ML20203C911
| ML20203C911 | |
| Person / Time | |
|---|---|
| Site: | Grand Gulf, Arkansas Nuclear, Waterford, 05000000 |
| Issue date: | 12/31/1985 |
| From: | Lupberger E, Lupberyer E MIDDLE SOUTH UTILITIES, INC. |
| To: | |
| Shared Package | |
| ML20203C857 | List: |
| References | |
| NUDOCS 8604210263 | |
| Download: ML20203C911 (52) | |
Text
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MIDDLE SOUTH UTILITIES, INC. 5
- 1985 ANNUAL REPORT {
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Performance Higaligats
% Increase /
1985 19M (decrease)
Total operating revenues (millions) . . . . . $3,238 53,146 2.9 Total operating expenses (millions) .. . .. . . ... . S2,522 $2,593 (2.7)
Fuel, purchased power, & purchased gas costs (millions) . . .. . . . . .. . . $1,352 51,446 (6.5)
Operating income (millions) ... .. . .. .. . . S 716 5 553 29.5 Allowance for Funds Used During Construction (millions) . . . . . . . . S 364 5 537 (32.1)
Net income before cumulative effect of change in accounting method (millions) . . . . . . S 401 5 491 ( 18.3)
Net income (millions) . . . . . . .. .. .. . S 401 5 508 (21.1)
Rate of return on average common equity . . .. 10.87 % 15.71% (30.8)
Earnings per common share on income before cumulative effect of change in accounting method . . . . . . . S 2.01 5 2.76 (27.2)
Earnings per common share . . . .... . . S 2.01 5 2.86 (29.71 Net utility plant at year-end (billions) . . .. . S 12.1 5 11.4 5.5 Construction expenditures (millions) . . S 876 51.299 (32.5)
Retail electric customers at year-end . .. . . 1,660,190 1,Mt.691 1.1 Retail electric energy sales (million kwh) 51,232 51.138 0.2 System peak load (megawatts) . 10,870 10,456 4.0 Average number of common shares outstanding (thousands) . 199,496 178.084 12.0 l
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l Sources ofRevenue in 1985 Uses ofRevenue in 1985 RI SIDENTIAL-33 5% PURCHAsi D PO% E R -7 I t i UF t-hi th
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INT E Rf sT,OT Ht R FIKID O Electne Rmnur M Gas Revenur {lgGg"l,&;s^~jY," ""U' Note: A description of the Cornpany's businen and the service area naap appear on the irnide back ctwer; abbreviations frequently used in this report appear with irrestr>r Information on page 47.
Chairman's Letter to Stoc1holcers companies have received rate in- dend as so(m as prudently possible, creases needed to enable them to begin and at a level that the Company can recovering their financial stability. Still, sustain, the return of the System to a sound in positioning ourselves for the !
financial condition depends upon. future, htSU will be able to capital- !
= The approval of compensatory rates ize on its strengths. First, with the y, for New Orleans Public Senice Inc. regulatory uncertainties of 1985 signifi-(NOPSI) allowing that company to cantly diminished, the System can look
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meet its financial obligations for ahead without hasing to consider the Grand Gulf I power, as allocated need for major new plant construc-by the Federal Energy Regulatory tion and the rate increases that would
- Commission. inevitably follow. Second, our System
. The ability of the System's operat- has wisely diversified its fuel mis so ing companies to obtain sufficient that it can take advantage of low-cost ;
external financing for rate phase-in nuclear fuel and coal, as well as oil plans, which are designed to soften and gas when economical. Third, our the current ratepayer impact associ- computerized System Operations ated with the new generating units. Center, a sophisticated bulk power
- The future treatment of Grand dispatch facility, will serve our System Gulf 2 by regulatory authorities. well as we enter an era of regional
. The successful refinancing, on rea- bulk movements of economical power.
sonable terms.of hiiddle South Finally, of most importance, we have Energy's interim bank loans. qualified, capable, and enthusiastic
. The potential effect of certain pro- personnel at every level of our organ-posed revised accounting standards ization and a solid body of loyal that could seriously undermine the investors.
future equity and earnings position As financial stability returns to the of certain of our companies. System, these strengths will sene as To Our Stockholders: We urge you to read hianagement's a sound foundation for future achieve-Financial Discussion and Analysis, ments. It is my firm belief that.
For Aliddle South Utilities,Inc.
having been tempered by the trials beginning on page 13, and other (h15U) and its stockholders,1983 was of 1985, we are emerging with greater Probably the most difficult year in th on these and other issues, including strength and resilience for the Company s history. But it also was a .
challenges aheatg.
information on appeals filed in con.
time for a new beginning. I salute the 13.M) employees who nection with recent rate orders.
hianagement is keenly aware of the are bringing h1SU through these trou-hardships borne by stockholders as a The market price of h1SU,s com-bled times. They are the backbone result of these troubled times. We mon stock, particularly m the third of a new beginning for our System.
regret your loss of income when it quarter of 1983, reflected both our Special recognition goes to Floyd became necessary to omit the com. omission of dividends and the uncer- W. Lewis, N15U's former chairman and mon stock dividend and any finan. tainty of future deselopments. To put president, w ho retired on December 1, cial damage associated with the it bluntly, hiiddle South lost some of 1985. During his 36 years of loyal its traditional favor with investors. But, resulting fluctuations in the market service in the N15U System, he be-with Waterford 3 and Grand Gulf I came nationally recognized as an value of }our investment-A combination of unusual events in commercial operation-and the.ir adversely affected h15U's financial costs largely reflected in the rates p; ; j condition in 1985 (see chronology on within our operating jurisdictions-we holders is deeply appreciated. It I believe investors are beginning to take pages 2 and 3). Foremost among them ould be rewarded as this new begin- I was the fact that we were not granted a more positive view of htSU. ,
We are completely committed in j timely and adequate rate increases to recover the costs of building two our efforts to maximize the value of Sincerely, j j
new generating units placed in com- your investment in h15U through share mercial senice during the year: Grand price appreciation and dividend in- ^7 ~ l Gulf I and Waterford 3. come. hianagement's goal is to again Edwin Lupberger Certain of the System's operating pay a quarterly common stock divi- Chairman / President i
The Year in Review Grand Gulf 1 Settlement Offer Proposed
.[G/lllGl'y The operating companies and Middle South Energy, Inc. filed a compromise plan with the Federal Energy Regulatory Commission (FERC) to settle complex issues surrounding Grand Gulf I.
Reaction to the compromise proposal by other parties was negative.
FERC Judge Offers Grand Gulf 1 Opinion 'I Febnlaiy An administrative iaw judge or ihe FERC. in rendering an iniiiai decision reyaraing ihe System s revised System Agreement, submitted a second recommendation for alkicating the Grand Gulf I nuclear unit. This second recommendation was markedly different from another FERC administrative law judge's alk> cation formula, put forth in 1984.
FERC Orders a Settlement Conference Ala/*C/l Numerous parties appeared before a three-judge panel consened by the FERC to attempt a negotiated settlement of two FERC cases concerning Grand Gulf I. The conference was dismissed by the panel of judges two days later citing irreconcilable differences among the parties.
NOPSI Regulation Returned to New Orleans City Council NIdy Voters in New Orleans elected to return the regulation of New Orleans Public Senice Inc. INOPSh to the New Orleans City Council from the Louisiana Public Service Commission (LPSC).
NOPSI subsequently filed a request with the council to recover through retail rates its costs associated with Grand Gulf 1.
Auditors Find Grand Guli 1 Construction Well Managed
.[ll/16 An independent audit of Grand Gulf 1, ordered by the Miwissippi Public Service Commiwion (MPSC), revealed that the project was well managed,despite the problems that beset the nuclear industry during its construction period. The audit cited the incident at Three Mile Island, increased regulatory requirements, and design evolution as primary causes of cost increases, all of which were beyond the direct control of Mississippi Power & Light Company iMPAL).
Grand Guli 1 Allocation Ordered The FERC ordered the alkication of Grand Gulf I capacity and energy among all four MSU operating subsidiaries. The alh> cation met with heavy criticism from regulators in Arkansas, Mississippi, and New Orleans.
Second Settlement Proposal Offered to Regulators Using the FERC-ordered alh> cation as a basis, the System operating companies made another offer of settlement for Grand Gulf 1 issues with state and kical regulators. This second formal offer of settlement was rejected in all jurisdictions.
n Gn.nd Gulf 1 Goes Commercial
.[ll[y Grand Gulf I entered commercial operation without retail rate relief in any of the jurisdictions.
Quarterly Dividend Omitted AllgllS[ Due to the Company's weakened financial condition, brought on by the System's inability to recover the costs of Grand Gulf I as a legitimate operating expense in all retail jurisdictions, the operating companies
- Iloards of Directors voted to omit the quarterly dividend. Without dividend revenue from the operating companies, the MSU lloard of Directors voted to omit the quarterly dividend normally paid in October to holders of common stock. This was the first omission of a dividend payment to stockholders since the founding of the Company .% years earlier.
2
NOPSI, AP&L, and MP&L Rate Action Taken Early in the month, the New Orleans City Council ordered NOPSI to freeze its generating fuel 86p/CMb6T costs at a level that would allow NOPSI to keep about 528.3 million in fuel savings realized from its allocation of Grand Gulf I over a 10-month period. However, by year-end, this amounted to only about 12 percent of the Grand Gulf I costs NOPSI was obligated to pay in 19M5.
Action on NOPSI's permanent rate request was still pending at year-end.
Arkansas Power & Light Company (AP&L) and the Arkansas Public Service Commission ( APSC) reached a settlement of the rate case in that jurisdiction that will allow AP&L to mover most of the costs associated with Grand Gulf I through a phase-in program. AP&L received a first-year total retail rate increase of approximately $81.3 million for Grand Gulf I and to cover higher costs of general business activities. The phase-in plan includes annual increases in rates through 1991.
The N1PSC granted h1P&L a rate increase allowing an additional 568 million in revenues the first year and increases averaging about 8 percent annually over the next four years.
Grand Gulf 2 Construction Suspended The h1PSC ordered construction suspended on the one-third complete Grand Gulf 2 nuclear unit and ordered the Company to submit a plan on the unit's future by year-end.
W;terford 3 Begins Commercial Operation lxuisiana Power & Light Company (LP&L) placed Waterford 3, Louisiana's first nuclear generating plant, into commercial service.
St-te Court Orders Grand Gulf 1 Increase for LP&L A louisiana state court approved LP&L's fu'l request for a $113.9 million retail rate increase to October recover its costs associated with Grand Gulf 1. The court order was granted after the LPSC twice rejected LP&l's requests for the increase.
LP&L Rate Settlement Reached LP&L accepted a 5215 million first-year rate increase from the LPSC to cover the costs of NOP6Mb6T Waterford 3. The conditional rate settlement also provided for a first-year deferral of approximately
$206 million not included in the increase described above. As part of the settlement, LP&L agreed to absorb 10 percent of the 52.84 billion cost of Waterford 3. With this settlement, all htSU operating company subsidiaries, with the exception of NOPSI, had received sufficient retail rate relief to enable them to meet costs associated with Grand Gulf I and Waterford 3.
Lewis Retires; Lupherger Elected MSU Chairman Following heart bypass surgery in Septemtier,i1 17 W. Lewis retired as chairman and president 06CCMbCT cf the Company after 36 years of service with the N12U System.
I Edwin Lupberger, senior vice president and chief finar,-ial officer, was subsequently elected chairman and president of h1iddle South Utilities,Inc. by the Board of Directors.
Grand Guli 2 Construction IIalted The htSU Board of Directors voted to continue full suspension of construction on Grand Gulf 2 and to limit expenditures on the unit to only those activities that are absolutely necessary for demobilization and suspension.
Electricity Usage Ilits All Time Illgh Retail customer use of electricity climbed to an all-time high of 51.2 billion kilowatt-hours in 1985, slightly higher than the 1984 record. Annual peak load, another gauge of customer demand, increased to 10,870 megawatts,4 percent above 1984.
3
Energy to Make Things Happen MSUEnergy Electricity drives modern society. Because it is clean, versatile, and infinitely is Electricity wmrollable, electricity is fast becoming the energy of choice.
Abundant, Instant Energy Middle South customers make that choice, at home and at work, hundreds of times every day. They depend on the resources of the Middle South Utilities (MSU) System for a reliable, instantly accessible supply of electric energy. To ensure this supply and to continue its diversification of fuels, MSU has brought two new nuclear-powered generating units into full commercial operation. We have enough electrical capacity to meet forecasted customer demand well into the 1990s.
Clearly, Middle South Utilities has the energy to make things happen for the future prosperity of our region. But we're also finding ways to use that energy here and now.
To maximize the efficient use of Company resources, the MSU System has reentered the wholesale energy market. We are, in other words, a viable sup-plier of bulk power to utilities that are short of their own economical energy resources. MSU's sales of energy to other utilities rose to 3.6 million megawatt-hours in 1985, a dramatic increase over the previous year.
92,000 Square Miles of Service Area The System's vast transmission and distribution networks bring energy from 66 generating units to customers throughout a 92,000-square-mile service area.
Controlling this flow of energy is a sophisticated operations center, located near the geographic center of the service area, which constantly monitors customer demand and satisfies it with the lowest-cost energy available. This vital service, known as " economic dispatch,"is performed around the clock at the System Operations Center by skilled professionals using computer technology.
Balancing the Energy Mix Since the late 1%0s, one of MSU's major concerns was the System's heavy reli-ance on natural gas and oil as boiler fuels for generating electricity. At that time we began a major construction program to break such dangerous dependence 1 l
' on these fuels, which tend to be unpredictable in price and supply. Low-sulfur coal and domestically produced uranium were seen as the best fuels for new generating units. This decision remains valid; the risky roller coaster of oil
, prices and oil supply shows no signs of slowing down.
l With commercial operation of Grand Gulf I and Waterford 3 nuclee units in
, 1985, the MSU System has accomplished two major goals of its construction program: to build capacity sufficient to meet customer demand and to diversify the System's fuel mix away from overdependence on natural gas and oil.
Reaching these goals was much more costly than originally planned, due to a host of conditions ranging from high inflation to regulatory uncertainties. Still, i
MSU is poised for the future. The Company intends to use its abundant electric-ity to help make good things happen for both its stockholders and customers.
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Energy to Make Things Happen MSUEnergy The financial health of hiiddle South Utilities is rooted in the economic growth is Earnings of our se.wice area. Helping the region develop has to be our highest priority.
New Johs and " Ready Cities" Potential The industries of the hiiddle South region include oil and gas exploration, petrochemicals, steel production, paper and forest products, and others. htSU is committed to helping sustain these industries during hard economic times.
Our operating companies are all active in the economic development of their particular service areas. hiississippi Power & Light's " Energy Plus" program prom-ises to bring 14,000 new jobs to its service area by the end of 1990. Louisiana Power & Light is working with Louisiana's " Ready Cities" program, which has already certified 11 cities for attracting new industries and businesses. An Arkan-sas Power & Light program offers special rate contracts to encourage the initia-tion and expansion of industry within its sersice area. New Orleans Public Service Inc. is working with the City of New Orleans to ettract new and expanding businesses to the New Orleans area. NOPSI has aim proposed the development of special commercial and industrial rate schedules *o promote new business development.
In 1985, these industrial development programs helped bring 217 new or expanded industries to the h1iddle South System. These industries will create approximately 7,700 new jobs and generate en estimated electricity demand of 141,000 kilowatts.
The System's 185,000 comm cdal customers include hospitals, educational and governmental facilities, office buildings, hotels, restaurants, and retailers. Our commercial marketing programs, addressed to architects and engineers, pro-mote cost-efficient electrical equipment in new, non-residential construction.
What all the numbers add up to is a healthy contribution toward local eco-nomic growth and an expanding market for electricity sales.
Electrification of the Middle South The number of h1SU customers is increasing. So is their preference for electric-ity versus other energy options.
Electric furnaces and other electric processes are replacing less efficient fossil- ,
fuel facilities in steel mills and plastic molding facilities. Electric-powered robots have increased industrial productivity and improved quality control. Electronic inspection systems have replaced manual inspections in grocery and variety store check-outs. Employees enjoy comfortable working conditions by using modern electrical systems that control indoor temperature, humidity, and lighting.
In the home, electric heat pumps offer a clean, competitively priced alternative to fossil-fuel heating systems. Icondnued on roue N l
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Incorawd ec<nunnic development <>t the .\ liddle S<>uth wrvice area is a prirne objective <>t .\lSI
- and as operating c<nnpanies. l'inurann are either in place or planned for attractine nen cuaromen and tror uirnulatine the uron th of ctistme cust<anen. such as AlA T lelet;pe t '<nprauti<m l
ra hiuh-tech t <nnpany wrved by Al'A l.1: the antchelium lhon ton nhouw ta Natche:. .\linturppi. tournt attraction wr t ed by .\ll'A i 1: and the Nen thlearn ('< ntral flusmen ()istrict 7 l
Energy to Make Things Happen MSUEnergy Record Electricity Sales is Earnings Customer Browth and electrification are helping boost System sales.
POlent[a/ Despite sluggish economic activity in some of the region's primary industries, (Continued other economic growth spurred the hiiddle South System's retail customers to hom rage 6> set a record for electricity use in 1985. The System was called on to provide 51.2 billion kilowatt-hours of electric energy; the System has enjoyed record retail sales for two consecutive years.
Peak load, the single one-hour highest level of customer demand served during the year, rose to 10,870 megawatts-4 percent more than 1984's peak and 1 percent in excess of the System's 1985 peak forecast. Peak load is a key factor in planning System generating capacity.
Education Means Growth There's more than one way to enlarge a region's economic base. Middle South is establishing programs to enhance education and technical training. The goal is a well-trained work force that will stimulate business expansion. For when the region's business activity grows, the framework will be in place for Middle South to move forward financially.
Such an aid program is feasible now that Middle South's construction has abated.
Moreover, recently approved rate increases-stemming from the commercial operation of new generating units-will provide needed cash income. This will in turn improve the quality of the Company's earnings and hasten the day when a dividend can again be paid to stockholders.
One of MSU's financial goals is to attain a fully compensatory return on com-mon equity (the return in 1985 was a substandard 10.9 percent). To achieve this and other objectives, the Company is dead serious about maximizing efficiency and minimizing costs.
Our mission is clear. By assisting the region's economic development, we are restoring the Company's own financial vitality. Together, we look ahead to a bright future with renewed earnings potential to benefit stockholders and custom-ers alike.
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A variety of businesses are custorners of SISU opemting companies:
electrically woven hats are inspected at the International Hat Co.: electricity powers nemtion equipinent used in corntnercial catfi.sh farining: Bayou Steel i
uses electric arefurnaces in the sinetting andfinishing of recycled steel; and a technician at SFE Technologies separates ceramic capacitor chips forfiring in an electric kiln.
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Energy to Make Things Happen MSUEnergy MSu S Breatest resource is the expertise and training of its 13,000 employees.
These people put forth an energy not unlike the Company's chief product-is ExI>ertise electricity. They are the driving force behind MSU's commitment to excellence and efficiency.
Employees at alllevels of the htSU System have taken advantage of an abun-dtmee of training programs offered in a cooperative effort by the System companies.
These in-house programs have proven to be a cost-effective way to improve employee productivity.
Technical programs include on-site training for a Bachelor of Science degree in Nuclear Industrial Operations. Both Arkansas Power & Light and Mississippi Power & Light have their own multimillion-dollar control room simulators to train nuclear operators, and Louisiana Power & Light will have one in operation by late 1986.
Better Power Plant Productivity The Company's strategic planning process is paying off with projects like our Power Plant Productivity Improvement Program. A pacesetter,it willimprove overall power plant productivity through increased plant availability. decreased heat rates, and reduced operation and maintenance expenses.
MSU has also developed and is now testing a new generation, state-of-the-art computerized Customer Information System, which will meet the operating l companies' needs in customer service, billing, accounts receivable, and credit and collection. Significant savings and improved customer service will be real-ized from these and similar programs.
Our People Are Experts Middle South System employees have the kind of expertise that outside firms will pay for. In fact, the MSU subsid:ary Electec markets their expertise world-wide in three business areas: information management, training, and engineer-ing and technical services.
The future strength of Middle South Utilities is in the hands of sery capable people.
Their dedication to a soundly managed business enterprise, which benefits both shareholders and customers, is the essence of Middle South's " people power."
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.Uiddle South Utilitics. Inc. is the expert se i and enterprise ofits employees.
Pictured are AP&L linernen: MP&L nuclear operators: .USS personnel proleuionah; and LPAL consumer service representatives auisting a developer '
of totalelectric homes.
