ML20203J444

South Mississippi Electric Power Assoc Annual Rept 1985

ML20203J444
Person / Time
Site:	Grand Gulf
Issue date:	12/31/1985
From:	Bond W, Thomas H SOUTH MISSISSIPPI ELECTRIC POWER ASSOCIATION
To:
Shared Package
ML20203J429	List: AECM-86-0222, Forwards Middle South Energy,Inc Financial Statements for 1984 & 1985 & South Mississippi Electric Power Assoc & Util Annual Financial Repts for 1985 ML20203J430 ML20203J444
References
NUDOCS 8608050279
Download: ML20203J444 (35)

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y A

EMBER SYSTEMS

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1. Coahoma Electric Power Association Headquarters - Lyon, MS i

Giles Bounds, Manager Date Energized - 118 38

1. of Consumers - 6,121 4

2. Delta Electric Power Association Headquarters - Greenwood, MS 1

Harry Bonner, General Manager w

f Date Energized 30 39

1. of Consumers - 18,798

3. Twin County Electric Power Association

]

Headquarters - Hollandale, MS Floyd Lynk, Manager t

Date Energized 139

1. of Consumers - 10,344

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4. Yazoo Valley Electric Power Association

8. Coast Electric Power Associaiton Headquarters - Yazoo City, MS Headquarters - Bay St. Louis, MS L.R. Parker, Manager Bob Occhi, General Manager r-Date Energized - 3 23-38 Date Energized 20-38

1. of Consumers - 8,162

1. of Consumers - 36,634

5. Southwest Mississippi Electric Power Association

9. Singing River Electric Power Association Hc adquarters - Lorman, MS Headquarters - Lucedale, MS q

Robert St. John, Manager Jack Ware, General Manager j

Date Energized - 3 27-38 Date Erergized 5 39 1

1. of Consumers - 19,101

1. of Consumers - 40,203

6. Magnolia Electric Power Association

10. Dixie Electric Power Association

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Headquarters - McComb, MS Headquarters --- Laurel, MS

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E.C. Parker, Manager JI. Dudley, Jr., General Manager Date Energized 19-39 Date Energized 28-39 9 j;;;[-

1. of Consumers - 19,194

1. of Consumers - 23,009

7. Pearl River Valley Electric 1%wer Association

n. Southern Pine Electric Power Association YNE #

[d.;j ~. d Headquarten;- Columbia, MS Headquarters Taylorsville, MS

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WI. Shon. General Manager Bobbie J. Moore, Manager Date Energized - 519-39 Date Energized - 513 39 NAr$f

1. cf Censumers - 23,320

1. of Consumers - 41.510 wE U h'kE.. %

yslt.5..c.p Q - ;.X,...

$gif,U;:,U.'

f Plant Morrow, a two-200 MW unit coal-fired plant located in Purvis, Mississippi; UTI-I and Plant Moselle, a three-59 ONTENTS MW unit gas and oil-fired MISSISSIPPI plant in Moselle Mississippi.

3 The Message From The Tw 8 s turbine units c ted President & The General EIErmC m Jasper and George Coun-Manager PO\\\\TER ties Pr vide tt31 f36 MW of peaking power.

4 a weixiom ASSOCIXrION:

The Association owns 10%

5 Tribute to R.D. Morrow, Sr.

undivided interest in nd Board of Directors TE receives 10% of the power 9 Engineering & Operations COOPERKrIVE'S pr duced by Grand Gulf Nuclear Station Unit #1 11 Production COOPERXrIVE I Sated near Port Gibson, 15 Human Resources &

Mississippi.

Development Since its birth as a generation South Mississippi also pur-17 Finances and transmission facility in chases power from the 1941, South Mississippi Elec.

Southeastern Power Ad.

18 The Elements of Cost tric Power Association has ministration, Alabama Elec-19 The Comparative been dedicated to providing tric Cooperative, Mississippi Summary its members with the most Power & Light Company, and dependable wholesale power Mississippi Power Company.

20 Comparative Operating at the lowest possible cost.

Electricity is transmitted to The 11 member rural electric South Mississippi's members 21 Graphic Summary cooperatives served by South through 1,321 miles of high 22 Auditor's Report Mississippi distribute power voltage transmission lines,10 to over 246,000 consumers in substations, and 32 switching 23 Financial Statements 58 Mississippi counties.

stations.

27 Notes to Financial A non-profit organization Statements owned by its members, the G&T employs over 200 per-sonnel and is headquartered in Hattiesburg, Mississippi.

Two representatives from each member system form South Mississippi's Board of Directors, a governing body which sets the operating policies of the Association.

South Mississippi's power generating facilities include I

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N During the past year, South W.W. Bond Mississippi experienced the President many facets of change felt HE MESSAGE throughout rural electrifica-E i

tion and adjusted its opera-i N

FROM THE tions and philosophy to meet c'

j PRESIDENT &

70" "'Ylves! """'"

p kp g i

pcr THE GENERAL On July 5,1985, George B.

[%

4 Taylor retired after 18 years l

-l = r~F MANAGER of service as General

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Manager. Henry Thomas, former Coast EPA General IA n Kay(back)andCharles Manager, served as Interim y

Etwns. System Dispatchem Manager of South Mississippi 1.;t man Headquarters' Contml from July 8,1985, until V

_9".tcr panels. South Afis-March 10,1980, when he ac-M 88888PP8 8 Pom umt yenem-cepted the full-time position tion eindWpone qunrements am contmileti as General Manager of the resource, have been suppor-Association.

tive of new management and fivm thisfacility 24 hours2.777778e-4 days <br />0.00667 hours <br />3.968254e-5 weeks <br />9.132e-6 months <br /> a day.

A takeover attempt directed tions to meet the future at one of SMEPA's members needs of South Mississippi as and extensive damages on a service organization to its member systems caused by membership.

Hurricane Elena, compounded by uncertain economic cond.

A complaint was filed in tions, required a careful Federal District Court against Employees are the backbone evaluation of South Mississip.

South Mississippi's coal pi's operations.

of any organization. South r -- -

Mississippi Electric Power A management audit was

[

Association is no exception.

completed in 1985, along I

Hard work went into 1985, with independent audits of j

.s with progress made in many South Mississippi's coal areas. We are proud to operations in Kentucky and dedicate the loss Annual its participation in the Grand l

Report to the people responsi.

Gulf Nuclear Station.

ble for part of that progress -

A reorganization of depart-the employees of South ments within the Association Mississippi EPA.

resulted in combining many Through their efforts South areas of responsibility and Mississippi has provided and climinating others. Many will continue to provide the areas continue to be most dependable wholesale evaluated for efficiency of power to its members at the operations. SMEPAs Henry L. Thomas lowest cost possible.

employees, its most vital Genend Manager 3

G-

l mining contractor for alleged These are good accomplish-today and to providing contractual violations, and ments. But what lies ahead 7 economical energy sources f r the future.

the decision to purchase part South Mississippi is working of SMEPA's coal requirements to stabilize wholesale power from spot markets was made.

ygg g

After 16 years of planning, to more effectively generate, Grand Gulf Nuclear Station transmit, and market w /d 4M Unit #1 went into commercial wholesale power for the Warren W. Bond operat, ion on July 1,1985.

benefit of our member Pres. dent i

The nuclear plant's 40-year cooperatives and their expected life span means a consumers.

po ver for th$

'p S

so ce ou h s

i re om-future energy needs of South mitted to meeting the energy Henry L. Thomas efin ti e cap vIs nego ated needs of rural Mississippians General Manager in 1985 to limit future par-ticipation in Unit 2 of Grand Gulf without eroding present ownership.

