ML20206S617
| ML20206S617 | |
| Person / Time | |
|---|---|
| Site: | Hatch, Vogtle, 05000000 |
| Issue date: | 12/31/1986 |
| From: | John Miller, Scherer R GEORGIA POWER CO. |
| To: | |
| Shared Package | |
| ML20206S623 | List: |
| References | |
| NUDOCS 8704230001 | |
| Download: ML20206S617 (43) | |
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r~i io llorida mmer ( orp Georgia Power Company Trustec, Registrar and 333 Piedmont Avenue Interest Paying Agent P. O. Box 4545 Allseries of First hiortgage Bonds Atlanta, Georgia 30302 ChemicalBank Telephone (404) 526-6526 Corporate Trust Department 55 Water Street Georgia Power Company is an investor-New York, New York 10041 owned electric utility serving 57,000 of the state's 59,000 square miles. The Auditors Southern Companyis the parent firm Arthur Andersen & Ca for Georgia Powet as wellas Alabama 133 Peachtree Street, N.E.
Powen Gulf Power and hiississippi Atlanta, Georgia 30303 Power. These companies, together with certain service and special-purpose IrgalCounsel subsidiaries, comprise the Southern Troutman, Sanders, electric system.
lockerman & Ashmore 127 Peachtree Street, N.E.
A copy of Form 10-K as filed with the Sec-Atlanta, Georgia 30043 urities and Exchange Commission will be provided upon written request to the Dividends Paid office of the Corporate Secretary. A copy It has been determined that all of the Company's Financial and Statistical dividends paid on Georgia Power Com-Review also is available. For additional pany Preferred Stock and Class A information, contact the office of the Preferred Stock, for the year 1986, are About the cover: Followingloading Corporate Secretary at (404) 526-7450.
100 percent taxable.
of thejirstfuel at Plant Vogtle Unit i, the reactor cap is lowered into place Registrar, Transfer Agent and This annual report is submitted as infor-The next step is low-power testing be-Dividend Disbursing Agent mation for stockholders and is not fore the unit goes into commercial op.
Allseries of Preferred Stock intended for use in connection with any cration in late spring of1987.
Trust Company Bank sale or purchase of,orany offers or The map above shows the Southern Corporate Trust Department solicitation of offers to buy or sell, any electric generating system, of which P. O. Box 4625 securities, except to the extent incor-Georgia Ibwer is a majorpart.
Atlanta, Georgia 30302 porated by reference in a prospectus.
Highlights Financial (in thousands of dollars)'
1986 1985 % Change Operating revenues.
S 3,461,764 $3,444,298 0.5 Operating expenses
$ 2,894,527 $2,902,477 (0.3)
Net income after dividends on preferred stock
. S 535,003 : $ 493,717 8.4 Construction Expenditures.
$ 1,598,309 $1,384,182 15.5 Total Assets (at year-end)
$10,465,063 $9,030,618 15.9 Electric Operations Kilowatthour sales (millions):
Within the service territory 56,575 50,615 11.8 l
Off-system..
8,288 14,314 (42.1)
Total..
64,863 64,929 (0.1) l Customers served (year-end)..
1,445,372 1,400,637 3.2 j
hiaximum territorial peak hour demand (megawatts)2 14,055 13,291 5.7 Capital Structure Ratios (year-end) l long-term debt.
50.9%
50.7%
Preferred stock.
8.3%
8.3%
Preferred stock subject to mandatory redemption..
1.3%
1.6%
- Common equity.
39.5 %
39.4%
l Return on Average Common Equity' 16.51%
17.95%
l Ratio of Earnings to Fixed Charges (SEC hiethod)'
2.92 2.93 8 Under new accounting rules which must be implemented by 1988, the Company mttst write off disallowed construction costs. including those related to cost cap overruns on the Vogtle nuclear project (see Note 3 to the financial statements).
8 Includes Georgia Power Company, Oglethorpe Power Corporation. the Municipal Electric Authority of Georgia and the City of Dalton. -
l Contents l
l Iztter to Investors 2
A Tradition of Preparing for the Future.
5 The Yearin Review.
I1 Selected FinancialData
. 16 hianagement's Discussion and Analysis
. 18 FinancialStatements Income....
. 25 l
Earnings Retainedin the Business.
. 25 Other Paid-In Capital..
. 25 Balance Sheets 26 i
Capitalization
. 27 Sources of Funds for Gross Property Additions...
28 i
Notes to FinancialStatements
.. 29 Audit:rs* Report.
39 Report of hianagement.....
39 Board of Directors and i
Company Officers...
... 40
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letter to Investors i
l n many areas,1986 was a year of note-l wonhy achievements at Georgia Rnver Generating plant performance was excep-tional, as we met the highest territorial l
peak demands in our history. The Com-pany maintained high earnings and a solid kilowatthour sales perfonnance within its territory.
The increase in territorial kilowatt-(
l hour sales, partly because of record high l
summer temperatures, was largely re-sponsible for our earnings' having
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reached $535 million, an 8.4 percent increase over the total for 1985. Energy sales for the year reached 64.9 billion j
kilowatthours.
i We completed a major coal-fired unit and brought the first unit of Plant Vogtle, R. w Scherer a nuclear facility near Waynesboro.
almost to completion. However,it was necessary in March costs and increasing kilowatthour sales. The goals, which we j
1987 to raise the total budget for Plant Vogtle from $8.35 refer to as "The Challenge" were not easy ones, but we met l
billion to $887 bilhon, a 6.3 percent increase At the same time, most of them and even exceeded some The year ended with l
the scheduled completion date for Unit 2 was deferred nine retail energy sales 5.6 percent above budget. We exceeded months. The resised budget assumes constmction installation Challenge increase figures in this area by $15 million, or 60 i
rates for Unit 2 that are better than those experienced in the percent. We also were able to moderate operating expenses i
construction of Unit 1.
compared with presious years.
The revised price estimate is attributable to several factors, Bringing Unit 1 of Plant Vogtle nearly to completion is a j
including labor costs incurred to keep the plant's first unit on source of particular pride to all of us who have been involved j
schedule for commercial operation byJune The resision in the meticulous process of constructing and licensing a i
l brings Georgia Power's share of the cost from $3.56 billion to nuclear power plant. Our portion of that unit has a capacity of
$387 billion.
more than 530,000 kilowatts and will prove a tremendous asset l
Early in 1986, we made a pledge to our retail customers as we serve our customers well into the 21st century. We that our projected $156 billion share of Plant Vogtle would be received a full-power license for this unit in March and expect the amount we would put into the rate base-assuming no ex-to begin commercial operation later in the spnng traordinary circumstances. Georgia Power made this commit-Unit 2, previously scheduled for commercial operation in ment to help keep the regulatory process moving and to pro.
September 1988, is now scheduled for commercial operation tect the investment we've already made We therefore will not inJune 1989. The unit, w hich was 58 percent complete at year-I ask retail customers to pay the additional amount. We're going end, will provide another 530,000 kilowatts of capacity.
to absorb the additional cost in the form of a charge against in December, the Georgia Public Service Commission camings This write-offis required in 1988; howevet the Com-ordered Georgia Rmtr to defer all operating and carrying costs pany may elect to reflect it in 1987.
associated with Plant Vogtle Unit I between commercial We expect the environment of the electric utility industry operation and the Commission's ruling on a rate case to be to change, and many of the year's activities served not only to filed in 1987.
maintain a sound financial footing for the present, but also to The order allows Georgia Power to postpone filing a rate i
prepare for the future case until spring Since rate cases normally take about six We face the challenge ofincreased competition as the months to complete, we will not expect a decision in the case j
trend toward less govemment regulation, which already has af-until fall 1987, when the winter rate schedule will be in effect.
t fected many industries, stans to have an impact on the electric Without the order the Company would have had to begin ex-utility industry pensing all costs related to the unit when it begins commercial Near the end of 1985, the management of this company operation, and would have needed to file a rate case in January adopted a set of goals for 1986 aimed at reducing operating Among the requests we plan to make during the rate case 2
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sales contracts with Georgia Power and i
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other system operating companies.
Another suit has been filed against
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directors of The Southem Company and i
Georgia Power by a Southem Company
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stockholder; who alleges that directors
" breached their duty of due care" and i
i were " negligent" in decisions regarding
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Plant Vogtle and the Rocky Mountain project. An independent litigation com-mittee has been formed and given the I
full authori:ation of The Southem Com-I pany and Georgia Power boards to deter-mine what actions the companies will take in response to the suit. This com-mitteeis composed of board members not named in the suit Action on the case
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has been stayed throughJune 1987.
ymg There were changes in top-level j
is one that would allow us to phase the cost of both units into management during the year Former executive vice president i
the rate base over a number of years.
and general manager Grady Baker and former executive vice I
We are awaiting the results of a prudence audit commis-president Elmer Harris were both named senior executive sice sioned by the Georgia Public Senice Commission. O'Brien-presidents. Jack Gantt, formerly a senior vice president, was Kreit: berg 6r Associates, a consulting firm, has been examining named executive vice president management decisions made with regard to Plant Vogtle and Our company and our industry stand at the threshold of a other projects. A report on this audit is expected to be com-new era. In the next few years Georgia Power will complete a pleted in the spring of 1987.
massive construction program that has spanned five decades.
In addition to our efforts to bring Plant Vogtle successfully We anticipate significant departures from the emironments in on line, we brought Plant Scherer Unit 3, a coal-fired facility in which electric utilities have traditionally operated, particularly l
central Georgia, into commercial operation inJanuary 1987, in the areas of competition and government regulation.
adding 613,500 kilowatts to our total generating capacity. A The challenges of the past have provided opportunities to fourth Scherer unit is 52 percent complete and is scheduled grow stronger and continue to be successful. We believe those for commercial operation in 1989.
ahead of us also will p> ovide such opportunities.
Significant jumps in the territorial peak demand for elec-On behalf of the officers, directors and employees at tricity dramatized the need for this additional capacity. During Georgia Power; thank you for your continued confidence and the unusually hot summer of 1986, the previously established support.
peak was surpassed 15 times. The new all-time record, setJuly 30, was 14055,000 kilowatts, about 5.7 percent higher than the Sincerely, peak set the summer of 1985.
l In addition to the unusually hot summer; the Company's aggressive marketing strategies have contributed to the more i
than 11.8 percent increase in territorial kilowatthour sales j
since 1985. The marketing challenge, which set 1986 energy Robert W Scherer j
sales goals, has been highly successful. Each of the Company's Chairman ofthe Boani eight divisions has exceeded a highly ambitious goal for the I
)
year.
Georgia Ibwer's future earnings may be allected by the out-I come of a suit filed by Gulf States Utilities Ca of Beaumont,
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Texas, for unspecified damages against the Southern electric JamesIf. Afiller;]r i
system. The Texas utility is seeking to be excused from further Persident obligation under its unit power and other long-term power Afarch 9,1987 3
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A Tradition of Preparing for the Future Telectricity has been a silent partner hroughout Georgia's recent history, starting to grow again. In 1935, Georgia Powefs electric energy sales exceeded a 4
to the state's progress. As early as 1883, billion kilowatthours for the first time In j
one of Georgia Powers forerunner com-response to the emerging growth pattern, 4
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panies was providing electric lights for a huge generating plant constmetion pro-8 Atlanta's streets and a few of its homes gram was started with plan 3 for Plant t x; '
and businesses.
Arkwright-a program that is finally wm-
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3 Over the past 100 years Georgia has ding down more than half a century later A
g developed from communities of small The first Arkwright unit was completed
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family farms to a rapidly growing state in 1941,in time to provide power for i -.. _.
m diverse in its industries and its products.
defense activities for World War 11.
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As the state's profile has changed, the de-Plants Atkinson and Arkwright,along l,
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mand for electricity has increased in pro-with many hydro plants built in the first g-portion to Georgia's growth. Industries two decades of the century, still are pan of i
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moving from their traditional homes in the Georgia Power system.They have the Northeast, families discovering the been joined, however, by modern giants ways modem appliances could make many times the size of these early units.
their lives more pleasant, and businesses in the early 19503 some of the nation's f,
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p springing up and expanding to accom-first 100,000-kilowatt units were built at j;n, toooo04tiowatt generating units.
modate a fast-growing population all Plant Yates. Today, even they seem small.
depended on an abundant supply of in the decade between the mid-60s electricity.
and the mid-70s, demand on Georgia Georgia was served by a few small Ibwers system more than doubled. It was hydroelectric plants until 1930, when during this rapid growth period that the Plant Atkinson, Georgia Ibwrfs first fossil Company's first nuclear unit was built in fuel plant, was completed. Comparable in Appling County. Plant Hatch has now size to an average hydro plant, the first been in operation more than 12 years.
Atkinson unit had a capacity of only Knowledge and experience gained con-60,000 kilowatts. Although plans were structing, licensing and operating the twu made for additional capacity at Atkinson Hatch units continue to benefit Georgia even as the initial unit was under con-Power tremendously as it brings Plant struction, the Great Depression slowed Vogtle to completion.
the state's economic development and the At the same time the generating concomitant growth in demand for system was growing at a tremendous pace, electricity.
so was the transmission system. Atmost 20 years ago Georgia Power built the first Growth on the System 500-kilovolt transmission lines on the Southern electric system.
By the mid-1930s, however; Georgia was Joint Ownership, Off-System Sales The Tugalo plant, completed shortly after World while growth in the demand for electrici-War I, is among the small hydroelectric facihties that have been providing power to Georgiansfor ty continued unabated, Georgia Power more than 6oycan faced the problem of completing its mas-5 l
1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000
- 1950. Plant Yates Unit I was among the first 100-megawatt generating facilities in the country.
- 1964. At its comple-tion, Plant hicDonough was the most efficient generating plant on the 1980. Providing 321,300
" Mkd$y Southern electric gen-kilowatts of capacity, erating system,because Wallace Dam is Georgia of an electronic digital Power's largest hydro-computet electric facility.
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- 1951. Over a period
- 1982. Since it went in.
spanning nearly 60 years, to operation, much of Bartletts Ferry has ex-panded to meet Georgia's the electricity from Plant growing need for elec-Scherer Unit I has been tricity. A fourth unit was sold off-system. In future added in the '50s, and
- 1969. At the time it was years,its capacity will be two additional units completed, Plant Branch available to the Southern were completed in 1985.
was the largest plant in electric system.
the Southern electric system. It was the first
-24 system plant to use y'
many types of modern equipment.
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- 1952. In the boom W.
M 9 w period that followed s
World War 11, Plant r
hichlanus, the first major 4
A h,s steam electric generating
- 1987. Scheduled for plant to be built in commercial operation in
- 1975. The Plant Bowen mid-1987, Plant Vogtle southeast Georgia, was completed.
units, giants by the stan-will provide power well dards of the mid-1970s, into the 21st century, still make up one of the un hsands) largest generating plants in the nation.
