Text

Louisiana Power & Light Co 1985 Annual Rept
	ML20203C886
Person / Time
Site:	Arkansas Nuclear, Waterford, 05000000
Issue date:	12/31/1985
From:	Cain J; LOUISIANA POWER & LIGHT CO.
To:	;
Shared Package
ML20203C857	List: ML20203C886; ML20203C911; W3P86-1423, Forwards Louisiana Power & Light & Middle South Utils 1985 Annual Repts;
References
	NUDOCS 8604210257
	Download: ML20203C886 (36)
	v • d • e

{{#Wiki_filter:...:. ~ 4 .t s '..._4 a. ' = s-, 3, e r 4 .y-4 i i, .'p'-' t! ' A L_ p 4._ g ( .R E.- E S ' '. R. " it '3 3 ~~ g sr. ?* y y, 4 s .-~ n A t 4 3 'n 3 y m. r ~ a,.. , n ~ 4 s, s. 4 ..,g .s. f .,3 g_ / - [ 'l ? $P .7 s, , = > .~ .,.y ,.Y...:g $ ; l.. 9,, \\f..- - p + .? g _/[-

., 1,I; j

f.- - 7 --ja. ' 7 7- %w]:. L..n ",, L. '.. < ).A '. +/ y-L .:. g, , g ,? ? ? - v-w,..

z." '.

l.. ',

l? .l '+ ? g+y 3 ,-. 4 i... p., 5 i '; 1 }. ; ' ,. yh i. '.r'. a. p,, 1 ?; N f .,') .y -+.- -.u n - S w.. - ,(. - .f

4. - ~ g ' -1;m s -

,3 .,=,., g, ,g ..a. SM A i, g,,, p. J ,,.r -,, j(,,.,, . ', %..h P. i S ' T> +4.,e - i-N 'r* .,e. .,,j. i. .g 4 + ,t vO v% y g , 4r yf..,,. ,y

g..

c. 3' ~ p,, .~. 9 ->g. 1- - Lf-..... h, 'n, 2 s y...;%,... ' * '. ..'v' ...p ' ', t - y, -. g ',. w r- ,'s- .,.g. .... ~ >. - ; T \\- ' ~,.,.d.1. '..v

p. g',.

n ~.. 3' .: '.[ ', h.' : b I } 's w $..w J.,..-...-,, e ' . ~ -

. s.,

s,-

f.,..

y , ~ - s. .t ~.% e;*,. '.,, i v n Q (,.;. -, -'q ,,.; 3 L. s 9'_. 1 ;- 's,, ? ." L.. =. p ) 'i.%...;

k p -

,e 4. a. ' y,, . s +. ', W._ s p(W.'% .x y^s, . Yj e .,. g -r 4. +- 3. , 4 c y.( i .. ~. g:. g, -' ) 4 a. p... e .? e v. \\. 'r l_ ..l Q, y -,.-, n a i' W ' '~ l' a.z - ,4: 'Q p c. 3 WM,M,.1 *. ,, q,,. .g get.g , ww W d, V e; 6', .si@,r E l '.$ V1 - f'~ .f , E b .. J r< 4 'z _) s.

,,? e - *

y,,...

,.,, 3 ~; 3* * &h. _., n -~ .1 ^ i.' p y. ,4'-,. w 3, v .gW. '.,g c ~d: g? .. : 1 -Q ' ', 4. : ' my g .a - p, y. :c. g 4-- .a - + ~.4 =g .N q r ,g 3 + 'y.9k [. w .. 'p; '.~ ' '. ' e t v. v ^ h: u' ^ f a....' f, [_- j; _A sQ . - y '# s ' < g,.,

.,.( - 4 f

t.,

Q.

',r,..; &;>g.. m s ? a s -s s .,-x,+ .....= r , f'. b w ... n... ( ~.,. \\ f*, ....:l p. a >.a-, ,.w e }; +.l.,. ;. ; y.. '_ , gj,, }D ' M, e: s ( : 3-e ~.. - t y v ..',4 4 9%,,- e., i, - :- ' ,.. i, . c 4 .. g 4- - j ',.,4 h. w" .,.. ;4: 'E.f N i., 4 .4 ? r A

14. g [(.%g

..y v -,,.e N <,.,'. gh V' P - e ,j,-.

?

.,T, o y .E .-, -- w a . W l' e .t g,v.. .,. gl- .,.,. y. -]'... t '.+-.. ;g,. .l .p.s - . i. I .s. 3, s f. ...e; ' s,%,. _=

4.,

' -'[ ,.~% k ; g.. c .f. k, y y <. + y e, 1_ f *' y .A v .7 y, - . g.., g 4-.....,g.

Y '.i 3*

.p w 1 _ ' ag t.,,. .~ \\. t-c. ,1',.. - ,-. g. ),p e r.:... u. 9',,. s - . ~.;.

.,, }yg y-

.g(. -.. .~; :., q,' .,l g ( 'c y? s - ~ r. I <. vu W. ,, L. k 4. '. ' } [A '..".

k,~.:... #. I',

I. g..-, w R,;

'_ A....

-,4 i . i+ c -- r, _ :. y y + 3, 4 _ y v,,, y .q ,gu +, 18. .c 3., y (., ~-2 .-t r .. wa,. ' '..., _- (q,. ',. i ,[..,. '.,, f

3 h,'...

L ..i ./ _ ./ n : . y t..

n.

3'-w .I q$ ' e 3.s.,, .I , ff.p * [ ,,, ? j,f,. 5--' M..'y'Ia.g 'S '..o ? ,'.Y. - k i [ F. ' / ' )$' '*. ,} ,~ t '- ' ~'.,.~ , '. 'g' y - qJ,,'- e.., s.,,.' i -, /, .+ %j[.,- - b

G L

( p, T -J. -,i x + w 1 m.

'y y. 'F ,> /4 + +,, my

)

L . 3

l. -

~

y-

- 9 v w 9 ( g + c_ f y T.. + ? 4

p

- p q. s,, , l t.. _. s ~ g. -. ax ,7.,,. . i-. '. y 5 . 7-k h ~ f .(. .y . j s }. g ',, <.{ 3 ',.* ~~ 4 .., ggpgy- - 7. _.., e .4,..y. .5 l b ' .,y e uw- &,: H ' ;f

".., ' sh k~5 7

' ft.. ' ', ' q

." V : A

.y,t. a. . }5 .3p. g; a. P " 7.. 7 -.j?. -, y, t , y.- , 'j 1 ...g _lh 8 .( gr y, .*af -p y } ,r i -,,.. j. ',. ...,c-, y,:,... . y. e ,., r ~> e - ~., y.*; 4)&./4 J ~ . g#.. . g.,.. ' y u.

4...

lt, .,.+) c - 3 ~ .ss. ,[' .' ? W., e-p.: # t .p, . y ..g u.: m . * + Q l,; ,, { ', v I,* 4 "% > T .[p%.- 4 2 4., .7: >t ,g.pm. t ;',, ;, ' m u.-_ - 2. - ~ my. . +:,. - s q) , y- ' t. , -l-4 ~ .6 '.. - ~ ~ ~ 4'

p.

. + - > _ l ...Y " g' 9 ' ,W.e. . =.. ..l Q

,,. ; l.

s -,.7 < 4 .g 5 .q 3 p. .? , j;, ., p 3.: w.'.,, u-r s.- 6.. :.I e s s.q. 8 1 e ....,.; :- ;,.-. s p g.., ~, e. .:.. -e n ,.?. s ; 7 p ', .Ya . +. 'j. "p. 2

5 n,

N .y' 3, . g. f -- ~1 ..4. ' - ' 4 .7

l..

.f 5 + +

t. <

4s, - -(..(d'}f ('IAr '[.. ,[ j - 4 . F. ,,, 5,,.. r ( '., g W,, 4-...l 3g.94 ~ .J, g,M., V.. + + j g. t,np s 4 .;. k l 9,, .'t. s r,

4.,

}.., y p 4.? . a. r s g + +. l:.;,f-' kf[$.N,%.L _.. . ' =. _2.. 2'._'l ~ &I ' ' < ;; l.." ' '.y l= i y + + . & c.

^

../ +, r,. r d* s x - - i ..& A a :: = - r s .q.' c e.f s,. Ag.., h.. a. -c, +, .....,+. ~. } 3. p :P ,..a. . m >.. n: v.,,. w L i

g.,.s.

.. g .s.

e.. > ->

.. f..., ' ~.. ... d. ,_f_' ~ ;., L- ? N., e

p -

e .a'

O r.

v l. FW a p. s . =. s. p.<- p+ .- ?. :, ;m.-. y. .,,.,c. .o .e o, x.g s u. ., s. - .~. ,g: -,, 5. ~. ,,.. b. . 4 wa s -. 4. r v.- u u. r .g..,. 7;. w 4.. .g: J ?. 'r ~

4..

x. h ~.. ". ;..: . -3 .. ~.,u.+, c., . '. <; +0 5 . W W.,.r.

>s

,.-.'..],,. . w+ ? . +- n, .c ... s... y. .\\. e.- ..' ~- c., s,. -. s%>- n: ;, ... ' _. [ s.y } t _ _ _jj _,f f l t . L . ~. e. ,. y,,, 4.,g.. . v.-.. s;. ,. ;7,., _._ -x -., 4 u, ".. g;.,.- - : i....

,.. a

( y. ~ + ~ c _.3 w- -7 ,.. :. q_ p 4,3;. c, g. ' w;r r

_=.

.s... - s 4 ,.=;.

t.. ', 3

.(,g..4 - s. s,,,. .,y>, .'~ = g 3 4 7: (,4.. a . c p.. 3. ;.s .2 _ _ 4_a .4 y. c. -e o y R,; c' ~.. * .+

_ _.. r.-

-' l &. Wh ? ,o. n ...': ~ ), a ...[*Q. -*. ' e A a {....,[..,,'?..,,_..; ,%) ~ -{

3., ; -

.e

y

'.y~ 4 -1,. - .= - g y,, e pt.m% ..' c;,;. 4

1 O '.

, -. p J. -,',.. '.:.'t .1 <,7. "\\,' ; ~.' ', 'N g UN

v..,

9 <.,. 5f a m s>

=

"-. <,: ~.. -s +- - w.. ~. r.. - p.. ?.';. # y, 9

/-

..v'.. J. ,. ~,, 3. , nr.. >.. _ _. s.- ' _. _.. n _4 4 + 3 .., ' ;- 'z ! - _ ,+ -- p c.

r. - q 7.-,

.y.: - sh 1 y N- ,..,7...,2..,1.... ,.. _,y.7 -4, ~..... _ -..,, .-M d, _ ,.g .*c's .."e, -y {g 3 , p Q t . i ',.- p,

y v

s W {, ~ x . 3 ~ b e y lwA 4 ,,T k, [l. ].,.. '.. *..,. ',,.. .a 1 r. (~ '. 'k '- {e.r. '.' ~ 4x ' ',~....'..-\\e c , M " -\\g '.,,n.O_+., G.: **,* h. r S y,..., i-i 9 ,'y 4 ,s g& .'s. Q +, g..,.9.y., <.. ;r g g.. r .s ...p.,. e.,.. f -. ;.y.- y 4 .s ~ y. l .'A s gl'+ n,- 3 ,_.g... g7 ; Mm .-,.*7 .s..e v-a. .,.....,q.._ .s .7 p s

) ) ( This 1985 Annual Report is pregured for tre I inforriuton of sRx kholders, employees. and other interested pers'ais The Coriparys 1985 Annual Report to tre Securities and Exturxje Conmsson on form 10-K (irxludnj finarxial statement sctrdules) is available to any stoc khokler wthout crurge Stockholders can obtain a copy ty writing to M H McLetchie Seruor VKe President - Accountnj & Finarxe. and Treasurer LOUl51ANA POWER & LIGHT COMPANY P O Box 6008 f New Orleans. Louisiaru 70174 Telephorr (504) 3t&2345 UUMEM l Frr/t Cowr Reactor Operator Roge r Rhodes an the Waterford 3 Control Room

o A Gsm Y [gG ? xy 'wne w 2 e,j.; r t k$ +i i 4 j';{ ~) ~T' i j g

',..ee,

~-- -~ E. I.

f

^ / y F- 'j 4 6 .w g y h ]. "i} wN yng:m... ?. w 21, t + n - ~~^:"&& JL; 4, & g~ n,.,- Q4 s. u Th M TERF; 1

NUCLEAR, s

s Plant Marwpr Harwy Martin stands tefore NrefMe Pont Unit Plant M.wwyr Ross BarkMst en front of Waterford 1 LP&Ls No 1. tre oldest currentfy operatog LP&L patirq urwt. n reAest ryncratrq faoisty placed n cornrnercut ty;eraton scrwe srve 1951 Septemter24.1965 As of As of HIGHLIGHTS oec si.1985 oec s u 984 Plant investment 54.439.494.000 54.116.786.000 Pevenue 51.259.770.000 51.245.659.000 Net income 5 131.569.000 5 201.011.000 Peak Load (occurred 6/5/85 and 6/22/84) 4.355.000 KW 4.200.000 KW Generating Capa!>ihty 5.665.000 KW 4.605.000 KW Customers 567.824 562.273 Average annual kilowatt-hours per residential customer 14.013 13.479 Average annual revenue per residential kilowatt-hour 5 90c 6 IOC Population in area served i148.000 1.654.000 Emp!oyees 2.998 2.973