A general reduction in fuel prices allowed South IVississippi to increase the use of its gas-fired plant and to purchase economy energy at lower prices for its members.

APPRECIXrION...

Energy sales to South Mississippi'smembersincreased George B. Taylor retired as position he held until his ap-by 5.2% in 1985, the highest General Manager of South pointment as General sales jump since 1981.

Mississippi Electric Power Manager of South M,ss,ss,pp,iiii South Mississippi launched a Association on July 5,1985.

in September,1967. He was more effective capacitor pro.

Taylor began his distin-the first full time employee of gram during the past year to guished engineering career in the Association.

delay the construction of 1951 after receiving a costly transmission facilities Master's degree in Electrical Active in community and and to minimize system losses.

Engineering from Georgia civic affairs, Taylor held Tech and accepting a con.

memberships in the National A new control center com-sulting position with Society of Professional puter has been approved Southern Engineering Engineers, Hattiesburg Area which will monitor and Company of Atlanta, Chamber of Commerce, Sales utilize South Mississippi's Georgia. In 1962, Taylor

& Marketing Executives of generating units for max-became system engineer for Hattiesburg, and Hattiesburg imum economy to our Singing River Electric Power Kiwanis Club. His honors in-members.

Association in Lucedale, a clude the Silver Antelope 4

Award and the Eagle Award

• ~

' TOT ~ ~

Manager of South Mississip.

for his work with the Boy 7 di Ep.2 pi, he gave 18 years of Scouts of America.

r f 4 4; outstanding leadership.

Throughout his career, Taylor The Board of Directors, worked diligently to promote

J management, and employees the rural electric cooperative f'

him our best wishes.

of South Mississippi extend movement. As General

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George B. Taylor r

T A RIBUTE TO R.D. MORROW, SR.

County School Board, and President of the Institutions Robert Dowden (Bob) Mor-A graduate of Mississippi of Higher Learning. He was row, Sr., past Director of State University, Morrow was founder and director of the South Mississippi Electric a native of Amory, Mississippi.

Mississippi Chemical Power Association from 195 "I"" " " " '

Morrow served as President to 1980, died on August 25, of the Mississippi State His many honors include the 1985. Of his 24 years as Direc-University Alumni Associa-Distinguished Service Award tor, Morrow served ten years tion, Chairman of the Rankin of the Mississippi Farm (1970-1980) as President of Bureau, the First Federal South Mississippis Board.

Award, the Distinguished Ser-s Because of his dedication and we work in the rural electrihca-vice and 1.ife membership 4

Award of the American tion program, South Mississip-s ion. and many more.

pi s R.D. Morrow, Sr., Genera-ting Station located in Purvis, f

, $' y His dedication to and belief Mississippi, was named in his

\\ ~j in the cooperative philosophy honor on October 27,1078.

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will not be forgotten.

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45 l

g Robert D. Morrow, Sr.

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HE BOARD 4

Y OF DIRECTORS

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, Sou th Mississippi's ikxsrd ofDirtv-E I

,w tors is a>mprisal of teco repnmen-y tatitu fn>m asch mernher system a

sercal by the Association. Reptv-senting the 1985 Ikxani of Dinv-tors: (1) \\\\tarrvn \\\\: Ikmal, l%srl Ritvr \\idh1 EIM,1%mident: (2)

\\\\:C. McKamy,.fr., licin (k>unty EIM, Vice-l'residen t: (3) L.G.

,k I'ierce. Dixie EIM, Secretary-

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1hstsurer: (4)\\\\"l: Shours, 1% sri

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Ritvr Valley EIM, Assistant Sr.-

~f Thxas.:(5)liollis Alfoni, Maynolia EIM;(ti)llarry Ik>nnes; Delta EIM:

4 (7) Giles ik>unds. C<xthonus El'\\;

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(8) llenry R. Bridylbrth. litzexo

\\kalley EIM: (H) Viryil O. Burye.

h Coast EIM: (10) Robert L.

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Gnsham, Dhie elm:(II) Naif, lor-D dan, Singing River EIM:(12)Greg g

Kitchens. Southteest Mississippi

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El'\\;(lll) Floyd Lynk, livin Coun-ty EIM: (14) Ik>bbie,1.

Moorv, f

Southern Pine El'A: (in) Ik>b (k-Q chi. C<nsst ElH: (Iti) E.C. Ihrker, Maynolia EIM: (17) L.R. Ihrker; liwu> \\idley EIM:(18)\\\\."E Rullin, S>uthern Pine EIM:(19) Robert St.

.lohn, Sou th nvest Mississippi elm:

(20)llomce 11. licili>nL Coahoma elm:(21), lack \\\\isir. Singing Ritvr El'\\; (22) llenry C, \\\\isten r.

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%, s.,.. e m TFE1985 also completed developmen-International Paper Company F.A

• tal work on a load forecasting Mill at Monticello.

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program which will allow One-half (1/2) mile of 115KV South Mississippi EPA t transmission line was con-N. i..iS:

T model the loads of each of its

[O /C./3 structed to serve Coast Elec-I-IIGFEIGHTS:

11 member systems on an in-tric Power Association's load house basis to. improve our

' "' 01' " del"*'Y P '"'-

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% 4" R ENGhTEERING capabilities to more accurate-ly forecast load requirements A 15.6 megavar capacitor bank M.U 5.q l.> c

& OPERATIONS for our member cooperatives.

was installed at Paulding.

Construction projects in pro-jg CONSTRUCTION p

i gress at yeannd incluk 3 ug,

PROJECTS

[ South Missimiippi's linemen a South Mississippi EPA ex.

A 115KV line to serve Coast

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perienced a 5.2 % load growth Electric Power Association's

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g, b;%grd S-E tmnsmiadon structumt. A in 1985 which required the Nicholson Substation.

loodymeth of5.2%A 19g completion of several con-A 69KV line to serve the

[ mpimi the construction of struction projects to serve North Hattiesburg delivery U.65

'sereml.new tmnsmassion increased member demand:

point for Southern Pine Elec-

~ i. 'T

[h.J y

5.5 miles of 115KV transmis-tric Power Association.

sion l, e were constructed at A 115KV switching structure U 7 ?~-

j m

t the Little Creek Oil Field t I serve tile Murphy delivery D '. ' ',

E 1 serve a new Magnolia Electric

.s Point for Twin County Elec-

.y ;1 g E

Power Association load for tric Power Association.