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- ~, . ~ , v. l. .; ?. frw . 'c ---: ,. . 'J,,..+ ,'. " .i - .: .. 2. 4 . r ..v . .. ' ., v. g Alemhen of the \1\{ ' Hoani of ihrecton at cear-end l'M are Inom lett r upper letn Robert 1) Puuh I Jn m 1 upberver and \\ m ( httorJ .8mah.
~
tupper nehn I rank G hmah ll I) uke \hackeltoni amilim J M lcn n ilon er h in Jer n I. Alauhlen ihoobc II I)nncan and lames \1(am tio n er nuht 8tamhnui Kanvaster Hodecs h and John A ( noper h and isunnui Maber Mashmuton and I cRm l' l'en i HoarJ \lenmer I)onald ( l utken n as not prewin 12
Management's Financial Discussion and Analysis Financial Condition its request for such rate relief con- from having the requisite funds to The Middle South System's financial tinues to be strongly contested. (See provide common stock equity to MSE condition weakened considerably Note 2 to the Consolidated Financial or those System operating companies during 1985 as a result of completing Statements " Rate and Regulatory needing such funds.
Statters") The financial stability of AP&L .ind and placing in commercial operation in siew of the deterioration of their AtP&L has been restored while LP&L two major nuclear units without the financial condition following com. has begun recovering its financial concurrent receipt of adequate rate mercial operation of Grand Gulf I stability as the iesult of Grand relief. Ilowever, by year-end 1985, Gulf I and,in LP&Cs case, Water-the regulatory uncertainties facing anu related liquidity problems stemming from state and local ford 3 rate orders adopted by their the System had been significantly regulators' delays in approving rate respective regulatory commissions.
diminished as rate orders were However, the future 6nancial condition received in late 1985 which should increases, as well as the disallowance of portions of AP&L's and LP&Cs of these companies depends on their perrait certain of the System operating retail rate requests, the Ssstem ability to externally fmance portions companies to recover their financial operating companies determined not of the substantial cost deferrals re-stability. NOl'SI remains the only to declare third and fourth quarter sultmg from these rate orders, and on System operating company not to disidends for 1985 and first quarter the continued effectiveness of these receive adequate rate relief and its rate orders, certain of w hich are being financial condition is critical. disidends for 1986 on their common stock. As a result. NISU was unable challenged. Certain existing restrie-Unit No.1 of the Grand Gulf nons, as discussed under Liquidity Station (Grand Gulf Ii was placed in to declare its own common stock dividend for the third and fourth and Capital Resources, are affecting commercial operation on July 1,1933 certam of the System operating without concurrent retail rate relief. quarters of 1985 and the first quarter of 1986. In addition, preferred stock companies' ability to effect external Such rate relief was needed by the dividends have not been declared by financing. NOPSI, as the result of, System operating companies t'o offset contmuing delays encountered ,in its their payments to A1SE for the LP&L for the fourth quarter of 1985 and by NOPSI for the fourth quarter purchase of Grand Gulf I capacity and energy. In addition, Unit No. 3 of 1985 and first quarter of 1986. f', randa eiitical IS facing Gulf cash I retail rate procee problem.
of the Waterford Steam Electric Further, NOPSI is in arrears on a githout adequate rate relief for Grand Gulf 1. NOPSI currently pro-Generating Station (Waterford 3) portion of its 1986 preferred stock sinking fund pay ment. Such arrearages jects that at some time during the entered commercial operation on first half of 1986 it would be m the, September 24.1985 without LP&L in preferred stock dividends and,in NOPSI's case, preferred stock sinking position of not being able to meet its receiving concurrent rate relief. Payment for capacity and energy from i
Allowance for Funds Used During funds must be paid before LP&L and Construction ( AFUDC), a major NOPSI can pay dividends on their (,' rand Gulf 1. !See Note 8 to the l
common stock. htSE likewise has not Gmsolidated Emaneijd Statements -
component of earnings in recent "C,ommitments and Contingencies -
years, ceased accruing on Grand Gulf declared a common stock dividend because of limit . ions under its bank Potential Debt Acceleration and ,
I and Waterford 3 upon commercial Viability of the Middle South System. )
operation, and also ceased accruing loan agreements. The amount of divi.
on Unit No. 2 of the Grand Gulf dends on common stock that SISU can liquidity and Capital Resources Station (Grand Gulf 2) as a result of expect to receise in the future will be During the period 1983 to 1985, the a September 18,1985 order from the contingent on the future earnings of Sliddle South System had construction Alississippi Public Service Commission the System operating companies and expenditures totating $3.6 billion.
(MPSC). The resultant financial stress MSE, limitations in MSE's financing including AFUDC of $1.3 billion.
experienced by the Middle South agreements, the aoility of LP&L and Approximately 68 percent of the System was eased during the latter NOPSI to make up arrearages m above total construction expendi-months of 1985 as Grand Gulf 1 retail certam payments with respect to their tures were funded through external rate increases became effectise for preferred stocks, and NOPSI's legal financings. The commercial operation AP&L and MP&L in September 1985 ability to pay dividends. of Grand Gulf I and Waterford 3 and for LP&L in October 1985. In MSU is the sole source of common during 1985 has lessened the heavy November 1985, LP&L accepted an stock equity for MSE a'nd the System financial burden experienced by the interim rate settlement proposal in operating companies. Lack of Middle South System in recent years connection with its Waterford 3 rate common stock dividends from its resulting from construction of request. LP&l's request for a per- subsidiaries, together with the these unitr, in addition. MSE has manent rate increase remains pending continuing suspension of MSU's determined to continue with full before its public service commission. offerings of additional shares of suspension of construction of Giand Moreover NOPSI, with respect to its its common stock under various Gulf 2. (See Note 8 to the Consoli-Grand Gulf I obligations, has not pmgrams, will strain MSU's financial dated Financial Statements -
yet receised adequate rate relief and resources and could present MSU " Commitments and Contingencies -
13
I Management's Financial Discussion and Analysis Operating Revenues and Expenses Grand Gulf 2"i Reflecting these in addition, a decision to cancel sinion ofoona, events, the total System construction Grand Gulf 2 and the related ae-35 expenditures tincluding AFUDCl for counting treatment in w holesale and 1956,10M7, and 1988 are estimated retail rate proceedings could increase 3.o to be $422.1 million,5463.2 million, capital requirements and could ad-p 4
and $463.2 million, respectisely. sersely affect the N1iddle South 23 . H _
System. (See Lte M to the Con-Sienificant additional capital re.
2o_ _ _
j _.. _
quirements, estimated to aggregate [olidated Financial Statements-
, $1.457.3 million through 19hM, will re. Commitments and Contingencies-sult from the need to finance rate Grand Gulf 23 1.5 "
-f/ ---- -- - .-
moderation plans in connection with The mortgage and charter coverage to - -
Grand Gulf I-related costs for AP&L ratios of the System operating l t and N! PAL and Waterford 3 costs for companies hmit the amounts of 0.5 " -
additiona first mortgage lxinds and
[ - p g
m p3g
" ' preferred stock that they may iwue o moderation plan in a rate application 1980 1981 1982 i983 1981 1985 currently pending before the New to finance their construction programs a maio eranng r Resenues Orleans City Council tCouncil) with and other capital requirements. Ilased a wai o eranns r Eirense*
respect to its Grand Gulf I-related on these ratnw at kember 31,19M3 E Fuct and Purchased hmer cosh APAL and N1 PAL could have iwued relief in the immediate future and its "" "FFICF"IC "I approximately 5673 recently filed rate moderation pro _ million of additional first mortgage posal is appros ed. NOPSI would lxinds (plus any bonds swued for Comparison ofConstmetion ..
refunding purposes), subject to the Expenditures, Allowancefor Funds huse additional capital requirements , g Used During Constmetion and of approsimately 52lb.4 milh_on through 19X8 awuming an annual interest rate of Rate Deferrals 12 percent. Ilowever, these two viniom ofoonan in addition, during the period companies only had sufficient un-isco -- - - - - - - - -
19X6-1958, the Niiddle South System funded lxmdable property available
, will require capital funds of apprmi- at December 31,19X5 to issue an i;5o _ __ r _ mately 51,757 million to retire or to aggregate of approximately $434 m refinance debt, to meet long-term debt r _
million in first mortgage lxinds. LP&L iu _ ~ _
y _
sinking fund requirements, and to and NOPSI were precluded from
- D, -
meet preferred stock sinking fund issuing any additional first mortgage 750 -u . ( 3 requirements, f mally, credit h,nes in bonds tescept for refundmg purposes).
"r !
, r the amount of $73 milhon and $3N) At December 31,19X5, the earnings 500 -
million will terminate in 1986 and coserages of APAL, LPAL and NOPSI 19X7, respectisely,in connection with were sut h that they were precluded 250 - p --
nuclear fuel leases. ISee Note 9 to the from iwuing additio'nal preferred stock
~g g Consolidated Financial Statements - while N1P&L could hase iwued pre-i977 78 79 80 si 82 83 84 85 w leaseQ Unlew the present credit ferred stock of approximately 575 lines are estended or new lines are million, awuming a preferred disidend
[ [f"y ""n Expendaurci m Middle M l} pyg C3 Rate Deferrals %'eu%
require a (dditional capital funds %
South'NSpm gagwillg additional first mortgage lunds and
$Uj,WCCCf;M;* The capital requirements of the preferred stock which can be iwued w** System operating companies noted by the System operating companies abme may varv in the esent of IlI in the future are contingent upon modification oi the allocation of earnings, the amount of unfunded Grand Gulf I power in the Federal lendable property available to support Energy itegulatory Commiwion's the iwuance of additional first mort-1FERC) June 13,1985 decision, as a page bonds, and,in NOPSI's case, the result of appeals that hase been or ability to obtain adequatt rate relief.
may be filed or 12) nuxlification of in addition to the mortgage and the i El(C's allocation of other energy charter restrictions discuwed abose, emts under the New System Agree- the ability of sarious System com-ment, also decided June 13,1985, with panies to obtain esternal financing respect to which applications for in the third and early part of the fourth rehearing hase been denied but each quarters of 1985 was curtailed due to of which may be the subject of litiga- uncertainties as to retail rate relief.
tion and dispute for a number of years. APAL. LPAL and N1 'AL espect to 14
complete their external financings on 15A13,7M shares of its common stock Electricitr Genemtion br Fuct Trpe '
a timely basis while other System for proceeds of approximately $209 gfeg.att-/mur# ~
companies may be delayed in their million through a public offering, the
^ 2" *
- 8" '*
external financings due to uncer- dividend reinsestment plan, the em-tainties as to rate relief. Further, ployee savings plan, and the ntinu-985 NOPSI's ability to sell its ecurities is ous' offering program. Ilo, . er, all dependent upon NOPSI's obtaining further sales of common stock by the - - -
- ,q
- _. . J the requisite approvals from the Company. including sales through the . . .._ . . . . . . ,
Council, which cannot be assured. In dividend reinsestment plan and the ~- - --
addition, NOPSI has only a limited employee sasings plan, have been
" 83 -
- 1. - .- E- - - -
amount of unfulded bondable prop- suspended since the Company deter- gg, u
erty to support the issuance of first mined not to declare its regular third mortgage bonds quarter dividend in 19X5. The 393, The System operating companies Company had 523 milhon in borrow- - -- ~~- - -
are currently authorized by the ings outstanding at December 31,1985 ,,
Securities and Exchange Commission under a bank credit agreement which. - ' -
to effect short-term borrowings in an amended as of January 1.19h6 aggregate amount outstanding at any provides for a line of credit of $25 0 0= M od M Nxkar IC] Coat one time of up to 10 percent of cap- million expiring December 31,1986. 3oa r,m ,n ow-,, -ny ,,,-,a italization, sebject to the availability ""'""'""""""
in connection with the Grand Gulf ~ ~ *ad of funds through bank lines and other credit sources. At December 31,1985. Station, the C,ompany has undertaken AP&L and LP&L had lines of credit to pryude or cause to be pmuded to
s eqmty capital at an anmunt at Molesale Electricity Sales to territories aggregating approximatelv A4/ommg Utility Systems leau equal to 33 percent of total 577.7 million and LPAL had non-capitalization.121 to construct and f ,umm., ,f gifo. ,,3,,n territorial bank lines of credit of ap-PI "CC in operation the two units of proximately 580.5 million, all of which the G, rand Gulf Station (31 to proside 4mo - -- - - - - - -
non-territoriallines were fully utilized
~
for pre-operating expenses and interest by LP&L at year-end. At December , _ _ _ _ _ . _ _ .
31,1985. LP&L had $18.7 million charges of NISE,14) to permit the, (
outstanding in short-term borrowings C""'I"""'I"" "I C"* *C'CI"I "PC'"I'"" 30* - -- - - - - '
after commencement thereof, and (5) from territorial banks and had effected 25m -- -
to pay in fuH aH indebtedness for an additional 534.7 million in short- honowed money of M when due. 2mg __ _ __ _ _
term borrowings through the Niiddle ISee Note 8 to the Consolidated South System money pool. MP&L and hnancial StatementWommitments 15m -
NOPSI had no bank lines of credit ,
and Contingencies--- Potential Debt avaihble and thus had no short-term A nation and \ y,bdity of the -
borrowings outstanding at year-end.
Middle South System. ) 5m -
In comparison, et December 31,19M.
For the period 19X6-19hX NISE will r, r, rn the System operating companies had o no existing short-term borrowings require appnnimately $1.608.2 million im 198: 1982 m3 im i985 outstanding under unused bank lines to refinance maturing indebtedness, of credit of $322 million. At December to meet sinking fund obligations, and 31,19X3, outstanding borrowings to finance its other capital require-amounted to 57X million with unused ments. MSE expects to obtain a bank lines of credit of $266 million. significant portion of such funds Current access to additional bank lines through its receipt of payments from of credit is being restricted by the the aHoeation of costs associated with refused of lending institutions to extend Grand Gulf I to the System operating additional credit to certain of the companies under the Unit Power Sales System operating companies. Sub- Agreement. The balance of amounts sequent to year-end, MP&L renegoti- needed by MSE will be obtained from a'ed bank lines of credit totaling 530 external sources. MSE's ability to mi lion with banks in its sersice obtain new funds will depend on a territory. (See Note 4 to the Consoli- number of factors, including the dated Financial Statements " Lines results of related rate proceedings.
of Credit and Related Horrowings") possible SEC limitations on MSE's During 1985, the Company sold external financings. contractual 15
E i
Management's Financial Discussion and Analysis r
e .-
[ restrictions contained in htSE's first reaching commercial operatien in July System Retail Cristomer Electricity r mortgage bond indenture and credit and September, respectively, at which Usage
- agreements, market conditions and time AFUDC ceased. In addition, saff,,, of riio ,,aoy, y credit ratings of h1SE's securities, and NISE has ceased accruing AFUDC i the accounting treatment of its on Grand Gulf 2 as a result of a 52 investment in Grand Gulf 2 should September 18,1985 N1PSC order si - - - -
, it be cancelled. directing suspension of construction so _- . _
i Results of Operations o.n that unit. ,j _.
y . _
^
[ The Aliddle South System's net Earnings per share on htSU ,_ _
common stock were 52.01 for 1985, k-income for 1985 was $401 million, a decrease of approximately $107 down from 52.h6 in 1984 and $2.46 o_ _
_. ] _ _
"- ~' ~' ~
~
t
~ '- -
million, or 21.1 percent, from 19F 3 in 1983. The decline from 1984 re-C, h [ y, (( '
flects the previously mentioned 45 - -- - -
and an increase of approximately $23 ,
5
} million, or 6.1 percent, over 1983. The decrease in net income and a 12 ku, percent increase in the average t decrease from 1984 resulted primarily 2- - - -
I from (1) the effect of Grand Gulf I number of shares outstanding in 1985 i- -_ -
~, _ _ .
I i and Waterford 3 having entered over 1984. o commercial operation without retail Electric operating revenues 1980 1981 1982 1983 1984 1985 _
s rates in place on a timely basis to increased by 5125 million, or 4.2 recover costs associated with these percent,in 1985 co npared to an
=
units.(2) the cessition of accruing increase of $243 million. or 9.0 :
I AFUDC on both units upon com- percent, in 19M. The 1985 increase percent,in 19M. The 1985 increase D mercial operation,(3) the recording was due primarily to sales to non-was due primarily to an increase in
. of provisions for estimated losses as associated utilities resulting from an off-peak contract for the sale of sales to non-associated utilities of December 1985 whereby the System operating companies expensed electricity between certain of the reflecting the above-mentioned I '
1 selected engm, eenng and design costs System operating companies and Gulf contract with Gulf States Utilities. +
E and estimated liabilities associated States Utilities. The large 19M Gas operating revenues decreased with indefinitely delayed future fossil increase was due primarily to an 533 million, or 17.6 percent,in 1985 ;
generating facilities and with certain increase in retail energy sales in 19M compared to a decrease of 57 mdlion, i investments in the S5 stem's fuel over 1983 for all customer classifi. or 3.5 percent,in 19M. The 1985 l
~
E procurement program ISee Note cations. Revenues in 19M benefited decrease was due primarily to recosery
" of lower gas costs through the fuel 13 to the Consolidated Financial from modest rate increases imple.
Statements -Quarterly Results"), mented in late 1983 and early 19M. adjustment clause and a 16.4 percent and (4) the effect of ine'reasing 1984 Energy sales to retail customers in decline in N1CF sales. The 19M net income by $17.6 million as a result 1985 increased slightly oser 1984 to demaw was aM due primarily to of the cumulative effect of a change a new record of 51.2 billion kwh, * "'#'Y I"* " E" " ""' P"I'i UY in accounting method by LP&L to surpassing the previous record set onwt by a 11 percent increase in a recognize non-fuel related revenue in 1984 when retail electric sales NICF sales and a NOPSI rate increase from energy delivered but not yet increased 5.8 percent to 51.1 billion a!mp billed. The 1985 increase over 1983 rewhmented in December 1983. As lower wholesale gas prices, kwh. Weather-sensitive residential _
is due primarily to an increase in sales increa ed 4.2 percent and 3.9 gas pun hawd for reside declined 10.3 j electric operating revenues over the percent, respectively,in 1985 and percent and 15.0 percent, respectively. -
1983 level as a result of (1) increased in 1985 and 19M. s 19M. Sales to commercial customers retail energy sales reflecting the continued to reflect the improvement hiiscellaneous income and dedue-t upswing in economic activity of the in economic activity as evidenced by tions-net for 1985 increased 562 E h1iddle South region and (2) rctail rate increases of 6.8 percent and 7.6 million, or 342.9 percent, over 19M.
increases implemented during late This increase was due primarily to k percent in 1985 and 19M, respectisely.
[ 1983 and early 19M. Industrial sales, which showed a (1) an increase in interest income .
. AFUDC as a percentage of net 6.7 percent increase in 19M, de. on temporary cash investments, --
, income was 91 percent for the year creased 5.7 percent in 1985 as a (2) income associated with the return 1985, lower than the 106 percent in result of the reduction in operations on excess capacity provided by I
1984 and the 113 percent in 1983. at Reynolds Nfetals Company, a large AP&Us Grand Gulf I settlement,(3)
AFUDC decreased from 5537 million aluminum manufacturer. mterest meome associated with the '
h and $426 million in 1984 and 1983 Energy sales to wholes:de customers seulement of APACs 1981 retail rate '
~
' respectively, to $3M million in 1985. increased 3,178 millien kwh, or case, and (4) the gain recognized on _
m This decrease is due priman. 171.5 percent,in 1985 compared to the sale of a gas pipeline system. ;
to Grand Gulf I and Waterford 3 a decreaw of 220 million kwh,or 10.6 Deferred fuel expense decreased :
x 16
~
J I
547 million, or 104.9 percent,in 1985 compared to an increase of $10 issues a new Statement of Financial compared to an increase of $26 million, or 21.5 percent,in 1984. Accounting Standards which amends million, or 137.7 percent, in 1984. The 1985 decrease was due primarily SFAS 71, the h1iddle South System The variability in these amounts is to a reduction in interest rates on companies cannot determine what primaily the result of fluctuations in short-term borrowings. The 1984 will be the specific impact of the deferred fuel costs over time, which increase resulted primarily from final changes,if any. (See Note reflect fluctuations in the cost increased interest rates on short- 8 to the Consolidated Financial of energy and amounts billed to term borrowings. Statements " Commitments and customers of previously deferred Contingencies-Proposed Amend-fuel costs. Other Developments ments to SFAS No. 71")
nE e "i
, Depreciation expense increased $73 5 9 3e em l8, 85 Effect of Inflation million, or 38.0 percent, in 1985 com- Despite the reduced level of in-suspended construction activities pared to an increase of 59 million, or on Grand Gulf 2 and is currently flation in the period 1983-1985, its 5.1 percent, m 1984. The 1985 increase impact on the System's operations in evaluating its position with respect was due primarily to the recording to the completion of the unit. From recent years has been significant.
of additional depreciation expense late 1979 until September 1985, only (See Note 14 to the Consolidated m connection with the commercial Financial Statements "Effect of a limited amount of construction operation of Grand Gulf I and was performed on Grand Gulf 2. Inflation on Operations (UnauditedC)
Waterford 3. .