THE PRESIDENTS LETTER The year 1985 was the rnost cruaal in the 58-year [gp history of Lourstaru Power & Light Company The delty in receiving nnJch-needed rate rehef. .b almost to the point of putting the Company into insofverry along with a hogerirw] recession iri ~ Q--.3 Louisiaru and sonie of the coldest weather in the Southeast during the 20th Century combined to make the year an agonizing penotl of ctullenge. But at year-end. prospects looked at least sonxwf ut enc ouragrry for the Company _ Because of its precanous financul(orkhtion. LP&L omitted the piyment to its parent. Middle South (Jtilities. Irx. of common stock drv dends for two quarterly penods in 1985 and the first quarter'y period in 1986, and is in arrears with respect to one quarterly dividend to its preferred stockholders as of Febrtury 24.1986 The Comoany cannot pay common stock dividends while any preferred stock dividends are in arrears. n On March 4.1985 the Loursuru Pubhc Service M Commission (Commission) resporxkd to a rate request. whrch had been filed by the Company on Apnl 12. 1984. by refusing to grant any irrrease on the grounds M that the commercial operation dates of Waterford 3. the Company's nuclear generatiry unit at Taft. Louisiaru. ~~ Q and Grand Gulf 1. the Middle South Energy. loc. (M5E) nuclear generating unit near Port Gibson. Mississippi. owned 90% by MSE. were sti!! urrertan On May I 7.1985 the Company filed a new rate increase apphcation with respect to both Waterford 3 and Grand Gulf 1. On July 30 the Commission again J.cn M cm denied the Company any rate rehef ewn though Grand Gulf I had been placed into commeraal operation on July 1. Waterford 3 was expected to be in commeraal operation shortly thereafter, and the Federal Energy Regulatory Commission (FERC) had prtvously adopted the very allocation of Grand Gulf I that had been proposed to the FERC by the Commission. On June 13 the FERC had ruled that LP&L be allocated 14% of MSE s share of Grand Gulf I - the lowest of several proposed a!!ocations that had been urged to the FERC. The Commission's July 30 denial of rate rehef was appealed to the appropnate state court with respect onfy to recovery of the Grand Gulf 1-related costs. and on October 10 the state court granted the Company 5113 9 milhon of additional anntul rtwnues. representing substantially complete recovery of such costs. On Septerr'ser 23 the Company filed with the Commissir:i a new rate apphcation for both enxvgerry and permanent retail rate rehef with respect only to Waterford 3. v tuch was placed in commeraal operation on September 24 On November 14 the Commission, by a 3 to 2 vote. of fered the Company a conditional i

w I emergency rate settlement. Although the offer was wry This storm disrupted electnc service to the Company's stnngent. it was accepted by the Company's Board of 8.600 customers in the Cogalusa area. Restoring service Directors on November 19 on the basis that there was to all customers required nearly a week and the hard no practical alternauve. and the new rates became work of more than 400 men and women And a sewre effective Nowmber 20 Arnong other things. the freeze - one of the worst of the 20th Century in South accepted proposal provided for an immediate net Louisiana - shut down several LP&L generanng units increase of 5106.7 milhon annually for Waterford 3. January 21. The resultn] overkud of a major transformer the permanent absorption by the Company of 18% of on the system requrred us to disrupt electnc service to its 14% allocation of the costs of MSE's share of Grand about 70,000 LP&L and New Orleans Pubhc Service Gulf I (thereby reduong by 18% the $113 9 milhon Inc customers for s6eral hours to preant a widespread awarded by the state court on October 10 wrth respect outage to the entire metropohtan area. to Grand Gulf I costs). but with the Company having The Company sold 545 milhon of common stock in the nght to market this 18% share; the permar ent May and $55 milhon of common stock in June to M5U. absorption by the Company of 5284 melkon of the A refunding issue of 575 milkon in first mortgage bonds estimated $2.84 bilhon construction costs of Waterford was sold in December in order to refund $75 milhon 3 regardless of the outcome of a prudence review. in bonds due January 1,1986 Still pending at year-agreement by the Company that the 12-month penod end was the release of $105 milhon in pollution control prcMckd by Louisiana law wthin whch the Commission bond proceeds, these proceeds being held in a cash l must act on the Waterford 3 rate apphcation would collateral seconty account until certain finanong begin again on the date that the emergency rate increase conditions are satisfied. becomes effective (November 20). and that the proceeding would N open for a fuP rate analysis and i prudence review. but that any disallowance for Mg imprudence would be kmited to the amount by which 4.~ [ c' 3 any imprudent investment exceeds $284 million, and y such disallowance would be subject to appeal The ^' ,Y I order also permitted the Company to defer $206 milhon "Nj of Waterford 3 costs. to be phased in on a schedule to 7 be determined later by the Commission. The Company's major accomphshment in 1985 was T putting Waterford 3. the Company's 1.104-megawatt 4 nuclear generating unit and Louisiana's first nuclear

f generating plant. in commeraal operation September 1y f

24, bonging LP&L generaung capabihty to 5.665 f 2 megawatts. This culminated the efforts of many LP&L ) ( j employees and others in bnnging about a successful f { 7 conclusion of the largest single industnal project in L-Loutstana history in 1970. the Company had announced -l / that it would build Wate, ford 3. and following more y than 42 months of delay caused by extensrve heanngs to accommodate anti-nuclear actMsts. construction was utt r* cu inemnaon umgr me snen amp trwson started in Nowmber 1974. A full-power operating hcense was granted by the Nuclear Regulatory Commission to the Company March 16.1985, and the plant reached the 10(E power level for the first time Ju'y 1.1985. Ajudgment of $40.309.142 plus interest, against Dunng the latter part of the year. LP&L electnc United Gas Pipe Line Company which was awarded transmission and distribution faahties suffered more LP&L in August 1984. was still under appeal dunng than 52.7 milhon in damage as a result of three hurri-1985. The award was made as a result of a long-canes that raked South Louisiana. The number of standing suit for. among other things. breach of natural humcanes in 1985 was a record for hurncane actMty gas supply contracts Net amounts recerved by LP&L in a single season. The most severe damage to LP&L as a result of thisjudgment, if affirmed. will be returned faalities was caused by Humcane Elena on Labor Day to LP&L customers.

i V G ~ w[. '7, lp Q Q: c i s e 9 ti&f' M N

E==Q. tkI

! ??. q EM F.== N,}w%( t i y t / 4 a/x =- j a ~ 1 (r q 3 ? 4 g gr (' V emmnry representatw andget carter estnxts scrxxx cneen J.nuticar pour at the Waterford 3 Energy Educaton Center A boght spot in 1985 was the continuing rise in use income. This AFDC figure compares to AFDC's 63.9% of electnc energy by LP&L residential customers. LF&L's of net income in 1984. aerage residential customer used 14.013 kilowatt hours At the end of 1985. LP&L had 567.824 customers, an O for 1985 - a 4% increase over the 13.479 kilowatt increase of 5.551 over the 562.273 at the end of 1984. hevrs of electriaty the average residential customer A new record peak demand of 4.355 megawatts on used in 1984. This was the second consecutive year the LP&L System was established at 5 p m. June 5. LP&L residential sales haw shown an increase. Because This compares to the 1984 peak demand of 4.200 of declining costs of fuel for generation as well as megawatts. and the previous record peak demand of the nuclear generatng units going into commeraal 4.259 megawatts in 1982. operation. LP&L's average fuel adjustment declined in Functional consolidation with New Orleans Public 1985 to 2.437 cents per kilowatt hour from the 1984 Serv:ce inc. an assoaate company in the Middle South average of 2.895 cents. System. was virtually complete early in the year. LP&L LP&L andustnal sales were up about 2% fcr 1985, and NOPSI first announced their intention to consolidate despite a great deal of uncertainty at the beginning of in July 1981. Applications for legal consolidation are the year. Lack of product demand, foreign imports, and pending with the Louisiaru Public Service Commission the high cost of gas for fuel and feedstock made indus-and the Securities and Exchange Commission taal sales a tough market. Dunng the year, there were New Orleans voters returned the regulation of utilities senous discussions with potential cogenerators and in New Orleans from the Louisiana Public Service other customers who were operating on marginal condt-Commission to tne Oty Counal in a May 4 election. tions and considenng closing their plants. Tne major This affected approximately 19.000 LP&L customers in increases during the year were the result of expansions Ward 15 (Algiers) of New Orleans. These customers, at two of LP&L's refinery customers - Tennaco and along with other electric customers in the Oty of New Texaco. Sales to commercial customers also increased Orleans. had been under Commissionjunsdiction since slightly dunng the year. January 1.1982. LP&L spent $329.8 million on construction in 1985. In October, LP&L offered a Speaal Voluntary Early of which 5233.5 million was spent on completing Retirement Program for its emp!ayees who attained Waterford 3. The Company's construction budget for age 60 and completed 10 years of vested service on 1986 is $153.4 miilion. or before December 31.1985. A totai of 67 of 100 Operating revenues in 1985 amounted to S1.3 eligible employees accepted the offer. billion - a 1% increase over 1984 operating revenues. Floyd W Lewis resigned as director of the Cc,mpany Net income for 1985 was 51316 million - a 35% December 1,1985. He was succeeded by Edwin A decrease from 1984. Allowance for Funds used dunng Lupberger. who was elected a director January 7.1986. Construction accounted for 96.7% of the 1985 net

MM. i:lit:4 lV e'I'.X' '.: %%FT'MW.'T'"^2WRX'11%. %T. ..Wif%.'*l%fP M*?ThW7%2Oi,.W% 24;:X ". '? ' : et s n 3 ( v.4 .L r . - 'hw ~..... e~ .a.. 2

f. %...

~. s a ~. = m u;.s m r-a.. < Q ,~..:~.. .., 5. w g (*,"k i d w! ..,t ay@W4 ~ J / a --.Q '[2/[< [ ~.i. %J 'f, ~ w. w - W..'xy, 7 r a g*= ; f +*

_K*

4,. n - g rg:r%k yW -. W;;,,, p ww- ^ 4 , fx w _. .y,

,f"5

_ _._-e . x._ ~,. ~ m pn Mb -G d d'at_ '-

n. n a.. n, - v. m n s

+.,..c .t - '.t.< c " e e.

W rr C". net C a7.tel nq Pv '

-r e%

- ap'+

v Va% 'v C %+ N *"'p47 AC %~ F ter.u e Ysi u4n 2- [#F' fi4, 4' *e ['.4 t,4' e /n4 Pt'

=

A, * ', g f 7 ( l ,4 l, 4 4 t

e e
I3

?, rc'.'**+ 4 e-@,,4 + r <, -j f -. f-R L he u: _r"v;," 1r, r 5 ~.. m, 'T T' P' 4 7 e - r' kJ *, 'f"d5 q 1 f p ' ' + + ~ 1e 'A C Mr *S, r

956 m

ja ,4 4 , j s.., er 4

:.e, r e, s:.

5 g.n. Er ; og. -.g u. aA. Gr; . Pr4 p _C, > (1, r .4-i e r .Au-],;; g , &* ' ] O E k ' A e r 4 + _f. e, 9,

C,r,

< jer or.j.,, 4 ,. p a r-r 4 t.m ... rc, ; p,. 4 f l.A '.,

Ef'
'4 4 l e -! -,ee

,e- ),, +' r + 4 ti a '* r t P.4r j, t ' i;*

j [f >+ -T ' C '

' k' 'r l M.;;r h f+ cp r' ~ < +~ 4 Ac r r*eqs' 2 f-r" ,o -4,,, 4 f' 6 7: (.,a,<j ,i.r(

y +.

.g o, 4 [ V 3 r r

a m

<3 l C', ', f^7 f $ C o f ' f ** 8 P + 4-f"~ t r a D. On ?.% -< re 'A. . F( ~"r' + r s_- s;r_ t e- ] As .r* Tv+,y ;n<..'v , ( r '< \\ G, *' 'F" RN1 I R 3rM!' f T l \\ As,isni (( ricrf * "+" + A

- e,, sm,,, +,.

/ ..n..a n. ar. -- (Of;. - '4:n [r r lA' r ,a e + (-f c r -i '., o 'l 4 I M [.' [ _. j A. S i-r 4 + e s 2 I* <* A ", Sr vvT e, r* % (<,rr gyr

yr i ~, r i
>ir h'

'nj/,'/r,fW C +j P. r e r p-(f.a.4 [pc (j s - Q' pr r*** -Fr \\ y< k.Q r U T ; -.or O au,rv:l * < r o is

i l CUSTOMERS OPERATING REVENUES (Thousands) From Retail Customers (Millions of Dollars) 1985 = 567.8 1985 = $1,197.8 1974 75 76 77 78 79 80 81 82 83 84 85 1974 75 76 77 78 79 80 81 82 83 84 85 600 51.200 r* IT " ' 500 -- " M 1.000 M " "! " I' i lM3 N N 'd '* rI 800 400 's b! ',1 [ A. W'$ (4 1:3 ~ *i Cr N 'i ?]

}

($ l-% r g y i b' '1

I

'i 200 M 'k ~4 i I' 400 EI **5YH " i "i ^; ' * 200 100 N O M I -2 " ' "i 28 IE 'J!i' 0 M 5' N i' ii * ' h 0 AVERAGE KWH USE ENERGY SALES Per Residential Customer To Retail Customers 1985 = 14,013 (Billions of Kilowatt-Hours) 1985 = 23.74 i974 75 76 77 78 79 80 81 82 83 at 85 1974 75 76 77 78 79 80 81 82 83 84 85 15.000

* " " " ' " ' ' ~

12.500 6 25 f* ~ '* 10.000 20 [ ',i ],. R ** i~ ~*4 7.500 15 5.000

* + '

b< " ~ 7 ] ;5 4 i s , r f :c [ 2.500 10 ' hn4 W h ' i' I' '. t; '. 1, 5

~

0 - ~' O W iS M'

1 ti i* ' *

'l "5 id 0 GROSS UTILITY PLANT (Millions of Dollars) 1 CONSTRUCTION EXPENDITURES 1985 = se,439.5 19 = 329 1974 75 76 77 78 79 80 81 82 83 84 85 r, 54.000 1974 75 76 77 78 79 80 81 82 83 84 85 3.500 5600 3.000 i 500 2.500 '~ 4^ 400 2.000 I'* i- ' 300 ^' 'i i.500 E' LOOO 200 ' 4 F#

i '

I* 100 "-

2 500 E

i'

O f-I*

0 O

r -T l MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS FINANCIAL CONDITION first mortgage bonds under its indenture was 1.37 times W ann negage ine requirms t The Company's pnmary goals in 1985 were to place December 31.1985, and its earnings coverage for Waterford 3 in commeraal operauon and to secure its preferred stock under its Articles of Incorporation adequate and timely rate relief to cover the costs was L32 umes the annual interest charges and preferred assocated with the in-service status of Grand Gulf I dmdend requirements. Based on these coverages. the and Waterford 3 Grand Gulf I ano Waterford 3 were Company was unab:e to sell any additional first placed in commeraal operanon on July 1.1985 and mortgage bonds (except for refunding purposes) or September 24.1985. respectWly. With regard to rate any additional preferred stock. matters. cn October 9.1985 a state court ordered furl recovery to the Compar y of Grand Gulf I-related UOUIDITY AND CAPITAL RESOURCES expenses. This rate re!:ef was adequate. of course, but it was not timely. As for the Waterford 3 rate case. on The Company marshal led all ava:lable cash resources November 14.1985 the LPSC approved a proposal to in order to meet its obligations and was required to grant the Company an annual base rate increase of rase capital from external sources. to the extent feasible. 5190.7 million (S106.7 milhon after giving effect to fuel to meet its 1985 cash requirements savings). The LPSC's action was charactenzed as a in addition to the omission of its common and condiuonal settlement order (i c., the action v ould preferred dmdends mennoned abow. the Company impose several conditions upon the Company which has instituted or re-emphasized austenty rneasures that if not approved by the Company's Board of Directors, include a freeze on new hirings and salary increases, would prevent the order from taking effect). On kmited travel unless essential tojob duties, reduced November 19.1985 the Company's Board deaded to acAerosing experdtures, reduced construction prograrns, accept the conditional settlement order. (See Note 2. and reduced maintenance and other programs. 7 " Rate Matters".) Wh!!e this rate increase is substanually With respect to the Company's efforts to raise capital less than the Company feels isjustified, it will enable in 1985 from external sources, the lack of adequate the Company to remain solvent. but the Company w1!! reta!! rate rekef unul November 1%5 and dechning have to continue to operate under a severe austenty earnings coverages precluded except with respect to program until such time as its cash flow improves. the refunding descntxt below. any first mortgage bond As can be surmised from the above. the Company's or preferred stock finanangs. Dunng the year 1985, finanaal condicon worsened dunng the year 1985. the Company sold addruonar common stock to its parent. The Company had been required to defer. from ume Middle South Utikties. Inc.. for 5100 milhon and effected to ume and for hmited penods. Various payments owing short-term borrwngs of $133.9 milhon Also. in October to other companies in the Middle South System (other 1985. the Company recerved a refund of approximately than payments relaung to the Company's share of Grand 558 milhon. including interest. in power purchase Gulf 1) and certain of its vendors and trade cred, tors. advance payments as a resuit of Middle South Energy. Also, the Company determined not to declare third inc's renegotiating its banking arrangements. Further, and fourth quarter dvdends on its common stock due the Company issued and sold on December 20.1985. to the need to conserve cash resources. For the same 575 milhon ponapal amount of first mortgage bonds. reason, the Company, in October 1985. determined the proceeds for which were apphed to the refunding not to declare dMdends due November 1.1985 on at matunty of a hke amount of its First Mortgage Bonds, any of its preferred stock issues. The November 1.1985 94 senes due January I.1986. preferred dvdends were subsequently paid February The Company's 1986 capital requirements. which I.1986, but the quarterly dvdends usually paid on are esumated to aggregate approximatefy 5362 milhon. that date were omitted. include funds needed for. among other things, (i) the The availabikty of short-term credit dwindled dunng finanang of certarn costs assoaated with Grand Gulf i 1985. At year-end 1984. the Company had unsecured and Waterford 3 which are not be:ng recovered through bank knes of cred:t of up to $208.1 milhon. These lines retail rates. (n) the finanang of the Company's con-were subsequently reouted to approximately 5100 struction program. (m) the refinanang of matunng million byyaar-end 1985, all of which was fully ut bzed long-term debt and the satisfacDon of sinking fund at that date. The earnings coverage for the Company's requirements on preferred stock, and (iv) the repayment