Shell Western E & P, Incls g

i (M a.t.

L

[

enhanced oil recovery proj.

The installation of a 15.6

.dj,1 ect. The recovery process megavarcapacitor bank at Plant r

uses a carbon dioxide injec-Moselle and a 11.7 megavar

% g.!

m m

tion station to recapture oil capacitor bank at Rawls Springs.

g. g M[D that would otherwise be lost WW PLANNING AND underground.

TRANSMISSION POLE

-E h W.4 PROTECTION INSPECTION AND e

During 1985, the Planning and A 115KV switching structure

-!N.9[

TREATMENT and 1.0 mile of 115KV hd Protection group of the E & O Osmose Wood Preserving Department completed a long.

transmission line were con-Company completed approx-i M d. A structed to serve a new Range Transmission Work Plan imately 100 miles of ground

• I^

and a Three-Year Work Plan in Magnolia Electric Power line pole inspection and treat-Association load at Mallalieu support of a loan application ment in 1985, ending the cy-to the Rural Electrification Ad-which is also part of Shell cle of inspection on South Western E&P, Inc.s enhanced ministration for funding of the Mississippi's total transmission work plan. Included in the I "'c very project.

system.SMEPA personnelwalk-loan application were funds for 3.0 miles of 115KV transmis-patrolled and inspected over t

a new control system com-sion line were constructed to 100 miles of transmission puter and a building addition serve a new delivery point line, and outside contractors to house the new system. The for Southern Pine Electric recleared over 300 miles of Planning and Protection group Power Association at the transmission line right of-way.

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TIb Mb restore internal components ect, the Contractor filed as may be required to regain bankruptcy proceedings. As a design performance.

result, South Mississippi com-Unexpected internal turbine pleted the remaining work.

HIGHLIGHTS:

d

• 8* * ' di'""d d"'

The contract required an in-vestment of approximately mg the.mspection procedure

$270'000. Precipitator perfor-PRODUCTION which accounted for the recognized deterioration in mance and reliability have improved as a result of the the performance of Unit #1.

g.,,,,

3 The necessary repairs were Project.

PlantMormwpemonnel(kft)i made; and upon completion

" AcidMy,GudWmt -

of the inspection procedures, ASH DISPOSAL "jd the unit was returned to ser-AGREEMENT REVISION iny Supervison h thef v ce. Tests proved that full Revisions were made to

. : next coal tmin ardmL The design capability had been South Mississippi's Ash

' R.R Momnc, Sc, Genemtiny i restcred.

Disposal Agreement with StationinIhreia, Mississippi, _

Trinity Materials for the sale mn be seen in the back.

of fly ash, a by-product of ELECTROSTATIC ymurul Theplant'spr& nary ;

burning coal. The contract sourte offuel is bituminous PRECIPITATOR WORK wal which is bmught in by ;

A contract was awarded to was extended for ten years'-

language was added to ad-milau; unloaded in a coal Crestmont Associates for cer-tivstle and _tmnsferred by )

tain major maintenance work dress the sale of poor quality nd landfill ash; and the pric-

' conveyorinto theplant or to on Plant Morrow's Unit #1 a stoc@ A later use electrostatic precipitator, used ing structure was changed.

~;

to limit particulate emissions During 1985, South Mississip-s which result from the burn-pi sold a total of 34,000 tons

" ~ ~

ing of coal. The work, suc-f fly sh from Plant Mor-cessfully completed at a cost

""' f I use Primarily as an of about $70,000, involved additive in concrete products.

TURBINE GENERATOR internal repairs and realign-INSPECTION ment in an effort to improve INTERRUPTIBLE South Mississippi EPA's Plant the performance of the NATURAL GAS SUPPLY Morrow Unit #1 turbine and device. Similar work was per-During the third quarter of generator were totally formed on Unit #2 in the fall 1985, certain volumes of disassembled in 1985 during a of 1984.

natural gas were made planned spring outage as part of A cantract was also awarded available under an interrupti-SMEPA's ongoing maintenance to Crestmont Associates in ble gas supply agreement program. This work represented 1985 for the installation of w th Mississippi Gulf South I

the first major inspection on reof enclosures on the elec-Transm,ssion Company for i

the equipment since the m,-

the Moselle and Benndale i

trostatic preciritators of Unit tial warranty disassembly. In-Stations. Due to favorable

1. 1 and Unit #2 at Plant Mor-spection procedures are nor-fuel pricing arrangements, row, resulting in better unit mally conducted at five-year South Mississippi EPA was af-perability and availability.

forded the opportunity of intervals to assess the condi-tion of the eqt:ipment and to Near completion of the proi-operating these facilities at l

11

considerable savings as com-cent. The design work was ment and to make South pared to operation under ex-completed by South Mississippi a more active and isting fuel gas contracts. The Mississippi's Engineering informed participant in all contract has been extended Department, and the installa-aspects of the nuclear facility.

into 1986.

tion was completed in April Stone and Webster Power by Sandy Fork personnel.

Projects Corporation was

'"lected to assist South CAPACITOR BANK

.ssissippi FA in 6e INSTALLATION GRAND GULF "F' P*""

"",'

• P " * ""'

A capacitor bank and TECHNICAL MONITOR-P"8'" * '

associated switching equip-ING PROGRAM ment were installed at South In conjunction with South Mississippi's coal preparation Mississippi Electric Power plant in Kentucky. The ac-Association's 10% undivided tion was taken as a result of interest in the Grand Gulf Kentucky Utilities Company's Nuclear Station, a Technical initiating a " power factor Monitoring Program was ini-penalty" for customers with tiated in 1985 to review a power factor below 90 per-plant operation and manage-1985 FUEL CONSUMPTION GENERATION COAL NATURAL GAS FUEL OIL FACILITY (TONS)

(MCF)

(GALLONS)

Plant Morrow 887,576 349,601 JYant Aformac's Istris Ross,.

hiaster Electrician, strings II N I"8turinne genemtor u. "#.I"#

8 F"#

Plant Moselle 1,207.355 124,975 ns;wetwn.

' Thefirst majorinspection on Unit #1 seas conducted in Plant Benndale 5.987 1985 durtny a planned ;

spring outage.

Total disassembly of the poseer Plant Paulding 25,07' unitsare normally corutucted atfive yearintertmls to main-tain performance levels, 12

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THE 1985 EMPLOYEE RELATIONS SAFETY AND TRAINING Increased emphasis was placed South Mississippi's Safety on Employee Relations during Program continued to pro-1985 through the reintroduc-duce excellent results in 1985.

tion of an employee newslet-The Association received its HIGHLIGHTS:

ter, policy development and fourth Safety Accreditation revision, fringe benefits Certificate from NRECA dur-H.UMAN review, and increased com-ing the year in recognition of munications to employees its safety record.

concerning general business

' "di " "'-

I DEVELOPAGNT

@4?gESE PLANNING AND Additional office space was

]

DEVELOPMENT added at the Headquarters l(. Oncofdie mnyiminisyi" Organizational and staffing facility by enclosing the park-P-

changes began in 1985 ing area, and plans are under-4 g,,'",

directed at increasing the way for an addition to the

( -tion (CIW). '

i rganization's responsiveness Associations Control Center I' ' h "h ""'8""d 8"I i

and effectiveness. These and the removal of tem-P l

changes were the beginning parary offices in 1986. Equip-(*

of a long-range plan of ment and material storage r

organizational and employee facilities are being m-

Pbpertminingandsakt#M ;

development that will vestigated to improve f ademployeesplayimportant '

enhance the future growth of material handling and equip-

"I"'I" #88W.# OPem-South Mississippi Electric ment life.

don ofdie Ammation.

