ML20206T686
| ML20206T686 | |
| Person / Time | |
|---|---|
| Site: | Hatch, Vogtle, Farley, 05000000 |
| Issue date: | 12/31/1986 |
| From: | Addison E SOUTHERN COMPANY SERVICES, INC. |
| To: | |
| Shared Package | |
| ML20206S623 | List: |
| References | |
| NUDOCS 8704230231 | |
| Download: ML20206T686 (60) | |
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The Southern Company is the parent firm of one of the nation's contisees b the
! Southeast-with largest investor-owned electric utility groups - supplying b ess se o, electricity rp seves
"=' h ""-
energy to some 10million people across the Southeast.
The Southern Company's common stock is one of the 20 secti:g the energy
, roe -dhy m ama most widely held corporate stocks in America.
Power, Geort s Power, i
G:lf Power,and Mississippi Power.
The Sozthern electric system also includes a service arm, Southern Compazy Services; a carketing firm, Sorthern Electric Internatio:al; nad sa 1:vestmest company, The Secthers lavesteert Group.
2 HIGHLIGHTS 3
TO OUR STOCKHOLDERS 6
FINANCIAL RESULTS 6
RATES 7
OPERATIONS 11 ENERGY USAGE
.4 CONSTRUCTIONAND FINANCING 18 SPLCIAL REPORTONPLANT VOGTLE 21 AC/D RAIN UPDATE 23 FINANCIAL REVIElY
$4 THESOUTHERNELECTRICSYSTEh!
STOCKHOLDER INFORhfATION
$6 OFFICERS AND DIRECTORS I
HIGHLIGHTS FINANCIAL '
Percent 1986 1985 Change i
Operating revenues (in thousands)
$ 6,846,591 5 6,813,927 0.5 Consolidated net income (in thousands)
$ 882,860 829,590 6.4 Earnings per share 3.17 3.20 (0.9)
Dividends paid per share 2.06%
1.95 5.9 Average shares outstanding i
(in thousands) 278,897 259,543 7.5 Return on average common equity (percent) 15.57 16.64 (6.4)
Book value per share (year-end) 21.09 19.83 6.4 Market price (year-end closing) 25 %
22%
14.0 Construction expenditures (in thousands)
$ 2,340,293
$ 2,211,265 5.8 Total assets (year-end)
(in thousands)
$18,141,116
$ 16,531,495 9.7 I
I l
OPERATING Kilowatthour sales (in thousands):
Within system service area 106,863,941 98,974,302 8.0 t
Off-system 16,548,419 27,082,537 (38.9)
Total 123,412,360 126,056,839 (2.1)
Total number of customers (year-end) 2,955,644 2,880,552 2.6 I
i l
i l
EARNINGS PER SIIARE RETURN ON AVERAGE DIVIDENDS PAID PER SIIARE (dollars)
COMMON EQUITY (dollars)
(percent) l 3.20 3,17 3"
16.58 16.64 2.70 15.65 15.57 1.6 2.38 2.065 1982 1983 1984 1985 1986 1982 1983 1984 1985 1986 1982 1983 1984 1985 1986 l
i l
2
g
-3_
70 OUR STOCKHOLDERS Q_
=
M-eSE GiB p
he Southern Company recorded another expect peak energy demands in our service area to year of accomplishment in 1986in terms of both rise at an average annual rate of two percent over b-financial performance and customer service.
the next 10 years. Even at that moderate rate of E-i At $883 million, net income reached the highest growth, electricity demand would increase nearly J
level in the company's history, and earnings per 30 percent by the turn of the century.
share of $3.17 were second only to the record set in 1985. Return on stockholder m, vestment als Construction Program Reviewed; Y
remained competitive, although it dropped to Vogtle Cost Estimate Increased f6
+
15.57 percent in 1986 from 16.64 percent in 1985.
The major projects we have under way to ensure e
In view of the company's financial strength, the a reliable energy supply are moving toward com-board of directors voted in October to raise the pletton. Our capital budget for the three-year p
E quarterly dividend rate by 4.9 percent to 53 % cents period 1987-1989 is $5.9 billion - a decrease of a share, the fifth increase in as many years.
$700 milh,on from the 1986-1988 budget. Invest-I We made substantial progress toward our long-ment m new construction should continue on a term goals in 1986. But it was necessary in March, substantial downward trend desp,te the merease,m
'g i
I 1987, to raise the budget for the nuclear power the budget for our nuclear project - Plant Vogtle.
g Georg,a Power is building this two-unit facility g
i plant we have under construction - a develop-i E
underj,o, t ownership agreements with coopera-g ment l'Il discuss later in this message. And the m
budget increase will result in an after-tax charge tives and mumcipalities m the state and has re-g of $226 million against earnings no later than tamed a 45.7-percent interest in the plant. During r
January,1988.
1986, construction of unit I was essentially com-4 This write-off will significantly erode our earn-pleted. Fuel was loaded in January,1987, and the Q
ings in the short-term, but in and of itself the unit now is bemg tested at low power. Commercial write-off will not prevent us from maintaining the per tion is expected by June of this year.
X dividend we're now paying.
We have clearly passed a number of milestones W-on the Vogtle project. However, we incurred addi-E--
Economy, Weather Spur Energy Sales tional labor costs to keep unit 1 on schedule for 1
In reviewing 1986, a major factor in our results full-power operation this summer. And in part 6-I was the growing energy needs of customers across because of the concentration of manpower and 3
i the region. Electricity sales in our four-state area materials on unit 1, we delayed completion of 5-
- which account for the major portion of our unit 2 from September,1988, to June,1989. These 1---
business - rose by eight percent during the year, factors have led to a $522-million or 6.3-percent g-This gain was prompted by the continued strength increase in the projected cost of Plant Vogtle. The
_E r
i of the southeastern economy and unusually heavy budget is now $8.87 billion. Georgia Power's share
-6 energy use during a prolonged summer heat wave.
is expected to be $3.87 billion.
5 In July, our companies responded to unprece-As you may recall, Georgia Power pledged last 5-dented demands for electricity that exceeded our year that, barring extraordinary circumstances, it E
projections through the early 1990s.
would not seek to recover from its retail customers L
Despite the greater need for eneigy in our area, any costs for Plant Vogtle in excess of $3.56 billion.
overall sales of electricity declined during 1986 by Georgia Power made this commitment to help
(
2.1 percent because of a decrease in the sale of keep the regulatory process moving and to protect 4-electricity to neighboring utilities.
the investment we've already made.
is-_
~
Based on the new estimate, Georgia Power's y
Continued Growth Projected The Southern electric system began serving 75,100 costs will exceed the $3.56-billion cap by $313 mil-A lion and will result in a charge against earnings of new customers m 1986 - increasing our total number of customers by 2.6 percent to almost
$177 million after taxes. In addition, Georgia three nu,lhon. These additions provide firm evi-Power's contracts with the joint owners require k
dence of the economic expansion m our area.
the company to buy back significant amounts of 3
The outlook for the economy, of course, is a key Vogtle capacity during the plant's initial years of
-4 factor in determining future electricity needs. We
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operation. Under the terms of the cap on con-us. Gulf States Utilities Company of Beaumont, struction costs, Georgia Power also will not at-Texas, is alleging failure to negotiate in good faith tempt to recover the portion of the budget increase requested changes to the contracts.
that applies to the buybacks - bringing the total We have excluded $25 million from our 1986 amount which must be charged against earnings earnings to provide for the possibility that some to $226 million after taxes.
amounts due from Gulf States may not be collecti-ble - given the weakened httacial condition of Georgia Power Plans to Seek Rate Increase that utility. We are contestmg.he Gulf States In April, Georgia Power plans to file a request for suit in court, and the Federal Energy Regulatory higher retail rates to begin recovering $3.56 billion Commission is holding hearings on the dispute.
of its investment in the Vogtle project. When the public service commission considers this request, Outlook for the Future it will take into account the recommendations of Looking ahead, some predict that our industry a consulting firm that is conducting a prudence will be very different 10 years from now. A move-review of Plant Vogtle.
ment toward the deregulation of power sales We believe Georgia Power's expenditures on among utilities has begun, placing a premium on Plant Vogtle have been prudent. The company is the ability to generate and sell energy at competi-providing the consulting firm and the commission tive prices. There are questions about access to our with information that documents this position.
transmission systems for other power suppliers Georgia Power also has filed with the commis-that may wish to serve only a select group of cus-sion proposals for phasing into rates the costs tomers. And there are signs of mergers and acqui-associated with Plant Vogtle. The company sup-sitions that could leave fewer and larger utilities.
ports spreading the necessary rate increase over We have sought to prepare for the changes several years to moderate the immediate impact on ahead by strengthening the company's financial electric bills. We expect a ruling on the rate and integrity, building to meet the energy needs of our phase-in issues before the end of October.
region, and structuring our system to take advan-Because of uncertainty about the recoveiy of tage of new opportunities. We see the best pros-Georgia Power's investment in Plant Vogtle and pects for diversification in activities that relate to the Rocky Mountain hydroelectric project, our in-our basic business as an energy company.
dependent auditors have qualified their opinion of Our most pressing concerns, however, are the our financial statements.
regulatory and legalissues which must be resolved in 1987 - particularly the question of how the Issues Remain Before the Courts cost of Plant Vogtle will be treated. Clearly, this As you may recall, a stockholder filed suit in 1986 matter constitutes our major challenge in the year against directors of The Southern Company and of critical decision-making that lies just ahead.
Georgia Power concerning construction of Plant But we enter this period with a sound financial Vogtle and the Rocky Mountain plant. An in-base. We serve one of the nation's most economi-dependent litigation committee has been formed cally vital regions. And we believe that the energy and given the full authorization of The Southern supply network we're completing will help posi-Company and Georgia Power boards to determme tion us well for an era in which competition will be what actions the compames will take in response the keynote of our industry. In fact,if the future to the suit. This committee is composed of board of the electric energy business belongs to low-cost members not named in the suit. Action on the case producers who can innovate and market aggres-has been stayed through June,1987.
sively, we expect to do very well indeed.
Another lawsuit was filed against the Southern electric system in 1986 by one of the utilities that
/
hf has contracted to buy capacity and energy from i
Edward L. Addison Since becoming president of The Southern Company in 1983, President Ed Addinos has traveled to work sites throughout the four-state service March 9,1987 area and has met with some 20,000 of the system's 31,700 es ployees.
5
FINANCIAL RESUL75 RATES The Southern Company post-systems. (See Energy Usage on tate public service commis-ed strong financial results in 1986 page 11 and Note 7 to the finan-sions set electric rates for the sys-
- primarily because of higher de-cial statements.)
tem's retail customers. These mand for energy from residential customers purchased approxi-and commercial customers. Net in-Dividend Rate Increased inately 75 percent of the electricity come for th: rear rose to $883 mil.
During 1986, dividend payments sold by the system in 1986.
lion - an increase of six percent totaled $2.06% per share - up Following is a summary of over the pn vious year, 11% cents per share over dividends major rate developments during However, with a greater number of $1.95 paid during the prior 1986.
of shares outstanding during 1986, year. For the first three quarters carnings per share decreased by of 1986, the dividend rate was Court Upholds Extension one percent to $3.17. Average 51 cents per share. The fourth Of Alabama Rate Plan shares of common stock out-quarter dividend was raised to In October,1986, the Supreme standing totaled 278,897,051. In 53 % cents per share - an in-Court of Alabama upheld an order 1985, earnings were $3.20, based crease of 4.9 percent over the of the Alabama Public Service on 259,543,429 average shares previous rate. This marked the Commission which extended into outstanding.
fifth consecutive year that the 1989 an innovative ratemaking The company's return on directors have increased the divi-plan for Alabama Power. The I
common stockholder investment dend rate. The new quarterly pay-plan provides for small, periodic (consolidated return on average ment is equivalent to an annual rate adjustments based on the common eg'tity) was 15.57 per.
dividend of $2.14 per share.
company's rate of return and the cent for the year, compared to The entire amount of dividends commercial operation of new 16.64 percent in 1985.
paid during 1986 is taxable as or-generating facilities. Alabama The Southem Company has dinary income.
Power will have an opportunity to excluded $25 mBion after taxes At their January,1987, meeting, earn between 13.5 and 15 percent from its 1986 eardags to provide the directors maintained the on end-of-period stockholder in-for the possibility that some quarterly dividend at 53 % cents vestment in facilities which serve amounts due from Gulf States per share. This dividend was paid the company's retail customers.
Utilities Gmpany of Beaumont, h1 arch 6 to stockholders of record During 1986, two retail rate in-Texas, may not be collectible given February 2. The company has creases of approximately one per-the weakened financial condition now paid a dividend to its com-cent each were placed into effect of that utility. Gulf States is con.
mon stockholders for 157 con--
under this plan. In January,1987, testing contracts which cover secutive quarters.
a two-percent reduction was power sales between the two utility adopted as a result oflower fed-Write-Off Expected by 1988 eral income tax rates.
In early h1 arch,1987, Georpa Power announced that the e >!
Georgia Power Plans Request the Vogtle nuclear powerple r w For Rates to Cover Vogtle Costs CONSOLIDATED NET INCOME (millions ofdollars) risen above the amount win re-The Georgia Public Service Com-tail customers in Georgia will be missionissued an accounting order 883 asked to pay. The Southern in December,1986, which allows Company will take an after-tax Georgia Power to defer its share charge of $226 million against of operating and capital costs for l
earnings no later than January, unit 1 of Plant Vogtle from the 590 1988, as a result of the budget in-date the facility begins commercial 472 crease. (See Note 3 to the financial operation until new rates take ef-statements.) However, the write-feet. The Vogtle nuclear project off, in and of itself, will not pre-is being built by Georgia Power I
vent the company from maintain-under joint ownership agreements ing the quarterly dividend at the current rate.
W82 1983 1984 1985 1986 6
OPERATIONS with cooperatives and municipali-released in the next several otal operation and main-ties in the state. Unit 1 is expected months. (See report on Plant tenance expenses declined from to begin commercial operation by Vogtle on page 18 and Note 3 to
$4.3 billion in 1985 to $4.2 billion June,1987; unit 2 is scheduled for the financial statements.)
for 1986. In terms of each kilo-service by June,1989.
watthour sold, operation and i
The company plans to file a rate Mississippi PSC Institutes maintenance expenses rose slightly Performance Evaluation Plan increase request in April,1987, to to 3.42 cents in 1986, compared to begin recovering its allowable in.
The Mississippi Public Service 3.39 cents for the prior year.
vestment in the Vogtle project. By Commission approved in 1986 a The primary reason for these law, the commission will have six new plan for setting electric rates stable costs was a 3.1-percent mc,nths after the filing date to rule for Mississippi Power's retailcus-decline in the Southern electric on the application.
tomers. Under the plan, which is system's average cost for fuel. In Georgia Power favors phasing effective through 1988, mies may addition, there was a slight drop into rates the costs associated with be adjusted upward or downward in total fuel requirements because the facility. The company already by as much as two percent of a 2.1-percent decrease in kilo-has submitted to the commission quarterly.
watthour sales - a decrease several alternatives which would Adjustments are based on the brought about bylower sales spread the necessary rate increase company's financial condition to other utilities.
over three to fise years. Hearings and performance against various were held during 1986 and the first standards. Mississippi Power's rate Coal Dominates Fuel Mix part of 1987 to consider these of return will be keyed to its per-Coal was the source for some alternatives.
formance rating and to a bench-84 percent of the electricity gener-When hearings on the formal mark determined by comparing its ated by system power plants in rate request begin later in 1987, cost of equity with that of similar 1986. The system expects to con-the findings of a prudence review utilities.
tinueits strong reliance on coal of Plant Vogtle conducted by an The commission approved a through this century and beyond.
outside consulting firm may be two-percent increase in retail rates in 1986, the system again was the subject of considerable debate.
for Mississippi Power in Septem-one of the nation's three largest The results of the review - car.
ber and granted the company an users of coal. The operating com-ried out at the commission's re.
additional two-percent increase in panies burned 42.6 million tons of quest - are expected to be December.
the fuel during the year - com-pared to nearly 44 million tons burned in 1985.
, Some 95 percent of coal deliver-e m~
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) An=h=== Puhur?
