ca.erage ratios required rate adjustments under Rate CNP under the mortgageindenture and Rates dunng 1987, corporate charter for the issuance of TheTaxReform Actof1986 reduced addit:onal first mortgage bonds and Alabama Poaer's ponopal mission the corporate federa! income tax rate j preferred stock are 2.0 and 1.5. is to be the full service supplier of beginning in 1987. The company respectively. At year end, interest and our customers' electnc energy needs. has rate schedules which provide for dividend ratios under the mortgage Or e key to accomphshing this mis' adjuementsin retad electric rates indenture and corporate charter sionis to operate under regulation to reflect changesin both state and were 4.03 and 1.97, respecte.ely. and remain compettn.e with non- federa! tax rates. As a result of the regulated enttes A strateg:c objectse Tax Reform Act of 1986, retail elecinc is to protect customers and stock- rates were reduced by approxi-holders from the efdects oflegislation mately 2 percentin January 1987 IIn a Fa es P a tin 98 help detect and record data on electrical sys. or regulation that would irnpose and 1 percent in January 1988. tem short circults a nd send it back to Corporaie unreasonable Costs. Headquarters where engineers analyze Alabama Power's customers system conditions, locate faults and initlall2e rutoration of f acilities, resulting in improved continue to benefit from the Rate system reliability. lM
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"Realizing, as u v do, the needfor balancing agricultiav tvith industry, u v will continue our efforts, n'hich haiv been soproductiiv at er the3 ears, to induce new industries to locate in Alabama, thus conserving ourgreatest natural wsources-the)oung men and uomen prvparing to embark on their carvers-bygicing them Ihe opportunity tofindsuitablejobs in Alabama. "
5 FRoM THE 1949 ANNUAL REPORT The FederalEnergy Regulatory terntorialsalesin 1987 increased these actions, Gulf States has taken Commission regulates the company 3.5 percent over 1986. the pos: tion that itis excused from in the transmission or sale at whole- Sales to utikties outside the com- performance under the contractsand sale of electric energy in interstate pany's service area increased in has not paid the capacity charges or commerce as well as sales to the 1987. Total off-system sales were 7.3 deposited them witMhe court. The company's electric cooperative and billion kilowatt-hours, up 23.1 percent case is still pending before the U.S. municipalcustomers. That commis- from 1986. One off system customer, District Courtin Texas. I sion also has junsdiction vath respect Gulf States Utilities Company of in a separate action earlier this j to hcensed hydroelectric projects Beaumont, Texas, fded suitin 1986 year, an administrataelawjudge of l and certain other ma*ters, such as agairist the Southern electnc system the FERC ruled that under the Fed-accounting policies and practices. in a dispute over purchase power eral Power Act the contracts are valid l contracts between the two utihty and reasonable and found no ment Electric Sales systems. Gulf States alleges a failure in Gulf States' claim that it should be to negotiate in good faith to change excused from its vbligations. Gulf Aggressive marketing, rigorous the contracts. In a 1986 ruling a States has appealed that ruling to the ! cost controls, quakty of service to federal Distnct Courtin Texas peo fui commission. l customers and continuing to take a mitted Gulf Sta'es to place in eccron Through December 31,1987, Gulf l leading role in helping develop sorne of the fundsit owes while the States has placed in escrow or with- l Alabama s economy all play a role caseis pending, However,inlate held approximately $71.7 million due i in successfully competing in today,s 1986, the Pubhc Utitty Commission A;abama Power. energy market. of Texas and the Louisiana Pubhc The amount of electric energy l Terntonal electricity sales in 1987 Serv ce Commission disallowed the supphed in Alabama Po/,er's territory l tota ed 37.8 billion knowatbhours, up recovery of the capacity charges for the past 10 years, which includes 5.5 percent over 1986. Industrial under these contracts. As a result of the recession of the early 1980s, gres customers accounted for 42.3 per-at a compound annual rate of 1.9 cent of these sales; commercial percent. However, during the period customers,19.8 percent; and resi- " from 1982 to 1987 the compound dential customers. 29.5 percent. annual grov.th rate was 3 8 percent. A portion of the increase in 1987 During the same 10-year period, over 1986 is related to the recogni-the company's system peak demand tion, beginning in February 1987, of for energy grew at a compound retail service rendered but not yet " annual rate of 2.2 percent. The com-bdled to customers. Excluding these ound annual grouth rate for system uni >ded sa!es from the companson' u eak demand rose to 4.1 percent w during the penod from 1982 to 1987. Demand for electncity on Alabama m ommswseresan. u a Power's system reached a peak for tial raarketing representative, discusses y h$r new Good Cents Homs eth BMnnebrew tte year on August 25 of 7.89 milhon of Indianwood Building Co., Inc. Ha is also Territorial kiloeratts, includ:ng the Southeastern the builder of Alabama Power's Good Cents peak Demand Advantage Home, bunt to demonstrate for the y v3 og g DW DM8M SDM M pubbe in cutaway displity fashion the leatures (!ncA#$ Smur 6 y of a Good cents Home. Annea*cn Aum) 7 a -- - . - . . - . - - - . - - - - - - - - - - . , ,,-.----,n,.. - - , . , - _ , . , . . - - - - - , - . . - - - - - - _ . _ _ . - . - - - _ _ - - - - - - - - - - -
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"The expansion ofexisting inclustry is significant in that it reflects 1ly'thegmu'ingsouthern mar satisfaction n'ith conditions. . andtheopportunitypresented 3 FRoM THE 1960 ANNUAL REPORT peak was 6,000 kilowatts belov the Generating Resources Alabama Pover purchased ap-all-time peak demand reached in proximately 13.8 million tons of coa!
1986. The efficient use of generating during 1987 and had approximately Through a continuing program to resourcesthrough cost control and 3 milhon tons at year end. The cost of market electricity during off-peak improvementsin productivityis fossil fuel per kilowatt-hour generated times by promotion of heat pumps crucialto help keep the cost of continued to dechne as a result of and outdoor lighting, a total of 13,777 electricity competitive. lower costs for coaland improved heat pumps were installed in ne.v During the year the company con- plant efficiency. and existing homes, up 40 percent Unued a program to raise the aware- Earlyin 1987 the Farley Nuclear from 1986. Of that total,5,156 heat ness of employees at each fossil Electric Generating Plant was one pumps wereinstal! edin new, single plant concerning theimportance of of six nuclear plants toieceive the family homes, a 32 percentincrease heat rate to the efficiency and profit- Award of Excellence from the Insti-cuer 1986. A total of 20,548 units of abikty of the company. Heat rate is a tute of Nuclear Po.ver Operations. outdoor lighting were leased in 1987. measure of efficiencyin tne conver- The award is given to plants which sion of thermalenergy from fuelto excel on nine different performance electrioty. The Heat Rate Awareness indicators. Training Program was begunin 1986 m to teach fossil generation employees how eachindMdualcan contnbute to- ' " ward atta:ning speofic heat rate goals. , New goals have been achieved C each year since the program began. Another important measure of
' generating plant performanceis 7 availabikty, the amount of time during the year a generating unit is able to produce electricity. During 1987 8 l '
availabihty for the company's foss:!-
- u f ueled generating units was 89.5 per- u Average cent; nuclear generating units,83.3 Percent of Residential r percent and hydroelectric generat. Total KWH Usage Per ing un ts,95.4 percent. Generation Customer Hydroelectricgenerationimproved $y some over 1986 when a record a "in drought severely affected river flo,n G'88"C" *0*
l but still remained below expectations First electric streetcar system in the U.S., due to beloN normal rainfall. Hydro-
"The Ug htning Route," began opera ting electric genera!!on was 30 percent in Montgomery in 1sse and was comrnemo. be!ow projectedle els for 1987.
rated in 1987 with the introduction of brightly colored rubber tired streetcar replicas,shown Foss11-fueled units Oenerated 67.4 here passing the rw Montgomery District percent of the total energy produc-omce, created by restorat6on of two historic tion for the year; nuclear units, Dexter Awnue structures. The new omeo 25.2 percent; and hydroelectric unes
"*"*d '" * #' supphed 7.4 percent.
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soldiers and u orkers noto engaged in tear industries thatpeacetitne at FRoM die 1942 ANNUAL REPORT At mid-year Farley Unit 1 moved however, no such proceeding has 1987 at a height of 551 feet. Itis the into the top 10 national ranking been started at the present time. largest capacity cooling toner in the of Westinghouse pressurized water world. When completed, total electric reactors of 600 MW or greater. The Capital Expenditures generating capacity of the plant will nuclear plant performance ranking . be 2,640,000 kito,vatts. Units 1 and 2 is based upon capadty factor of Alabama Pooerinvested ap-wentinto commercial operation in the unit, which is a measure of the proximately $600 million for capital 1978 and 1985. Because Units energy generated compared with expenditures during 1987,includ-3 and 4 initially are dedicated to ing generating plants, nuclear fuel, the annualmaximum energy capa- off system sales and devoted to cus-transmission and distribution lines, bility of the unit. The ranking is main- tomers outside Ala~oama Pover's substations, and other facdities. tained by Westinghouse Electric service area, no increase will take Corporation. Unit 2 has been at the Thelargest transmission project p ace under Rate CNP. top of thelist for several years. ever undertaken by the company The company nas beeriengaoed was completed in 1987, establishing in negotabons wth the Alabama E'lec- a 500-kdo.olt transmission line t!e tric Cooperative, Inc. (AEC) of Anda- between Mdier Electric Generating a lusia, Alabama, and the staff of the Plantandtwoof thelargestload y g Nuclear Regulatory Commi sior centers on the system, Birmingham 3* W and Montgomery. Alabama Po^er " (NRC) regard,ng the terms under which the company should offer to alsocompletedconstructionof a n sell AEC an approximate 6 percent 122desecDonof the6rsthoptos , interest in the Farley plant as required telecommunications link connecting Alabama NAer's Corporate Head- " by a 1981 NRC order. The negota-tions relate to the terms of the sale and quarters and Southern Company : tuture operation of the nuclear plant. Sedes' operabonsin Birmingham wth Gergia Po^er Company's head-ng In June 1986 the NRCissued a nobce pursuant to acompla:nt fded by quarters and Southern Company G "2"D7 AEC statng that Alabarna Po^er may Services, operatonsin Atlanta. The me,einto the new Corporate Additions have violated the terms of the NRC n % .o order. Additonal discussions have Headquarters budding was com-been conductedwiththe NRC staffin pMed dunng1987 asworkcontnued an attempt to resolve tnese issues. If on the remodeling of ad oining s cues MW M,1950 and theissues raised in the notce are not Research and Development resolved, the NRC may initate a pro- 1958 Work on the 1.2 million square-ceeding to determine if Alabama foot complexis expected to be com- Alabama PoAer began a program Po^er has negotatedin good faith; #ete by the fourth quarter of 1988. in 1987 to test fluid in more than 3,000 Constructon of thethird and fourth large transformers in substatons and fossd fueled units of the Mdler Plant generating plants. Detecton of com-n cielectric nuid anainis, conducted ty contnued on schedule during 1987, bustble gases through testng enables M Alabama Power in its Environmental mo/ing toAard completon dates of the company to removetransformers Ana o se e 3 detect p early 1989 for Unit 3 and 1991 for
, ,n from service for maintenance before nuio, an ;ndicaior of maintenance needs to Unit 4. A natural draft cooling toner a catastrophic failure occurs.
prevent transformer fanure, for Units 3 and 4 was topped outin
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"Ourprogtvss is inseparably lxnald up in thefnogress ofAlaixuna, We n>cognt:e j that u v shouldparticipate as a good citizen in Ihe det vlopntent ofet ery carnnutnity tu nrthu 'hile mot ements to bu n'ithin the arva u v sert v. Realizing the needfcn* balancing agricultsav n'ith industiy, u v endcat or to u nrk teholeheartedlyfor the det elop:nent ofAlabarna, supporting It FRoM THE 1964 ANNUAL REPORT Another program wasimplemented the reduction of heatloss. Another A signifcant step to^ard economic tosampleand analyzelubncatng odin team's work has enabled line creAs groMh was taken in 1987 with the more than 1,200 pieces of heavy throughout the company to work announcement of Alabama Poaer's equipment. Resuits of the program faster and safer with the use of a plans to budd the Alabama Resource are used to determine preventive simple device the team designed to Center, a 15.000 square-foot facility maintenance requirements and in- hold material being assembled. now under construct on in Meado v-crease the life of the equipment. In additon to the performance brook Park, near Birmingham. The Alabama Poser continued its teams, other areas of the company center will be avadable for use by tne participationin research on a broad have achie,ed productivity improve- State of Alabama. local communities, array of topics through cooperaton ments. One illustration is the ex- chambers of commerce and the with the Electric Po^er Research panded office automation system state's universities. as well as Ala Institute (EPRI), one of America's which imoroves communications bama Po^er. The faality will use state largest pnvate research organizatons. abihty and lessens the volume of of the art technology to prov de facts Emplo,ees of the company served paperwork. Personalcomputers hase on available sites throughout the state on some 20 EPRIcomm tteesin 1987. reducedthehoursneeded toprepare to indrviduals interested in locating or One of the more than 50 different EPRI reports and allo ^ed reporting of expanding business or industry in projectsinvolving Alabama PoAer is add,tional information, which can be Alabama. ProsDects will be able to research into heat pump compressor more easly ta'lored to the needs get demographe data on virtua1y any rehabihty, cost of serviong and of those receiving it. sitein the state. The key concept of an analysis of heat pumpsin the In another program kno,vn as team- the resource centeris to provide a company's area Another broad area budding, more than 30 sessions were catalyst for developing a team of EPRI researchin which Alabama held in 1987 in which natural work approach to attrachng business to Power partcpates is coal combus- teams gathered to sone organizabonal the state.
tion technvlogy. problems and increase productivity Alabama Po^er's Economic through improved teamwork. Deceiopment Department worked Productivity An accounting program was with a number of commercial and impiemented in 1987 which estab- industrial prospects dunng 1987, as The Performance Team Program hshed performance indicators and we!I as with state and local o' foals and which was started in 1986 as a pdot provides for tracking and report- national consultants. It also worked program with three teams, has ng of measurements. A new closelywith GovernorGuyHuntonan expanded to 56 teams throughout accountng system for the company's industry seeking tnp to the Far East. the company. In the program, fossi generabng plants, which tracks One of me economic de,elopment em ployees meet voluntarily to identfy costs ty each unit. prosides im- objectises of Alabama Poaeris to work related problems and propose proved control of expenses. create jobsin the state. During 1987 solut ons. The teams hase completed approomately 2,200 nesyobs more than 30 projects One team Economic Development were created as a resu!t of economic soNed a problem relatng to the con-dwelopment activity. trol of the temperature of water Helping develop Alabama con-Some major pro;ects are: samples from a generabng plant tinues to be a major goal of Alabama The U.S. Steel Division of USX bcder, resultng :n cost saving 3 and Pomr Company. GroMh which pro ~ Corporaton began an additional vides jobs and dollars for Alabama's
$200 mdhon capitalimprovements p A kaMdoscope of color reDects in Nender ChZens goes hand in hand with the pro ram to construct a continuous C threads of fiber optics caUe, A 121 fnile secten of cable was constructed by the cyn. P" I of DOI 9 Caster and reno / ate its hot stnp mdl pany in 1987, part of a telecommunications e'ectnoty at a poce which makes at Fairfield. Whea completed in la+e link between sister operating and serv 6ce Alabama compet tive whde maintain-companies in Birmingham and Attanta. ing a Mdton of quakty service.