Power Association and its emp;oyees.

A review also began.in 1985 l

2 to implement a computerized PUBLIC AND MEMBER

.'Y 'Y' b

RELATIONS

"'"'"*"'Y' improve availability and During the past year, a new accountability of inventory logo and motto were items. Surplus inventory was developed and introduced identified during the past which emphasized South year and disposal is underway Mississippis role as a serv. ice in 19f 6.

organization.

Increased communications TRANSPORTATION with member cooperatives Vehicle replacement began in 1985, directed at im.

schedules were modified dur-proving our Member Rela.

ing the past year to allow for tions Program. This program an orderly replacement will continue to be developed schedule and a planned and expanded during 1986 to utlay of required capital.

meet the various needs of our members.

15

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Outstanding loan balances to Mississippi, on behalf of FFB at December 31,1985, South Mississippi EPA to totaled $589,008,815 at an finance pollution control FE 1985 average interest rate of facilities at the Grand Gulf 10.8277 percent. Of this total Nuclear Station Unit No.1.

HIGFEIGHTS:

$385,000,000 has been bor-rowed for construction of the Important to issuance of the FhWCES Grand Gulf Nuclear Plant.

bonds was a loan guarantee commitment from the Rural

.=

The Association's short-term Electrification Administration I hreveryitempurchasedby

=

! the Association, for every Line of Credit with the Na-(REA) for $63,357,000 to KWHofeiedricitysold anin-tional Rural Utilities provide additional long-term

, voice is pmduced. And, -

Cooperative Finance Corpora-financing for Grand Gulf

. South

" Acmun 1935 v h I mi of The guaranteed commitment i-

' ing Department.

$35,000,000. The $500,000 was received on December 3, e

Eleven employees handle all Line of Credit with Deposit 1985' REA h#' d 'ted that w

i

, oftheAssociadon'afmmcial Guaranty National Bank was bond proceeds representing requirements - fmm RFA also renewed.

loans, to paymil, to work the original cost of pollution orders.

In December,1985, control faci'ities be used to h

. All Anancial information is

$49,800,000 of CFC-repay outstanding loans from E

updated by Accountiny per guaranteed Pollution Control the Federal Financing Bank

! sonneland readily amilable Revenue Bonds were issued within 90 days of the is-thmuyh the Association's by Claiborne County, suance of the bonds.

=

Hards 800 mmputen g

Advances received from the niserib tio= of i's4 Reve==e Doriar p

Federal Financing Bank (FFB)

)

-f."f3*d""**'

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"";ds4*n';,n ge;nons by South Mississippi EPA dur-i r

h ing 1985 totaled $27,693,000 1"*;ted Power 3o 4

[

at an average interest rate of

'~

Deg,0f,o4a^r"o,"y, *h=

g 9.8634 percent.

33,gi'd" net c,enera 6

FFB notes maturing and ex-

//

IleL1,n,

_21.

L-tended short-term totaled C

$34,140,000. Upon extension, y

the average rate decreased E

from i1.1810 percent to 9.1294 percent after the extensions.

l Databuuan of 1985 Revenue Doll.r e

Purchawd Power 28.3<

ma P

The Association took advan-

-ITAimnoPennon, c-.IM'"l""

tage of declining long term in-

_--T!Einon.4,nono.non

'M 37.6

[

terest rates to extend

+

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$47,850,222 of maturing 7""'E"n', "ng"" "'

Mg 37 short term FFB notes to long-fj-"' ' C

'7

? N: <

term at rates averaging 9.9486

/

Net M rpns 2'I j, '((M E

percent.

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/

17 m

THE ELEMENTS OF COST 1081 1082 1083 1084 1085

1. SMEPNs Own Generation & Transmission System Cost of Fuel Burned in SMEPA's Plants - c/MMBTU 222.91 230.10 222.27 227.00 214.54 Production Costs and Purchased Poweri!ntenhanged Power - mills KWH 27.34 29.12 25.88 2o.16 28.00 Transmission O & M - millsKWH 1.73 2.10 2.26 2.41 2.44 A & G Expense - millsKWH

.95 05 00 1.00 1.12 Depreciation & Amortir.ation - mills KWH 3.18 3.01 2.39 2.85 4.30 Interest - mills KWH 9.0 I o.91 9.23 7.11 12.77 Taxes and Other - mills KWH

.16

.08

.14

.14

.19 TOTAL - mills KWH 43.27 45.17 41.30 30.o7 48.91

11. Borderline System Purchased Power / Interchanged Power - mills KWH 30.73 42.12 42.41 41.65 41.62 Transmission O & M - mills KWH Depreciation & Amortization - mills KWH

.01

.03

.03

.03

.03 Interest - mills KWH

.01

.04

.04

.04 TOTAL - mills KWH 3o.75 42.15 42.48 41.72 41.60 Ill. Total System Production G>sts and Purchased Power Interchanged Power - mills KWH 30.43 32.80 30.32 30.48 31.70 Transmission O & M - mills KWH 1.16 1.51 1.65 1.74 1.77 A & G Expense - millsKWH

.e4

.c9

.66

.72

.82 Depreciation and Amortization - mills KWH 2.14 2.17 2.12 2.0c 3.13 Interest - mills KWH 6.65 7.10 6.77 5.14 9.29 Taxes and Other - mills KWH

.11

.05

.10

.10

.13 TOTAL - mills KWH 41.13 44.32 41.o2 40.24 46.93 l

18

HE COMPARXfIVE

SUMMARY

1o81 1982 1983 1984 1985 ENERGY SJURCES - MWH Generated:

Stum 2.124.364 2.100,129 2.120.192 2.218.202 2.o25.376*

Other Generation 615 738 328 663 505 2.124.979 2.100,807 2.126,520 2.218.925 2.625.881 Purchased.