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10 Dinstalled Capability (htW) p s
E System Peak load (hfW)
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15 10 5
1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000
i sive construction program during the cur in the near future Experts predict a inflation-ridden 1970s. Operating costs future that is characterized by an increase were skyrocketing, and rates were not in competition and a decreasein adequate to cover the increases. The re-regulation.
sulting decline in net income prompted The trend toward less government Georgia Power to take a bold, innovative regulation which has brought about step that allowed it to continue building significant changes in the airline, tele-to meet customers' needs.
communications, trucking and other In 1975, the Company sold a percen-industries is expected to have an impact
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tage of Plant Hatch to Oglethorpe Electric on the electric utility industry in the near hiembership Corp (now Oglethorpe future Power Corp).This opened the door for Already, competition-among sup-joint-ownership agreements on other pliers of electricity and between suppliers generating units at Plants Wansley, of electricity and suppliers of other forms
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Schererand Vogtle of energy-has sharpened. Industry and
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The Southern electric system, par-government officials are working to re-g l
ticularly Georgia Power, has been an in-solve such issues as cogeneration and j
dustry leader in non-traditional off-sys-open access to transmission lines.
crady sakei; senior executive vice presi-tem sales, beginning in early 1980. These Uncertainties on the industry's hori-dent, now heads nucicar activities. fossil contracts expire in the 1990s, when the
- on will make the remaining years of this
'"d h>d'oclectric power and corporate quality assurance.
Southern electric system will need the century challenging ones for the nation's capacity now being sold off-system. Dur-power companies. The experiences of ing 1986, off-system sales represented other industries indicate that low-cost j
12.8 percent of Georgia Power's total providers of electricity are most likely to I
energy sales.
be successful. It becomes more important Changesin the environmentin than ever that a companylike Georgia which the Company operates have meant Power be efficiently run and intelligently changes in Georgia Power's strategy, planned.
organization and outlook. Each major hiany activities now under way at change in direction has reinforced the Georgia Powerare positioning the Com-idea that planning and flexibility are keys pany to succeed in this more competitive to a successful future environment.
l l
Geotgia Power and the I uture hianagement Changes and Organization Revisions i
However much the electric utility indus-try may have changed overits roughly Adjustments in the management struc-100-year history, these may one day seem ture are being made to assure a strong l
minor compared to changes that will oc-future management team. Among the changes that occurred in 1986 was the j
naming of two senior executive vice i
The chart on the opposite page shows how over the presidents. Grady Baker, formerly execu.
j past 35 years Georgia lbwer's capacity has been expanding to keep pace with the growing demand dvc vice president and general managet;is l
for electricity in the state.
now responsible for nuclear activities, i
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i fossil and hydro power, and corporate dential and commercial marketing, gen-r quality assurance Elmer Hanis, formerly eral sales and marketing services. By be-g executive vice president, is now responsi-coming experts on those they serve, mar-
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ble for financial and accounting opera-keting teams are uncovering new opper-r$
N tions, administrative services, govern-tunities to sell electricity in ways that mental relations, regulatory and con-benefit both the Company andits
,V sumer affairs, corporate relations, cor-customers.
Y porate communication and bulk power Near the end of 1985, Georgia Power markets.
announced a marketing challenge, which Former senior vice presidentJack included goals for increasing kilowatt-Gantt was named executive vice president hour sales. The goals for "The Challenge" and heads the marketing organization, were designed to allow each company division operations and the power deliv-division to compete with its own previous ery and land departments.
performance. Each division met or ex-The Company has initiated an assess-ceededits goal,and the Company as a ment process to evaluate the Company's whole reached more than 160 percent of leaders and future leaders. Through this its energy sales increase goal. New goals program, Georgia Ibwer can identify indi-have been established for 1987.
viduals' strengths and developmental Another aspect of"The Challenge"is la his new rosition as senior exuutive
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needs and design specific action plans for teduction of operating costs. Managers for a variety offunctions includingfinan-them.
throughout the Company have been find-cial operations, govern mental retarmns, GeorgiaIbwer has continued to hold ing ways to achieve their aims with lower and wgulatory and consumnagain down operating expenses through staff budgets. Some are accomplishing this reductions in several areas of the Com.
through office automation. As a result, pany. Voluntary special retirement pro-operating expenses in 1986 increased far grams have been offered at various times less than they had in prior years.
and locations, staning in 1984. Such pro-For the immediate future, the Com-grams were offered during the yearin pany has no plans to build majorgene-several areas of the Company. Roughly rating units other than those it is now 750 employees retired between August completing. This will mean a shift in the 1984 and the end of 1986,a time period Company's financial direction. As that normally would have included about Georgia Power's plant construction pro-300 company retirements.
gram winds down,less extemal financing During 1986, Georgia Power's mar-will be required. At the same time, the keting area was reorgani:cd to make it Company anticipates an increase in inter-better able to address the specific needs of nally generated funds because of the ad-various customer groups. The organi:a.
ditional generating capacity coming into tion now has live major areas: industrial the rate base marketing, economic development, resi.
The Georgia Business location center, which opened in October in downtown Atlanta, is prov-ing to be a useful toolfor new industrial and commercial business recruitment.
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The Year in Review Plant Construction Progress The hot ftmetionaltest at Unit I was completed four days ahead of schedule anyof the significant activities of The test duplicated, without nuclear fuel, 1986 centered around completion many of the plant's full operating condi-of two major generating facilities-Unit 3 tions and actuallygenerated a small Net income of Plant Scherer and Unit 1 of Plant Vog-amount ofelectricity. tle The Scherer unit began commercial A structural integrity test, also at Unit operation inJanuary 1987, and low-power 1, demonstrated that the containment testing continues on the Vogtle unit as it satisfies all stmetural design requirements nears commercial operation. and can withstand the internal pressures The completion of Vogtle Unit 1 is that would result in the remote likelihood - _.~ _ - - especially gratifying because of the dif-of a design basis accident. ficulties involved in constructing and in mid-January 1987,the Company licensing a nuclear plant in today's regu-received a low-power license for Unit 1 latory and public-opinion emironment. and loaded fuel for the unit. I.ow-power In March 1987, Georgia Ibwer in-testing began immediately after fuel creased the budget for Plant Vogtle by 6.3 loading The full powerlicense was percent, or $522 million, raising the total receivedin March 1987. estimated cost of the plant from $8.35 The Vogtle project has been com-billion to $8.87 billion. The revised bud-o 19u 19e im 19e im pl mented foritsimplementation of a get estimate is attributable to several fac- " readiness review" program that has tors, including the labor costs incurred t become a model for the industry.The keep Unit 1 on schedule for commercial pilot program, initiated by Georgia Powet; operation byJune 1987. The new budget divides commitments and requirements increases Georgia Power's share of the for licensing into manageable parts called totalcost from $156 billion to $3.87 billion. " readiness review modules" As they are completed, modules are reviewed by the Earlyin 1986, the Company an-NRC. Through readiness review, Georgia nounced it would absorb any increase in Power is not only making sure it meets all its share of the price of Plant Vogtle above requirements and commitments, but also the projected $8.35 billion, assuming n is documenting the work fully. extraordinary circumstances. Ilecause of Another major step emergency plan-this pledge, the increased cost of Plant Vogtle will not be included in Georgia ning, has gone well. Following the emer-Ibwer's retail rates. Instead, the Company gency drillcompleted May 1,the NRC will absorb the additional cost in the form reported that it found no deficiencies and of a charge against earnings. no areas requiring corrective actions The During the year,severalimportant federal agency noted that the drill sce. milestones were reached at Plant Vogtle natio was detailed and fully exercised the on-site emergency orpnization. The NRC reported favorably on Georgia Ibwer's Worhen inspect construction details inside the work with outside agencies and orpniza. I Plant & herer Unit 4 roohng tower The unit was 32 percent complete atyear.end and is uheduled tionsin emergency planning pr commercialoperation in 1989. The Atomic Safety and Ucensing ii
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l l l 1 l Board held hearings near the plant site to receive testimony on any technical issues related to the licensing of Vogtle. At the j start of the hearing the board already had dismissed most of the otiginal conten-tions. In December, the final board find-ing authorized issuance of a license upon completion of construction. { The schedule for Unit 2 has been A i revised so that the facility is now to begin k .w f ' " WGM M. ' e ] commercial operation in June 1989, ninc ~ O+- j months later than the previously schedul-d Ne' ,4 ) ed date. Construction of Unit 2 was 58 4 percent complete at the end of the yeat This includes the unit's share of facilities common to both Unit I and Unit 2. Initial operation of Plant Scherer Unit 3, one of four 818 megawatt units at the central Georgia co;.1-fired plant, began in October After a three-month test period, the plant was brought into commercial operation in January 1987. Construction was completed on schedule and under budget. Georgia Ibwer owns 75 percent of Operations the unit. The remaining 25 percent be-longs to Gulf Power Ca, another oper-ith regard to generating plant per-ating company in the Southern electric formance,1986 was the best year i system. evec An average equivalent availability of Plant Scherer Unit 4, owned entirely 86.9 percent among fossil plants helped ] by Georgia Powet; was 52 percent com-the Company meet the record demand j plete at year-end and is scheduled for for electricity this yeat During the excep-l commercial operation in 1989. tionally hot summer, Plant Wansley Unit l Major additions were made to the 2 stayed on line for 164 days, establishing system's transmission netwurk during the a Southern electric system record for year InJune, two 500-kv lines totaling super-critical units. later in the year, that 309 miles were energi:cd. The lines con-record was broken when Plant Bowen nect Plant Scherer with Plant Vogtle and Unit I operated 204 days without inter-extend to the Thalmann switching station ruption. In 1985 and apin in 1986, Plant near Brunswick. Bowen generated more electricity than any other plant in the U.S. Operators gently lower one of the 19 Ifuel bundici During the year Plant flatch Unit 2 into the reactor at Plant Wgtle Unit i Juring int
- received a performance award from tialfuelloadsng Ahne rtsht is Plant %gtle at night.
General Electric, citing the unit as one of 13 1
I I I i l l ,\\ I P71: the top 12 boiling water reactors in the l fj world based on its 1985 performance. / Forty-five such reactors operated in ..~/, 1985. Plant Hatch is now first in industrial ' ^ worker safety among the nation's 101 nuclear reactors with operating licenses, based on figures released by Edison Elec-tric Institute. l Overall, the Company had its best ) j year ever in the area of safety. The lost i
- I workday case incidence rate was.067, an
} 11 percent improvement over the 1985 s. I O rateof 075. I I The summerof 1986 was not only unusually hot, but large portions of the j j Southeast, including Georgia, suf fered l from adrought.The drought not only reduced generation at Georgia Power's hydro plants, but affected Plant Hatch as well.The waterlevelof the Altamaha River dropped so low that a sandbagweir had to be constructed across the river to } ensure suf ficient water to operate the plant's pumps. I During that record summer the terri. j g torial peak demand established the pre-vious summer was broken 15 times. The new all time record of 14,055,000 kilo-watts was 5 7 percent higher than the i 1985 peak. l t The high summer demand wasone reason retail energy sales, particularly in [ the residential category, increased. Energy { sales for the year totaled 64.9 billion kilo. }, watthours Net income after dividends on j-preferred stock for 1986 was $535 mil. 4 tion, an increase of $41.3 million over 1985 carnings. e At Plant flatt h, a heahh phnks technktan ehecks natural vaJoatson foris of wntarneis ehat mfI store enatritals mnraining tomfrvel ra.harton s o 14 i
in December;the Georgia Public 16% percent first mortgage bonds due Service Commission ordered Georgia 2011 and $121.25 million 17% percent Power to defer all operating and carrying first mortgage bonds duein 1991 were costs associated with Plant Vogtle Unit I redeemed. between its commercial operation date Energy Sales and the time of a decision on the Com-lxgislative Activity pany's upcoming rate case This decision I allows Georgia Power to postpone filing everal issues that affect Georgia I\\mer for a rate increase until spring of 1987. came before Congress during 1986. l{ad the order not been approved,the The hydropower relicensing bill, which Company would have had to begin ex-eliminates public power preference in pensing all costs related to Plant Vogtle project relicensing cases became law. Unit I as soon as the unit is brought into Although the session ended without any commercial operation. Under these cir-action on proposed acid rain legislation, cumstances, Georgia Power would have such legislation has been reintroduced in i I had to file a rate case at the start of 1987. the 100th Congress. Irgislation reprding As part of the rate case expected to the Price Anderson Act,which limits the be filed in the spring, Georgia I\\mcr will liability of utilities operating nuclear ask that the state Public Service Commis-plants, also died. The current act expires g slon allow the cost of both Plant Vogtle in 1987, and it is likely that new legisla-units to be phased into the rate base over tion will significantly increase the Com- ,,g ,,g ,,g ,,g a number of years. pany's liability for an accident at any U.S. The Company alsois awaiting the nucleargenerating plant. E og.spe,m results of a prudence audit performed by E sa,sp asia, O'Brien Kreit: berg 6r Associates,a con-Community Service O n,,.a sulting finn, for the state Public Service Commission. A report on this auditis corgia l\\mtr continues its commit-expectedin the springof1937. ment to communitiesin whichit provides service in 1986, company man-Finance agement adopted new goals for com-munity service contributions. These em-Tyear'ompany took advantage of the he C phasize specific community needs. An slowinterest rates by issuing example is the " Operation Window lock" $556.4 million in first mortgage and program through which Georgia i\\mtr pollution control bonds as well as $100 helped provide special window locks for million in preferred stock. older citi: ens' homes. These allow air to Georgial\\mtr redeemed $91.9 mil. circulate, but position the window so that lion principal amount of 16 percent first intruders cannot enter. The Company mortgage bonds due in 2014 with pro. also donated electric fans for 800 older ceeds from the 1984 safe of 25 percent of citizens during the summer heat wave. Plant Scherer Unit 3 to Gulfl\\mer Co, an aZliate operating company in the South-ern electric system. Also, $121.25 million 15