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"Wl> seek the right to be heard and understocxl; Iw also pledge tcn'>to listen and underst n spect and to strim together to solw mutualpmblems. Wi> nmst ate a betterplace)or each ofus to liw, to u ork, to be omselws."
. FRoM THE 1976 ANNUAL REPORT 1988, the millwill be one of the Along with the revised work order ofits kindin the country The program world's most modern steel-making procedures, a ne.v distnbution system is funded by Alabama PoAer facades. outage report ng system wasimple- customers and company employees Mead Corporaton, operat ng as mented which speeds evaluation of through a monthly $1 donation andis Alabama Kraft, announced plansin pcwer outage problem sources. administered by The American Red 1987 for an expansion of a plantin A ne.v customer service training Cross. More than 80,000 Alaoama Cottonton. The ne.v $500 milhon program for employees whose jobs Poner customers donated during paperboard millwill employ 200 do not normally bnng them in touch 1987. The program was started in and create an additional 400 wood with customers was started. The pro- 1982 with a seed contnbution of gathering jobs. gram is designed to enable those $50,000 from Alabama Po^er and RussellCorporation of Alexander employees to better understand the snce has distributed more than $3.5 City, world's largest manufacturer of com pany's service-oriented direction million to quahf:ed recipients.
athlebc apparel and related leisure and to more easly answer questions wear, has announced plans to spend about the company from family and Employees $150-S180 milhon between 1987 acquaintances. and 1989 for modernizaton and Appbcabon, installabon, and service Quakty and cost of service are expanson. training were provided for 573 heat greatly influenced b/ the performance Knauf Corporation, a German pump dealers, technicans, and other of employees. Owr the pasttwo> ears company, broke ground in 1987 on alkesin 1987 to increase product the company has been studying and a ne.v fiberglass manufactunng plant rehabety and improve customer con- implementing a program toident fy in Lanett, whch is expected to provide fidencein heat pump products. areas where management can be 150 jobs. The development repre- Implementation of a Strategic swamhned and to recorrelate job dass-sents an investrnent of $50 milkon. Market Planning Program was ifcabons with work responsbihties. undertaken in 1987, follo,ving a study Furthermore,in 1987 the company Customer Service phase in which employees from announced plans to reaew the throughout the company, along with current compensation system. The Dunng 1987 Alabama PoAer primary purpose of this revie,v is to an internabonal management con-compicted the insta!lation and con- ensure the company's compensa-sultng firm, examined every wrsion of all its of5ces to a computer- tion program is cons stent with our marketing-related aspect of the ized customer accounting system, company's busness. Marketing compettne busness environment enabbng local office employees to as wellas to place specific emphasis saa'eges were given pnonty, tactical respond more rapidly to customer on job performance and productvity. plans de, eloped and resources requests for servce, answer quesdons Another goalis to recognize extra-allocated. The goal of the program is of customers and report serv ce ordinary accomphshment b/ em-to ensure that Alabama PoAer is the trouble or po^er outages. compettivechoiceof thecustomer playees with extraordinary reward. Also last year the company.s work Fourteen Edison Electric Inst tute asincreasng energysourcesbecome order procedures were refined and Safety Amevement Awards were avadable. To achieve that goal the smphfied, resultng in both more preserited in 1987 to work groups or company must work to provide the e'ficient engineenng and cre.v ope" best service, most courteous em- departments for working a milhon or abons and more timely service to more hours without expenencing a playees and be most accessb!e to the customer. disabhng occupationalinjury or ilL meet customers' energy needs. Project SH ARE, the energy asss. ness. In add. tion the company was competition beten krwmen performing tance program for cuahfied lo,v- recognized by eel and the National
** 'W ' M" ' * * **) ""9d *"' income elderly and handicapped Safety Councd for reduction of its of the southeist Division's Uneman's Rodeo oCCupationalillness and injury and Country Fair. The Ociober ownt in Eufauta 'ndo,idua!s, contnued in 1987 to be ns attended by employees and their tamilies. one of the most successful programs d en ra a
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%fky . J a '4 h:' 5 Power s Shernli Jeffcoat (lef t) and Ma u 7 f; { - f. Alexander components manuf actured at uj;hf 2,a iM/ ' .
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m Ecor.omic development work begun by Alabama Power s Charlton Mc Arthur,in Jiis E conjunction with state and local officials, eventually led to JVC Disc Amenca Company's g decision tolocate a compact disc plant in Tuscaloosa where Takeo Niimi(right)is esecutin vice president. - y Dewtopment along =_ Tennessee.Tombig ee s Waterway has brought growth and increased electncal
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g* silent symbol of Alabama Power's effort to be the customer's energy supplier of choice.
l l '1 . of tne company s history and rema:ns
! ' a firm strateg'C otiectree in the com-pany's plans for the future.
l As is evident from quotatons high-
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N , Martn s vison of ' tne manu'acture l l of customers ' t>gn in the 1920s and i [ : has con'anued eser snce He foreme,
; , a day v hen industnal activny would recal and complement the prevalent Advertisement which the Alabama Development Office, a state agency, ran in The Wall Street agricultural actr/ity C' the state in Journalfeatures Alabama Power President Joseph M. Farley discussing Alabama's energy independence. The company works closely with the Denlopment Otfice to help attract those days Soiid gro/,th /,h cn began industry to Alabama. slo /.ly in the 1930s has cont;nued.
mahng his vison l'ecome a realty
//f/ph[(fIlTfbpA/Rhama state crets f rom mounta ns to pia ns Economic deceiopment in today s to cc in shores it also represents economy is a fast paced. highly bluminated Lght bu:b fdamentin tre ine di of bu9 ness and industry, compeStr,e bus, ness V,nich requ'res shape of the s' ate of A!abama shcv.n botn r utal and urban, from heavy egensse L nos.iedge and educa-in d:f'erent colors on other pages is metals to medone, high technolog / tion of prospectue Cnents about the symbohc of a number of things It to service indusines. e,hich e est in sta'.e 5 advantages and de'erm:ned represents the vanety of terra n the the s'a e And. it represents tne sarei cooperavse e' fort among company, of types of customer needs the com- sta'e and Local off. cia's pany serves inrougnout the state The Aiabama Resource Center is W* +t -
Alabama Poe,er s ro;e in he:p:nq de9gned to gree tre company and de,e!op Alabama ts an integrat paq the state an edge o this compet4tiv3 s{ arena The state 0 Abbama is inaL-4 ing unprecedented efforts to improse Alabama Shakespeare Festival Theatre in its bu9 ness Chmate and Communt ' Montgomery has been entically acclaimed by The Wa!I Street Journal, Nes York Tomes gg,refw Aubama ls Open i and Washington Post. Alabama Power worked for Bu9 ness with architects and contractors on the theatre to install backup transformers to help avoid l power outages dunng performances. ) 7 ...,y , ., Li?W 1
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Report Of Managem:nt degree to whch management meetsits Auditors' Report responsbibty for fairness of f:nancial The management of Alabama Po^er report,ng. They regularly enluate the To the Board of Directors of Company has prepared andis respon- system of internal accountng contro!s Alabama Power Company: sble for the financalstatements and and perform such tests and other pro-related financial informat on induded in cedures as they deem necessary to reach We have cxamined the ba!ancesheets this report The hnancal statements were and express an opn;on on the fairness and statements of captahzaton of ALA-prepared in accordanc' T1th gene' ally of the finanoa! statements. BAMA PCWER COMPANY (an Alabama accepted accounting prinoples appro- The Board of Directors pursuesits corporabon and a whol'y owned sub- , onate in the orcumstances, and neces- respons b'isty for reported financalinfor, sdiary of The Southern Company)as of l sardyindude amounts that are based maton through its Audit Committee, December 31,1987 and 1986, and the { on best estimates and judgments wqth composed of d. rectors who are not related statements of income, earnings appropnate consderabon to matenatty. employees. The Aud.t Committee meets reta:ned in the busness, other paid-in Financal informaton induded elscv,here penodica!!y w,th management, intemal captal and sources of funds for gross in this annual report is consistent w th the aud. tors and independent pubhc ac. property add >t ons for each of the three , f:nancial statements. countants to assure that they are car rying yearsin the penod ended December 31, 1987. Our examinatons were made in l The company ma:ntains a system of out their responsbthtes and to discuss l internal accountng controls to provide aud. ting, internal control and financial accordance w:th generally accepted reasonatSe assurance that assets are reporting matters. Both internal auditors aud.bng standaros and, accordingly, safeguarded and that the books and a xi bynndent public accountants included such tests of the aCCounbng records re5ect only authonzed trans- fMoodca!ly treet alone w,th the Aud;t records and such other auditing pro-actons of the company. Lmtatons exist C&ttee and have free access to the cedures as we considered necessary in in any system of internal controls based Committee at any tme. the orcumstances upon recogn.teon that cost of the system We behevo that these pokoes and pro. In our opinon, the financial statements i should not exceed benef ts derived. The cedures proside reasonab!e assurance (pages 24 34) referred to above present l company bebe,es its system of internal that our operatons are conducted with a fa fly the f:nancal postron of Alabama l accountng controls, augmented by its high standard of business conduct and Po^er Company as of December 31, l internal aud.tng functon, appropnately that the financial statements reflect fa!rly 1987 and 1986, and the results of ;ts j ba!ances the costbenef.! relatonsh:p. the financial posmon, resu!ts of operatons operatons and the sources of funds for i Independent pubhc accountants pro- and sources of funds for gross property gross property add. tons for the penods ) vide an object ye assessment of the add. tons of the company. stated, in conformity with generally ac- l cepted accountng pnnopfes apphed on a consstent basis. Arthur Andersen & Co. Birm:ngham, Alabama, { February 11,1988. l E Wew towerupward for MMer from Steaminside giant Plant Units coohng 3 and 4 gNea en tdea of the structure's size,it is the largest capacity coohng tower in the world and rises 551 feet into the atmosphere, 19
SelectedFinancialD ta (Dollars in Thousands) 1987* 1986 1985 1984 Condensed Statements of Income: Operating Remnues . $2.450,532 $2,425.751 52,/14.219 $2.105.406 Operatng Expenses: Operation and maintenance 1,446,608 1.349,167 1,370.594 1,157,405 Depreciation and amorttzation . 212,072 201.803 183.779 174.514 Taxes other tnan irtome taxes 141,422 135.248 128.648 122,928 Federal and state income taxes . 190,575 255.400 248,774 224.726 Total operating expenses 1,990,677 1,941.618 1.931,795 1.679.573 Operating incomo . 459,855 484,133 482,424 425.833 Otner income, Net 38,180 38.291 47.888 57.563 Income Before Interest Charges 498,035 522,424 530.312 483.396 Net Interest Charges . 207,877 214.943 224.404 208,103 Dmdends on Preferred Stock 32,919 34,025 41,346 42.041 Net income ator Dmdends on Preferred Stock . $ 257,239 $ 273.456 5 264.562 E233.252 Cash Dividends on Common S'.ock $ 201,100 $ 191,300 $ 185.700 $ 161,900 Return on Aversge Common Equity (Percent) 13 56 15 12 15 41 14 74 Total Assets , $5,912,000 $5,570.653 $5,722.263 $5,496,197 Gross Property Additions $ 600,589 $ 553,767 $ 568.073 $ 575,173 Capitalization: Common stock equ>ty . $1,946,747 $1.847,608 $1.770,156 $1,664.295 Preferred stock 384,400 384,400 384,400 424.400 Preferred stock subject to mandatory redemption . 27,500 30.000 35.000 37.224 Long-term debt . 2,386.258 2.210,108 2.349.373 2,402,713 Total Capitalization $4,744,905 ?4.472.116 $4.538.929 $4.528.632 Kilowatt hour Sales (In Thousands): Resident,a! 11,149,225 10.606,698 9.814.814 9.634.285 Commercial 7,476,924 7,015.589 6.593.645 6.270,899 Industna! . 15,969,075 15.025.806 15.215.276 15.134.188 Sa'es for resale 3,007,267 3.007,753 2,726.083 2.600.692 Other 159,422 153.282 146.119 143.785 Total terntonal sa!cs 37,761,913 35.809.113 34.495,937 33.783,849 Nonterntonal sales 7,348,457 5.967 275 9.167.033 5.266.477 Total Kilowatt hour Sa'es . t.5,110.370 41,776 403 43.662.970 39 050.326 Operating Revenues: Residential $ 759,957 $ 738.864 $ 684,970 $ 664.286 Commercial 501,088 481,676 453.651 430.400 Industnal . 721,298 705,395 717,078 692,177 Sales for resa!c 118,907 124,412 119.025 109.030 Other 10.968 10.811 10.129 9.615 Total terntonal revenues 2,112,218 2.061,158 1,984 853 1,905.508 Nonterntonal revenues 319,617 345 614 411.571 186 518 Total reenues from sa!es of electncity 2,431,835 2,406.772 2,396.424 2,092.026 Other re<enues 18,697 18.979 17,795 13.380 Total Operat:ng Rownues $2.450,532 $2.425.751 $2.414.219 $2,105.406 Customers (End of Year) 1,090,302 1.070,760 1,0$0.795 1.034,026 Employees tend of Yea-) 10,457 10,367 10,212 10,144 Average Revenue Per Kilowatt hour Total Sales (Cents) 5.39 5 76 5 49 5 36 Average Cost of Fuel Per Net Kilowatt hour Generated (including SEGCO)(Cents) . 1.80 1 83 1.90 1.86 was r. eect u mco,m t..yw rs,em w reaa sene reco ta ne two o cuwm.es i .