Dirext Purchase 314.740 479.973 539.305 488.178 197.317 Borderline 95.114 79.001 78.741 97.334 73.236 400.854 558.974 618.040 585.512 270.553 Interthanged Power 1.080.126 980.611 085.o75 1.105.403 1.215.400 Total 3.614.o50 3.640.452 3.730.241 3.000.840 4.111.924 SALES - MWH Southwest Mississippi EPA 252.113 230.228 240.708 247.112 270,005 Dnie EPA 338.072 344.750 3o0 004 305.807 302.633 Pearl River Valley EPA 320.312 344.008 362.333 380.715 401.597 Singing River EPA c13.529 e25.514 617.347 001.742 075.179 Southern Pine EPA 660,113 077.236 720.105 735.o05 706.395 Magnolia EPA 217.217 21o.301 231.348 238.020 251.781 Coast EPA 442.128 464.500 485.972 535,005 503.372 Yazoo Valley EPA 108.122 Io7 726 107.34o 107.883 181,120 Coahoma EPA 77.279 70.18e 70.820 75.782 79.210 Delta EPA 200.88e 241.320 230,701 255.eSo 209.004 Twin County EPA 138.136 130.880 129.085 135.27o 149.521 Arkansas Electric Cooperative Corp.

3.o52 5 06' Cajun Elettric Power Cooper 2tive 567 Total 3.516.45o 3.530.714 3.o40.143 3.835.830 4.020 025 TOTAL SYSTEM DEMAND - KW 000.531 802.163 038.112 1.177.057 1.000.570

• Includes 435.44o MWH. Nuticar energy.

?

19 l

COMPARATIVE OPERATING CO 1981 1982 1083 1984 1985 REVENUE Sales of Energy

$146.381.767

$157,517,377

$156.462,892

$156.606.556

$192,307.266 Other 1.089,140 360.209 9eo,113 1,636.127 697.904 Total Revenue 147.470.007 157.877.586 157.423.005 158.242.683 193.005.230 EXPENSE Operation Expense:

Production - Fuel Cost 52.656,303 54.932,850 40.745.001 53.932.527 c1.653,239 Other Production Expenses 2,200.004 2,186.921 2.379,5o4 2,211.86o 7.038.621 Purchased Power 50.556.392 57,156,362 So,760.006 59.082.453 55,137,353 Transmission 2.923,166 4.172.005 5.013.509 5.540.c86 6,002,402 Consumer Accounts 27,721 32.705 48.440 38,523 47,527 Administrative & General 2.086.703 2.232,382 2.116.894 2.418.037 2.840.402 Total Operation Expense 110.541,189 120.714.125 116.004.314 123,224.002 132.728.544 Maintenance Expense:

Production 1,508,44o 1.739.151 I,762.051 1.672.461 4.278.423 Transmission 1,149.140 1.154.813 1.025.266 1.128,478 1.130,358 General Plant 135 882 158.807 232.330 204.279 396.459 Total Maintenance Expense 2.793.471 3.052.831 3.010,647 3.005.218 5,805.240 Depreciation 7.524,662 7.660.544 7.734.260 7.021.214 12.626.522 Taxes 286.300 317.402 324.2o9 380.030 515.171 Interest Expense (Net) 24,264.044 25.315.789 25.358.307 20.572.428 37.035.278 Total Expense 145.410.626 157.060.781 152.500 806 155.193.801 189 610.755 OPERATING MARGINS 2.000.281 816.805 4 022.199 3.048.792 3,304.475 NON OPERATING MARGINS 751.273 074.430 1.44o.654 543.807

$81.947 NET MARGINS (Loss)

$ 2.811.554

$ 1.701.244 5 6.3o8.853

$ 3.592.650

$ 4.076.422 20

MRVING ENERGY SALES 10 MEMBER SYSTEMS (MWID 4.1 YEAR MWH SALES

• 4.0 39 1981 3.512,807 1982 3.536,714 3.8 1983 3.640,143 3.7 1084 3,820,305 3.6 1985 4.029,925 35 Y

• Note: 1981 and 1982 involved the progressive 3.4 takeover of generation responsibilities from MP&L 1981 1982 1983 1984 1985 REVENUE FROM SALES OF ELECTRICITY (MILLS KWID 50.0 REVENUE 48.0 TEAR (MILLS KWH) 46.0 1081 41.64 44.0 1082 44.54 42.0 1983 42.88 40.0 1084 40.83 33 o 1985 47.72*

36.0

• Note: 1085 reflects six months of commercial 1981 1982 1983 1984 1985 operation for Crand Gulf Nudear Station Unit 1.

TOTAL COST OF ELECTRIC SERVICE (MILLSKWII) 50.0 COST 48.0 YEAR (MILLS KWH) 46.0 1981 41.35 44.0 1082 44.41 42.0 1083 41.70 40.0 1984 41.70 38.0 1985 48.28 30.0 1981 1982 1083 1084 1985 ANNUAL COINCIDENTAL PEAK DEMAND (KW) 640 COINCIDENTAL 620 TEAR PEAK DEMAND (KW) 600 1081 620.000 580 1082 574.000 560 1083 632.000 540 1984 624,000 520 1085 035.000 500 1081 1082 1083 1084 1085 ANNUAL LOAD FACTOR (PERCENT) 53.0 NEAR ANNUAL LOAD FACFOR M )

52 0 1081 47.00 51.0 1082 30.02 50.0 1083 48.22 40.0 1084 50 50 43.0 1985 32.04 47.0 g 40.0 1981 1082 1083 1084 1985 21

s

=

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Y Report of Ernst & Whinney Independent Auditors j-To the Board of Directors South Mississippi Electric Power Association Hattiesburg, Mississippi b

We have examined the balance sheets of South Mississippi Electric Power Association as of December 31,1985 and 1984 and the related statements of operations and patronage capital and changes in financial position for the years then ended. Our examinations were made in accordance with generally accepted auditing standards and, accordingly. included such tests of the accounting g

records and such other auditing procedures as we considered necessary in the circumstances.

f r

The Association has recorded an allowance for tunds used during construction on Grand Gulf Nuclear Station Unit 2 subsequent to September 17,1o85, which, in our opinion, should be ex.

l

[

pensed in order to conform with generally accepted accounting principles. If this amount was ex-

]

pensed, construction work in process and patronage capital would decrease by $3,33o 841 as of December 31,1985, and net margins would decrease by $3,336,841 for the year then ended.

As discussed in Note H to the financial statements, the Association had deferred margins of

$8,853,996 in 1984. In 1985, $1,518,130 of these deferred margins were recognized in revenue. In our opinion, generally accepted accounting principles require that such margins be included in the statement of operations for the year ended December 31,1o84. If these amounts were included in the statement of operations for the year ended December 31, 1984, patronage capital wouki decrease by $1,518,130 and increase by $8,853,990 as of December 31.1985 and 1984, respective-E ly, and net margins wouki decrease by $1,518,130 and increase by $8,853,900 for the years then E

ended.

[

In our opinion, except for the effects on the 1985 financial statements of recording allowance for

('

E funds used during construction on Grand Gulf Nuclear Station Unit 2 subsequent to September 17, 1985, as described in the second paragraph, and except for the effects of the deferred margms

,g i on the 1985 and 1984 financial statements, as described in the preceding paragraph, the financial

,,~,

F-L statements referred to above present fairly the financial position of South Mississippi Electric

!. !, / '. T

[--

Ibwer Association at December 31,1985 and 1984 and the results of its operations and the 4.Q.; 'n Q A.

changes in its financial position for the years then ended, in conformity with generally accepted h{l,%f J ry accounting principles applied on a consistent basis.