of short-term debt. Of the 5362 milhon of 1986 estimated 1986 through additional Money Pool loans. The capital requirements. the Company anuopates that Company beheves that its abikty to effect sign hcant approximately 5147 milhon will have to be raised short-term borrowings in addition to these amounts through external sources. At the present time. howewr. may be hmited in the future by the possible unwilhng-the Company's abihty to obtain additional capital ness of the lending banks to extend additional credit through trad Donal external sources (including sales of to the Company on reasonable terms and by the lack first mortgage bonds, prefened stock and common of addiDonal available funds through the Money Pool. stock or through pollution control revenue bond in order to provide the Company with the necessary finanang) is limited. funds from external sources to meet a portion of its The Company had previously filed with the SEC for 1986 external requirements for cash unni such ume as authonty to issue and sell to its parent. MSU. from time the Company is reascmbly able to accomphsh tradinonal to time through December 31,1986 op a 15.152.000 external finanang. the Company is planning and has addiDonal shares of its common stock for an aggregate filed with the SEC for authonty. to issue and sell by cash consideraDon of $100 milhon. Although the SEC pnvate placement with institutional investors up has not yet ruled on this matter. assuming SEC approval to 5200 milhon in aggregate pnnapal amount of for the sale by the Company of addinonal common intermediate-term secured notes. sto:k were shortly to be obtained. it is unl.kely that RESULTS OF OPERATIONS MSU would have suffiaent c.ddiconal cash resources to make substancal investments in the Company's Net income decreased 569 4 milhon in 1985. com-commcm stock in the near future. With respect to first pared to increases of 569.5 milhon and S 14.1 milhon mortgage bonds and preferred stock, the earnings in 1984 and 1983. respectively Although Waterford 3 coverage hmitations prescribed by the Company's began commeraal operanon in late September 1985. governing instruments currently preclude the Company AFDC of 5127.3 milhon in 1985 remained comparable from issuing any of these secunties, and the Company to AFDC of 5128.4 milhon in 1984 due to the compara-does not anticipate such increase in earnings as will Ovely larger construction work in progress balance in g permit the Company to issue any significant amount 1985 unal the in-service date of the plant. AFDC will of first mortgage bonds or preferred stock in the first decrease significantly in 1986. Net income exclusive of ha'f of 1986. Finally, with regard to pollution control AFDC and the cumulative effect of the change in revenue bond finanong. the Company connnues to accounang method in 19M. Im non< ash items. reflects work toward obtaining the proceeds of $105 milhon a decrease of 550 7 milhon in 1985, an increase of prinapal amount of pollution control revenue bonds $22.4 milhon in 1984, and a decease of $30.8 milhon issued and sold in December 1984. These proceeds in 1983. In addiuon. several events occumng within are being retained in a cash collateral secunty account the second half of 1985. which haJ a significant impact pending the compleDon of syndication among vanous on the Company's net income for the year. included a banks of the letter of credit supporting the pollution net decrease of 538.8 mrlhon attnbutable to unrecowred control rewnue bonds. There is no assurance. however charges associated with Grand Gulf I and Waterford 3 that the proceeds of this pnor finanang will become of $16.7 milhon. and a wnte-off of $22.1 milhon of the available to the Company in the near future. Company's share of certain costs assoaated with in Wew of its inabihty to raise capital through indefinitely delayed future fossil generaung fachties. l permanent finanang. the Company has had to rely in (See Note 13 to Finanaal Statements. " Quarterly part, on short-term borrowings to meet its intenm Results (Unaudited)"). requirements for cash. In this connecuon. the Company Operating revenues increased S14.1 milkon in 1985 is currently authonzed through December 31.1986 to pomanly as a result of an increase of 5% in total sales effect borrowings, through the Middle South System of electrioty partially offset by a decrease in fuel Money Pool and through loans from banks. of up to adjustment revenues. Fnr the year 1984, revenue 10 percent of its capitahzanon at any one ame out-increased S100.9 milhon and energy sales to retail standing As of February 28,1986. the Company's short-customers increased by 6% Revenue decreased $50.8 term borrowings aggregated 5150.4 milhon (consisting milhon in 1983 and energy sales to retail customers of 55'.2 milhon borrowed through the Money Pool, dechoed by 7% due to mild weather conditions and $18 7 million borrowed from local banks and $80.5 reduced industnal activity million borrowed from major money center banks). The combined fuel and purchased power expenses and the Company annapates that its outstanding increased dunng the years 1985 and 1984 due to short-term borrowings could be increased by up to increased energy requirements shghtly offset by lower approximately 560 milhon dunng the month of March average unit pnces and decreased in 1983 pnmanly as

a result of a net reduction in energy requirements. The

SUMMARY

vanances in other operaung expenses in 1985-1983 The Company accmiphshed aff of its pnnury goafs were attributable to deferred fuel costs, wttch at Umes in e p o Wuq in a undy reflected wide fluctuations in the cost of energy and nunnM. ord 3 aN GaN Guy L to the effects of increased costs of labor. nutenals and u@ eye rate W was nud for me supphes, and services. and tr, l985. to the above- "U O' mentioned wntemff of the Company's share of certain me w s a UnW as me inew daes and costs apphcable to indefinitely delayed future fossil i emmtauon of N me incmaws um My I generaung fachues. and October 9, respectively. for Grand Gulf 1. and Deprecation expense increased significantly in Se tember 24 and November 20 respectively, for l985 due to Waterford 3 beginning commeraaf 0 " "# '" ""9 operaDon in the fourth quarter, which represents whef to sw Ur ets assmated wch these units $18 6 milhon of the total increase of 520.5 milhon in 'Y ' # '# ' ~ "T * "W #* '~~^ depteaanon expense. "O" O U P# T '" 'U # ' " "#'" Taxes other than income increased substantially in i umfoM 1985. pomanfy due to an increase in the rate apphcable gnaaang fa to W G m p g e to determining the state corooration franchise tax.

P * * * '"*

Total income taxes included in operanng expenses and in other income in the years l985-1983 vaned P# ' "O"' O pnmanly because of changes in income before income peraDons should improve gradually dunng 1986. taxes, ard increased levels of AFDC. Hm mpany m y wlya ed by For each of the years 1985.1984. and 1983, increased "' """'""9 U "I interest charges were pamarily attnbutable to the

"d # P #

I Company's issuance of additional debt. and. in 1984 Accounung Standards Board adopting. in its current and 1983. to the accrual t,y the Company of interest fmn an @ sum daft proposing anain anendmens on the portion of the proceeds used by the Company to its Statement of Finanaal Accounung Standards 9

of the settlement entered into by the Company with a g gas suppher in 1982. on the Company's finanaal position. (See Note 8. EFFECTS OF INFLATION " Commitments and Conangences") The Company will Despite the reduced level of inflation in 1985 continue its efforts to control costs in all areas of and 1984. its impact on the Company's operations operation. and to regain its finanaal stability necessary in recent years has been significant (see Note 14 for it to continue to meet its obhgations. Including the to Finanaal Statements. "Effect of inflation on payment of all dividends due its stockholders. Operations (Unauditedr)

m;.ns .10 =v.o p nst m ;v;y t, w a c e.w, 2.4.s2.w a2a n n REPORT OF MANAGEMENT The management of Louisuna Power & Light The txurd of d:rectars pursues its regnsibrhty Company has prepared and is respons: Die for the for reported finanaal informanon through its audd finanaal statements and related finanaal information committee. conposed of outside directors The audit included in th:s annual rcport. The frnanaal statements comm,ttee meets penod;cally with martigement. the are based on generally accepted accounting pranaples internal audtors and the independent pubhc accoun-consistently apphed. except for the change in 1954 in tants to d!scuss audting, interru! control. and finanaal the method of accounting for revenues as desaibed reponing matters. The independent public accountants in Note 18 to the finanaal statements Finanaal and the internal auditors have free access to the audt informanon included elsentiere in this report is consistent committee at any time. mth the finanaal statements The independent pubhc accountants provicle an To meet its responsibihnes with respect to finanaal objective assesstnent of the degree to which manage-information. management maintains and enforces a ment meets its respons:bility for fa:rness of finanaal system of internal accounting controls that is designed reporting They regularly evaluate the system of internal to provide reasonable assurance, on a cost ef fective accounting controls and perform such tests and other basis. as to the integory. objectMty. and rehabihty of procedures as they deern necessary to reach and express the finanaal records and as to the protection of assets an opinion on the fairness or the finanaal statements. This system includes communicanon through wntten Management belKws that these pokoes and poboes and procedures as well as an organization procedures provide reasonabfe assurance that its structure that provides for appropnate division of operanons are camed out WJh a high standard of responsibilty and the training of personnel This systern business conduct is a!so tested by a comprchensw internal audt program 10 AUDITORS' OPINION Lnu c m4P-,"ral 4 tC m p m ,mHe t* r r nam .' a > ' v ed.: e r renu t of

- 1 - [ ;r i j ft -f h p - r, a,* <
r. egg qp g. fgqqrygy g.,jr,gg gf m p; We hve erarrJ +d Pr t u ru e
eet f [-

3 .t, - t,, ' ' c, s" r <1 1 %,c u j,W.c e] 1

r. L n ;' Cr /ra r, as r i! De - "r v ;,

0' ' c r/ne 'e' '+< ru n 'w; M" 9 ( u r g i r a.r - nt or,m ,o t's. f n e s ;, c, r ner it tf u %!M J " 4 t trer 3 /=,*. t l u 'n, r

f.",

. rm pi*+,e*,,,a rn p, n ' ( nar up in f 4 spr t r e.t f : rj ' - tt r 9 ,e ur ' i .( lf f *f )i f 'f 1I"fI:f i I jsJ 1 4, f If ' I $ '. I ! 'I ' f f' lj f *I f. 4 ' f ' )' ff' ( 'f ' r 'I f ! ' Ii

I f'A 8#

E # I "re made m 4 (rN4 vo n<p nrr, .w .< j m j 'r, t.r n, q ;u. q m f.o. r,rs ! r? e 4; n.rrne r Dor n ; mn:4 nJ-. n,. ;., fry prg, ,e u;n; a n te f ,f pw ?r ,. s. tw o, pr cr q ffi, p i, f, w,,i ; >r e & v i i J au a ' ' q I er ' * " l Jre - - " # - I ' )" j 4 d (3 9 *' f' I I W i.' lI W afLj!?:r'r,>,; y !( A ifiurt kj 49 A ('

+

4

1. 0

.c',( t r. " n 'I J. f 3 ' ; a *: r: $ a r r:r o jered r;* ' r 4 ') U ;- Fte< i a < 4 + t o !! < t 'fpr, jf q u l t 't - jaa, 3]pa 'yj (), q e.r 7 q q,7 j[ /'a j.( U"Lt 'r j P,F) J " '. f ; l h i i I d' / * ; I ; f ' ;, P V 1 ' ? 't + c e; am :.., r r < n;; ,,w,,: , e %n

L ;

vr + ? on N'ernta" /0 !9% th" C r,r r i e, r- <-!>+<, y< q.,.cc er e r:t >,.; ;1r !, ; > % ; p -c ;., t r i. j < e e; c h a

n Dr:m r.t'es

'1 ( r,nr er t E n ' C f ' A re r,,* !f' '.m r r o + -! f 'f [ k 'r k .1 f { I, T [,y 1( j jf ;f ] { k 1r f f :( 5f f )( ;[ E* F i I ref w t q p w m ' n, <e +co ,f W..,.r p - } .,ct, Se; c er ;#r M % <!.n r a, b ' 'e s r y p a.ih 4 r;4,! r1 N j H..f N. 'e ~ < r p!ar_n j n < orr,, "y

r. m

,fr: c, ' c re,.r e ds cc0n on ; # rtra r e t i r ms, e q.+, p < j i ; e in e <jt. Norr n + r }D 1 %), %c > +: osy a ret -

rw ov

- t ) y ey4- / a pn w r w rm.w rr mrr e urra/, oo, a r r: ef e Wa't >r forff $. t hF h ' e r t'd re-6: 1r: a:l JJ 4' .tr e 4 /, fJ N, - f' ) lr e

Wa'"r fc n d 3 r ry '; ! rr ::j t a ted J w h ccc' sr; 6 M.*

!i U/H/, r

STATEMENTS OF INCOME For the years ended December 31.1985.1984. and 1983 i W85 19&T 1983 (in Thousands) -OPERATING REVENUES s M59 /fo 51.245.659 51.144.743 OPERATING EXPENSES-Operation: Fuel 4/4 ^9 379.924 349.5 % Purchased power 4 /9 'A8 367.287 385.144 Other l'i8 i /8 127.5 % 100.737 Mantenance 50 040 51.805 46.625 Deprecation (48 46/ 47.951 45815 Taxes other than income taxes >>4U 28.397 24.756 income taxes (Note 3) _ f 5/4 35.975 19.616 Total 10/4954 1.038.935 972289 OPERATING INCOME 'mHI/ 206.724 172.454 OTHER INCOME: Alfowance for equity funds used dunng construction (Note IF) 90 U I 91.517 71266 Miscellaneous income and deductions - net i 4 9'u 13.230. 6.505 income taxes (Note 3) ti 10N (6.085) (3.020) Total _y <_ 1 98.662 74.751 w INTEREST CHARGES: Interest on long-term debt i o6 58 ' 138.824 121.609 Other interest - net (Note II) /086 20.105 21.765 II Allowance for borrowed funds used dunng constnxtron (Note IF) !46 91!) (36.928) (27.715) Total i 50 M 0 122.001 115.659 INCOME BEFORE CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING METHOD ' C %9 183.385 131.546 CUMLAATIVE EFFECT TO.lANUARY 1.1904 OF ACCRUING UN81LLED REVENUES (NET OF INCOME TAXES OF 516.548.000) (Note i B) 17.626 NET INCOME s !31 569 5 201.01I 5 131.546 STATEMENTS OF RETAINED EARNINGS For the years ended December 31.1985.1984, and 1983 "N5 1984 1%3 lb Thousands) RETAJNED EARNINGS. January I 5 M 'W 5 39.898 5 60.981 ADD - Net income _y/ 201.011 13!.546 Total W /& 240.909 192.527 DEDUCT: Dividends (Note 5): Preferred stock. A 9!H 49.207 44.600 Preferred stock arrearages AX Common stock /4 /A5 140.182 107.786 Capital stock expenses, etc. 321 243 Total % //>H 189.710 152.629 RETAINED EARNINGS. December 31 (Note 7) ] 3_5 51.199 5 39.898 see exxes to Fnuncial statevrern -P7 y -e + -W t-ee-wy----% g- ,y%,.-- ,e-yw-- w,y ,r,,4-w-__w. ,y,.3 ,-,. - - -+-- - -, - - - -, - - w

BALANCE SHEETS December 31.1985 and 1991 Assets ' 7% 1981 Nr ih,usands! UTillTY PLANT (Notes 2. 8. and 9). E!ectnc s4 ' ' 04 S1.514.442 Construction work in progress H.' 189 2.602.344 Nuclear fuel 4.%/ 11 010 Total 4 4 "> 56 1.127 826 Less accumulated deprecation 6/ s u'M 556.406 Utihty plant - net 4 H it, /n/ 3.571.420 OTHER PROPERTY AND INVESTMENTS: Irn,estment in subsidiary - at equity (Note 8) /4 51.017 Other W 550 Total s4'A/ 51.567 CURRENTASSETS: Cash and speaal deposits ' : 0/0 10.825 Temporary investments - at cost. whch approximates market. Assocated compan:es 600 g Other 9.543 Notes recervable '4H 729 Accounts recervable-Customer and other (less allowance for doubtful customer accounts SI.035.000) to m 62.339 Assocated companies 4% 262 Accrued unbilled revenues (Note IB) 'A J!H 36.977 income taxes recervable (Note 3)

996/

Matenals and supphes - at average cost i ! 49x 13.372 Power purchase advance payments (Note 8) ' i 4 44 12.475 Other 'o 15/ 9.779 Total !/9498 156.901 DEFERRED DE8lTS-Deferred Waterford 3 expenses (Note 2) /0 !/0 Power purchase advance payments (Note 8) 49.902 Other 4y 19.348 Total /4 4 m 69.250 TOTAL 54 (m M S3.849,138 See Nofm to Fnancol staterrents

m

c. n...