Summary htSE has now determmed to continue Other operating expenses increased with full suspension of construction During I985, the hiiddle South
$175 million, or 41.5 percent,in 1985 on Grand Gulf 2 until further evalua- System's financial condition was compared to an increase of $76 tions are made, which are estimated adversely affected by the failure million, or 22.1 percent, m 1984. The to be completed sometime in 1986 of regulators to grant timely and sigmficant 1983 increase was due and to limit expenditures to only adequate rate relief with respect to primarily to the previously mentioned those activities which are absolutely Grand Gulf I and Waterford 3. While recordmg of provisions for estimated necessary for demobilization and certain of the System operating losses as of December 1983 associated suspension. companies received rate relief that with mdefinitely delayed future fossil should permit them to recover their gener ting facilities and with certain The Financial Accounting Stand.
financial stability, the return of the investments in the System's fuel ards Board (FASB) has issued an System to a stable fmancial condition procurement program. In addition, Exposure Draft proposing certain amendments to its Statement of depends upon (1) the receipt of the increased cost of labor, materials adequate rate relief by NOPSI to and supplies, and services are reflected Financial Accounting Standards all w that company to meet its Grand in the 1985 and 1984 increases. No. 71 (SFAS 71) which relates Guli 1 obligations and the receipt specifically to public utilities and Totalincome tax expense increased certain other regulated enterprises. f permanent rate relief by LP&L
$84 million, or 115.8 percent,in 1985 The amendments,if adopted as with respect to Waterford 3,(2) the due primarily to an increase in income proposed, would become effective for ability of the System operating _
tax expense and a reduction of income fiscal years beginning after December c mpanies to effect external fi-trx credits recorded by h1SE as a 15,1986 with retroactive application nancing,(3) the rate treatment to be result of the commercial operation ccorded Grand Gulf 2 should it be for prior transactions. The Exposure cancelled,(4) the successful financing of Grand Gulf 1. Total income tax Draft proposes amendments to the r refinancing, n reasonable terms,of expense increased $39 million, or accounting for: (I) the phase-in of AfSE s capital requirements and (5) the 118 percent,in 1984 because the rates associated with the costs of new increase in pre-tax book income was generating plants,(2) abandonments P tential effect of certain proposed revised accounting standards.
gretter than the offsetting increase in of partially completed generating recorded AFUDC. The 1984 increase plants and 0) disallowances of c n also be attributed to income taxes costs associated with newly completed of $16.5 million resulting from the generating plants. The proposed cumulative effect of a change in amendments,if adopted in their recounting method by LP&L. present form, could have a material Interest on long-term debt increased adverse impact on MSU, AP&L, 561 million, or 9.7 percent,in 1985 LP&L, hf P&L and M5E, due to the and $107 million, or 20.2 percent, in revisions proposed in the accounting 1984 primarily because of ir: creased treatment of phase-in plans end plant amounts of long-term debt out- costs. The Middle South System standing. Other interest-net decreased companies are studying the Exposure
$4 million, or 7.1 percent,in 1985 Draft; however, until the FASB 17
1 Consolidated Bolonce Sheets I
&Iiddie South Utilities, Inc. & Subsidiaries l December 31 1985 1984 Assets iln thousands)
Utility Plant (Notes 8,9, and 12):
El c e t ric . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $12,580,087 5 6,258,019 Na t u ral gas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125,189 120,470 Construction work in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,127,370 6.615,424 N u clea r fu el . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 311,092 300.912 Total................................................ 14,143,738 13,294,825 Less - Accumulated depreciation and amortization .............. ___2,080,838 1,856.279 U tility pla n t - net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _12,062,900 11.438.546 Other Property and Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57,964 71.742 Current Assets:
Cash and special deposits (Note 4) . . . . . . . . . . . . . .......... .... 26,419 29.880 Temporary investments - at cost, which approximates market . . . . . 526,293 429.320 Not es receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,585 2,807 Accounts receivable:
Customer (less allowance for doubtful accounts of lin thousands l $4,976 in 1985 and 55.753 in 1984) . . . . . . . . . . . . . 191,837 145.501 Othe ................................................ 34,583 40.662 Accrue : unbilled revenues (Note 1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54,218 36,977 Accumui. ted deferred income taxes (Note 3) . .................. 67,982 10.015 Fuel inventory - at average cost (Note 4) . . . . . . . . . . ............ 119,543 152,780 Materials and supplies - at average cost ........ .............. 79,105 72,382 Rate deferrals (Notes 2 and 8) . . . . . .......................... 23,936 -
Prepayments and other . . . . . ......................... ..... 41,682 49.176 ;
Total............................................... 1,168,183 969.500 ;
Deferred Debits:
Rate deferrals (Notes 2 and 8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 218,808 -
Other . . . . . . . . . . . . . ........................ .......... . _
148,5 % 85.758 Total............................................... 367,404 85,758 Total.............................................. $13,656,451 512,565,546 See Notes to Consoli tated Financial Statements.
18
1985 19M On thousands:
Capitalization and Liabilities Capitalization:
Common stock, $5 par value, authorized 250.000.000 shares; issued and outstanding 2N,581,092 shares in 1985 and 189.167,328 shares in 1984 . . . . . . . . . . . . . . . . . . . . . . . . . . . S 1,022,905 5 945,837 Paid-i n ca pi tal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,567,866 1,435,570 Retained earnings (Note 7) .................................. 1,316,388 1.090,839 Total common shareholders' equity . . . . . . . . . . . . . . . . . . . . . . . . 3,907,159 3,472,246 Subsidiaries' preferred stock (Note 5):
Without sinking fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 330, % 7 330,% 7 With si nking fu nd . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 467,293 476,928 long-term debt (Notes 6 and 8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,680,590 5.865.304 Total............................................... 10,386,009 10.145,445 Other Noncurrent Liabilities (Note 1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53,820 55 m3 Current Liabilities:
Notes payable (Notes 4 and 8):
Banks ................................................. 124,160 10,000 Comme rcial paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125,000 135,000 Other ................................................. 49,135 68,625 Currently maturing long-term debt (Note 6) ......... ........... 609,380 230,507 Accou n ts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 362,498 242.592 Gas contract settlements - liability to 224,728 62,652 customers (Note 11) . . . . . . . . . . . . . . .......................
Deferred fuel cost ......:.................................. 39,045 43.311 Customer deposits . . . . . . . . . . . . . ........................... 62,295 58,2 %
Ta x es acc ru ed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74,160 80,455 '
Int erest acc rued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164,737 208.889 Dividend requirements (Note 5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,%1 104,493 Nuclear refueling reserve (Note 1) . . . . . . . . . . . . . . . . . . . . ........ 6,040 19,lM Other.......................................... ........ 66,855 72.947 Total............................................... 1,943,994 1,336.781 Deferred Credits:
M8,918 435,791 Accumulated deferred income taxes (Note 3) . . . . . . . . . . . . . . . . . . . .
Accumulated deferred investment tax credits (Note 3) . . . . ........ 65,740 70.508 Gas contract settlements - liability to customers (Note 11) . . . . . . . . . 412,323 451,214 Other................................................... 145,647 70 76_4 Total............................................... 1,272,628 1,0]28J277 Commitments and Contingencies (Notes 2,8, and 9)
S13,656 451 512,565,546 Total.......................... ................ ....
19
Statements of Consolidated Income Middle South Utilities, Inc. & Subsidian >:
For the years ended December 31 1985 1984 1983 Operating Revenues: (In thousands)
Elec t ric . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83,084,877 52,959,570 52,716,329 Natural gas . . . . . ............................ 153,582 186.465 193.328 Total.................................... 3,238,459 3.146,035 2,909,657 i Operating Expenses:
Operation:
Fuel for electric generation . . . . . . . . . . . . . . . . . . . . 1,001,373 1,020.280 942,219 P u chased powe r . . . . . . . . . . . . . . . . . . . . . . . . . . . . 230,399 291,129 373,712 Rate deferrals (Notes 2 and 8). . . . . . . . . . . . . . . . . . . (236,676) - -
Gas purchased for resale . . . . . . . . . . . . . . ....... 120,542 134,420 158,186 Deferred fuel and other . . . . . . . . . . . . . . . . . . . ... 593,571 465,713 363,509 Main te na nce . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176,293 161,433 149,453 Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 265,500 192,452 183,171 Taxes other than income taxes . . . . . . . . . . . . . . . . . . 132,759 110,799 104,493 Income taxes (Notes 3 and 12) . . . . . . . . . . . . . . . . . . . 238,647 216 395 164,570 Total..................... .............. 2,522,408 2,592,621 2,439 313 Ope rating Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 716,051 553.414 470.114 Other Income:
Allowance for equity funds used during construction (Note 1) . . . . . . . . . ......... 217,734 301,123 245,640 Miscellaneous income and deductions - net (Note 12) .............................. .. 80,120 18,090 6,799 Income taxes - credit (Notes 3 and 12) ..... ...... 82,166 160.442 131 3 23 Total . . . . ......................... .... 380,020 479,655 383,762 Interests and Other Charges:
Interest on long-term debt . . . . . . . . . . . . . . . . . ..... 697,853 636 390 529,597 Other interest - net . . . . . . . ........ .......... 53,306 57,388 47,251 Allowance for borrowed funds used during construction (Note 1) . . . . . . . . . . . . . . . . . . . . . . . . . (146,680) (235.873) (180,858)
Preferred dividend requirements of subsidiaries (Note 5) . . . . . . . . . . . . . . . . . . . . . . . .. 98,601 84353 80,066 To t a l . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 695,080 542,258 476,056 l Income Refore Cumulative Effect of a Change in Accounting Method . . . . . . . . . . . . . . . . . . . ... 400,991 490,811 378,050 Cumulative Effect to January 1,1984 of Accruing Unbilled Revenues (net of income taxes of $16,548 thousand) (Note 1) . . . . . . . . . . . . . . . . - 17,626 -
Net Income . . . . . . . . . . . . . . . . . . . . . . ............. S 400,991 5 508,437 5 378,050 Earnings Per Average Common Share:
Before cumulative effect of a change in accou nting method . . . . . . . . . . . . . . . . . . . . . . . . . S2.01 $2.76 52.46 Cumulative effect to January 1,1984 of accruing unbilled revenues - net . . . .... ..... -
0.10 -
To t a l . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. S2.01 52.86 $2.46 Dividends Declared Per Common Share . .......... . S0.89 51.75 51.71 Average Number of Common Shares Outstanding . . . . . . . . . . ....................... 199,496,115 178,083,867 153 383,044 See Notes to Consolidated Financial Statements.
20
Statements of Consolidated Retained Ezrnings cnd Paid in C:pital
&Iiddle South Utilities. Inc. & Subsidiaries For the years ended December 31 1985 1984 1983 (In thousand0 Retained Earnings Retained Earnings, January 1 . . . . . . . . . . . . . . . . . . . . . S1,090,839 5 899,979 5 790,487 Add - Net income .......... ....... ........ 400,991 508.437 378.050 To t al . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,491,830 1.408.416 1.168.537 Deduct:
Dividends declared on common stock -
50.89,51.75, and $1.71 per share for 1985,1984, and 1983, 175,128 315.811 266,762 respectively (Notes 7 and 8) . . . . . . . . . . . . . . . . . .
314 ' 766 1,796 Capital stock expenses, etc. . . . . . . . . . ... ......
175,442 31', 477 268.558 Total ...... ...........................
Retained Earnings, December 31 (Note 7) ............ $1316,388 1
51.090,839 5 899.979 Paid.in Capital Pald.In Capital, January 1 . . . . . . . . . . . . .... .... .. Si,435,570 51,271,152 5 994,760 Add:
Excess of net proceeds over par value:
Public sales of common stock:
4,000.000 shares in 1985 . . . . . . . . . . . . . . . . . 36,404 - -
9.200,000 shares in 1984 . . . . . . . ......... - 66,148 -
15,000,000 shares in 1983 . . . . . . . . . . . . . . . . - - 156,531 Common stock issued in connection with:
Continuous offering program:
3,452,000 shares in 1985 . . . . . . . . . . . . . . . . . 30,044 - -
2,931,900 shares in 1984 . . . . . . . . . . . . . ... - 23,361 -
4,868,100 shares in 1983 . . . . . . . . . . . . . . . . . - - 52,388 Dividend reinvestment and stock purchase plan:
7,642,772 shares in 1985 . . . . . . . . . . . . . . . . 62,280 - -
- 67,751 -
10.253.270 shares in 1984 . . . . . . . . . .......
6,475,894 shares in 1983 . . . . . . . . . . . . . . . - - 62,577 Employee savings plan:
318,992 shares in 1985 . . . . . . . . . . . . . . . . . 2,742 - -
539,229 shares in 1984 . . . . . . . . . . . . . . . . . - 4,146 -
404,200 shares in 1983 . . . . . . . . . . . . . . . . . - - 4,308 Employee stock ownership plan:
160.801 shares in 1984. . . . . . ..........
1.246 -
826 1.766 588 Other .. ............................... ..
S1,567,866 511 435,570 51,271,152 Paid.In Capital, December 31 . . . . . . . . . . . . . . . . . . . . . .
See Notes to Conwlidated Financial Statements.
21
Statements of Changes in Consolidated Financi:1 Position Middle South Utilities, Inc. & Subsidiaries For the years ended December 31 1985 1984 1983 1
l'unds Prmid.d Hy: Iln thousand9 l Operations:
Net income (19M4 includes $17.6 million special item l Note I p. 5 400,991 % N)M.437 % 37MJ)so Depreciatkm . . .. . 265,500 192.452 1M3.171 Deferred income t;o s and insestment tas credit adjustments - net. 150,223 50,h67 24,7M7 Alkmance for equ..y funds used during ct nstruction (Note i1. (217,734) (301.1236 1245.M))
Pnwision for losses . 52.707 - -
Total funds pnnided by operations . 651,687 450.633 340.368 Other:
Allowance for equity funds used during construction tNote 11. 217.734 301.123 245.M)
Gas contract settlements (Note Ill. . 186,151 247.526 525.12M Deferred costs relating to SI-Ts fuel acquisition pnigrams . 9,507 7.90M 2M.136 Estimated hability relating to standard coal plant design . 16,790 - -
Decrease in working capit,al' . -
25.5MI 120.945 Miscellaneous - net. . 11,320 7.6A4 -
Total funds pnwided excludmg financmg transactions . 1.093,189 IJW)455 1.260.217 Financing and other transactions:
Common stock . 208,539 278JU9 409.545 Preferred stock . . . -
65JWu) M5just First mortgage htmds . . . . . ... 130,000 625JR K) 320JX X)
Promissory notes and other long-term debt . 446,684 399JN4 6MI .222 Obligations under capital leases . 3,023 4.lM -
Book salue of property sold . -
62k 5.151 Short-term securities - net 156,348 - -
Total funds pnwided by financing and other transactions . 944,594 1.371.965 1.9 R).91 k Total funds prmided . 82.037,783 12.412.420 52.761.135 l'unds Applied To:
Utility plant additions:
Comtruction expenditures for utihty plant . 8 876,473 S t .298.M58 51,453.662 Nuclear iuel . .
10.180 kM.3MM 59 346 Capitalicases . . 4.021 5JWlo -
Total gnws additions (includes alkmance for funds used during construction). . 890,674 1.392.246 1.513f M)M Rate dcferrals (Note 8) . 242,744 - -
Other:
Disidends declared on common stock (Notes 7 and 86. 175,128 315.MII 266.762 Increaw in working capital * . . 38,213 - -
Gas contract settlements (Note 11) . 249,117 20.0lM 59M.651 Refund to retail customers . - -
74.N X)
Deferred costs relating to standard coal plant design . 60,389 - -
Miscellaneous - net. - -
9.996 Total other funds applied. 522,847 335.MN 9M)JNN Financing transactions:
Retirement of promissory notes and other long-term debt . 2983 70 95.149 127,4(N)
Retirement of first mortgage bonds. . 73,600 No.865 110.297 Redemption of preferred stock . 9,848 16.195 7.175 Short term securities - net -
492.136 53.246
'Iotal funds applied to financing transactions 381,518 6M4.345 298.llM Total funds applied . 82,037,783 %2.412.420 %2.761.135
' Increase l Decrease l in Working Capital:
Cash and special deposits . $ 13.461) % M.031 % iM 3726 Receisables . 57,276 5.323 35.431 Fuel inventory . 133,237) 42.704 (36.5 int Other current assets. 17711 33.536 (3JM)5)
Accounts payable . 1119,906) 28.799 t i l .7N))
Deferred fuel cost . 4,266 (47. ton i20,422)
Interest and taxes accrued. , 50,447 151.N)3) (653)32)
Disidend requirements . 63,532 (11.910 115.5251 Other current liabilities . 15.067 I33.252 4.256 l Total . S 38,213 % (25.5811 % (120.945i
- WarLing capitalexcludes temporary investments. rate deferruls and Jeferred income tanes mcluded in currvnt auets. notes payable. currently maturing long-term debt, the gas contract settlements. and &1IWl's 19M refund to retail custwnert See Notes to C4msolidated Financial Statements.
22
N;tcs to Ccnsolid ted Fin:ncisi St: tem:nts Middle South Utsiities. Inc. & Subsidiaries Note 1. expenses, effective January 1,19M, LP&L adopted, in Summary of Significant Accounting Policies h1 arch 19M, a change in accounting method to provide for accrual of the non-fuel portion of estimated unbilled revenues.
A. Principles of Consolidation Unbilled revenues result from energy delivered since thu The accompanying consolidated financial statements period covered by the latest billings to customers.The
" include the accounts of hiiddle South Utilities,Inc. (the cumulative effect of this accounting change as of January 1, Company or h15U) and its direct and indirect subsidiaries, 19M was recorded in h1 arch 19M and increased 19M net Arkansas Power & Light Company ( AP&L), Louisiana income approximately $17.6 million (net of related income
- Power & Light Company (LP&L), hiississippi Power & taxes of 516.5 million). Had this accounting method been in i i_ight Company (h1P&L), New Orleans Public Senice Inc, effect during 1983, conso!idated net income before the (NOPSI), hiiddle South Services, Inc. (htSS), hiiddle cumulative effect would not have been materially different South Energy, Inc. (h1SE), System Fuels, Inc. (SFI), and from that shown in the accompanying financial statements.
I Electec. Inc. The above companies, excluding Electec, 51P&L has a fuel adjustment clause which allows current I inc., are collectively referred to as the System companies recovery of fuel costs. The three other operating subsidiaries utilize a deferral method of accounting for those fuel costs i or the hiiddle South System. All significant intercompany recoverable under fuel adjustment clauses. Under this l transactions have been eliminated except as allowed by Statement of Financial Accounting Standards (SFAS) method, such costs are deferred until the related revenues No. 71. are billed.
The fuel adjustment factor for AP&L eontains an amount C. systems of Accounts for a nuclear reserve estimated to cover the cost of J The accounts of the Company and its senice subsidiary, replacement energy when the nuclear plant is down for
- h1SS, are maintained in accordance with the Public Utility scheduled maintenance and refueling.The reserve bears interest and is used to reduce fuel expense for fuel
[ Holding Company Act of 1935 (Holding Company Act), as administered by the Securities and Exchange Commission adjustment purposes during the shutdown period.
y r (SEC), which has adopted a system of accounts consistent L with the system of accounts prescribed by the Federal D. Utility Plant and Depreciation i Energy Regubtory Commission (FERC). Utility plant is stated at original cost. The cost of The accounts of the operating subsidiaries, AP&L, LP&L, additions to utility plant includes contracted work, direct h1P&L, and NOPSI, are maintained in accordance with the labor and materials, alh> cable overheads, and an allowance
[ systems of accounts prescribed by the applicable regulatory for the composite cost of funds used during construction.
bodies, which systems of accounts substantially conform to The costs of units of property retired are removed from those prescribed by the FERC.The accounts of the generating utility plant and such costs, plus removal costs, less salvage,
[ subsidiary, htSE, are maintained in accordance with the are charged to accumulated depreciation. hiaintenance end
' system of accounts prescribed by the FERC.The accounts repairs of property and replacement of items determined to k of the non-utility subsidiary, Electec,Inc., are maintained in be less than units of property are charged to operating i accordance with the system of accounts prescribed by expenses.
the SEC, Depreciation is computed on the straight-line basis at SFI capitalizes all exploration and development costs rates based on the estimated service lives of the various L related to its exploration activities. These costs are reduced classes of property. Ilowever, depreciation on Unit I of the by profits realized on sales to non-affiliated companies and Grand Gulf Station (Grand Gulf 1) is being computed on F
, are amortized by the units-of-production method in the the units-of-production method for the initial twelve months period in which revenue is recognized on oil and gas of commercial operation (which began July 1,1985) and, p
reserves produced and sold. thereafter, will be computed on the straight-line basis.
r Depreciation rates for Grand Gulf I and for AP&L's nuclear
[ C. Revenues and Fuel Costs station include a provision for nuclear plant decommissioning Three of the operating subsidiaries record electric and costs. Depreciation provisions on average depreciable property 3
gas revenues as billed to their customers on a cycle billing approximated 2.9% in 1985 and 3.3% in 1984 and 1983.