3; 4 x

5

^^4 Y e

WMQ; r

Jackson, Mississippi January 31, 1986, except for the E

' f E, 'a f p

third and fourth paragraphs of a S '3 Note C, as to which the date is

/-M..b February 7,1986

=

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22

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,A

ATEMENT OF OPERATIONS AND PATRONAGE CAPITAL Year ended December 31 1985 1984 Operating revenoe and patronage capital:

Electric energy revenues - Note H

$192,307.266

$156,606,556 Other income 697.964 1,636,127 193,005,230 158,242,683 Operating expenses:

Operation expenses:

Fuel 61,653,239 53,932,527 Pnxluction 7,038,o21 2.2 I I,866 Purchased power 35,137,353 So 082,453 Transmission 6,002.402 5,540.o86 Administrative and general 2,800.929 2,436,560 132,728.544 123.224.092 Maintenance Expenses:

Production 4,278.423 1,672,461 Transmission 1,130.358 1,128,478 Cencral 306.459 294.270 5,805,240 3,045,218 Depreciation 12.o26,522 7,921,214 Taxes 515.171 380,939 151.675.477 134.621,463 OPERATING MARCIN BEFORE INTEREST AND OTHER DEDUCT 10NS 41,320,753 23,021,220 Interest arn! other deductions:

Interest, net of interest income on unexpended bond funds oo.603,352 67.c46,937 Allowance for borrowed funds used during construction (31,722,700)

(47,128,493)

Other deduc tions - net 54.686 53,984 37,935.278 20.572.428 OPERATING MARGIN 3.304.475 3,048,792 Non-operating margin - principally intenst income 681,047 543.867 NET MARCIN - Note H 4.076,422 3.592,659 Patronage capital at beginning of year 11.202.031 7.600.372 PATRONAGE CAPITAL AT END OF YEAR $ 13.278.453

$ 11,202.031 See notes to financial statements.

O I

23

HE BALANCE SHEETS December 31 1985 1984 ASSETS - Note F ELECTRIC tmuTY PLANT - Note B

$co0. I31,597

$298,i11,754 in servite 118.617,000 478.520.918 Construction work in process - Note C 817,749,587 776.641,072 78.057.788 64,069,345 Less allowances for depreciation 730,601,790 711.o72,327 OlliER ASSETS ANDINVESTMENTS Investments in associated organizations - Note D 11.071,550 8.458.853 Debt service reserve for pollution control bonds 4.501.298 12.000 12.600 Other noncurrent awets 15,585,454 8,471,453 CURRENT ASSETS Ceneral fund cash and temporary cash equivalent investments 677,900 41.052 I12,744 1 oS7 Construction fund cash Pollution control revenue bond proceeds - Note F 41.873.000 Accounts receivable from members 16,o48,599 15,390.668 Inventories:

10,205,02o 7.474.749 Coal 1,440,315 1,628,539 Other fuel (principally fuel oil) 6.624 004 4.826.357 Materials and supplies 18.260,435 13,929,045 1,Ie5,763 209.4)4 Other 70,047,510 29,638.510 3.800,893 3.500.4 t o DEFERRED OIARGES

$838,185.656

$753,291,700 24

December 31 1985 1984 EQUITIES AND LIABILITIES EQUITIES Memberships 55 55 Donated capital 535.436 f35.436 Patronage capital 15.278.453 11.202.031 15.813.944 I1.737.522 LONG-TERM DEBT. euluding current maturities - Note F 603.741.463 660.216.830 CURRENT LIABILITIES Notes payable - Note E 25.173.507 21.953.o80 Accounts payable 14.624,508 12.872.686 Accrued interest 776.880 960.180 Other accrued expenses 507.187 519.352 Current maturities of long-term debt 48.173.136 5.71o.425 80.315.218 42.022.323 DEFERRED REVENUE - Note G 31.o79.165 30.461.035 DEFERRED MARGINS - Note H 7.335.800 8.853.000 COMMITMENTS - Note C 9

L

$338.185.056

$753.201.700 See notes to financial statements.

25 l

/

STKI'EMENT OF

/

CHANGES IN FINANCIAL POSITION

. Year endal Daember 31 1085 Io84 SOURCE OF FUNDS

~

$ 4.070.422 5 3.502,059 Net margin Items not affecting working capital:

Provision for depreciation and depletion i 3,o85.544 0.010 oN Recognition of amounts previously deferred:

Revenue (0,127.542)

(1.518.130)

Margin TOTAL PROVIDED IW OPERATION >

7.110.294 12.00Ao38 81 002.000 5.003,770 Additional long term borrowings increase in:

10.c45.o72 18 002.501 Deferred revenue 8.853,000 Deferred margin 305.124 Decrease in deferred charges

• po3. coo 4o,230.035 APPUCATION OF FUNDS Additions to cledric utility plant less carrying amount of retire nents 41,705,01o 73.123,754 Payments and auelerated maturities of long-term debt 48,377,307 0.034.040 Increpe in:

investment in associated organizations 2.012,703 002,0o8 351.483 Deferred charges Pollution control revenue bonds - debt service reserve 4 501.208 07 547.807 80.120.N2 INCREASE (DECREASE)IN WORKINC CAPITAL $ 2.I16.0 *

$ 03 881.757)

CHANCES IN COMPONENTS OF WORKING CAPITAL.

Increase (decrease)in current assets:

General fund cash and temporary cash equivalent investments

'030017 32.448 Construdion fund cash

11.087 (51.o70)

Pollution control revenue bonds protenis 41.873,000 (17,188 000)

Short term investments Accounts receivable from members 1.551 031 (502.2o3) 4.330.700 (3.853.000)

Inventories 800.200 (80 800)

Other Decrease (increase) in current liabilities.

D.21o.827)

(21.o53.080)

Notes payable (1.751 822)

(4,723.840)

Anounts payable 135.405 15.212.310 Aarunt expenses Current matunties of long-term c:ebt (4..450.711)

(707.172)

INCREASE (DECREASE)IN WORKING CAPITAL

$ 2.110 0 *

$ 0 (881.757)

See notes to financial statements.

26

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E A.

0TES TO FINANCIAL STXTEMENTS

_2 e

=

DECEMBER 31,1985 d

NOTE A-THE ASSOCIATION AND US ACCOUNTING POUCIES South Mississippi Electric Power Association (SMEPA) is a rural electric cooperative utility established 3

f under the laws of the State of Mississippi. Financing assistance is provided by the U.S. Department

(

of Agriculture, Rural Electrification Administration (REA) and, therefore, SMEPA is subject to cer-tain rules and regulations promulgated for rural electric borrowers by REA. SMEPA is a generation g

and transmission cooperative, providing power supply to eleven owner / members who are rural elec-

~

[

tric distribution cooperative utilities which provide electric power to customers in certain areas of d

Mississippi.

ii i

SMEPA maintains its accounting records in accordance with the Federal Energy Regulatory Com-1 mission's chart of accounts as modified and adopted by REA. The more significant accounting g

policies are described below.