; s,; ay: z. y
; ; ; ~ ; 7: :. n.

Capitalization and Liabilities w. i984 W Th usands) CAPITAUZATION. Common stock no par va!ue. authonzed 150.000.000 shares. issued and outstanding 137.110.900 shares in 1985 and 121.958.900 shares in 1984 (Note 5) W 90 S 803.900 Pad-in capital /4 758 + m 51,199 Re ained earnings (Notes 5 and 7) 855 857 'otal comrnon shareholder's equ:ty Pa1 Pre' erred stock, without sinking fund (No:e 5) +>+J 145.882 Preterred stock. with sinking fund (Note 5) ,/H4/< 284.501 Long-term debt (Note 6) 4700/8 !.471.855 Tota! / W W/ 2.758.095 OTHER NONCURRENT UA81UTIE5' Accumulated provision for property insurance 6 40/ 6.852 Accurrtuiated provision for inrunes and damages __._ _q 1.610 Total /M4 8.462 CURRENT UA81UTIES-Notes payable (Note 4) y3 Assoaated companies av Banks 7s V ) 5! 2.549 Currentty matunng long-term debt (Note 6) Accounts payable: Assocated companies ' < wi 32.090 Other

M6 63.(.76 Customer deposits A 44 5 26.451 Taxes accrued iu :

8.74 5 AccumulatM deferred income taxes (Note 3) 6 MO 2.618 Interest accrued 4 h U'4 43.191 Drvidends declared 48.777 Preferred dedends in arrears (Note 5) /6 /05 Gas contract settlement - habihty to customes (Note 1IJ % 0/ 62.652 Deferred fuei costs O 68 16.855 Other 1 684 1.856 Tota! 4 'i i W1 309.780 DEFERRED CREDITS-Acumulated ceferred income taxes (Note 3) W> 126.675 Accumulated deferred investment tax credits (Note 3) Oil 171.482 Gas contract settlernent - habikty to customers (Note 11) ivi 81 s 451.214 Other _ 10 W4 23.430 Total , m /6! 772.801 COMMITMENTS AND CONTINGENCIES (No'es 2. 8. 9 and II) TOTAL 54092 63 S3.849.138 see Notes to Fnvrial sizemys

STATEMENTS OF CHANGES lN FINANCIAL POSITION nummma ammu For the years ended December 31.1985,1984, and 1983 198s 1981 1983 FUNDS PROVIDED BY[ Operanons: Net income (1981 includes SI7.6 milhon speaal item) (Note IB) 51< %9 5201.011 5 131.546 Deprecation 68 4N 47.951 45 815 Amortizauon of nuclear fuel assembhes >N" Deferred income taxes and irwestment tax credit adjustments - net /H 8 ': 46.208 16.901 Deferred Waterford 3 expenses (Note 2) !/0 '/Di Allowance for equity funds med dunng constructton (Note IF) % 4 'i (91.5! 7) (71.266) 1 Total ftrids provided by operanons i/40% 203.653 122.996 Other: Allowance for equity funds used dunng construction (Note IF) % i/' 91.517 71.266 Gas contract settlement (Note 11) 247.526 525,128 Power purchase advance payments (Note 8) NK Investment in subsidiary 2.627 Miscellaneous - net _ j ! W4 (18.915) (7.770) Total funds provided. excluding finanong transactions j_(4 .T 523 781 714.247 l Finanong transactions: 1 Common stock im 000 65.000 150.000 Preferred stock 50.000 75.000 First mortgage bonds 190.000 250.000 Other long-term debt

N 113.543 Short-term secunt.e: - net i4 i no/

134.000 Tota! funds prcMded by finanong transacnons /4s 459 418.543 609.000 I Total funds provided 'h 5942.324 51.323.247 FUNDS APPUED TO: Unhty plant addinons: g Construction expenditures for ut:hty plant ."1 Sm 5442.051 5 548.495 Nuclear fuel expenditures 9 // ' 6.276 385 Total gross addatons (includes anowance for funds used dunng constructon) 4 <9 c/s 448.327 548.880 Other: DMdends declared on preferred stock /' +18 49.207 44.600 l DMdends in arrears on preferred stock (Note 5) /6 /05 ( DMdends declared on common stock /4 M s 140.182 107.786 i investment in subsidiary /10/ 4,944 Gas contract settlement (Note 11) 6/ 964 20.018 598.651 Power purchase advance payments (Note 8) 4 / ' /6 62.377 Increase (decrease) in working capital

I!9 0101 13.207 (29.020)

Total funds a@hed to other / ! / 095 229.935 722.017 Finanong transactions: Redemption of preferred stock 6M0 5.000 Retirement of first mortgage bonds 18.000 50.000 Recrement of other long-term debt /M9 2.462 2.350 l78 600 Short-term secunnes - net 9 059 2(M.062 52.350 Total funds apphed to finanong transac00ns Total funds applied M; / ( $942.324 51373.247 Increase (decrease) in working capital *. Notes and accounts recervable - net ,':e 5 43.531 5 4.019 i'E1o (21.432) (5.500) 1 Deferred fuel costs Accounts payable 14 9 : / 4 ) 15.815 801 Drvidends declared 48, (16.359) (3.710) Preferred dMdends in arrears (Note 5) f/6 /oY Other M 6/ > (8.34 8) (24.633) Total j ! ! 9 0/0) 5 13.207 5 (29.020)

Excludes short-term secunties - net, currently matunng long-term debt. deferred income taxes, gas contract settlernent - lLi-b:hty to customers included in current habilities and power purchase advance payments included in current assets See NrXes to Finanos srAementi

a-.

; 3 y yye yy wyy_; 7;yge 3 sy3;wg ym ggw y. ;,

NOTES TO FINANCIAL STATEMENTS for the years ended December 31.1985.19% and 1983

1.

SUMMARY

OF SIGNIFICANT D. FOSTRETIREMENT BENEFITS ACCOUNTING POLICIES The Company has postretirement plans cownng suty A. SETEM OF ACCOUNTS stantially a!! employees The Company's pohcy is to The accounts of the Company are rmntained in fund pension costs in accordarxe with contnbution accordance with the system of accounts prescribed by guidehnes estabhshed by the Employment Retirement the Louisiana Pubhc Service Commission (LPSC) which locome Secunty Act of 1974 and to fund other post-substantial!y conforms to that of the Federal Energy retirement plan costs as incurred Regu!atory Commission (FERC). E. INCOME TAXE5

8. REVENUES The Comp ryjoins its parent. Middle South Utikties.

Poor to December 31.1983 the Company recognved inc. (MSU). in l kng a conschdated Federa! irxome revenue when b: lied To provide a better matching tax return. Income taxes are allocated to the Company of rewnues and expenses effective January 1.1984, to proportion to its contribution to the conschdated the Company adopted. in March 1984. a change in taxable income. accounting method to proude for accrual of the Deferred income taxes are provided for d,rferences non-fuel portion of est: mated unbdied rewnues. Unbdled between book and taxable income to the extent revenues result from energy delvered since the penod permitted by the regulatory bodies for ratemaking ccured by the latest bdhngs to customers. The cumu!a-purposes Investment tax credits allocated to the tive effect of this accounting change as of January 1 Company are defened and amorteed based on the 1984 was recorded in March 1984 and increased the average useful hfe of the related property beginning 1984 net income approximate!y 5176 mdhon (net of with the year allowed in the consohdated tax return. related income taxes of 516.5 milhon) Had this new F. ALLOWANCE FOR FUNDS USED accounting method been in effect dunng 1983. the DURING CONSTRUCTION 15 Company's net income before the cumulatrve effect To the extent that the Company is not permitted would not have tren matenally different from that by its regulatory bod'es to recover in current rates shown in the accompanying Finanaal Statements. the carrying costs of funds used for construction. it The rate schedu!es of the Company include fuel capitah/es, as an appropnate cost of utshty plant AFDC adjustment clauses under which fuel costs are biiled which is calculated and recorded as provided by the to customers. The Company defers under/oe recownes regulatory system of accounts. Under this utihty industry of fuel costs that occur through operation of the fuel ractice. construction work in progress (CWIP) on the adjustment clauses until these costs /crecits are reflected balance sheet is charged and the income statement is in bilhngs to customers. cre(Lted for the approximate net composite interest C. UTILITY PLANT AND DEPRECIATION cost of borrowed funds and for a reasonable return Ut;lity plant is stated at ongrnal cost. The cost of on the equity funds used for erstructon This proc" dure add;tions to utihty plant includes contracted work direct is intended to remove from the income statement the labor and matena's, allocable overheads. and an allow-effect of the cost of finanong the construction program ance for the composite cost of funds used dunng con-and results in treating the AFDC charges in the same struction (AFDC) The costs of units of property retired manner as construction labor and matenal costs. As are removed from utility plant and such costs plus non-cash items these cred:ts to the income statement removal costs, less salvage. are charged to accumu-have no effect on current cash earnings. After the lated deprecation Maintenance and repairs of prop-property is placed in service. the AFDC charged to erty and the replacement of items determined to be construct:on costs is recowrable from cu'tomers through less than units of property are charged to operating deprecation provisions included in rates charged for expenses. Substantially all of the utihty plant is subject utility service. The Company has ceased accru;ng to the hen of the Company's Mortgage. AFDC on Waterford 3 as of September 24.1985. In Depreciation is computed on the stra:ght-hne basis accordance with a rate order received in February at rates based on the estimated service ! ves of the 1984, the Company. beg:nning March 2.1984 used an vanous classes of property. Deprecation rates for accrua: rate of 3.50% on its investment in Waterford 3. Waterford 3 include a provision for nuclear plant up to an investment of S 1.695.000.000. and an accrual decommissioning costs. Depreciation provis:ons on rate of 9.7% on the rernaining CW* and its invest-urage deprecable property amounted to approximateby ment in Waterford 3 in excess of 51.695.000,000. 3 0% in 1985. and 3.3% in 1984 and 1981 Subsequent to the Waterford 3 in-service Jate of

1 l September 24.1985. the Company continued to use the Company an emergency rate increase subject to the 9.79% rate on the remaining CWIP For the penod the Company's agreement to certain conditions. On January 1.1983 through March 1.1984, the Company November 19.1985, the Company agreed to the terms used an accrual rate of 3% on its inwstment in Waterford and conditions of the LPSC order and filed rate schedules 3 up to an investment of S1.260.000.000. and an implementing the new rates effectiw with electnc usage accrual rate of 9.40% on the remaining CWlP and on on and after November 20.1985. The order provides. investments in Waterford 3 in excess of $ 1.260.000.000. subject to prospectrve revision as a result of a prudence The Company's pohcy is to continue to capitakze review discussed below, for a base rate increase in AFDC on projects dunng periods of interrupted con-annual revenues for Waterford 3 of $215 milhon wtlich. struction wtien such interruption is temporary and the after fuel savings. would result in a net increase of continuaticn can bejustified as being reasonable 5126 mdhon. Hovwwr. after appl' cation of the conditions under the circumstances. discussed below, the base rate increase is reduced to G. OTHER NONCURRENT LIABILITIES S M7 mlhon and the actual net rate increase to the . The Company provides for uninsured property risks ratepaps owr cuent ratm. ak W sawngs. 8 N7 and for claims for injunes and damages through charges mdhon. The order also permits the Company to defer to operating expenses on an accrual basis. Such ex_ 5206 mdhon of Waterford 3 costs in the first year to penses haw been aHowed for raremakilig purposes. be phased in on a schedule to be determined by the LPSC. First year carrying charges of 13% are included

2. RATE MATTERS in the rate inaease to reflect the cost of finanang the On March 4.1985. the LPSC denied an Apnl 1984 amount deferred. Carrying charges on all amounts retail rate application by the Company, requesting a deferred after the first year are to be computed at a nd-o ax ran Company has agreed m N substantial rate increase to reflect the in-service status of Waterford 3 and Grand Gulf I. on the basis that f Howing condoons of the LPSC order:

the commercial operation dates of these units were (a) The Company will permanently retain 18% of its still uncertan The Company again fded with the LPSC. share of Grand Gulf I capaaty and energy. reduong on May 17.1985. a general retad rate increase apphcation the Company's Grand Gulf I revenue requirement by 13 $19 milh n in the first year. This amount is composed to reflect the in-service status of these units. Grand of reduction in base rates of approximately 524 Gulf I was placed in commeraal operation on July 1 1985. In its Opinion 234 issued on June 13.1985 milhon and the recovery of 4.6 cents per kdowatt hour (June 13 Decision). the FERC adopted the allocation of (60 maw m be $ mM fm N mgy fem & Grand Gulf I which had been proposed by the LPSC. permanently retained percentage through the fuel Nevertheless on July 30.1985. the LPSC rejected the adjustment clause. A minimum net annual reduction Company's apphcation. The Company fded suits in in r tes of M6 mulon mW M guarant&d fa ten federal and state courts seeking recovery of its Grand years. Niwment on this condtion settles the LPSC's ppeal of the state court's October 9,1985 order. In Gulf I-related costs. On August 29.1985, the LPSC was directed by the state court to reconsider by no addition, the Company's portion of the permanently later than September 15.1985. the recovery of the retained capaaty and energy could be avadable for Company's Grand Gulf I-related costs. On September sale m neathliated partes subject to LPSC approvat 13.1985, the LPSC again rejected the Company's (b) The Company wd! permanently absorb S284 mdbn f the $2.84 bilhon estimated cost of Waterford application. On October 9.1985, the state court issued itsjudgment authonzing an increase in the Company's 3 regardes of & owome of a prudence review. rates of $113.9 milhon arnuaHy to recowr the Company's (c) The LPSC may disallow an amount for imprudence share of the Grand Gulf I costs (See the paragraph in the construction and completion of Waterford 3. on below for further discussion of Grand Gulf I costs). prospectrve basis, if such a finding is made after a This increase represented fuH and undeferred recovery prudence invesugacon. The Company may appeal the of the net increase in the Company's costs resu' ting hnding if it so desires. Any resulting disallowance will from its 14% allocated share of Grand Gulf 1. The be hmited to the amount by which imprudent invest-increased rates were put into effect commenong with ment. W any. exwds N mum (d) ompany refund aH amounts b Hed fa the bilhngs of October 10.1985. b# I"" On September 23.1985, the Company fded with the LPSC an apphcation for both emergency and state courtjudgment of October 9.1985, which were f r service rendered prior to October 9.1985. permanent retail rehef reflecting the in-service status (e) The Company wdl provide a letter from the bank of Waterford 3. which was placed into commercia! which issued a letter of credit in the transaction operation on September 24.1985. On November 14. hereinafter referred to, satisfactory to the Secretary of 1985, the LPSC issued an order on the Company's the LPSC agreeing tu procwd with the syndication of aboemennoned Waterford 3 rate apphcation granong