1983 1982 1981 1980 1979 1978 1977
$1.875.608 $ 1.764.145 $1.594.022 $1.421.997 $1.163.623 $1.014 443 $ 9M 693 941.966 940.262 978.075 816.243 700.647 655.384 594t80 169 231 169.753 147.581 127.840 123 075 109 315 69 938 t 107,445 96 936 86.878 74,488 74.592 63 737 47,887 220.245 176.238 92.773 114.427 58.759 25 080 89.161 1.438 887 1 383 189 1.305.307 1.132.993 957.073 853 516 801 866 436.721 380 956 288.715 288.999 206.550 160 927 166.827 44 339 28.571 4e 927 42,715 40.775 44 892 57.436 481.060 409.527 335.642 331.714 247.325 205.819 224.263 214,113 210.612 199.762 170.997 158.666 131 697 83.101 37.936 36 658 36,071 31.013 31.219 31.219 23 8S6 5 229 011 5 162.257 $ 99 809 5 129 704 5 57 440 $ 42 903 $ 117 276 5 145.200 $ 130.700 $ 120 800 $ 115.300 5 54.000 flos 800 $ 94 900 16.12 12 62 8 17 11.61 5 82 4 46 12 82
$5120.607 $4 683 358 $4 449.126 $4 244,932 $3 995 816 $3 717 638 53.341.428 $ 522140 $ 459.437 $ 43?S87 $ 411.813 $ 459.533 $ 483 430 $ 540 076 $1.499.909 $1.340.890 $1.231.061 $1211.417 $1022 533 $ 952 648 $ 971.626 424.400 374 400 374.400 334 400 334.400 334.400 334.400 38.034 42.234 43.789 47.500 50.000 50 000 50 000 2.404,565 2.370 050 2 394 674 2.159 793 1.883.684 1.851 394 i.652.013 54.366 908 54.127 574 $4 043 924 $3 753.110 $3 290 617 $3188 442 53 008 039 9 176 413 9.153 173 9 229.255 9.510 609 8.679 417 9.038 856 8.804 755 5.816 678 5.715,630 5 586.990 5.514.844 5.207.513 5 282 746 5.121.461 13 688 096 13.460.193 14 651 012 14 499 375 14 629 581 13.799 043 12.845.4S9 2.496 899 2 408.904 2 402 331 2.518 347 2 461.078 2.479 439 2.346.603 138 931 134 811 131.117 127.582 126 729 125 177 120 556 31.316 987 30 872.711 32 000.705 32 170.757 31.104.318 30.775 261 29 23S 864 2 905 585 3 OC6 423 1.768.650 1 346 912 6 286 342 302 615 423 34.222.572 33.939 134 33 769 355 33 517.669 31.110 604 31.11 T 563 29 854 287 $ 629 478 5 578 291 5 518 730 $ 489 031 5 385.224 5 35t 644 5 339 393 399827 371 581 325 388 293.576 242 626 213 059 208 864 631 440 600 219 584 030 507 784 442 221 357 691 338 007 97.731 99 014 89 727 77627 76.056 67 539 56 872 8 914 8.036 7 644 6 706 6 335 6 004 5 663 1.766 390 1 657,141 1 525,519 1.374 724 1.152 462 935 937 948 793 92 373 90 331 56 013 37 304 1 222 10 534 12 496 1 858 763 1.747 472 1 581 532 1.412 028 1,153 654 1.006.471 961 295 16 845 16 673 12.490 9 969 9 939 7 972 7 398 $1.875 608 51 764.145 $1594 022 $ 1.421.99 7 51.163 623 $1.014 443 $ 968 693 1.015 203 1.001 832 996 200 956 OS2 976 200 961 440 938 576 9 917 9 663 9 661 9 573 9 033 9 695 8 913 5 43 5 15 4 68 4 21 3 71 3 23 3 22 1 74 1 80 1 84 1 61 1 56 1 22 1 20 s . -" g s
Management's Discussion and Analysis of Results of Operations and Financial Condition RESULTS OF OPERATIONS contracts The increase in 1986 compared to 1985 was pnmanly The company's net income a*ter dmdends on prefe7ed stock the result of increased capacity sa'es to nontemtona! customers was $257 m.thon in 1987, $273 mdhon in 1986 and $265 md! on in 1985 The decrease in 1987 is a'tr.bu'able to recogncon tnat Operating Expenses resenues assoc ated wth sa'es to Gu!f States UBt.es Company Total opuamg en penses for 1987 incr"ased 2.5 percent owr 1986 pomanly as a result of incceased operabon expense (Gulf States) could poss by be uncocectble. the exp<raton, in assocated win the add tional demar d 'or energy. Purchased late 1986 of long-term nonsrm power contracts wth non. and interchanged pcswr e xpenses ircreased $83.5 mAon due aN ated ubbtes and a rate decrease under Rate RSE, o'fset to the avadabhty of lower cost generabon f rom other plants on the someAhat by cont,nued growin in territonal sates S uthern electrc system Thisincrease was substanbaly o'iset The return on average common equity for 1987 was 13.6 by a reduct on in fuel expense due to a 63 percent increase in percent compared to 15.1 percent in 1986 and 15 4 percent in hydro generaton and reduced fosstl and nuclear generabon. 1985 The decrease frorn 1986 to 1987 is the result of a decrease The large increase in hydro genera $on re'iects the record in net income and an increasng common stock equity invest-drought cond. bons encountered dunng 1986 Fuel eipensa per ment a*tnbutade to earntngs retained in tne busness and capdal Mavaihour for fossJ generation cont < nued to dect ne as a result coninbutions from The Southern Company of lower costs for coal and improved plant e"cency. Fuel cost Revenues per kkwatt-hour generated. includ:ng the company's port:on of The increase in re,enues in 1987 over 1936 is due pnmanry to Soutnern Electnc Generatng Company. was 180c in 1987, ar. ,ncrease in terntona! Mo^a t hour sa'es o"set to a targe estent 183c in 1986 and 190c in 1985 Prcvd ng for poss.ble uncob t7f a decrease in recenues from sa'es to noniemtonal customers. lectbie amounts relatng to the Gul S'ates d;spute a'so ncreased Whde termona! revenues increased 2.5 percent or $51 m&on operatng expenses Such provisons amountad to So3 7 maon dunng 1987 noNerr, tonal re,enues decreased 7.5 percent or in 1987 and $9 6 mcon in 1986. 526 muon. ThJs decrease ts a result o' reduced c 3paoty sa'es Deprecabon and amortzabon eipense increasr d each year under long term contracts Under such contracts energy is pnnepa!!y due to contnued groMh in deprecabr plant in generaHy sold at its vanabe cost. w hde capaoty n Nenues service The compos:te straightline deprecaSon a'e was 3 5 impact pro $tabMy through the recovery of fined costs and a percent in 1987 and 1956 and 3 4 percent in 19f 5 return on inves' ment VanaSons in income tax eipense resuHed fron ftuctuatons in Terntonal re,enues were a"ected by an approomate two pro tax income and a decrease in the federa! tai ra'e as a result percent reducdon in reta>l rates. beg'nning in Jantary 1987. to of the Tax Reform Act of 1986. Retal rates we'e utusted in re9ect the reduction in federahncome taxes as a rcsurt of the Ta x January 1987 to re$ect the reducbonin the federal tar rate Ta es Reform Act of 1956 and an approomate 19 percent decrease. otner than income taxes increased each year because of higher e"ectne in October. under Ra'e RSE. Rate RSE provides for pen- resenue retated ta xes as wdl as grocn in preperty taxes od'c re'ad rate adjustments based upon the comptny's earned Operatng expenses grew from 1985 to 1986 pnncpa9y return on end of penod re'ad common equdy Reccgneng retad because of hgher deprecaSon enpense and increased taxes service rendered. but not yet b"ed to customers. increased tern- other than income taxes tonal revenues by $30 moon and terntonal sates by 683 mucn Interest on long term debt contnued to decrease in 1987 kdowaa hours rehectng tne fun e"ect of redemobons of Ngh cost first mortgage Sa'es to Gulf S*ates. a nuntemtonal cus'omer. amounted to bonds dunng 1986 Other interest cha'ges increased due to the $58 6 moon in 1987 and 564 9 moon in 1956 Lega' and incurrence of snort term debt to meet intenm obhgatons administratne proceed.ngs are cont nu:ng in whrch Gutf S'ates is Allouance for Funds used During Construction (AFUDC) seeking to be excused from obigatons under un1t poner and AFUDC is the estimated debt and equ:!y costs dunng the other long term power saies contracts win the company and penod of constructon. of funds in,ested in the construction of other ope'atng a"d;ates of The Southern Company See Note 13 plan Ahich a'e not recoered from customers througn current to tne financial s'atements for add Lonal in'ormaton. includ:ng rates Whde cash is not reaL2ed currenUy from such a!!O Annce it the poss<ble uncorectbtty of resenues from Gu!? Swes The increase in re,enues in 1986 o,er 1985 was aanbu'abe to is reahzed over the wrwce Ide of the plant under the rate making process through increased re,enues resu: Lng from rrgher rate increased terraonal sa'es ad @ c & p a W m e h co w Yo e Ki!ona't-hour sates to terntonal and nonte'tdonal customers increased in 1987 compared to 1986 and 1985 Sa es to ress used to determ:ne the amount of alcaance. net of income tax. was 8 9 percent in 1987 and 9 3 percent in 1986 and 1900 The dental. commercd and industnal customers increased an company accounts for the income tai e"ect of tne debt cost as a aggregate o'6 0 percent compa'ed to 1986. of whch 21 percent charge to income tax ex pense assooated wdn operaSons and a is a"nbutable to record,ng unt> Ped electnc seruce Nonterntona; c nespond.ng cred.t to anoaance for debt funds used dtwng energy sa'es ahich are genera'fy sold at vanable cost. were up construction AFUDC. net of income taxes as a percent of net 231 percent over 1986 re*ecting increased energy sa'es to non. income a"er dmdends on preferred stock was 16 2 percent in a"ihated utEes under long term contractual agreements. Th:s G87 M 7 pem m 26 ad 18 2 pecm a G85 increase was pnmanly due to higher pnces for oJ and natura! gas, tne pnmary fuel source of these non a"iated othres Effects ofInflation The a,erage re.enue per kdonatt hour of to'a! sa'es was 5 39: T ho company is subgt to ra'e reguWon and income ta a la.vs in 1987. 5 76c in 1986 and 5 49: in 1985 The decrease in 1987 that are based on the recovery of h'stonca' costs only Thereiore. wns la gdy the resu!: of increased energy and decreased capaccy in'labon creates an economic loss because the cornpany is sa'es to non-a"Lated nonierr tonal customers under kong term recovenng its costs of investments in do!!a's that have tess 5
purchasing power. While the inflabon f ate has subsaded, it mahon of Adjustab'e Rate Class A Pre' erred Stoch was sc5d. mth continues to have an adverse effect on the company because of a minimum dedend rate of 5.92 percent and a maumum the ;arge investment in long4ved utAty plant. Conventonal div dend rate of 11.04 percent. The inital dwidend rate, which accountng for histoncal cost does not recognize this economic extends through March 31,1988, is 6 90 percent. loss nor the partally o'fsettng gain that anses through financing The company's common equ:ty as a percent of total captah-fachtes wth fixed money obhgatons, such as long term debt zabon was 41.0 percent at year end 1987 Secumy ratngs remain and pre' erred stock. Any recogniton of inflaton by regu!atory high indicatng continued confidence in the company by the autnont:es is retected in the rate of return a! towed. financial community. Future Earnings The company's contnuing captal expena ture program The resu!ts of operatons descussed abcNe are not necessanly required the outlay of $1.7 bdhon dunng the three 3 ears 1985 ind.ca%e of future earnings Itis expected that h>gher operatng through 1987. The pomary sources of funds for captal expendL tures are inteinal sourc% long-term debt, sa!es of pre' erred costs and carrying charges on increased investment in plant, if not of' set by proportonate increases in operatng res enues stock and captal coninbutons from The Southem Company. Capdal expend.tures are eshmated to total $21 t>!!,on for the (echer by appropnate rate increases or increases in energy sates), m!I adscrsely a'fect future earnings three years 1988 through 1990. includ;ng $184 rnhon of AFUDC. not of income taxes A major component of these expena:tures The Tax Re'orm Act of 1986 provides for a reduction in the federal corporate income tax rate, repeal of the investment tax is Plant Mmer Unds 3 and 4 which will haw generaSng capacty cred;t. less favorable deprecaton rates, a ne.v a! ema$ve min" of 660 megasatts each. and are scheduled for operabon in 1989 and 1991 respectvely. These coa!