J g

~

Electric Utility Plant and Depreciation: Electric utility plant is stated at cost, which includes con-a:

tract work, materials and direct labor, allowance for funds used during construction and allocable h

overhead costs. The cost of electric generating stations and related facilities also includes costs of n

training and production incurred, less revenues earned, prior to the date of commercial operation.

j

Depreciation is provided on the units of production method for nuclear utility plant and on the straight.line method for non. nuclear utility plant at the following annual composite rates:

Production plant 3.00% to 3.10%

5 Transmission plant 2.75 %

3 General plant and transportation equipment 2.00% to 25.00%

At the time units of electric utility plant are retired, their original cost and cost of removal, less net salvage value, is charged to the allowance for depreciation. Replacements of electric utility plant in.

volving less than a designed unit of property are charged to maintenance expense.

Coal reserves are stated at cost. Depletion is provided by the units mined method. The coal mine is

}

E operated under an operating agreement with a third party. Substantially all of the coal used in SMEPA's generation of electricity is supplied from coal mines located on SMEPA's property.

R I

Cost of Decommissioning Nuclear Plant: SMEPA's portion of the estimated decommissioning 4

costs of GGNS Unit I is charged to operating expenses.

[

i Allowance for Funds Used During Construction: Allowance for funds used during construction d

represents the cost of directly related borrowed funds used for construction of the electric plant, r

,r where applicable, and an allowance based on the average cost of appropriate borrowings when general funds are used to fund construction. The allowance is capitalized as a component of the s

cost of the electric plant while it is under contruction.

q Capitalization ceases when the electric plant is placed in service, or in the case of electric generating

_,it i

27 il 5

stations and related facilities, at the date of commercial operation. The average rate used in deter-mining the allowance was 11.09 in 1985 and 1984.

Inventories: Inventories are stated at averaec ord Deferred Charges: Costs of prehminary surveys for development of possible methods to obtain and deliver energy to fulfill members' future requirements, including feasibility studies leading to financing necessary plant expenditures, are recorded as deferred charges. If construction of a project results from such surveys, the deferred charges are transferred to the cost of the facilities. If a preliminary survey is abandoned, the costs incurred are written off.

Bond issue costs are being amortized by the straight line method over the term of the related debt.

The amortization during the period of construction is capitalized.

Patronage Capital: 'Ihe Bylaws of SMEPA provide that any excess of revenues over expenses and accumulated prior year deficits shall be treated as advances of capital by the member patrons and credited to them on the basis of their patronage.

Interchange lower: SMEPA records the electrical power received or provided on an interchange basis at its cost as determined under various contractual arrangements.

Income Tax Status: SMEPA is exempt from United States income taxes pursuant to Section 501(c)(12) of the Internal Revenue Code, which requires that at least 85 % of the Association's gross income come from its members.

NOTE B - ELECTRIC UTILITY PLANT Electric utility plant consists of the following:

December 31 1985 1984 Nuclear production plant

$395,609.432 Non nudcar production plant 207,886,941 $207,890,015 Transmission plant 54,310,509 50,557,019 Cod properties 24,786,485 24,o98,610 LTnd and land rights 10,362.993 10,031,712 General plant and transportation equipment o.175.177 4.934.398 ELECTRIC PLANT IN SERVICE 609,131,597 298,111,754 Construction work in process 118.o17,000 478,520,918

$817.749.587 $776.041.o72 NOTE C - CONSTRUCTION WORK IN PROCESS AND COMMITMENTS The Cooperative is a 10n participant in the construction and operation of a 2.500 megawatt nuclear generating station known as " Grand Gulf Nuclear Station"(GGNS), consisting of two 1,250 megawatt generating units. Commerical operation for the first unit began on July 1,1985.

28

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s The Mississippi Publu Servn e Commission held heanngs in 1o84 to mnsider resundmg the Cer-

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tiln ate of Nec essity authori/ing wnstruc tion of Grand Gult Unit 2. On September 18.1085. the

'1 s-( ommission issued an ( hder suspending mnstrut tion on Unit 2

$ i'.f 5.

()n August 1 lo8s SMEl% dismntinued payments on Unit 2 and began negotiations to limit its q{ j[."

investment in linit 2. ()n February ~ 1980, SMEIM signed a Supplementary Agreement limiting L.,.. " :

g the ('ooperative's tuture obligation for Unit 2. The Agreement provides that SMEPA's obligation to

' f. ? 4 =.

J pay its proportionate share of the wst of wnstruction of lJnit 2 incurred subsequent to July 31 7 '

1085. will not eu ced 94 051 200. SMEI%'s share of the msts int urred to December 31.1o85

.. :.,, /

h amounted to 91.100 280 and has been included in the auompanying balante sheet.

, ~l ' - ~~

4

... mr l'I In the c\\ t nt the nial(>rity < >wner clet ts t(> resume t ull ( onstrut tuin the Supplementary Agreement

' M 's 5;,. i pro \\ ides hMEIA With the option to eIIber ha\\e payments made subsequent to f u!y 3l, lo85 h' 7 -

/ '

O.,

reiunded of to leave sut h payments incested in linit 2 In the event tull wnstrut tion resumes the it ; ' "/. " J '

()W'icishlp Interest til the parIk ipants Wil! kie at})usted perhidn ally t() reIle(t the pri>porti(>nate in-

/'

vestment of cat h partu ipant

' 1.

22

'I s

Ihe tailure of the oO ow ner to complete L.' nit 2 due to an inability to obtain regulatory approval

[ 7 hlr the (timpletkin ()t t onstrlk Ih)n W(luld [)e eu used ullder the f()rt e majeure provlsion oI the bilnt

' ',[; ^

'd '

b

'.;lf; (In nership Agreement and SMFPA aould have no remurse against the ao owner It this ou urx

.Q SMHM wouki have to rew\\cr the msts of L: nit 2 through tuture rate mtreases even though no

' V.. e '

power uiiuki he generated by ll nit 2 Costs assotiated with L: nit 2 would be transterred from wn g g;.?

str ut tion wor k m proi ess to deterred (harges and amortized over a penod to be determined

].s.

L V

f or f unds used during wnstr ut tu>n ot 945 ~00 000 of whn h 93 30e.8-1 was recorded subsequent

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to September l' 1085 al Whn h time tonstrut tion was suspended by the 00 par tic ipant i

\\.,

~s e

I thir t(1 S bbds l'nIry as a pdrtlllpant In (hrand bulI I le (l lnstrlh til n (II k$ran ($ulI QenerdIe h p [.,_ ~.

i tax net operatmg losses for the other partaipant it these losses are utih/ed to ottset inwme taxes m

".; w ~ '

tuture years by the other partnipant SMEPA < ould reteive a retund up to 914 500 00e u hn h will.

f...f y,

, ?

bc < redited to uhlity plant when it is rei eived r

u I

.M C

N(1TE D INVESTMENE IN ASSOCI ATED ORC, ANIZATIONS

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Irh esInlents Irl asslk laIed (Ir%anl/athins at t (INI ((InNlsk (II

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[034 y4 ~

t Natuirial Rural l 'tilities ( (x>perati\\ c

' C ' s.