. -. y. p. ;,.,, ;, 3 g, n,g.w.g.

x such letter of credt so as to permit the Company to effectrve (November 20.1985). and the proceeding will obtain the proceeds of $105 mulion poncipal amount be open for a full rate analysis and prudence review of pollution control revenue bonds sold in December The Company is unable to predict the outcome of 1984. These proceeds are presently being held in a the rate analysis and prudence review collateral 3ecunty account pending the compRtion of See Note 8 "Cornmitments and Contingencies" syndication among vanous banks of the letter of credit regardnj the potent!a! effect on the Company's financial supporting the bonds. (The requrred letter was provided condition of certain prcposed revised accounting by the Company to the LPSC on November 19.1985. standards as explained under the heading Troposed and was found saasfactory by the Secretary of the LPSC l Amendments to Statement of Financial Accounting (f) The twelve month penod provided by Louisiana Standards No. 71" law within which the LPSC must act on the Comparr/s Waterford 3 rate apphcation begins again on the date

3. INCOME TAXES that the foregoing emergency rate increase becomes income tax egense is composed of the following 1984 1983 I*"""*I Current:

Federal 5 5019 5 2.725 State 7.381 3 010 12.400 5 735 Total + ' Deferred - net. lJberahzed depreciation +>9' 826 4.550 Deferred fuel cost !10.378! l2 ud) Unbilled revenue 18 082 l 348) Deferred Waterford 3 expenses Adjustment of poor years tax proviuons Provision for estimated losses Reduction due to tax loss carryforward +' y7 Other 2.702 2069 Total N-11232 3 608 Investment tax credit adjustments - net i 34 976 13 293 -!s> 558 608 522.636 Recorded income tax expense Charged to operations n',. 535.975 519.616 o< 6.085 3.020 Charged to other income Charged to cumu!ative effect of change in accountnj method 16.548 Recorded income tax expense 4640 58.608 22,636 34.24 9 26.019 Irume taxes applied against the debt component of AFDC 2 Total income taxes 46 7 s92.857 548 655 Total income taxes differ from the amount computed by appfying the statutory Federal income tax rate to income before taxes. The reasons for the differences are as fouows (dollars in thousands): v, 1984 1983 % of % of + h im Pre-Tax Pre-Tax 9 o cve Amount locome Amount income Computed at statutorv raie 's4."U 4 <, m' 5119.425 46 0% $ 70 924 4606 Increases (reductio"is) in tax result;ng from. ADowance for fund 2 used dunng construction F-J En W4 (SR 879) (22 7) 145.500) (29 5) State inccme l axes net of Federal irrome tax effect 9d 2.801

1. !

1.895 12 Other iet

/ 6/0

' 9. (4 739) (l 8) (4.683) (3 0) Record < d income tax expense i i 6 <0 71 58.608 22 6 22.636 14.7 Ir,.ome taxes applied against debt component of MDC <1//E %9 34 249 90 26.019 12 3 Total income taxes A6M% .m 5 92.857 316% S48.655 2706

m u mm = _.m,. _ m The tax effect of the portion of the 1985 federal tax short-term terrowing requirements. The Compiny may loss that is carried forward has been recorded as a torrow fiom these sources subject only to its nuximum reduction of deferred income taxes This loss of 530.6 authonzed Itwl of short-term terrownJs The Comp 4ny milhon is aval!able to offset taxab!e income in futurc has received authonzation from the Secunties and years and, if not utilized. will expire in the year 2000 Exchange Commission (SEC) under the Pubhc Utihty Unused investment tax credits at December 31.1985 Holding Company Act of 1935 to tuve outstand:ng at amounted to 5792 milhon These credits may be app!al any one time short-term terrowings aggregating not against federal income tax hab I. ties in future years. If rnore than 10% of the Company's capitahzation. The not used. they will expire in 1992 through 2000. Company had no unused hnes of credit at the end of Cumulative income tax timing differences for which 1985 either with Louisiana banks or under the hnes of deferred income taxes have not been provided are crecit with banks outside the Middle South System 5103 3 muhon. 5109.9 milhon. and 590 8 mdhon in 1985, service area At the end of 1984 the aggregate amount 1984. and 1983. respectively of unused lines of cred,t with Louisiaru banks was $28 I mchon and the Company partiopated with the

4. LINES OF CREDIT AND other Midd:e South System operating companies in RELATED BORROWINGS 5180 milhon of consondated hoes of crecit with banks At December 31.1985 the Company tud 518 7 md! ion outside the Middle South System service area. All of in I:nes of cred;t wnh Louisiana banks and 580.5 mchon the consobdated Ones of credit were available. At the in knes of credit with banks outside the Middie South end of 1985 the Company had no add;tional unused System area of service. Compensating balances short-term borrowing capabky through non-terntonal (approx.imately 5% of the commitment amounts) or turis. the outstandn.) 580 5 milhon ten) ttr maximum equivalent fees are required by certa;n of these non-amourg then perm:tted to the Ctapany seruce area lending banks. Additiona:ly, the Company The stort-terrn borrow 1ngs and the apphcable interest part:apates with certain other companies of the Mid ' c rates (determm1 by dMding appbcable interest expense.

South System in a money pool arrangement w heret Y excluding that accrued on settlement agreement funds those compan!es with available funds make short-used by the Company (see Note 1I). by the average 18 term loans to other companies in the System haeng amount borrcwed) for the Company were as lailows. e 1984 1983 srs la Thousardsl Maximum borrowing N s159 201 S !85. I ! 8 Year-end borrowiry Bank loans WM s 7/.900 Commeraal paper Assoaated compantes 4 D) 5100.100 Average borrowing. Bank loans 't& S 32 86 I s 59499 Commeraal paper 5 592 5 26.0 % 5 /5 892 Assoaated compan!es 7. Average interest rate dur og thP penOd Bank loans 9 ?- 1i 7A 99A Commeraal paper 95+ Assoaated companies 10 70 94L Average interest rate at end of penod /> 11 Dai Bank loans Commeraal paper 9 9x Assoaated companies

5. PREFERRED AND COMMON STOCK Preferred stock at December 31.1985 and 1984 consisted of the following:

Y h t'f *% Atn wnj,e Shares Outstandrig Cunent t ), o mn., 4, at December 31-Call Pnce Cumulauve. $100 Par Value 1985 1984 Per Share Without sinking fund: 4.% % Senes (40 OtX) 60.000 60.000 5101.25 4.16% 5eries JoCo) 70.000 70.000 10121 4.44% Senes 10 cx x) 70.000 70.000 104.06 516% Senes

000 75.000 75.000 10118 5.40% Senes 80 (Kx) 80.000 80.000 103 00 6.44% Senes 80 u)0 80.000 80.000 102.92 9.52% 5enes

/u lx0 70.000 70.000 101.20 7.84% Senes nx)000 100.000 100.000 105.74 7.36% 5eries t 00 00u 100.000 100.000 105.20 a56% Senes t 00 0'X) 100.000 100.000 105 28 9.44% Senes s00 000 300.000 300.000 109 08 II.48% 5enes nolOJ 350.000 350 000 111.11 Total I 4;$ 000 1.455.000 1.455.000 Unassued i D 6 000 Total 4 SW 000 1.455.000 1.455.000 Cumulatwe. 525 Par Value With sinking fund: 10.72% Senes / 159 (a) 2.159.600 2.280.000 5 27.01 99 1312% Senes i 440 000 1.440.000 I.520 000 27.46 1520% Senes , i40 000 1.140.000 1.200.000 27.85 14.72% Senes / 000 000 2.000.000 2.000.000 28 68 12.64% Senes 3 000.000 3.000.000 3.000.000 28.16 19.20E 5enes / 000 000 2.000.000 2.000,000 29 27 Total 11 /39 H)0 11.739.600 12.000.000 Unissued 9 800 (XX) Total /I 539 M)0 11.739.600 12.000.000 1985 1984 Ur' W>usands) Without sinking fund: Stated at 5100 a share 5 145600 5 145.500 Premium 38 / 382 Total preferred stock and premfum. without sinksnq fund 5 l45 88/ 5 145.882 Wsth sinking fund Stated at $25 a share 5 /?$490 5 300,000 issuance expense (i5 06/! (15.499l Total preferred stock and issuance expense. with sinking fund 5 / /8 4/ 3 5 2&1.50I The 10.72%.13.12%.15.20%.14.724.12.64% and February 1.1988 and August 1.1990. respectively, and 19.20% preferred stock issues are each subject to a ending in the year in which all of the shares of savi sinking fund pursuant to which the Company is issues have been redeemed. 120.000. C.Uuu. 60.000, obligated to redeem. commenong on July 1.1984 100.000.150,000 and 400.000 shares, respectively, at a October I,1984. November 1.1985. May 1,1987 pnce of $25 per share plus accumulated and unpaid

.. :? +,..yy A.st u w 2M:;%ss:weswvm m sta m.m ary:m.c: dMdends. The Company had satisfied all sinking fund preferred stock, voSng separatefy as a class in such requ:rements in 1985 resulting in a ga n of $366.000 manner that the holders of the 5100 par value preferred recorded as pard-in capital stock sha!! have one sote per share and the holders of The Company determined not to declare quarterly the 525 par va!ue preferred stock shall have one-dvdends on its common stock in the third and fourth quarter vote per share. shall be entitled to elect the quarters of 1985 and in the first quarter of 1986 due to smal'est number of directors necessary to constitute a the need to conserve cash resources Also. the Art!cles majonly of the full Board of Directors. and the holder of incorporation re!aung to the Company's preferred of the Company's common stock Middle South Uuhties, stock contain proustons which provide for restnctions Inc. (MSUL shall be entitled to efect the remaining on the payment of cash dvdends on common stock. directors of the Company The Company determ.ned not to decive quarterly The changes in the number of shares of common dMdends on any of its cumufat!w preferred stock issues and preferred stock outstanding dunng the three years for the third and fourth quarters of 1985 The Company ended December 31.1985 were as fol!ows: is precluded from rnaking sinking fund payments on its preferred stock unt:I arrearages in preferred stock Number of Shmes 1931 1983 dMdends have been paid Unni arrearages in preferred stock sinking fund payments and preferred stock Common 5:ock shmes dvdends have been eliminated. the Company cannot sold H 9 847,800 22.728 000 pay dMdends cri its common stock. At December 31 s25 Preferred Stock 1985. the Company had accrued the aggregate amount shares sok1 2.000.000 3.000.000 s25 Preferred Stock of cumulatrva preferred stock dvdends in arrears of sham emed m* 200 000 526.7 milhon (or two fu!! quarterly dvdend payments) At year-end there were no arrearages in sinking fund payments as discussed above. On January 9.1986 in September 1983 the Company sold 3.9W.000 shares the Company determined to declare the th:rd quarter of its common stock. no par value. to MSU corxurrent!y 1985 dMdends of $ 13 4 mill:en on its preferred stock with, and for an amount equal to. the payment of a 20 resuiang in the Company being in arrears on only one 526.359.000 cash dvdend on its common stock. quarter's preferred dMdends as of March 14.1986 The Company has made appilCJtions to the SEC to if and when dMdends payable on preferred stock increase the authonzed number of shares of common of the Company shall be in default in an amount equal stock from 150.000.000 to 250.000.000 shares and to to four full quarterty payments or more per share, and tssue and sell to MSU up to 15.152.000 add.t:onal shares thereafter unul ail dMdends on any such preferred stock of common stock from time to time throtxjh December in defau t shall have been paid. the holders of all 31.1986 The matter is pending before the SEC.

6. LONG-TERM DEBT Long-term debt at December 31.1985 and 1984 consisted of the fo!!ovwng (:n thousanas) w 1984 First Mortgage Bonds:

9 aeres due 1986 >30 s 75.000 4 4 4 Senes due 1987 ')Im 20.000 15 > 9 5mes due 1988 5n Em 50.000 10 W Senes due 1989 ^M 45000 5 % 5enes due 1990 m:m 20.000 16 % Senes due 1991 , rc 75.000 16W 5enes due December I.1991 m of 0 100.000 12 % Senes due 1993 %M 100 000 4%% 5enes due 1994 m; 25 000 16 % Senes due 1994 M9o 100 000 5 W 5enes due 1996 'M 35.000 5 4% Senes om 1997 %!m 16.000 63% Senes due Septemt>er 1.1997 -U0 18 000 74% Senes due 199A 40 35.009 9%% Senes due 1999 5& 25 000 9 G Ser es due 2000 ?e 20 000

( ~ x __ v_ _ _ _ 1984 First Mortgage Bonds. 7h% Senes due 2001 /s000 s 25.000 7h% Senes due 2002 15 (xx) 25.000 7h% Series dw Nowmber I. 2002 15000 25.000 8 % Senes due 2003 45 Ono 45.000 8h% Senes due 20M 45 M 45,000 . 8%% Senes due 2006 40 000 40.000 10 % 5enes due 2008 60 000 60.000 13h% Senes due 2009 % 000 55,000 13 A% Senes due 2013 100 000 100.000 13 % Senes due September 1. 2013 % (OJ 50.000 14%% Senes due 20!4 % 000 55.000 15%% Senes due December 1,2014 6rW 35.000 14 % Senes due 1992 pess 560.000 held in a cash collatera! secunty account) 14%% Senes due 1995 (less S15.000 held in a rash collateral secunty account) Total Fast Mortgage Bonds 1 419 000 1.319.000 Other: St. Charles Pansh Pollution Control Rewnue Bonds. Snes 1984 Dess SI.457 held by trustee at December 31.1984) % tm i13.543 St. Charles Pansh Pollucon Control Revenue Bonds. Second Senes 1984 Dess $105.000 held in cash collateral secunty account) Other po"uaon control and industnal revenue bond obhgaaons. 6.40%8% due 1988-2009 m 400 16300 Pnncpal amount of muniopal revenue bond obhganons.1%%8% due sena!!y 1986-20m. and other future obhganons under operanng agreements U /9 4 34.142 Total Other iM OW I64.185 Unamortized premium and discount on fory-term debt - net (9 440) (8 781) 21 Total Long-Term Debt i 4 // 15 3 1.474.404 Less - Amount due within one year / 6/s 2.549 Long-Term Debt excluding Amount Due VAthrn One Year s i 4 /0 0/h 51.471.855 On December 20.1985, the Company issued and Year Sinkinq Fund

Matunnes**

sold 575 milhon pnncipal amount of First Mortgage Un Thousands) Bonds in two senes, a $60 milhon,14% Senes due 1986 512.440 5 2.675 1992, and a S15 million.14%% Series due 1995. the 1987 I2.240 22.774 proceeds from which were used to refund, at matunty, 1988 12.240 52.832 1989 i t.740 .8.016 its $75 million of First Mortgage Bonds 9% Senes due 1990 11.290 23.202 January 1,1986.