-fired unas a di ota3y be mum tax and other items. The net e"ect is to reduce income tax e x pense because of the decrease in the tax rate, to reduce cash dedicated to o'f system poner sa'es under long-term contracts. The capal '>udget is subject to penodic reue.v and revson f'c.v bec&use of loser de' erred taxes and insestmert tax credds. and capul costs incurred and commercal operabon dates and to increase eMernal finanong requirements as a result of tne reduced cash flow The company's rate schedules proude for may vary from estmates because of searal factors, includ:ng adys*ments in retal etectnc rates to ref!ect changes in both state cost se reased load estmates changes in environ-mental requirements, and tne cost of caaat in addibon to the and 'ederalincome tax rates As a result of ine decrease in the federalincome tax rate by tne Tax Re'orm Act of 1986. reta,1 funds required for the cap *al budget, acpro umate'y $78 mAon 1!! be required inrough the end of 1990 in connection witn e'ectnc rates were reduced approximately 1 percent in January present s:nking fund requirements and maturd es of senior 1988. Net income is not expected to be matena9y impacted secunt es and pot!uton control bonds. A!so, the Financa! Accounting Standatos Board has issued new rules for accountng for income taxes that mH be e"eche in 11 is anbopated that the funds requ: red m1 be denved hom 1989 The most s:gn6 cant impact un be to require the use of sources in form and quanMy simdar to those used in the past in beforeoncometax AFUDC rates Curren*Jy, the equ:ty com- order to issue add: bona! first mortgage bonds and pre' erred ponent of AFUDC is captanced wthout a pra,sion for de' erred stock, the company must comply win cer'atn earnings coerage taxes, and tne debt component is cap'akzed net of income ta t requirements conta:ned in its mortgage incenture and corporate Th:s change mn not a"ect net rate base, but could create charter The bond coverage was 4 03 and ne pre' erred stock caerage was 1.97 for the year ended December 31.1987. The adddiona! property taxes The rute mit a'so requ:re the adyst-ment of accumuta'ed de'e' red income taxes to re'!ect changM minimum caerage rabos under the mortgage indenture and in income tax laas and rates Tnis change is not en pected to corporate charter for the issuance of addaona! first mortgaae matena!!y a"ect net income Changes to oeprecaton-rela'ed bonds and preferred stock a'e 2 0 and 1.5 respectively ~ de' erred income taxes mil contnue to be resersed e.er the hes The Tax Reform Act of 1986 wd increase futu'e edernal of tne related assets because of the requiremens of the Tax f nanong itiquirements because of reduct:ons in capda' pre Re'orm Act of 1986 Changes to other oe' erred inccme taxes. 74 g gp y,, g.3 g g w hich are much less s'gn6 cant mil be re,ersed in accordance income taxes Atthough the Act incally reduces re.enues re wdh regulatory rate-making treatment. qutred to earn a spec 6ed :eturn on investment. the Cost of the Future eamings w di also depend upon grath in electnc sa,es increased captal requiremen's wdl u?timately e nceed the bene w h>Ch wH be subjeCl to a number of factors, including the solume fds of reduced tax rates. resuttng in higher reenue regremens of sales to non-a'iliated u+At es. the ex1ent of energy conservaon These factors WH a!so reduce interest and pre' erred stock do dend coverage raLos pracSced by customers. the elastoty of demand. weather and the rate of economic graun in the company's service a'ea See Changes in environmenta! regu'atons could substanta!!y Note 13 to the finanoat statemens for in'orma$on concerning increase the system's capta! requ-rements and operaMg costs atemps by Gu'f States to modh or vod obhgatons under unit Vanous Environmen*a! Protecbon Agency regu'a$on und rccent poser and other longlerm power sates contracs legislaton are descr bed in Note 3 to the financa! s'av nents The fun impact of inese requ:remen's cannot be determined at FINANCIAL CONDITION tn s t:me pend,ng me deseiopment and imp ementadon of apptcable regutabc ,s Liquidity and Capital Resources An order of an appeal board of the Nuclear Reguta'ory At December 31,1987, the company had cash on hand of Commission (NRC)in an antdrust re.new resuted in cond bons $7 mAon T he company has borromng resources and regulatory be.ng imposed on the NRC heenses for Plant Farley which appra al for up to $300 mAon of shortierm bor romngs. of which requ re the company to sel1 an on nership in'erest of appro e $15 mAon was outs *and ng at year-end Short-term borroungs mately sax percent in Plant Farley to A!abama Electnc Co-ous*and ng dunng 1987 a.eraged $100 meon wth an average operatve. Inc (AEC), and to prxde transnmssion services to interest rate of 721 percent. AEC and munopa! e'ectnc d stnbutors The company has in Nosomber 1987, the company issued $200 mAon of first engaged in negotabons wah AEC for such sa'e See Note 12 to mortgage bonds (10% percent senes) In February 1988, $50 the financal s+atemens for ambona' iniormaton
StatementsOfincome for the Years Ended December 31,1987,1986 and 1985 1987 1986 1985 (In Thousands) OPERATING REVENUES (Notes 1. 2,13 and 17) . $2,450,532 $2.425.751 $2.414 219 OPERATING EXPENSES: Operation-Fuel . , , , . 696,763 738,367 743,463 Purchased and interchanged power, not . 139,653 56,157 108.551 Other . 410.575 350.671 308,437 Maintenance . , , 199,617 203,972 210.143 Depreciation and amortization , 212.072 201,803 183.779 Taxes other than income taxes . 141,422 135.248 128,648-Federal and state income taxes (Note 5) . 190.575 255.400 248.774 Total operating expenses . 1.990.677 1.941.618 1.931,795 OPERATING INCOME 459,855 484,133 482.424 OTHER !NCOME (EXPENSE): Allowance for equity funds used during construction (Note 1) 27,663 27.455 .32.985 income from subsidiary (Note 11) 3.440 2.967 3.417 Other, net 7.077 7.869 11.486 INCOME BEFORE INTEREST CHARGES 498.035 522.424 530.312 1 INTEREST CHARGES: interest on long term debt . . 205,824 226.110 248.073 l l Allowance for debt funds used dunng construction (Note 1) . (24,235) (24.334) (29.048) Amortizabon of debt discount, premium and expense. net . 4,405 3.313 1,145 l Other interest charges . 21,883 9.854 4.234 Net interest charges 207,877 214.943 224.404 N ET INCOM E . . . . . . . . . . . . . . . 290,158 307,481 305.908 DMDENDS ON PREFERRED STOCK . 32,919 34.025 41.346 NET INCOME AFTER DMDENDS ON PREFERRED STOCK $ 257,239 $ 273.456 $ 264.562 Statements Of Earnings Retained in The Business , for the Years Ended December 31.1987,1986 and 1985 1987 1986 1985 (in Thousands) , Ba?ance. beg:nnno of penod . $ 440,644 $ 361,716 $ 282.854 ; Add (deduct). Net income a'ter dmoenas on preferred stock 257,239 273,456 264.562 Cash dedends paid on common stock (201,100) (191,300) (185.700) Prefc* red stock redempton eipense (Note 9) . - (3.228) - Balance, end of penod (Note 14) $ 496,783 $ 440.644 5 361,716 Statements Of Other Paid in Capital for the Years Ended December 31.1987,1986 and 1985 1987 1986 1985 (in Thousands) Balance, beg:nn:ng of penod . $1,182,145 $1,182.145 $1.155.145 Cash contr,buton to capital by parent company 43.000 - 27.000 Balance. end of period . $1,225,145 $1.182.14 5 $1.182.145 The accompanying notes are an integral part of these statements. l4 L
Statements Of Sources Of Funds For Gross Property Additions for the Years Endeu December 31,1987,198o and 1985 1987 1986 1985 (In TroJsands) FUNDS FROM OPERAT10NS Net income . $290,158 $307.481 $305,908 Add (deduct) pnnopal noncash items-Depreccon and amortization 270,492 292.569 266.657 Deferred income taxes, net . 107,824 135 364 104 259 Deferred inwstment tax cred,ts . 23,477 19.736 57.096 AHowance for equ:ty funds used dunng construct;on (27,663) (27.455) (32.985) 664,288 727.695 700,935 Less-Dwidends on common stock 201,100 191,300 185.700 Dmdends on preferred stock 32.919 34.025 41.346 Net funds provided from operabons 430.269 502.370 473 889 FUNDS FROM (REQUIRED FOR) FIN ANCINGS AND CAPITAL CONTRIBUTIONS First mortgage bonds-- Total issues 200.000 125.000 - Less ret.rements 108.082 405.765 39.460 Net issues (retirer.ients) 91,918 (280,765) (39.460) Preterred stock reacqu. red or redeemed (5,000) (42.224) - Cap 4a! contnbutons from parent company 43,000 - 27,000 Obligations incurred under poitut,on control bonds, net . 432 5.232 115.577 increase (decrease) in otner long term debt. net 37.286 51,456 (22.025) increne in notes payable to banks 15,000 - - Net funds proeded from (required for) finanongs and capta! contr butons 182.636 (266 301) 81.092 FUNDS PRCMDED (REQU; RED) BY OTHER SOURCES Decrease ( ncrease) in temporary casn investments . 12,000 327.154 (34.571) Decrease (:ncrease)in otner net current assets (exciudog preferred stock, long term aebt oue wehtn one year and notes pafable to banLs) (89,983) (60.894) 45.949 Adsance payment under capacity contract - 100 000 - Other. Det ('nclud.ng a'!owance for equity funds used dunng construction) 65.667 (48.562) 1.714 Net funas prwided (requ: red) by other Sources (12,316,) 317.698 13.092 GROSS PROFERTY ADDITIONS (;nclud ng anosance 'or funds used aunng construct.on in tne amounts of $41.770.000 in 1987
$40 232 000 in 1936 and $48 238 000 in 1935) $600.589, 1553 767 $568 073 The accompanying notes are an integd part of these statements
Balance Sheets at D3contm 31.1987 and 1983 1987 1986 i Assets (in Thousands) UTILITY PLANT (Notes 1,3,12 and 16): Plant in service, at onginal cost . . $7,196,154 $6.966,106 Less-Accumulated provision for deprecation . . 2,074,114 1.882.385-5,15.2,040 5.083,721 Nuclear fuel, at amortized cost . . 191,493 205,768 ! Construction work in progress . 750,996 497.614 6.064,529 5,787,103 Less-Property related accumulated deferred income taxes (Note 1) 933.932 857.081 OTHER PROPERTY AND INVESTMENTS: Southern Electric Generating Company. at equity (Note 11) . . 21,235 18.046 NonutAty property, net . 4,019 4.061 Miscellaneous ,. 6,148 8g , CURRENT ASSETS: Cash (Note 4) . , tt079 16,905 Temporary cash investments. at cost - 12,000 Receivables-Customer accounts receivable . . .. .. 256,086 135.048 Other accounts and notes receivable (Note 13) 78,733 32.240 Affaated compan.es . . ... .. . 39,862 50,373 l Accumulated provision for uncollectible accounts (Note 13) (59,464) (15.573) l Refundable income taxes (Note 5) , 38,276 17.937 Fossd fuel stock. at average cost 164,671 152,640 l
- Mr~Ns and supplies, at average cost 103.823 89.599 i Wpay,v.ents .. . 10,595 12.320 l Vacation pay deferred (Note 1) 21.317 20.002 DEFERRED CHARGES.
Debt expense, beag amortized 6,695 6.308 Debt redemption expense, being amortized 30,767 34,170 Miscellaneous 50.561 45.927 88.023 86.405 : Total Assets . ,
$5.912.000 $5.570.653 ;
Capitalization and Liabihties CAPITALIZATION (See accompanying statements): Common stock equity $1,946,747 $1.847,608 Preferred stock . . . 384,400 384,400 l Preferred stock subject to mancatory redemption (Note 8) . 27,500 30.000 Long-term debt 2.386.258 2 210.108 l CURRENT LIABluTIES: Preferred stock due or to be redeemed within one year (Note 8) 2,500 5.000 Long term debt due or to be redeened within one year (Note 7) . 95,140 142.394 Notes payable to banks (Note 4) . 15,000 - Accounts payable-1 Affdiated companies 65,172 47,187 i Other 208,441 191.419 ! Customer deposits 32,220 30.333 Taxes accrued-Federal and state income (Note 5) 60,877 39.593 CRher 11,241 11.164 Interest accrued , 49,409 47.648 Vacation pay accrued (Note 1) 21,317 20.002 Misceflaneous 24.660 25.567 DEFERRED CREDITS AND OTHER LIABILITIES: Accumulated deferred investment tax cred:ts (Note 5) 418,370 418.275 Prepaid capacity revenues, net (Note 17) . 103,947 101,143 Misce!!aneous 58.721 18.812 581,038 538.230 COMMITMENTS AND CONTINGENT MATTERS (Notes 3.11,12,13.15 and 17) Total Capitahration and Liabihties $5,912,000 $5.570.653 The accompanpng notes are an integral part of these statements 26
i
. Statm:nts Of Capitaliz:. tion at December 31.1987 and 1986 Percent of Amount Total 1987 1986 1987 1986 (In Thousands)
COMMON STOCK EQUITY: Common stock, par value $40 por share, authorized 6.000.000 shares. outstanding 5.608.955 shares . $ 224,358 $ 224.358 Other paidan captal 1,225,145 1,182.145 i Prentum on preferred stock . 461 461 Earn:ngs reta.ned in tne business (Note 14) . 496,783 440 644 Total . , 1,946.747 1.847.608 41.0 % 41.3 % CUMULATIVE PREFERRED STOCK (Note 3): 51 par va!ue, authonzed 27.500,000 snarcs-$25 stated captal-outstanding 2,000,000 shares-Ad;ustable rate-8.06% at December 31.1987 (Note 10) 50,000 50.000 ,
$100 par va've. authortzed 3.850.000 shares, outstanding 3.644.000 snares-Senes 4.20% to 4.52% . 41,400 41,400 4,60% to 4 92% . 29,000 20,000 5.96% to 8.04% . 32,000 32.000 8.16% to 9 44% . 232,000 232.000 Tota! (annual d.vidend requirement-530,039.000) . 384,400 384,400 8.1 8.6 Subject to mandatory redemption (Note 8).