[
- basis. Revenues are not accrued for energy delivered but Substantially all of the System's utility plant is subject to I not yet billed by the end of the fiscal period. Substantially the liens of the subsidiaries
- first mortgage bond indentures.
=
all of the rate schedules of the operating subsidiaries include adjustment clauses under which the cost of fuel E. Postratirement Benefits
{
g used for generation and gas purchased for resale above or The Company and its subsidiaries have various defined
=
below specified base levels is permitted to be billed or postretirement benefit plans covering substantially all of
_ required to be credited to customers. their employees. The policy of the Company and its subsidiaries
_ Prior to January 1,1984. LP&L recognized revenue when has been to fund pension costs accrued, but in certain cases billed.To provide a better matching of LP&l's revenues and in order to conserve cash, pension costs have been funded E 23 p l
Notes to Consolidated Financial Statomonts Afiddle South Utilitia. Inc. & Subsidiaries
=
=
in accordance with contribution guidelines established by On September 18,1985, the h1ississippi Public Service E the Employment Retirement income Security Act of 1974. Commission (N1PSCl ordered htSE and MP&L to suspend R
Other postretirement plan costs are funded as incurred. construction of Grand Gulf 2 as of that date. Concurrent with the suspension of construction of Grand Gulf 2 h1SE k F. income Texes ceased accruing AFUDC on the unit effective September r The Company and its subsidiaries file a consolidated 18,1985. (See Note 8 " Commitments and Contingencies" 7 Federal income tax return. Income taxes are alk>cated to all for further information.)
subsidiaries based on their contributions to the consolidated taxable income. Deferred income taxes are provided for H. Other Noncurrent Llobilities
? differences between book and taxable income to the extent it is the policy of AP&L, LP&L, and NOPSI to provide j permitted by the regulatory bodies for ratemaking purposes. provisions for uninsured property risks and for claims for Eh investment tax credits utilized are deferred and amortized injuries and damages through charges to operating E based upon the average useful life of the related property. expenses on an acuual basis. Accruals for these provisions, y classified as other noncurrent liabilities, hase been allowed g G. Allowance for Funds Used During Construction To the extent that the Company's operating subsidiaries for ratemaking purposes. Prior to January 1,1985, h1P&L y
had a similar policy regarding such provisions. However.
y are not permitted by their regulatory bodies to recover in to comply with a regulatory agreement, MP&L, effective e current rates the carrying costs of funds used for construction, January 1,1985, suspended provisions for its uninsured b they capitalize, as an appropriate cost of utility plant, an property risks and claims for injuries and damages. Effective 5
allowance for funds used during construction ( AFUDC) that July 1,1985. MP&L implemented a procedure to amortize, is calculated and recorded as provided by the regulatory over a three-year period, the accumulated balances of b systems of accounts. Under this utility industry practice, such provisions as of June 30,1983.
E construction work in progress on the balance sheet is y charged and the income statement is credited for the 1. Reclassifications g approximate net composite interest cost of borrowed funds Certain reclassifications of previously reported amounts
- g and for a reasonable return on the equity funds used for have been made to conform with current classifications.
EB construction. This procedure is intended to remove from These reclassifications had no effect on net income.
g the income statement the effect of the cost of financing the construction program and results in treating the AFUDC
" Note 2.
charges in the same manner as construction labor and b material costs. As non-cash items, these credits to the Rate and Regulatory Matters
- - income statement have no effect on current cash earnings. Decisions Rendered E After the property is placed in service, the AFUDC charged On June 13,1985, the FERC issued a decision tJune 13 to construction costs is recoverable from customers through Decisioniin the Unit Power Sales Agreement and New
=
depreciation provisions included in rates for utility service. System Agreement proceedings. In the Unit Power Sales For the period January 1,1983 through March 1,1984, Agreement proceeding the FERC affirmed the previous E LP&L used an accrual rate for AFUDC of 3% on 51.3 billion of recommendation of an Administrative Law Judge ( ALJ) to
@ construction costs in accordance with a May 1981 rate alh>cate, at MSE's full cost of senice, all of MSE's 90%
share of the capacity and energy of Grand Gulf 1, as follows:
6 order from the louisiana Public Senice Commission ILPSC).
_ Effective March 2,1984, this accrual rate was changed by AP&L - 36%: LP&L - 14%: MP&L - 33%: and NOPSI - 17A E that commission to 3.5% on LP&L's investment in the These alh> cations became effective with the commercial
{
=
Waterford 3 Nuclear Station (Waterford 3) up to an operation of Grand Gulf I on July 1,1983. In addition, the investment of $1.7 billion. The effective composite rates FERC ruled that MSE be granted a 16% return on common 7 of the operating subsidiaries for the balance of AFUDC were 9.7% 9.5%, and 9.2% for 1985,1984, and 1983, equity, that the units-of-production depreciation method 5 be allowed for up to twelve months, with straight-line i g respectively. Through June 30,1985. MSE used an accrual depreciation being required thereafter, and that the annual rate for AFUDC based on a raurn on aserage common equity amount of Grand Gulf I decommissioning expense be set EL of 14% plus actualinterest costs net of related income at $1,113,188. The FERC gener:dly approved the New System
_ taxes. As a result of the FERC's June 13,1985 decision, Agreement as filed, with certain minor modifications.
MSE's 14% accrual rate for the equity component of AFUDC adopting a 16% return on common equity instead of the F was increased to 16% effective July 1,1985. 15.75% return recommended by an ALJ. Protests or p
The Company's subsidiaries continue to capitalize comments have been made by several parties resultmg from l AFUDC on projects during periods of interrupted con. objections to the June 13 Decision. Various parties, including struction when such interruption is temporary and the AP&L and MP&L, filed appeals of the FERC rulings and
_ continuation can be justified as being reasonable under some parties have filed motions for a stay with the U. S.
=- the circumstances. Court of Appeals for the District of Columbia Circuit. On 1 24
November 26,1985, the Court of Appeals dismissed peti- additional annual revenues of 548.7 million of the 594.7 tions for a stay of the June 13 Decision filed by one of million additional gross revenues requested by h1P&L for these parties. Briefs were filed and oral arguments were the non-Grand Gulf I portion of its rate case. Excepted presemed in h1 arch 1986. from the stipulation, among other things, were all Grand On September 9,1985, the Arkansas Public Service Com- Gulf I related issues. On June 27,1985, h1P&L requested a mission ( APSC) accepted and adopted a " Settlement Agree- rehearing from the N1PSC on that portion of the h1PSC's ment" proposed by AP&L, the APSC staff, the Arkansas Final Order that denied h1P&L additional resenues for Grand Attorney General, other inter enors in AP&Us November Gulf 1. On September 16,1985, the N1PSC issued a Final 1984 rate case and Reynolds Nietals Company. This agree- Order on Rehearing which alk3ws h1P&L to recover currently, ment resolved all of the disputed issues (except alkication defer tinventory), and phase-in through retail rates its Grand and rate design)in AP&Cs rate case primarily resulting Gulf 1 related costs. The deferred and phased-in portions from the inclusion of a rate rider which sought recovery of of these costs will be recovered from ratepayers in the later the costs associated with AP&Us 36% alk> cation of Grand years of commercial operation. Ilowever, N1P&L will be Gulf I as a result of the FERC's June 13 Decision. Under allowed to recover en a current basis the costs of financing the terms of the Settlement Agreement, AP&L will sariously the inventoried and 'eferred portions. Various parties have retain, defer and recover differing portions of the costs filed appeals of the Final Order on Rehearing. During the associated with its alk>cated share of capacity and energy appeals, N1P&L will continue to collect the rates approved from Grand Gulf 1. In addition, the Settlement Agreement by the h1PSC, with rates being subject to refund to the provides for a reduction in the amount of rate increase extent that a final judicial determination may result in rates requested by AP&L with respect to non-Grand Gulf I related less than what the N1PSC allowed.
costs and that no additional rate increases will become On September 5,1985, the New Orleans City Council effectne for AP&Cs Arkansas retail customers earher than (Council),on an interim emergency basis, froze NOPSI's April 1,1987, subject to certain exceptions. The APSC order fuel adjustment cost at a level estimated by the Council approving the Settlement Agreement is being contested. to produce 528.3 million of cash relief in the form of On October 9,1985, a state district court issued a judgment fuel cost savings over the ten-month period commencing authorizing an increase in LP&Es rates of $113.9 million September 1,1985. This decision resulted from NOPSI's annually. This rate increase represented full and undeferred request for expedited interim recovery of Grand Gulf 1-recovery from LP&Cs retail customers w hose rates are related expenses. NOPSl's request for permanent retail regulated by the LPSC for the net increase in LP&Us costs electric rate relief is pending, as discussed below.
resulting from its 14% allocated share of Grand Gulf 1. On November 14,1985, the LPSC issued an order on LP&Cs Decisions Pending Waterford 3 rate application granting an emergency interim On September 18,1985 AP&L filed a request with the rate increase subject to certain conditions, subsequently Public Service Commission of hiissouri (PSCht) for a 513.1 agreed to by LP&L. The order provided, subject to pros- million interim retail rate increase to cover, among other pective revision as a result of a prudence review discussed things, the hiissouri alkicated share of Grand Gulf I costs.
below, for a net increase, after fuel savings, on 5126 million On January 14,1986, the PSCh1 denied AP&Us interim for Waterford 3. Ilowever, after application of the conditions rate request. On February 4,1986, AP&L filed a complaint discussed below, the actual net increase over current rates in federal district court seeking, among other things, judg-allowed LP&L was 5106.7 million. The order provided, among ment declaring that the PSChl, as a matter of federal law, other things, for LP&L (1) to defer 5206 million of its first is required to permit the recovery of the Niissouri-alhicated year Waterford 3 costs to be phased-in on a schedule to be share of Grand Gulf I costs incurred under rates approved determined by the LPSC:(2) to permanently retain and not by the FERC in the June 13 Decision. On h1 arch 10,1986, recover from its retail customers the costs associated with the federal district court ordered the PSChi, pending final
! 18% of its share of Grand Gulf 1, reducing LP&Cs Grand resolution of AP&Us request for permanent rate relief, Gulf I revenue (previously granted by the state district to authorize interim rates for the hiissouri-allecated share court) by 519 million in the first year; and (3) to permanently of Grand Gulf I costs. llearings by the PSCN1 began in absorb and not recover from its retail customers $2M million February 1986 to consider AP&Us request for permanent of the 52.M billion estimated cost of Waterford 3, regardless rate relief.
of the outcome of a prudence review into the construction of As discussed above, LP&Us request for permanent rate Waterford 3. The amount of Waterford 3 costs permanently relief for Waterford 3 remains pending before the LPSC.
absorbed by LP&L may increase pending the outcome of The LPSC must act on this request within twelve months the prudence investigation. mi the effective date INovember 20,1985) of its foregoing On June 14,1985, the h1PSC issued a Final Order in emergency interim rate increase in addition, LP&Cs h1ay 17, h1P&Us November 1984 retail rate case which reaffirmed 1985 rate increase request for recovery of its costs associated its adoption of a stipulation previously entered into by various with Grand Gulf I and Waterford 3 from customers in the parties, including h1P&L. The stipulation allowed h1P&L 15th Ward of the City of New Orleans remains pending before 25
Notes to Consolidated Financial Stetoments =
Middle South Utilities, Inc. & Subsidiaries the Council. The ultima.e outcome of these proceedings individuals. These initiated acts propose, among other cannot be predicted. things, to resoke AP&Us exclusive franchise and territory As mentioned above, NOPSI's request for permanent retail and establish provisions for their award to one or more electric rate relief is pending. On August 1,1985, after the franchisees Nho would be empowered to condemn AP&Us -
Council had taken no action on NOPSl's hlay 17,1985 rate property), prohibit closed-door settlement wnferences in application, NOPSI filed a petition in federal district court ratemaking proceedings and prohibit utilities from charging -
te enjoin the Council and the City to permit NOPS! to pass ratepayers for certain expenses. In addition, the Council has through to its retail customers the costs associated with its taken various actions in furtherance of a possible acquisition -
=
FERC-alk>cated share of the capacity and energy from by the City of New Orleans of the electric utility properties Grand Gulf 1. On September 16,1985, the court dismissed of NOPSI and those of LP&L in the 15th Ward of the City.
the suit for lack of jurisdiction. On appeal by NOPSI, the The ordinances under which NOPSI operates state, among U.S. Court of Appeals for the Fifth Circuit, on February 14, other things, that the City has a continuing option to 1986, reversed such dismissal and remanded the case to the purchase NOPSI's properties. On h1 arch 7,1985, the Council district court for decision on the merits. The matter is established a public power authority for the purposes, pending. In addition, the Council has commenced an among others, of acquiring and operating electric power ;
investigation into the prudence of NOPSI's decision to utilities in the City of New Orleans. Finally, the governing enter into arrangements for the purchase of a portion of body of the Parish of Jefferson, Louisiana, has been studying Grand Gulf l's capacity and energy. On February 5,1986, the possible acquisition of LP&Us properties within that NOPSI submitted a settlement proposal to the Council which Parish. In certain cases, government officials have ex-has been the subject of negotiation between the Council pressed the view, with which the affected System operating _
and NOPSI since that time. These negotiations have companies do not agree, that a condemnation, expropriation addressed, among other things, the issue of phasing-in the or other acquisition of properties could be accomplished new rates, economic development of the service territory without the acquiring entity assuming responsibility for and the non-recovery of a portion of the Grand Gulf I costs. the related obligations of the particular System operating -
As of h1 arch 6,1986, the Council had not issued a final company, especially those relating to the purchase of order in the matter but did, on that date, approve a capacity and energy from the Grand Gulf Station. AP&L, temporary 10% increase in NOPSI's electric rates to remain NOPSI and LP&L believe that any such franchise revocations in effect during the period, expected to be about two months, or takeovers would not be in the best interests of their from hlarch 10,1986, until the matter is finally resolved. respective customers and investors, or the companies themselves, and would vigorously oppose any actual N Regulatory Matters takeover attempts.
On h1ay 4,1985, the voters of New Orleans approsed the immediate retransfer from the LPSC to the Council of regulatory jurisdiction over NOPSI's electric and gas service and LP&Us electric service in the 15th Ward of the City of New Orleans. In addition, the Council has asserted juris-diction over the issuance by NOPSI of certain securities.
Takeover investigations in connection with controversies surrounding the cost - -
and allocation of capacity and energy from the Grand Gulf _
Station, various governmental bodies and other parties have =
been investigating the possibility of condemning, expropri-ating, or otherwise acquiring electric utility properties of certain of the System operating companies. In late 1985 m and early 1986, the Arkansas Attorney General approved and certified popular names and ballot titles that would appear on petitions for various initiated acts proposed by x
26 imm---
1 i
Note 3.
Income Taxes Income tax expense (credit) consists of the following:
1985 1984 1983 tin thouundo Current:
State. . .. .. . ... . . . .. . . ... .. 5 6.258 5 21.634 5 8.460 Deferred - Net:
Liberalized depreciation. ... . .. .. . . . . 139,421 73,394 41,766 Unbilled revenue . . . . .. . . . .. . 7,598 18.985 (2.347) beferred nuclear power costs. ... . .... . . . I18.358 - -
Deferred fuel cost. . .... . .. . . . 1.378 122,775) (10,053)
Nuclear fuel disposal costs . .... . . . . .
- - 17,729 Revenues subject to refund. . .. . . . 2.594 (1,711) 26.M7 Gas contract settlement . . . . . . .
(82,133) - -
less on sale of fuel oil and nuclear fuel to third parties. . . ... 17.779 - (I,358)
Adjustment of prior years' tax provisions . . . . (19.410) - -
Provision for estimated losses. . . .. ... . (43,415) -- -
Other ....... .... ..... ... . .. . . .. 14.213 1,757 (2.N6)
Restoration (reduction) due to tax loss carryforwards . (1.461) (15.277) (41.514) 54.373 28,524 Total . . . . . . . . . .. . . . 154.922 investment tax credit adjustments - net. . .. . (4.699) (3,506) (3.737)
Recorded income tax expense. .. . 5156.481 5 72.501 5 33.247 Charged to operations . . .. . .. . . . .
5238.M8 5216,395 51M.570 Credited to other income . . .. . .
(82,167) (160,442) (131,323)
Charged to cumulative effect of change in accounting method . . . .
16.548 -
Recorded income tax expense. . . . . . 156.481 72,501 33.247 income taxes applied against the debt component of AFUDC 133.478 202.626 157.520 Total income taxes . ... ... . . .. . .. 5289.959 5275.127 5190.767 Total income taxes difTer from the amounts computed by applying the statutory Federal income tax rate to income before taxes. The reasons for the ditTerences are as follows (dollars in thousands):
1985 1984 1983
% of % of % of Pre-Tax Pre-Tax Pre. Tax Amount income Amount income Amount income Computed at statutory rate. . . . . . . 5298,114 46.0 $306,034 46.0 5226.027 46.0 Increases (reductions) in tax resulting from:
Allowance for funds used during construction . (IM.999) (25.5) (245,742) (36.9) (196.242) (39.9)
State income taxes net of Federal income tax effect. .. .. . . 18.687 2.9 11.659 1.8 sc 2.0 Other - net . . . ... .