Sinking fund requaements may be sausfied by certificanon in June and December 1984 the Company entered

""C"*" into agreements with St Charles Pansh (Parish) whereby the Parish issued S115 n:iipn (Senes 1984) and 5105 be ref.nanced at matunty the 575 milhon of the Company's milhon (Second Senes 1999. respectively, of adjustable / First Mortgage Bonds matunng on January I.1986 having fixed rate Pollution Contr61 Revenue Bonds due 2014. bwn so refinanced. The bonds, which are secured by letters of credit, bear interest at 8.75% per annum for three years and there-after convert to an annually adjusted interest rate. not

7. RETAINED EARNINGS to exceed iS% per annum. The Second Senes 1984 bond proceeds are being held by the issuer of the The Articles of !ncorporation and the Mortgage related lette' of credit in a cash collateral secunty account contain provisions restncting the payment of dividends pending the obtaining of participation from other banks or other distnbutions to common stocknolders. At in the letter of credit December 31.1985. all retained earnings were free Sinking fund requ:rements on First Mortgage Bonds from such restrictions; however. as descnbed in Note and matunbes under long-term debt instruments in

5. " Preferred and Common Stock". common stock effect at December 31,1985 for the years 1986 through dMdends can not be paid until preferred stock dividend 1990 are as follows:

arrearages ha'.e been ehminated

i S. COMMITMENTS AND CONTINGENCIES Energy. Inc.. (MSE) at MSE's full cost of servite, all of MSE's 904 share of the capaaty and energy from Grand CAPITAL REQUIREMENTS AND FINANCING Gulf I 6n accordance with tr.e following percentage At December 31.1985, the CompanyX most significant allocations the Company - 14%; Arkansas Power & commitments and contingences related to (1) the Light Company (AP&L) - 36%; Mississrppi Power & finar.ang of its construction program and (2) the Light Company (MP&LJ - 33%; and New Orleans Public financing of the costs associated with the commeraal Service Inc. (NOPSI) - 17k. In connection with pay-operation of Waterford 3 and Grand Gulf 1; (3l obtaining ments by the Company to MSE for Grand Gulf I capacty permanent retail rate relief; and (4) the outcome of a and energy. the Company's obligation for such payments prudence review as ordered by the LPSC. In addition. is approximately $13 million per month, with such the uncertain status of Grand Gulf 2 may smoact the payments through the March 1986 payment being Company as it relates to any possible cost allocation reduced by credits for pcM/er purchase advance to the Company in the event of cancellation of the payments prewously made to MSE. unit. As the result of an October 1985judgnent by a state court and a November 1985 emergency interim DIVIDEND SUSPENSION rate increase granted by the LPSC (See Note 2. " Rate in light of. among other things, the need to conserve Matters"). the Company has obtained temporary rate cash resources in view of the weakened finanaal reiief tha: * ' %es sufficent to enable it to meet its condition of the Middle South System stemming from Waterford 3 and Grand Gulf 1-related costs. This state and local regulators' delays in approving rate assumption is dependent upon the Company's ability increases. as well as the disallowance of portions of to obtain requisite finanang for a portion of such the Company's retail rate requests. the Company and costs. The finanang would be subject to, among other the other System operating companies determined not things. SEC approval. to declare dividends on their common stock for the At December 31.1985, the Company's construct!on last tv.o quarters of 1985 and the first quarter of 1986. program contemp ated expenditures (including AFDC) As a resu!t. MSU was unable to declare its common cf approximately 5153.4 million in 1986. 5134.0 million stock dvdend for these same three quarters. The ArDcles 22 in 1987 and 5139.2 million in 1988. Howewr. due to of incorporation relating to the Company's preferred the delays in obtaining rate relief, the Company is stock contain provisions which provide for restnctions conunuing to defer or reduce construction expenditures on the payment of cash dedends on common stock. wherever possible in order to conserw its resources. At December 31.1985, the Company had not declared The Company estimates that it will require substantial dedends on any of its cumulative preferred stock issues additional capital to f: nance the phase-in of a portion for the third and fourth quarters of 1985. The Company of its Waterford 3 costs pursuant to the LPSC emergency is precluded from making sinking fund payments on rate order discussed below its preferred stock unal arrearages in preferred stock dmdends have been paid. Until arrearages in preferred LPSC RATE ORDER stock sinking fund payments and preferred stock On November 14,1985. the LPSC issued an order dmdends have been elimrnated, the Company cannot l granting the Company an intenm emergency rate pay dmdends on its common stock. At December 31, increase for Waterford 3. subject to certa:n conditions 1985, the Company had accrued the aggregate amount subsequently agreed to by the Company The order of cumulatrve preferred stock dedends in arrears of provides, among other things, for the Company (1) to 526 7 million (or tvte full quarterly dedend payments). defer 5206 million of Waterford 3 costs to be phased-in As of year-end there were no arrearages in sinking on a schedure to be determined by the LPSC; [2) to fund payments as discussed aboe. On January 9,1986. permanently retain 18% of its share of Grand Gulf 1; the Company determined to declare the third quarter r l and (3) to permanently absorb 5284 mi!! ion of the 52.84 1985 dmdends of 513.4 mill:on on its preferred stock. billion estimated cost of Waterford 3. regard!ess of the Resumpnon of the Company's preferred stock dedends j outcome of a prudence review into the construction on a current basis and MSU's common stock dudends l of Waterford 3. The amount of Waterford 3 costs remains dependent upon improvement in the Middle i permanently absorbed by the Company may irmrease South System's financial condition if MSU's finanaal pending outcome of the prudence investiganon. See resources remain limited. its ability to provide the Note 2. " Rate Matte s", for further informanon regarding Company with any common stock equity will continue the rate order. to be adversely affected. UNIT POWER SALES AGREEMENT POTENTIAL DEBT ACCELERATION AND THE The Unit Power Sales Agreement. as approved by VIABruTY OF 1HE MIDDLE SOUTH SYSTEM the FERC on June 13.1985, obligates the System NOPSI has not yet received adequare rate relief with operanng companies to purchase from M.ddle South respect to its Grand Gulf I costs NOPSI believes that it

y m - n e w c - -- - y shou!d be enutled to a retail rate structure permitting accordance with stated percantages (the Company it to reccver fumy MSE's charges for Grand Gulf I capaaty 269k. AP&L 17 IE MP&L 31.3% NOPSI 24 n j tu make and energy. A federal appellate court has ruled that payments or subord:ruted advances adequate to cover NOPSrs applicacon for rate rehef in connecnon with all of the operaung e>penses, includ:ng depreciation, its a!!ocated share of the costs of Grand Gulf 1 is a cJ MSE The System operating companies in November matter of federaljunsd.ction However. as a result of 1981 entered into a Reallocation Agreement which the exueme opposition of the Counal and substantial would have allocated the capaaty and energy available uncertainnes regarding the timing and outcome of the to MSE from the Grand Gulf StaDon to the Company. vanous deosions. NOPSI cannot predict when the final MP&L and NOPSL Tf ese companies thus had agreed rate structure supporting its payment obhganons in to assume a!! the respons:bihties and obhganons of respect of Grand Gulf I will be in place or whether AP&L with respect to the Grand Gulf Stanon under adequate rate rehef wd! be forthcoming. Without the Availabahty Aryeement and fbwer Purchase Ad/ance adequate rate relief for Grand Gulf 1. NOPSI currently Payment Agreement with AP&L rehnquishing its nghts projects that at sometime dunng the first half of 1986 with respect to the Grand Guff Station Each of the it would be in the position of not being able to meet System operatnj compan:es. including AP&L indrvidua!!y its payment for capaaty and energy for Grand Gulf I. would have remained pomanly hable to MSE and as Unless { l) wa: vers were obtained. (2) the debt was assignees for payments or advances under these restructured or [3) other arrangements could be agreements AP&L would he been obbgated to make negotiated, the fadure of NOPSI to meet a payment as share of the payments or advances only if the other for capaaty and energy from Grand Gulf I might. System operating companies had beea unable to meet technically under certain agreements related to MSE's their contractual obi gations However. the FERC's June n indobtedness. lead to acceleraton of such indebtedness. 13 Deaston supersedes the Rea! location Aryeement in the absence of such wa: vers. debt restructunng or 'nsofar as it relates to Grand Gulf I other negotiated arrangements. acceleration of such GRAND GULF 2 mdebtedness could also occur if NOPSI were rendered As of December 31.1985. MSE had invested 5937 insolvent by its fadure to obtain rate rehef or under mdhon in Grand Gu!f 2. which is approximately 3R provisions of MSE's bank loan agreements requinng that complete based on the estimated man-hours needed all System operatng companies secure 3cceptable retail to complete the unit. From late 1979 until Septemt>er rate rehef in respect to Grand Gulf I by June 30.1986' 1985. only a hmited amount of construction was per-Gwn the substantial amount of MSE's debt it would formed on Grand Gu!f 2. Effectw September 18.1985. not be able to meet its obliganons. if accelerated Under MSE suspended cont truction activines on Grand Gulf MSE's finanang agreements. MSU. and not the System 2 fonowing an order of the Mississippi Pubhc Service operaang companies. would be responsible to pay MSE's Commission (MPSC). (As an addendum to the order, accelerated obhganons if MSE could not. MSU. with the MPSC further advised the Company and MSE that finanaal resources currentfy hmited, including hmitations it was the MPSC's position at that time that any potential on its abikty to borrow funds or issue additional shares plan for recovery by the Company of " sunk costs" in of its common stock. would not at this time be in a Grand Gulf 2 through retad rates is unjustifiable ' MSE position to sausfy MSE's obhgations. if accelerated has now determined to conanue with full suspension Also. certa;n of SFrs finanang agreements and of construction on Grand Gu!f 2 unal further evaluaDons leases may recu:re payments by the System operaang are made, which are estimated to be completed companies. MSU or MSE in the event SFrs obhgations sometime in 1986. and to !imit expend;tures to only under such agreements are accelerated as a result of those activines which are absolutely necessary for the insolvency of NOPSI and SFl is unab!e to meet demobihzat on and suspension. Because of senous these obhgauons or otherwise to satisfy these obhganons finanaal restraints on the Midd!e South System. com-through the sale of the collateral secunng such obhga-pietion of Grand Gulf 2 appears unhkely However, bons In addioon insolvency of NOPSI would affect bdore a final deosion is made. consideration will terms of finanang nclud:ng an increase in cost of be given to vanous long-term economic factors finanang. or couic' prech;de finanang for other Middle and regulatory agency requirements apphcable to South System companies Under these arcumstances Grand Gulf 2. the continuing viabihty of the Middle South Systern if it is u!Dmately deaded that Grand Gulf 2 should would be placed injec cardy wqth possible bankruptcy t>e cancelled. MSE would take all accons necessary fMngs for one or more of the in olvent M ddie South before the FERC and the courts to attempt to recover System companies e

tment Such action! would hkely involve a f ang AVAILABILITY AND REALLOCATION AGREEMENTS with the FERC requesting recovery of its fu!! investment.

The System operat ng companies are severally over a penod of years, through charges to the System obhgated to MSE under the Avadabihty Agreement in operaong companici Such proceedings. and related

. - _.. ;3 .p. _n.. ,.,.... vc..... proceeungs before the state or local regu!atory author-speafled and. accordingly. the deferral cannot be ities with respect to retail rates. could be protracted evaluated in terms of the requnements of the Exposure and strongly contested on vanous grounds. including Draft. Under the new proposal the disallowance imprudence. If the Company was allocated a share of would be recognized as a loss This loss. net of MSE's investment in Grand Gulf 2 and it was unable related tax benefits, would be reported either t>y to recowr these costs from.ts customers. the Company's restating the appropnate poor years' hnanaal state-finanaal cond:t on m:ght be adversely affected. ments or by charging it against current encome. The POWER PURCHASE ADVANCE PAYMENT AGREEMENT Company is studying the Exposure Draft, however. Under a Power Purchase Advance Payment Agree-unul the Board issues a new Statement of Finanaal ment. the Company. MP&L and NOPSI made advance Accounung Standards that amends SFAS 71. the payments to MSE from January 1984 to June 1985 for Company cannot determ:ne what will be the speoftc power to be delrvered upon commeraal operanon of impact of the final changes. if any. Grand Gu!f 1. The Company s share of such payments STOCKHOLDER 5' SUITS dunng this penod aggregated 586 7 milhon These ad-Dunng August and Septrmber 1985 five r urported vances, plus accrued !nterest, were to have been cred;ted class action suits were filed by MSU shareholders against the power purchase obligations of these (purporting to cover classes that purchased MSU compan*es owr an 18-month perKx1 in order to mitigate common stock over varying periods C,f time) in federal the cash flow prob! ems of certain of the compantes. court These compla nts have been consohdated in the induding the Company. which had made these 5 Dmna Gun for N Eamn Nna of Loumana. advances. on October 15.1985. MSE and these Syster n The Consohdated Amended and Supplemental Com-operating companies entered into an amendment to plaint a3eges violations of tfe disclosure requtrements the Power Purchase Advance Payment Agreement. of the Secunties Exchange Act of 1934 and the Secunties whrch revised certain of the terms of this arrangement Act of 1933. common law fraud and common !aw Pursuant to this amendment. in October 1985 MSE neghgent misrepresentauon in connection with the pard the Company 550.86 milhon in addiuon. on finanaal cond; tion of MSU and pray for compensatory October 15. 985. the Company recerVed a credit of nd punitive damages. legal costs and fees and other 24 54 8_, mi! bon for its power pu' chase obhganons to pr per rehef gainst MStJ. vanous other Mrddle South MSE due that date. This credit. plus accrued interest. "9

Pu"Y' #

has been and will be taken monthly through the dea @md mp nfs ouMe March 15.1986 payment. auditors, and certain underwnters of MSU common PROPOSED AMENDMENTS TO STATEMENT OF stock. While MSU and the other defendants are FINANCIAL ACCOUNTING STANDARDS NO. 71 rewevving the aHeganons and plan to assert a4 available The accounung standards related speaficalfy to pubhc defenses thereto they beheve that MSU's drsc!osure of utthtres and certain other regulated enterposes are as fnanoal co@on was o com@ance M a@hcaMe promul gated by the Finanaal Accounting Standards SEC requirements. Howewr. the eventual outcome and Board (FASB) in Statement of Finanaal Accounung impact on the Midd:e South System's finanaal corxt:non Standards No 71 'SFAS 71). In December 1985. the cannot be predicted at this time. FASB issued an Exposure Draft proposing certain amendments to SFAS 71 The amendments. if adopted SFl as proposed. would become effective for fiscal years The Company has a 33% interest in SFl. ajorntly beginn:ng after December 15.1986 with retroactive owned subsidiary of the four punapal operating apphcanon for poor transactions The Exposure Draft subsidianes of MSU SFI operates on a non-profit basis proposes amendments to the accounung for. (1) the for the purpose of planning and implermnung programs phate-in of rates assoaated with the costs of new for the procurement of fu"I supphes fn' all of the Sprem generat:ng pfants, (2) abandoornents of partolly operaung companies: its costs are pomanty recovered completed generating plants and (3) disa:lowances of through charges for fuel dehvered costs assoaated with newly completed generaung The parent companies of SFI have made loans to SFI plants. The proposed amendments. If adopted in their to finance its fuel supply business under a loan agree-present form. cou!d have a matenal adverse impact ment dated January 1.1984. as amended January I. on the Company due to the revisions proposed in the 1986. Whch provides 'or SFl to barrow up to 575.000.000 accounung treatment of plant costs and phase-in plans from J.s parent compan.es through December 31.1986 Speafically. the Company's emergency intenm retail As of December 31.1985, the Company had loaned rate order dated November 14.1985 includes the 58.311.000 to SFl pursuant to this loan agreement and disaMowance of $284 milhon of costs of Waterford 3. the Company's share of the unused loan commitment and afso contemplates the deferral of certa:n other was 525.200.000 Notes under this agreement mature Waterford 3 costs on terms which have not yet been December 31.2011. In add. tion. the Company had