1Three commissioners (a president and two ;'.ij West Virginia.
f serviceem associate comnussioners) - elected on a ;
Contracts for coal from Colo-j statewide basis for staggered four-year terms.
9) rado and Utah to supply the F
Daniel Electric Generating Plant t nerida Puhur.-
Five comnussioners - appointed for staggered g Service
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r approval by the state senale.
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' service Cessasission districts for concurrent four-year terms.
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For the fifth consecutive year, our coal-fired and nuclear units
^ ' " " ' ' " " " ' -
the control room at Alabama Power's Surpassed industry averages for operating availability -
Pla:t Farley. Unit 2 ef the facility was ranked the percentage of time units are available for service.
forming sackar unit for the first half of t 88.5 percent for 1986, the availability of our coal-fired plants j
1986 (thelatest period for whkh data are stands among the best in the industry.
== * -
1 I
1 To ensure that the lowest cost power trailable is being dispatched across the Southeast, coordi-l nators monitor the llow of energy 24 hours2.777778e-4 days <br />0.00667 hours <br />3.968254e-5 weeks <br />9.132e-6 months <br /> a day.This
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pgy*#g speciaEzed work is o. of.a.,t.h. u services that Southern Company Services provides, at cost, to the system operating companies.
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in Mississippi were terminated in availability for coal-fired power refueling the Hatch units, down-the latter part of the year. Replace-plants was 82.1 percent in 1985, time was incurred for plant ment coal will be purchased from the most recent year for which modifications to improve safety the eastern United States. Lower data are available.
and reliability.
transportation charges and lower A record established by Georgia At Alabama Power's Plant coal prices are expected to reduce Power's Plant Bowen also is indic-Farley, operating availability for the delivered cost of coal to Plant ative of the performance of the unit I was 82.4 percent for 1986, Daniel by more than $270 million system's coal-fired facilities. In down from 84.3 percent for 1985.
over the next nine years.
1986, Plant Bowen generated Unit 2 of the plant recorded an Because of coal's important some 21 billion kilowatthours -
availabilitylevelof 85.1 percent, role as a fuel source, a primary producing for the second consecu-up from a rating of 77.8 percent objective is to maximize the per-tive year more electricity than any in 1985.
centage of time each of the sys-other electric generating plant in Since beginning commercial tem's coal-fired power plants is the nation.
operation in 1981, unit 2 of Plant available for sersice. Since the late Farley has often been recognized 1970s, these plants have attained Nuclear Availability Drops forits outstanding operating what management considers to be Below Strong 1985 Imels record. For the first half of 1986, optimum levels of performance.
After significant improvement in unit 2 of the plant was ranked the The system's 66 coal-fired units 1985, the overall availability of the nation's top performing nuclear recorded an average operating system's nuclear units decreased in power unit by Nucleonics Week, availability of 88.5 percent in 1986. The primary reason for this an industry publication. The rank-1986, compared with 89.3 percent drop was the fact that all four sys-ing is based on the percentage of for 1985. During the year,48 units tem nuclear units were taken out capacity at which the unit oper-had availability ratings of 85 per_
of service for scheduled refueling ates. Plant Farley's unit I was cent or higher. This level stands and maintenance - a process cited as one of the 10 most im-among the highest in the industry, which requires several weeks of proved units worldwide.
according to the North American downtime every 12 to 18 months.
Electric Reliability Council Nuclear operating availability II)dro Generation Declines (NERC). NERC reports that, averaged 74.2 percent in 1986, a Generation at the system's hydro-industrywide, average operating decrease of 6.1 percentage points electric plants declined in 1986 from the 80.3 percent achieved in because of a severe drought in 1985. However, the performance Alabama and Georgia, where sys-of system nuclear units still sur-tem hydro facilities are located.
passed by 6.1 percentage points Some 2.9 billion kilowatthours the latest comparable data for the were produced, a 32.3-percent industry. According to these statis-drop from 4.3 billion kilowatt-tics from NERC, average availa-hours generated in 1985. During 1986 50ERCE5 bility of nuclear power plants in the fall months of 1986, heavy OF POW ER GENERATION North America was 68.1 percent rainfall enabled Alabama Power for 1985.
and Georgia Power to again ap-Availability of unit 1 of Georgia proach average levels of hydroelec-Ou,,
Power's Plant Hatch was 59.0 per-tric generation.
cent for 1986, down from 76.4 per-cent in 1985. Unit 2's availability was 70.5 percent in 1986, down from 82.7 percent the previous u r.
year. In addition to outages for i.
D Coal O Nudear C Hydro a Od & Gas 10 l
ENERGY USAGE Energy sales to customers Off-System Sales Decline During 1986, some 2.5 million in the four-state service area -
Energy sales covered by contracts kilowatts of capacity were sold which account for the major with six nonaffiliated utilities through unit power agreements, portion of the Southern electric totaled 16.5 billion kilowatthours compared to 2.4 million kilowatts system's business - grew by in 1986, a decrease of 38.9 percent in 1985. Contracts call for capaci-8.0 percent during 1986. However, from the 27.1 billion kilowatthours ty sales to increase to 3.1 million total energy sales fell slightly be-in 1985. Correspondingly, off-kilowatts from 1987 through hiay, low the record level of the prior system sales as a percentage of 1992. Amounts will decline to year because of a decline in the total sales dropped to 13.4 percent some two million kilowatts for the amount of electricity sold under in 1986, compared to 21.5 percent period June,1992, until mid-1993 long-term contracts with other in 1985.
and continue to decrease through
. utilities. Total sales for 1986 were The decline in off-system sales hfay,1995, when the agreements
' '23.4 billion kilowatthours, down was the first since the Southern expire.
2.1 percent from 1985.
electric system initiated major Other long-term sales in 1986 Service Area Sales Rise long-term contracts with other totaled 1.6 million kilowatts, down utilities in 1980. These utilities from 1.7 milhon kilowatts m 1985.
All major classes of customers
-which operate in Florida, Under the current contmets, sales m the region required more energy I uisiana, h1ississippi, and Texas in this category are expected to m 1986, with the largest gains
- are heavily dependent on oil decrease to some 450,000 kilo-registered by residential and and natural gas. lower prices for watts in 1987, to some 400,000 commercial users and wholesale these fuels and unfavorable eco-kilowatts from 1988 thre'igh hiay, customen.
nomic conditions in Texas and 1992, and to lesser amounts Louisiana led to a reduction in the through hiay,2000.
r q
amount of energy the Southern Sales to one off-system cus-electric system sold under the con-tomer - Gulf States Utilities
! SYSTEM SERVICE AREA ENERGY j tracts. However, this reduction did Company of Beaumont, Texas -
l SALES BY COS10MER CLASH j
not significantly affect 1986 earn-are the subject of a lawsuit now
!Mdhoat o/*d8""# hoar 81 j
ings because, under the contracts, pending in federal court, in July, b
Ivrcent; the system is paid for dedicating 1986, Gulf States filed suit against i,06 ' 1985 ~ Change!
specific amounts ofits generating the Southern electric system in a 28.5 - M.2 _
8.9 '1 capacity to the use of these off-Texas district court claiming
[' M system customers.
failure to negotiate in good faith Commesetal 23.4 - 21.8 7.3
- Off-system contracts include c.banges to the purchase power i
two kinds of transactions. One contracts between the two utility i
(Industrial L4e.0 39.3.
l.8 type of agreement - called unit systems. The court allowed Gulf POWCI Sales - provides for the States to place in escrow some of
! Wholesale
- 14.3 11.1 29.5 f
sale of capacity and energy on a the funds it owes the Southern
} *coopemtiver andmunicipalities noninterruptible basis from electric system while the case is i ocms thefour-statearea.
specific coal-fired generating pending. In addition, Gulf States j
units. The second type of trans-has withheld recent payments due t _ _.
m_
actiori-known as other long-term sales - covers the delivery of specific amounts of capacity and energy on an interruptible basis.
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Across our service area, energy sales increased in every major facility, electric heat customer category during 1986 - reflecting the continued l
.,sw, process best for ca..r-i ri..>io..
growth of the region and an unusually hot summer.
The plant is one of i
Gulf Power'slartest On July 30,1986, at the height of a prolonged heat wave, i.d.,t,is e..
s.
Gilf Power and the demand for electricity broke all previous records -
other companiesla the Soutaern electric
[1 ,,
exceeding the peak demands which had been projected purps forindustrial, through the early 1990s.
residential, and commercial use.
TERRITORIAL PEAK DEMAND (millions ofkilowatts) 22.7 1
1982 1983 1984 1981 1986 13
CONSTRUCTION AND FINANCING under the contracts because the New Summer Peak Set he Southern Company and Texas and Louisiana public utility In addition to overall sales, the its operating subsidiaries invested commissions ruled that the charges other important yardstick of energy
$2.3 billion in 1986 for the con-could not be collected from Gulf usage is peak demand - the high.
tinuation of power plant con-States' customers. Gulf States est requirement for electricity as struction and for building and alleges that these rulings excuse measured over a one-hour period.
upgrading transmission and distri-it from honoring the contracts.
Because of heavy air condi.
bution lines, substations, and Through December 31,1986, Gulf tioning use in the Southeast, the other facilities. This compares States had placed in escrow or greatest demands on the Southern with an investment of $2.2 billion withheld some $75 million.
electric system occur during the in 1985.
The Southern electric system summer. In July - during an in-New Generating Unit Completed has appealed the district court's tense heat wave - five consecutive In January,1987, um.t 3 of the order and also has filed a petition records for peak energy demand Scherer Electric Generatmg Plant asking the Federal Energy Regula-were set in the service area. The
- a coal-fired facility in central tory Commission (FERC)- the previous all-time high demand of Georgia - began commercial regulatory body that approved the 21,287,800 kilowatts - established peration. The 818,000-kilowatt contracts - to rule that it has in June,1985 - was broken on unit w s c nstructed by Georgia jurisdiction to handle the contract July 8, July 9, July 21, July 29, Power on schedule and approxi-dispute. At the same time, Gulf and July 30. Peak demand on m tely $30 milh,on under budget.
States filed a petition with FERC July 30 rose to 22,739,200 kilo-Georgia Power owns a 75-percent requesting that the contracts be watts - an increase of 6.8 percent interest in the um,t, and Gulf Power nullified.
over the 1985 record. The system's In December,1986, FERC is-reserve margin was 11.2 percent at 7 The Southern Company's sub~
sidiary m northwest Florida -
sued an order stating it had jur-the time of the 1986 peak.
isdiction over most issues and owns the remaining interest in the Growth Rates Forecast facility.
consolidated the petitions of the Southern electric system and Gulf Sales of electricity to retail The fourth and final unit at States. Hearings before FERC customers in the service area are Plant Scherer is scheduled to be began in late February,1987. A expected to increase at an average brought into servicein 1989. When decision is expected within the annual rate of 1.8 percent from that unit is completed, Plant next several months.
1987 through 1997. Total energy Scherer will be the largest single sales in the region are forecast to generating station in the Southern grow at the somewhat slower pace electric system and one of the five of 1.5 percent a year during this largest in the United States.
period because many of the sys.
With the addition of Scherer tem's wholesale customers are unit 3, the system's total generat-producing an increasing portion ing capacity stands at 26,474,921 TOTAL ENERGY SALES of their electricity needs. These kilowatts.
(binions ofk#owarthours) long-term projections do not NRC Notice Issued on Sale reflect the impact of off-system Of Interest in Farley Nuclear Plant 126 3 i23.4 sales At the date of this writing, resolu-Growth in peak demand in the tion of a 1981 order of the Nuclear
' 2' four-state service area is expected 96.s Regulatory Commission (NRC) to increase at an average rate of e neerning the sale of approxi-2.0 percent annually from 1987 mately six percent of Alabama through 1997.
Power's Farley nuclear plant to Alabama Electric Cooperative, Inc. (AEC) was still pending.
Although Alabama Power, AEC, 1982 1983 1984 1985 1986 5 OfI-system E Industnal
$ Commercial E Residential E Other g
and the NRC staff have held dis-Capital Budget Outlined 1986 Financing Resiewed cussions about pricing and other The Southern electric system's The sale of new securities in 1986 factors related to the sale, no set-budget for capital expenditures in provided $1.3 billion of the funds tiement has yet been reached. In 1987 is $2.1 billion. These expen-needed for capital spending, for June,1986, the NRC issued a ditures are expected to be $2.1 bil-the redemption of high-cost secu-notice-following a complaint by lion in 1988 and $1.7 billion in rities, and for other corporate pur-l AEC - that Alabama Power may 1989, bringing the total for the poses. Approximately $1.5 billion have violated the terms of the three-year period 1987 through of the system's capital require-NRC order. If the issues raised in 1989 to $5.9 billion. This amount ments was generated internally.
the notice are not resolved, the is down from the $6.6 billion During 1986, The Southern NRC may initiate a proceeding to budgeted for the period 1986 Company raised $378 million in determine if Alabama Power has through 1988. The decline reflects new common equity through the negotiated in good faith and if the the fact that several of the system's sale of 16 million additional terms of sale offered by the com-major construction projects are shares of common stock.
pany are reasonable.
nearing completion.
___.m
_ -. - ~
,_ _-._,,y _ -
t SYSTEM CONSTRUCTION FItOIECIli 1
Appresiman q'
Fleet F=8amaand Essimetod ftseest
~M-
- (I)pe of -
Deee et Gesemelms - Cost Eselmeesd
a-yams.a l f ImuseImmut et -
e Feel /Plass)
Comptreten Capseley
- Per Esenate Cast '
12/31/96.
12/38/96 (m~ kAneurs)
- (he thommuude/
"tisdomssuW Aleheme Power Minor (coal) -
- Unit Na 3 '
' 1989.
660,000
' $1,055 '
S 696,000 42% -
l S _294,805,,
84,392 ~ ]
- Unit No. 4
. 1991 660,000
$1,129.
$ 745,000 '
. 6% '
' Georgia Power Vogele (nuclear) --.
. ~ 98%! <
- 52,577,H1'.' 1 Unit Na 2 1989 530,120'-
. $2,153' '
' $2,729,000'.'
j Unit Na l 1987.
530,120'-
$5,147' 8
$1,141,000' 58%'
.$' 586,544' E !
Scherer(coal)* '
Unit No.4 1989 818,000 -
$ 829'
$ 678,000' 52 %
$ 358,164' Rocky Meestein j
(pumped storage) i Unit Nos. I,2,3 19998 847,800
'$1,436*
$1,217,000' - '15%.
. $ 149,277*
l Notes:
(1) Excludes the 54.3-percent interests sold to cooperatives and municipalities in Georgia. Also excludes the l
cost of nuclear fuel.
]
(2) includes cost of facilities common with Unit Na 2.
J (3) Figures are based on quantities of materials installed (and,in the case of Unit No. I, initial test program i
progress) and reflect an equal allocation of common facilities between Unit Nos. I and 2.
(4) Unit Na 3 was placed in service 3anuary 1,1987 (5) Excludes joint owners' portions of common facilities.
']
(6) To provide the company with additional flexibility in its construction schedule, Georgia Power petitioned '
1 the Federal Energy Regulatory Commission for a license estension to 1999 for Rocky Mountain. (See Note 3 fj to the financial statements.) Costs are not shown on a per-unit basis for Rocky Mountain because the majority 1 of construction costs is for facilities comrnon to all three units.
,j 15
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Our need to raise new capital for power plant construction should
^'"" " " "" " -
the carbine room of Pla:t %gtk's unit 1.
m enai,,,,.ta decline through the remainder of the 1980s as work nears ta reach fuB-power completion on five electric generating units. These units will
**d" *r "-
1987.
l provide a reliable supply of energy to our customers into the 21st century.