4,679 .7 550 -
16.502) (1.3)
Recorded income tax expense. . . . . . 156,481 24.1 72.501 10.9 33.247 6.8 Income taxes applied against the debt component of AFUDC . . . .. 133.478 13.0 202.626 20.8 157.520 22.6 Total income taxes . . ... . 5289.959 37.1 5275.127 31.7 $190.767 29.4 27
Netos to Censolidstad Financial Statements Middle South Utilities. Inc. & Subsidiaries The tax effects of the consolida d 1983,1984, and 1985 t i n increase the interest on Imrrowings thereunder by 1%,
Federal tax losses have been recorded as reductions of effective from February 5,1986 and (2) to conform in deferred income taxes. The remaining Federal tax loss substance certain provisions of the foreign bank loan carryforwards at December 31,1985 amounted to 5430.2 agreement relating to Grand Gulf 2 to the terms of the million and are available to offset taxable income in future domestic bank loan agreement, so that,in effect, prepayment yean. If not used, they will expire in 1994 through 2(XX). of borrowings under this agreement would not be required Unused investment tax credits at December 31,1985 for condemnation, abandonment or noncompletion of Grand amounted to 5697.1 million. These credits may be applied Gulf 2. The amendments related to Grand Gulf 2 will not be against Federal income tax liabilities in future years. If not effective until htSE has paid to the foreign banks the deferred used, they will expire in 1991 through 2(XX). installment referred to below as well as the principal Cumulative income tax timing differences for which installment due to the foreign banks on August 5,1986.
deferred income tax expenses hase not been provided are S1SE was permitted to defer to h1 arch 17,1986 5391.7 million,5382.3 million, and 5377.6 million in 1985, approximately SI15 million and 5125 million, respectively, 1984, and 1983, respectively. of the installments due February 3,1986 and Alarch 1,1986 under the domestic bank loan agreement. htSE was permitted to defer to N1 arch 17,1986 approximately 545.3 million of Note 4. the installment due February 5,1986 under the foreign bank Lines of Credit and Related Borrowings loan agreement. htSE agreed to issue First hjortgage Ilonds equal to the unpaid deferred amounts to collateralire such The Company had, during 1985, a revolving credit amounts in return for a further deferral of the due date for agreement with various banks prosiding for the issuance of up to 90 days after h1 arch 17,1986. N1SE agreed, subject to unsecured promissory notes totaling 571.5 million. On Jan- the receipt of required regulatory approval, to vious uary 1,1986, this credit agreement was redaced to 525 million amendments to the domestic and foreign bank loan agree-and will terminate December 31,1986. The Company pays ments which accomplish, among other things, the following:
a commitment fee on the unused portion of the credit line. (1) an additional 1% per annum tin excess of the respective Prior to June 28,1985, htSE had two revolving credit interest rates currently prmided for under the domestic agreements with various banks providing for borrowings and foreign bank loan agreements) will accrue and be payable totaling $2,089 million. One agreement, for 51,711 million, on each of the deferred installments from the respective was with a group of domestic banks; the other agreement, dates of commencement ef the deferrals to the respectise with a group of foreign banks, was for 5378 million. On dates of payment and will be paid monthly in arrears and (2)
August 2,1985 and August 9,1985, respectively, the foreign h1SE will not pay any dividends on its capital stock until and domestic bank loan agreements were amended, effective the deferred installments have been paid and certain other as of June 28,1985, to consert the borrowings thereunder requirements have been satisfied. In order to reduce the to term loans. At December 31,1985, htSE had outstanding amount of the deferred installments, htSE will pay ratably 51,476.4 million and $330.8 million, respectively, under the to the domestic and foreign banks on a monthly basis all of domestic and foreign bank loan agreements. The loans with its available excess cash flow as defined in the agreements.
domestic banks have a maturity date of February 5,1989. On 51 arch 17,1986, the balance of the unpaid deferred subject to semiannual mandatory prepayments of 5125 amounts was further deferred to June 16,1986 and htSE com-million, which were to be made on November 1,1985 and mitted to issue First hlortgage llonds to secure such amounts.
thereafter, on the first day of each N1 arch and September, The amended domestic bank loan agreement aho with the unpaid balance due on the maturity date. The t h restricts htSE's ability to make capital expenditures to not maturity date for the loans with foreign banks is February in excess of 580 million in any year plus any amounts required 5,1989, subject to mandatory semiannual prepayments of to be expended by regulatory authorities,(2) requires h1SE
$47.25 million which commenced August 5.1985. to make additional prepayments to the domestic banks With the consent of all of the domestic banks, N1SE pursuant to a cash flow formula and (3) requires the payment deferred the Nmember I,1985 installment due under the in full of outstanding loans if certain rate action satisfactory domestic bank loan agreement to February 3,1986. In con- o the domestic banks has not been taken by June 30,1986 nection with this deferral, NISE consented to the payment iby state or local regulatory authorities recognizing as of an additional 1% per annum interest on the deferred legitimate operating expenses FERC-approved costs relating installment and agreed not to pay any dividends on com- to Grand Gulf I and,if applicable, cancellation cmts of mon stock during 1985. In N1 arch 1986, the foreign bank Grand Gulf 21 or,if Grand Gulf I ceases operation for 90 loan agreement was amended, subject to SEC approval, consecutive days other than for routine maintenance or which as of N1 arch II,1986 had not yet been obtained, to refueling. The restriction on capital expenditures and the 28
i 3
requirement for additional principal payments terminate if fuel oil inventory. At December 31,1985, SFI's borrowings r 51SE makes prepayments sufficient to reduce the amount under this fuel oil financing arrangement were 549.1 million.
owing the domestic banks at maturity to $125 million or less. Subsequent to year-end, SFl has been required to repay a 7
MSE has separate " interest rate swap" agreements, each portion of this borrowing as a result of the limitation with a bank, through February 1989 for 5147.0 million and described abme. In addition, SFI may borrow up to 5125 5183.8 million, respectively,las of December 31,1985) of million through the sale of commercial paper for use in
- the amounts outstanding under the credit agreement with financing its nuclear fuel inventory. Borrowings under these i foreign banks. MSE has agreed to make semiannual interest short term arrangements are restricted as to use and are r payments based upon an i1.5% and an 11.16% fixed rate, secured by SFl's fuel oil inventonj and a portion of its nuclear i respectively,in exchange for semiannual interest payments fuel inventory, respectively, and certain accounts receivable by the banks based upon the lendon interbank Offered arising from the sale of these inventories. SFI has a revol ing
- Rate (LIBOR). These agreements serse to offset fluctuations bank credit agreement which allows for borrowings of up in variable rates to be paid under MSE s credit agreement to $15 million through December 31,1987 and is secured
[
p with foreign banks. They do not change MSE s obligations by its oil and gas properties. A commitment fee is paid on
!- to the foreign banks for interest payments of LIBOR plus 1%. the unused portion of this wmmitment. SFl also has a
! MSEs lines of credit for short-term borrowings with various secured revolving credit agreement, to finance in part its banks in the System service area expired on June 28,1985. nuclear fuel inventory, which allows for borrowings of up MSE has not secured any replacement lines of credit or to 550 million through April 10,1988. It is currently assumed
, made any other unsecured short-term borrowings. MSE is that the above financing arrangements, which are currently subject to limitations on the maximum amount of short-term scheduled to terminate during the period 19h61988, will be ex-borrowings outstanding under both the lloiding Comptmy Act tended or alternative financing arrangements will be secured.
- and the terms of its bank loan agreements. At December The short term borrowings and the interest rates 31,1985, the maximum permitted was the lesser of 5% of (determined by dividing applicable interest expense by the
{ -
capitalization or $200 million.
Two of the operating subsidiaries, AP&L and LP&L, have a erage amount borrowed) for the Middle South System were as follows:
lines of credit of 559.0 million and 518.7 million, respectively, Year Ended December 31, f not requiring commitment fees, providing for short-term L borrowings through loans frc,m banks within their service 1985 1984 1983 2 territory. Subsequent to year-end, MP&L renegotiated $30 million in lines of credit with Mississippi banks, none of Average Borrowing:
monan in thouunau
- which were being utilized at March 11,19h6. At December Bank loans. 5118,095 5131,275 5178,172 31,1985, LP&L had bank lines of credit, which were fully Commercial paper. 5131,978 5116,558 5102,960 L
utilized, of 580.5 million with banks h>eated outside of the Other. 5 51,702 5 50,592 5 57,718 g
Middle South System service area. Compensating balances Maximum Borrowing:
{- (approximately 5% of the commitment amount) or equivalent Bank loans. $199.695 5219,362 5275,022 p
=- fees are required by certain of these non-service area lending Commercial paper. 5135/XX) 5135,000 5123JXX) g banks.These compensating balances are not restricted as Other. 5 54,600 5 68.625 5 76,360
) to withdrawal. Additionally, the four System operating Year-end Borrowing:
companies, together with MSU, MSE, MSS, and SFI, are Bank loans. 5124,160 5 10JXX) 5114.573
{ Commercial paper. 5125jXX) 5135fXX) 5123JX)0
=
authorized to participate in a System money pool, whereby
@ those companies in the System with available funds can Other. 5 49,135 5 68,625 5 50,471 r invest in the pool while other companies in the System Average Interest Rate:
- (except MSU and MSE) having short-term needs can bor- During period-row from the pool, thereby reducing the System's depen- Bank loans. 9.7% 11.9 % 10.2 %
{ dence on external short-term borrowings. The maximum Commercial paper. 9.4% 11.8% 10.3 %
L i- borrowing and average borrowing from the System money Other. 9.6% 11.6 % 10.2%
$ pool during 1985 were 5199.3 million and 5118 million, At end of period-
=
respectivHy. At December 31,1985, System money pool Bank loans. 10.1% 9.6% 10.9 %
borrowings were $47.7 million. In addition, MSS has a line of Commercial paper. 9.5% 9.6% 10.9 %
7y credit with MSU for 530 million through December 31,1987. Other. 10.7 % 9.0% 10.6%
[ SFI has a fuel oil financing arrangement allowing for F borraings of up to 570 miiiion subject io a iimit equisaient to the lower of the cost or the fair market value of SFI's 29 m _
Netss to Consolidct:d Fincncial Statomonts 3fiddie South Utilities. Inc. & Subsidiaries
-n Credit facilities at December 31,1985,1984, and 1983 and borrowings thereunder of the System companies were as follows:
December 31,1985 December 31,1984 _ December 31,1983 4 '
Credit Credit Credit --
Facilities Horrowings Facilities Borrowings Facilities Horrowings (In thousands)
Short-term:
Company. . . .. . .. 5 71,500 5 25,000 5 71,500 - - -
MSE. ..... ....
- - 5 24,680 5 10,000 5 102.265 5 36,673 __
SFI .. .... ... .. . . 5 195,000 5 174,135 5 210,000 5 203,625 5 235JXX) 5 173,47i Operating subsidiaries. . 5 158,160 5 99,160 5 322,360 - 5 343,460 $ 77,900 1.ong-term.
Company. . . ... . .. .
- - - - 5 115,000 5 32JXX) -
MSE..... . . ... . .. 51,807,167 51,807,167 52,089,000 $2,074,000 $2,089,000 51,831,000 I SFl. .. . . . . . . . .. .. 5 65,000 5 42,800 5 15fXX) - 5 60,000 5 3J)00 7 MSS . . . .. 5 30fXX) - - -
5 75JXX) 5 56,200 gg m
Note 5.
I m Preferred Stock ah The number of shares of preferred stock of the operating subsidiaries as of the end of the last two fiscal years 3 -.
was as follows: =
Shares Shares Outstanding S Authorized as at December 31. Call Price s December 31,1985 1985 19M Per Share ] -"
Cumulative, $100 Par Value Without sinking fund: .-d 4.16% - 5.56% . .. . . 1,070,774 1,070,106 1,070,106 5102.50 to $107.00 _
6.08% - 8.56 % . . . 1,180,000 1,180JXX) 1,180,000 $102.83 to $105.74 4 9.16 % - 11.48 % . . 795,000 795,000 795.000 $1N.06 to 5111.I1 .=
m 3,045,774 3,045,106 3JM5,106 _
With sinking fund:
10.60 % - 12.00 % . .. . 507,464 507,4M 522,814 5106.74 to 5112.00 g d
14.75% - 17.00% .. . . .. 585.095 585,095 585.095 5109.83 to 5117.00 1,092,559 1,092.559 1,107,909 Z==
Unissued . .
Total 6,506.500 10,644,833 Cumulative,525 Par Value _2 Without sinking fund: 'E 8.84% . . . . . . . . 400,000 400fXX) 400fXX) 527.66 4 -
10.40 % . . 600,000 600,000 600,000 527.95 1,000,000 1.000.000 1 J)00JXX) r With sinking fund: -
9.92% - 12.M% .. 6,535.121 6,535,121 6.713,621 527.01 to 528.16 13.12 % - 15.20 % 6,377,626 6,377,626 6,531,626 527.46 to 529.05 m 19.20 % . . . . . 2fXX).000 2JXX),000 2fXX)JX)0 529.27 --
14.912,747 14,912,747 15,245,247
_a 9
Unissued . . . . . 15,200JXX) g Total . . . .
31,112.747 g 30 E
. d
Changes in the number of shares of preferred stock of The Articles of Incorporation relating to LP&L's and the operating subsidiaries, all of which were with sinking NOPSl's preferred stock contain provisions which provide fund, during the last three fiscal years were as follows: for restrictions on the payment of cash dividends on common stock. LP&L determined not to declare dividends on any Number of Shares of its cumulative preferred stock issues for the third and 1985 1984 1983 fourth quarters of 1985. NOPSI determined not to declare l Sales: fourth quarter 1985 and first quarter 1986 dividends on its LP&L cumulative preferred stock. LP&L and NOPSI are precluded 12.M%,525 par . - - 3,000.000 from making sinking fund payments on their preferred stock 19.20%,525 par . . - 2,000,000 -
until arrearages in preferred stock dividends have been paid.
h1P&L While no arrearages in preferred stock sinking fund payments 12.00%,5100 par . - - 100,000 existed at December 31,1985, NOPSI was precluded from 16.16%, $100 par . - 150,000 -
making in full its h1 arch 1,1986 sinking fund payment on Redemptions: its 15.44% series of preferred stock due to these restrictions.
AP&L Until arrearages in preferred stock sinking fund payments 9.92%,525 par . (58,100) (79,678) (86,341) and preferred stock dividends have been made up, LP&L 10.60%,5100 par , (6,105) (13,970) (15,445) and NOPSI cannot pay dividends on their common stock.,
11.04%,5100 par (9,245) (18,045) (32,735) At December 31,1985, LP&l's and NOPSl's aggregate 13.28%,525 par . (14,000) (180,131) (7,940) amount of cumulative preferred stock dividends in arrears LP&L was $26.7 million (or two full quarterly dividend payments) 10.72%, $25 par . (120,400) (120,000) -
and 5.8 million (or one full quarterly dividend payment),
13.12%,525 par . (80,000) (80,000) -
respectively. On January 9,1966, LP&L determined to declare 15.20%, $25 par . . (60,000) - -
the third quarter 1985 dividends on its preferred stock.
NOPSI If and when dividends payable on preferred stock of LP&L 15.44%, $100 par . - (14,905) -
shall be in default in an amount equal to four full quarterly Total .
(347,850) 1,642,968 2,957.539 payments or more per share, and thereafter until all divi-dends on any such preferred stock in default shall have
. been paid, the holders of all preferred stock, voting sepa-The amounts of preferred stock of the operatmg rately as a class,in such manner that the holders of the subsidiaries as of the end of the last two fiscal years $100 pu value preferred stock shall have one vote per share were as follows: and the holders of the $25 par value preferred stock shall December 31, have one-quarter vote per share, shall be entitled to elect 1985 1984 the smallest number of directors necessary to constitute a (in thousands)
Without sinking fund: LP&l's common stock, h1SU, shall be entitled to elect the Stated at 5100 a share 5304,511 5304,511 remaining directors of LP&L. If and when dividends payable Stated at 525 a share . 25,000 25,000 on any outstanding shares of NOPSl's preferred stock shall be Premium .. .
1,456 14;6 in default in an amount equal to four full quarterly dividends, and thereafter until all dividends in default on any such Total without
$330,967 preferred stock shall have been paid, the holders of NOPSI's sinking fund . . 5330.967 4%% preferred stock, voting separately as a smgle class, With sinking fund: shall be entitled to elect the smallest number of directors Stated at 5100 a sha*e 5109,255 5110,790 necessary to constitute a majority of the full Board of Stated at $25 a share . . 372,819 381,131 Directors, and the holder of NOPSl's common stock, htSU, Premium . . . . 737 758 shall be entitled to elect the remaining directors.
Issuance expense . (15.518) (15.751) total with sinking fund . . .. 5467,293 5476,928 Cash sinking fund requirements for the ensuing five years for preferred stock outstanding at December 31,1985, are as follows (in thousands): 1986,59,610; 1987,518.150; 1988,522,500; 1989,523,250; and 1990,536,583. These amounts exclude requirements for shares of preferred stock redeemed earlier than required.
31
Notes to Consolidstad Financial Statomonts 3 fiddle South Utilities, Inc. & Subsidiaries Note 6.
Long-Term Debt The long-term debt of the Company and its subsidiaries as of the end of the last two fiscal years was as follows:
December 31, 1985 1984 tln thousands)
First Mortgage Bonds . .. 53,617.288 53,560,888 Promissory Notes:
Due:
1987, at Federal funds rate plus % of 1% .. . . 15,000 -
1987, at Negotiated money market rate . . . . . 27,800 -
1989, at i10% of the sum of prime and 1.3% . . , 1,476,417 1,696,000 1989, at i1.16% plus 1% (Note 4). . . . . 183,750 189,000 1989, at 11.5% plus 1% (Note 4) ... . . . . 147,(XX) 189.0fX)
Total Promissory Notes . . . _1,M9,967 2.074,(XX)
Other:
I ong-Term Obligation - Department of Energy (Note 8) . . . 62,681 57,908 Capitalized Lease - due serially through 1993,8% . . . .
5,154 Municipal Revenue Bonds - due serially through 20lM,1%% - 8% . 31,793 34342 l Pollution Control Revenue Bonds and Installment Purchase Contracts:
Due serially through 2014,6.4% - 11%% . 62,630 63,795 Due 1986 - 2015,6%% - 12%% . . ., 806,226 642,225 less - Funds on deposit with trustees * . . (106.9N) (315,092)
Total Other . . . . . 856,426 488.332 Unamortized Premium and Discount - Net . . . . . . (33,711) (27,409)
Total Long-Term Debt . . . 6.239,970 6.095,811 Less - Amount due within one year . 609,380 230,507 Long-Term Debt Excluding Amount Due Within One Year . 55,680,590 55,865.304
- Includes $105 million ofpmceeds fmm the sale of Pollution Contml Revenue Bonds for LP&L held by the issuer of the letter of credit pending the participation by other banks in the letter of credit.
Maturities and sinking fund requirements for the ensuing five years on long-term debt outstanding at December 31, 1985 are as follows:
Sinking Fund Maturities Requirements Cash Other" (in thotsande 1986. . . . 5553,780 555,600 524,401 1987.. . . . . . . 5426,984 563,600 $24,321 1988. .. . . . 5543,630 563.555 524,325 1989. . 5769,758 561,055 524,0(X) 1990. . . . 5 54,777 561,125 523,250
- Sinkingfund requirements may be met by certificatiort ofpmperty additions at the rate of it0% of the required amount.
32
i The outstanding first mortgage bonds of the Company's subsidiaries as of December 31,1985 and 1984 were:
3% - 6% - 9% - 12% - 15% -
Maturity Sh% _ 8_ h% , 11h% 14%% 17%% Total lin thouunsh) 1985 1986 .. . ... . . .
- 5 75JXX) - 5 70,0f X) S 145fXX) 1987 .. . . . 5 26JXX) - - - -
26fXX) 5 15,373 -- 5 45JXX) - 5125JXX) 185,373 1988 . .. .
1989 .... . .
- $277JXX) - -
277JXX) 1990 . .
5 20,'XX) - - - 5 30,0(X) 50,9(X) 1991 - 2(XX) . . ..
5286,250 5151.960 5137,540 5222,265 5755J)C0 1,553,015 2001 - 2010 . . . . .
-- 5400JXX) 5450,000 5 55jXX) -
9054XX) 2011 - 2014 . . . . . .
- - -- 5440JXX) $ 35,000 475JXX)
Total First Mortgage Bonds . 53,617,288 1984 1985 . . . . 5 18JXX) - -- -
- 5 18JXX) 1986 ... . .
- 5 75JXX) - 5 70/XX) 145/XX) 5 26JXX) - - - - 26,tXX) 1987 . .
1988 .. .
5 15,418 -
5 45JX)0 - $125JXX) 185A18 1989 . . . . .
- 5325fX1l) - -
325fXX) 1990 - 1999 . . 5317,250 5 88,960 5 75,400 $100jXX) 5385JXX) 956,670 2(XX) - 2009 . .
- $460JXX) 5516,NX) 5153,500 $300JXX) 1,429,800 2010 - 2014 . .
- 5440fXX) $ 35JXX) 475,000 Total First Mortgage Bonds . .
53,560A88 Note 7. Note 8.
Estained Earnings Commitments and Contingencies The lloiding Comp;my Act of 1935 prohibits the Company's capital Requirements and Financing subsidiaries from making loans or advances to MSU. The GenemL At December 31,1985 the Middle South System's indenture and charter provisions relating to the operating most significant commitments and contingencies related to subsidiaries' long-term debt and preferred stock, respectively, (1) the financing of its construction program,(2) the f;nancing and the provisions of MSE's credit agreements and inden- by the System operating companies of the costs associated ture restrict the amount of consolidated retained earnings with phase-in plans included in rate relief obtained for available for cash dividends on common stock of the Grand Gulf I and Waterford 3,(3) the receipt by NOPSI of subsidiaries. In addition, transfers by the operating subsidi. adequate rate relief for Grand Gulf 1,(4) the refinancing aries from retained earnings to the stated value of com. of debt associated with the financing of the Grand Gulf mon stock impose similar restrictions on the amount of Station,(5) the uncertain status of Grand Gulf 2 on consolidated retained earnings available for cash dividends which construction activities have been suspended until on common stock of the subsidiaries. As of December 31, further evaluations (estimated to be completed sometime 1985,5104.9 million of consolidated retained earnings in 1986) are made regarding the unit's future and (6) the were free from such restrictions, including 587.3 million potential effect on the Middle South System of certain of unrestricted, undistributed retained earnings of the proposed revisions to accounting standards. In addition, Company's subsidiaries. The unrestricted, undistributed the System operating companies may be impacted by any retained earnings of any subsidiary of MSU are not available possible Grand Gulf 2 cost allocation to them by the FERC for distribution to the common stockholders of MSU until in the event of cancellation of the unit. The Middle South such earnings are made available to the Company through System's ability to finance these costs and obligations and the declaration of dividends by such subsidiary. (See Note M.) its continued financial viability remains dependent upon the receipt of adequate rate relief by NOPSI to cover its 33
Fy Notos to Consolidated Financial Statomonts -
Middie South Utilities, Inc. & Subsidiaries '--
} -
s Grand Gulf I-related costs and the ability of the System operating companies and htSE to obtain external financing.
recently filed rate moderation proposal is approved, NOPSI would have additional capital requirements of approximately
[
f The weakened financial condition of the Niiddle South $216.4 million through 1988. -
=
System resulting from difficulties in obtaining retail rate Capital Requirements for Operating Espenws Pending _
relief associated with Grand Gulf I and Waterford 3.