.g u loaned SFl 544.806.000 under previous loan agreements. date. that the two units of the Wilton Station could Notes mature in 2002 and 2008 under the provisions be put into opera 00n were 1993 and 1995. respectivefy. of the previous loan agreements. and further that the station might be delayed to a time in connection with certain of SFI's borrowing arrange-that would make the existing contract non-viable. in ments. SFrs parent companies, including the Company. August 1985. SFI further advised the suppher that. based have covenanted and agreed severalty in accordance on its latest appraisal. for planning purposes. & System's with their respective shares of ownersh!p of SFI's requirement for additional coal capaaty is now forecast common stock. that they will take any and all action to be :n a time fTame which makes the existing contract necessary ta keep SFl in a sound finanaal condition in fact non-viable. The suppher has refuscd to agree and to place SFl in a position to discharge, and to that rtgulatory constra:nts or any other dithculties have cause SFl to discharge its obligations urider these constituted ewnts of force majeure under the coal stoply arrangements At December 31,1985. the total loan agreement Upon receipt of the August 1985 notification. commitment under these arrangements amounted to tne suppher filed a Demand For A*bitration under the 4 5210.000.000 of wtiich 5189.135.000 was outstareng coal supply agreernent to estabbsh that the agreement at that date. Also. SFl's parent companies, including remains in full force and effect and that SFl is not the Company. have made similar covenants and agree-excused from performing its obhgations and. alternartwly. J ments in connection with long-term leases by SFl of that SFl's actons constitute antrapatory reoudiation of 1 oil storage and handhng fachties and coal hopper cars the coal supply agreement. Resoiution of this matter i At December 31.1985. the aggregate discounted value could possibly expose SFl and the Company to claims of these lease arrangements was 578.508.000. In for significant damages in the event SFl does not cc,nnection with an SF1550 milhon secured finanang u!timatety prevail in asserting that ewnts of force majeure of nuclear fuel inventones, the Company. AP&L and have excused performance or in the event efforts to F MSE have agreed to purchase such inventories in the mitigate any possit>le damages are unsuccessful. The j event that SFl is unable to fulfill its obl gations under pames have agreed to postponement of the arbitration j the borrowing arrangement At December 31.1985. on the basis that it can be restarted by either party the total amount outstanding under this arrangement on ten days notice. was 5278 milhon. NUCLEAR LIABluTY INSURANCE 9 SFl has contracted with ajoint venture for a supply As of December 31.1935. the Pnce-Anderson Act f of coal from a mine in Wyoming which, based on (Act) hmited the pubhc habda of a hcensee of a nuclear estimated reserves, is presently expected to provide power plant to $650 mi! bon for a safe nuclear nadent for at least thirtyyears of the projeGed requirements This hmit will increase by 55 milhon for each additional of the Independence Station. SFI's parent compan;es, operating bcense issued by the Nuclear Regulatory j 3 includ:ng the Company. each actng in accordance with Commission (NRC) Insurance for this exposure is { d rts share of the omership of SFI's common stock, joined provided by prrvate insurance and an indemnity agree-g in, ratified, conbrmed and adopted the contract and ment with the NRC. Every hcensee of a nudear power i the obbgations of SFI thereunder. Under the contract, plant is obhgated,in the event of a nuclea. inadent ) inmament in the mine for leases. plant and equipment involving any commeraal nuclear faakty in the United is the responsibihty of thejoint venture. In order to States that resurts in damages in excess of the prrvate kmit thejoint venture's investment nghts and, hence, insurance, to pay retrospectrve assessments of up to the amount to be paid to it as a component of the 55 milhon per inadent for each hcensed reactor it y pace of coal, the contract provided that SFl invest any operates or up to a maximum per reactor owned of f.. funds for plant and equipment in excess of a speafied S 10 milhon in any calendar year. The Company has } amount. AP&L MP&L and Arkansas Electnc Cooperatrw one hcensed reactor. The Act is rheduled to expire in Corporation. as co-owners in part of the Independence August 1987, and Congress is considenng several l Station, have agreed to make the investments rather proposals to amend the Act. The Company is unable than SFl and, accordingly. have reimbursed SFl for to predict what action Congress might ultimately take y a investments previously made by it. regarding the Act and what effect such action might I SFl has executed a coal supply agreement fe' the have on the Company's potential habikty. purchase of approximately 100 milhon tons of coal for The Company is a member-insured of Nuclear Electnc use at the proposed Wilton Station with an option to Insurance Limited (NEIL), a mutual insurer that provides i purchase an additional 50 milhon tons. By separate insurance coverage for certain extra expenses assoaared l agreement, the Company guaranteed SFI's perfor-with obtaining replacement power (NEIL I) subsequent mance of the contract and agreed to purchase the to Waterford 3 and/or Grand Gulf I ceasing generation coal from SFl. SFI previously advised the coal supplier of power for 26 consecutive weeks. subject to certain i that because of forces beyond its control, including in conditions. In addition, the Company is a member-particular the regulatory situation, the earkest possible insured under NEll li which provides $550 mihnn for 3 l l !t

property damage sustained by the insured in excess

10. POSTRETIREMENT BENEFITS of 5500 million caused by radioactive contamination or other speafied damage. The Con pany is also a The companies of the M ddle South System have member-insured under a pnmary property damage vanous postretrement benefit plans cownng substantially insurance program provided by Nuclear Mutual Limited.

all of their employees. another mutual insurer. As a member insured with these Pension plans are administered by a trustee who is mutuals. the Company is subject to assessments if responsible for pension payments to retirees. Vanous losses exceed the accumulated funds availab!e to the investment managers have responsibility for manage-insurer. The Company's maximum possible assess-ment of the plans' assets. In addition. an independent ment for inadents occurring dunng a policy year is actuary performs the necessary actuanal valuations for approx:mately 533 million. the indrvidual company plans. SPENT NUCLEAR FUEL The decrease in 1985 pension expense compared Under the terms of its nuclear fuel lease, the Company with 1984 resulted pnmanly from changes in actuanal is responsible for the disposal of spent nuclear fuel assumptions and in actuanal cost methuds used by The Company considers all costs incurred or to be the Company The pnnapal elements included in the incurred in the use and disposal of nuclear fuel to changes were an increase in the assumed rate of return be proper components of nuclear fuel expense and used in determining the actuanal present value of provisions to recover such costs have been accepted projected plan benefits from 8% to 9% and an increase by the LPSC. The Company has executed a contract of 1% at each age in expected salary increases for actrw with the Department of Energy (DOE) whereby the plan partiapants in add; tion, the Company changed the actuanal cost method and the amortization method DOE will furnish disposal service for the Company's spent nuclear fuel at a cost of one mill per kilowatt. for recognizing the difference between assets and past hour of net generation. service liabilities. These changes had the net effect of reduang 1985 pension expense by 56.374.000. These CONSOLIDATION WITH NOPSI am wm pamah oh 4 imam in peon in the interest of increased economic effiaency expense of 52.006.000 due to amendments effective the Company and NOPSI have developed a plan to Janu ry 1.1985 to compfy with the Retirement Equity 26 consolidate the two companies and their operations. Act and a speaal early retirement program which was Under the preposed arrangement. subject to receipt ffered f r a limited pened in 1985 to certain empoyees of necessary regufatory and other approvals. the two f the Company Total pension expense of the Company companies would be consolidated into a new company f r 1985.1984. and 1983 was 51.221.000. 57.471.000. to be called Louisiana Power & Light Company MSU. nd 56.841.000, respectively Also, included in 1985 which currently ovvns all the outstanding common stock pension expense is an adjustment to reverse 52.391.000 of the Company and NOPSI. would own all the common of 1984 pension expense. stock of the new company The companson of the actuarial present values of

9. LEASES ccumu! ted pensi n pl n benefits and plan net assets for the Company's defined benefit plan is presented In 1980 the Company entered into a sale and belcuv This companson was determined in accordance leaseback of certa:n office build;ngs and related real with the provisions of Statement of Finanaal Account-properties. A gain of s13.438.000 has been deferred ing Standards No 36 which requires the use cf certain and is rav being amortized over the life of the lease.

assumptions which are different from those used by The lease is for a pnma y term of 20 years and requires the Company's actuary in determining an appropnate minimum annual renta!s of approximately 52.996.000 level of fundirr for the Company through 1985 and 53.307.000 thereafter. Rental expense amounted to approximately 56.267.000. 55.736.000. and 55.586.000 in 1985.19% and 1983. mum L respectrvely v 1994 The Company has SEC authoniation to lease nuclea. o nw fuel up to 5130.000.000. Lease payments based on y g nuclear fuel use, will be treated as cost of fuel. accurnulated pension plan The lease is expected to terminate June 1.1987 henefas upon termination of the related cred.t line and, upon Vested W sSG8 terminacon. the Company will be required to repurchase Nonvested 1584 the fuel then under lease unless the present line is ex-Total u- ' ss79u tended or a new line secured. The unrecovered cost base Net assets ava!!ab!e for of the lease at December 31.1985 was $119.955.000. W"*"""" l Other lease commitments are not significant.

The assumed rate of return used in determining the in the amounts of 5.2 million. 59.2 milhon. and $11.1 actuanal present value of accumulated pension plan milhon. respectrvely benefits was % The Company also provides certain health care and

12. TRANSACTIONS WITH AFFILIATES hfe insurance benefits for retired employees. Substantialty all employees may become ehgible for these benefits The Company buys electrioty from and sells elec-if they reach retirement age while st:ll working for the Inoty to the other operating subsidianes of MSU. its Company. These benefits and similar benefits for parent. under rate schedules filed with the FERC. In active employees are provided through vanous means addition. the Company purchases fuel from SFl and induding payments of premiums to insurance companies recerves technical and advisory services from Middle and/or accruals for self insurance poboes managed South Services. Inc.

by insurance companies. The Company recognrzes the Operaong rewnues include revenues from sales to Cost of providing these benefits by expensing the affikates amounting to $ 136 m@on in 1985. 512.2 milhon payments made to the insurance companies or accruing in 1984, and 525.3 m@on in 1983. Operating expenses the cost as recommended by the managing insurance include charges from affikates for fuel cost. purchased company The cost of provtdrig these benefits for retirees power. and technical and advisory services totalkng is not separable from the cost of providing benehts for $389.9 milhon in 1985. 5338.7 milkon in 1984, and active employees. The total cost of providing these 5339.3 milkon in 1%3. benefits and the number of active employees and reurees for the last three fiscal years were as folkwvs:

13. QUARTERLY RESULTS (Unaudited) 1985 19 8 - 1983 Unaudited operating results for the four quarters of Total cost of health care 1985 and 1984 follow:

and hfe insurance (in thousands) 56 513 s6.598 55.426 Quarter Operating Operat:ng Net Numberof active Ended Revenues income income (toss) employees 1 998 2.915 2.700 (in Thousands) 27 Number of retirees Y9 522 491 19 s B.t e s/810c9 m 9P Wl/A

11. SETTLEMENT AGREEMENT Jw sus ws u no 4/870 WITH GAS SUPPLIER M*"*'

N i N */ W6 5/ '86 Det,cr !/t D H 416 16 M8 19 D /i A dispute between a gas suppher and the Company 1984: artsing from the gas supplier's claimed inabikty to dehver March (3) 5267.901 531.665 557.200 full quant: ties of fuel gas due the Company unoer seseral June 295.646 61.616 45.431 natural gas contracts was settled by the execution of a settlement agreement on June 4,1982. The settlement Dec 835 6 4 3 agreement provides for the payment of 51.087 bilhon in cash (of which 5587 milhon. 5250 milhon and $250 (!) For the quarter ended September 30.1985. operanng milhon werefeceived by the Company in June 1982. income and net income decreased by 517.6 meon due January 1983 and Ja wry 1984. respectively) plus a to the unrecovered fixed charges assooated with Grand guaranty of savings of at least 5585 million in certain Gulf I's commercial operanon. gas acquisition costs between 1982 and 1996. In March (2) The quarter ended December 31.1985. includes the net 1983. the LPSC ordered in general that the refunds be effect of a $22.1 m@on reduction in operating income made as follows the 5587 million recerved on June 4 and net income due to the wnte-off of the Company's 1982. plus interest. or a total of 5637 milkon, shall be share of catain costs assooated with indehnitely delayed future f wi geneanng faohe refunded in 1983; the 5250 milhon recerved in January 4"##"d ~ 1983 shall be refunded in ten equal installments increased by $176 rreon as a result of a change in beginning in 1984; and the $250 milkon recerved in yccounung method to provide for the ininal accrual January 1984 shall be refunded in nine equal annual of the t'on-fuel portion of estimated unbilled revenues installments beginning in 1985. In addition. in February (See Note 1)- 1984 the LPSC ordered the Company to refund $32.6 million. representing interest not already covered in its The business of the Company is subject to seasonal March 1983 refund order, to customers in equal install-fluctuauons with the peak penod occumng dunng the ments over a nine year pened beginning with the 1985 summer months. Accordingly. earnings informaDon for refund. As a result of the LPSC orders, the Company any interim penod should not be considered as a basis accrued in 1985.1984. and 1983 net interest expense for estimating the results of operations for a fullyear.

s

14. EFFECT OF INFLATION Financial Accounting Standards No 33. " Financial ON OPERATIONS (Unaudited)

Reporting and Changing Prices", as amended by Statement of Financial Accounting Standards No. 82. It The following supplementafy information about the shou'd be viewed as an estimate of the effects of effect of changing prices on the company is provided changing poces, rather than as a precise measure. in accordance with the requirernents of Statement of Statement of income from Operations and Other Finanaal Data Adjusted for Effects of Changing Pnces for the Year Ended December 31.1985 (In Thousands) As Reported in Adjusted for the Changes in Finanaal Speofic Pnces Statements (Current Costs) Resenues* S1.259.770 51.259.770 Operating expenses (excluding depreciation)* 1.006.491 1.006.491 Depreciation 68.462 126.898 Total ooerating expenses 1.074.953 1.133.389 Operating income 184.817 126.38I Other income-97.262 97.262 Interest & other charges

150.510 150.510 Income from operanons (excluding adjustment to net recoverable cost)

S 131.569 5 73.!33 increase in speofic pmes (current costs) of property. plant. and equ:pment 28 held dunng the year" 5 313.102 Adjustment to net recoverable cost (173.494) Effect of increase in general pnce level (217.952; Excess (deficency) of increase in speofic pnces. a*ter adjustment to net recoverable cost. over increase in general poce level (78.344) Ga:n from decline in purchasing power of net amounts owed 102.957 Net S 24.613 ' Assumed to be in average for the year dollars and thus are not restated ~