The reactor buildings j-of Plant Wgtle's two 5
e sait, are virtually complete.
sy 1,,
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3 17
SPECIAL REPORT ONPLANT VOGTLE Some $198 million - more The operating companies also he Vogtle nuclear power than half of the equity raised dur-redeemed $917 million of first plant - the Southern electric ing the year - came from the sale mortgage bonds and preferred system's largest project - now of 8.2 million shares through the stock in 1906. By replacing higher stands at the threshold of com-company's Dividend Reinvestment cost securities that were issued mercial operation, with unit i ex-and Stock Purchase Plan. Some primarily in the early 1980s with pected to begin service by June, j
46 percent of the company's financing obtained at the lower 1987. Georgia Power is building stockholders were participating rates prevailing in 1986, the oper-the facility near Augusta under in the plan at year-end.
ating companies will realize net joint ownership agreements with Of the common stock issued in savings of some $52 million municipalities and cooperatives in 1986,6.6 million new shares were annually.
the state and is responsible for sold to the public, with total pro-The Southern Company's operating the plant.
ceeds of $151 million. The remain-capital structure at year-end was Unit 1 Moves Toward ing 1.2 milhon shares were sold 51 percent debt, eight percent Full Commercial Service through the company's Employee preferred stock,1.1 percent pre-Savings Plan and the Employee ferred stock subject to mandatory During 1986, major construct. ion Stock Ownership Plan. These redemption, and 39.9 percent of umt I was completed and a sales supplied $29 million.
common equity.
number of preoperational tests The company's goalis to raise were successfully conducted.
Bonds, I, referred Stock Sold the percentage of common equity W rk on unit 2 was approximately The operating companies raised in its capital structure to 45 per-58 percent complete at year <nd.
additional funds during 1986 cent by 1993. Progress toward in January,1987, a significant milestone was reached when the through the sale of $710 milhon achieving this goal has been made of first mortgage bonds and each year since 1979 when com-Nuclear Regulatory Commission
$100 million of preferred stock.
mon equity was 30.5 percent of (NRC) issued a license to load in addition, Alabama Power and capitalization. Further strides in nuclear fuel and operate unit I at Georgia Power were involved in reaching this objective will depend up to five percent of full power, sales by pubhc authorities of on whether the operating ccm-Fuelloading was completed in less
$77 million of tax-exempt pollu-panies earn sufficient returns on than two weeks. Technicians then tion control revenue bonds. At the the equity already invested in the began low-power testing, which is close of 1986, the system's tem-business.
expected to require 60 to 90 days.
porary cash investments totaled During this period, workers will
$876 million.
1987 Securities Sales Outlined be evaluating safety systems and The system operating companies monitoring the fission process to plan offerings of bonds and pre-ensure that the nuclear fuel gener-ferred stock during 1987. While ates heat in a manner meeting all the exact timing and amounts requirements. Additional NRC mrrimumriv; capacity have not yet been determined, approvalis necessary for full-NNU,gyl these offerings could total as power testing - the last major much as $1.2 billion. To provide step prior to placing the unit into y
the operating companies with commercial service.
equity funds, The Southern Company expects to raise at least
$166 million in 1987 - primarily from the sale of new shares of common stock through the Divi-u dend Reinvestment Plan, the Employee Savings Plan, and the Employee Stock Ownership Plan.
1974 1977 19*)
19M) 19x6 18
Need for Plant Demonstnited summer. At the time of peak de-of new requirements from the Georgia is one of the nation's mand, Georgia Power's reserve NRC have prompted major design fastest-growing states. The capacity fell to less than 10 per-revisions that make Plant Vogtle a National Planning Association cent - significantly below the much different facility than origi-projects that more than two mil-20-percent level considered the nally was planned.
li:n additional people will move minimum necessary to maintain The revised estimate for com-to Georgia during the next 15 reliable service.
pleting Plant Vogtle is $8.87 bil-years. By the year 2000, increased li n, with Georgia Power's share Cost of Project Examined amounting to $3.87 bilhon. Th,s electricity needs across the state i
are expected to be at least three During construction of Plant new estimate was prompted by ad-times the capacity of the Vogtle Vogtle, economic factors and ditionallabor costs incurred to units.
regulatory changes have led to keep unit 1 on schedule for com-substantialincreases in cost esti-In 1986 alone, Georgia Power mercial operation by June,1987, added nearly 45,000 customers.
mates for the project. Inflation and by a delay in the completion and interest rates reached double of unit 2 from September,1988, And the company was asked to meet greater requirements for digits m the late 1970s -- increas-to June,1989. The schedule for energy than ever before. An all-ing the cost of engineering, mater-unit 2 still will allow the unit to be time high for peak energy demand ials, labor, and capital. Finance in service prior to the summer was set by Georgia Power cus, charges alone now account for ap-peak of 1989.
tomers in July,1986 - surpassing proximately $3 billion of the total the record established the previous cost of the plant. And hundreds Cost to Customers Capped To help keep the regulatory ess moving and pr t he
{r
.~r_.-_-_-_.m.-.__,y.,,,,
{=
Vogtle, Georgia Power advised the state public service commission in hm AT A GE.AM 1986 that, barring extraordinary
]
circumstances,it would not seek fowners Gw Pbwer ;.
45.7 %
F
' og cthorpe Ptmer Corp.
- 30.0% ;
j to charge retail customers for the
[
- Mn=Wral Electric Authority of Georgia 22.7 %
q company's share of any construc-(
City of Dalton, Ga.
' l.6%
1 tion costs in excess of $3.56 bil-l lion. Because the projected cost Fredseted Unit t '-
June,1987 kM
_ Unit 2 June,1989 j
for Plant Vogtle is now higher Iopensene 1
L j
- Rosetor1)pe --
Pressurized water reactor supplied by ~
.I
- ' f ---- Electric Corp.
j
{Cepeelty
- Unit I
' I,160,000 kilowatts Pl. ANT VoGTI.E A5 A PERCENT
~
Unit 2 -
1,140,000 kilowatts or sisTEstwinE coNsTut'cisoN I
EXPENDlIURES(19871989) f Projected Cost Georgia Ptmer
$3.47 bilhon Oglethorpe Power Corp.
$2.82 bi!! ion '
f Municipal Electric Authority of Georgia $2.05 billion.
.)
[
, City of Dalton, Ga.
$130 million 7
}
lbtal(including financing).
38.87 billion j
~
f PeresetComplear Unit 1 90 %
j (As of 12/31/86 -
Unit 2.
$8%.
j ue.
l I-I l
f n
d b u--
4
.t to Plant vogtle 5 01her Syuem Projects 19
than this cap, The Southern Com-Under a five-year phase-in plan, nation. With the addition of Plant pany willtake an after-tax charge electric rates in the first year Vogtle, the company's rates would of $226 million against earnings would increase byless than $10 a rise near the nationalaverage for no later than January,1988.
month for the average residential several years. But in the 1990s, af-l customer using 800 kilowatthours ter the cost of the plant has been l
Prudence Review Awaited per month.
fully phased in, Georgia Power's The Georgia Public Service The company's residential rates rates should again drop below the Commission will determine how now are among the lowest in the national average.
Georgia Power will recover its in-
]
vestment in Plant Vogtle. To assist with its deliberations, the commis-("~ ~""""~""-~ Nm~~" v'~F"W~' ""'I sion retained an outside consult-I 4
ing firm to conduct a major review of the Vogtle project.
[asasssefsss m K M s:
In studies affecting other utili-ties, this firm has said that sig-W d'8"' "
During this east, unk I psodneedles 'th' a't..
1 mficant amounts of construction b
h m e esti j
costs were imprudent and should L
m anterfal4ma @eaa.;5 i
not be recovered through customer
[
. musiser syneses, poner was esenmod ty a
rates. Georgia Power beheves its
((
- j using heat hem des unit's sonster eseless T'
costs have been prudently incurred pesaps.
and is providing information to support that position.
' annummeltsayesy sad Congdssed Asuset, AA05 I Issurssed EastiEssenot 1b d===amar-a. the structusal soundness and 1 Georgia Power Plans Request
(
ofdiecousiassenhuadas, air,
To Recover Cost of Vogtie f
wassaisedso40poundspersquam j The consultant's recommenda-U
-inch.Det sesultsIeranoseded NRC E'
tions will be considered when the y
sequisuusets.
commission conducts hearings on i
j a rate increase request which i D'8hy of rest se nie see.
OssedsentNoumeens 1985 -
i Georgia Power plans to file in
%2Wansehuescomelaing..
j
I88 ""I"" "'" N "" I*
April,1987. Under Georgia law, H
the commission will have six
( sessyssesseiyindmis -
w m iges ~
j months after the filing date to rule i immensgesessesteen -
Thee emes - die let @ 7========
1 1
d on the applicatton.
hetse fastlomEng-emissed theper-,j l
Georgia Power supports phas-f fonmence of seAny selseed $setuses. A loss of.'
,ing into customer rates the costs t'
off-she power was 'alandesed to ensuse that l
associated with Plant Vogtle to
[
the plant would shut down psoporty and that :
help moderate the immediate im-p beeb.up spesset would suspeed acconEng toy pact on electric bills. The com.
{
design specifh pany already has submitted to the j
c commission several proposals for 0 h '*38'8 M "'8 WM J887 7
l spreading the necessary rate in-i Osadnestau>Funer teens iThe NRCgrameedthelicemw, L
h&M crease over three to five years.
t
.,,g a g,,g, IrnseEmedies Congdsesse January JM7 ;
Warhus loaded the furt assamliges into"
-g unit l's senseer weselin less them two' weeks.,
f(
__. {
q
=
i Oi
=*n.
,m. A av.-
2.,xu e u d m.
,. a a; idd.a d; w;g wf wy 4 20
ACID RAIN UPDATE Legislation which would Studies conducted to date more acidic, and the vast majority address the acid rain issue by fur-demonstrate that there is no im-remain unchanged. To remedy ther limiting power plant emis-minent environmental crisis and lake acidity where the problem sions is pending before the 100th that effects thought to be caused exists - primarily in a small num-I Congress. The Southern electric by acid rain occur slowly. There-ber of northeastern lakes - the system is concerned about these fore, there is sufficient time to Southern electric system has proposals because they offer carry out the needed research.
played a leading role in launching no assurance of achieving the Data over the past year confirmed a nonprofit corporation called desired environmental benefits that the acidity of rainfallin the Living Lakes, Inc.
and they would be very expensive eastern United States has remained Through the efforts of this to implement.
virtually unchanged since 1979.
organization, acidified waters are The cost to the Southern elec-And in Florida, a five-year study neutralized with limestone so they tric system alone under one widely of 7,600 lakes concluded that will continue to support fish life.
discussed bill could be as much as none has shown adverse effects When necessary, lakes and streams
$1.2 billion per year beginning in of high acidity levels, and only a also are restocked.
1997. The same legislation would small fraction is potentially sensi-In 1986, Living bkes treated require rate increases of 10 percent tive to further increases in acidity.
15 lakes in the Adirondack Moun-or more for system customers.
Another important research tains of New York and in Massa.
Another proposal would be ap-finding is that the effect of acid chusetts. Over a five-year period, proximately three times as costly rain on agricultural crops is insig-about 100 sites will be identified for the system and would increase nificant at current levels of acidity.
and necessary approvals will be electric rates by as much as 28 per' obtained for treatment. bkes and Southeast Plays Important cent startmg in 1995.
streams will be monitored and Role in Forest Research retreated if necessary to ensure Research Continues Research on the decline in forest that acceptable water quality is So that any legislative initiatives growth and tree dieback in the maintained.
can be based on sound scientific United States also continued dur-Participants in the program evidence, the Southern electric ing 1986. Factors that may be include electric utilities, represen-system is supporting research to responsible include drought, pests, tatives of the coalindustry, and answer the unresolved questions disease, management practices, others in the academic and scien.
and a,r pollution. If air pollution tific communities. The cost of the about acid rain.
i Through the Electric Power is involved, most scientists suggest Living Lakes project in 1986 was Research Institute (EPRI), the sys-that ozone is a more likely prob-approximately $3 million.
tem is participating in one of the lem than sulfur dioxide emissions As knowledge about the acid most extensive research programs from coal-fired power plants or rain issue broadens, the Southern m the world on acid rain science other sources.
electric system will take any and technology. EPRl's three-year A loblolly pine forest in Georgia additional steps that are justi-budget for this work is $180 mil.
is one of 13 sites worldwide where fied to help protect the nation's hon, with system contributions studies are being conducted by environment.
making up about five percent of EPRI, the U.S. government, and the amount.
others. The Georgia project is a By 1989, the Southern electric four-year, $1-million effort funded system will have provided more by the Southern electric system than $29 million of the $1 billion and the Georgia Governor's Task that will have been spent on major Force on Acid Rain.
government and industry research Living Lakes Completes related to acid rain.
Successful First Year Since the early 1900s, many lakes across the country have become less acidic, others have become 21
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To demonstrate a cost-effective method of treating acidified lakes unestone mixture estaasmaElake
- c.,e coa, and streams, The Southern Company helped form a Massachusetts.
nonprofit corporation called Living Lakes, Inc. With cosl<ffective way ta improve acidic support from other companies in the utility and coal co
.. m..,
I i.tes.. si,e..s.
industries, Living Lakes is carrying out a program ofliming I
and fish stocking to help restore sensitive waters.
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Ise., trested 15 lakes t
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FINANCIAL REVIEW The Seethere elettric 26 AUDITORS
- REPORT '
91ete isIreliat 26 AfANAGEhfEhT'S REPORT
- M 27 AfANAGESIENT'S DISCUSSION AND A NA LYSIS OFRESULTS V
'l At this OFOPERATIONS ANDFINANCIAL CONDITION l
W 32 CONSOLIDATED STATEhfENTS OFINCOAfE l
33 CONSOLIDATED STATEAIENTS OFSOURCES OFFUNDS heet. tegioness ane FOR GROSS PROPERTYADDITIONS WW 34 CONSOLIDATED S1LANCESilEE75 voltaic pesels which 36 CONSOLIDA TED STATEhfEN15 OF CA PITA llZA TION commt seelight 38 CONSOLIDA TED STA TEAfENTS OF EA RNINGS RETA INED I'
IN Tile BUSINESS i
38 CONSOLIDA TED STA TEh!ENTS OF A SIOUNTPA ID IN FOR COSIA10NS70CKINEXCES30FhtR sal.UE 39 NOTES TO FINANCIAL STATEhfENTS 32 SELECTED CONSOLIDA TED FINA NCIA L DA TA O
f 25
AUD170RS' REPORT l
To the Board of Directors and auditing procedures as we con-as might have been required had To the Stockholders of sidered necessary in the the outcome of the matters The Southern Company:
circumstances.
discussed in the preceding para-We have examined the consolidated As more fully discussed in graph been known, the financial balance sheets and consolidated Note 3 to the financial statements, statements (pages 32-51) referred statements of capitalization of uncertainties exist with respect to to above present fairly the finan.
The Southern Company (a Dela-the full recoverability of Georgia cial position of The Southern ware corporation) and subsidiary Power Company's mvestments in Company and subsidiary com-companies as of December 31, the Plant Vogtle nuclear facihty panies as of December 31,1986 1986 and 1985, and the related and the Rocky hfountain hydro-and 1985, and the results of the,r i
consolidated statements ofin, electric project. The outcome of operations and the sources of the uncertainties related to Plant funds for gross property addit,ons i
come, earnings retained in the business, amount paid in for com.
Vogtle cannot be determined until for the periods stated,in con.
mon stock in excess of par value the related regulatory process is formity with generally accepted concluded. Resolution of the un-accounting principles applied on and sources of funds for gross i
property additions for each of the certainty on the Rocky hfountain a consistent basis.
three years in the period ended project depends upon a Federal December 31,1986. Our examina.
Energy Regulatory Commission Arthur Andersen & Co.
tions were madein accordance license extension or other assur-i with generally accepted auditing ance that the project's costs can Atlanta, Georgia, standards and, accordingly, in.
be recovered.
February 16,1987 cluded such tests of the account.