- Rate Relief. NOPSI's expenses for Grand Gulf I capacity and uncertainties associated with Grand Gulf 2, have and energy (resulting from its obligations to N1SE) are [
-[ impeded and are continuing to impede the N1iddle South System s ability to obtam such fm, ancmg.
approximately $14 million per month, before giving effect to credits for prior payments under the Power Purchase ?
Constmction Requirements. The N1iddle South System's Advance Payment Agreement. Under the doctrine of federal -
construction program contemplates the following estimated preemption and other principles, NOPSI should be permitted _=-
expenditures (including AFUDC): to recoser,in full, costs charged to it under FERC-1986 appmved agreements for capacity and energy from Grand 4
- 1987 1988 inn miniono Gulf 1. Ilowever, the Council has expressed extreme T b
Construction expenditures $422.1 5463.2 $463.2 opposition to the inclusion of Grand Gulf 1-related costs in W
F AFUDC (included above) . $ 13.2 $ 16.8 $ 18.3 retail rates and has thus far allowed NOPSI only limited,
(- temporary and inadequate rate increases for recoveries of -
these costs. To the extent that NOPSI does not recover ,
The above construction expenditures and AFUDC estimates these costs,it would not require capital to finance the -
assume virtually no construction activities at Grand Gulf
'- " e-mentioned rate moderation plan, but would instead
- 2. See " Grand Gulf 2" below regarding the current review .
contmue t require substantial additional capital to finance of plans for this unit. A limited amount of construction on its operating costs if NOPSI fails to receive adequate rate
_=
- Grand Gulf 2 was performed during 1985 prior to suspension _
relief m the immediate future it would need sufficient capital of construction activities on September 18,1985. Through December 31,1985, N1SE had invested $4,225 million I b1SU to meet its ongoing operating expenses, resulting E
(excluding nuclear fuellin the Grand Gulf Station. N15E
.in"*dd.
a ition I capit I requirements. .
lT estimates, pending a final review of the cost allocation Capital Requirements with Respect to Refinancing. The ___
m between the two units, that of this total, $3.288 million N1iddle South System will also require approximately $1,757
.- was invested by 51SE in Grand Gulf I and $937 million in million through 1988 to refinance maturing long-term debt -
$ Grand Gulf 2. and to meet cash sinking fund requirements with respect .
to st nutgage bonds and preferred stock. Of this amount, 5 Capital Requirements Associated with Rate Deferrals.
7 AP&L, LP&L and N1P&L have received authorization from ?' .m n n' presents W s payment oMgations under i i its vanns Nnowing anangements. See " Cap,tal i Funds, .__
their respective state regulatory authorities for cost recoveries 5 Av i bih,ty and Reallocation Agreements' below with from ratepayers which they believe will be sufficient to meet respect t obligations of N1SU to provide funds to N1SE - .
their respective purchased power expenses for Grand Gulf 1.
'i under certain circumstances.
As discussed below, NOPSI has not yet received adequate 5 rate relief to meet its Grand Gulf I purchased power Other Capital Requirement 3. Additional capital require-
- y
( expenses. These purchased power expenses arise under the Unit Power Sales Agreement which, as approved in the ments would result if nuclear fuelleases of AP&L, LP&L and N1SE, and financing arrangements of SFI in connection g
2 FERC's June 13 Decision, obligates the System operating with its nuclear fuel procurement and services program, all f of which are scheduled to terminate during the period
- companies to purchase all of NISE's share of the capacity f 1986-1988, are not extended or alternative leases arranged.
k and energy from Grand Gulf 1. (See Note 2 " Rate and N (See Note 9 " Leases" for further information regarding Regulatory Ntatters" for further information regarding '
I this Decision.) these possible terminations.) 1~
7 In accordance with the rate structures implemented for Dividend Suspension
'g AP&L and 51P&L and assumed to be implemented by LP&L, in view of the deterioration of their financial condition i t these companies will require additional capital of approe following commercial operation of Grand Gulf I and ?
imately $1,457.3 million through 1988, because of rate related liquidity problems stemming from state and local g moderation plans in connection with Grand Gulf I-related regulators' delays in approving rate increases, as well as the costs for AP&L and N1P&L and Waterford 3 costs for LP&L. disallowance of portions of AP&L's and LP&Cs retail rate w
.- NOPSI has proposed a rate moderation plan in connection requests, the System operating companies determined not .-
{ with a rate application currently pending before the Council to declare dividends on their common stock for the last two %_
_=- with respect to its Grand Gulf 1-related costs. (See Note quarters of 1985 and the first quarter of 1986. As a result,
" Rate and Regulatory N1atters" for information with 2 N15U was unable to declare its common stock disidend for respect to such rate moderation plans.) Assuming NOPSI these same three quarters. In addition, LP&L is in arrears -
receives adequate rate relief in the immediate future and its on one quarterly preferred stock dividend payment and C._
~
NOPSI has not declared two quarterly dividend payments Given the substantial amount of N1SE's debt,it would on its preferred stock. Further, NOPSI is in arrears on a not be able to meet its obligations,if accelerated. Under [
portion of its 1986 preferred stock sinking fund payment. 51SE's financing agreements N1SU, and not the System LP&L and NOPSI cannot pay dividends on their common operating companies, would be responsible to pay N1SE's ,
I stock until all of their respective preferred stock arrear- accelerated obligations if NISE could not. NISU, with ages have been made up. NISE has likewise not declared a financial resources currently limited, including limitations g common dividend because of limitations under its bank on its ability to borrow funds or issue additional shares of loan agreements. The amount of dividends on common its common stock, would not at this time be in a position ;
stock that NISU can expect to receive in the future will be to satisfy N1SE's obligations,if accelerated.
contingent on the future earnings of the System operating Also, certain of SFI's financing agreements and leases -m may require payments by the System operating companies, :
companies and N1SE, limitations in N1SE's financing agreements, the ability of LP&L and NOPSI to make up N15U or N1SE in the event SFl's obligations under such _
the above-mentioned arrearages with respect to their pre- agreements are accelerated as a result of the insolvency of _
ferred stocks, and NOPSl's legal ability to pay disidends. NOPSI and SFl is unable to meet these obligations or other-N1SU is the sole source of common stock equity for N1SE wise to satisfy these obligations through the sale of the z and the System operating companies. In this regard, the collateral securing such obligations. In addition, insolvency 3 lack of common stock dividends from its subsidiaries, of NOPSI would affect terms of financing, including an together with the continuing suspension of its offerings of increase in cost of financing, or could preclude financing '
additional shares of common stock under various programs, for other N1iddle South System companies. Under these will further strain N15U's financial resources which could circumstances the continuin t viability of the Niiddle South _
prevent NISU from having the requisite funds to proside System would be placed it, jeopardy, with pospble bank- .
common stock equity to N1SE or the System operating ruptcy filings for one or more of the insolvent htiddle companies. South System companies. }
Potential Debt Acceleration and Viability Capital Funds, Availability and of the Middle South System Reallocation Agreements '
As discussed above, NOPSI has not yet receised adequate Under the Capital Funds Agreement, as supplemented, rate relief with respect to its Grand Gulf I costs. NOPSI the Company agrees to supply or cause to be supplied to -
believes that it should be entitled to a retail rate structure N1SE (1) such amounts of capital as may be required in permitting it to recover fully N1SE's charges for Grand Gulf I '
order to maintain equity capital at an amount equal to at capacity and energy. As discussed in Note 2 " Rate and least 35% of N1SE's total'eapitalization and (2) such amounts -
Regulatory N1atters" a federal appellate court has ruled that of cap tal as shall be required in order tal for N1SE to NOPSI's application for rate relief in connection with its construct.own and place in commercial operation the Grand =
allocated share of the costs of Grand Gulf 1 is a matter of Gulf Station,(b) to provide for pre-operating expenses and _
federal jurisdiction. However, as a result of the extreme interest charges of N1SE and for commercial operation of -
opposition of the Council and substantial uncertainties the two units, and (c) to pay in full all indebtedness for regarding the timing and outcome of the various decisions, borrowed money whether at maturity, on prepayment,on -
NOPSI cannot predict when the final rate structure acceleration or otherwise. In addition, the Company agrees supporting its payment obligations in respect of Grand Gulf 1 to make cash capital contributions to enable N1SE to make ,
will be in place or whether adequate rate relief will be pyments on its borrowings.
forthcoming. Without adequate rate relief for Grand Gulf 1, NOPSI currently projects that at sometime during the first The System operating companies are severally obligated -
2 half of 19h6 it would be in the position of not being able to under the Availability Agreement in accordance with stated -
meet its payment for capacity and energy for Grand Gulf 1. percentages ( AP&L 17.1%, LP&L 26.9%,51P&L 31.3%, -
Unless (1) waivers were obtained,(2) the debt were NOPSI 24.7%) to make payments or subordinated advances -
restructured or (3) other arrangements could be negotiated, adequate to cover all of the operating expenses, including '
the failure of NOPSI to meet a payment for capacity depreciation, of N1SE. The System operating companies in
=
and energy from Grand Gulf I might, technically under November 1981 entered into a Reallocation Agreement certain agreements related to NISE's indebtedness, lead to which would have allocated the capacity and energy acceleration of such indebtedness. In the absence of such available to N1SE from the Grand Gulf Station to LP&L, -
waivers, debt restructuring or other negotiated arrangements. N1P&L and NOPSI. These companies thus had agreed to assume all the respimsibilities and obligations of AP&L with I acceleration of such indebtedness could also occur d NOPSI were rendered insolvent by its failure to obtain rate relief respect to the Grand Gulf Station under the Availability ,
or under provisions of N1SE's bank loan agreements requiring Agreement and Power Purchase Advance Payment Agree- =
that all System operating companies secure acceptable retail ment with AP&L relinquishing its rights to the Grand rate relief in respect to Grand Gulf I by June 30,1986 Gulf Station. Each of the System operating companies, i
35
.v m.w ..
Notes to Consolidated Financial Statomonts Sfiddle South Utilities. Inc. & Subsidiaries including AP&L individually, would have remained primarily if it is ultimately decided that Grand Gulf 2 should be liable to h1SE and its assignees for payments or advances cancelled, there can be no assurance that N1SE would recover under these agreements. AP&L would have been obligated the full amount of its investment in the unit. N1SE believes to make its share of the payments or advances only if the that its investment has been prudent and will take all actions other System operating companies had been unable to meet necessary before the FERC and the courts to attempt to their contractual obligations. Ilowever, the FERC's June 13 recover its investment through rate relief. Such actions would Decision superceded the Realk> cation Agreement insofar likely invohe a filing with the FERC requesting recovery as it relates to Grand Gulf 1. of its full investment.over a period of years, through charges to the System operating companies. As in the case of rate Grand Gulf 2 relief necessary to recover Grand Gulf I costs, discussed As of December 31,1985, Grand Gulf 2 was approximately above, such proceedings, and related proceedings before 34% complete based on the estimated man-hours needed to state or local regulatory authorities with respect to retail complete the unit. From late 1979 until September 1985, rates, could be protracted and strongly contested on various only a limited amount of construction was performed on grounds, including imprudence. If Grand Gulf 2 were Grand Gulf 2. Effectise September 18,1985,51SE suspended cancelled and N1SE were denied recovery of all or a sub-
~
construction activities and ceased accruing AFUDC on stantial amount of its investment in the unit through rates. '
Grand Gulf 2 following an order of the h1PSC. As an the unrecovered costs would be charged under current addendum to the order, the h1PSC advised h1P&L and N1SE accounting principles against earnings in the period w hen that it was the h1PSC's position at this time that any potential such denial becomes final. In this event, the financial plan for recovery by h1P&L of" sunk costs"in Grand Gulf 2 condition of N1SE would be materially and adsersely through retail rates is unjustifiable. N1SE has now determined affected (although its cash position would not be adversely to continue with full suspension of construction on Grand affected). If MSE's investment in Grand Gulf 2 were Gulf 2 until further evaluations are made, w hich are estimated alh>cated to the System operating companies and they were
~
to be completed sometime in 1986, and to limit expenditures unable to recover these costs from their customers, the to only those activities which are absolutely necessary for System operating companies' financial condition might be demobihzation and suspension. Because of serious financial adversely affected. In addition,if MSE were forced to restraints on the Middle South System, completion of Grand
, write-off all or substantially all of its investment in Grand Gulf 2 appears unlikely. However, before a final decision Gulf 2 and MSE does not recover this investment from the is made, consideration wdl be given to various long-term System operating companies, MSU's financial condition might economic factors and regulatory agency requirements be adversely affected since MSU is required to cause N1SE applicable to Grand Gulf 2. MSE had been accruing and to maintain a 35% equity ratio at all times under the Capital capitah,zmg AFUDC on its investment in Grand Gulf 2 Funds Agreement and the write-off could cause MSE's at the rate of approximately 58 milhon per month. The equity capital to drop ben 35%. MSE could seek to cessation of AFUDC has resulted and will result in a alleviate the strain on MSU by requesting waivers or corresponding decrease m MSE s earnmgs.
amendments of this equirement from its creditors but no Pursuant to MSE s domestic bank loan agreement, MSE.
assurance can be given that such waivers or amendments has covenanted to h,mit capital expenditures (other then could be obtained. See " Capital Funds, Availability and those required by regulation) to not m excess of 580 mill. ion Reallocation Agreements" above for further information per annum in the aggregate. Unless waived, this covenant regarding MSU's capital ecmmitments to MSE. Also, would preclude resumption of full construction of Grand reference is made to " Proposed Amendments to SFAS No.
Gulf 2 prior to 1989, or until the final payment owed under 71" Mow for information concerning an accounting standard the domestic bank loan agreement in 1985 .s reduced t? which addresses the accounting treatment of issues similar
$123 million or less as a result of prepayments by MSE.
to those discussed herein. Revisions to the accounting However, MSE has covenanted with certain of its first treatment of plant cancellation costs are being considered mortgage bondholders that it wdl complete Grand Gulf 2 no which could require recognition of a loss at the time a later than December 31,1988. MSE will seek from such cancellation becc nes probable rather than at the end of bondholders whatever waivers or amendments are necessary regulatory proceedings to recover such costs and change to modify these requirements in accordance with MSE s the timing of loss recognition to require losses to be realized decision concerning the future of Grand Gulf 2, but no currently where this is not now required.
r ssurance can be given that such waivers or amendments will be obtained. MSE has also covenanted with the foreign banks that it will use its best efforts to complete the Grand Proposed Amendments to SFAS No. 71 Gulf Project (which, as defined, includes Grand Gulf 21 as The accounting standards related specifically to public soon as practicable. MSE has negotiated changes, expected utilities and certain other regulated enterprises are promul-to be effective in August 1986, which would eliminate gated by the Financial Accounting Standards Board IFASB) this requirement from the foreign bank loan agreement. in SFAS No. 71 (SFAS 71). In December 1985, the FASB 36
issued an Exposure Draft proposing certain amendments cover classes who purchased htSU common stock over to SFAS 71 which,if adopted as nroposed, would become varying periods of time) in federal court.These complaints effective for fiscal years beginning after December 15, have been consolidated in the U.S. District Court for the 1986 with retroactive application for prior transactions. Eastern District of Louisiana.The Consolidated Amended The Exposure Draft proposes amendments to the accounting and Supplemental Complaint alleges violations of the for: (1) the phase-in of rates associated with the costs of disclosure requirements of the Securities Exchange Act of 19M and the Securities Act of 1933, common law new generating plants,(2) abandonments of partially completed generating plants and (3) disallowances of costs fraud and common law negligent misrepresentation in associated with newly completed generating plants. The connection with the financial condition of NISU and prays proposed amendments,if adopted in their present form, for compensatory and punitive damages, legal costs and could have a material adverse impact on N15U, AP&L, LP&L, fees and other proper relief against htSU, various other h1P&L and htSE, due to the revisions proposed in the Niiddle South System companies, including certain officers accounting treatment of phase-in plans and plant costs. (and former officers) and directors of $1SU, the Company's Specifically, AP&L and h1P&L are subject to rate phase-in outside auditors and certain underwriters of N1SU Common plans for recovery of costs related to Grand Gulf I which, Stock. While htSU and the other defendants are resiewing in their present form, meet the current requirements the allegations and plan to assert all available defenses of SFAS 71, but may not meet the requirements in the thereto, they believe that N1SU's disclosure of its financial Exposure Draft. AP&Us settlement agreement and h1P&Us condition was in compliance with applicable SEC require-phase-in plan provide mechanisms for addressing an adverse ments. Ilowever, the eventual outcome and impact on the impact on costs recoverable under the plans associated hiiddle South System's financial condition cannot be with a change in circumstances, including a change in predicted at this time.
accounting standards. If the proposed revisions become SFl and MSS effective and apply to these plans, AP&L and h1P&L will SFl has a number of contracts for the purchase of fuels attempt to use these mechanisms to make appropriate im use at vadous gennating stauons withm the Sliddle revisions. LP&Cs emergency interim retail rate order South System. Among the contracts is one for an estimated includes the disallowance of $284 million of costs of I n n tons o coal, with an option to purchase an Waterford 3, and also contemplates the deferral of certain .y
" '""""I m on tons, fm & s pmposed Wilton other Waterford 3 costs on terms which have not yet been anon (d.iscussed below), another for up to 183 million tons specified, and accordingly the deferral cannot be evaluated coal for use t the Independence Station m Arkansas in terms of the requirements of the Exposure Draft. Under and another for 33 million tons of hgnite for AP&Us share the new proposal, the disallowance would be recognized as ,
a loss. This loss, net of related tax benefits, would be " " I"I"" P".wn stat n in Arkansas. In addinon, SFl has a long um mi supply agreement with a major oil company reported either by restating the appropriate prior years. pai ng Im d e purchase of 25,(XX) barrels of oil pei day financial statements or by charging it against current through 1996 w}ith an option to reduce, within certain h,mits, income. Finally,if it becomes probable that Grand Gulf 2 the contract quantity either temporarily or permanently.
will be abandoned and if the amendments are adopted in An agreement was reached, effective June 1,1985, tempo-their present form, N1SE would have to remove its cost rarily reducing SFPs obligation to purchase fuel oil to from construction work in progress and record a deferred y(X),(XX) barrels per month through November 1987. AP&L asset representing the present value of the amount expected is currently purchasing coal for the White Illuff Stanon to be recovered through future rates in connection with under an agreement that will provide approximately 1(X) the abandonment. Any difference between this present million tons of coal oser a twenty-year period.
value and the carrying value of Grand Gulf 2 would be LP&L, by separate agreement, guaranteed SFrs perform-recognized as a loss. This loss, net of related tax benefits, ance under the coal contract for the Wilton Station and would be reported either by restating the appropriate prior "E"#d to purchase the coal from SFl. SFI advised the coal years' financial statements or by charging it against current supph.er that because of forces beyond its control, meluding income. The hiiddle South System companies are studying in particular the regulatory situation, the earhest possible the Exposure Draft; however, until the FASI3 issues a new dates the the two units of the Wilton Station could be Statement of Financial Accounting Standards which amends put into operation are 1993 and 1995, respectively, and SFAS 71, the hiiddle South System companies cannot further that the Station might be delayed to a time that determine what will be the specific impact of the final wuld make the existing contract non-viable. In August changes,if any. 1985, SFI further advised the supplier that, based on its latest appraisal, for planning purposes, the System's Stockholders' Sult requirement for additional coal capacity is now forecast During August and September 1985, five purported class to be in a time frame which makes the existing contract action suits were filed by h15U stockholders (purporting to in fact non-viable. The suppher has refused to agree that 37
- - ' mia b
Nstes to Censslidat:d Fincncict Statements
&fiddie South Utilities, Inc. & Subsidiaries regulatory constraints or any other difficulties have costs of replacement power incurred due to certain prolonged constituted events of force majeure under the coal supply outages of nuclear units (NEll11. In addition AP&L, LP&L agreement. Upon receipt of the August 1985 notification, and htSE are member-insureds under NEIL 11 w hich the supplier filed a Demand For Arbitration under the prosides $550 million of coverage for property damage sus-coal supply agrNment to establish that the agreement tained by the insured in excess of $500 million caused by remains in full Srce and effect and that SFI is not radioactive contamination or other specified damage. LP&L excused from performing its obligations and, alternatively, and htSE are member-insureds under a primary property that SFI's actions constitute anticipatory repudiation of the damage insurance program provided by Nuclear h1utual coal supply agreement. Resolution of this matter could Limited, another mutual insurer. As member-insureds with possibly expose SFI and LP&L to claims for significant these mutuals, AP&L, LP&L, N1P&L and 51SE are subject damages in the event SFI does not ultimately prevail in to assessments if losses exceed the accumulated funds asserting that events of force majeure have excused available to the insurer. The present maximum assessment performance or in the event efforts to mitigate any possible for incidents occurring during a policy year is approximately damages are unsuccessful. The parties have agreed to a 523 million, $33 million,51 million and 540 million for postponement of the arbitr~ tion on the basis that it can be AP&L, LP&L, N1P&L and htSE, respectisely.
restarted by either par.y on 10 days notice. Spent Nuclear Fuel and Decommissioning Costs 51SS has equipment commitments and related storage Under the terms of their nuclear fuel leases, AP&L, LP&L and insurance costs aggregating approximately 531I million and N1SE are responsible for the disposal of spent nuclear through 1993 relating to the deselopment of a standard fuel. These companies consider all costs incurred or to be design for the construction of coal-fueled or lignite-fueled incurred in the use and disposal of nuclear fuel to be proper generating stations for the hiiddle South System, w hich a>mponents of nuclear fuel expense and provisions to recover have been indefinitely delayed. Of this amount, apprmimately such costs hase been or will be made in applications to
$53 million had been recorded as a loss contingency at regulatory commissions. The affected hiiddle South System December 31,1985 by the various System operating com. companies have executed contracts with the Department panies. Amounts paid by htSS on these commitments will of Energy (DOE) whereby the DOE will furnish disposal be billed to the appropriate System operating companies service for the companies' spent nuclear fuel at a cost of to the extent incurred. one mill per kilowatt-hour of gross generation on or after April 7,1983 plus one-time fees for previously discharged
"#"" "' "# "'"# #' " " "'#' ^
- A Dece er 85, the Price-Anderson Act ( Act)
'# # # """""*""""# Y # P"Y '
limited the public liability of a licensee of a nuclear power one me ee, us ntaen acauni unW (law M payment, plant to 5650 million for a single nuclear incident. This limit will increase by $5 million for each additional operating
""#" " "" ^ "S * #""' "PP'"I*"I#'Y 562.7 million necessary for payment to the DOE for the license issued by the Nuclear Regulatory Commission (NRC).