- At Decernber 31.1985. current cost of property, plant. and equ:prnent. net of xo vTiutated depreoacort was s6.169,198 000. wrwe hestoncal cost or net cost recoverable through depreaation was s1836.697.000 Frve-Year Companson of Selected Supplementary Finanaal Data Adjusted for Effects of Changing Pnces (In Thousands of Average 1985 Dollars)

Year Ended December 31 19AS 19M 1983 1982 1981 OPERATING REVENUES

la UD S t.290. lM 51.236.046 51.332.469 51.322.109 CURRENT COST INFORMATION:

income from operations (exclud:ng adjustment to net recoverable cost) />1 34 5 112.384 5 63.601 5 51.395 5 70.591 Excess (oeficency) of increase in speofic paces after adjustment to net recoverable cost, over increase in general pnce level W 340 $ (56.263) 5 (25.818) 5 (5.432) 5 (124.860l Net assets at year-end at net recoverable cost 'UU %5 5 873.258 5 826.783 5 716.114 5 704.943 GENERAL INFORMATION. Ga:n from dechne in purchasing power

0/ %

S 101.259 5 88.102 5 73.111 5 147.926 of net amounts owed Average consumer pnce index w/ 311 I 298 4 2891 272 4

-- _ w,_ w = m m:m n,- wam w,_ - _ Current cost amounts reflect the changes in speofic excess cost of plant stated in terms of current cost over pnces of property, plant and equipment from the year the histoncal cost of plant is not presently recoverable of acquisition to the present. The current costs of in rates This excess (deficency) is reflected as an property. plant. and equipment which represent the adjustment to net recoxrable cost Whle the ratemaknj estimated costs of replaang existing pfant essets, are process gives no recognition to the current cost of determined by applying the Handy-Whitman lodex of replaang property, plant, and equipment, the Company Public UtJlity Construction Costs (HWl) to the cost of believes, based on past expenences, that it will be the surviving plant by year of acquisition. Land and allowed to earn the increased cost of its net insestment certain other plant assets that are not included in the when replacement of faalities actually occurs. HWI were converted usrng the Consumer Pnce Index To properly reflect the economics of rate regulation for all Urban Consumers (CPI-U). in the Statement of locome from Operations presented The current year's deprecation expense on the current above. the adjustment of net property, plant, and cost amounts of property. plant. and equipment was equi 7 nent to net recoverable cost is adjusted by the determined by app:ying the Company's deprecation gain from the dedine in purchasing power of net rates to the indexed amounts. amounts owed Dunng a penod of inflation. holders Fuel insentones and the cost of fuel used in generation of monetary assets suffer a loss of general purchasing have not been restated from their histoncal cost in power while holders of monetary liabifeties expenence nominal dollars. Regulation lim:ts the recovery of fuel a ga.n. The gain from the decline in purchasing power costs to actual costs incurred through the operation of net amounts owed is pnmanfy attributable to the of adjustment clauses or adjustments in basic rate substantial amount of debt which has been used to schedules. For this reason. fuel intentones are effectiwly finance property, plant, and equipment. Since the monetary assets. deprecation on this plant is limited to the recovery of As prescnbed in Statement of Finanaal Accounting histoncal costs. the Company does not have the Standards No. 33. income taxes were not adjusted. opportunity to realize a holding gain on debt and The regulatory commissions to which the Company is limited to recovery only of the embedded cost is subject allow only the histoncal cost of plant to be of debt capital. recovered in revenues as deprecation. Therefore, the 29

Record of progress 1975-1985 1985 1984 1983 1982 Esumated population served ! 668 000 1.654.000 1.629.000 1.600.000 Electnc customers-year end Residenoal 49986 495.416 487.148 478.360 Commercial 5/ 49 55.838 53.812 52.001 Industnal / 0/3 7.342 7.503 6.618 Other 3 76/ 3.677 3.562 3.408 Total electnc customers W 814 562.273 552.025 540.387 Electnc operaung rewnues (S000) ResedenDal 5 41! /48 5 404.752 5 358.810 5 364.005 Commercial ' //6 91/ 215.444 186.822 182.981 Industnzi 5/8 m 562.088 529.649 574.060 Other 9/ / ;6 63.375 69.432 74.537 Total electnc operating revenues 5: 159 //0 51.245.659 51.144.743 S t.195.583 KWH sales (millrons) Residential 6 981 6.630 6.274 6.429 Commercial 3 708 3.410 3.168 3.130 industnal i/ 468 12.168 11.491 12.997 Other !3/9 1.082 1.305 1.385 Total Sales /4 486 23.290 22.238 23.H I Residental customer data Average annual use - KWH I4 O! 4 13.479 12.996 13.545 Average annual revenue per KWH 5 90< 6.10a 5.72( 566C 30 commeraal customer data Average annual use - KWH 65451 62.039 59.88'2 60.900 Average annual revenue per KWH 6 1/" 6.32( 5.90( 5 854 Peak System demand (MW) 43% 4.200 4207 4.259 System input (KWH in millions) Generanon 16 4/8 14.100 12.922 14.540 Purchased power 9 //0 10.419 10.662 10.567 Total system input 15./18 24.519 23.584 25.107 Fuel cost for generation (S000) 5 3/4 /59 5 379.924 5 349.5 % 5 387.710 Generaung capabelery (MW) 5665 4.605 4.618 4.625 Heat rate - 8TU Per KWH generated 10 /E i 10.649 10.793 10.800 Operaong sncome (5000) 5 184 4I/ 5 206.724 5 172.454 5 187,336 Net income (5000) s

4' 569 5 201.01l' S 131,546 5 117.458 Gross electric plant (S000) 54 4 49 4W S4.116,786 53.688 148 53.131.461 Total assets (5000) 54 094 M 53.849.138 53.565.316 53.602.112 Caprtalizaton (S000)

Long-term debt 514/00/8 51.471.855 51.173.453 5 947.5 % Preferred stock, with sinking fund / /8 4/ i 284.501 240.951 169.101 Preferred stock, without sinking fund M 5 881 145.882 145.882 145.882 Common equity 959 V4 855.857 778.798 649.881 Total capitalization V 85 ! 90 / 52.758.095 $2.339.084 51.912.460 Employees - year end / 998 2.973 2.756 2.721

Net encome for 1984 includes the cumulatrve effect to January 1.1984 of accru!ng unbilled revenues in the amount of $17,626 thousand after income taxes.

,-.;:-.....u-- ( -- 1981 1980 1979 1978 1977 1976 1975 1.585.000 1.553 000 1.509.000 1.455 000 1.345.000 1.301.000 I250.000 469.998 457.191 443.527 427.938 39'1479 384 213 366242 50.574 48.617 46.848 44.881 40.096 38.632 36.166 6.655 6.846 7.162 7.518 7.651 6.586 5 824 3.352 3.250 3 173 3 014 2.770 2.6 34 24% 530.579 515.901 500.710 483.384 445.996 432.065 410.728 5 341.555 5 265.080 S 180.3M $ 146.326 5 124.500 $ 93.712 5 87.819 iM 653 123.656 85.983 68.328 55.398 42.505 39.789 525.349 358.177 212.853 141.803 114.874 77278 64.386 86 201 106 610 78 276 99.918 84.179 I17.782 72850 51.117.761 5 853.523 5 557.476 5 456.375 5 378.951 5 331 277 5 264.844 6.405 6.398 5.996 5.862 5.334 4.597 4.34 6 3.016 2.876 2.721 2.624 2.268 1.%5 f.852 13.067 11.963 I I.388 9.685 9.028 8.068 6.600 1.664 2.708 3.14 7 4.541 4.322 6.921 6.359 24,152 23.945 23.252 21.712 20 952 21 551 19] 13.791 14.177 13.758 14 063 13.680 12.328 12.028 5 334 4 14( 3014 2.50< 2 334 2 014 2 02( 31 60 669 60.129 59.363 60.498 57.502 53.115 51.910 5464 4 304 3 164 2 604 2.444 2164 2 154 4.256 4.078 4.091 3.852 3.515 3.180 2.883 15.471 16.440 18.429 21251 20.201 21.541 18.931 9.745 8.670 5.860 2.799 1.901 1.077 1.154 25216 25 110 24289 24.050 22.105 22 618 10.085 5 356.786 S 296.820 5 190.226 5 168,117 5 141236 5 135.211 5 85.134 4.625 4.625 4.612 4.603 4.447 4.392 4.34 6 10.681 10.753 10.625 10.185 10202 10.036 10.198 5 167.224 5 131018 5 88.067 5 79.659 5 69.010 $ 63.617 5 64.663 $ 124.469 5 100.676 5 65.I29 $ 53.744 5 44.406 5 39.227 5 43.695 S2.634.000 52.319246 52.069.106 51.792.952 S I.509.785 51.309.439 S t.172.911 S2.330201 52.0/8.445 $ 1.842.365 51.557.157 51.298.751 51.158 262 51.051.242 S t.00120o S 828.989 5 827.430 5 728.748 5 566.315 5 575.809 5 519.088 121.381 111.381 92.9'X) 145 882 145.882 145.882 110 809 110.809 80.776 80.776 615.895 564 109 487.441 417.192 363.763 332.725 307.361 51.884.367 51 660.36i $1.553 743 51.256 749 5 idio 887 S 989.310 $ 907.125 2.499 2.34 2 2.329 2 216 2.129

2. I I 8 2.101

DIRECTORS E JAMES M. CAIN H. DUKE SHACKELFORD ^ President of the Company Agncultural Interests President WM. CLIFFORD SMITH ^ New Orleans Pubhc Service Inc. President TEX R. KILPATRICK a T Baker Smith & Son President JACK M. WYATT Central American Former Chairman of the Board and Chief Life Insurance Company Executive Officer of the Company JOSEPH J. KREBS. JR.a (Retired August 1,1983) Chairman of the Board J. J. Krebs & Sons. Inc.

Members of Audit Committee FLOYD W. LEWIS'

" Retired effectrve December I,1985. Retired Cha:rman and President c Elected effective January 7 1986, Middie South Utihties. Inc. subject to FERC approval. EDWIN A. LUP8ERGER' Chairman and President Middle South Utihties. Inc. OFFICERS JAMES M. CAIN J. J. McCLO5 KEY, JR. President Mce President - Drvision Manager G. D. McLENDON L V MAURIN Executive Mce President Vice President - Fossil Operations D. L ASWELL LEE W. RANDALL Senior Vice President - Energy Supply-Fossil Vice President - Accounting & Treasury 32 J. J. CORDARO C. C. SMITH Senior Vice President - External Affairs Vice President - Divis:on Manager J. H. ERWIN, JR. ' W. H. TALBOT Senior Mce President and Consultant Mce President - Assistant to the President and Secretary MALCOLM L HURSTELL R.J. ABADIE Senior Vice President - Energy Delivery Controller R. 5. I EDDICK J. C. ALACK Senior Vice President - Nuclear Operations Assistant Controller MALCOLM H. McLETCHlE T. W. BOATRiGHT Senior Vice President - Accounting & Finance, and Treasurer Assistant Controller RICHARD L MURLOWSKI R. N. GARRETT, JR. Senior Vice President - Administration & Services Assistant Controller WILLIAM C. NELSON > N. J. BRILEY Senior Vice President - Administration & Services Assistant Secretary D. E. KNOWLES, JR. '

5. E OHLMEYER Group Vice President - Division Operations Assistant Treasurer J. J. SAACKS E. A. LUPBERGER

Group Vice President - Division Operations Asustant Secretary & Assistant Treasurer JOHN H. CHAVANNE '

R. DRAKE KEITH Mce President - Corporate Control and Assistant Secretary Assistant Secretary & Assistant Treasurer J. O. CIPRIANO R. J. ESTRADA ' Vice Presidert - Division Manager Assistant Secretary & Assistant Treasurer

5. G. CUNNINGHAM, JR.

Vice President - Rates & Regulatory Affairs NOTE: ' Retired effective 6/l/85. G. E DELERY r Retired effective 1/l/86. Vice President - Consumer Services ' Resigned effective 3/18/85. THOMAS O. LIND

Resigned effective 1/7/86.

Vice President - Regulatory Counsel. and Assistant Secretary Resigned effective 2/25/85

AREA SERVED BY LP&L l Louisiana Power & Light Company operates in 46 of the 64 parishes of Loutstana - a 19.504 square-mile area wtlich, as of Decemtrr 31 1985. had an estimated populatiori of 1.668.000. At year +nd 1985 LP&L was serving approximately 42% of Louisiana's population. The area sersed by LP&L includes rrost of North Louisiarn a smal1 portion of East Central Louissaru and most of Southeastern Louisiana, including the metropokpa area around the City of New Orleans and the 15th Ward in the City of New Orleans. LP&L's system is part of, and is inter-connected with. the other operating comparues of the Middle South Utilities System This arrange-ment provides more depend-able electric service for I customers. and also results in the greatest economy in the generation of electnc i power. with resultant savings to customers. i GENERAL OFFICE TRANSFER AGENT FOR 142 Delaronde Street PREFERRED STOCK P O. Box 6008 Fidata Trust Company New York New Orleans. Louisiana 70174 67 Broad Street (504) 366-2345 New York. New York 10004 REGISTRAR FOR PREFERRED STOCK TRUSTEE FOR Harris Trust Company of New York FIRST MORTGAGr BONDS Ninth Floor MlOOLE SOUTH Bank of Montreal Trust Cornpany 110 Wilham Street UTILITIES SYSTEM Two Wall Street New York. New York 10038 New York. New York 10005 R.* > Ce m M.wres, Retreat Hrxre at Conwnt m tre Mwwrp Prwr

+

ys _ /,.

- ~. -

.m. -e _. -. ___. j ...2.., _ _.. T T. __;2 ..q.; aRRK EMMEER uW w :n n ~ t.; 7 m, 7 sw ,a .~4 -u. 3 :c., m.m : . j$ h'. k ** '~.*{ 'l? l ,. 3 4 4p rm: ~:.qy u. em w

~a.,.

-m : : n ~5,l 3 ' 5:*t f. n $ml;f.3U',c.&,,n..=7=.bc.,; ' M,.a' %, Jiw w<Q.S . %. ;~.,;cs,&&2li:= M.4..; 4: l:..,m ne n r %U'vy.~i,. d.==. u 5 5-- 'n s. 7 lv*t*M7, ~ .e a.2, - T' A $$x$$5b'$.;a '.Y Y.;b? Y &$f.. .,z . k p.-p q,, .w n.

yf f,' ;.

. Wgr;+;z,.;;7y _..,eq5g_gny nqtgg .2 9 va r n y +n y n.

.5 7 w.. e

. s,y <, ~w w. L w YIW,.,. c,,. j-w:..m. ~ h ! p h4. s ',, 2,5_ g.kN &,...,.. n. N s,.,.,,,, a.,hkh.Nb.de.h,kU23I.f n ,.y ~ ..c. A ~E f y +? g ? %CJ.. y :a W@Z%i.*q!'n:.9 h IIh.h h' t 4 ' 2 ...w i . *.. M.,

r. ~s.

u -.....m ..m

s. m..

d. */_."....,......v

..A. BULK RATE U.S. POSTAGE PAID LOUISIANA Permit No. 540 POWE A & LIGHT New Orleans. IA MIDDLE SOUTH UTIUTIES SYSTEM l P.O. Box 6008 l New Orleans, Louisiana 70174 l i Return Requested ,}}

ML20203C886

Text

SUMMARY

SUMMARY

Navigation menu

Search