In our opinion, subject to the (except with respect to Note 3, as to t
w hich the date is March 9.1987).
j ing records and such other effect of such adjustments,if any, I
i MANAGEMENT'S REPORT The management of The Southern believes its system ofinternal ac-groups are fulfilling their obliga-Company has prepared - and is counting control, together with its tions and to discuss auditing, responsible for-the consolidated internal auditing function, main-internal control, and financial financial statements and related tains an appropriate cost / benefit reporting matters. The internal information included in this re-relationship.
auditors and independent public port. These statements were pre-The independent public ac-accountants have access to the pared in accordance with generally countants provide an objective as-members of the audit committee accepted accounting principles ap-sessment of how well management at any time.
propriate in the circumstances and meets its responsibility for fair fi-Afanagement believes that its necessarily include amounts that nancial reporting. They regularly policies and procedures provide j
are based on the best estimates and review the system ofinternal ac-reasonable assurance that the judgments of management. Fi.
counting controland perform such company's operations are con-1 nancialinformation throughout tests and other procedures they ducted with a high standard of 3
this annual report is consistent deem necessary to reach and ex-business ethics. In management's with the financial statements.
press an opinion on the fairness of opinion, the consolidated finan-The company maintains a sys-the financial statements.
cial statements present fairly the tem ofinternal accounting control The audit committee of the financial position, results of oper-to provide reasonable assurance board of directors, composed of ations, and sources of funds for that assets are safeguarded and four directors who are not em-gross property additions of The that books and records reflect only ployees, provides a broad overview Southern Company and its sub-authorized transactions of the of management's financial report-sidiaries, subject to the resolution company. Limitations exist in any ing and control functions. Periodi-of the uncertainties regarding full j
system ofinternal control, how-cally, this committee meets with recovery of Georgia Power's in-2 l
ever, based on a recognition that management, theinternal audi-vestments in the Rocky hfountain j
the cost of the system should not tors, and the independent public and Vogtle construction projects.
j exceed its benefits. The company accountants to ensure that these i
I 26 I
. ~
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OFOPERATIONS AND FINANCIAL CONDITION
\\
14esults of Operations Revenues resulted from the soft market for The Southern Company's finan.
Operating revenues increased one-bulk power,largely because of f
cial performance remained strong half of one percent in 1986, com-lower prices for oiland natural l
over the past three years, primarily pared to 11.3 percent in 1985 and gas. See Note 7 to the financial
(
as a result of greater energy sales, 13.0 percent in 1984. Revenue statements for more information continuing emphasis on effec-growth in 1986 was lower than on off-system sales, particularly tive cost controls, and higher prior years primarily because of the possible loss of revenues from construction-related credits. How-a decrease of 38.9 percent in off-Gulf States, a major customer ever, the growth in earnings in system energy sales and a decrease under these agreements.
1986 was not sufficient to main-in fuel and purchased power costs The average revenue per i
tain the same level of return on recovered through provisions in kilowatthour for total sales in-capitalinvested. The return on rate schedules. Energy sales to creased from 5.31 cents in 1984 to i
average common equity was customers within the service area 5.36 cents in 1985 and 5.50 cents 15.57 percent in 1986, compared remained strong in 1986, increas.
in 1986. The 1986 increase reflects
]
to 16.64 percent in 1985 and ing eight percent over 1985. Sales the effect of the lower percentage i
16.58 percent in 1984. Dividends to all major classes of customers of sales to off-system utilities and paid on common stock during in the service area increased pri-rate increases partially offset by 1986 totaled $2.06% per share, marily because of growth in the the effect oflower fuel and pur.
I an increase of 19.7 percent above number of customers and a pro-chased power costs. The increases the $1.72% paid in 1983.
longed summer heat wave. Energy in 1985 and 1984 reflect the effect s Id to municipalities and electric of rateincreases and higher fuel j
Net Income membership cooperativesincreased and purchased power costs which t
j Consolidated net income for 1986 29.5 percent. Revenues increased were partially offset by the effect totaled $883 milhon, an merease in 1985 and 1984 because of of the higher percentage of sales j
of six percent from 1985, which, higher energy sales, rate increases, to off-system utilities.
m turn, was 15 percent higher and recovery ofincreased fuel and i
than net incomein 1984. The purchased power costs through Total operating expenses for 1986 j
gains in net income did not result provisions in rate schedules. Ener.
were at virtually the same level as j
in comparable increases in earn-gy sales to retail customers are the previous year, principally be-j ings per share of common stock expected to grow at an average cause of reductions in fuel and bccause of the greater average annual rate of 1.8 percent during purchased power expenses. The number of shares outstanding the period 1987 through 1997.
same categories were thelargest durmg each successive year. Earn-Revenues from sales to off-factors m an ll.5 percent increase ings per share were $3.17 in 1986, system utilities consist of capacity In 1985 and a 15.4-percent increase compared to $3.20 in 1985 and and energy components. Capacity
.in 1984. lower fuel expense in
$3.00 in 1984. The change from revenues reflect the recovery of 1986 resulted from decreased gen.
j the prior year was a one-percent f xed costs and a return on in-eration of 1.9 percent, lower coal decrease in 1986, compared to a vestment under these contracts.
prices, and c ntmued efficiency in seven percent increasein 1985.
Energy is sold at its variable cost.
fossil fuel generating plants. The Earn, gs in 1986 were reduced Off-system sales, by component, m
average cost of fuel per net kilo-by nine cents per share (some have been as follows:
$25 million)to provide for the watthour generated drcreased i
possibility that amounts due from 19x6 1985 1984 from 1.95 cents in 1985 and 1984 to 1.89 cents in 1986. Purchased Gulf States Utilities Company (in shouwna,j p wer expense decreased -
l j
(Gulf States) under disputed pur-capaeny $523.1<H) $ 534.102 $284.308 j
chased power contracts may not Energy 421.7x2 728,557 492.581 despite a 1.4-percent increase in energy purchased - because of
]
be collectible. In 1984, earnmgs Total 5944.ns2 51.262,659 $776,889 were increased by nine cents per the lower average cost per kilo.
share (some $21 million) from the Theincreasesin revenues in watthour. This lower cost per sale of an additional five-percent 1985 and 1984 resulted from new kilowatthour was a result oflower fuel costs at other utilities and a interest in Georgia Power's Plant and expanded contracts. The de.
l Vogtle.
crease in energy sales for 1986 i
27
_ _.-=
i l
l decline in Georgia Power's con.
has risen each year because ofin-indicative of future earnings po-tractual buyback of capacity from creases in construction work in tential. Most significantly, the suc-joint participants in generating progress resulting from the lengthy cessful completion and inclusion projects. Capacity buyback costs construction periods and the large in rates of the Southern electric willincrease substantially when amounts of capital required to system's constructice projects, Plant Vogtle Unit No. I begins build new generating facilities.
especially Georgia Power's Plant commercial service in 1987.
V gtle,is critical to the company's j
F/fects ofInflation Theincreases in other operation future earnings and financial and maintenance expenses are at-The Southern electric system 1s
- health, i
tributable to various factors, in-subject to rate regulation and in-The estimated cost of Plant c me tax laws that are based on l
ciuding additional facilities and, Vogtle was revised on March 9, i
to a lesser degree than in previous the recovery of historical cost 1987, and is now projected to ex-years, inflation.
nly. Therefore, mflation creates ceed the amount which retail cus-an economic loss because the tomers will be asked to pay. As a Allowancefor Funds Used companyis recovering its costs of result, future earnings will be re-l During Construction fAFUDC) investments in dollars that have duced as detailed in Note 3 to the AFUDC represents the cost of less purchasing power. While the financial statements. Also see capital charged to utility plant that rate ofinflation has decreased, Note 3 for more information con-is under construction and not in-inflation continues to have an cerning Plant Vogtle including the cluded in rate base. The equity adverse effect on the Southern status of construction, cost over-portion represents noncash in-electric system because of the run and other possible cost disal-come. However, the normalization large investment in long-lived utili-lowances, phase-in plans, nuclear j
of theincome tax effect of the ty plant. Conventional accounting licensing, and a stockholder deriv-j debt portion results in a noncash for historical cost does not recog-ative lawsuit. The outcome of the i
charge. In addition, when facilities nize this economic loss nor the regulatory process related to Plant I
are completed and included in rate partially offsetting gain that arises Vogtle cannot now be determined.
base, previously capitalized through financing facilities with The Tax Reform Act of 1986 j
amounts significantly increase fixed-money obligations, such as provides for a reduction in the j
cash flow since revenues are higher long-term debt and preferred federal corporate income tax rate, j
because of the increased rate base stock. Any recognition ofinfla' repeal of the investment tax credit, j
and additional depreciation ex-tion by regulators is reflected in less favorable depreciation rates, a pense. AFUDC net ofincome tax.
the rate of return allowed.
new alternative minimum tax, and j
es. as a percent of net income. was Future Fornings /btential other items. The net effect will be l
1 9 5 nd 9 n 1984. hi r tio The results of operations for the to reduce income tax expense be-1 past three year, are not necessarily cause of the decrease in the tax i
i 4
1 HD LNt LN lHO%f Of1.M hTEM A t t DC CO%f rON EN I M A RKrt.TO. ROOK I
LN) HGY % A1.LS OF NET INCO%f L val.UE HALLOS t
(mtllwns of dollars)
(mollions of dollars) pg
)I 1.262.7 882.9 120.3 829 6 1l2.2 j
l 101 8 93.1 91.0 u,
)
990 1 i
776 9 472.1 l
W9 l
l l
2?A 2
{
l 1942 1981 1924 1923 1986 1922 1941 19H 1941 1986 1942 1983 1984 1985 1946 A I nergy W Net inmme 3 Capauty 5 M UDC 28
rate, to reduce cash flow because the lives of the related assets be-allowed return as described in oflower deferred taxes and invest-cause of the requirements of the Note 2 to the financial statements.
ment tax credits, and to increase Tax Reform Act of 1986. Changes Georgia Power and Gulf Power -
external financing requirements as to other deferred income taxes, in their most recent permanent re-a result of reduced cash Dow. Be-w hich are much less significant, tail rate cases - were allowed by cause these factors will be con-would be reversed in accordance their respective commissions to i
sidered by regulatory authorities with regulatory ratemaking earn 15.5 percent on end-of-period I
in the ratemaking process, net treatment.
equity and 15.6 percent on average income is not expected to be Future earnings will also de-common equity, respectively. In materially affected.
pend upon growth in energy sales January,1987, the Florida Public Also, the Financial Accounting w hich will be subject to a number Service Commission ruled that Standards Board has proposed of factors, including sales to any tax savings resulting from the new rules for accounting for in-neighboring utilities, energy con-Tax Reform Act of 1986 that come taxes. The most significant servation practiced by customers, causes Gulf Power to earn above a impact on the Southern electric the elasticity of demand, weather, 13.6-percent return on equity for system would be to require the use and the rate of economic growth 1987 would have to be refunded to of beforeincome tax AFUDC in the system service area. See customers. In addition, the Office
[
rates. Currently, deferred taxes are Note 7 to the financial statements of Public Counsel has filed a peti-not provided on the equity com-for information concerning at-tion to reduce Gulf Power's ponent of AFUDC, and Alabama tempts by Gulf States to modify authorized return on equity from Power and Georgia Power capital-or void its obligations under unit 15.6 percent to 12.75 percent. See ize the debt component net ofin-power and other long term power Note 3 to the financial statements come tax. This change would not sales contracts with the operating for information concerning the affect net rate base but could cre-subsidiaries.
possible phase in of Georgia ate additional alternative mini-Rates to retail customers served Power's Plant Vogtle into rate mum income taxes and property by the system operating compan-base beginning in 1987.
taxes. The proposed rule would ies are regulated by the respectise also require the adjustment of ae.
state public service commissions Financial Condition cumulated deferred income taxes in Alabama, Florida, Georgia, and The principal changes in the com-to renect changes in income tax Niississippi. Rates for Alabama pany's financial condition in 1986 laws and rates. This change is not Power and Niississippi Power are were additions of $2.3 billion to expected to materially affect ne:
adjusted periodically within cer-utility plant. Net funds from income. Changes to depreciation-tain limitations based on earned financings provided $798 million related deferred income taxes retail return on end-of-period would continue to be resersed over common equity compared to an COMMON %IOCE MI E5 CAPI rAL SIRtrit'RL M%ILM N WLPI All (mdlwns oldollars)
(percent)
CAPAClI Y l
(mdhons of adonatts) l 37 3 177.7 29 0 l
N N
N Tr 21.0 27 0 DI Il6 l 1
2)92
- - ME 1922 1991 1944 19n1 1926 1942 1981 1924 1943 1946 1985 1946 1987 19RA 1949 8 Pubix Of fermas E Debt
-- Protetted --
E f mrlayee hk Pl.no E Preferred samh 5
t caratny so!J 5 Dmjend Reinvestment and suNect to Mandatory Redemption
%k Purthase Plan Preferred Stod B Common E quny 29
of the 1986 construction require-1985, to 9.46 percent at Decem-years will be dedicated to the com-ments, and approximately $1.5 bil-ber 31,1986. In addition, the pletion of Georgia Power's Plant lion - or 66 percent - was operating subsidiaries sold Vogtle. Georgia Power owns generated internally, principally
$100 million and retired $52 mil-45.7 percent of this two-unit from carnings and noncash charges lion of preferred stock with nuclear generating plant. Con-l to income such as depreciation, weighted dividend rates of struction of Unit No.1 is essen-deferred investment tax credits, 9.54 percent and 14.86 percent, tially complete, and low-power and deferred income taxes. See respectively. The Southern testing is under way, with com-the Consolidated Statements of Company sold 16 million shares mercial operation expected by Sources of Funds for Gross Pro-of common stock with proceeds June,1987. Unit No. 2 was ap-perty Additions.
totaling $378 million.
proximately 58 percent complete At the close of 1986, the com-at the end of 1986, with commer-N
- F "
pany's common stock had a mar.
cial operation scheduled for June, The company continued to make ket value of $25.375 per share, 1989.
progress toward meeting its long-compared to a book value of The total cost of Plant Vogtle term goal ofincreasing common
$21.09 per share. The market.
for the purpose of setting Georgia equity as a percent of total capital-to-book value ratio at year-end Power's retail rates has been ization. At year-end, this rati continued to increase, reaching capped at Georgia Power's share reached 39.9 percent, compared to 120 percent at the end of 1986, of $8.35 billion. The cap applies 35.2 percent at the end of 1983.
compared to 112 percent at year-to Georgia Power's ownership During 1986, the operating sub-end 1985 and 102 percent at the share of this amount ($3.56 bil-sidiaries sold $710 million of first end of 1984. To maintain a com-lion), as well as to its contractual mortgage bonds and, through petitive position in the market-obligations to buy back declining pubhc authorities, $77 million of place, management will continue portions of the joint owners' share pollution control bonds, at a com-its efforts to improve operating ef-of the plant's capacity. In making bmed weighted interest rate of ficiency as well as to aggressively its commitment to cap the plant's 9.69 percent. The operating sub-pursue fair and adequate rate in-cost, Georgia Power stated that it sidiaries took advantage of oppor-creases when necessary.
assumed that the Georgia Public tunities to reduce interest expense Service Commission (GPSC) will by redeemmg high-coupon bond CapitalRequimments grant sufficient financing authori-issues. Maturities and reden.p.
Air Constniction ty to complete the plant, that the tions totaled $865 million during The construction program of the GPSC will adopt a plan for phas-1986. The composite interest rate Southern electric system is budget-ing Georgia Power's associated in-on long-term debt & creased from ed at $5.9 billion for the three vestment into retail rates over a 10.21 percent at December 31, years 1987 through 1989. Ilow-reasonable period of time com-ever, plans for new facilities are mencing with the commercial subject to costly revision and delay operation date of each unit, and unwisonni.rm not n because of factors such as the that any rate base reduction result-
,,$ umri,3 gr nting of timely and adequate ng from the prudence audits be-rate increases, new cost estimates, ing conducted would be deducted 2n 2i. :n 22 i revised load projections, design from Georgia Power's share of changes in nuclear plants to meet Plant Vogtle's actual cost.
M changing requirements, unfore-Ilased on the March,1987, revi-seen nuclear plant licensing sion of the construction budget, requirements, changes in environ-the total cost to complete both mental regulations, and the availa-units (including joint owners' bility and cost of capital.
share and all financing costs)is Some 12 percent of the now expected to be approximately Southern electne system's con-
$8.87 billion, or $522 million struction budget for the next three above the cap. Current accounting
. ~
rules do not require the write-off im im im im im
- Prn;nted -
30 i
of such projected disallowed costs the system's capital requirements To meet short-term cash needs because the expected recovery of and operating costs. Various En.
and contingencies, the system and earnings on the allowed por-vironmental Protection Agency companies had, at the beginning tion would exceed the total cost of regulations and recent legislation of 1987, approximately 5923 mil-the plant. Hewever, accounting are described in Note 3 to the fi-tion of cash and temporary cash rules to be effective in 1988 will re-nancial statements. The fullim-investments and $2.2 billion of quire that a write-off be recorded pact of these requirements cannot unused credit arrangements with by rate regulated enterprises for be determined at this time pending banks.
any disallowed costs of newly the development and implementa.