Sciccted Financial Data * (Dollarun thousands) Y;ars Ended December 31 1986 1985 1984 Condensed income Statement: Operating Itevenues $ 3.461.764 $ 3.444,298 $ 3.132.880 Operating Expenws: Operation and maintenance. 2.239.622 2,269,482 2,071,136 Depreciation and amortiution 215,763 201.524 191.205 Taxes other than income taxes. I19,768 120,320 106,908 Federal and state income taxes. 319.374 311.151 268.654 Total operating expenses. 2.894.527 2,902477 2,637,903 Operating income.. 567.237 541.821 494,977 Otherincome Net 299.455 256,984 206.766 Income liefore Inscrest Charps. 866.692 798.805 701,743 Net Interest Charys. 156.092 238,975 224.407 income Before Chany in Method of itecording itewnues.. 610.600 559,830 477,336 Cumulative effect as ofJanuary 1.1982 of accruing unbilled revenues,less income taxes of $22.320(000)... Net income....... 610,600 559,830 477,336 Dividends on Preferred Stock. 75.597 66.113 55.617 Net income After Dividends on Preferred Stock... 535.001 $ 493.717 $ 421.719 Pro Forma Net income After Dividends on Preferred Stock assuming change in method of recording revenues was applied retroactively.... N/A N/A N/A j Cash Dividends Declared on Common Stock. 325.500 $ 277.500 $ 225,500 Ileturn on Averay Common Equity (percent) 16.51 17.95 18.43 Total Aswas. $ 10.465.063 $ 9,030,618 $ 7,8H0,072 Capitaliution: Common stock equity. $ 1.469.201 5 3.013,707 $ 2,486.172 Preferred stock.. 732.H44 612,844 482,844 Preferred stock subject to mandatory redemption. 112.500 120,000 127.500 tong-term debt, 4.464 H57 3.878.066 3,432.606 Totalcapitallution, H.779.402 $ 7,644,617 $ 6.529.122 3 4 Gross Property Additions. $ l.598.109 $ 1.384.182 $ ~1,396 846 Kilowatthour sales (in ihouunds). Residential.. 13,234,24H 12,006,462 11.548,787 Commercial. 12,945,926 11,945 938 10,902,161 Industrial. 20,339,235 19.517.543 18,862.531 Sales for resale. 9.673.766 6.762,694 7.113.291 Other. 3Hl.917 382.238 342.047 Total territorial utes. 56,575.092 50,614,875 48,768.819 Sales to utilities outside territory. H.2MH 059 I4.313.679 10.285 H92 Total kil matthour sales., 64,861.151 64,928,554 59.054,711 Operating itevenues: Residential.. $ M74,211 786,500 $ 754.163 Commercial... H54.755 797,540 739,035 Industrial. M97,646 873,554 858,536 Sales for resale. 313,229 244.260 277,848 Other.,... 27,948 26,766 24,388 Totai revenues from territorial sales. 2.967.809 2.728,620 2.653.970 Revenues from sales to utilities outside territory 459.116 6Hl.632 450,928 Total revenues from sales of electricity,.. 3,427,125 3.411,252 3,104.898 Other revenues. 14,639 33.046 27,982 Total operating revenues. $ 1,4(.,64 $ 3,444,298 $ 3.132.880 Averar llewnue Per kilowatthour-Total $ ales (cents). 5 28 5.25 5 26 Awray Cost of fuelIVr Net Kihmatthour Generated (cents).. 1.76 1.80 1.85 Customers (end of year). 1,445.372 1.400.617-1,152.235 1mpigees(end of year). 14,773 14.947 14,562
- Under new accounting rules whk h must be emplemented by 1988, the Company must wrste off Josallowed construttkm cmts. im ludong those related tmmt car eerr:ns on the %gtle nu< lear tw)n t (see Note 3 to thefinam tal statements) 16
Georgia ibwer Company 1983 1982** 1981 1980 1979 1978 1977 1976 $ 2,730.574 $ 2,457,201 $ 2,015.810 $ 1,808,408 $ 1,519,942 $ 1,475.024 $ 1,301,237 $ 1,170,046 1,775.903 1,622,200 1,326,359 1,087,389 935,210 921,465 813,987 690,953 176,735 162,796 157,336 153,245 133,888 118,208 109,944 100,347 95,797 93,271 83,780 73,454 67,736 65,364 58,939 53.630 231,565 185,944 141,1 % 178,032 118,424 126,953 118,514 94,645 2,280,000 2,064,211 1,708.671 1,492,120 1,255.258 1,231,990 1,101,384 939,575 450,574 392,990 307,139 316,288 264,684 243,034 199,853 230,471 129,093 97,908 76,222 71,974 67.110 52,510 67,400 62,857 579,667 490,898 383,361 388,262 331,803 295,544 267.253 293,328 219.54f 206,495 170,901 157.693 151,505 129,050 125,087 144,348 360,l D 284,403 212,460 230,569 180,298 166,494 142,166 148,980 23,009 360,123 307,412 212,460 230,569 180,298 166,494 142,166 148,980 55,568 48,468 40,366 35,224 34,786 30,480 30.480 27,862 304,555 258,944 172,094 195,345 145,512 136.014 111.686 121.118 N/A $ 235,935 175,515 196,709 140,706 137,236 117,086 121,978 189,600 154,700 131,000 136,400 131.100 119,225 109,400 100,400 15 86 16.14 , 12.41 15 47 12.21 12.04 10.51 12.06 $ 6,746,247 $ 6,159,663 $ 5,271,846 $ 4.728,977 $ 4,341,295 $ 4,084,794 $ 3,803,627 $ 3,591,063 $ 2,089,171 $ 1,751,186 $ 1,458 240 $ 1.314.315 $ 1,210,868 $ 1,173.036 $ 1,086,247 $ 1,038 961 432,844 432,844 357,844 357,844 357,844 307,844 307,844 307,844 131,250 135,000 138,674 67,500 71,250 75,000 75.000 75,000 1,128,500 2.997,760 2.667,372 2.326.627 2,168,272 1,953.553 1,880,798 1,827,470 $ 5,781.765 $ 5,316,790 $ 4.622.130 $ 4.066,286 $ 3.808,234 $ 3,509.433 $ 3,349.889 $ 3,249,275 l $ I,015,274 5 912,145 $ 730,454 $ 690.959 $ 607.616 500,719 $ $34,153 404,435 11,443,257 11,075,560 11,153.588 11,297,518 10,340,375 10,829,488 10,470,674 9,512,592 10.181,953 9,890,108 9,464,443 9,184,086 H,735,947 8,827,281 10,278,012 9,712,599 17,415,441 16,203,691 16,813,165 16,299,666 16,225,971 15,682,025 13.236,290 12,629,263 6,919,459 7,342,957 7,361,961 7,127,310 7,632.216 8,580,211 9,617,229 9,262,454 331,804 320,893 306.724 294,700 246,055 226.113 216.621 213.058 46,291,914 44,833,209 45,099,881 44,203,280 43,180,564 44,!45,1I8 43,8I8,826 41,329,966 i 7,116,061 4,869.113 2,642,547 2,102,461 54,128 l 53,407,975 49,702,722 47,742,428 46,305.741 43,234,692 44.145.118 43.818,826 41,329,966 $ 686,269 $ 645.289 540,004 5 514,860 $ 414,500 417.6 % 358,931 315,226 649,932 625,446 499,653 454,049 386,176 369,808 385,889 355,405 747,305 711,085 608,713 547,256 488,044 449,719 328,407 290,983 273,148 284,206 251,572 205,030 204,280 213,319 203,914 191,110 20.972 19.439 15.428 14,169 10.971 9,856 8,957 8,542 2,379,626 2,285,465 1,915,370 1,735,364 1,503,971 1,460,398 1,286,100 1,161,266 323.671 147,565 82,048 56,911 1.261 2,703,297 2,433,030 1,997,418 1,792,275 1,505,232 1,460,398 1,286,100 1,161,266 27,277 24,171 18,392 16,133 14,710 14.626 15,137 H,780 $ 2,730,574 $ 2,457,201 $ 2.015,810 $ 1.808,408 $ l.519,942 $ 1,475.024 $ 1,301,237 $ l.170,046 5 00 4 90 4.18 387 3 48 3 31 294 2.81 1 82 1 84 1 66 1.51 1.42 1.37 1.27 1,12 1 1,311,063 1.272,859 1.249,116 1,215,714 1,192,770 1,164,822 1,138,470 1,112,063 1 14,535 14.076 13.411 13.034 12,522 12,067 11,485 10,194 "In 1982, the Company began au rwng reitnuts for irnwes renderrJ but unMird i 17
Management's Discussion & Analysis Results of Operations OPERATING REVENUES Georgia Ibwer's net income after dividends on preferred stock Strong retail sales and territorial sales for resale, offset by de. for 1986 was $535 million, which provided a 1651% return on creased off-system sales, resulted in total operating revenues of average common equity Eamings for 1986 increased $41 mil. $3.5 billion for 1986, up 0.5% from 1985. Total operating rev. lion, or 8.4%, over 1985 camings and $113 million over 1984 enues for 1985 had increased by 9.9% from 1984, primarily results. Operating income during this three-year period has due to increases in off-system sales. been relatively stable; the biggest single factor in these increases has been the Allowance for Funds Used During Retail Resenues Construction. The increases in retail revenues from year to year, and their income from electric operations for 1986 was $567 principal causes, are as follows (in millions of dollars): million, up slightly compared with 1985 and up 572 million from 1984. During these three years, operating revenues have kept pdc with increases in operating expenses without an in-Growth in Number of Customers 5 841 $ 79.5 $ 638 crease in retail rates since October 1983, primarily due to growth in retail sales of electricity. r customet adjusted to Refic(t More Normal Weather. 28 I 58 6 74.3 ~ ~ Operating Revenues Other Pncing Changes (u b u ofpo w ) (including fuelmst recmery) (2 H (17.1) O 4) Totalincrease. 1170 2 $108.2 $2716 lYrcent increase. 64] 46% 12.9% 3000 ~ Iitritorial Sales for Resale 2.500 Revenues from sales to municipalities and electric member-ship cooperatives increased $69 million, or 28.2%, for 1986 2000 l l l compared with 1985. About half of this increase resulted from l l l a decline in these customers'own generation due to plant l l l outages and a reduction in the generation they purchased 1.500 l l I from federal hydroelectric projects. The remainder was I 1800 primarily due to economic growth in their service areas and the extremely hot summer The 12.1% decline in revenues 500 from territorial sales for resale in 1985 compared to 1984 o 1982 1983 1984 1985 1986 g Oil 4)siem Sales { ! 0f5 "'" Revenues from sales to utilities outside Georgia declined $223 1 million, or 33%, for 1986 compared to 1985. These sales had increased by $232 million, or 51%, for 1985 compared to 1984. Off system sales consist of capacity and energy com-ponents. Capacity revenues reflect the recovery of fixed costs and a return on investment under these contracts. Energy is 18 I
sold at its variable cost. Off-system sales, by component, have OPERATING EXPENSES been as follows (in millions of dollars): Total operating expenses were $2.9 billion for 1986, a decrease of 03% compared with 1985, principally due to reductions in 1% 1985 1984 fuel and purchased power expenses. The same categories were Capacity. 5252.3 $297.9 $179.3 the largest factors in a 10.0% increase for 1985 over 1984. Energy. 207.0 384.7 271.6 Total. 5459.3 5682.6 $4509 Fuel and Purchased Power Expense While total sales of electricity decreased by 0.1% for 1986 ver-The decline in capacity revenues for 1986 was due to an sus 1985, fuel and purchased power expenses declined by 6.0% anticipated contractual reduction during the first half of the and 4.0%, respectively. tower fuel expense resulted from de-yeat The decrease in energy sales for 1986 reflected the soft creased generation of 4.4%, lower coal prices and continued market for bulk power; largely due to lower oil and natural gas efficiency improvements in the Company's fossil fuel ) prices. The increases in capacity and energy revenues for 1985 generating plants. Increased net energy purchases of 25.5% over 1984 resulted from new and expanded contracts. were offset by a lower average unit cost-a result oflower fuel See Note 5 to the financial statements for more informa-costs at other utilities and a decline in the contractual buyback tion on off-system sales, particularly the possible loss of rev-of capacity from joint participants in generating projects. l enues from Gulf States Utilities, a major customer under these Capacity buyback costs will increase substantially when Plant agreements. Vogtle Unit Na 1 enters commercial service in 1987. The increases in fuel and purchased power expenses of Operating Expenses 7.7% and 6.0%, respectively, for 1985 over 1984 were the
- ' nann ymaam result of a 9.9% increase in total energy sales, moderated by slightly lower average costs per IGVH.
3" Under fuel cost recovery provisions, the Company is en-i titled to recover the actual cost of fuel burned and the energy t 2.5c portion of purchased power transactions. See Note 2 to the financial statements for infonnation concerning an application to the Georgia Public Senice Commission (GPSC) for an in-crease in the fuel cost recovery rate. I Other Operating Expenses Operating expenses other than fuel and purchased power in-sco l l l l l creased by 5.4% and 13.4% for 1986 and 1985, compared with l l l l l the respective previous years. Increases in depreciation and 0 1982 1983 1984 1985 1986 amortization expense reflect the continued growth in depreciable plant in service. The composite straight line de-O rw' preciation rate was 3.7% for each of the three years through 3""" 3 ]' "", 1986. Taxes other than income taxes consist primarily of pay. g O%,%, roll taxes, ad valorem taxes and municipal gross receipts taxes. [] r.z 1 i under " Future Considerations k5r Capital Requirements" CONSTRUCTION PROGRAM within this discussion. Gross propeny additions for the period 1987 through 1989 are Other factors affecting future camings are the regulatory expected to be approximately $3.3 billion. This estimate is treatment of non-constmction issues, competition, the price based on the Company's current ownership interests in the of oil and other fuels, the weathec energy conservation, alter-generating units under constmetion and includes AFUDC (net mtive energy technologies, and economic conditions in ofincome taxes) of $514 million. Actual construction costs Georgia and in the service areas of the Company's off-system may vary from estimates because of such factors as environ-customers. See Note 5 to the financial statements for infor-mental requirements; design changes to meet nuclear licens-mation concerning the possible loss of revenues from Gulf ing requirements; the cost and efficiency of construction labot States Utilities. a major off-system customer. equipment and materials; revised load projections; and the availability and cost ofcapital. Financial Condition Completion of the construction program is dependent on The principal changes in the Company's financial condition the Company's ability to obtain funds from external sources. during 1984 through 1986 were the s dditions of $4.4 billion to Should the Company be unable to obtain such funds in utility plant and the financing of those additions During these amounts w hich, together with intemally generated funds, will three years, 56% of gross property additions was funded by be adequate to carry out the present construction program, equity capital contril:utions from The Southern Company, delays and cancellation of certain projects may become drawdowns of existing pollution control bonds, and the is-necessary. In the event of cancellation of any project, there is no suance of new debt and preferred stock. The remaining 44% assurance that the Company would be able to recover the costs was funded through internal and other sources. The State-associated with such project. ments of Sources of Funds for Gross Property Additions pro. Georgia Power's construction program at year-end 1986 l vide additional details. included its 45.7% ownership of Plant Vogtle nuclear Units 1 and 2, Plant Scherer coal-fired Units 3 and 4 (owned 75% and Sources of Funds for Gross Property ddditions 100%, respectively) and the IWky Mountain pumped-storage mnioneroonaro hydroelectric project. The Company manages the constmction and operation of allitsjointly owned plants Plant Scherer Unit 3 oy, Na 3 began commercial operation onJanuary 1,1987. Fuel E anannn, was loaded at Plant Vogtle Unit Na 1 inJanuary 1987, and C Mer commercial operation is expected byJune 1987. Plant Vogtle 1,2co Unit Na 2 was approximately 58% complete as of year-end 1986, with commercial operation now scheduled for 1989. See ipoo Note 3 to the financial statements. Plant Scherer Unit Na 4 is also scheduled for commercial operation in 1989 and will sea substantially complete the Company's current generation expansion plan. Plant Vogtle Cost Overrun For the purpose of setting the Company's retail rates, the total cost of Plant Vogtle has been capped at the Company's share of ll- $8.35 billion. The cap applies to the Company's ownership share of this amount ($356 billion), as well as to its contractual s obligation to buy back declining portions of the joint owmers' -200 1982 j 1983 1984 1985 1986 / 21
Gross P ny Mditions Other issues Concerning Construction Program Some of the issues relative to the Company's constmction pro-gram are briefly described below. See Note 3 to the financial a statements for additionalinformation on these and other topics. g
- Possible Cost Disallowances: An examination currentlyin
~ u progress by the GPSC of the prudence of the Company's decisions regarding its construction program could result in 0.9 signiflCant disallowances of Costs from rate base in addition to those resulting from the projected Vogtle cost cap over-0.6 run. Accounting rules will require the write-off ofsuch l ll ll disallowed costs not later thanJanuary 1988.