Insurance for this exposure is provided by private insurance disposal of all spent nuclear fuel on hand at April 6,1983.
in addition to the recovery of costs associated with the and an mdemnity agreement with the NRC. Every licensee of a nuclear power plant is obligated,in the event of a
"! P""' "" #"' "# ^ "#"""E"#"'Y*
nuclear incident involving any commercial nuclear facility in the United States that results in damages in excess of
""#"'"" "'# "P"" " ""Y P" ""*"E "' "*"
A
"[b
"" #"' P'""I ##""'" "" "E "* # '"
the private insurance, to pay retrospective assessments of '# P'"I## ".'
up to $5 million per inciden't for each licensed reactor it
- " "*"""^
" "4"## ""*#" "*"'
operates or up to a maximum per reactor owned of $10
'""#"'"' "*" '" " P P " "* *E"'"'"'I #"* *i"i""
million in any calendar year. The hiiddle South System has LP&L and NOPSI Consolidation four licer. sed reactors. This Act is scheduled to expire in In the interest of increased economic efficiency, LP&L August 1987, and the U.S. Congress is considering several and NOPSI have developed a plan to consolidate the two proposals to amend it. The htiddle Sou:h System is unable to companies and their operations. Under the proposed predict w hat action Congress might ultimately take regarding arrangement, subject to the receipt of necessary regulatory the Act and what affect such action might have on the and other approvals, the two companies would be consoli-System's potential liability, dated into a new company to be called leuisiana Power &
Light Company. htSU, which currently owns all the AP&L, LP&L and h1P&L are member-insureds of Nuclear outstanding common stock of LP&L and NOPSI, would Electric Insurance Limited (NEIL), a mutual insurer that ov.. all the common stock of the new company.
provides its members with insurance coverage for certain 38
Note 9. Rental expense for capital and operating leases (excluding Leases nuclear fuel leasest amounted to approximately $70.5 million,568.2 million, and $58.3 million in 1985,1984, The Company's operating subsidiaries account for leases and 1983, respectively.
entered into prior to 1983 on the same basis as that used Three subsidiaries hase entered into nuclear fuel leases by their respective regulatory authorities in the ratemaking aggregating 5455 million. The leases, unless terminated process that determines the resenues utilized to recover sooner by one of the parties, will continue through 2018, the lease costs. The Company's operating subsidiaries account 2028, and 2029. Credit lines supporting these nuclear fuel for capital leases entered into subsequent to 1982 in ac- leases hase not been extended and the lines of 575 million cordance with SFAS No.13 and SFAS No. 71. and $3MO million are currently scheduled to terminate in Beginning in 1987, compliance with SFAS No. 71 for 1986 and 1987, respectively, unless present credit lmes are capital leases entered into prior to 1983 (excluding nuclear extended or new lines are secured. It is currently assumed fuel leases), absent the treatment as an operating lease in that such credit lines will either be extended pursuant to the ratemaking process, will require recording the following agreements subsequently negotiated or that alternative new assets and liabilities on the balance sheet: lines will be secured. Lease pay ments, which are not included in the tabulations abose, are based on nuclear 1985 19M 1983 fuel use. Nuclear fuellease expense of $111.M million, ein thouunilu
$72.7 million, and 549.7 million was charged to operations Assets: in 1985,19M, and 1983, respectively. The unrecosered Utility plant. 5136.076 5136,245 5139,204 cost base of the leases was $400.1 million. 5433.1 million, Accumulated and 5431.4 million at December 31,1985,1984, and amortization (32.522) (29,188) (26,367) 1983, respectively.
Net 5103,554 5107,057 5112.837 Note 10.
Other property Postretirement Benefits and investments
- net 5 35,718 5 38.151 5 40.585 The companies of the Middle South System have various Liabilities: postretirement benefit plans cosering substantially all of Non-current their employees.
obligations under Pension plans are administered by a trustee who is capital leases . . 5144.472 5149.060 5155.869 responsible for pension payments to retirees. Various investment managers have responsibility for management Current obh.gations of the plans' assets. In addition, an independent actuary under capital performs the necessary actuarial valuation for the individual leases. $ 12.923 5 13.279 5 13,420 company plans.
Total pension expense of the Company and its subsidiaries The recording of such leases would not materially affect for 19MS,19M, and 1983 was 517.1 million,528.4 millien, the amounts reported as either expenses or net income. and $24.9 million, respectively. Of the total pension expense, At December 31,1985, the System companies had non- NOPSI's transit related pension expense for 1983 was 51.2 cancellable leases (excluding nuclear fuel leas.es), presently million. There was no transit related pension expense for accounted for as operating leases, with minimum rental 1985 and 19M due to the removal of transit employees from commitments as follows: NOPSI's actuarial valuation. The decrease in 1985 pension expense compared with 1984 results primarily from changes lin thouundo in actuarial assumptions and in actuarial cost methods by 5 65,789 certain of the System companies. The principal elements 1986 66,925 included in the assumption changes were an increase in 1987 .
the assumed rate of return used in determining the actuarial 1988 . 56.6M9 57,625 present value of projected plan benefits from 7% or M% to 1989 . .
51,056 9% and an equivalent increase at each age in expected 19(X) .
415,575 salary increases for active plan participants. In addition.
For years thereafter
'# "" # * '"
- P"" #' ""E # "#'" ""
Total 5713 659 method and the amortization method for recognizing the 39
Notes to Consolidated Financial Statsmonts Middle South Utilities. Inc. & Subsidiaries difference between assets and past service liabilities. These benefits if they reach retirement age while still working for changes had the net effect of reducing 1985 pension expense the System companies. These benefits and similar benefits by $20.1 million. These decreases were partially ofIset by for active employees are provided through various means increases in pension expense of approximately 57.9 million including payments of premiums to insurance companies due to amendments effective January 1,1985 to comply and/or accruals for self insurance policies managed by with the Retirement Equity Act and a special early retire- insurance companies. The System companies recognize the ment program, which was offered for a limited period in cost of providing these benefits by expensing the payments 1985, to certain employees of certain System companies. made to the insurance companies or accruing the cost as The comparison of the actuarial present values of recommended by the managing insurance company. The accumulated pension plan benefits and plan net assets for cost of providing these benefits for retirees is not separable the defined benefit plans is presented below. This comparison from the cost of providing benefits for active employees.
was determined in accordance with the provisions of The total cost of providing these benefits and the number SFAS No. 36 which requires the use of certairi assumptions of active employees and retirees for the last three fiscal that are different from those used by the Company's years were as follows:
actuary in determining an appropriate level of funding for tl e Company. 1985 19M 1983*
Total cost of health care and January I- life insurance 1985 1984 (in thousands) $19,771 520,874 519,277 tin thousando umher of active employees 13,224 12,961 13,012 Actuarial present value of 2,435 2,245
. Number of retirees 2,417 accumulated pension plan benefits:.
Vested 5261,781- $229. BOO Nonvested . 15.481 13.316 Total. 5277.262 5243,116
~
Net assets available for Note 11. 1 pension benefits $446,757 5430.316 Settlement Agreements with Gas Suppliers w A dispute between a gas supplier and LP&L arising from The assumed rate of return used in determining the actuarial the gas supplier's claimed inability to deliver full quantities present value of accumulated pension plan benefits was 9%. of fuel gas due 1 P&L under several natural gas contracts The 1985 and 19M present value of accumulated benefits was settled by the execution of a settlement agreement on and the salue of assets do not include amounts attributable June 4,1982. The settlement agreement provides for the to former transit related participants. As part of the sale of payment of $1.087 billion in cash plus a guaranty of savings the transit operation on June 30.1983 (see Note 12), NOPSI of at least $585 million in certain gas acquisition costs agreed to transfer the assets and liabilities of the transit between 1982 and 1996. In N1 arch 1983, the LPSC ordered related participants to a separate plan (to be maintained by in general that the refunds be made as follows: the 5587 the successor employer). The procedure for determining million received by LP&L on June 4,1982, plus interest, or the amounts to be transferred is indicated in detail in the a total of 5637 million, shall be refunded in 1983; the 5250 Sale Agreement, and the amounts have been determined million received in January 1983 shall be refunded in 10 by NOPSI. While such transfer is effective as of the date of equal annual installments beginning in 1984; and the $250 the sale, the assets and liabilities have not yet been physically million received in January 19M shall be refunded in nine transferred to a successor plan pending agreement by the equal annualinstallments beginning in 1985. In addition, successor employer. in February 1984 the LPSC ordered LP&L to refund 532.6 The System companies also provide certain health care million, representing interest not already covered in its and life insurance benefits for retired employees. Sub- N1 arch 1983 refund order, to customers in equal annual stantially all employees may become eligible for these installments over a nine-year period beginning with the 1985 refund. As a result of the LPSC orders, LP&L accrued in 1985,19M, and 1983 net interest expense in the amounts .
of 5.2 million,59.2 million, and $11.1 million, respectively.
Two lawsuit; between h1P&L and a gas supplier arising from h1P&L's claim that the gas supplier breached the terms ..
40
i a
of a Gas Sales Agreement were settled by the execution of Note 13.
a Settlement Agreement between the parties on September Quarterly Results (Unaudited) 25,1985. The settlement required that the gas supplier pay MP&L 5165 million on September 25,1985 and an Consolidated operating results for the four quarters of additional 517.5 million by September 25,1987. The use 1985 and 1984 were as follows:
and disposition of the settlement proceeds and the interest ,
enned on those proceeds are subject to the jurisdiction of Quarter Operating Operating In e (I s the MPSC which has not yet ruledm, the matter. Ended Revenues income (Imss) Per Share tin thousands.cxcept per share amounts)
March . 5754,147 5147,587 5135,466 5 0.71 Note 12. 5749,937 5139,286 5125,147 5 0.63 June Transit Divestiture .
5288,108 5149,357 5 0.73 September. 5948,543 December . 5785,832 5141,070" 5 (8,979)" 5(P.04)"
On June 30,1983, NOPSI sold and transferred to the 19848 Regional Transit Authority (RTA), a political subdivision 5740,M9 5124,581 5134,168* 5 tu 0
- March . . .
of the State of louisiana, various properties and assets related 5105,598 June . . 5729,231 5129,523 5 0.61 to NOPSI's operation of the transit system in the City of 5193,656 5175,725 5 0.96 September. 5953,491 New Orleans for a purchase price of $21.0 million. Under December . 5723,2M 5105,654 5 92,946 5 0.49 the sale agreement, NOPSI paid 57.3 million in cash to RTA and agreed to reimburse RTA or Transit Management of
- Includes the net cumulative effcci of a change in account-Southeast Louisiana, Inc. 513.0 million, plus a 9% upward ing method. effectiw /armart 1.19s. of apprmimately J17.6 m e!/ ion and 59.1/ per share for the quarter ending Afarch 31.194 adjustment factor per annum, for future disability insurance l'## #" #^
premiums or welfare benefit payments for all retired and disabled transit and transit related emplayees of NOPSI and " Includes the net effect of certain pmvistoru for estimated losses recorded in December of appmximately Joo.1 million or J0.33 their respective dependents and survivors. The bahnce for per share. The decrease /mm the quarter ended December these benefit payments was 59.1 million as of December 31, '""'# # '"*## I*'" "# '^# ###"' " ""
1985. As a conse4uence of this transaction, NOPSI disposed having entered commercial operation without retail mies m place of its entire interest in the transit business. The results of to recover NOPSrs cmti anociated with thh unit. (2s the absence the discontinued transit operations in the 1983 consolidated of an AFUDCaccrualon the Grand Gulf Station and Waterford 3 income statement have been accounted for n miscellaneous during thefourth quarter of 19M an](3) the recording of certain F**"# 'u/ r enimatedlaues at n redab ve tsce 5fanagenient's income. This amount includes revenues from transit opera- "#"#'"# U#"**#"" ""# #""#
- '" - ##'"#" "I U##*'*"' #
tions for the six months ended June 30,1983 of 530.5 million and a gain from the sale of transit operations, before The business of the Middle South System is subject to in ome taxes, of $2.2 million. Income taxes in 1983 related seasonal fluctuations with the peak period occurring during to transit operations and the gain on the sale of transit the summer months. Accordingly, earnings information operttions have been accounted for, on a consolidated basis, for any three-month period should not be considered as a as income taxes on other income. basis for estimating results of operations for a full year.
Note 14.
Effect of inflation on Operations (Unaudited)
The following supplementary information about the effect of changing prices on the Middle South System is provided in accordance with the requirements of SFAS No. 33," Financial Reporting and Changing Prices',' as amended by SFAS No. 82. It should be viewed as an estimate of the effect of changing prices rather than as a precise measure.
l 41 l
m E Notes to Consolidated Financial Statomants 3fidJIe South Utilities. Inc. & Subsidiaries Statement of Income from Operations and Other Financial Data Adjusted for Effects of Changing Prices for the Year Ended December 31,1985 E tin thousandu y As Reported in Changes in the Financial Specific Prices E
Statements [ Current Cmts}
m E Operating revenues * . .. . 53.238,459 53.238.459 m
q Operating expenses (excluding depreciation)* . . . . 2,256,908 2,256,908 1 Depreciation . . .. . . . . . . 265.500 507.6M4
[ Total operating expenses. . . . 2.522.40X 2,7M,592 E Operating income . . . . 716,051 473,867
[ Other income' . . . 3N)020 3N),020 Interest and other charges *. . . 695,080 695.ON) g Income from operations (excluding adjustment to net reemerable cost) . 5 400,991 5 158,807 g Increase in specific prices (current co3ts) of property, plant, and equipment i held during the year" . . 5 538,948
= Adjustment to net recoverable cost . (34,1961 E Effect of increase in general price level .
(688.369)
[ Excess (deficiency) of increase in specific prices after adjustment y to net recoverable cost, over increase in general price level . (183,617) g Gain from decline in purchasing power of net amounts owed 298.271 L Net ..
5 114.654
_it
- Anumed to be in "arerage for theyear"Jollars and thus are not rntated.
= **At December 31.1985 current cost ofproperty, plant, and equinment, net of accumulatcJ dern ciation. was Sl9.241 tm2.tMM while w historical cost or net cost recoverable thnmgh deprecinnion was $12.fm2.WMIMM E
w 1
Current cost amounts reflect the changes in specific The regulatory commissions to which the Company's prices of property, plant, and equipment from the year of subsidiaries are subject allow only the historical cost of
=
= acquisition to the present. T he current costs of property, plant to be recovered in revenues as depreciation. There-E p!nt, and equipment, which represent the estimated costs fore, the excess cost of plant stated in terms of current cost E of replacing existing plant assets, were determined by over the historical cost of plant is not presently recoverable E applying the llandy-Whitman Index of Public Utility in rates. This excess (deficiency)is reflected as an adjust-E Construction Costs (llWI) to the cost of the surviving plant ment to net recoverable cost. While the ratemaking process
= by year of acquisition. Land and certain other plant assets gives no past recognition to the current cost of replacing h that are not included in the llW1 were converted using the property, plant, and equipment, the Company believes.
= Consumer Price Index for all Urban Consumers (CPI-U). based on experience, that it will be allowed to carn on the
[ The current year's depreciation ex9ense on the current increased cost of its net investment w hen replacement of g cost amounts of property, plant, and equipment was facilities actually occurs.
E determined by applying the Company's depreciation rates To properly reflect the economics of rate regulation in to the indexed amounts. the above Statement, the adjustment of net property, plant,
"; Fuel inventories, oil and gas reserves, the cost of fuel and equipment to net recoverable cost was adjusted by the
- used in generation, and gas purchased for res
- de were not gain from the decline in purchasing power of net amounts restated from their historical cost in nominal dollars. owed which is attributable to the substantial amount of debt llt Regulation limits the recovery of fuel and purchase I gas financing. During a period of ir flation. holders of monetary 6- costs to actn.d costs incurred through the operation of assets suffer a loss of general p 1rchasing power while m adjustment clauses or adjustments in basic rate schedules. holders of monetary liabilities experience a gain. Since g For this reason, fuel inventones and oil and gas reserves the depreciation on this plant is limited to the recovery of are effectively monetary assets. historica' costs, the Company does not have the opportunity
, As prescribed in SFAS No. 33, income taxes were to realize a holding gain on debt and is limited to recovery not adjusted. only of the embedded cor.t of ebt capital.
?
42 F
Fisc-Year Comparison of Selected Supplementary Financial Data Adjusted for Effects of Changing Prices Iin thouunds of aserage 19'6 dollarO 1985 1984 1983 _ 1982 1981 Oper: ting Resenues , .
53,238,459 53,258.2M5 53,141,727 53.172,142 53,219,65M Ctrrent Cost Inforn.ation:
Income from operations (excluding adjustment to net recoverable cost) , 5 158,807 % 252,919 5 142,002 5 M9.2fd) % 90,651 '
Income per common share (after disidend requirements on preferred stock and excluding adjustment to net recoverable cost) .. .. ... . % 0.N) $ 1.42 % 0.93 5 0.67 % 0.79 Excess (deficiency) of increase in specific prices, after adjustmem to net recoverable cost, over increase in general price level . .. . $ (183,617) 5 (168,324) 5 (46,2(X)) 5 (48.416) 5 (450.485)
Net assets at year-end at net recoverable cost . . .
53,872,190 53,54;,983 53,t h6,4N) 52.7,M,861 52,501,538 General Information:
Gain from decline in purchasing power of net amounts owed .
5 298,271 5 302,995 5 273.959 5 245,994 5 512,h03 Cash dividends declared per common share . . . 5 0.89 5 1.81 5 1.85 5 1.M6 5 1.93 Market price per common share at year-c.id . . . % 10h 5 14 % 14 % % 16% 5 14 %
Average consumer prire kndex . . 322.2 311.1 298.4 289.1, 272.4 Selected IInancial Data - Fise-Year Comparison lin thouunds escept per share amountu 1985 1984 1983 19X2 1981 S 3,238,459 5 3,146.035 5 2,909.657 5 2,M46,2M 52,722,020 Net operating revenues .
s 400,991 5 508,437 % 378,050 5 310.595 5 281,4X3 Net income . ..
. Earnings per share S 2.01 5 2.h6 5 2.46 % 2.33 5 2.44 Dividends declared per share $ 0.89 % 1.75 % 1.71 5 1.67 % 1.63
$13,656,451 512.565,546 SI 1,107,166 510.3M,653 5M,318,556 Total assets . , .
leg-term debt (excluding
$ 5,680,590 5 5,865 W 5 5.032.175 5 4,429,447 53,8%,370 current maturities) .