In order to issue additional completed plants. This would in-tion of applicable regulations.
long-term debt and preferred clude the after-tax effect of the stock, the operating subsidiaries Other CapitaiRequimments disallowed portion of the pro-must comply with certain earnings jected plant costs and buyback In ddition to the funds needed coverage requirements designated obligations, amounting to approx-f r the construction program, ap-in their mortgage indentures and imately $226 million. While not proximately $488 milhon will be corporate charters. These cover-required to do so, The Southern required by the end of 1989 for ages were, at the end of the respec-Company may elect to reflect the present sinkmg fund requirements tive years, as follows:
write offin 1987. See Note 3 to and maturities oflong-term debt the financial statements for more and preferred stock. Also, addi-Morissae Charter information on this and other tional high-cost issues of first cmersae cmernge topics related to the construction rtgage bonds, pollution control (2g0 ti.50 program.
bor.ds, and preferred stock may be Required). Required)
Other projects in the current redeemed.
19a6 1985 1986 1935 generation expansion plan are The Tax Reform Act of 1986 Alabama Power 4.n9 3.70 2.17 1.87 coal fired units at Plant Scherer will significantly increase future Georgia Power 3.02 2.81 1.99 1.89 and Plant bliller, as well as the external financing requirements Gulf Power 3.61 3.38 1.n5 1.94 Rocky h1ountain pumped storage because of reductions in capital
'$[
3.94 us i.99 2.23 hydroelectric plant. Commercial previously provided through m-operation of Plant Scherer Unit vestment tax credits and deferred No. 3 began on January 1,1987, inc me taxes. Although the Act The ability to issue securities in and Unit No. 4 is scheduled for willinitially reduce the amount of the future will depend on cover-service in 1989. Plant h1 iller Unit revenues required to earn a speci-ages at that time. The expected Nos. 3 and 4 are scheduled for fied return on mvestment, the cost future write-off associated with commercial operation in 1989 and f the increased capital require-the projected cost cap overrun 1991, respectively. Georgia Power ments will ultimately exceed the for Plant Vogtle, as explained in has delayed the planned commer-benefits of reduced tax rates, re.
Note 3 to the financial statements, cial operation date of the Rocky sultmg m higher revenue require-will adversely affect Georgia h!ountain project from 1991 to ments. These factors will also Ibwer's preferred stock coverage 1999. As explained in Note 3 to reduce interest and preferred stock and may affect the indenture the financial statements, if dividend coverage ratios.
coverage. If the amount of funds Georgia Power does not obtain an Soumes of Fumi, that The Southern Company and app opriate amendment to its The Southern Company and its Federal Energy Regulatory Com-subsidiaries plan to obtain the
'8 8*"#'" #
minion license or negotiate a sale funds required for construction of the facility, part or all of the from similar sources to those used
$169 million imested in the project in the past. Ilowever, the type and "U ""
at December 31,1986, may not be timing of financings will depend necessary. Delays in construction IW#
recoverable and would have to b on market conditions, mamte' projects would result in significant nance of adequate earnings, and "dditional cost' Changes in environmental regu-regulatory approval.
I lations could substantially increase 31
_J
CONSOLIDATED STATEMENTS OFINCOME For the fiars Ended December 31,1%41%3, and 1%4 The Southern Company and Subsidiary Companies 1986 1985 1984 (in thousands)
Operating itetenues (Note 7)
$6,846,591
$6,813,927
$6,123,985 Operating Expenses:
Operation -
Fuel 2,271,784 2,385,815 2,152,830 Purchased and interchanged power, net 366,297 420,191 351,450 Other 1,020,603 921,099 821,821 Maintenance 563,382 549,905 483,126 Depreciation and amortization 493,722 454,871 429,404 Taxes other thanincome taxes 306,739 2 %,477 276,690 Federaland stateincome taxes 650,382 634,021 561,191 Totaloperating expenses 5,672,909 5,662,379 5,076,512 Operating income 1,173,682 1,151,548 1,047,473 Other Income (Expense):
Allowance for equity funds used during construction 312,001 268,875 211,583 Interest income 64,718 69,527 59,634 Other, net (18,625) 42 46,310 income taxes applicable to other income (21)
(18,800)
(41,847)
Income Before Interest Charges 1,531,755 1,471,192 1,323,153 Interest Chartes and Preferred Dividends:
Interest on long-term debt 765,012 736,973 660,996 Allowance for debt funds used during construction (259,981)
(253,617)
(198,937)
Interest on notes payable 3,471 20,516 16,097 Amorti.ation of debt discount, premium, and expense, net 5,951 3,216 2,461 Other interest charges 14,717 16,763 14,826 Preferred dividends of subsidiary companies i19,725 117,751 108,041 Net interest charges and preferred dividends 648,895 641,602 603,484 Consolidated Net income
$ 882,860
$' 829,590
$ 719,669 Average Number of Shares of Common Stock Outstanding (in thousands) 278,897 259,543 239,784 Earnings Per Share of Common Stock
$3.17
$3.20
$3.00 Cash Disidends Paid Per Share of Common Stock
$2.06 h
$1.95
$1.83
.= := = ~ = = = = = - =- :=.-.===== =.=.-
.. = = = = -== -
The accompanying notes are an integralpart of these statements.
32
CONSOLIDATED STATEMENTS OFSOURCES OFFUNDS FOR GROSS PROPERTYADDITIONS lbr the lears Ended Dewmber 31,1986 1981 and 1984 The Southern Company and Subsidiary Companies 1986 1985 1984 (in thousands)
Funds from Operatious:
Consolidated net income
$ 882,860
$ 829,590
$ 719,669 Add (deduct) principal noncash items -
l Depreciation and amortization 657,021 606,354 567,034 Deferred income taxes, net 460,912 239,003 240,401 Deferred investment tax credits 131,473 180,707 242,989 Allowance for equity _ funds used during construction (312,001)
(268,875)
(211,583) 1,820,265 1,586,779 1,558,510 less dividends on common stock 574,264 503,447 436,007 Net funds provided from operations 1,246,001 1,083,332 1,122,503 Funds from Financings:
Common stock -
Public offerings 150,745 82,605 40,303 Dividend reinvestment and stock purchase plan 198,147 257,462 231,288 Employee savings plan 23,693 26,747 35,258 Employee stock ownership _ plan 5,113 4,713 9,213 377,698 371,527 316,062 First mortgage bonds 710,000 150,000 j
Bonds retired, reacquired, or refunded at maturity (864,776)
(63,704)
(60,658) l Preferred stock 100,000 150,000 50,000
]
Preferred stock reacquired or redeemed (51,974)
(5,61I)
(5,329)
Proceeds from pollution control obligations, net 365,033 635,215 364,535 Notes payable to banks 4,001 j Increase (decrease) in pollution control bond anticipation notes payable (36,400)
(72,956) 109,356 Increase (decrease) in other long-term debt 315,895 31,779 (68,479) less notepayable issued for coal contract termination (121,326h.
Net funds provided from financings 798,151 ~
1,046 250 855,487 1
Funds froir. Other Sources:
Decrease (increase) in temporary cash investments 83,607 (137,754)
(283,173)
Decreasein other net current assets (excluding notes payable and long-term debt and preferred stock due within one year) 102,236
$9,778 167,103 Sales of p' 3perty, net book value 181,330 Advance payment under capacity contract 100,000 Other, net (including allowance for equity funds used strindconstruction) 10,298 159,659 57,200 Net fundarovided from other sources 2 %,141 81,683 122,460 Gross Property Additions (including allowance for funds used during construction in the amounts of $466,804,000 in 1986, t 402,078,000_in 1985, and $317,935,000 in 1984)
$2,340,293
$2,211,265
$2,l_00,45_0 The accompanying notes are on integralpart of these statements.
33
L CONSOLIDATEi) BALANCESHEETS At December 31,1986 and 1983
' 71re Southern Company and Subsidiary Companies y
l
'\\
4 ASSE'15 1986 1985 (in shousands)
Utility Plant:
Plant in service, at origirdi cost
$16,539,5%
$15,392,890 less accumulatedpovision for depreciation 4,748,231 4,352,626 11,791,365 11,040,264 Nuclear fuel, at amorti,ed cost 3
519,993 4 %,886 Construction work in progdss1Nete 3) 5,157.897 4,276,613 Total 17,469,255 15,813,763 Less property-related accumulated deferred income taxes (Note 1) 2,165.615 1,93L290 Total 15,303.640 13,878,473, j
Other Property and Investments 69.378 36,035 ;
Current Astets:
Cash 47,186 44,577 Temporary cash imestments, at cost which approxima*n market 876,113 959,720 Receivables,less accumulated provisions for uncollectible accounts of
$61,747,000 in 1986 an!$10,697,000 in 1985 (Note 7) 636,144 643,339 Accrued utility revenues 82,858 92,460 Fossil fuel stock, at average cost 488,698 489,031 Materials and supplies, at avenge cost.
220,708 181,628 Prepayments and specialdmosits 75,340 47,404 s
Vacationpay deferred 56 361 53,671 1
Total 2,483,408 2,511,830 Deferred Charges:
Debt expense, being amortized 23,833
~23,583 Premium on reacquired debt, being amortized 69,485 524
!}
Deferred fuelcosts(Note l4) 121,326 Miscellaneous; 70.046 81,050 Total i
284,690 105 157 T tal_Asse_is
$1814l,116
$16,531,495
--i 9
1 The accompanying notes are an integrolpart of these balance sheets.
4 f.
e' 4
(.
1 4
).
2
's i
34
[
CAPITAUZATION AND LIABILITIES 1986 1985 (in thousands)
Capitalization (See accompanying statements):
Common stock equity S 6,009,574
$ 5,332,401 Preferred stock 1,211,820 1,111,820 Preferred stock subject to mandatory redemption 167,250 183,000 Long-term debt 7,674,704 7,091,672 Total 15,063,348 13,718,893 l
Current Usbilities:
l Preferred stock due or to be redeemed within one year 14,618 50,842 l
Long-term debt due within one year 236,320 290,547 Pollution control bond anticipation notes payable 36,400 Notes payable to banks 4,001 Accounts payable 726,512 676,341 Customer deposits 78,288 76,462 Taxes accrued -
Federaland stateincome 102,738 37,565 Other 151,808 102,393 Interest accrued 215,487 221,249 Vacation pay accrued 64,935 61,568 Miscellaneous 107,293 114,062 Total 1,702.000 1,667,429 Deferred Credits and Other Unbilities:
Accumulated deferred investment tax credits 1,186,373 1,09),397 Prepaid capacity revenues 101,143 Miscellaneous 88,252 53,776 Total I,375,768 1,145,173 Commitments and Contingent Matters (Notes 2,3,4,5,6,7, and 12)
Total Capitalization and Usbilities
$18,141,116
$16 531,495 1
The accompanying notes are an integralpart of these balance sheets.
n 35
CONSOLIDATED STATEMENTS OF CAPITALIZATION At December 31,1986 and1983 The Southern Company and Subsidiary Companies 1986 1985 1986 1985 (in Ihousands)
(percent of total)
Common Stock Equity:
Common stock, par value 55 per share-Authorized - 375,000,000 shares; l
Outstanding - 1986: 284,914,287 shares; 1985: 268,883,986 shares (a)
$ 1,424,571
$ 1,344,420 Amount paid in for common stock in excess of par value 2,553,370 2,255,823 Premium on preferred stock 4,233 5,709 Earnings retained in the business (Note 13) 2,027,400 1,726,449 Total common stock equity 6,009,574 5.332,401 39.9 %
38.9 %
Cumulative Preferred Stock of S*hsidiaries:
$100 par or stated value -
4.20% to 5.%%
199,356 199,356 6.48% to 7.88%
147,000 147,000 8.04% to 9.52%
340,464 340,464
$25 stated value -
$2.30 to $2.47 100,000
$2.52 to $2.56 100,000 100,000
$3.00 to $3.44 125,000 125,000 15.68 %
40,000 Adjustable rate - at January 1,1987:
6.25 %
50,000 50,000 6.46 %
50,000 50,000 7.01 %
50,000 50,000 7.20 %
50,000 50,000 Total (annual dividend requirement - $99,435,000) 1,211,820 1,151,820 Irss amount to be redeemed 40,000 Total excluding amount to be redeemed 1,211,820 1,111,820 8.0 8.1 Cumulative Pnfernd Stock of Subsidiaries Subject to Mandatory Redemption:
$100 par value -
10.20% to 11.36%
61,868 66,342
$25 stated value -
$2.75 48,750 52,500
$3.76 71,250 75,000
/
Total (annual dividend requirement - $22,788,000) 181,868 193,842 Less amount due or to be redeemed within one year (Note 9) 14,618 10,842 Total excluding amount due within one year 167,250 183,000 1.1 1.3
1986 1985 1986 1985 (in thousands)
(percent oftotal)
Imag-Term Debt:
First mortgage bonds of subsidiaries -
l Maturity Interest Rates I
1986 3%% to 3X%
29,725 1987 4%%
20,201 20,201 1987 5%%
8,978 8,978 1987 8%%
75,000 75,000 l
1988 3%% to 4%%
55,000 55,000 1989 4%% to 5%%
30,823 30,823 1989 18%%
97,000 1990 4%% to 5%
26,847 26,847 1991 4%% to 4%%
23,000 23,000 1991 14%% to 17%%
219,250 1992 through 1996 4%% to 6%%
351,484 357,067 1997 through 2001 6%% to 11%%
901,989 906,705 2002 through 2006 7%% to 11%%
1,391,468 1,391,468 2007 through 2011 8%% to 17%%
1,147,073 1,561,930 2012 through 2016 9%% to 16%%
1,160,355 544,000 Total first mortgage bonds 5,192,218 5,346,994 Otherlong-term debt (Note 10) 2,790.826 2,109,898 Unamortized debt premium (discount) net (72,020)
(74,673)
Total long-term debt (annual interest requirement - $767,536,000) 7,911,024 7,382,219 Less amount due within one year (Note 11) 236,320 290,547 long-term debt excluding amount due within one year 7,674,704 7,091,672 51.0 51.7 I
Total Capitslization
$15,063,348
$13,718,893 100.0 % 100.0 %
(a) A t December 31,1986, a totalof17,730,009 shares was reservedfor issuancepursuant to the Dividend Reinvestment and Stock Purchase Plan and the Employee Savings Plan.
The accompanying notes are an integralpart of these statements.
l l
37
CONSOLIDATED STATEMENIS OFEARNINGS RETAINEDIN THEBUSINESS for the krs Ended December 31, ING 1%3, and 1%4 The Southern Company andSubsidiary Companies 1986 1985 1984 (in thousands)
Balance at beginning of period
$1.726,449
$1,404,756
$1,123,414 Consolidated net income 882,840 829,590 719,669 2,609,309 2,234,346 1,843,083 Cash dividends on common stock
($2.06% per share in 1986, $1.95 per share in 1985, and $1.83 per share in 1984) 574,264 503,447 436,007 Capitalstock issuance expense 4,417 4,450 2,320 Preferred stock redemption expense 3,228 Balance at e_nd_of period _(Note 13) 52 027,400
$1.1726,449
$1,_404 756 1
t CONSOLIDATED STATEMENTS OFAMOUNTPAID IN FOR COMMONSTOCKINEXCESS OFPAR VALUE For the krs Ended December 31,1%4 1%3, and 1%4 The Southern Company andSubsidiary Companies 1986 1985 1984 (in thousands)
Belanee at beginning of period 52,255,823
$1,978,458
$1,764,706 Proceeds from sales of common stock over the par value thereof - 16,030,301 shares in 1986,
_1_8,832,359 shares in 1985, and 20,462,127 shares in 1984 297,547 277,365 213,7.52 Balance at end of period
$2 553,370
$2,255 823
$1M78d58 1
1 The accompanying notes are an integralpart of these statements.
38
NOTES TO FINANCIAL STATEMENIS At Dwember31.19861985, and 1984 The Southern Company and Subsidiary Companies
- 1. Summary of Significant Accounting Policies:
Fuel expense includes the amortization of the e st of nuclear fuel and a charge, based on nuclear Geneml generation, for the permanent disposal of spent The Southern Company is the parent company of nuclear fuel. The total charges for nuclear fuel in-four operating companies, a system service com-cluded in fuel expense amounted to $121,311,000 in pany, Southern Electric International, Inc. (SEI),
1986, $128,435,000 in 1985, and $113,492,000 in and The Southern liwestment Group, Inc. (SIG).