- Nuclear Licensing: In March 1987, the Company obtained a full-power license from the Nuclear Regulatory Commis-i i'
0 1985 1986 1987 19M 19 % 0 %, operatinglicenses for Unit Na 2. Any delay in the licensing El scherer process will result in significant additional costs. O v z, e , Rate Filing: The Company plans to file a retail rate request with the GPSC in the second quarter of 1987 that will reflect, among other things, the Company's investment and the plant's cost, the Company stated that it assumed that the operating expenses associated with Plant Vogtle Unit Na 1. GPSC will grant sufficient financing authority to complete the
- Phase-in Plans: The GPSC is evaluating the possible phase plant, that the GPSC will adopt a plan for phasing the Com-in of Plant Vogtle's costs into rates. While a phase in would pany's associated investment into retail rates over a reasonable moderate the effect on the Company's customers ofinclu-period of time commencing with the commercial operation
,,g9 97
- g date of each unit, and that any rate base reduction resulting of the Company's investment may adversely affect eamings, from the prudence audits would be deducted from the Com-pany's share of Plant Vogtle's actual cost.
cash flow and cost of capital. In addition, the Financial Acc un 8 3% S a 5renewingt eacc unting The total cost to complete both units (includingjoint mles I r P ase-m plans, and the adoption of a plan that is h owners' shares and all financing costs) is now expected to be not in conformity with mies the board may ultimately approximately $8.87 billion, or $522 million over the cap Cur-adopt could preclude the defen~d ofsuch costs for account-rent accounting rules do not require the write-off of such pro-n8 Purposes. jected disallowed costs. However; accounting rules to be effec-tive in 1988 will require that a write-off be recorded for any
- Deferral of Rocky Mountain Project: The Company's deci-disallowed costs. This would include the after-tax effect of the sion to delay the Rocky Mountain project is subject to ap-disallowed portion of the projected plant cost and buyback Proval by the Federal Energy Regulatory Commission of an obligation, amounting to approximately $226 million. While aPPmPriate amendment to the Company's license for the not required to do so, the Company may elect to reflect the Project. Failure to receive such an amendment could result write-offin 1987. See Note 3 to the financial statements for in cancell ti n f the project and write-offof any unre-C "'I",d ortion of the Company's $169 million invest-P more information on the cost of Plant Vogtle.
ment in it.
- Stockholder Derivative Suit: A stockholder of The Southem l
Company (Southern) has brought a derivative action suit 22
against cenain current and former directors of the Company Note 3 to the financial statements, will reduce the amount of and Southern. The complaint alleges that the directors common equity in the Company's capital structure breached their fiduciary duty and were negligent in connec-tion with the construction of Plant Vogtle and the Rocky Capitalization Mountain project. The suit seeks damages from the direc-(sm,,ofa,noo tors of not less than $800 million which,if awarded, would be payable to the Company and Southern. 30 Financing of Construction Program 8 Sources of funding for construction during 1987 through 1989 6 are expected to be pollution control bond funds currently held by trustees ($188 million at December 31,1986, including in-4 terest), equity capital contributions from The Southern Com-pany, funds generated from operations and other internal 2 l l l [ sources (including temporary cash investments amounting to l l l l $680 million at December 31,1986), issuance of new debt and 0 1982 1983 1984 1985 1986 equity securities and short-term borrowing as necessary. The Company's financing application filed with the GPSC in E Csnunon EquQ March 1987, covering 1987 and 1988, requested financing only E N/'"ed sa ne enn och r to redeem or replace other securities. Additional GPSC ap-proval would be required to issue securities for constmction purposes. To reflect the impact of the Company's policy ofissuing To provide additional sources of financing as needed, the securities in advance of the anticipated expenditures, the com-Company has revohing credit agreements with eleven banks mon equity ratios are also calculated on a cash-adjusted basis. totaling $1565 billion, of which $113 million in term loans This method deducts temporary cash investments, up to the had been borrowed as of December 31,1986. These agree-amount ofsecurities issued during the year; from long-term ments are effective until December 31,1990. During this debt and total capitalization. Calculated in this manner; com-period, the Company may convert borrowings under these mon equity constituted 425% and 41B% of total capitalization agreements into term loans, payable in 12 equal quarterly at year-end 1986 and 1985, respectively, installments beginning in 1991 or at an earlier date at the Company's option. Such additional term borrowing is subject to authorization from the GPSC and the Secunues and Ex-Securitics issuances and Redemptions change Commission (SEC). The Company also has other lines The Company took advantage of opportunities to reduce in-of credit subject to annual renewal totaling $170 million, none terest expenses during 1986 by redeeming high cost bond of which had been borrowed as of year-end 1986. issues totaling $360.6 million. The Company also retired $245 l million of securities through regular maturities, open market CAPITALSTRUCTURE Purchases and sinking fund redemptions. Funds for these re-j demptions came in part from the $91.9 million proceeds of the The Company's capital structure has improved during 1984 1984 sale of a 25% interest in Plant Scherer Unit Na 3 to Gulf through 1986. The common equity component of capitaliza-Pbwer Company. The balance of the funds came from ponions tion was 395%,39.4% and 3&l% at year-end 1986,1985 and of the proceeds from 1986 issuances of $500 million in first 1984, respectively. The expected write-off associated with the mortgage bonds. The Company also issued $100 million in projected cost cap overrun for Plant Vogtle, as described in preferred stock and $56.4 million in pollution control bonds 23
t i 1 - in 1986, using the proceeds of the latter to refund the last of the come tax expense because of the decrease in the tax rate, to pollution control bond anticipation notes issued in 1985 and reduce cash flow because oflower deferred taxes and the elimi-1986L nation ofinvestment tax credits and to increase external - The composite interest rate on long-term debt as of De-financing requirements as a result of reduced cash flow. cember 31,1986, was 9.98%, down from 10.61% as of year-end Because these factors will be considered by regulatory . 1985. The composite dividend rate on preferred stock declined authorities in the ratemaking process, net income is not ex-to 9.28% from 9.80% during the same period. pected to be materially affected.- The Company plans to continue to redeem high cost Also, the Financial Accounting Standards Board has pro-securities. In its financing application filed with the GPSC in posed new mies for accounting for income taxes. The pro-March 1987, covering 1987 and 1988, the Company indicated posal, which requires the adjustment of deferred income tax its intent to utilize all the proceeds of the requested $850 balances to reflect changes in income tax laws and rates, is not million in authori:ed securities for the early redemption and expected to materially affect net inccme Rate regulated utilities scheduled maturity of other securities Ibnions of the redemp-are required by the Internal Restnu a Service t'o continue the tions will be used to meet annual requirements for bond sink-present method of reversing depreciation-related deferred in-ing and improvement funds and preferred stock subject to come taxes over the lives of the related assets. Other deferrals mandatory redemption. These requirements total approx-would be reversed in accordance with regulatory ratemaking imately $43.6 million, $43.7 million and $43.8 million for treatment. 1987,1988 and 1989, respectively. See Note 7 to the financial statements. Environmental Regulations and legislation Coverage Requirements The U.S. Emironmental Protection Agency (EPA' promulgated The Company must comply with coverage requirements ofits air quality control regulations relating to the stack height re-mortgage indenture and corporate charter to issue new first quirements of the Clean Air Act. Although there currently ap-mortgage bonds and preferred stock. Issuance of first mortpge pears to be no anticipated compliance cost for any Company bonds requires camings coverage of 2.00 times the annualin-plant under these regulations, no final determination has yet terest requirement on first monpge bonds. This coverage was been made by the EPA. An adverse determination could re-3.02 at year-end 1986, compared with 2B1 at year-end 1985. quire either the use of more expensive low-sulfur fuel or the Issuance of preferred stock requires eamings coverage of 150 construction of costly flue-gas desulfurization equipment at times annual interest requirements and preferred stock divi. certain facilities. dends. This coverage was 1.99 and IB9 as ofyear-end 1986 In addition, legislation being considered by Congress con-and 1985, respectively. cerning acid rain would make additional pollution control The expected write-off associated with the projected cost equipment compulsory for certain coal-fired electric power i . cap overrun for Plant Vogtle, as described in Note 3 to the plants. The enactment oflegislation mandating reductions in Gnancial statements, will adversely impact the preferred stock sulfur dioxide emissions in the service area of the Company coverage and may affect the indenture coverage would substantially increase the Company's capital re-L quirements and operating costs. FIRURE CONSIDERATIONS FOR Recent legislation amending the Clean Water Act; the i CAPITAL REQUIREMENTS Resource Conservation and Recovery Act; and the Com-Prehensive Emironmental Response, Compensation and Tax legislation and Accounting ( Liability Act impacts many areas of Company operations in-The Tax Reform Act of 1986 provides for a reduction in the cluding the generation, transmission and distribution of elec- . federal corporate income tax rate, repeal of the investment tax tric energy. The full impact of these requirements cannot be credit,less favorable depreciation rates, a new alternative min-determined at this time pending the development and imple-imum tax and other items. The net effect will be to reduce in-mentation of applicable regulations. l l 24- .a.
Statements ofIncome ao nousands) ceorgia Power company Years Ended December 31 1986 1985 1984 . $3,461,764 $3,444,298 $3,132,880 Operating Revenues, Operating Expenses Operation - Fuel. 1,012,949 1,077,092 1,000,434 Purchased and interchanged powen nc 437,166 455,412 -429,522 Other. 513,974 482,468 412,803 Maintenance. 275,533 254,510 228,377 Depreciation and amorti:ation. 215,763 201,524 191,205 Taxes other than income taxes I19,768 120,320 106,908 Federal and state income taxes. 319,374 311,151 268,654 Totaloperatingexpenses, 2,894,527 - 2,902,477 2,637,903 Operatingincome. 567.237 541,821 494,977 - Other Income (Expense) Allowance for equity funds used during construction. 275,183 227,950 162,057 Gains on sales of facilities. 48,914. Interest income. 44,615 41,546 - 34,074 - Othen net. (25,497) (3,398) (601) Income taxes applicable to other income. 5.154 (9,114) (37,678) Income Before Interest Charges. 866,692 798,805 - 701,743 Interest Charges Interest on long-term debt 472.744 421,764 351,855 Allowance for debt funds used during construction. (215.897) (216,233) (150,931)- Amortization of debt discount, premium and expense, net. 2,681 2,335 1,680 Interest on interim obligations. Other interest charges. 1,934 20,516 - .13,387 ~ 4.610 10.593 8,416 Net interest charges. 256,092 - 238,975 224,407 Net income.. 610.600 559,830 477,336 Dividends on Preferred Stock. 75,597 66,113 55,617 Net income After Dividends on Preferred Stock. $ 535,003 $ 493,717 $ 421,719 Statements of Earnings Retained in the Business on nousands) ) Years Ended December 31 1986 1985 1984 l Balance, beginning of period. $ 935,583 $ 723,064 $ 528,223 Add (deduct): Net income after dividends on preferred stock _ 535,003 493,717 421,719 i Cash dividends paid on common stock. (325,500) (277,500) (225,500) Preferred stockissuance expense. (4,009) (3,698) (1,378) Balance, end of period (Note 7). $1,141,077 $ 935,583 $ 723,064 Statements of Other Paid-In Capital on nousands) Years Ended December 31 1986-1985 1981 Balance,beginning of period.. $1.730,800 $1,415,800 $1,213,800 - Cash contribution to capital by parent company 150.000 315,000 202,000 Balance,end of period.. $1,980,800 $1,730,800 $1,415,800 The accompanying notes are an integral part of these statements. 25
[ _3 Balance Sheets - Georgia Power Company December 31 1986 1985 ASSETS Utility Plant $ 7,143,228 $6,573,090 Plant in senice, at origmal cost... 2.009,446 1,859,166 Less-accumulated provision for depreciation. 5.133.782 4,713.924 Nuclear fuel,at amortized cost.. 314,225 253,418 3,148,452 2,435,310 Construction work in progress: Plant Vogtle 828.603 599,996' PlantScherer. Other. 453.814 545,762 Total (Note 3). 4,430.869 - 3,581,068 less-. property-related accumulated deferred income taxes. 1,020,271 920,047 Total. 8.858.605 7,628,363 Other Property and Investments Southern Electric Generating Company, at equity. 18.046 16,946 Nonutility property, net. 32,703 22,411 Total, 50,749 39,357 Current Assets Cash. 14,666 13,986 679,808 588,543 Temporary cash investments,at cost Receivables-Customer accounts receivable. 226,716 231,591 55,513 55,403 Accrued utility revenues...... 174,184 108,584 Other accounts and notes receivable. 15,050 32,614-Affiliated companies,... (41,360) (5,563) Accumulated provision for uncollectible accounts (Note 5). Fossil fuel stock,at average cost. 220,206 _ 210,604 Materials and supplies, at average cost. 86.658 69,397 44,800 8,506 Prepayments....... Vacation pay deferred. 29.800 28,700 1.506.041' 1,342,365 Total _ Deferred Charges Debt expenses-being amortized. 26,914 12,860 12,450 Premium on reacquired debt-being amortized. Other. 9.894 8,083 Total. 49.668 20,533 Total Assets, -510,465.063 $9,030,618 - CAPITALIZATION AND LIABILITIES Capitali:ation (See accompanying statements) . Common stock equity. 5 3,469,201. $3,013,707 Preferred stock.... 732,844 632,844 Preferred stock subject to mandatory redemption. 1I2,500 120,000 long-term debt 4.464.857 3,878,066 Total. 8,779,402 7,644,617 Current Liabilit es i Preferred stock sinking fund requirement. . 7,500 7,500 long. term debt due within one year 47,683 48,229 Pollution centrol bond anticipation notes payable. Accounts payable-36,400 Affiliated companies. 463,566 331,846 25.344 . 24,020 Other... l Customer deposits. 29,520 29,752 Taxes accrued-Federal and state income. 25,366 23,747 - Interest accrued..... I15.602 68,281 Other 150,145 136,279 Vacation pay accrued. 29.800 28,700 Miscellaneous 70,595 60,% 5 Total 965,121 795,719 i Deferred Credits and Other Liabilities Accumulated deferred investment tax credits. 665,447 572,509 Other.. 55,093 17,773 Total 720,540 590,282 Commitments and Contingent Matters (Notes 3,4,5,8, and 9) i Total Capitalization and Liabilities. 510,465.063 59,030,618 l The accompanying notes are an integral part of these statements.