11.00% (annual dividend requirement-
$3.300,000) . 30,000 35.000 Less amount due or to be redeemed witrun one year 2,500 5.000 Total exclud:ng amount due or to be redeemed with:n one year 27,500 30.000 0.6 0.7 ,
LONG TERM DEBT (Note 3) First mortgage bonds- < Matunty interest Rates May 1,1987 4ve% - 14,500 f October 1,1987 BVe% - 75.000 January 1,1988 3h% 23.000 23 000 May 1,1989 4re% 20,000 20.000 ! Apnt 1.1990 5% 6,957 6.957 March 1,1991 4W% 13,000 13 000
- June 1,1992 4h% 14,360 14.360 1993 through 1997 44% to 6W% 128,581 128.581 1998 through 2002 7% to 9% . 378,424 378.424 2003 tnrough 2007 8%% to 10%% 685,000 685.000 2008 9W% to 94% 200,000 200.000 2010 124s% 81,418 100.000 2016 9%% 125,000 125.000 2017 10Ve% 200,000 --
Total first mortgage bonds 1.875,740 '1,783.822 Otner long-term debt (Note 6)
)
624.119 586.401 1 l Unamort zed debt premium (d scount), net (18,461) (17,721) l 1 Total long term oebt (annual interest ) requirement-5222.465.000) 2,481,398 2.352.502 ! Less amount due or to be redeemed within one par (Note 7) 95.140 142,394
. Long-term debt. excluding amount due or to be I redeemed witn<n one year 2,386,258 2 210.108 50.3 49 4 !
TOTAL CAPITAUZATION . $4,744,905 $4.472,116 100.0 % 100.0 % j i l The accorr.panying notes are an integral part of these statements. l l l 3 27 I
3 Utility Plant-Not:sTo FinancialStatements Utaty plant is stated at ono:nal cost such cost includu ppr priate admastrat ve and generaf costs; payrolf-rdated
- 1.
SUMMARY
OF SIGNIFICANT ACCOUNTING costs such as pensons taxes and other benefils; and the POLICIES: estimated cost of funds used dunng construebon. The cost of General- maintenance, repairs, and replacement of minor items of The company is a wholly owned subsidary of The Southern properly is charged to maintenance expense. The cost of Company (Southem) which is the parent company of four replacement of proporty (exclusve of minor items of property) operabng companies, a system servce company, Southern is charged to utihty plant. Flectric inter natonal, Inc. (SEI) and T he Souther n Irwestment Group, Inc. (SIG) The operating companies provide electric Allowance for Funds Used During utsty service in four southeastern states Contracts among Construction (AFUDC)~ This allowance is the est mated debt and equity costs the companies, cmering interconnechon arrangements, inter. during the period of constructen, of funds inwsted in the . change of electrc power and joint ownership of generatng construebon of plant which are not recaered from customers !acht es, are regulated by the Federal Energy Regulatory Commisson (FERC) or the Secunt es and Exchange Com. through cur rent te enues. Whife cash is not reahzed currently from such afloaance, it is reahzed owf the service hfe of mission. The system service company provides, at cost, specahzed serv ces upon request to Southern and to each the plant under the rate-making process through increased rewnues resulbng from higher rate base and higher depre. of the subsidiary compancs. SEI markets to ubhbes and industrial concerns the technicat expertse of the Southern cabon expense. The composto rate used to determine the amount of a!10wance, net of incomo las was 8.9 percent in electrc system in planning and operatmg electoc poacr bohtos. SIG was formed to research ar.d demlop ne.v 1987 and 9.3 percent in 1986 and 1985 The company accounts for the income tax effeci of the capul'ad debt cost business and inestment opportun bes. as a charge to income ta x expense assooated with operabons Southern is regstered as a holdng company under the and a correspondng credt to ahvance for debt funds used Pubic Utihty Holdng Company Act of 1935 (Holdng during construction. The income ta x effect of capitahzed debt Company Act), and it and its subsdaries are subject to the cost was $10.128.000, $11.557.000 and $13.795.000 in 1987, j regulatory provisions of the Hdeng Company Act. The 1986, and 1985. respechvely. AFUDC, net of income taxes. company is also regulated by the FERC and the Alabama Pubic Service Commisson (APSC) and follows genera:ty as a percent of not income after dmdends on ore rer red stock amounted to 16.2 percent in 1987,14.7 percent in 1986 and accepted accounbng pnnoples and complos with the 18.2 percent in 1985. accounbng pdces and practces prescnbed by the re. ' spectae commissons. Depreciation-Deprecabon of the orgnal cost of deprecable ubbty plant - Revenues-Poor to February 1987, reenue from the sa!e of electroty in service is provided usn0 composite straight hne rates in the company's reta:I junsection was included in revenues whch appro omated 3.5 percent 6n 1987 and 1986 and 3.4 i as billed to customers on a c)de bilhng bass Beginning in percent in 1985 and includes a tactor to provide for the expected cost of decommissoning nuclear facihtes. This February 1987, the estimated re.enue for servce rendered but not yet talled to retai1 customers is being accrued and cost. based on decommissoning pvDmptly a'ter the unit is included in remnues. Under current retad rate procedures, taken out of service, is esnmated as of December 1985, to be such cumulatne accrued amount of $49,446.000 as of a total of $250 milhon for Plant Farim This estimate wdl be February 1,1987, is being amortzed over the ensuing adjusted penodcally consdering et .anging pnce leels and l eighteen-month penod. Sucn amortzabon amounted to techndogy and the factor included in the deprecation rates
$30,217,000 in 1987. will also be adjusted to reflect rensed decommissoning ,
costs. When property subject to deprecabon is retired or FuelCosts- otherwise esposed of in the normal course of busness. its i Fuel costs are expensed as the fuel is consumed The cost. t00 ether with its cost of removal, less sAnge, is charged : company recowrs fuel costs and not purchased energy to the accumulated provison for deprecat on. , costs through f uel cost recovery mechanisms which provide ' for adjustments as necessary to ref'oct increases or decreases Retirement Plans- 4 The company has a defined benefit, trusteed, non-en such costs Fuel e xpense inckides the amortzat on of the cost of coNnt'utory penson plan whch cowrs substantially all a nuclear fuel, and a charge, based on nuclear generabon, for regular employees Benefits are based on the greater of amounts resulbng from two dtferent formulas years of service ; the permanent dsposal of spent nudear fuel The total charges for nuclear fuel included in fuel egense amounted to and final pay or years of service and flat-ddtar benefit. The
$83.964.000 in 1987, $88.326.000 in 1986, and $88.713.000 pdcy of the company is to use the "entry age normal method l in 1985. The company has a contract with the Department of w,th frozen inibal hatAty" actuanal method for fundng e purposes. subject to hmitabons under federahncome tax Energy (DOE) whch provides for permanent dsposbon of spent nuclear fuel The servce pronded by DOE rs schedukg regulat ons On January 1,1987, the company implemented ;
Financial Accounbng Standards Board (FASB) Statement l to begin in 1998 Pendng permanent dspost on of the spent fuel suffcent storage capacty is presentty avakble at Plant No. 87, ' Employers' Accounting for Pensons" whch requires l use of the "projected unit credt" actuanal method for finanoaf Farley for storage of spent fuelinto 2007 and 2011 for Unit ' Nos 1 and 2, respectively. reportn0 pur poses. This change cketeasod penson en pense for 1987 whch amounted to $11.828.000 compared to i
$27,296.000 in 1986 and $24,136.000 in 1985. Of these
{ 1 l
amcunts. $7.158.000 in 1987. $19.C31.000 in 1986 and expense only when paid. Consistent w,th this rate-mabng $15.956,000 in 1985 were charged to operating expenses, treatment, the company accrues a current I abaty for earned and the batance was charged to construction and other vacation pay and records a Current asset representng future accounts. The funded status of the plan at December 31,1987 recoverabihty of the costs. Such amounts were $21.317.000 is as forows(in thousands): and $20.002.000 at December 31.1987 and 1986, respec-tisely. In 1988, approumately 675 percent of the 1987 Actuanal present va'ue of benefit obbgat ons: maton habaty wCl be expensed and the ba!ance w,H be hied benef.ts $(314.073) charged to construction and other accounts. Nonvested benef:ts (19.048) Income Taxes-Accumulated benefit obhgaton $(333,121) The company provides defe red income taxes for au Add. tonal amounts related to income tax bming d "crences. Investment tax cred ts ut.hzed projected salary increases (208.018) are deferred and amortized to incomo oser the a,erage hses Projected benett obhgation (541,139) of the related property. Proosions for property.related de-Fa r value of plan assets, pnmanly ferred income taxes reflect consumpton of part of the value of equ:ty and faed income secuntes 611,4-82 the plant and equ:pment to whch the prws:ons relate. Unrecognized not loss 19,708 Accordingly, the related accumulated deferred income taxes Unrecogruzed net transaton asset -(90.051) are a vatu ton rescrse which is deducted from plant invest-Prepaid pension cost recognizedin ment in the Balance Sheets. Other deferreo irrome taxes are the Balance Sheets $ 0 included in taxes accrued FASB Statement No. 96. "Account-ing for income Taxes". which must be implemented by 1989. The d scount rate used to measure the profected benefit w,U require. among otner things, convers:on to the habity obhgaton was 75 percent, the annual rate of saiarpncreases method of account ng for de' erred income taxes This change was 6.0 percent. and the expected long-term rate of return w,Il necess. tate record:ng deferred income taxes for ail book-on plan assets was 8.5 percent. The components of net tax bas:s d t'erences, and restating deferred income taxes at pensson cost for 1987 were (in thousands). the rates at w hich they are 0xpected to be set!led. Certa n deferred income taxes hase been recorded at rates h:gher Benef;ts earned dunng the year $ 22.422 than the rates specded in the Tax Reform Act of 1986 The Interest cost on projected amounts resultng from the change in tax rates will be used to benef;t obhgation . 36.747 reduce future tax ex pense for accountng and rate making Actual return on plan assets (23,525) purposes. Tax law requ res that such amounts re!ated to Net amortzaron and deferra! (23.816) accaterated depreciation be used to reduce tax e xpense over Net penson cost $ 11.828 the hves Lf the related assets. Amounts not related to accel ersted deprec:abon are not covered by normah7ation requ:re. The actuanal present va'ue of accumulated pian benetts ments and they wdl be resersed in accordance with regulatory as of January 1.1956. based on an 8 percent assumed rate rate-makir,g treatment. The statement a'so precludes nett ng of return, tota'ed $268.002.000, of whch $256.983,000 and of deferred tax habAtes aga.nst assets See Note 5 for further $11.019.000 represented sested and nonvested benefits. information regard ng income taxes respectvely Plan net assets avadab!e for benef.ts at The company is included in the conschdated federal January 1.1986 were $515.728.000. income tax retum of Southern. The company a'so provides certa n hea'th care and I.fo irsurance benef.ts for retred emp%ees. Substant.a!!y an 2. RATE MATTERS: employees may become ehg ble for these benef.ts w hen tney in November 1982. the APSC acopted Rate RSE whch ret,re Pnor to 1987 the costs of such benef ts were recog. provides for penod,c retad rate adjustments based upon the need as payrmnts were made In 1987. to resect the full cost company's eamed return on end-of-penod reta l common of such benef.ts. the company began recogneing these equity and Rate CNP which prm1 des for ad;ustments to benef.t costs on an accrual bas:s using the "aggregate cost ' recognee the placing in retal sers,ce of ne.v generatng actuanal method whch spreads the expected cost of such facatas. S.nce the adoption of the rates, both increases and bene' ts oser the rema:ning penods of empicyees' service as decreases have been requ: red Only one Rate RSE adjust a lemi percentage of payroit costs Accrued costs for med cal ment was requ red in 1987, a decrease of approomately 19 benef ts w,ll be funded to the estent deduct ble under federal percent in October. No Rate RSE aojustment was required in
- ncome tax rego!atons accrued costs of hfe insurance bene- January 1988. In June 1985. the APSC extended the retal f,ts. other than current cash payments for ret rees. are not rate-mak'ng concept into 1989. and the e stension order was currently beng funded This Change increased the cost of a":rmeo by the Supreme Court of AWma in October 1986 such benef,ts for 1987 whch amounted to $15.591.000 Among the mod fcatons unplemented to tne APSC etten-compared to $1.815.000 in 1986 and $2.017.000 in 1985 s on was that the sum of a!! increases and decreases under The company o'fered an earty retrement plan in 1987. Rate RSE from July 1985 through January 1989 shan not The estmated expenses of $7,995.000 wil be amortzed tota! more than 14 percent. Through January 1988 sucn sum dunng 1988 and 1989 consrstent wth the proposed rate. was a negahe 1.8 percent.
maWng treatment The company's rate schedules pra,de for adjustments in Vacation Pay- retal e!ectne rates to reflect changes in both state and federa! The company's employees earn the r vacat on in one year income tax rates As a resuit of the decrease in the federal and take It in the subsequent year. HoAcer. for rate'makng income tax rate by the Tax Reform Act of 1986. retal etectnc purposes, vacaton pay is recogn: Zed as an a'lowable rates were reduced approumately 1 percent and 2 percent in January 1988 and 1987, respectuely
i j, 1
- 3. CAPITAL BUDGET, FINANCING AND comtntments for the precurement of foss4 and nuclear fuels.