1984. Alabama Power and Georgia Power have I
The operating companies provide electric service contracts with the U.S. Department of Energy that in four southeastern states. Contrnets among the provide for the permanent disposal of spent companies - deahng with jomtly owned generat-nuclear fuel which is scheduled to begin in 1998.
ing facilities, interconnecting transmission lines, Pending permanent disposition of the spent fuel, and the exchange of electric power - are regulated sufficient storage capacity currently is available by the Federal Energy Regulatory Commission through the year 2001 at Plant Hatch and into (FERC) or the Securities and Exchange Commis-2007 and 2010 at Plant Farley Unit Nos. I and 2, sion (SEC). The system service company provides, respectively. Storage capacity for spent fuel will be at cost, specialized services to The Southern available at Plant Vogtle through the year 2003.
Company and to the subsidiary companies SEI markets to utilities and industrial concerns the Utility Plant technical e::pertise of the Southern electric system Utility plant is stated at original cost. This cost -
in planning and operating electric power facilities.
includes appropriate administrative and general SIG was formed in 1985 to research and develop costs; payroll-related costs such as taxes, pensions, a
i new business opportunities.
and other benefits; and the estimated cost of funds The Southern Company is registered as a hold-used during construction. The cost of maintenance, ing company under the Public Utility Holding repairs, and replacement of minor items of prop-Company Act of 1935. Both the company and its erty is charged to maintenance expense. The cost subsidiaries are subject to the regulatory provisions of replacements of property (exclusive of minor of the Act. The operating companies also are sub-items of property)is charged to utility plant.
ject to regulation by the FERC and their respective Disallowed Casts state regulatory commissions. The companies fol-low generally accepted accounting principles and Financial Accounting Standards Board (FASB) comply with the accounting policies and practices Statement No. 90, which becomes effective in prescribed by their respective commissions.
1988, requires the write-off of costs of newly com-All material intercompany items have been pleted plants that are disallowed for ratemaking eliminated in consolidation. Consolidated re.
purposes. The Southern Company may elect to tained earnings at December 31,1986, include implement Statement No. 90 in 1987. See Note 3
$1,757,167,000 of undistributed retained earnings for information on the Plant Vogtle cost overrun of subsidiaries.
and other possible disallowances.
Revenues Allowancefor Funds Used During Construction N
Alabama Power recognizes revenues concurrent with billings to customers on a cycle billing basis.
This allowance represents the estimated debt and The other operating companies accrue for service equity costs of capital funds which are necessary to finance the construction of new facilities. The rendered but unbilled at the end of each fiscal period.
composite rates used by the companies to calcu-late AFUDC during the years 1984 through FuelCosts 1986 ranged from a gross rate of 9.78 percent Fuel costs are expensed as the fuel is used. The to 11.72 percent for Gulf Power and Mississippi operating companies' electric rates include provi-Power and from a net-of-income-tax rate of sions to adjust billings for fluctuations in fuel and 8.74 percent to 9.77 percent for Alabama net purchased energy costs. Revenues are adjusted Power and Georgia Power. The income tax ef-~
for differences between recoverable fuel costs and feet of capitalized debt cost was $125,429,000, amounts actually recovered in current rates.
39
$123,720,000, and $94,702,000 in 1986,1985, method with frozen initial liability" actuarial cost and 1984, respectively. AFUDC, net ofincome method. To determine the annual pension cost, 1
tax, as a percent of consolidated net income was the companies assume a seven-percent rate of 50.6 percent in 1986,48.1 percent in 1985, and return on plan investments and a six-percent l
43.9 percent in 1984.
annual rate of salaryincreases.
j Accrued pension costs amounted to $83,634,000 1
Depeciaten and Amortist.on in 1986, $73,102,000 in 1985, and $71,569,000 in Depreciation of the original cost of depreciable 1984, which represented 7.6 percent,7.1 percent, utility plant in service is provided using composite and 7.5 percent, respectively, of employee sal-straight-line rates which approximated 3.6 percent aries and wages each year. Of these amounts, in 1986 and 1985 and 3.7 percent in 1984. Depreci-
$47,421,000 in 1986, $41,514,000 in 1985, and
.I ation includes a factor to provide for the expected
$40,4%,000 in 1984 were charged to operating ex-costs of decommissioning nuclear facilities. This.
penses, and the balance was charged to construc-factor is based on estimated decommissioning tion and other accounts. Also, Georgia Power and costs of approximately $64 million for Georgia the system service company incurred additional Power's ownership interest in Plant Hatch and a costs to pay retirees under early retirement pro-total of $250 million for Alabama Power's Plant grams. The costs related to these programs were Farley, Georgia Power has updated the estimate
$17,434,000, $12,181,000, and $13,000,000 for the for its share of decommissioning Plant Hatch to years 1986,1985, and 1984, respectively. Accumu-
$146 million. This amount will be included in a re-lated pension benefit information as of the valua-tail rate application which Georgia Power plans to tion dates (January I of each year) follows:
file in April,1987. Estimated decommissioning costs will continue to be adjusted periodically to 1986 1985 reflect changing price levels and technology. When (la 'housands) property subject to depreciation is retired or other-
^ ",'". ' p $
eks-utated pl wise disposed ofin the normal course of business, vested s 679,370 5 624,215 its cost - together with the cost of removal, less Nonvested 36.461 12,433 sahage - is charged to the accumulated provision To. tat s 715,831 s 636,648 for depreciation.
Weighted average rates of return assumed in determining Income Tar actuarial present value of The companies provide deferred income taxes for
_accumlated plan benefits s%
sw all income tax timing differences. Investment tax Net assets ava_ilable for benefits 51,431,669 $1,134,244 credits utilized are deferred and amortized to in-come over the average lives of the related property.
The actuarial present value of accumulated plan Provisions for property-related deferred income benefits was determined on the basis of accrued taxes reflect consumption of part of the value of benefits as of January 1 of the respective years.
the plant and equipment to which the provisions However, the plans are funded based on the relate. Accordingly, the related accumulated de-premise that the plans will continue in existence, ferred income taxes are a valuation reserve which which requires that future events be considered.
is deducted from plant investment in the Consoli.
Amendments to the plan in 1986 increased career dated Balance Sheets. Other deferred income taxes average formulas, retroactively removed the age re-are included in taxes accrued. See Note 8 for fur.
quirement for plan participation, provided for ad ther information regarding income taxes.
hoc retiree increases, and made certain other legal-ly required changes. Such amendments resulted in IWnsion and Other Ibst-Retirement Benefits a net increase of $108,932,000 in the unfunded ac-The companies have defined benefit, trusteed, crued liability with respect to past service which noncontributory pension plans which cover sub-will be amortized over a 20-year period. Changes -
stantially all regular employees. The policy of the in accounting for pension costs required by FASB companies is to fund each year's accrued pension Statement No. 87, which will be implemented in cost as determined using the " entry age normal 1987, are not expected to materially impact the 40
company's financial position or results of opera-In October,1983, the Georgia Public Service tions. However, pension costs are expected initially Commission (GPSC) granted Georgia Power an to be somewhat lower but more volatile than in annual increase in retail revenuer of $86,500,000 in the past.
addition to a $108,900,000 increase effective Sep-The system companies also provide certain tember 7,1983. A consumer group appealed the health care and life insurance benefits for retired GPSC's final order to the Superior Court of Ful-employees. Substantially all employees may be-ton County, alleging that the $86,500,000 addi-come eligible for these benefits when they retire.
tionalincrease resulted from procedural The costs of such benefits are recognized as pay-irregularities. The court dismissed the case, find-ments are made. The costs of providing such ing that the group lacked standing to seek judicial benefits were $9,315,000 in 1986, $8,746,000 in review. After further appeals,in December,1985, 1985, and $8,001,000 in 1984, the Supreme Court of Georgia affirmed a decision g
by the Court of Appeals to permit the consumer group to proceed with its appeal to the Superior The operating companies, employees earn their Court of Fulton County. A prehearing conference vacation in one year and take it in the subsequent was held in February,1986, before the Superior year. However, for ratemaking purposes vacation Court of Fulton County. The court has not set a pay is recognized as an allowable expense only date for hearing the case.
when paid. Consistent with this ratemakmg treat-In April,1984, Georgia Power filed a request ment, the companies accrue a current liability for for an increase in the fuel cost recovery rate with earned vacation pay and record a current asset the GPSC. The GPSC granted an allowance which representing the future recoverability of this cost, was deficient in covering Georgia Power's prior Such amounts were $56,361,000, $53,671,000, and period fuel costs by approximately $22,300,000.
$49,626,000 at December 31,19%,1985, and Disallowed costs related to coal procurement poli-1984, respectively. In 1987, an estimated 65 per-cies for Plant Scherer and to higher cost replace-cent of the 1986 deferred vacation cost will be ment energy while Plant Hatch Unit No. 2 expensed, and the balance will be charged to con-struction and other accounts.
(nuclear) was out of service for replacement of recirculation pipe. Following appeals in the courts,
. Rate Mah the matter was returned to the GPSC for further.
i consideration. In January,1986, the GPSC vacat-In November,1982, the Alabama Public Service ed its original disallowance order pending results Commission (APSC) adopted rates which provide of a prudence audit being conducted (see Note 3).
for periodic adjustments based upon Alabama In management's opinion, the outcome of this Power's earned return on end-of-period retail issue will not have a materialimpact on the common equity. The rates also provide for adjust-financial position or results of operations of ments to recognize the placing of new generating Georgia Power.
facilities in retail service. Both increases and In August,1986, the Mississippi Public Service decreases have been placed into effect since the Commission (MPSC) issued an order directing adoption of these rates. In June,1985, the APSC that Mississippi Power's retail rates be set accord-extended the retail ratemaking concept into 1989, ing to a Performance Evaluation Plan (PEP) for and the extension order was affirmed by the a three-year period. Under the plan, any change Supreme Court of Alabama in October,1986.
in rates will be based on quarterly reviews of Alabama Power's rate schedules provide for ad-Mississippi Power's earned retail return on end-justments in retail electric rates to reflect changes of-period common equity, compared to an al-l in both state and federalincome tax rates. As a lowed return, in conjunction with an evaluation result of the decrease in the federalincome tax of Mississippi Power's performance in specified rate by the Tax Reform Act of 1986, retail electric areas. However, quarterly increases or decreases in rates were reduced approximately two percent in rates are limited to two percent of retail revenues.
January,1987. A similar reduction is expected in The MPSC order made the plan effective retro-January,1988.
active to the first quarter of 1986. For 1986, the l
second-quarter evaluation required a two-percent I
i 41
increase in retail rates, or $6,538,000 annually, 1999. This action is subject to approval by the effective September 23,1986. Also the MPSC FERC of an appropriate amendment to Georgia granted an increase in retail revenues of $6,556,000 Power's license for the project. The receipt of such annually, effective December 23,1986, to offset amendment cannot be assured. If Georgia Power the scheduled reductions of off-system capacity does not obtain an appropriate amendment to its sales. In October,1986, the Attorney General of FERC license or negotiate a sale of the facility, the Mississippi and two interveners appealed the PEP project may be canceled. In such event, the recov-to the Supreme Court of Mississippi. While the cry of the project's costs cannot be assured. Ac-outcome of these proceedings is not certain, it is counting rules to become effective in 1988 require management's opinion that the ultimate outcome that canceled projects be written down to the will not have a material impact on the financial present value of the revenues expected to be pro-position or results of operations of Mississippi vided to recover the cost of the project. As of Power.
December 31,1986, Georgia Power's investment in the project amounted to approximately $169 mil-
- 3. Construction Program:
lion. Effective December,1985, the AFUDC ac-Geneml crued on the Rocky Mountain project is not being The subsidiary companies are engaged in continu-credited to income or included in the project's ous construction programs, currently estimated to costs as reported. The outcome of this matter total some $2.1 billion in 1987, $2.1 billion in 1988, cannot now be determined.
and $1.7 billion in 1989. These estimates include The U.S. Environmental Protection Agency the increased budget for Plant Vogtle discussed (EPA) has promulgated air quality control regula-below. The estimates also include the AFUDC and tions related to stack height requirements of the reflect the current ownership percentage in all gen.
Clean Air Act. Although there currently appears erating facilities under construction. The construe.
to be no anticipated compliance cost for any sys-tion programs are subject to periodic review and tem plant under these regulations, no final de-revision, and actual construction costs may vary termination has yet been made by the EPA. An from the above estimates because of numerous adverse determination could require either the use factors. Particularly with respect to new nuclear of more expensive low-sulfur fuel or construction units, it has b:en the experlence of the electric util.
of costly flue-gas desulfurization facilities. In ad-ity industry that actual construction costs have ex-dition, legislation being considered by Congress J
ceeded estimates. In addition, planned completion concerning acid rain and other air quality issues dates often have not been met as a result of, among would make additional pollution control equip-other factors, design changes and rework required ment compulsory for certain coal-fired power by regulatory bodies and delays in the progress of plants. The enactment of legislation mandating construction and in obtaining necessary federal reductions in sulfur dioxide emissions in the sys-and other regulatory approvals. Any delay in com.
tem's service area would substantially increase -
mercial operation of a new generating unit or in capital requirements and operating costs.
recovering its costs through higher rates results in Recent legislation amending the Clean Water an increase in the total cost of such unit. At Act, the Resource Conservation and Recovery Act, December 31,1986, substantial purchase commit.
and the Comprehensive Environmental Response, ments were outstanding in connection with the Compensation, and Liability Act affects many construction program.
areas of system operations including the genera-In its 1985 financing order, the GPSC conclud.
tion, transmission, and distribution of electric ed that completion of the Rocky Mountain energy. The full impact of these requirements pumped storage hydroelectric project is not eco-cannot be determined at this time pending the nomically justifiable and reasonable and withheld development and implementation of applicable authorization for Georgia Power to spend funds regulations.
from approved securities issuances on that project.
Nuclear Construction Status Georgia Power has delayed the planned commer-On March 9,1987, Georgia Power increased its cial operation date of the project from 1991 t cost estimate for Plant Vogtle, a two-unit nuclear 42 4
generating facility under construction, and de-fuel-related matters are also being examined, in-layed by nine months the planned commercial cluding Georgia Power's coal procurement policies operation date of Unit No. 2. The total estimated and practices, its decision to burn low-sulfur coal cost of Plant Vogtle at completion, including all at Plant Scherer rather than install flue-gas de-co-owners' financing costs and contingency allow-sulfurization equipment, and certain aspects of ances, has been increased from $8.35 billion to Georgia Power's operations of Plant Scherer Unit
$8.87 billion. The revised budget estimates for Nos. I and 2, as well as the cracking and subse-l Plant Vogtle reflect the additional labor costs in-quent replacement of the recirculation system I
curred over previously budgeted amounts to main-piping at Plant Hatch Unit No. 2, an operating tain the schedule for Unit No.1, as well as the nuclear facility.
delay in the completion date for Unit No. 2. The On March 17,1986, OKA issued a preliminary revised budget also assumes construction installa-report concerning the prospective cost and sched-tion rates for Unit No. 2 that are better than those ule aspects of its Plant Vogtle audit. The report experienced in the construction of Unit No.1. The forecast that the commercial operation dates of i
total cost of Georgia Power's 45.7-percent interest Unit Nos. I and 2 would be December,1987, and in the plant is estimated to be approximately Joly,1989, six months and 10 months later, respec-
$3.87 billion at completion, an increase of tively, than Georgia Power's projection at that
$313 million (8.8 percent) from the previous esti-time. OKA's preliminary report also estimated that mate. Because the plant's cost for ratemaking the total cost of the plant would be $9.2 billion, _
j purposes has been capped at the previous budget rather than $8.35 billion as then estimated by level, Georgia Power's share of this increase will Georgia Power.
be written off as described below under Vogtle By letter to Georgia Power dated March 18, J
Cost Overrun and Other Possible Disallowances.