Statements of Capitalization (in Thousands) Georgia Power Company December 31 1986 % of Total 1985 % of Total Common Stock Equity Common stock (without par value) authorized 15,000,000 shares, outstanding 7,761,500 shares. $ 344,250 $ 344,250 Other paid-in capital.. 1,980.800 1,730,800 Premium on p,eferred stock, 3.074 3,074 Earnings retained in the business I,141,077 935,583 Total common stock equity 3,469,201 39.5 % 3,013.707 39.4% Cumulative Preferred Stock (without par value) authorized 27,200,000 shares, outstanding 21,578,439 shares Class $100 stated value- $4.60 to $6.60 Series 117,844 117,844 $7.72 to $7.80 Series 105,000 105,000 $8.20 to 59.08 Series 35,000 35,000 $25 stated value- $2.30 Series 50,000 $2.47 Series. 50,000 $2.52 Series 50,000 50,000 $2.56 Series 50,000 50,000 $3.00 Series 50,000 50,000 $3.44 Series 75.000 75,000 Adjustable Rate - atJanuary 1,1987: 6.25%. 50,00C 50,000 6.46%. 50,000 50,000 7.01% 50.000 50,000 Total [ annual dividend requirement $63,070(000)] 732,844 8.3 632,844 8.3 Cumulative Preferred Stock Subject to Mandatory Redemption (without par value) authorized and outstanding 4,800,000 shares $25 stated value- $2.75 Series 48,750 52,500 $3.76 Senes 71,250 75,000 [ annual dividend requirement $16,079(000)] less amount due within one year. 7,500 7,5'00 Total, excluding amount due within one year. 1I2,500 1.3 120.000 1.6 long-Term Debt First Mortgage Bonds Mtturity Interest Rates April 1,1986.. .3%% 12,000 June 1,1987. .5%%. 8,978 8,978 March 1,1988. .4%% 24,000 24,000 November 1,1990. 4% % 12.000 12,000 October 1,1991. .4%% 10.000 10,000 October 1,1991. .17%% 121,250 1992-1996. .4%% to 5%%. 162.868 162.868 1997-2001. .6%% to 11%% 2002-2006 .7%% to 11M% 597,239 601,955 630,968 630,% 8 2007-2011. .9%% to 16%%. 522.073 668,250 2012-2016. .10% to 16%%. 926.355 519,750 Total first mortgage bonds, 2,894,481 2,772,019 Other long-term debt (Note 7). 1,666,625 1,203,065 Unamortized debt premium (discount), net (48.566) (48,789) Total long-term debt lannual interest requirement $467,468(000)]. 4,512,540 3,926,295 Irss amount due within one year. 47,683 48,229 1.ong-term debt, excluding amount due within one year.. 4.464.857 50.9 3,878,066 50.7 Total Capitalization (Note 7) 58.779,402 100.0 % $7,644,617 100.0% The accompanying notes are an integral part of these statements 27
7 - Statements of Sources of Funds for Gross Property Additions On ThEusands) Georgia PDwer Company Y7as Ended December 31 1986 1985 1984 Funds from Operations: $ 610,600 $ 559,830 $ 477,336 Net income., Add (deduct) principal noncash items-Deferred income taxes, net. 236,822 104,102~ 219,301 260,945 248,156 - Depreciation and amorti:ation l45,266 106,407 115,144 61,252 Deferred investment tax credits. Allowance for equity funds used duringconstruction. (275,183) (227,950) (162,057) 939,591 799,382 741,098 less-325,500 277,500 225,500 Dividends on common stock. 75.597 66,113 55,617 Dividends on preferred stock. 401.097 343,613 281.117 - Net funds provided from operations. 538,494 455,769 459,981 Funds from Financings and Capital Contributions: First mortgage bonds... 500,000 150,000 Bonds retired, reacquired, or refunded .(377,538) (17,738) (26,084) at maturity.. 100,000 150,000 50,000 Preferred stock. Preferred stock reacquired. (7,500) (3,750) (2,380) Capital contributions from parent company. 250,000 315,000 202,000 Pollution controlbonds .350,001' 500,% 2 190,577-Increase (decrease) m other long-term debt.,. i13,559 (843) (276) Pollution control bond anticipation noter, payable. (36.400) (72,956) 109,356 Net funds provided from financ5gs and capital contributions. 892,122 870,675 673,193 Funds from Other Sources: Decrease (increase)in temporary cash investments, (91,265) (126,140) (164,540) Decrease (increase)in other net current assets (excluding notes payable and long. term debt and preferred stock due within one year). I33,937 24,485 108,400 Sales of property, net book value,. 269,283 Other-net (including allowance for equity funds used during construction). I25,021 159,393 50,529 Net funds provided from other sources, 167,693 57,738 263,672 . Gross Property Additions [ including allowance for funds used during construction in the amount of $407,615(000) in 1986, $337471(000)in 1985 aad $240,798(000)in 1984], 51,598,309 $1,384,182 $1,3%,846 The accompanying notes are an integralpart of these statements. 28
Notes to Financial Statements NOTE 1. recover fuel costs and net purchased energy costs through fuel Summaty of Significant Accounting Policies: cost recovery provisions which are periodically adjusted to reflect increases or decreases in such costs. Revenues are ad-GENERAL The Company is a wholly owned subsidiary of justed for differences between recoverable fuel costs and The Southem Company (Southern) which is the parent com-amounts actually recovered in cunent rates. See Note 2 for pany of four operating companies, a system senice company, regulatory events conceming fuel cost recovery. Southem Electric International, Inc. and The Southem Invest-The cost of nuclear fuel is amortized to fuel expense based ment Group, Inc. The operating companies provide electric on the estimated thermal units utilized to generate electric senice in four southeastem states. Contracts among the com-energy and includes a provision for the disposal of spent panics dealing with jointly owned generating facilities, intercon-nuclear fuel. Total charges for nuclear fuel included in uel ex-8 necting transmission lines and exchange of electric power are Pense amounted to $32985,000 in 1986, $39,722,000 in 1985 regulated by the Federal Energy Regulatory Commission (FERC) and $17E51,000 in 1984. The Company has a contract with the or the Securities and Exchange Commission (SEC). The system U.S. Department of Energy that provides for the permanent senice company provides, at cost, specialized services to disposal of spent nuclear fuel beginning in 199a Pending per-Southem and to each of the subsidiary companies. Southem manent disposition of the spent fuel, sufficient storage capacity Electric International, Inc. markets to utilities and industrial is currently available at Plant Hatch through the year 2001 and concems the technical expenise of the Southem electric system will be available at Plant Vcgle through the year 2003. in planning and operating electric power facilities. The Southem PENSION COSTS. The Company has a defined benefit, Investment Group,Inc. was formed in 1985 to research and tmsteed, noncontnbutory pension plan which covers substan-develop new business opportunities. tially all regular employees. The policy of the Company is to Southern is registered as a holding company under the fund each year's accrued pension cost as determined using its Public Utility Holding Company Act of 1935. Both Southem and actuarial cost method, the " entry age normal method with its subsidiaries are subject to the regulatory provisions of the frozen initial liability" To determine annual pension cost, the Act. The Company also is subject to regulation by the FERC and Company assumes a 7% rate of retum on plan investments and the Georgia Public Senice Commission (GPSC). Le Company a 6% annual rate of salary increases. Accmed pension cost follows generally accepted accounting principles and complies am unted to $39,887,000 in 1986, $34E58,000 in 1985 and with the accounting policies and practices prescribed by the $33,617,000 in 1984, which represented 7.5%,7.1% and 7.3%, respective commissions. respectively, of employee salaries and wages m each year Of these amounts, $16,780,000 in 1986, $16,535,000 in 1985 and UTILITY PLANT. Utility plant is stated at onginal cost. This cost includes appropriate administrative and general costs; $16,407,000 in 1984 were charged to operating expenses, and payroll-related costs such as taxes, pensions and other benefits; the balance was charged to construction and other accounts. and the estimated cost of funds used during construction. The The Company also provided approximately $6,476,000 in 1986, $12,181,000 in 1985 and $13,000,000 in 1984 to cover the cost of maintenance, repairs and replacement of minor items of property is charged to maintenance expense accounts. The cost estim ted cost of eady retirement incentive programs. of pmpeny replacements (exclusive of minor items of propeny) Accumulated pension benefit information as of the vahta-is charged to utility plant. tion dates (January 1 of each year) follows (in thousands): DISALLOWED COSTS. Financial Accounting Standards Board (FASB) Statement Na 90, which becomes effective in Actuarial present value of 1988, requires the write-off of costs of newly completed plants accumulated plan benefits-that are disallowed for ratemaking purposes. The Company may vested. s301,460 $274.826 elect to implement Statement Na 90 in 1987. See Note 3 for in-Nonvested. 16.657 5,986 formation on the Plant Vogtle cost overrun and other possible Total actuarial present value of disallowances. accumulated plan benefits s318.117 $280,812 Weighted average rates ofretum REVENUES. The Company accrues revenues for senice assumed in determiningactuarial rendered but unbilled-present value of accumulated plan benefits. 8% 8% FUEL COS13. Fuel costs are evpensed as the fuel is used. The Company is authorized by state :aw and FERC regulations to Net assets available for benefits. $647.915 $511.052 29
The actuarial present value of accumulated plan benefits differences. Investment tax credits utilized are deferred and was detennined on the basis of accmed benefits as ofJanuary 1 amortized to income over the arrage lives of the relatcd prop-of the respective years. However; the plan is funded based on the erty Provisions for property-related defened income taxes (eg, premise that the plan will continue in existence, which requires accelerated depreciation) reflect consumption of pan of the that future events be considered. Amendments to the plan in value of the plant and equipment to which they relate Accord-1986 increased career average formulas, retroactively removed ingly, the related accumulated deferred income taxes are a the age requirement for plan panicipation, provided for ad hoc valuation reserve deducted from the plant imestment in the ac-retiree increases and made other lepily required changes. Such companying Balance Sheets and in anising at the rate base used amendments resulted in a net increase of $56,344,000 in the in ratemaking proceedings See Note 6 for more information on unfunded accrued liability with respect to past senice which income taxes. will be amortized over a 20-year period. FASB Statement Na 87," Employers' Accounting for Pen-AI.LOWANCE FOR FUNDS USED DURING CON-sions", which will be implemented in 1987, will require changes STRUCTION (AFUDC). AFUDC represents the estimated in the Company's accounting for pension costs. These changes debt and equity costs of capital funds which are applicable to are not expected to materially impact the Company's financial utility plant while under constmction. While cash is not real-position or results of operatioris. However; pension costs are i:ed currently fmm such allowance, it is realized over the senice expected initially to be somewhat lower but more volatile than life of the plant through increased revenues resulting from a in the past. higher rate base and higher depreciation expense For the years The Company also prosides certain health care and life in-1984 through 1986, the AFUDC rate was adjusted monthly and surance benefits for retired emplo>res Substantially all employ-compounded semi-annually and ranged from R74% to 9.77%, ees may become eligible for these benefits when they retire The net ofincome tax. The Company accounts for the income tax costs of such benefits are recognized as payments are made and elTect of capitalized debt cost as a charge to income tax expense amounted to $6,738,400 in 1986, $6,041,000 in 1985 and associated with operations and a corresponding credit to allow- $5,550,000 in 1984. ance for debt funds used during constmction. The income tax effect of capitalized debt cost was $109,880,000, $106,512,000 VACATION PAY. The Company's employees earn their vaca-and $72,190,000 in 1986,1985 and 1984, respectively AFUDC, tion in one year and take it in the subsequent year However; for net ofincome taxes, as a percent of net income after dividends ratemaking purposes, vacation pay is recognized as an allowable on preferred stock amounted to 73%,68% and 57% for 1986, expnse only when paid. Consistent with this ratemaking treat-1985 and 1984, respectively. ment, the Company accrues a current liability for camed vaca-tion pay and records a current asset representing the future NOTE 2. recoverability of this cost. Such amounts were $29,800,000 and Rate Ntatters: $28,700,000 at December 31,1986 and 1985, respectively. In 1987, approximately 61% of the 1986 vacation liability will be In October 1983, the GPSC granted the Company an annual expnsed, and the balance will be charged to construction and increase in retail revenues of $86,500,000 in addition to a other accounts. $108,900,000 increase effective September 1983. A consumer group appealed the GPSCs final order to the Superior Court of DEPRECIATION. Depreciation is provided on the original Fulton County, alleging that the $86,500,000 additional increase cost of depreciable utility plant in senice, principally on a resulted from procedural irregularities. The Coun dismissed the straight-line basis over the estimated composite senice life of case, finding that the group lacked standing to seek judicial the property The depreciation provisions approximated 3.7% review. After further appeals,in December 1985, the Supreme of the average cost of depreciable utility plant in each of the last Coun of Georgia affirmed a decision by the Court of Appeals to three years. Such provisions include a factor to provide for the permit the consumer group to proceed with its appeal to the expected cost of decommissioning nuclear facilities. This factor Superior Coun of Fulton County A prehearing conference was is currently based on an estimated decommissioning cost held in February 1986, before the Superior Court of Fulton (based on ratemaking treatment) of approximately $32,000,000 County The court has not set a date for hearing the case each for the Company's portion of the two units at Plant Hatch. In April 1984, the Company filed a request for an increase The expected 1987 retail rate application will include the cur-in the fuel cost recovery rate with the GPSC. The GPSC granted rent estimate of $73,000,000 each for the Company's portion of an allowance which was deficient in covering the Company's the two units. When propeny subject to depreciation is retired prior period fuel cost by appmximately $22,300,000. Disallowed or othenvise disposed ofin the normal course of business,its costs related to coal procurement policies for Plant Scherer and cost together with its cost of removal, less sah2ge, is charged to to higher cost replacement energy while Plant Hatch Unit Na 2 the accumulated provision for depreciation. (nuclear) was out of senice for replacement of recirculation pipe following appeals in the couns, the matter was retumed to INCOM E TAXES. The Company, which is included in the the GPSC for funher consideration. InJanuary 1986, the GPSC consolidated federalincome tax return filed by Southem, fol-vacated its original disallowance order pending results of a lows deferred income tax accounting for all income tax timing prudence audit being conducted. (See Note 1) ln management's 30