I cinan< e ( orporation (( '( i ( 'apital DXd

'l erm Certta a!cs 9 8 414 533 98 414 533

'1

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lI( Subordinated Ter m ( crtitu ates 2 400 000

' 9. -9

( )t her ie 023 44 320 i. ? '.h.

..'4 D I l,0' l.5bO D8 45b b53

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y Capital lerm ( ertitit ates bear interest at 4 and begin maturing in 200~ The Subordinated Ti'rm M, vJ-'.,.

i Certitkates bear interest at o 8~3 and mature in 201;.

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NOTE E - NOTES PAYABLE SMEPA has a $35,000,000 short-term line of credit available with National Rural Utilities Cooperative Finance Corporation (CFC), of which $25,173,507 and $21,953,680 were outstanding at December 31,1985 and 1984, respectively. Interest rates on short-term borrowings with CFC averaged approximately 9.4 % and 11.8% for the years ended December 31,1985 and 1984, respec-tively. Capital Term Certificates in CFC, which are included in other assets and investments, cannot be redeemed so long as the line of credit is in place.

NOTE F - IDNG-TERM DEITT Substantially all the assets, rents, revenues, and profits of the Association are pledged as collateral.

long-term debt consists of the following:

December 31 1985 1984 2% REA mortgage notes payable, due in quarterly installments through 2009 5 36,414,992 537,964,033 5 % REA mortgage notes payable, due in quarterly installments through 2015 23.146,998 23,093,186 5% REA mortgage notes payable, due in monthly installments through 2019 3.926,000 Mortgage notes payable to Federal Financing Bank (FFB) at interest rates varying from 8.715% to 14.512%, due in quartarly installments between 1986 and 2018 589,008,815 563.894,669 Lamar County, Mississippi Pollution Control Bonds:

1977 Senes,4.6% to 6.125 %, duc 1986 through 2007 35,630,000 36,445,000 1978 A Series,4.7% to 6.125 %, due 1986 through 2008 2.535,000 2,590,000 1978 A 1 Series,6.25 %, duc 1986 through 2003 910,000 930,000 Claiborne County, Mississippi Pollution Control Bonds -

1985 C Series,6.75% to 7%, due 1987 through 2015 49,800,000 Other 542.794 1.016.367 741,914,599 665,933,255 Less current maturities 48,173,136 5,716.425 5693.741,463 $660,216,830 The net proceeds of the Claiborne County, Mississippi, Pollution Control bonds must be used to epay FFB for funds borrowed to pay original project costs. The FFB borrowings to be repaid are classified as current maturities of long-term debt at December 31,1985. SMEPA has the option on FFB promissory note advances to elect (subject to REA approval) intenm maturity dates of not less than two years nor more than seven years after the date of the advance. At the date of the ad-vance or on an interim maturity date, SMEPA may also designate that it desires a long-term maturity of 27 to 34 years after the end of the calendar year in which the advance was made. At December 31,1985, SMEPA had $123,510,000 of FFB advances maturing in 1986 through 1990 which it intends to refinance for 34 years.

30

Approximate annual maturities of long-term debt for the next five years are as follows:

1986

$48,I 73,136 1987 7,117,932 1988 8,750,213 1989 9,451,74I 1990 10,377,225 The above maturity schedule reflects management's prerogative cf converting all FFB advances maturing in 1986 through 1990 to long-term debt and the obligation to use the net proceeds of the Claiborne County, Mississippi, Pollution Control Bonds to repay FFB advances during 1986.

SMEPA has used a rate it estimates to be an appropriate long-term rate, based on the December 31.1985 interest rate, to compute the annual principal requirement.

At December 31,1985, SMEPA had unadvanced loan commitments from FFB and REA of

$101,083,000 and $3,926,000, respectively. REA has placed a hold on FFB loan funds totaling

$82,110,000.

In December 1985, REA approved a loan guarantee commitment for the Cooperative. Under this commitment, the U.S. government will guarantee a loan of $63,357,000 to the Cooperative from a legally organized and qualified lending agency pursuant to a contract of guarantee, satisfactory to REA, among the U.S. government, the Cooperative, and the lending agency. The proceeds of the loan guarantee will be used to provide additional long term financing for CGNS Unit 1.

SMEPA has a commitment from the Jackson Bank for Cooperatives for $60,000,000 in loan funds. This commitment is limited to the sum of the amount remaining unadvanced to the Cooperative pursuant to FFB loans and those deferred revenues which were invested in the con-struction of CGNS Unit I as of May 31,1985. Draws against these loan funds will originally be short term with the agreement that any amounts outstanding at January 1,1987 must be con-verted to a 10-year amortization with principal amortization to begin in the third quarter of 1988.

Also, the Cooperative has a concurrent loan commitment from the Jackson Bank for Cooperatives for $3,542,000.

SMEPA is required by mortgage covenants to maintain certain levels of interest coverage and an-nual debt service coverage. The Association was in compliance with such requirements at December 31,1985.

NOTE G - DEFERRED REVENUE SMEPA established its wholesale power rates on March 1,1983 and 1984, in anticipation of Grand Gulf Nuclear Station Unit I beginning commerical operation in October 1983 and September 1,1984, respectively. A portion of these rates established was designed to recover in-creased cost of power after Unit I began commercial operation. This portion, prior to commercial operation on July 1,1085, has been deferred and is being amortized in such a manner as to reflect the revenue in the period the cost being recovered is incurred. The deferral was approved l

by the Board of Directors of SMEPA and by REA.

31

l NOTE H - DEFERRED MARGINS During 1984, the Cooperative's operations produced margins in excess of those budgeted necessary to meet levels of interest coverage and annual debt service coverage required by mortgage covenants. The Board of Directors directed the Cooperative to defer margins in excess of those needed to meet these requirements.

In 1985, the Cooperative recognized $1,518,130 of the previously deferred margins as revenue.

NOFE I-PENSION PLAN Substantially all of SMEPA's employees participate in the National Rural Electric Cooperative Association (NRECA) Retirement and Security Program. SMEPA makes annual contributions to the plan equal to the amount accrued for pension expense. In this master multiple-employer plan, which is available to all member cooperatives of NRECA, the accumulated benefits and plan assets are not available by individual employer. SMEPA's pension expense for this plan for the years ended December 31,1985 and 1984 was $400,000 and $420,000, respectively.

In addition to providing pension benefits, the Cooperative provides certain health care and life in-surance benefits for retired employees. Substantially all of the Cooperative's employees may become eligible for those benefits if they reach normal retirement age while working for the Cooperative.

The Cooperative recognizes the cost of providing these benefits by expensing the annual insurance premiums, which were $7,000 and $6,600 for 1985 and 1984, respectively.

32

Serving Mississippi Electric Power Associations d$

V South Mississippi Electric Power Association HIGHWAY 49 NORTH /P.O. BOX 15849 H ATTIESBURG, MS 39404

-