1986, the GPSC, referring to the OKA preliminary Construction is essentially complete on Plant report, advised that it "will not be able to resolve Vogtle Unit No.1. Fuel was loaded in January, satisfactorily pending or future applications by 1987, and low-power testing is under way. Unit (Georgia Power) related to Plant Vogtle until such No. I remains on schedule for commercial opera-time as the (GPSC) receives a meaningful assur-tion by June,1987. Commercial operation of Unit ance from (Georgia Power) that there will be no No. 2 is now planned for June,1989. If commer-further increases in the cost of Plant Vogtle." In cial operation of either unit is delayed, financing response, Georgia Power informed the GPSC that costs of Georgia Power's share of Plant Vogtle will it would not seek to recover through retail rates continue at a rate (based upon current cost esti-any Plant Vogtle investment costs in excess of its mates) of approximately $21 million per month portion of $8.35 billion, unless it is threatened for Unit No. I and common facilities and $9 mil-with financial catastrophe or unless events outside lion per month for Unit No. 2. Further delay in Georgia Power's control prevent it from obtaining commercial operation of either unit may also Nuclear Regulatory Commission (NRC) operating result in a substantial increase in the direct con-licenses in a timely manner. In addition, the aggre-struction costs of such unit. Any additional costs gate of the capital portion of Georgia Power's would have to be written off under new account-contractual obligations to purchase declining frac-ing rules as described in the following section.
tions of the capacity of Plant Vogtle owned by the Vogt/e Cast Overrun and c - wners would, for retail ratemaking purposes, be based on the co-owners' share of $8.35 billion.
Other Pbssible Disallowances (See Note 5.) In makmg such commitment, In June,1985, the GPSC engaged the firm of Georgia Pbwer stated that it assumed that the O'Brien-Kreitzberg & Associates (OKA) and its GPSC will grant sufficient financing authority to subcontractors to conduct audits examining the complete the plant, that the GPSC will adopt a prudence of Georgia Power's decisions relating to plan for phasing Georgia Power's associated in-planning, design, licensing, and construction of vestment into retail rates over a reasonable period Plant Vogtle and Plant Scherer Unit Nos. 3 and 4, of time commencing with the commercial opera-as well as the prudence of Georgia Power's load.
tion date of each unit, and that any rate base forecast and generation expansion plans. Certain i
i 43 i.--
reduction resulting from the prudence audits present value of Georgia Power's $313-million would be de lucted from Georgia Power's share of share of the projected cost increase for the plant.
Plant Vogtle's actual cost. The GPSC's 1986 fi-Effective March 9,1987 (date Plant Vogtle's cost nancing order provides that "(Georgia Power's) estimate increased), AFUDC accrued on this commitment to restrict the investment related to amount is not being credited to income. The Plant Vogtle's completion cost which (Georgia present value of the increased capacity buyback -
Power) will seek to include as retail ratemaking payments as a result of the projected cost overrun f.
cost of service...is incorporated herein as a re-
- currently estimated to be $79 million - must i
quirement binding on (Georgia Pbwer)."
also be written off under Statement No. 90. The The amount by which Georgia Power's owner-after-tax effect of the write-off of these amounts ship share of the cost of Plant Vogtle exceeds the on consolidated net income would be approxi-ratemaking cap is expected to be disallowed for re-mately $226 million. In addition, future earnings tail rate purposes. The increase in payments re-will be reduced by approximately 538 million dur-quired under the capacity buyback obligations as ing the capacity buyback periods as a result of the a result of the projected cap overrun is also expect-interest factor on the discounted buyback costs.
ed to be disallowed. There may be other disalloud pggg costs as a result of the prudence audits. Although the commitment to cap the cost of Plant Vogtle The GPSC has u...utiated proceedings to determine.
was based in part on the assumption that any pru-a plan for phasmg Plant Vogtle's costs into retail dence disallowances related to Plant Vogtle would rates. Georgia Pbwer's current proposal filed with first be used to offset cost cap overruns, there is no the GPSC under these proceedings calls for phas-assurance that prudence disallowances will not ex-ing mto rates over a three-or five-year penod of ceed the amount of the disallowances currently the allowable portion of Georgia Power's invest-expected as a result of the projected cost overrun.
ment in Plant Vogtle Unit Nos.1 and 2 following There could also be disallowed costs not related to the respective commercial operation date of each Plant Vogtle. OKA's final report is expected in the unit. Recovery of costs deferred as a result of the spring of 1987. Management believes Georgia phase in would be over seven years for a three-year Power's construction and other costs have been phase-in period and five years for a five-year prudently inc.irred. However, similar studies of phase-in period. The proposal also calls for level-other utilities' construction programs, including ing the declining contractual buyback of capacity -
all such studies perforined by OKA, have recom.
from the co-owners and dividing the costs of com-mended exclusions of significant amounts from mon facilities evenly between both units.
rate base and cost recovery.
While a phase in would moderate the effect on Under current accountmg rules, a write-off of Georgia Power's customers ofinclusion of the i
the projected costs in excess of the ratemaking cap plant in rate base, the resulting delay in recovery of for Plant Vogtle is not required because the total its investment may adversely affect earnings, cash amount of net cash inflows (revenues, including flow, and cost of capital. In addition, the FASB is earnings on the portion of the investment included reviewing the accounting rules for phase-in plans, in rates, less applicable expenses) related to Plant and the adoption of a plan that is not in conform-Vogtle is expected to be sufficient to recover ity with rules the board may ultimately adopt Georgia Power's total cost of the plant, including could preclude the deferral of such costs for ac-any disallowed costs associated with the contract-counting purposes.
ual obligations to buy back portions of the co.
In a separate but related issue, the GPSC issued owners' capacity. However, FASB Statement an accounting order in December,1986, which al-No. 90, which will be effective in 1988, will require lows the deferral of Georgia Power's costs related that a write-off be recorded for any disallowed to Plant Vogtle Unit No. I from the commercial costs. While not required to do so, The Southern peration date (expected by June,1987) to the date Company may elect to adopt Statement No. 90 in the unit is first reflected in rates (expected by Octo-1987. Statement No. 90 will require a write-off of ber,1987). Such deferred costs, net of any pru-approximately $277 million representing the dence disallowance or cap overruns, would be' included in rate base and amortized and recovered 44
through rates over a period not to exceed 10 years become necessary to cancel or delay certain con-beginning when Plant Vogtle Unit No.1 is first in-struction projects. Delays in construction projects cluded in rates. The net fuel cost savings on Unit could result in significant additional costs.
No. I from initial operation until the end of the At the beginning of 1987, credit arrangements deferral period would be used to reduce fuel cost with banks totaled some $2.3 billion, of which ap-recovery rates over a period specified by the GPSC.
proximately $524 million expires at various times during 1987 and 1988, $200 million on April 30, 1990, and $1.565 billion on December 31,1990.
Georgia Power was granted a low-power license The $200 million expiring in April,1990, is un-l.
for Plant Vogtle Unit No. I by the NRC on Janu-der Alabama Power's revolving credit agreements.
ary 16,1%7. This license permits Georgia Power These agirements require the payment of a com-to load fuel and operate Unit No. I at five-percent mitment fee based upon the unused portion of the power to continue preoperational test, g. If testmg commitments which, in the case of eight of the m
and hcensing remain on schedule, Georgia Power agreements and at the option of Alabama Power, expects to receive a full-power license from the may be offset in whole or in part by the main-NRC by April,1987, and move to commercial tenance of balances with the respective banks.
operation by June,1987. Georgia Power still must The $1.565 billion expiring in December,1990, obtain all operating licenses for Unit No. 2. Any represents revolving credit arrangements of delay m the hcensmg process will result in signifi-Georgia Power, of which $113 million was out-cant additionalcosts.
standing at December 31,1986. During the term StockholderDerivative Suit of these agreements, Georgia Power may convert On April 30,1986, a stockholder of The Southern short-term borrowing into term loans, payable in Company brought a derivative action suit against 12 equal quarterly installments during the years certain current and former directors of The 1991 through 1993, or at an earlier date at Georgia Southern Company and Georgia Power. The Power's option. These term loans would be sub- '
complaint alleges that the directors breached their ject to authorization from the GPSC and the SEC.
fiduciary duty and were negligent in connection In connection with these credit agreements, Georgia with the construction of Plant Vogtle and the Power has agreed to pay certain fees and/or main-4 Rocky Mountain project. The suit seeks damages tain compensating balances with the banks.
from the directors of not less than $800 million In connection with all other ! nes of credit, the which, if awarded, would be payable to The companies maintain compensating balances, which Southern Company and Georgia Power.
are substantially all the cash of the companies ex-cept for daily working funds and like items. These i
balances are not legally restricted from withdrawal.
The outcome of the various uncertainties related to The amounts of long-term debt, preferred Plant Vogtle cannot now be determined, stock, and common stock which can be issued in the future will be contingent on market condi-
- 4. Financing and Fuel Commitments:
tions, the maintenance of adequate earnings levels, 4
I Financing regulatory authority, and other factors. At Decem <
.,1986, each of the operating companies had To the extent possible, the subsidiary companies' sufficient coverages to permit the sale of addition-construction programs are expected to be financed albonds and preferred stock.
from the issuance of additional long-term debt t-and preferred stock, from the receipt of additional FuelCommitments
]
paid-in capital provided by The Southern Company To supply a portion of the fuel requirements of the from the sales of common stock, and from internal system's generating plants, the subsidiary compan-sources. Should The Southern Company and sub-ies have entered into various long-term commit-sidiary companies be unable to obtain funds from ments for the procurement of fossil and nuclear these sources, the companies would have to use fuel. In most cases, these contracts contain provi-short-term indebtedness or other alternative, and sions for price escalations, minimum production possibly costlier, means of financing, or it could 1
45
levels, and other financial commitments. Addi-joint owners. Each participant provides its own tional commitments for coal and nuclec fuel will construction financing. Georgia Power would have be required in the future to supply the subsidiary to obtain additional financing in the event of a companies' fuel needs.
participant being unable to obtain sufficient fi-In order to take advantage oflower cost coal nancing. Georgia Power's proportionate share of supplies that are currently available, agreernents plant operating expenses is included in the corre-were reached in December,1986, for the termina-sponding operating expenses in the Consolidated '
tion of two contracts for the supply of coal to Statements ofIncome.
Plant Daniel, which is jointly owned by Gulf In connection with these sales, Georgia Power Power and Mississippi Power. Payments made to has entered into agreements whereby it is required suppliers totaled $121,326,000. This amount is be-to purchase declining fractions of OPC's and ing amortized on a per-ton basis to the cost of the MEAG's capacity and energy of the respective replacement coal to match costs with savings generating units during periods of up to 10 years -
achieved.
following commercial operation (and, with regard to a portion of the five-percent additional interest
- 5. Facility Sales and Joint Ownership Agreements:
in Plant Vogtle purchased by MEAG, until the Georgia Power has sold undivided interests in latter of the retirement of the plant or the latest Plants Hatch, Wansley, Scherer, and Vogtle in vary.
stated maturity date of MEAG's bonds issued to ing amounts, together with transmission facilities, finance such ownership interest), with the pay-to Oglethorpe Power Corporation (OPC), the ments for such capacity made whether or not any Municipal Electric Authority of Georgia (MEAG),
capacity is available. The energy cost of these pur--
and the city of Dalton, Georgia. These sales re.
chases is a function of each entity's variable oper-sulted in a gain, after income taxes, of $21,250,000 ating costs. The cost of such capacity and energy in 1984. There were no such sales in 1985 or 1986.
is included in purchased and interchanged power The gain in 1984 resulted primarily from the sale in the Consolidated Statements of Income. The of a five-percent additional undivided interest in capacity payments totaled $142,719,000, Plant Vogtle to MEAG.
$187,131,000, and $211,352,000 for 1986,1985, At December 31,1986, Georgia Power's per.
and 1984, respectively. The current projected centage ownership and investment in jointly capacity payments for the next five years are as owned facilities with the above entities were follows: $353 million in 1987; $434 million in as follows:
1988; $437 million in 1989; $463 million in 1990; and $373 million in 1991. These payments reflect G m giaPo =
the additional buybacks resulting from the com-Co ion mercial operation of Plant Vogtle Unit Nos. I and
.rd h
PWn Capacity Ownership Service Progress 2 as scheduled in the March,1987, budget revision.
(mes, orts >
(ininousands; See Note 3 for discussion of cost disallowances of (n51 ar) ad paymes Mah Mant We-1,630 50.1% 5738,181 s 109,467 Plant Wansley (coal) 1,779 53.5 291,073 783
- 6. Possible Sale of an Interest in Plant:
Plant Scherer (coal)
An order of an appeal board of the NRC in an Unit Nos.1 & 2 1,636 8.4 82,439 109 antitrust review resulted in conditions being im-common posed on the NRC licenses for Alabama Power's facil ti 23.5 68,459 12,514 Plant Farley which require Alabama Power to sell (nuclear) 2,320 45.7 15,733 3,148,452 an ownership interest of approximately six percent in Plant Farley to Alabama Electric Cooperative, Georgia Power has contracted to complete those Inc. (AEC) and to provide transmission services to jointly owned units under construction and to AEC and municipal electric distributors. Alabama -
operate and maintain the units as agent for the Power has engaged in negotiations with AEC for 1
~ -..
such sale. On June 29,1984, AEC filed with the long-term nonfirm power has been sold to NRC a request that the NRC institute a proceed-Florida Power & Light Company (FP&L), Jack-ing which could lead to imposition of sanctions.
sonville Electric Authority (JEA), Florida Power against Alabama Power for alleged violations of Corporation, and Mississippi Power & Light such license conditions. Discussions among the Company. These contracts expired at the end of parties, the NRC staff, and the NRC's Director of 1986, which will substantially reduce such sales be-Nuclear Reactor Regulation have been conducted; ginning in 1987. Similar contracts with Gulf States however, no agreement was reached. On June 16, Utilities Company (Gulf States) and the city of 1986, the NRC Director of Nuclear Reactor Regu-Tallahassee, Florida, expire in 1992 and 2000, lation issued a notice of violation which pertains respectively.
solely to the license conditions associated with the Unit power from specific generating plants is antitrust hearings and has no relation to safety or being sold to FP&L, JEA, and Gulf States. Under environmental matters. Alabama Power responded these agreements, approximately 3,100 megawatts to the notice on August 27,1986, denying viola-of capacity is scheduled during the period 1987 tion of the license. Under NRC procedure, the through May,1992. Thereafter, these sales will notice of violation must be issued before a pro-decline until the expiration of the contracts in j
ceeding is initiated to determine the existence of an May,1995.
alleged violation of the license. If satisfactory res-On July 2,1986, Gulf States filed suit in the olution of the issues raised in the notice is not United States District Court for the Eastern Dis-i reached with the NRC staff, a show cause order trict of Texas against The Southern Company, its could be issued and a proceeding commenced to operating subsidiaries, and the system service determine whether Alabama Power has negotiated company. The complaint seeks a judgment declar-in good faith with AEC and whether the terms of ing that Gulf States is excused from further obliga-the sale offered by Alabama Power are reasonable.
tion under its unit power and other long-term power sales contracts with the operating subsidi-
- 7. Off-System Sales Agreements:
aries and awarding Gulf States unspecified The operating subsidiaries of the Southern electric damages. Gulf States alleges, among other things, system have entered into long-term contractual that the Southern electric system failed to negoti-I agreements for the sale of capacity and energy to ate and renegotiate in good faith to reduce the j
certain nonaffiliated utilities located outside of the amount of capacity purchases under the contracts i
system's service territory. Certain of these agree.
and engaged in fraudulent conduct in entering
~
ments are nonfirm and are based on capacity of into the contracts. On August 29,1986, the court the system in general. Other agreements are firm made permanent an earlier interim order permit-and pertain to capacity related to specific gen.
ting Gulf States to make payments due under such erating units. Because the energy is generally sold contracts by depositing funds with the court pend-at cost under these agreements, it is primarily ing the outcome of the suit. A motion by the revenues from capacity sales that impact profita.