i opinion, the outcome of this issue will not have a material im-The construction program is resiewed periodically, and ac- . pact on the Company's financial position or results of tual consuuction costs to be incurred and planned commercial operations. operation dates may vary from cunent estimates because of fac-The GPSC issued an accounting order in December 1986 tors such as changes in business conditionsi Ductuating rates of requiring defenal of the Company's costs related to Plant Vogtle load growth; environmental requirements; design changes in Unit Na 1 from the initial commercial operation date (expected nuclear plants to meet changing regulatory requirements; un-l byJune 1987) until the date the unit is iirst reDected in rates (ex-foreseen nuclear plant licensing requirements; equipment pected in the fall of 1%7).The deferred costs, net of cap over-delivery schedules; increasing costs oflabor, equipment and runs and any prudence disallowance, would be included in the materials; cost of capital; and the granting of timely and ade-Company's rate base and amortized and recovered through quate wholesale and retail rate increases by appropriate rates over a period not to exceed 10 years beginning when Plant. commissions. Vogtle Unit Na 1 is Brst reflected in rates. The net fuel cost sav-Completion of the construction program is dependent on 4 ings on Unit Na 1 from initial operation until the end of the the Company's ability to obtain funds from external sources. ' deferral period would be used to reduce fuel cost recovery rates should the Company be unable to obtain such funds in over a period speci6ed by the GPSC. See Note 3 for more infor-amounts which, together with internally generated funds, will mation on the construction of Plant Vogtle. be adequate to cany out the present construction program, delays and cancellation of certain projects may become i NOTE 3. necessary. In the event of cancellation of any project, there is no assurance thauhe Company would be able to recover the costs Construction Program: associated with such project. j 'Ihe Company is engaged in a continuous consouction program and currently estimates gross propeny additions to be approxi-NUCLEAR CONSTRUCTION STARIS. On March 9,1987, i i mately $1.23 billion in 1987, $1.19 billion in 1988 and $0.86 the Company announced an increased cost estimate for Plant billion in 1989. These estimated additions include AFUDC (net Vogtle, a two-unit nuclear generating facility under construc-ofincome taxes) of $260 million in 1987, $178 million in 1988 tion, and a nine-month delay in the planned commercial and $76 million in 1989. At December 31,1986, substantial pur-operation date of Unit Na 2. The total estimated cost of the i chase commitments were outstanding in connection with the plant at completion, including all co-owners' financing costs construction program. and contingency allowances, has been increased from $8.35 The chart below shows the status of major construction billion to $8.87 billion. The revised budget estimates for Plant projects as of December 31,1986: Vogtle reflect the additionallabor costs incurred over pre-Generating Units under Construction (Dollars in thousands exrept as noted) 4 Plant Scherer(1) Plant Vogtle(2) l Unit Unit Na 1 and Rocky 1 No4 Common Facilities Unit Na 2 Mountain (3) FuelType Coal Nuclear Nuclear Pumped Storage Planned Commercial Operation Date. 1989 1987 1%9 1999 Current Company Ownership. 100.0 % 45.7% 45.7 % 100.0 % i Kilowatts of Nameplate Capacity (cunent ovmership). 818,000 530,120 530,120 847,800 Estimated Cost per Kilowatt (in dollars) 829 5,147 2,153 1,436 Total Plant Additions through December 31,1986. $ 358,164 $ 2,577,641 $ 586.544 $ 169,277 Estimated Plant Additions at Completion excluding AFUDC $ 534,000 $ 1,938,000 $ 787,000 $ 828,000 l Estimated AFUDC at Completion (4). $ 144,000 $ 791,000 $ 354,000 $ 389,000 Estimated Total Plant Additions at Completion.. $ 678,000 $ 2,729,000 $ 1,141,000 $ 1,217,000 f Estimated IYrcentage of Completion at December 31,1986(5). 52% 98 % 58 % 15% -- NOTES: (1) Plant Scherer Unit No. 3 began commeraal operation on January 1,1987. (4) Estimated AIUDC at completion assumes no phase in of plants into rate bse before or after completion of constructiort (2)Ibtlar amounts for Plant Vogtle exclude nuclear fuct J (5) Plant Vogtle estimated percentage ofcompletion Sgures are based on quannties of (3)The complenan of the Rocky Mountan proyct has been defmed from 1991 to IW9. matenals installed (and additionally,in the case of Urut No.1, initial test program pro. Ufective December 1985, AIUDC accrued on the Rocky Mountam project is not being gress) and re8cct an equal allocation ofcommon facihties between Unit No. I and Urut } credited to income or included in project cmts reflected abom it is expected that AIUDC No. 2. wdl cononue to be excluded unnt full constmcnon activity is resumed at the project If AIUDC br such perux! were induded, the esumased total plant addmons at completion fc Rcrky Mountan would be $1,532,000,000. 31
viously budgeted amounts to maintain the schedule for Unit pany) that there will be no furtner increases in the cost of Plant Na 1, as well as the delay in the completion date for Unit Vogtle"In response, the Company informed the GPSC that it Na 2. The revised budget also assumes construction installa-will not seek to recover through retail rates any Plant Vogtle in-tion rates for Unit Na 2 that are better than those experienced vestment costs in excess ofits portion of $8.35 billion, unless in the construction of Unit Na 1. The total cost of the Com-it is threatened with financial catastrophe or unless events out-pany's 45.7% interest in the plant is estimated to be approx-side the Company's control prevent it from obtaining Nuclear imately $3.87 billion at completion, an increase of $313 Regulatory Commission (NRC) operating licenses in a timely million (3.8%) from the previous estimate Because the plant's manner In addition, the aggregate of the capital portion of the cost for raremaking purposes has been capped at the previous Company's contractual obligations to purchase declining frac-budget level, the Company's share of this increase will be writ-tions of the capacity of Plant Vogtle owned by the co-owners ten off as described below under"Vogtle Cost Overrun; Other would, for retail ratemaking purposes, be based on the co-Possible Disallowances." owners' share of $835 billion. (See Note 4.)In making such Construction is essentially complete on Plant Vogtle commitment, the Company stated that it assumed that the Unit Na 1. Fuel was loaded inJanuary 1987, and low-power GPSC will grant suflicient financing authority to complete the testing is under way. Unit Na 1 remains on schedule for com-plant, that the GPSC will adopt a plan for phasing the Com-mercial operation byJune 1987. Commercial operation for pany's associated investment into retail rates over a reasonable Unit Na 2 is now planned forJune 1989. If commercial opera-period of time commencing with the commercial operation tion of either unit is delayed, financing costs of the Company's date of each unit and that any rate base reduction resulting share of Plant Vogtle will continue at a rate estimated (based from the prudence audits would be deducted from the Com-upon current cost estimates) to be approximately $21 million pany's share of Plant Vogtle's actual cost. The GPSC's 1986 per month for Unit Na 1 and common facilities and $9 financing order provides that "(the Company's) commitment million per month for Unit Na 2. Further delay in commercial to restrict the investment related to Plant Vogtle's completion operation of either unit may also result in a substantial in-cost which (the Company) will seek to include as retail rate-crease in the direct constmction costs of such unit. Any addi-making cost of service..is incorporated herein as a require-tional costs would have to be written off under new accounting ment binding on (the Company)" rules as described in the following section. The amount by which the Company's ownership share of the cost of Plant Vogtle exceeds the ratemaking cap is expected VOGTLE COST OVERRUN;OTHER POSSIBLE to be disallowed for retail rate purposes. The increase in pay. DISALLOWANCES. InJune 1985, the GPSC engaged the ments required under the capacity buyback obligations as a firm of O'Brien-Kreit: berg & Associates (OKA) and its subcon-result of the projected cap overrun is also expected to be dis-tractors to conduct audits examining the prudence of the allourd. There may be other disallowed costs as a result of the Company's decisions relating to planning, design, licensing pmdence audits. Although the commitment to cap the cost of and construction of Plant Vogtle and Plant Scherer Unit Nos. 3 Plant Vogtle was based,in part, on the assumption that any and 4, as well as the prudence of the Company's load forecast prudence disallowances related to Plant Vogtle would first be and generation expansion plans. Certain fuel-related matters used to offset cost cap overruns, there is no assurance that are also being examined, including the Company's coal pro-prudence disallowances will not exceed the amount of the curement and contract administration policies and practices, disallowances currently expected as a result of the projected its decision to bum low-sulfur coal at Plant Scherer rather than cost overrun. There could also be disallowed costs not related install flue-gas desulfuri:ation equipment, and certain aspects to Plant Vogtle OKA's final report is expected in the spring of of the Company's operation of Plant Scherer Unit Nos< 1 and 2, 1987. Management believes the Company's construction and as well as the cracking and subsequent replacement of the other costs have been prudently incurred. However, similar recirculation system piping at Plant Hatch Unit Na 2, an studies of other utilities' construction programs, including all operating nuclear facility. such studies performed by OKA, have recommended exclu-On March 17,1986, OKA issued a preliminary report con-sions of significant amounts from rate base and cost recovery. cerning the prospective cost and schedule aspects ofits Plant Under current accounting mies, a write-off of the projected Vogtle audit. The report forecast that the commercial operation costs in excess of the ratemaking cap for Plant Vogtle is not re-dites of Unit Nos. I and 2 would be December 1987 andJuly quired because the total amount of expected net cash inflows 1989, six months and ten months later, respectively, than the (revenues, including camings on the portion of the investment Company's projection at that time OKA's preliminary report included in rates,less applicable expenses) related to Plant also estimated that the total cost of the plant would be 59.2 Vogtle is sufficient to recover the Company's total costs of the billion, rather than $8.35 billion as then estimated by the plant, including any disallowed costs associated with the con-Company. tractual obligations to buy back portions of the co-owners' By letter to the Company dated March 18,1986, the GPSC, capacity. However; FASB Statement Na 90, which will be effec-refening to the OKA preliminary report, advised that it "will tive in 1988, will require that a write-off be recorded for any not be able to resolve satisfactorily pending or future applica-disallowed costs. While not required to do so, the Company tions by(the Company) related to Plant Vogtle until such time may elect to adopt Statement Na 90 in 1987. Under these mies, as the (GPSC) receives a meaningful assurance from (the Com-the Company would write off approximately $277 million, 32
representing the present value ofits $313 million ownership recover the cost of the project. As of December 31,1986, the interest in the projected cost increase for the plant. Effective Company's investment in the project amounted to approx-htarch 9.1987 (the date Plant Vogtle's cost estimate increased), imately $169 million. Effective December 198"i, AFUDC ac-AFUDC accrued on this amount is not being credited to in-crued on the Rocky htountain project is not being credited to come. The present value of the increased capacity buyback income or included in the project's cost as reported. The out-payments as a result of the projected cost overrun, currently come of this matter cannot now be determined. estimated to be $79 million, must aise be written off under the new rules. The after-tax effect of the write-off of these com. STOCKIIOLDER DERIVATIVE SUIT. On April 30,1986, a bined amounts would be approximately $226 million as of stockholder of Southern brought a derivative action suit Janua y 1,198& In addition, future eamings will be reduced by against certain current and former directors of the Company approximately $38 million during the capacity buyback and Southern. The complaint alleges that the directors periods, about half during the first six years, as a result of the breached their fiduciary duty and were negligent in connection interest factor on the discounted buyback costs. with the construction of Plant Vogtle and the Rocky htountain project. The suit seeks damages from the directors of not less i PHASE-IN PLANS. The GPSC has initiated proceedings than $800 million which, if awarded, would be payable to the to determine a plan for phasing Plant Vogtle's costs into retail Company and Southern. The outcome of this matter cannot rates. The Company's current proposal filed with the GPSC now be determined. under these proceedings calls for phasing into rates over a three-or five-year period its portion of the investment in Plant FINANCING. In hlarch 1987, the Company filed a financing Vogtle Unit Nos. I and 2 following the respective commercial application with the GPSC requesting authorization for operation date of each unit. Recovery of the costs deferred as a $850 million of additional Snancing during 1987 and 1988 to result of the phase in would be over a seven-or five-year redeem or replace high cost or maturing debt and equity period, respectively. The proposal also calls for leveling the securities. Gross property additions for 1987 through 1989 are declining contractual buyback of capacity from the co-owners expected to be financed from the receipt of common equity and dividing the costs of common facilities evenly between contributions from Southern, drawdowns of funds from pollu-both units. tion control bonds already issued, funds generated from opera-While a phase in would moderate the elTect on the Com. tions, other internal sources including temporary cash in-pany's customers ofinclusion of the plant in rate base, the vestments on hand, short-term borrowings, and proceeds from resulting delay in recovery ofits investment may adversely af-debt and equity securities. Howeven additional SEC and GPSC fect earnings, cash flow and cost of capital. In addition, the approval would be required to issue rew debt and equity FASB is reviewing the accounting rules for phase-in plans and securities for financinggross property additions. the adoption of a plan that is not in conformity with rules the To provide additional sources of construction financing as board may ultimately adopt could preclude the deferral of necessary, the Company maintains revohing credit agreements such costs for accounting purposes. effective until December 31,1990, with 11 banks. During the term of these agreements, the Company has the option to con-NUCLEAR LICENSING. The Company was granted a full-vert short-term borrowings into term loans pending author-power license for Plant Vogtle Unit Na 1 by the NRC in klarch i:ation from the GPSC and the SEC. At December 31,1986, 1987. The Company still must obtain all operatinglicenses for these agreements totaled $1565 billion, of which $113 million Unit No. 2. Any delay in the licensing process will result in was outstanding as term loans. The term loans are payable in significant additional costs. 12 equal quarterly installments during the years 1991 through 1993, or at an earlier date at the Company's option. Addition-DEFERRAL OF ROCKY MOUNTAIN PROJECT. In its ally, the Company has $170 million available in otherlines of 1985 financing orden the GPSC concluded that completion of credit subject to annual renewal, none of which was outstand-I the Rocky hiountain pumped storage hydroelectric project is ing at December 31,1986. not economicallyjustifiable and reasonable and withheld authorization for the Company to spend funds from approved NOTE 4, securities issuances on that project. The Company has delayed Facility Sales andJoint Ownership Agreements: the planned commercial operation date of the project from 1991 to 1999. This action is subject to approval by the FERC of FACILITY SALES. The Company has sold undivided in-an appropriate amendment to the Company's license for the terests in Plants Hatch, Wansley, Schererand Vogtle in varying project. The receipt of such amendment cannot be assured. If amounts, together with transmission facilities, to Oglethorpe the Company does not obtain an appropriate amendment to Power Corporation (An Electric hiembership Generation & its FERC license or negotiate a sale of the facility, the project Transmission Corporation)(OPC), the htunicipal Electric may be canceled. In such event, the recovery of the project's Authority of Georgia, a public corporation and an instrumen-costs cannot be assured. Accounting rules to become effective tality of the State of Georgia (h1EAG) and the City of Dalton, in 1988 require that canceled projects be written down to the Georgia. These sales resulted in a gain, after income taxes, of present value of the revenues expected to be provided to $21,250,000 in 1984. There were no such sales in 1986 or 33
1985. The pin in 1984 resulted primarily from the sale of a 5% respectively. The current projected capacity payments for the additional undivided interest in Plant Vogtle to h1EAG. The next five years are as follows: $353 million in 1987, $434 Company also sold in 1984 a 25% interest in Plant Scherer million in 1988, $437 million in 1989, $463 million in 1990 Unit Na 3 to GulfIbwer Company, an affiliate, which resulted and $373 million in 1991. These payments include the addi-in no gain or loss. tional buybacks from the scheduled commercial operation of Plant Vogtle Unit Nos. I and 2 and reflect the hlarch 1987 JOINT OWNERSillP AGREEN!ENTS. At December 31, budget and schedule revision. Portions of these payments are 1986, the Company's percentage ownership and investment expected to be disallowed for ratemaking purposes, as de-(exclusive of nuclear fuel)in thesejointly owned facilities wre scribed in Note 3. as follows(dollarsin thousands): The Company and an affiliate, Alabama Power Company, 1 own equally all of the outstanding capital stock of Southern Total tercent Construction Electric Generating Company (SEGCO), which owns electric Megawatt Company Plant hkin generating units with a total rated capacity of 1,019,680 kilo-Type Capacity Ownership (l) in service Progress watts, together with associated transmission facilitics. The capacity of the units has been sold equally to the Company Plant flatch-and Alabama Power Company under a contract expiring in Nuclear. 1,630 50.1 % $738,181 $ 109,467 Plant Wansley_ 1994 which, in substance, requires payments sufficient to pro-Coal. 1,779 53.5 291,073 783 vide for the operating expenses, taxes, debt service and return Plant Scherer-Coal: on investment, whether or not SEGCO has any capacity and Unit Nos. I and 2. 1,636 8.4 82,439 109 energy available The Company's share of such amounts which Unit Na 3. 818 75 0 423,165(2) are included in purchased and interchanged power in the racilities Common Statements ofIncome are as follows (dollars in thousands): to all Units. 23.5 68,459 12,514 Iacilities Common to Unit Nos. 3 1986 1985 1984 and 4 87.5 39,508 Plant Vogtle-htWil. 2.976.638 3,387,591 2,763,831 Nuclear. 2,320 45.7 15,733 3,148,452 Expenses-(1) joint Owners are OPC, MEAG and the City of Dalton except for Plant Energy. 7S672 $ 86,523 $ 74,835 Scherer Unit Na 3, and facilities common to Plant Scherer Unit Nos. 3 and 4, of which Gulf Pbur Company, an affiliate, owns interests of 25% Capacity (t748 7,385 7,735 and 12.5% respectively. Total. .5 85.420 $ 93,908 $ 82,570 (2) Plant Scherer Unit Na 3 lxpn commercial operation on January 1,1987.