Preferred stock with sinking fund . . $ 467,293 5 476/i28 5 429fd)1 % 354,957 5 300,219 Composite Common Stock Prices and Disidends by Quarter 1985 First Second Third Fourth Price Range liigh lmw $14%-12% $15Vcl2% 515%-M% 510%-h%
5.44h Dividend Declared 5.44 %
1984 Price Range
!!igh-l_ow %14%-12% 513 %-9 % $12%-10% $14%-11 %
Dividend Declared 5.43% 5.43h %.43h 5.44%
43
___ z , . . . _ . . , . . . . .. _
Censelidcted Summary of Financial Information for 1975 through 1985 Middle South Utilities. Inc. & Subsidiaries Consolidated Summary of Operations 1985 1984 1983
[
Operating Revenues:
Electric. . . S 3,0M,877 5 2,959.570 5 2.716.329 Natural gas . . . 153,582 186.465 193 328 Total . . . 3,238,459 3.146.035 2.909.657 Operating Espenses:
Operatian:
Fuel for electric generation. 1,tMll,373 1.020.280 94'2.219 Purchased power. . 230,399 291,129 373,712 w Rate deferrals . (236,676) - -
r Gas purchased for resale. 120,542 134,420 158,186
- Deferred f ael and other 593,571 465,713 363,509 L Maintenance. . 176,293 161,433 149.453 Depreciation. . . 265,500 192,452 183,171
- 132,759 Taxes other than income taxes . . 110,799 IN.493 Income taxes . 238.647 216 395 164,570 l Total. . . . 2,522,408 2.592.621 2.439 313 y Operating Income 716,051 553.414 470.344
- Other Inco:ne:
Allowance for equity funds used during construction. 217,734 301.123 245,M0 Miscellaneous income and deductions-net. 80,120 18.090 6,799 Income taxes-credit . . . 82,166 160.442 131.323 i Total . .. 380,020 479.655 383,762 Interest and Other Charges:
Interest on long-term debt . 697,853 636.390 529.597 Other interest- net. 53,306 57388 47.251
- Allowance for borrowed funds used during construction . (146,680) (235.873) (180.858)
E Preferred dividend requirements of subsidiaries. 90,601 M.353 80.066 Total . . 695.080 542.258_ 476.056
[ Income Before Cumulative Effect of a Change in Accounting Method. 400,991 490.811 378,050 Cumulative Effect to January 1,1984 of Accruing D Unbilled Revenues (net of income taxes of $16,548 thousand). -
17.626 -
Net Income . S 400,991 3 508.437 5 378.050 Earnings Per Average Common Share:
r Before cumulative effect of a change in accounting method . S 2.01 5 2.76 5 2.46 Cumulatise effect to January 1.1984 of
._ accruing unbilled revenues-net. -
0.10 -
Total . . S 2.01 5 2.86 5 2.46 Dividends Declared Per Common Share . S 0.89 5 1.75 5 1.71 Average Number of Common Shares Outstanding. 199,4 %,115 178.083,867 153383.N4
- Utility Plant and Capitalization (at Deceml>er 31)
= Fixed Assets:
Utility plant $14,143,738 513.294.825 511.942.417 y Less- Accumulated depreciation and amortization . 2,080,83M 1.856.279 1.694.475 m
Utility plant-net. $12.062,900 511.438.546 510.247.942
=
Capitalization:
m Common equity . S 3,907,159 5 3.472.246 5 3.001.542
= Preferred stock (including premium and issuance expense):
Without sinking fund 330,967 330,967 330.967 With sinking fund . . 467,293 476,928 429.601 Long-term debt (excluding currentl3 maturing debo . 5,680,590 5.8653N 5.032.17; f Total. . $10,386,009 510.145.445 5 8,794.285 h
Capitalization Railos:
Common equity 37.6 % 34.2% 34.1%
, Preferred stock Iincluding premium and issuance expense) . 7.7 8.0 8.7 g long-term debt (excluding currently maturing debt . 54.7 57.8 57.2
=
=
. ~_ _ -_ .-- - - - - - _ - - - . . ~ . _ . - . - - _ _
1982 1981 14p) 1979 197M 1977 1976 1975 iDollars in thousan(b.except per share amountM
$ 2,673,572 5 2,582,77M 52,179,232 51,671,491 $1.485,901 Sl 325,2M 51JkM,ll6 5 867,MI 139,242 l ib,0M 117.256 95,2M M33H4) 63.M52 48,92M 172.692 2 M46.2M 2,722,020 2.295.299 1,7MM,747 1.581,185 1,40M 3(M 1,127.96M 916.$ta 946,145 697J m 623,402 568,990 422,2(M 294,482 1 J)66.325 1.083.0M 263,559 25M,377 I33.929 M6.0M7 61.439 35,075 M5,076 2M1.951 107,76M M,N)1 68,657 58,577 37,M52 30,994 138,M90 MM.MM 171,91M 157,791 126 362 121,32M 2MM,283 307.21H 248.N)1 176.181 132,031 127,067 l(M,333 It4,Mo 93.2N) 67,150 53.863 46,815 167,725 158,2M 141,229 118,192 112,108 106,031 1(X).175 91,761 93,05M M2,5M 75.837 68,025 65JMM 59.6M M.MMM 10I .3Mi i57,514 161.053 M7,746 37.189 72,941 89.9(H 6M309 56.1MM 1.9M1,453 1.556,523 1,M4.240 I.199.918 929.M68 731,531 2 397.225 2 301.051 449,039 420,969 313.M6 232,224 2.% ,945 2083M6 19M,100 IM5J)38 143,369 122.277 124fM 93,573 65346 62,169 46J)M IM2.M2 24,249 M,272 7,206 7,89) 7.719 t1,9536 (6,279 p 7.133 M9.01D 63,452 38.59M 22,544 17,N)1 14.803 132.959 112 377 322,4M 279,995 219.556 194.744 1403)21 95.NN 78,017 54,5MM 441,894 199.212 153JN)5 132,719 113,4M6 4MM,750 327.468 255.242 43,990 23,161 1M,323 15,571 19,177 74,130 74,507 72JM (157,511) (117.663) 189,247) (54,7176 134,031) - -
(170.4381 68,436 N),591 55,024 36,2M 25.477 23.109 21.7N) 16,Nd) 337,495 193.133 IN).406 170,070 149,323 4N),M78 419.4MI 246.249 310,595 2MI,4M3 195,907 IN),719 183.M33 143,5M9 106fM7 90,303
_ _ _ _ _ _ _ m
% IN).719 5 IM3,M33 5 143,589 % 106JM7 % 90,303 5 310.595 5 281,4M3 5 195.907 2,44 2.12 5 2.43 5 2.16 5 1.M2 5 1.7M 5 233 5 5 2.01 5 5 2.33 5 2. U $ 2.01 5 2,12 5 2.43 $ 2.16 5 1.82 % 1.7M
?
$ 1.46 5 1395 % 1335 % 1,275 5 1.67 5 1.63 5 1.59 % 1.535 133,193,296 115,175.550 97,469.169 M5,444.691 75,522,179 66,59M 876 58.395.62M 9),733,7M2
$ 9J)N),436 57,M93ft% $7,002,052 56.052,023 55,lM3,2M 54,539,M91 53,953,814 110,4M,lMM 1,2M,525 1.139,lM l .03X 256 935.702 831,93) 747,612 1.551.700 1,407.5M 56,629.111 55.M62,MM 55.013,767 54,247,582 53.707,961 53,206.202 1 8.912.4MM 5 7.672.M52 51,901.2(M 51,659,7 % 51,412,254 51,196.427 51,010.27M 5 MM,035 5 2,481,916 5 2 lM5 M6 330,% 7 2N)712 2N),712 28),679 240,627 330,967 330,967 330.967 354,957 300,219 283,165 193,8n N)063 60.063 60,063 N)fl63 3 392,309 2,629,711 2.175,471 1 %5,9MS 1,751,32M 4.429,447 3,896 370 , 3.017,816 5 6,713.102 55.907,M5 15.202,026 54 382,740 53.712,673 53.287JX)5 52,916.053 5 7.597,287 32.2% 31.9 % 32.2% 32.2% 30.7 % 29.6 %
32.7 % 32.6%
9.4 10.1 7.8 9,2 9.5 13.3 9.0 10.4 5M3 58,0 57.4 58.0 N).O 58.6 59.8 til.1 45 l
1 l
Middle South Utilities, Inc.
Report of Management The management of hiiddie South Utilities,Inc. has The Board of Directors pursues its responsibility for prepared and is responsible for the financial statements reported financialinformation through its audit committee, and related financial information included in this annual composed of outside directors.The audit committee meets report. The financial statements are based on generally periodically with management, the internal auditors, and accepted accounting principles. Financial information the independent public accountants to discuss auditing, included elsewhere in this report is consistent with the internal control, and financial reporting matters. The inde-financial statements. pendent public accountants and the internal auditors have To meet its responsibilities with respect to financial free access to the audit committee at any time, information, management maintains and enforces a system The independent public accountants provide an objective of internal accounting controls which is designed to assessment of the degree to which management meets its provide reasonable assurance, on a cost-effective basis, as responsibility for fairness of financial reporting. They to the integrity, objectivity, and reliability of the financial regularly evaluate the system of internal accounting controls records and as to the protection of assets. This system and perform such tests and other procedures as they deem includes communication through written policies and necessary to reach and express an opinion on the fairness of procedures, and an organizational structure that provides the financial statements.
. for appropriate division of responsibility and the training Management believes that thest policies and proceduic of personnel.This system is also tested by a comprehensive provide reasonable assurance that its operations are carried internal audit program. ont with a high standard of business conduct.
1 Auditors' Opinion The Stockholders and the Board of Directors of Middle South IItilitics Inc.:
We have examined the consolidated balance sheets of Middle Soutn Utilities Inc. and its subsidiaries as of December 31,1985 and 19M and the related consolidated statements of income, retained earnings, paid-in capital and changes in financial position for each of the three years in the period ended December 31,1985. Our examinations were made in accordance with generally accepted auditing standards and, accordingly, included such tests of the accounting records l
and such other auditing procedures as we considered necessary in the circumstances.
As discussed in Notes 2 and 8 of Consolidated Notes to Financial Statements, there are uncertainties associated with ,
Grand Gulf 2, the construction of which has been suspended, and with the Grand Gulf I and Waterford 3 nuclear generating plants which began commercial operation in 1985.These uncertainties inso've: resolution of pending rate and regulatory matters, including the receipt of adequate rate relief by certain of the Middle South System operating companies: potential acceleration of certain indebtedness; the recovery of the investment in Grand Gulf 2: and the outcome of prudence reviews.The Company is unable to predict the ultimate outcome of these matters, and i.o provision for any losses that may result from their resolution has been made in the financial statements.
In our opinion, subject to the effects on the consolidated financial statements of such adjustments,if any, as might have been required had the outcome of the uncertainties referred to in the preceding paragraph been known, the above-mentioned consolidated financial statements present fairly the financial position of the Company and its subsidiaries at December 31,1985 and 1984 and the results of their operations and changes in their financial position for each of the three years in the period ended December 31,1985,in conformity with generally accepted accounting principles, consistently applied during the period, except for the change in 1984, with which we concur,in the method of recording revenues by one of the subsidiaries as described in Note I to the Consolidated Financial Statements.
l ~.
[
New Orleans, Louisiana March 14,1986 46
Investor Information
~
Anual Meeting Stockhalder Inquiries imestor Relations The 1986 Annual Niceting of Stock- All correspondence concerning stock- N1SU conducts an active investor rela-holders will be held at 10:00 a.m. holder records, issuance and s:de of tions program to communicate the (CDT), on N1ay 16,1956, at the West shares in connection with the Com- Company's performance to institu-N1onroe Convention Center, West pany's Dividend Reinvestment and tional investors, security analysts, regis-N1onroe, Louisiana. A notice of the Stock Purchase Plan tsuspended as tered representatives, and indisidual meeting and proxy material will be of August 29,1985), and mailing of investors. Investor Relations may be mailed on or about April 11,19M6, to year-end federalinwme tax informa- contacted by writing or calling:
stockholders of record on April 7. tion should be directed to: Niiddle South Utilities, Inc.
Stockholders of record may obtain a Niiddle South Utilities, Inc. Investor Relations badge for admission to the meeting Stockholder Ser ices P.O. Hm 61005 at the registration desk. Stockhold- P.O. Box 61236 New Orleans, Louisiana 70161 ers whose shares are held in street New Orleans, Louisiana 70161 t504) 529-5262 name,i.e.,in the name of their broker, must present a letter from their bro- Transfer Agent and Registrar Exchange 1.istings ker indicating ownership of N15U com- N1 organ Guaranty Trust Company of The common stock of N1iddle South mon stock as of April 7,1986. New York is the N15U transfer agent Utilities, Inc. is listed and traded on and registrar. All correspondence con- the New York, N1idwest,and Pacific Stockholders of Record cerning the issuance or transfer of stock exchanges. The ticker symbol At the close of 1985, there were common stock certificates should be for the Company is N1SU. Newspaper 189,755 stockholders of record of hiid- directed to: stock table listing is N1idSUt.
die South Utilities, Inc., a decrease -
N1 organ Guaranty I. rust of approximately 12 percent from a Company of New York year earher. The number of shares Stock .Fransfer Abbresiations:
of common stock outstand;ng in- " ,# " O'""
crea ,ed in 1985 to 204.581,092 from *"? .
.in thiuepon, referenen to conipanies New York. New 'tork 10013 m the Middle South Utilities Syuem are 189.167,328. as fomms-Form 10-K Available ""**'"'"*"'"'"'"'hr"h""A Dividends and Reinvestment The Niiddle South Utilities System
'"""- ' h""'""'""W the MnMic w.uih S
U " h "" = = '* bas I tro^
Common stock dividends declared .m 1985 totaled 5.89 per share, as divi- " " ""' " # P"" '" ' . C .""fC' srai. . w o m n .e,a i.ehic..mn n.
an igehange Commission on I orm ,,m,a , ,y,,, ,,,,,,s,,,,,,,m y ,,,g,,,
dends were declared for the first and 10-K Oncluda e financial statement Heu" - I'<"c' 'a' second quarters at a rate of 4th cents . .
/ per share. The Board of Directors " """W # '" "" ' t ""'~ad ""*r' ^ t 'uh' C"=raav omitted declaring disidends for the "" " P"" '#4"#* '"# # "#"PY "PA 8 "~'nd"*er A i 'sh' r. nnon, without charge, write to: yy ,y,a,,,,s,,,,,,,,,,,,,.
third and fourth quarters of 1985 and foi the first quarter of 1986. The Dan li. Stapp, Secretary uss . . wun- s. oin scru. ,v in.
N1iddle South Utilities, Inc. wesi . . w . o,ic ns runn< se,m ,inc Company's Dividend Reinvestment and Stock Purchase Plan was sus. P.O. Box 61005 sn. . sniem i oam in<
New Orleans, Louisiana 70161 pended on August 29,1985.
The Directors and management of M1) 529-5262 N1SU are committed to reinstatmg a quarterly dividend as sotm as l'inancial and Statistical Hesiew prudently possible, as stated in the llistorical statistics and financial infor-Chairman's Letter. It is anticipated mation supplemental to the 19M5 that the Dividend Reinvestment and Aanual Report and l'orm 10-K are Stock Purchase Plan would be re. avaHable in the Company s in I inan-cial and Statistical Resiew, which will instated at the same time as the dividend. be available for distribution in mid-N1ay. Copies of the Review may be obtained by contacting insestor Rela-tions at the address gisen in the following section.
17
Directors and Officers MSU Directors Robert D. Pugh Dr. Walter Washington Chairman of the Board of Portland President of Alcorn State University, William C. Battle
- Gin Company (agricultural and agri- Imrman, Mississippi. Compensation Chairman of the Board of W. Alton business); Chairman of Portland Bank, Jones Cell Science Center; Director (Chairman) and Nominating Portland, Arkansas. Compensation. Committees.
of Black & Decker Manufacturing Executive,and Nominating Company; retired President and Chief Frank G. Smith **
Committees.
Executive Officer of Fielderest Mills, President and Chief Executive Offi-ine.,1.9., Virgmia. II. Duke Shackelford cer of Middle South Services, Inc.;
. .. President of Shackelford Co.,Inc., President and Chief Operating Offi-J:mes M. Csin Shacke: ford Gin, Inc., and Louisiana cer of Liectec, Inc., New Orleans, President of New Orleans Public Ser- touisiana, Cotton Warehouse Company, Inc.;
vice Inc.; President of louisian Chairman of Union Oil Mill, Inc.
Power & Light Company, (agricultural and agri-business),
New Orleans, Louisiana.
Bonita, louisiana. Audit (Chairman) l John A. Cooper Jr. and Nominating Committees.
President of Cooper Communities, Wm. Cl fiord Smith Inc., Bentonville, Arkansas. Audit and President of T. Baker Smith & Son, Nom,matmg Committees- *Dected to the Board of Directors on Inc., llouma, louisiana. Compensa- Januarr 31.192.
Brooke H. Duncan tion and Nominating Committees. "Adrider Director as of/anuary 31.192.
President of Foster Company, Inc.,
New Orleans, Louisiana. Audit, Ex-ecutive, and Nominating Committees.
Kaneaster llodges Jr.
Attorney, Newport, Arkansas. Audit MSU Off.icers and Nominating Committees.
Edwin Lupherger Dan E. Stapp Floyd W. Lewis Chairman and President. Age 49. Sccretary. Age 51. Joined MSU Sprem Retired Chairman and President of Joined MSU System in 1979. Sixteen in 1958.
the Company, New Orleans, Louisiana. years prior utility industry service. E. Eugene Brown Edwin Lupberger R. Drake Keith Assistant Treasurer. Age 52. Joined Chairman and President of the Senior Vice President and Chief MSU System in 1956.
Company, New Orleans, Imuisiana. Financial Officer, and Treasurer.
Dorothy M. Antoine Executive (Chairman) Committee. Age 50. Joined MSU System in 19M3. Assistant Secretary. Age 53. Joined Donald C. Lutken Fifteen years gior utility industry
, MSU System in 1952. 5 Chairman and Chief Executive Officer expenence.
of Mississippi Power & Light Com-pany, Jackson, Mississippi.
Jrrry L. Maulden President and Chief Executive Offi-Appreciation to Retirees groups, including the Edison Electric cer of Arkansas Power & Light Institute, the Electric Power Research Special appreciation goes to Floyd W.
Company, Little Rock, Arkansas. Institute, the Utility Nuclear Power lxwis w ho served as the Company's chair.
J:mes R. Nichols* man and president until his retirement Oversight Committee (w hich coordinated Pattner of Nichols and Prat:' Family on December 1,1985. Nir. Lewis spent a > e electne utility mdustry s response Trustees) and attorney, Boston, total of 36 years in the N1SU System and to the TMI inadent), and the U.S.
Massachusetts. had sened as president since 1970. lie Committee for Energy Awareness.
retired following quintuple bypass heart The Company also wishes to recognize LeRoy P. Percy surgery and is not a nominee for election the valued senice of George K. Reeves, Cotton farmer; Chairman of the to the Board of Directors at the Nir,- who sened as a member of the Board of Boards of Mississippi Chemical An?ual Meeting. During his career, Directors from 1977 until his retirement Company and First Mississippi Mr. Iewis was widely recognized as a from the Board in May 1985. Mr. Reeves Corporation; President of Greenville leader in the utility industry and served is a partner of Ward and Reeves, attorneys.
Compress Company, Greenville, Mis. as chairman of several major national Caruthersville, Missouri.
sissippi. Executive, Audit, and Nomi-nating (Chairman) Committees.
48
Middle South Utilities,Inc.
htiddle South Utilities,Inc. is an investor-owned public utility holding company that owns all the outstanding common stock of four operating companies. Those companies are s, Arkansas Power & Light Company,
^
a%
- louisiana Power & Light Company, Niississippi Power & Light Company,
'yy .
fp and New Orleans Public Service Inc.
m-~ 'n%572%,ggi [4:- Other subsidiaries of hiiddle South Ch . Utilities,Inc. are hiiddle South
-en: T Services, Inc., a service company,
, f hiiddle South Energy, Inc., a gener-gg j; i ating subsidiary, and Electec, Inc.,
, ;/mm a diversified subsidiary which markets
- n d d d & d s g- # d e $ 5 M / M i ti; 9 the capabilities, expertise. and resources of the System companies.
4gg:%g/ '-j ,
System Fuels,Inc. is a fuels pro-
- gJ pf -
curement subsidiary of the four b operating companies. Associated si g je fh g Natural Gas Company is a gas dis-tribution subsidiary of Arkansas
..aa_a dihd [g - ;,
y Power & Light Company.
I$?
WOYQ .. (e; '
A3
- e?* The Middle South Utilities
/
[. System
~~ Major Service Generating Station Area 9 Gas & Oil OAP&L New Orleans E Coal OLP&L
,h
{ 8 Nuclear to reratino OMP&L
,N+ ONOPSI
'4 % 8 Nuclear Gulf of Mexico (Constructi m suspendedi
y Middle South Utilities,Inc.
Post Office Box 61005 New Orleans, Louisiana 70161 i
. . . - -