FUEL COMMITMENTS: In most cases, such contracts conta:n prwsions for proe esca-Capital Budget- latons, minimum producton lemls and other 6nancal comrnt-The ecmpany's captal expendtures are currently eshmated ments. In add, ton, contracts with a certa:n coal contractor to total $773 mdbon in 1988, $680 mdhon in 1989 and $623 require reimbursement or purchase, at net book value, of the meon in 1990. The est mates include AFU DC, net of income investments in mines or equipment upon terminaton of the taxes, of $67 mdhon in 1988, $61 mdhon in 1989 and $56 contract. At December 31,1987 such net book value was mdhon in 1990. The captal budget is subject to penodc approximately $43.1 mdhon. Add tonal commttments for coal revies and revision and actual captal costs incurred and and for nuclear fuel will be required in the future to wpply the ccmmercia! operabor' dates may vary from estmates because company's fuel needs. of several factors inclueng new cost estimates, revised load est mates, the cost of capta! and chang!ng enwonmental 4. BANK UNES OF CREDIT: requirements. At December 31,1987, the ccmpany had lines of cred t in 1985 the U. S. Environmental Protection Agency (EPA) with banks totakng approximately $337 mdhon, of whch $200 promulgated air quahty control regu!abons relatng to the mdhon represented commitments obtained under re,dving stack height requirements of the Clean Air Act. The U S. Court cred t agreements with ten banks outside its service area. of Appea's for the Distnct of Columbia Circuit issued an These commitments currently terminate Apnl 30,1991. T he opinion in htgaton concerning EPA's stack height rules on agreements requ.re the payment of a commitment fee based January 22,1988. At this time the impact of that decision upon the unused porton of the commitments which, in the on final ru'es and the impact on the company cannot be case o' erght of the agreements and at the opton of the com- 2 determined in add; ton, legislaton being considered by Con- pany may be o'fset in whole or in part by the ma;ntenance of gress concoming acid ra:n and other a:r qualty issues would b&nces with the respectve bank. make addtonal polluton-control equipment compulsory for Arrangements with respect to the $137 mdhon rema<ning certain coahfired po.wr plants. The enactment of legislaton knes of credt expire at various tmes dunng 1988 and in or ne,y stack height rules mandatng reductons in sulfur certa:n cases prowde for awrage annual compensatng bal-d> oxide emiss ons in Alabama would substant ally increase ances. Because the arrangements are based on an awrage ( the company's captal requirements and operatng costs. balance, the company does not cons: der any of its cash Recent legtstaton amending the Clean Water Act, the ba!ances to be restncted as of any specific date. Includng Resource Conservabon and Recomry Act, the Comprehen. compensat'ng ba'ances, the company has maintained oper. sive Enwonmental Response, Compensaton and Liabihty ating account ba!ances in banks averag:ng approximately [ Act and the Emergency Planning and Community Right-to. $3,516,000 in 1987 and $3,950,000 in 1986. Know Act affects many areas of company operatons 5, INCOME TAXES: includng the generaton, transmtssion and dstnbuton of A detad of the federaf and state income tax provisonsis electnc energy. The full impact of these requirements cannot shown below; be determined at this t me pend ng the dowlopment and implementaton of appicade regulatons. 1987 1986 1985 Financing- (in Thousands) The abmty of the company to finance its captal budget Total provision for depends on the amount of funds generated interna 4y and the income taxes: funds it can ra:se by external finanong The company's Federal-primary sources of external finanong are sa'es of first mort. Currently payade . $ 53,980 $ 94.345 $ 82,838 gage bonds and preferred stock to the pubbc, rece:pt of Deferred-add,t ona! pa:d-in cap.tal from Southern, and leasng of Current year . 142,093 134,717 106,309 nuclear matena!. Pard-in capta' is planned to be provided, Reversalof pror b the extent possble, by Southern from the sa'e of addtonal years (44,951) (9.939) (10.377) common stock in amounts and at times not yet determined Deferred investment In order to issue add t:onal first mortage bonds and pre- tax cred ts 23,477 19,736 57.096 ferred stock, the company must comply with certain earrwngs 174,599 238.859 235.866 coerage requirements conta:ned in its mortgage indenture l State-and corporate charter The most restnctim of these provisons 4,445 l Currently payab:e ' 5'77n
' 9'522 requires, for the issuance of addtona! first mortgage bonds' De' erred-that before income-tax earrungs, as defined. Cover pro forma 4,498 4,781 Current War . 7.858 annua! interest charges on outstand ng first mortgage bonds Rearsa' of pr or at least twice, and for the issuance of add bonal preferred 6,184 years 2.728 3.546 stock, that gross income av&!able for interest cover pro forma 15,127 16 356 17.849 annualinterest charges and preferred stock dvidends at least one and one-hatf t mes. These coverages, for f,rst mort- Total 189,726 255.215 253,715 gage bonds and for preferred stock for the year ended Lessincome taxes December 31,1987, were 4.03 and 197, respectwly. charged (cred ted) to Fuel Commitments- other income (849) (185) 4.941 To supply a port on of the fuel requtements of its gener- Federal and state abng plants, the company has entered into vanous long-term income taxes charged to operatons $190,575 $255 400 $248.774 30 i
I
The company receaed federal and state inccme tax 6. OTHER LONG-TERM DEBT: refunds of $27,008,000 for the year ended December 31. Detads of other long-term debt are as foltons: 1986, which resu'ted from the company's estmated tax pay-December 31, ments exceed ng the income tax habihty. For the year ended December 31.1987, the company's estimated tax payments 1987 1986 excem$ed the accrued federal and state income taxes result. (in Thousands) ing in an esbmated refund of $38.276,000. Obhgat onsincurred in connecton Deferred income taxes resu't pnmanly from the company's w,th the sa e of tax-exempt use of accelerated methods of deprecaton and other wnte- pdluton-control re,enue bonds o"s of proporty costs, as prodded for by the income tax laws, by pubhc authontes- i bang greater tnan the book deprecaton of such costs Other December 1,1995 and 2004 deferred income taxes are prodded for certa n costs or rev. 9% and 9Veb . $ 18,700 $ 18,700 enues that are recognized for income tax purposes in penods 2003-2013, 6% to 9Mb . 198,450 191450 d derent from those used for book purposes. Income taxes 2014 2016, 7.4% to 10Mb . 252,500 252,500 deferred in poor years are re,ersed and charged or cred.ted Less funds on depos.t to income when the book deprecaton of property costs with trustees _ 1,546 1.978 exceeds the related tax deductons or wtien other tmng _ 468,104 467.672 d "erences re,erse. As expla ned in Note 1, certa n amounts Capitahzed lease ot%gatons-resuit ng f rom the change in tax rctes w1'l be re,ersed in axor- Nuc! ear fuel 142,614 105.079 dance mth regulatory rate-making treatment. See "Manage- Oftce budd:ngs 9,445 9.650 ment's Discussaon and Ana'ysis" for further informaton on Street hght 3,956 4.000 the impact of the Tax Reform Act of 1986 and the ne,v ru'es 156,015 118.729 on accountng for income taxes. l De' erred investment tax cred.ts are amortzed o,er tne L'e $586 401
.$624'119 _
of the related property win such amortzaton apphed as a Peaut:on-control obigatons represent insta"ment purchases cred,t to reduce deprecaton in the Statements of Income of polluton contrd facht es f,nanced by funds derned from Such Cred is amortzed in tnis manner amounted to sa'es by pubhc authont;es of revenue bonds. The company is
$22,798,000 in 1987. $20.151,000 in 1986, and $17,832.000 in required to mak e payments su'5 cent for the authont'es to 1985 At December 31,1987, a'hnvestment tax cred.ts avaA meet pnncpd and nterest requ:rements of such bonds W,th abe to reduce federahncome tai es payabe had been utazed respect to $32,500.000 of st.ch po!!ut on-Control obhgatons, The praesion for income tax es currently payade includes the company has authenicateo and debered to the trustees the tax e"ects of the re,ersal of prior years' tim,ng d 'ferences a hke pnnopal amount of int mortgage bonds as secunty for wttch de' erred income taxes were not prooded At for its obbgatons under the insta"ment purchase agree-December 31,1987, the remanmg ba'ance of such tmng ments. No ponopa! or interest on inese f rst mortgage bonds d "erences was appro umately $102.000.000, for wtuch de-is payable un!ess and unti a defaul occurs on the instahment ferred income taxes of some $37,000,000 (at 1988 tax rates) purchase agreements.
ha,e not been preaded The company has cap,ta': zed leased nuclear matenal and The totat provson for federahncome tai es as a percentage rewrded tnmeatese od g%ons One a'rangement pro-of income before feoeral income tax amounted to 376 per-v!aes for the payment of interest monthly. in advance, based cent,43.7 percent, and 43 5 percent for 1987,1956, and on the commerca! paper rate, as denned plus .875 percent' 1985, respectnely. The a "erence betseen the rates and tne At the end of 1987. $19.028.000 was outstand.ng at a rate of
'edera! statutory rate (40 percent in 1987 and 46 percent in 8 995 percent under such lease The company has enerosed 1986 and 1985) ms due pnmanly to the excluson from its opton to terminate this arrarxpnent. e"ectae in Apol 1988-taxab e income of the abuance for eauty funds used Two other arrangements preade for the pagnent of interest at donng construct on (2.4 percent in 1987. 2 3 percent in 19S,,
varyana rates and tres dependent on opt.ons seSected by the and 2.8 percent in 1985). company from types of loans ava tade under the arrange-ments Pnnepa! amounts outstand:ng at the end of 1987 were 547,946.000 and 575.640.000 wth e"ectse rates. includ.ng apphcab'e fees a,erag ng 8.12 percent and 8 55 percent. respect vely Pnnopal payments are reau red under the arrangements based on the cost of fue! burned The company has a'so cap td zed certa n o"ce budd.ng leases and a street bght lease Month!y pnnc pa' payments plus interest are requ red, and at December 31.1987, the interest rate was 9 5 percent for o".cc buid ngs and 13 0 per-cent for street Lghts The net book va'ue of cap;tahzed leases included in ut hty plant in serv ce was $153.716.000 and $110,152.000 at December 31,1987 and 1956, respectaely The est mated aggregate annual matunt es of the com-pany's other long term debt through 1992 are as fonoa s 552.695.000 in 1988,540.592.000 in 1989. $33 602.000 in 1990, 513.619.000 in 1991 and $7.065.000 in 1991 3
i
- 7. LONGTERM DEBT DUE OR TO BE 11. INVESTMENT IN JOINTLY OWNED REDEEMED WITHIN ONE YEAR: FACILITIES: i The annual first mortgage bond improvement'und require- The company and one of its affaates, Georgia Power ment is one percent of 'he aggregate prinopal amount of Company (Georgia), own equa2y a'l of the outstandng captal l bonds of each series authenbcated, so long as a porton of stock of Southern Elecinc Generabng Company (SEGCO),
that series is outstand.ng and may be satsfed by the depost whch owns electnc generatng units wth a tota! rated of cash ancor reacquired bonds, the certfcation of un- capac@ of 1,019,680 kdowatts, together wth assooated i funded property addtions or a combinaton thereof. The 1988 transmission facet es. The capacty of these units is sold requirement amount ng to $19,445,000 has been satsfied by equally to the company and Georg:a under a contract expr-the depost of cash, all of w hich was used for the redempton ing in 1994 which, in substance, requires payments sufficient i , of outstandng bonds at par va!ue. . to provide for the operatng expenses. taxes. interest expense j First mortgage bonds maturing in 1988 and 1987 amount and a return on equity, whether or not SEGCO has any , to $23,000.000 and $89,500.000, respectively. Other long- capacty and energy avalabte. The company's share of such - I term debt of $52,695,000 maturing in 1988 consia pnmanly amounts tota!ed $76.812.000 in 1987, $84,438.000 in 1986 of captahzed nuclear fuellease obhgat:ons. and $92,782.000 in 1985 and is included in Purchased and interchanged poAer, net in the Statements of Income. j 8. PREFERRED STOCK SUBJECT TO in addbon, the company has guaranteed uncondbona1y i 1 MANDATORY REDEMPTION: the obhgaton of SEGCO under an instanment safe agree-The 11 percent series of preferred stock is subject to a ment for the purchase of certain pollut on-control facates at : cumulatve snking fund requinng the company to redeem SEGCO's generatng units. pursuant to which $26 md! ion 1 25.000 shares ($2,500.000) of such stock on January 1 each prinopal amount of polluton-control reanue bonds have , year. The company has the non-cumulative opt on to doub'e been issued. Georgia has agreed to reimburse the company l the number of shares redeemed in any one year. The stock is for the pro rata portion of such obhgabon corresponding l redeemable for sinking fund purposes at $100 per share plus to its then proportonate on nership of stock cf SEGCO if I accrued dvdends to the date of redempton. The redemp- the company is caJied upon to make such payment under i bon requirement may be offset each year in whole or in part its guaranty. by shares purchased and cancelled by the company. The At December 31,1987, the captahzaton of SEGCO January 1,1988 and 1987 snking fund requirements were conssted of $42,471.000 of equity and $63.557,000 of each satsf>ed through the redempt on of 25.000 shares. In long-term debt on which the annuahnterest requirement is 1987, the company exerosed its option to redeem 25.000 $5,340,000. In 1987 and 1986, SEGCO paid dmdends add tional shares. totakng $500,000 and $3.735.000 wNie net income was
$6.880,000 and $5.934.000 respect vely.
- 9. REDEMPTION OF 15.68% CLASS A The company and one of its a'faates. Misssspp Po^er i PREFERRED STOCK: Company, own as tenanton common in the proportons of !
On February 3,1986, the company redeemed the ent,re 60 percent and 40 percent, respecbvely, a 500.000 knowatt j senes (1,600.000 shares) of 15.68% Class A Preferred steam-electnc generat ng plant in Greene County. Alabama l Stock which had a stated captal of $25 per share. The re- The plant was placed in service in 1965 and the company's demption pnce was $27.94 per share plus accrued dm- gross investment at December 31,1987, amounted to dends The associated redemption premium of $4,704,000 $71.403.000. The company's share of ex penses is included was used to o"set the $1,476.000 gain on prewously re- in the correspondng operatng expense accounts in the acqu;ted preferred stock wth the $3,228.000 ba!ance Statements ofincome. charged to retatned eamings.