== The Company has contracted to complete those jointly At December 31,1986, the capitalization of SEGCO consisted owned units under construction and to operate and maintain of $36,091,000 of equity and $54,515,000 oflong-term debt the units as agent for the joint owners. Each participant pro. on which the annual interest requirement is $4,265,000. vides its own construction financing. The Company would have to obtain additional financing in the event of a participant NOTE 5. being unable to obtain sufficient financing. The Company ()fT-System Sales Agreements: includes its proportionate share of plant operating expenses in the corresponding operating expenses in the Statements of The Company and its three affiliated operating companies of Income the Southern electric system have entered into long-term con-In connection with these sales, the Company has entered tractual agreements for the sale of capacity and energy to cer-into agreements whereby the Company is required to pur-tain nonafilliated utilities located outside the system's service chase declining fractions of OPCs and h1EAG's capacity and territory. Certain of these agreements are non-firm and are energy of the respective generating units during periods of up based on capacity of the system in general. Others are firm and to ten years following commercial operation (and with reprd specific to certain generating units. Because energy is generally to a portion of a 5% interest in Plant Vogtle owned by 51EAG, sold at cost under these agreements,it is primarily the capacity until the later of the retirement of the plant or the latest stated revenues that impact the Company's profitability, Off-system maturity date of h!EAG's bonds issued to finance such owner-capacity revenues have been as follows (in thousands): ship interest), with the payments for such capacity made whether or not any capacity is available The energy cost of Year Unit Power Sales Long-Term Non-Firm such purchases is a function of each entity's variable operating costs < The cost of such capacity and energy is included in pur-chased and interchanged power in the Company's Statements 1986 $189,704 $62,636 ofIncome The capacity payments totaled $142,719,000, 1985 229.647 68,297 $187,131,000 and $211,352,000 in 1986,1985 and 1984, 1984 112,352 66,972 34 l
4- - long-term power has been sold to Florida Power & light Southern electric system's petition to the FERC regarding Company, Jacksonville Electric Authority, Florida Pbwer Cor-jurisdiction over the contract. The order states that the FERC poration and Mississippi Power & l.ight Company. These con-has jurisdiction over cenain matters penaining to the contract tracts expired at the end of 1986, which will substantially - (for example, justness and reasonableness of the rates, the in-reduce such sales beginning in 1987. Similar contracts with terpretation of certain sections and other issues). The order Gulf States Utilities Company (Gulf States) and the City of also provides for an administrative lawjudge to be assigned for Tallahassee, Florida expire in 1992 and 2000, respectively.. the purpose of holding a hearing and issuing a ruling. The Unit power from Plant Scherer is being sold to Florida _ order also states that the FERC does not havejurisdiction over Powcr & Light Company, Jacksonville Electric Authority and the question ofwhether the Southern electric system Gulf States. These agreements average 1,381 megawatts for negotiated in good faith to reduce the amount of capacity pur-1987. They reach a maximum of 1,946 megawatts in 1989, chases and enpged in fraudulent conduct in entering the con-decline gradually thereaftei; and expire in 1995. tracts. The administrative lawjudge is scheduled to rule on OnJuly 2,1986, Gulf States filed suit in the United States these matters by April 28,1987. District Court for the Eastem District of Texas apinst the Com-For 1986, the Statement ofIncome includes unit power pany, The Southern Company, Southern Company Services, and other long-term power sales revenues amounting to $86.2 ' Inc. and the Company's operating affiliates. The complaint million from Gulf States. Of this amount, approximately $363 seeks a judgment declaring that Gulf States is excused from million was deposited with the court or withheld by Gulf further obligation under its unit power and other long-term States. Because of disclosure in reports filed with the SEC by power sales contracts with the Company and its operating af-Gulf States conceming its financial condition, this amount has filiates and awarding Gulf States unspecified damages. Gulf been excluded from income through charges to the provision Statcs alleges, among other things, that the Company and the for uncollectible accounts. In management's opinion, the out-other defendants failed to negotiate and renegotiate in good come of the lawsuit will not have a material impact on the faith to reduce the amount of capacity purchases under the Company's financial statements; howevet the ultimate out-contracts and engaged in fraudulent conduct in entering into come of this matter cannot now be determined.' the contracts. On August 29,1986, the court made permanent an earlier interim order permitting Gulf States to make payments due under such contracts by depositing funds with N o rE 6. the court pending the outcome of the suit. A motion by the Incorne Taxes: Southern electric system seeking dismissal of the suit, based upon grounds that the FERC hasjurisdiction over the subject A detail of the federal and state income tax provisions is set matter,was denied by the court. Both of these orders have been forth as follows(in thousands): appealed to the U.S. Court of Appeals for the Fifih Circuit. The outcomeis pendinge m 1985 1984 During October and November of 1986, Gulf States receiv-ed orders from the Public Utility Commission of Texas and the Totalprovision forincome louisiana Public Service Commission which disallowed the taxes recovery of the capacity charges to Gulf States under the unit Federal-1 power and other long-term power sales contracts, which are currently payable allocable to the Texas and louisianajurisdictionse As a result of (refundable). 5 (38.759) 5 78,848 5 81,700 this action, Gulf States has advised the Company and its af. Deferred-Currentyear. 256,080 153,651 209,304 filiates that the capacity charges for unit power and other -Reversalof long-term power sales allocated'to the Texas and louisiana pri ryears (47.475) (65,681) (82,u4) U*I'*d I"*5""*""** j crions would not be deposited with the court or paid to usm - C 52 g g g7 276 m 281362 270,H 2 In other related matters, on August 28,1986, Gulf States filed a complaint with the FERC asking it to declare such unit state-power and other long-term power sales contracts to be currently payable 9.750 22,171 - 18,114 Defemd cunent at.. m 22 24916 2%182 unlawful under the Federal Ibwer Act and requesting the FERC. p to modify or void such agreements as necessary to bring them priorprs mos) (8,78 9 (nao6) mto comphance with the Act. Southern Company Services, 37s67 38.303 36 m Inc., as agent for the Company and its affiliates, had previously T tal. 3 t4.22o 320.265 -306,332 filed a petition asking the FERC, among other thing, to declare l'"- that it has jurisdiction over such power sales contracts and to Inc metaxescharged issue an order directing Gulf States to show cause why its ac-(aedited) t thu Mcome. aMO Ru4 37,678 tions, including the filing of the suit referred to above, do not Federalandstateincome - constitute an attempt to circumvent the FERC'sjurisdiction. The FERC subsequently issued an order concerning the taxes charged to opuations. 5 3m7+ 5 3u,M1 5 268.654 35^
Deferred income taxes result from the Company's use of Pollution ControlBonds
- accelerated depreciation methods and other write-offs of prop-Amount eny costs, as provided for by the income tax laws, being greater fig,g y,,,,,,7 nry call than the book depreciation ofsuch costs. Other deferred in-u, o ie tmations)
- Premium come taxes are provided for cenain costs or revenues that are 13n % 6/0142 590.0 2.00% tccognized for income tax purposes in different periods than for book purposes. Income taxes deferred in prior years are Preferred Stock ($25 par) reversed (credited to income) when the book depreciation of 3_ y property costs exceeds the related tax deductions or when - outuanaing can Premium ai ~ other timing differences reverse Deferred investment tax Annual - at 1U31/86 IU3U86or " d'"d ("" "" "'" C'" credits are amortized over the life of the related propeny with such amortization applied as a credit to reduce depreciation $3.76 571.3 11.28 % in the Statements ofIncome These credits amounted to 3.44 75.0 10.32% $13,469,000 in 1986, $14,276,000 in 1985 and $11,433,000 in 2.75 48 8 5.52% 1984. At December 31,1986, all investment tax credits available to reduce federal income taxes payable had been in addition to regular redemption refundings at the stated utilized. call prices, the Company may redeem first mortgage bonds The provision forincome taxes currently payable includes without premium through operation of the annual improve-the tax effects of reversals of prior years' timing differences ment fund requirement in an amount equal to 1% of all bonds 1 for which deferred income taxes wre not provided. At outstanding prior to the beginning of each yeat In general, for December 31,1986, the remaining balance of such timing dif- - the first five years a series is outstanding, the Company is pro-ferences was approximately $124 million for which deferred hibited from redeeming for improvement fund purposes more income taxes have not been provided. The total provision for than 1% of the original issue amount. In addition, the 11%% federalincome tax as a percent ofincome before income tax bonds and the $3.76 and $2.75 preferred stock are subject to amounted to 31.2% for 1986,33.5% for 1985 and 36.1% for redemption without premium under sinking fund provisions 1984. The difference between the 1986,1985 and 1984 rates in amounts currently up to $10,000,000, $3,750,000 and and the federal statutory rate of 46% was due primarily to the $7,500,000 per year; respectively The Company may also ' exclusion from taxable income of the allowance for equity redeem bonds without premium to meet maintenance and funds used during construction (14.3% in 1986,12.5% in 1985 replacement provisions of the mortpge or by use of proceeds and 10.0% in 1984). of released property. 1 i NOTE 7. COhih10N STOCK DIVIDEND RESTRICTIONS. The i Capitalization: Company's first mortgage bond indenture contains various I common stock dividend restrictions which remain in effect so l FINANCING. The Company's pending GPSC financing ap-long as the bondsareoutstandingrAt December 31,1986, l. plication requests authorization to issue up to $850 million in $38,775,000 of retained earnings was restricted apinst the pay-debt and equity securities during 1987 and 1988. As stated ment of cash dividends on common stock under terms of the in the application, all proceeds from the requested financings mortgage indenture The terms of the sinking funds for the j will be used to redeem or replace high cost or maturing debt Company's currently outstanding $2.75 and $3.76 Class A and equity securities. The following is a summary of outstand-Preferred Stock prohibit the payment of cash dividends on i ing securities for which call protection has expired or will ex-common stock during a default in the performance of the i pire by the end of 1988, and which have interest or dividend sinking fund obligations. No such default has occurred. j rates of 11% or higher These issues may be considered for The Company's charter limits cash dividends on common i refunding: stock to 75% of net income available for such stock during a priorperiod of twelve months if, calculated on a corporate First hlortgage Bonds basis, the ratio of common stock equity to total capitalization, i Amount including retained eamings, adjusted to reflect the payment of outuanaing can Pmi"" ^t the proposed dividend,is below 25% and to 50% of such net 5 '"[*" $[e" "NifoN income if such ratio is less than 20%. At December 31,1986, te can the ratio as defined was 39.2%. 16%% 7/01/12 5119.8 12.15% 1$ CUh1Ul_ATIVE PREFERRED STOCK SUBJECT TO 14 1 h1ANDATORY REDEh1PTION. The $2.75 and $3.76 Class 13%% 2/01/13 125.0 10.20 % I 13%% 10/01/12 125.0 9.37% A Preferred Stock each have cumulative sinking fund provi-i 11%% 1vol/os 91.5 7.30 % sions requiring the redemption of 150,000 shares annually Ilx% 8/01/00 60.5 6.30 % through 1999 and 2005, respectively, at the stated value of j 11 % 4/01/09 125.0 8.35% $25.00 per share The gains on such reacquisitions amounted 6
. to $16000'and $160,000 for the years 1985 and 1984, respec-is as follows: $2,648,000 in 1987, $3,345,000 in 1988,. ' tively, and are included with premium on preferred stock in $2,995,000 in 1989, $3,159,000 in 1990 and $40,062,000 the Company's Statements of Capitalization. There were no in 1991. such pinsin 1986. . The lease agreement for the corporate hesdquarters building provides for payments which are minimalin early OrlIER LONG-TERM DEIIT. Details of other long-term years and escalate through the Srst 20 years of the lease. Begin-debt are as follows(in thousands): ning in November 1986 (year seven of the lease), the payments reduce mterest that was defened and added to the lease oblip-tion in prior years when such payments were not sufBcient to 1986 1985 cover the interest requirements. Beginning in the year 2009, the aggregate lease payments will be sufBcient to cover the ac-Obligations incurred in connection with crued interest and begin to reduce the capitalized lease obliga-the sale by public authorities of tax-tion. For ratemaking purposes, the GPSC has treated the lease . exempt pollution control and industrial as an operatinglease and has allowed only the lease payments 4 development revenue bonds- - in cost of service. The difference between the accrued expense - 5.95% to 13.25% due 2002 to 2006.. $ 121.800 $ 121,800 and the lease payments allowed for ratemaking purposes is be-6.375% to 13.75% due 2007 to 2011. 170.700 170,700 ing deferred as a cost to be recovered in the future as ordered 8.0% to 13.5% due 2012 to 2016 1.271,400 1,215.000 by the GPSC. At December 31,1986 and 1985, the amounts i 1,563.900 1,507,500 deferTed and included in plant in service in the Balance Sheets j are $38,844,000 and $34,650,000, respectively. lessfundsondepositwithtrustees.. I21.262 414.863 l.442.638 1.092.637 LONG-TERM DEBT DUE WITillN ONE YEAR.The l Term loan obligations incurred under current portion of the Company's long-tenn debt is as follows ' revolvingcreditagreements-(in thousands): { Variable Rates-atJanuary 1,1987, 6BG% to 763% payable 1991 to 1993 113.000 1986 1985 Capitalizedlease obligations- ] Railcars. 9.396 11,354 Bond improvement fund requirement. $ 31.057 $ 28,677 Corporateheadquartersbuilding. 97,792 95,341 11%% series sinking fund requirement. 5.000 5,000 1 Otheroffice buildings 2.817 3,418 less- } Telecommunications equipment 982 Bonds reacquired toward requirement. 284 ) 110 987 110.113 Remaining current cash requirement. 36.057 33.393 i-Miscellaneous 6% note payable-due Firstmottgagebondmaturities, 8,978 12,000 I, 1986. 315 Current portion of other long-term debt 2.648 2.836 $ 1,666.623 $ 1.203.065 Total $ 47.683 $ 48.229 The indenture's first mortpge bond improvement fund re-The Company has authenticated and delivered to trustees quirement amounts to 1% of each outstanding series of bonds an aggregate of $382,500,000 ofits first mortgage bonds which authenticated under the indenture prior toJanuary 1 of each i are pledged as security for its obligations under pollution con-year; other than those securing pollution control obliptions. i trol and industrial development contracts. No interest on these . The requirement may be satis 6ed by depositing cash or reac-i first mortgage bonds is payable unless and until a default oc-quired bonds, or by pledging additional property equal to one l curs on the installment purchase orloan agreements. An and two thirds times the requirement. The 1986 and 1987 re-j aggregate of $1.181 billion of the pollution control and in-quirements were met inJanuary of each year by depositing dustrial development bonds is secured by a subordinated in-cash subsequently used to redeem bonds. A separate sinking i terest in specific property of the Company. fund requirement of $5 million per year which exists specifi-Assets acquired under capitalleases are recorded in the cally for the 11%% bonds was met in August 1986. Satisfaction Company's Balance Sheets as utility plant in service and the of this requirement can, at the Company's option, also be ap-related obligation is classi6ed as other long-term debt. The net plied toward satisfaction of the bond improvement fund book value of capitalized leases was $106,888,000 and requirement. $106,877,000 at December 31,1986 and 1985, respectively. At December 31,1986, the composite interest rate for rail cars ASSETS SUBJECT TO L1EN.The Company's mortgage was 9.56%, the interest rate for the corporate headquarters dated as of March 1,1941, as amended and supplemented, building was 8.23% and the composite interest rate for other securing the Srst mortyge bonds issued by the Company, con-office buildings was 5.47% stitutes a direct lien on substantially all of the Company's fixed The current portion of other long-term debt through 1991 propertyand franchises. 37
NOTE 8. ed by Nuclear Electric Insurance Limited (NEIL), a mutual in-2 Fuel Commitments: surance company, and American Nuclear Insurers / Mutual Atomic Energy Liability Underwriters and covers decon-l To supply a portion of the fuel requirements ofits generating tamination and debris removal, as well as excess property. plants, the Company has entered into various long-tenn com-damage. NEIL also covers the extra cost which would be incur-l mitments for the procurement of fossil and nuclear fuel. In red in obtaining replacement power during a prolonged ac-most cases, such contracts contain provtsions for price escala- .cidental outage of a member's nuclear plant. Members are in-tions, minimum production levels and other financial com-sured against the increased costs of replacement power up to l mitments. Additional commitments for coal and for nuclear $3,500,000 per week (starting 26 weeks after the outage) for fuels will be required in the future to supply the Company's one year and up to $1,750,000 per week for the second year. . fuel needs. Under each of the NEIL policies, the Company is subject to assessments iflosses exceed the accumulated funds available i NOTE 9. to the insurer under that policy. The maximum assessments j. Nuclear Insurancc: for the Company's ownership interest in the two Plant Hatch reactors and the Plant Vogtle reactor would be approximately Under the Price-Anderson Act, the Company maintains $4,495,000 and $4,076,000, respectively, under the current I agreements ofindemnity with the Nuclear Regulatory Com-property damage policies. The maximum assessments for the mission which, together with private insurance, cover third. Company's portion of the Plant Hatch reactors under the cur-party liability arising from any nuclear incident occurring at rent replacement power policies would be approximately the Company's nuclear power plants. The Act limits public $6,221,000. The Company will become subject to such an liability claims that could arise from a single nuclear incident assessment for its share of the Plant Vogtle reactor after it t to $700,000,000. Each Company's nuclear plant is insured begins commercial operation in 1987. against this liability to a maximum of $160,000,000 by private l insurance (the maximum amount currently available). The re-maining coverage is provided by a mandatory program of NOTE 10. deferred premiums which would be assessed, after a nuclear Quarterly Financial Data (Unaudited): incident, against all owners of nuclear reactors. A company could be assessed up to $5,000,000 per incident for each Summarized quarterly financialinformation for 1986 and j licensed reactor operated by it but not more than $10000,000 1985is as follows(in thousands); per reactor to be paid in a calendar yeat On the basis ofits 1 ownership interest of 50.1% in Plant Hatch Unit Nos. I and 2 and 45.7% in Plant Vogtle Unit Na 1, the Company could be First second nird rvunh assessed a maximum of $7,295,000 for any incident, but not quaner Quaner Quaner Quaner ( more than $14,590,000 to be paid in any one year The current 1986 Price-Anderson legislation expires in 1987. Bills to amend the Act, including proposals to substantially increase, modify or operating revenues. $815,279 $846,132 $993,363 5806,990 O emingincome. us,092 136,569 182,956 12%620 P eliminate the limitation on liability provisions, were introduc. hed ed but not enacted during 1986. The Company expects that di nas similar legislation will be proposed in 1987. stock. 112,102 125,437 176,941 120,523 The Company is a member of Nuclear Mutual Limited (NML), a mutual insurer established to provide property dam-1985 i age insurance in an amount up to $500,000,000 for members' operating revenues. $816,271 5861,167 5956,360 $810,500 { nuclear generating facilities. The Company is subject to a operatingincome. 132,173 138,886 162,165 108,597 Netincome aher rctrospective premium adjustment in the event that losses ex. dWidend5 n Preferred ) ceed accumulated funds. The Company's maximum assess. n ck. n 2.247 122,2n 155,504 103471 j ment is limited to S24,300,000 under current policies. Additionally, the Company has policies that proside coverage up to $730,000,000 for losses in excess of the The Company's business is influenced by seasonal $500,000,000 NML coverage. This excess insurance is provid-weather conditions and the timing of rate increases. s s 58 ,,r a.r,- --w,. .nw,wn,- -n,
Auditors' Report To the Board ofDirectors of Georgia PuwerCompany: We have examined the balance sheets and statements of cap-upon the extension of the Company's Federal Energy Regulatory italir.ation of Georgia her Company (a Georgia corporation) Commission license and other assurance that the project's costs as of December 31,1986 and 1985, and the related statements can be recovered. ofincome, camings retained in the business, other paid-in In our opinion, subject to the effect on the 1986 and 1985 capital and sources of funds for gross property additions for fmancial statements of such adjustments, if any, as might have each of the three >rars in the period ended December 31,1986 been required had the outcome of the matters discussed in the Our examinations were made in accordance with generally preceding paragraph been known, the financial statements accepted auditing standards and, accordingly, included such referred to above present fairly the Snancial position of Georgia tests of the accounting records and such other auditing pro-Power Company as of December 31,1986 and 1985, and the cedures as we considered necessary in the circumstances. resuhs ofits operations and the sources of funds for gross prop-As more fully discussed in Note 3 to the financial state-eny additions for the periods stated, in confonnity with gener-ments, uncertainties exist with respect to the full recoverability ally accepted accounting principles applied on a consistent of the Company's investments in the Plant Vogtle nuclear facility basis. and the Rocky hiountain hydroelectric project. The outcome ARrilUR ANDERSEN & CO. of the uncertainties related to Plant Vogtle cannot be deter-Affanta, Georgia mined until the related regulatory process is concluded. Resolu-febn ary 6,1987 tion of the uncertainty on the Rocky hiountain project depends (except with regard to Note 3, as to which the date is March 9,1987) Report of Management The management of Georgia her Company has prepared this Andersen & Ca) provide an objective assessment of how well report and is responsible for the financial statements and related management meets its responsibility for fair financial reponing information. These statements were prepared in accordance Anhur Andersen & Ca regularly resiews the system ofintemal with generally accepted accounting principles appropriate in accounting controls and performs such tests and other pro-the circumstances, and necessarily include amounts that are cedures as deemed necessary to reach and express an opinion based on the best estimates and judgments of management. on the faimess of the financial statements. Firuncial information throughout this annual repon is consis. The Audit Committee of the Board of Directors, which is tent with the financial statements. composed of four outside directors, prosides a broad oversiew A change in accounting principles is required effective in of management's financial reponing and control functions. At 1988 by the Financial Accounting Standards Board as explained least three times a year this committee meets with management, in Note 3 to the Financial Statementss This changn which could the intemal auditors and the independent public accountants be implemented in 1987, will require the write-off of all con-to ensure that these groups are fulfilling their obligations and to stmction costs disallowed by regulators, including the Com-discuss auditing, intemal control and financial reporting mat-pany's portion of the costs incurred on Plant Vogtle over the ters. The intemal auditors and independent public account-regulatory cap ants have access to the members of the Audit Committee at The Company maintains a system ofintemal accounting any time controls to provide reasonable assurance that assets are safe-hianagement believes that its policies and procedures pro-guarded and that the books and records reflect only authorized vide reasonable assurance that the Company's operations are transactions of the Company 1. imitations exist in any system of conducted with a high standard of business ethics. In manage-intemal control based upon the recognition that the cost of the ment's opinion, the financial statements present faiily the finan-system should not exceed its benefits. The Company believes cial position, results of operations, and sources of funds for that its syste.n ofintemal accounting control, together with the gross propeny additions of Georgia her Company subject to intemal auditing unction, maintains an appropriate cost / benefit the resolution of the uncenainties regarding full recovery of the r relationship Company's investment in the Rocky hiountain and Plant Vogtle The Company's independent public accountants (Arthur construction projects. 39
Georgia Power Company 1 BOARD OF DIRECTORS Elmer B. Harris CarlWare Campensation Comminee Senior Executive Vice President Senior Vice President H. G. Pattillo, Chairman - Edward L Addison Georgia Power Company The Coca-Cola Company President Adanta,1985 Atlanta,1980 William A. Fickling,Jc William A. ParketJe The Southem Company Warren Y.Jobe Vince Whibbs William B. Turner Atlanta,1983 Executive Vice President and Chairman of the Board Thomas R. Williams H.Grady BakenJt Chief FinancialOfficer Vince Whibbs htiac-GMC SeniorExecutive Vice President Georgia Power Company Trucks,Inc. Independent Litigation Georgia Power Company Atlanta,1982 Vince Whibbs Mazda Committee Atlanta,1980 Company James H.MillenJt First MutualSavings William P.Copenhaveg Chairman Bennett A. Brown President Association ) Chairman of the Board and Georgia Power Company Pensacola, Florida Virginia A.Dwyer Vince Whibbs ChiefExecutive Officer Atlanta,1975 (effective 9/17/86) Citizens & Southem William A. Parker,Je Thomas R. Williams Nuclear Operations Corporation Chairman of the Board Chairman of the Board Overview Committee Atlanta,1980 CherokeeInvestment First Wachovia Corporation / William P.Copenhaver Company,Inc. First Atlanta Corporation L G.Hardman,III, President (private investments) Atlanta,1982 Chairman Columbia Nitrogen Corporation Atlanta,1%5 W liiam A.Fickling,Jr it.G. Pattill llONORARY DIRECTORS ff cu e6/18/86) H I t1 President and Chairman of the Virginia A.Dwyer Board W.E.Ehrensperger (retired Senior Vice Pattillo Construction Atlanta,1981 GENERAL OFFICERS President-Finance) Company, Inc. American Telephone and Decatun 1972 RichardJ. Kelly ggg fSra ,g( RobertW Scherer "[ve 6/1/86) o n Chairman of the Board y9 e Chairman of the Board and and Chief Executive (effective 9/17/86) Chief Executive Officer John W 12ngdale Officer William A. Fickling,Je Georgia her Company President Age:61 President and Chairman Atlanta,1%9 TheI.angdale Company Years of Service: 40 Charter MedicalCorporation Valdosta,1983 De Gloria M.Shatt I'***" # *El' (medical facilities) (retired 2/8/87) President President Macon,1973 BerTy College Allen B. Wilson Age:64 langdon S. Flowers Mount Berry,1980 Atlanta,1982 Years ofService: 40 PresMent Robert Strickland H.Grady Bakenjo 3.gI}*e,l 82f" ' * " Chairman of the Board and BOARD CONIhilTTEES SeniorExecutive Vice ChiefExecutive Officer President J. A.Gantt SunTrust Banks,Inc. Executive Committee Age: 57 can e ce: 6 Executive Vice President Atlanta,1979 Robert W Scheret Chairman Georgia Power Company WiHiam B. Turner James H. MillenJt Elmer B. Harris Chairman of the Board and William A. ParketJt Senior Executive Vice L G. Hardman, til Chief Executive Officer H. G. Pattillo President l Robert Strickland Age: 47 Chairman of the Board, W. C. Bradley Company CarlWare Years of Service: 28 Presidentand Treasurer (manufacturing) Hannony Grove Mills,Inc. Columbus,1%5 (textiles) Audit Committee Warren Y.Jobe Executive Vice President '"**'1979 L G. Hardman,Ill, Chairman and Chief Financial Bennett A. Brown Officer langdon S. Flowers Age: 46 l Gloria M.Shatto Years ofService: 16 40
I J. A.Gantt Thomas G. Boren J.Wyman lamb Wayne Boston Executive Vice President Vice President-Corporate Vice President-Risk Assistant Secretaryand Age: 63 Performance Management Assistant Treasurer Years of Senice: 39 (effective 2/1/86) Robert D. Carpenter Jack bwrence Jack C Causey Vice President-Regulatory and Vice President-Power Delivery J. R. Harris Senior Vice President ConsumerAffairs (effective 5/21/86) Assistant Secretary and Administrative Services Assistant Treasurer Age: 59 K. R.Cormany J. A.Parramore,Je (effective 7/16/86) Vice President-Office of Chief Vice President-Customer Years ofService:36 Executive Accountingand Accounting (effective 6/18/86) (retired 3/1/87) services DIVISION OFFIGRS no V resident Wayne T.Dahlke Richardj.Pershing Vice President-Industrial Vice President and Treasurer Nuclear Power ^8*:48 Marketing J. O. Rittenhouse R. H. Pinson V ce President Years ofService: 30 W W Davidson Vice President-Vogtle Project East Metro Division Vice President-Residential and Construction George E Head Senior Vice President Commercial Marketing Fred W Dement,Je (effective 3/19/86) Paul D. Rice Vice President FossiI and H> tiro Ibwer V ce President-Vogtle Project West Metro Division Age: 57 James K. Davis Engineering (effective 11/19/86) Years of Service: 32 Vice President-Corporate Relations John A. Roberts - Ben H. Williams 3ohn CllemHE Vice President-Division V ce President SeniorVice President C L Donaldson,Jt Operations Athens Division Marketmg Vice President-her Age: 58 Generation J.W.Talley,Jc Jack K.WidenenJt Years of Service: 36 (effective 8/20/86) Vice President-Economic V ce President ^"E"
- Gene R.Ilodges D. E. Dutton Fred D. Williams (effective 1/15/86)
Senior Vice President Vice President-Generating Division Operations Plant Projects-Vogtle, Scherer Vice President-BulkIbwer Freeman R.O'Neal,Jt and Hydroelectric Projects Markets V ce President ^8e:48 Years ofService: 24 Columbus Division (effective 11/19/86) E.G. Ellingson Judy M. Anderson Vice President-Marketing Corporate Secretary E. C. Barineau James P.O'Reilly Services (effective 5/21/86) V ce President Senior Vice President Macon Division Nuclear Operations Donald O. Foster M. T. Brown,Jc Age: 58 Vice President-Vogtle Project Assistant Comptroller T.J. Allen,Je Vice President Years of Service: 2 Support R.R. Cook (deceased 1/25/87) Rome Division mde Assistant Comptroller Vice President-Hydro and J. M.Griffith W B. Poss J.J. Cordova Ibwer Generation Services Vice President-Govemmental Vice President Assistant Comptroller (effective 8/20/86) Relations Valdosta Division (retired 3/1/87) J1mesW Awrett C B. Ilarreld,Jt Paula C Foster Vice President-Human Vice President and Assistant Secretary Resources Comptroller (effective 6/30/86) Guerry P.Strickland ^ * * * * " 'I' #7 J.T. Beckham,Jc Vice President-Ibwer Vice President-Plant Hatch Generation Charles O. Rawlins (effective 8/20/86) AssistantTreasurer l Vice President-Procurement R. C Kester and Materials Vice President-land 41}}