- 12. POSSIBLE SALE OF AN INTEREST
- 10. ADuUSTABLE RATE PREFERRED STOCK: IN PLANT:
The company issued 2,000.000 shares of Adystable Rate An order of an appeal boatd of the Nuclear Regulatory Class A Preferred Stock in September 1983, wth a stated Commisson (NRC) in an anttrust rev en resutted in con-captal of $25 per share The company issued an add tional dtons being imposed on the NRC bcenses for Plant Farley 2.000.000 shares of Adystabte Rate Class A Preferred Stock which require the company to sell an ownership interest of in February 1988 wth a stated captal of $25 per share. The approximately six percent in Plant Fartey to Alabama Electne d:vidend rate on each of these senes is ad usted quartedy Cooperatve, Inc. (AEC), and to prcmde transmisson services usng a formula based upon certan U. S. Treasury secunty to AEC and muniopal electnc drstnbutors. The company rates. However. the appbcable dvdend rate for any d udend has engaged in negotat ons w;th AEC for such sa!e. On penod shall in no eent be, for the 1983 senes, less than 720 June 29.1984, AEC filed wth the NRC a request that the NRC percent per annum or greater than 13.28 percent per annum insttute a proceedng whch could lead to imposbon of and, for the 1988 senes,less than 5.92 percent per annum sanct ons against the company for aseged wolatons of such or greater than 11.04 percent per annum. The per annum heense condt ons. Dscussons among tne part es, the NRC dvdend rates apphcat%e to the 1983 senes for the four staff and NRC's Drector of Nuclear Reactor Regu!ation have quarters oi 1987 were 7.20 percent, 7.20 percent. 784 per- been conducted. ho^ever, nc agreement was reached. On cent and 8 96 percent, respectvely, and is 8 64 yrcent for June 16.1986, the NRC Drecor of Nuclear Reactor Regu-the first quarter of 1988. The per annum dvidend rate appli- labon issued a notce of violaton which pertans sole!y to the cable to the 1988 senes through the first quarter of 1988 hcense cond tons assocated wth the anttrust proceedngs is SP ercent. and has no relat on to sa'ety or enwronmenta! matters The company responded to the notce on August 27,1986, denying violaton of the hcense. Under NRC procedure, the 32
notce of viciat on must be issued before a proceedng is to the operahng aff&ates. The case is stil pending before the ; in6ated to determine the existence of an aneged violabon of U.S. District Court in Toxas
, the Icense. If satsfactory resobton of the issues raised in the By order dated May 12,1987, an admnstratisela,v pdge
- notce is not reached wth the NRC Staff, a show Cause order of the FERC,in consohdated proceedngsirttiated by Gulf i j could be issued and a proceedng commenced to determine States and Southern, found the contracts not to be unjust whether the company has negotated in good fath wth AEC or unreasonable, granted the declaratory rehef sought by and whether the terms of the sale effered by the company Southem and dsmissed the complaint fded by Gutf States. ,
, are reasonable. This decision has been appea'od to the full Commission j j where it is pendng. The FERC had prevously ruled it does ) 1
- 13. NONTERRITORIAL REVENUES: not have pnsdct,on owr the question of whether or not <
The operatng subsidanes of the Southern electrc S)siem, Southern negotated in good fa.th to reduce the amount of , includng the company, have entered into long term contrac- capacty purchases and engaged in fraudulent conduct in l tual agreements for the sate of capacty and energy to certain enteringinto the contract, ; non affikated uthtes located outside of the system's service Revenues include sales to Gu!f States for un!t power and J temtory. Certain of these agreements are nonfirm and are other long term cont
- acts. Some of these rewnues haw been 4
based on capaoty of the system in gueraf. Other agree- wthheld by Gulf States. Becauqe of 6sClosure in reports fded 4 ments are firm and pertain to capacty related to speofc wth the Secunties and Exchange Commission by Gulf States generatng units. Since the energy is genera!!y sold at cost concerning itsfsnancial cond t on, a porton of these re enues, , under these agreements, it is revenues from capaoty sales a'ter taxes, has tmen excluded from the company's net [ that pnmarily impact profitab&ty. The company's porton of income as shown below. ! off system capaoty re enues has been as folicwt 12 Months Ended ; Unit Other December i Year Power Long-Term _ Total 1987 1986 i (in Thousands) (in Thousands) 1987 $142,195 $10,476 $152,671 Total revenues . , $58,565 $64,943 i 1986 157,730 36,558 194,288 Re,enues wthheld or deposted 43,822 27,888 ; 1985 131,924 37.681 169.05 Charged to provision for i } Long term nonfirm po^er has been sold to Flonda Power & ! E ci ded ne e , 4 UghtCompany(FP&L).Jacksonvee Electnc Authonty(JEA), Florida Power Corporat on, and Missssppi Poner & Light in management's opnion, the outcome of the lawsuit wil Company. These contracts expred at the end of 1986 and not have a matenahmpact on the company's financial state- ' smilar contracts wth Gu!f States UtAtes Company (Gutt ments, howe er, the u!t mate outcorne of this matter cannot States) and the City of Tahahassee, Flonda, expre in 1992 now be determined and 2000, respectWy. Capacity and energy sa'es to FP&L the company's i~ Un,t poner from Plant Milerl is being sold to FP&L, JEA, largest sing'e customer, provided re,enue of $208.0 milhon i and Gulf States. Under these agreements,1,114 megawatts in 1987, $208.1 mi! hon in 1986 and $246.5 milhon in ! j of capacty is scheduled dunng the first fi e months of 1988, 1985, or 8.49 percent,8.58 percent and 10.21 percent, l l and 1,155 megawatts for the remaining months of the year. respectivety, of operatng revenues. !
- These agreements reach a maximum of 1,369 megawatts in !
- 1992, dechne therea'ter, and ex pre in 1995 14 DIVIDEND RESTRICTIONS:
On July 2,1986, Gulf States fded suit in the United States The company's first mortgage bonds and preferred stock D stnct Court for the Eastern D stret of Texas (Court) against outstand ng are ent$ed to the benefits of indenture co,enants Southern, its operat;ng subsid anes, and Southern Company or charter provisions restnct ng the payment of cash dvdends Servces, Inc. The complaint seeks a judgment declanng on common stock (except those pa*d concurrentty wth the that Gulf States is excused from further Obhgat on under its receipt of a cash capta! contnbut on in hke amount). U nder the unit power and other long-term poAer sa!es contracts wth the most restrctw of these, a first mortg3ge bond indenture coe l , company and the other operatng a'faates of Southern and nant $273,455.000of reta:nedearningswasrestrctedagainst I arardng Gulf States unspoofied damages. gum States the payment of common dvidends at December 31,1987. aneges, among othcr things, that Southem faded to negot, ate and renegotate in good fa th to reduce the amount of capaoty 15. NUCLEAR INSURANCE: ; purchases under the contracts and engaged in fraudulent Under the Pnce Anderson Act (Act), the company main- l conduct in entenng into the contracts. The Court perm:tted ta:ns agreements of indemnity wth the NRC wtych, together Gu!f States to make payments due undo such contracts by wth pnvate insurance, co,er third-party liabbty ansng from depostng funds wth the Court pendng the outcome of the any nuclear inodmt occumng at the company's nuclear sutt. However, dunng October and Nwember of 1986, Gulf power plant. The Act hrnts to $715 mdhon pubhc habbty States received orders from the Pubic Ut hty Commisson of cla:ms that could anse from a singe nuclear incident. The Texas and the Lou: sana Pubic Service Commisson whch company's nuclear plant is insured against this habhty to a dsationed the reewery of the capaoty charges to Gulf Stahs maumum of $160 moon by pnvate insurance (the mawnum under the unit power and other long-term sa'es contracts amount currentty a<adabe), wth the remaining co,erage As a result of this acton, Gutt States advised Southern that provided by a mandatory program of de' erred premiums the capaoty charges apphcabe to the Texas and Lou: sana which would be assessed, a'ter a nuclear inodent. aga:nst Junsdctions would not be deposted wth the Court or pa'd all owners of nuclear reactors A company could be assessed 33
+---qyr- 7-,
y- y - - - - - r-v-- - y- ,y , - -
--,--_n,._,__-_,,,_y_
up to $ 5 muon p3r inocent for each kcensed retctont e; mates. 17. ALABAMA MUNICIPAL ELECTRIC but not more than $10 meon to be pa:d in a ca endar year AUTHORITY (AMEA) CAPACITY for each reactor. The mammum assessment for the company CONTRACT: is $10 muon per inodent, bM not more than $20 meon to be in August 1986 the company entereo into 6 f,rm poAcr pa;d in any ono year. purchase contract mth AMEA ent,thng AMEA to schedu'ed The Act expsred in 1907. but remams apphcab!e to nuclear amounts of capacty (to a mammum of 100 mega^atts) for a un:ts licensed by the NRC or under an NRC construction penod of 15 years commenong September 1.1986 This permit pnor to August 2,1987. BJis to amend the Act. includ- pcy,er m!I be sdd to AM EA for its member munic paht.es that ing proposa!s to substant.a'ly increase. mod fy or ehnate prewously were served d.rectly by the Company as w hdesa'e the lim tat:on on habaty prowstons are currently under cons >d- customers. Under the terms of the contract. the company eration by Congress. recewed a payment from AM E A represent.ng the net present The company is a member of Nuclear Mutual Lim.ted va!ue of the rmonue assocated w,th th:S capacty entit'e-(NM L), a mutua! insurer estabhshed to proode property ment. The company is amorteng this payment to operat ng damage insurance in an amount up to $500 mAon for rmenue mth a correspond;ng charge to otner interest members' nuc! ear generat;ng faCat:es. The company is sub- expense at an eMectae d scount rate of 9 960 o ject to a retrospcct.ve premium adjustment in the ment that in order to secure AMEA's advance payment and the losses esceed accumu!ated reserse funds. The company's company's performance obhgation under tne contract, the ma omum assessment per inodent is hm:ted to approumately company issued and dekared to an escrow agent $113 3
$30.7 meon under the Current pohey. meon of f.rst mortgage bonds represent.ng the maomum Add t;onaly, the company has property damage poboes amount of hquidated damages payab!o by the company in w hiCh Currently prowde Caerage up to $1025 buon for losses the event of a defau4 under the contract. No pnnopal or in excess of the $500-meon NML ccNerage. This excess interest is payable on such bonds Un'ess and unt I a def ault by insurance is prooded by Nuc! car Electnc Insurance Lim.ted the company occurs. As the hquidated damages deci ne (NEIL). a mutua' insurer. and Amencar Nuclear Insurers.' under the contract, a port-on of the bonds equal to such Mutual Atom:c Energy Liabity Underv nteo The NRC decrease m!I be canceFed and dehvered to the company.
requ:res tnat. no later than October 4, '988. on s.te property damage insurance pohoes for commeroa' nuclear po^er 18, QUARTERLY FINANCIAL DATA plants be amended to proode that a1 proceeds from such (UNAUDITED): insurance shah be pad mer to a separate trust estabtshed Summanzed quarterly f'nancal data for 1987 and 1986 far the sote purpose of placing the reactor in a sa'e and are as fonoas. stab'e cond t,on, Any rema ntng proceeds are first apphed tcward the costs of decontamoat:on or debns remcya' oper. Net bcome at:ons orde'ed by the D. rector of the NRC, and second. pa,d at Dvdenas to e ther the company or its bond trustees as cr3/ be Operatng Operamg on Nerred appropnate under apphcable trust indentures NEIL a'so Rmenues Income Stock covers the e stra costs which would be incurred in obta ning (In Thousanos) rep!aw ent po^er dunng a prolonged acocental outage at 1987 a meroer's nuc! ear p! ant Mambers can beinsured aga nst First $521.390 $107.628 $ 55.411 increaseo costs of rep'acement power in an amount up to Second 620 914 119,059 67.565
$3 5 moon per week (sta t.ng 26 weeks a'ter the outage) for Th,rd 745.800 162.501 112 335 one year and up to $175 mAon per week for the second Fourth 562.428 70667 21.928 year. Under each of the NEIL pohc.es, members are subject to assessments if losses a in respect to each poky year jggg exceed the z ecumu!ated funds asaJable to the insurer under that pohey The present matmum assessments per inc, dent First $559.591 $125.111 $ 69.049 under current pohoes for the company for property damage Secono 584.105 100.732 47,072 would be $8 4 meon and $10 6 moon under tne replace- Th:rd 705 443 160 540 108.660 roent poaer pohcy Fourth 576 612 97.750 48.67; 16 ASSETS SUBJECT TO LIEN: The company's business is in*uenced by Ecasona' wea*her The company's mor1 gage, as amended and supp'e. cond t ons and the 1: ming of rate adjustments mented, secur ng the first mortgage bonds issued by the company. const tutes a d rect fnt hen on substant,acy a1 of the company s fa ed property and franchises 34
GeneralOfficers C. Alan Martin, Vice Presdent. TransferAgents Marketing 8 Joseph M. Farley, President Mha he %wg Charlton B. McArthur,Vice 600 North 18th Street Travis J. Bowden, Executive Vice President, Economic De,elopment Birmingham, Alabama 35291 President Jackson W. Minor,Vice President Harris Trust Company of Bill M. Guthrie, Executve Vice and Comptroller New York President? ; T. H. Jones. Vice President, Fossil 110 WiHiam Street i Wilham L. McDonough, Executve New York, New York 10038 Generation l Richard A. Boston, Secretary (For the 8.72% senes) Jasse S. Vogtle, Executwe Vce Charles M. Deason, Assistant Cont nental Stock Transfer Presidentand Counsel & Trust Company Wilham O. Whitt, Executise Vice Comptroller 72 Reade Street President 2 Ernest E. Glass, Jr., Assistant New York, New York 10007 Kenneth L. Allums, Senior Vice ComptroHer3 (An series except the 8.72% Presidents Jerry L. Harris, Assistant Cornptroller series) R. P Mcdonald, Senior Vice E. Wayne Boston, Assstant Southern Compar.y Services,Inc. President Secretary and Assistant Treasurer 64 Penmeter Center East Robert R. Todd, Senior Vice J. R. Harris, Assistant Secretary and Atlanta, Georgia 30346 President AssistantTreasurer (For the Adjustable Rate Class A Bob Andress,Vce President, Dorothy L. Essig, Assistant Secretary 1988 senec) Human Resources John H. Snyder, Assstant Secretary .
- c. H. Booker, Vice Presdent, am Wilkam L, Smith, Assistant Treasurer Marketng4 Am ad, M David L.Whitson, AssistantTreasurer D
Stephen E. Bradley, Vice Presdent, Pubhc Affairs Division Officers f0 B x b epartment Birmircham, Alabama 35202 Rayford F. Daws, Vice Presdent. John B. Byars, Jr., Vce Presdent, HarrisTrust Company of i a Power Dekvery Eufaula NewYcrk John E. Dorsett, Vcc President, Banks H. Farris, Vice Presdent, 110 Wiliiam Street l Pcwer Generaton Services Anniston New York, New York 10038 ! W. George Hairston, Ill, Vice Robert H. Haubein, Jr., Vice (For the 6 72% series) President NudearGeneraton5 President Tuscaloosa Continenta1 Stock Transfer i R. S. Hardigree, Vce President, John G. Rchardson, Vice President, & Trust Company l Corporate Services Mobile 72 Reade Street ! R. E. Hu'fman, Vce Pres dent, H. H. Turner, Jr., Vice President, New York, New York 10007 Electnc System Operations Birmingham (AH senes except the 8 72% WGam B. Hutchins, Ill, Vice Clyde H. Wood, Vce Presdent, se s) President and Treasurer Montgomery Southern Company Servces,inc. j 64 Penmeter Center East ! Atlanta, Georgia 30346 i AH executve offcers are full-time (For the AdjustabJe Rate Class A i employeesof thecompanyw,ththe 1988 senes) exception of E. Wayne Boston and J.R. Harris, Southern Comp 9ny LegalCounsel Servces, Inc. Balch & Bingham 1 Effectve January 1,1988 P.O. Box 306 2 Retred February 1,1988 Birmingham, Alabama 35201 3 Retired March 1,1988 4 Retired May ',1987 ! 5 Effectrse July 1,1987 5 Er'ectve May 1,1987 r 15
t , Directors JohnW.Vhods, Btrrmngham(1973)t Louis J. Willie, Birmingham (1984)
- t Joseph M. Fdriey, Birmingham Chairman andCEO President f AmSouth Bancorporation Booker T.Whshingtoninsurance (1965)t Multibank Holding Company Company President l EmilHess Birmingham (1975)t William L. McDonough, Birmingham j r T. Massey Bedsole, Mobde(1963)
Partner Chairman of the Board (1985)t Parisian, tric. ExecutiveVice President Hand, Arendall, Bedsde, Greases l Apparel Gerald H. Poall, Jacksonville j
& Johnston -
, Attorneys Fred Morgan Clark, Eufaula(197/) (1986)* James C. Inzer,Jr., Gadsden(1965) Retired President John C.Webb,IV, Demopdis(1977) DixieClay Company of Alabama,Inc. ; Partner Inzer, Suttle, Swann & Stivender, P.A. President Winton M. Blount,Ill, Montgomery l Attorneys Webb Lumber Company,Inc. (1986)* j Whdesale Lumber Vice Chairman ; Cravdord T. Jchnson, Ill, B!rmingham Jesse S. Wgtle, Birmingham Blount, Inc. * (1969)t Construction and Engineering President (1979)t Coca-Cola Bottling Company Executive Vice President and Dr. Joab L. Thomas. Tuscaloosa l f United,Inc. Counsel (1986)* Bottlers of Soft Drinks Wtiliam O.Whitt, Birmingham President The University of Alabama G. Thornton Nelson, Birmingham (1979)t2 (1969) ExecutiveVice President Travis J. Bowvden Birmingham (1988) Former Vice President - Whit Armstrong, Enterprise (1982) ExecutiveVice President S. Eason Balch, Birmingham (1970) President , The Crttzens Bank Aud;t Cornmittee member Partner j Balch & Bingham Attorneys Robert H. Raddiff, Jr., Mobile (1982) Chairmanof theBoard 2 Aovisory Director m ee e I William J. Rushton,Ill, Birmingham Midstream FuelService,Inc. 2 Adytsory Director etiective (1970)t General Marine SeNices February 1,1988 Chairman and CEO Edward L. Addison, At'anta(1983) Protective Life Corporation President Yearsin parenthesesindicate date l Sa!es and Service of Ufe and Health The Southern Company of election. Insurance Electric UtAty Hd6ng Company ' James H. Sanford, Prattville (1983)* President HOME Place Farms,Inc. Diversified Farmers and Ginners f l
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Management Changes ,,
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-# s l Executive Vice Presdent Travis J.
Bo,vden was elected to the board of ( *
, i, .
vl 1 ( , , dl rectors in 1988. Bill M. Guthrie, p ( - former executive vice president, ,' N ,I-
- Southern Company Services, Inc., ( s was dected executim vice presdent .
3 - P, :
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in 1988. W. George Ha;rston, Ill, j I; f , former generalmanager nuclear -{, . . p j support, was elected vice presdent, ll. . nuclear generation in 1987 and C. , f Alan Martin, former divison man-ager marketing, was elected vice v presdent, marketing in 1987. I Bill M. Guthrie (rear,left) was elected e xecutive vice president; C. Alan Martin (seated,left), vice president, marketing; W. George Hairston, Ill (seated, right), vice pres 6 dent, nuclear generat6on; and Travis J. Bowden (t tanding, right), to the board of directors. 1 l I i ! l l 1 i l i I l t l l 37 - i 1 . _ _ _ _ _ ___ _ _ _ _ _ _ _ . . _ _ _ _ _ . . _ _ _ _ _ _ _ _ _ . . _ _ _ . _ _ _ _ __ .__
. _ _ _ _ _ _ , _ _ _ _ . . _ . __ . _ _.__ _____ _ _ _ . _ . _ .. _ ___ _ ..___.________._m , _ _ _ _ _ _ _ . _ _ _ _ _ _ _ _
This statement reflec's the usual AI.ABAMA POWER COMPANY accounting practices of the Compaay STATEMENTS OF INCOME on the basis of interim figures and (Stated in Thousands of Dollars) is subject to audit and end of year adjustments. (Unaudited) 3 MONTHS ENDED MARCH 31, 1988 l OPERATING REVENUES............................................. $557.432 OPERATISC EXPENSES: Operation - ^ ' Fuel ...................................................... 142,701 Purchased and interchanged power, Net ..................... 35,876 0ther...................................................... 100,227 i i Maintenance.................................................. 45,591
- Depreciation and amortization ............................... 56,486 Taxes other than income taxes ............................... 36,368 ;
j Federal and state income taxes... 4.......................... 32.099 l Total operating expenses................................. 449,348 OPERATING INCOME .............................................. 108,084 1 OTHER INCOME (EXPENSE): Allovt.nce for equity funds used during construction.......... 8,990 Income from subsidiary....................................... 1,253 Other, net................................................... I,065 Income before interest charges........................... 11.308 INTEREST CHARCES: Interest on long-term debt .................................. 54,674 Allowance for debt funds used during construction............ (7.163) Amortization of debt discount, premium and expenses, net..... 1.088 Other interest c ha r g e s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.270 Net interest charges..................................... 53.869 N ET I N C O M E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65,523 DIVIDENDS ON PREFERRED ST0CK................................... 8,755 NET INCOME AFTER DIVIDENDS ON PREFERRED STOCK ................. S 56.768 mv/33/1 __ ~-__-__,----- -_- ----- --
~ i
- - -- - .- ., ~, . - - . . - - -
t f ALABAMA POVFR 0(WPANY_
-BALANCE SHLET f*
(Stated in Thousands of Do11ers) (Unaudited) i At KARCM 31 i 1998 A$$tTS I CTit!!Y FLANT: Plant in se rvic e at o riginal c o s t . . . . . . . . . . . . . . . .. . . . . . . . . . . . 8 7.229.320 . Less - Accunulated prevision for depreciation................. 2.135.872 5.093.a9I
]
Nuclear fuel, at amortised cost............................... 174.887 5 Cons t ruc t ion ve rk in pr o g re s s. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 835.4R2 j 6.103.407-tess - Froperty-related accueulated deferred k income taxes............................................... 950.198, i 5.l53,se9 OTHER PROFERTY AND INVESTMENTS: ! Southern Electric Generating cospany at equity............... 22.035 i Sonutility property. net...................................... 4.016 - Miscellaneous................................................. 3.358 29.659 l CURRENT ASSETS: t Cash.......................................................... 5.796 f Temporary cash investments, at cost........................... - Receivables - Customer accounts receivable............................... 242.260 I Cther accounts and notes 89,448 receivable........................ ? Affiliated companies....................................... 64.336 Accatulated provisio- for uncollectible accounts........... { (70.298) : Refundable income taxes....................................... 11.176 Toss 11 fuel stock, at everage cost............................ 188.947 .i Katerials and supplies, at average cost....................... 110.495 i Frepartents................................................... 45.949 Vacation pay deferred......................................... 21.117 LETERRED CNARCES: 704.sa6 [ Debt expense, being amort 1 red................................. 6.559 -
!eht redemptien expense, being amortised...................... 30.06)
Miscellaneous......................................... ....... 59.975 96.sv7 l T OT A L A5 S ET S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 S.989.371 f i ( CAPITALIZATION AND LIABILITIES ; CAPITAL!!ATION 6 Conson stock equity........................................... $ 1.977.073 l Preferred stock............................................... 434.400 l Preferred stock subject to mantatory redemption............... 25.000 ! L o n g - t e ra 4 e b t . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.311.847 l a.7A8.320 J C"3 RENT LIABILITIES: treferred stock due within one year........................... I 2.500 ! Lon g- t e rm de b t d ue wi t h in one ye a r. . . . . . . . . . . . . . . . . . . . . . . . . . . . 85.250 I Notes payable to tanks........................................ 113.670 Accounts payable - Affiliated companies.............. ..................... 49.126 0ther...................................................... Customer deposits............................................,
... 135.140 l 32.396 !
Taxes accrued - ' F e d e r a l an d s t a t e in t er e . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70.792 0ther..................................................... Interest 21.621 accrued...........-................................... Vacation pay accrued.......................................... 69.904 21.317 P1ocellaneous................................... ............. 23.958 s2$.s14
;trt* RED CICITS AND OTMER LIAtittT!rs t Accumulated deferred investeent tax credits.................... 416.999 Prepaid capacity revenues, ret.............+............... 104.258 Misce 11arecas................................................. .... 14.170
$75.377 TOTAL CAFl!All:ATICN AND 11 ABILITIES..........................., $ 5.994.371 ad/33/2 1
ALABAMA POWER COMPANY Internal Cash Flow 'for Joseph M. Farlay Nuclear-Power Station (Dollars in, Thousands). ,
. t 1987 1988 Actual Projections Net Income After Taxes $290,158 $283,514 !
Less Dividends Paid 234,019 249,819 Retained Earnings 56.139 33,695 Adjustments: Depreciation and Amortization 270,492 300,743 Deferred Income Taxes and Investment Tax Credits 131,301 65,338 Allowance for Funds Used During Construction (Gross) (51,898) (78,846) Total Adjustments 349,895 287,235 , Internal Cash Flow $406.034 ~ $320,930 ,- Average Quarterly Cash Flow $101,508 $ 80.233 i~ ?ercentage ownership in all Operating Nuclear Units: Joseph M. Farley Units 1 and 2 100% ! Maximum Total Contingent Liability $ 20,000 i l l 1 J l l
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- .1 o Alabama Power Company 600 North 18th Street Post Office Box 2641 Birmingham, Alabama 35291-0042 Talephone 205 250-2497 AlabamaPower David L Whitson Assistant Treasurer and (3 southem eittoc system Manager-Finance April 29, 1988 i
Mr. Jerome Saltzman Chief. Antitrust and Indemnity Group Nuclear Reactor Regulation Nuclear Regulatory Commission Washington, D. C. 20555
Dear Mr. Saltzman:
~ Enclosed is the annual submission of Alabama Power Company with respect to the retrospective premium guarantee required under the Price-Anderson Act, as amended, applicable to its Joseph M. Farley Nuclear Plant.- We have elected to satisfy this guarantee requirement. by submitting annual certified financial statements and cash projections, showing that a cash flow can be generated and would be available for payment of retrospective premiums up to $20,000,000 within three months af ter submission of the statement. In this connection, enclosed are the following: ,
- 1. 1987 Annual Report which includes financial statements for the calendar year 1987, together with the report on cuch statements by Arthur Andersen & Co., independent public accountants
- 2. Unaudited Financial Statements for the quarter ended March 31, 1988: and
- 3. Cash Flow Projections for the period January 1,1988 through December 31, 1988, showing that cash flow of $20,000,000 can be generated and would be available. for payment of retrospective premiums within three months after submission of the statement.
Please acknowledge receipt of the enclosures by signing and returning the enclosed copy of this letter. Very truly yours,
- m. 1 9 x-DLW/ paw Enclosures j
k II i l
Alabama Power Company 600 North 18th Street Post Office Box 2641 Birmingham, Alabama 352914042 Telephone 205 250-2497 Ala'oama Power David L Whitson Assistant Treasurer and the southwn ekttre system Manager-Finance April 29, 1988 Mr. Jerome Saltzman Chief, Antitrust and Indemnity Group Nuclear Reactor Regulation Nuclear Regulatory Commission Washington, D. C. 20555
Dear Mr. Saltzman:
Enclosed is the annual submission of Alabama Power Company with respect to the retrospective premium guarantee required under the Price-Anderson Act, as amended, applicable to its Joseph M. Farley Nuclear Plant. . We have elected to satisfy this guarantee requirement by' submitting annual certified financial statements and cash projections, showing that a cash flow can be generated and' would be available for payment of retrospective premiums up to $20,000,000 within three months after submission of the statement. In this connection, enclosed are the following:
- 1. 1987 Annual Report which includes financial statements for the calendar year 1987, together with the report on such statements l by Arthur Andersen & Co., independent public accountants; .
l
- 2. Unaudited Financial Statements for the quarter ended March 31, i 1988; and l l
- 3. Cash Flow Projections for the period January 1,1988 through l December 31, 1988, showing that cash flow of $20,000,000 can j be generated and would be available for payment of retrospective l premiums within three months after submission of the statement.
Please acknowledge receipt of the enclosures by signing and returning ; the enclosed copy of this letter. ' Very truly yours, [ N & DLW/ paw Enclosures}}