Southern electric system seeking dismissal of the bility. Off-system capacity revenues have been suit, based upon grounds that the FERC has juris-l diction over the subject matter, was denied by the
}
as follows:
court. Both of these orders have been appealed to Unit oeiwr the U.S. Court of Appeals for the Fifth Circuit.
Year Power long-Term Total The outcomeis pending.
(in thousands)
During October and November of 1986, Gulf States received orders from the Public Utility 1986
$408.163
$114.937
$523,100 Commission of Texas and the Iouisiana Public 1985 411,180 122,922 534.102 Service Commission which disallowed the recov-I 1984 165,210 119,098 284,308 ery of the capacity charges to Gulf States under the unit power and other long-term power sales l
1 47 f
., ---++
-e.-
.6
--w
-4 y
s--,
m
contracts which are allocable to the Texas and management's opinion, the outcome of the law-Louisiana jurisdictions. As a result of this action, suit will not have a materialimpact on the com-Gulf States has advised the company and its sub-pany's 1986 financial statements; however, the sidiaries that the capacity charges for unit power ultimate outcome of this matter cannot now be and other long-term power sales allocated to the determined.
Texas and louisiana jurisdictions would not be Capacity and energy sales to FP&L, the deposited with the court or paid to the company.
Southern electric system's largest single customer, In other related matters, on August 28,1986, provided revenues of $556 million in 1986 and Gulf States filed a complaint with the FERC ask-
$753 million in 1985, or eight percent and 11 per-ing it to declare such unit power and other long-cent, respectively, of conwlidated revenues.
l term power sales contracts to be unlawful under the Federal Power Act and requesting the FERC to
- 8. Income Taxes:
modify or void such agreements as necessary t -
A detail of the federal and state income tax provi-bring them mto comphance with the Act. The sys-sionsis shown below:
tem service company, as agent for The Southern Company's operating subsidiaries, had previously 1986 1985 1984 filed a petition asking the FERC, among other Total provision forincome taxes:
things, to declare that it has junsdiction over such rederal-power sales contracts and to issue an order direct-currently payable 5 43,272 51 %,121 5 74,067 ing Gulf States to show cause why its actions, in-Deferred-current year 492,424 307,787 343,550 cluding the filing c the suit referred to above,
-]fye[
p 09,947) ( %,686) (122,978) do not constitute an attempt to circumvent the Deferred investment FERC's jurisdiction. The FERC subsequently is-tax credits 131,473 180,707 242,989 sued an order concerning the Southern electric 587,222 587,929 537,628 system's petition to the FERC regarding jurisdic-state -
tion over the contracts. The order states that the Currently payable 14,746 36,990 45,581 Derened-cu 53,820 35,312 30,625 taining to the contracts (for example, justness and 7
FERC has jurisdiction over certain matters per-prior years (5,385) 0,410) (10.7%)
reasonableness of the rates, the interpretation of 63,181 64,892 65,410 certain sections, and other issues). The order also Tbtal 650,403 652,821 603,038 provides for an administrative law judge to be as-Iessincome taxes charged t therincome 21 18,800 41,847 signed for the purpose of holding a hearing and issuing a ruling. The order also states that the rederaland stateincome axesc ns
,191 FERC does not have jurisdiction over the question of whether the Southern electric system negotiated Deferred income taxes result primarily from the m good faith to reduce the amount of capacity companies' use of accelerated methods of depreci-purchases and engaged in fraudulent conduct in ation and other write-offs of property costs, as entering the contracts. The admimstrative law provided for by the income tax laws, being greater Judge is scheduled to rule on these matters by than the book depreciation of such costs. Other April 28,1987, deferred income taxes are provided for certain Revenues for 1986 include sales to Gulf States costs or revenues that are recognized for income for unit power and other long-term power sales tax purposes in periods different from those used amounting to $178 million, of which some $75 mil-for book purposes. Income taxes deferred in prior lion was deposited with the court or withheld by years are reversed and charged or credited to in-Gulf States. Because of disclosure in reports filed come when the book depreciation of property with the SEC by Gulf States concerning its finan-costs exceeds the related tax deductions or when cial condition, approximately $25 million, after other timing differences reverse. Deferred invest-taxes, has been excluded from The Southern ment tax credits are amortized over the life of the Company's 1986 consolidated net income. In related property with such amortization applied as 48
a credit to reduce depreciation in the Consolidated
- 10. Other Iong-Term Debt:
Statements of Income. These credits amounted t Details of other long-term debt are as follows:
$37,315,000 in 1986, $35,773,000 in 1985, and
$23,356,000 in 1984. At December 31,1986, all December 31, investment tax credits available to reduce federal 1986 1985 income taxes payable had been utilized.
(in thousands)
The provision for income taxes currently paya-obgat cau$o$t nsinc t
}e by p ble includes the tax effects of the reversal of pnor of tax-exempt pollution control yearv timing differences for which deferred in-revenue bonds-come taxes were not provided. At December 31, collateraliz -
g 1986, the remaining balance of such timmg differ-to 2013 s 565,530 5 565,530
)
ences was approximately $257 million, for which Noncollateralized-deferred income taxes of some $125 million (at 5.9% to 7.4%-due serially l98G 1986 tax rates) have not been provided.
8.5 an 11% due 1994 The total provision for federal income taxes 9% and 9.125% due 1995 and 2004 18,700 18,700 as a percentage of income before federalincome 7.25% to 9.5% due 2003-2006 51,200 51,200 tax amounted to 36.9 percent,38.3 percent, and 7.2% to 9.2% due 2007-2010 92,250 92,250 39.4 percent for 1986,1985, and 1984, respectively.
y5. to 2 I
5 t The difference between the rates and the federal 9.25% to 10.6% due 2015 681,500 681,500 statutory rate of 46 percent was due primarily to 7.4% to 8% due 2016 77,400 the exclusion from taxable income of the allow-Adjustable interest rate -
d ance for equity funds used during construction g,,,junds o 1303 13 e sit i rustees 4
(9.1 percent in 1986,8.1 percent in 1985, and 2,137,517 1,772,484 7.2 percent in 1984).
capitalized lease obligations-See Management's Discussion and Analysis for Nuclear fuel 105,079 53,051 information on the impact of the Tax Reform Act coal railcars 9,396 11,354 of 1986 and proposed new rules on accounting for gdlmgs 159 2 15 income taxes.
278 m 22M l.
- 9. Cumulative Preferred Stock Subject to 6$e aid $6 e duc 1986 739 Mandatory Redemption:
8.75% due 1986-1989 7,300 9,750 9.5% due 1986-1990 800 1,000 The requirements for preferred stock subject 9.75% due 1986-2010 11,119 11,240 to mandatory redemption through 1991 total 8.25% due 1987-1995 121,326
$12,000,000 per year. At December 31,1986, Non-interest bearing due 1988 700
$382,000 of preferred stock had been reacquired,
$5 u 1991 which will be used to meet future years' sinking 11.25% due 1993-1995 20,000 20,000 fund requirements.
8.51% due 1996-1997 25,000 In 1986, Alabama Power redeemed the entire Adjustableinterest rates series (1,600,000 shares) of 15.68-percent preferred d".67$. to (6
5% at 1/1/87) 23,100 17,500 stock which had a stated value of $25 per share.
due 1991-1993 The associated redemption premium of $4,704,000 (6.8% to 7.63% at 1/1/87) 113,000 was used to offset the $1,476,000 gain on previous-d"$$3
(
gy g
ly reacquired preferred stock, and the $3,228,000 374,845 110,229 balance was charged to retained earnings.
Total 52,700,826 52,109,898 Also, in January,1987, Alabama Power and Gulf Power exercised options to redeem additional preferred stock amounting to $2,500,000 and
$500,000, respectively.
49
r.
The subsidiary companies have authenticated the indentures prior to January I of each year, and delivered to trustees a like principal amount other than those securing pollution control obliga-of first mortgage bonds as security for oblige.tions tions. The requirements may be satisfied by under collateralized installment sale or loan agree-depositing cash or reacquiring bonds, or by pledg-ments. The principal and inteiest on the first ing additional property equal to 166% percent of mortgage bonds will be payable only in the event such requirements.
of default under the agreements.
- 12. NuclearInsurance:
Assets acquired under capital leases are record-ed as utility plant in service and the related obliga-Under the Price-Anderson Act, Alabama Power tion is classified as other long-term debt. The net and Georgia Power maintain agreements ofin-book value of capitahzed leases was $262,514,000 demnity with the NRC which, together with pri-and $220,431,000 at December 31,1986 and 1985, vate insurance, cover third-party liability arising respectively. At December 31,1986, the composite from any nuclear incident occurring at the com-interest rates for nuclear fuel, coal rail cars, build-panies' nuclear power plants. The Act limits to
{
ings, and other were 7.03 percent,9.56 percent,
$700 million public liability claims that could arise 9.55 percent, and 12.44 percent, respectively. Sink-from a single nuclear incident. The companies' ing fund requirements and/or serial maturities nuclear plants are insured against this liability to a through 1991 applicable to other long-term debt maximum of $160 million by private insurance are as follows: $53,475,000 in 1987; $69,152,000 in (the maximum amount currently available). The 1988; $42,183,000 in 1989; $60,202,000 in 1990; remaining coverage is provided by a mandatory and $78,625,000 in 1991.
program of deferred premiums which would be as-sessed after a nuclear incident against all owners
- 11. Iong-Term Debt Due Within One Year:
of nuclear reactors. A company could be ascaued A summary of the improvement fund require.
Up to $5 million per incident for each licensed ments and scheduled maturities and redemp-reactor it operates, but not more than $10 milh,on tions of long-term debt due within one year is to be paid m, a calendar year. On the basis of as follows:
Alabama Power's ownership of two reactors m, service and Georgia Power's ownership interest of 1984 1985
$0.1 percent in Plant Hatch Unit Nos. I and 2 and (in thousands) 45.7 percent in Plant Vogtle Unit No.1, the com-Bond sinking fund requirements 5 63,802 5 M,21I panies could be assessed a maximum of $10 mil-Portion to be satisfied by bonding li n and $7.3 million, respectively, for any such property additions 2,860 incident, but not more than $20 million and Reacquired bonds 3.935 3,943
$14.6 million, respectively, to be paid in ar y one Cash sinking fund requirements 57,007 60,268 year. The current Price-Anderson legislation ex-First mortgage bond maturities pires in 1987. Bills to amend the Price-Anderson
' 8' n$ter n debt maturities Act, including proposals to substantially increase, ot r (Note 10) 53,475 5_l,526 modify, or eliminate the limitation on liability pro-Total
$236,320 $290,547 visions, were introduced but not enacted during 1986. The company expects that similar legislation The first mortgage bond improvement (sinking) will be proposed in 1987.
fund requirements amount to one percent of each Alabama Power and Georgia Power are mem-outstanding series of bonds authenticated under bers of Nuclear Mutual Limited (NML), a mutual insurer established to provide property damage insurance in an amount up to $500 million for members' nuclear generating facilities. The mem-50
bers are subject to a retrospective premium adjust.
- 14. Assets Subject to Lien:
ment in the event that losses exceed accumulated The operating companies' mortgages, as amended funds. Alabama Power's and Georgia Power's and supplemented, which secure the first mort-maximum assessments are limited to $31.7 milh.on gage bonds issued by the companies, constitute a and $24.3 million, respectively, under current direct first lien on substantially all of the compan-pohcies.
ies' fixed property and franchises.
Additionally, both companies have policies which currently provide coverage up to $730 mil-
- 15. Quarterly Financial Data (Unaudited):
hon for losses m excess of the $500-million NML l
coverage. This excess insurance is provided by Summarized quarterly financial data for 1986 and l
Nuclear Electric Insurance Limited (NEIL), a 1985 are as follows:
mutualinsurance company, and American First Second Third Fourth Nuclear Insurers / Mutual Atomic Energy Liability ou,rie, ouarter quarter Quarter Underwriters. These policies cover both decon-carnounis in thousanss exceptforper-s..are sata) tamination and debris removal, as well as excess
$ratingrevenues si.585,592 $1,667,748 $1.988,471 si,604,780 property damage. NEIL also covers the extra costs operating income 272.273 266,i90 388,322 246.897 which would be incurred in obtaining replacement consolidated net i
power during a prolonged accidental outage at a p,,"C "'
om non share member's nuclear plant. Members are insured Earnings 0.71 0.68 I,14 0.64 against increased costs of replacement power in an Dividends paid 0.51 0.51 0.51 0.53 %
amount up to $3.5 million per week (crting i,ss 26 weeks after the outage) for one year and up to operatins revenues $1,592,509 si,697,850 $1,920.248 $1,603,320 e
274,958 278,8M 357,602 2M,148
$1.75 million per week for the second year. Unifer
,P*'i",8,$,*g oii 3 each of the NEIL policies, mcmbers are subject to income 195,293 189,757 277,039 167,501 assessments if losses vith respect to each policy Pe mon share year exceed the accumulated funds available to the Dividends paid 0.48 0.48 0.48 0.si insurer under that policy. The present maximum assessments under current policies for Alabama The company's business is influenced by sea-Power and Georgia Power for property damage sonal weather conditions and the timing of rate would be 59.0 million and $8.6 million, respective-increases.
ly, and $11.7 million and $6.2 million, respectively, under the replacement power policy. Georgia Power will also become subject to an assessment under the replacement power policy for its share of the Plant Vogtle reactor after it begins commer-cial operation in 1987.
- 13. Common Stock Dividend Restrictions:
The income of The Southern Company is derived primarily from equity in earnings of its aperating subsidiaries. At December 31,1986. $275,364,000 of consolidated earnings retained in the business was restricted against the paymant by the operat-ing companies of cash dividends on common stock under terms of bond indentures or charters.
51
SELECTED CONSOLIDATED FINANCIAL DATA The Southern Company and Subsidiary Companies 1986 1985 1984 Operating Revenues (in thousands)-
Residential
$1,915,804
$1,754,763 51,685,706 Commercial 1,553,205 1,457,705 1,359,343 Industrial 1,817,415 1,801,748 1,763,202 Sales for resale 510,768 436,328 455,842 Sales to utilities outside territory 944,882 1,262,659 776,889 Other 45,984 44,125 41,041 Total re,'enues from sales of electricity 6,788,058 6,757,328 6,082,023 t
Other revenues 58,533 56,599 41,% 2 Total
$6,846,591
$6,813,927
$6,123 98_5_
t Consolidated Net income (in thousands)- as reported S 882,860
$ 829,590
$ 719,669
- pro forma *
$ 882,860
$ 829 590
$ 719,669_
1 Total Earnings Per Share of Common Stock - as reported
$3.17
$3.20
$3.00
- pro forma *
$3.17
$3.20
$3.00 Cash Dividends Paid Per Share of Common Stock
$2.06%
$1.95
$1.83 Return on Average Cornmon Equity (percent) 15.57 16.64 16.58 Total Assets (in thousands) 518,141,116
$16,531,495
$15,003,960 Imag-Term Debt (in thousands) 57,674,704
$7,091,672
$6,638,085 Preferred Stock Subject to Mandatory Redemption (in thousand;)
$167,250
$183,000
$194,224 Gross Property Additions (in thousands)
$2,340,293
$2,211,265
$2,100,450 Common Stock Data:
Book value per share (year-end)
$21.09
$19.83
.$18.55 Market price (year-end) 25's 22%
18%
Shares outstanding (in thousands):
Average 278,897 259,543 239,784 Year-end 284,914 268,884 250,052 Stockholders of record (year-end) 287,237 307,878 325,200 Kilowatthour Sales (in thousands):
Residential 28,478,855 26,161,247 25,279,047 l
Commercial 23,419,553 21,817,973 20,147,559 Industrial 39,987,141 39,290,289 38,536,6 %
Sales for resale 14,346,938 11,078,592 11,192,588 Sales to utilities outside territory 16,548,419 27,082,537 18,750,335 Other 631,454 626,201 578,585 Total 123,412,360 126,056,839 114,484,812 Customers (3 ear-end) 2,955,644 2,880,552 2,800,532 Employees (year-end) 31,700 31,701 31,121 Masimum Peak-Hour Demand (kilowatts) 22,739,200 21,287,800 19,771,600 System Capability ** (kilowatts) 24,768,300 24,931,700 26,165,200 Plant Availab!Iity(petrent):
Fossil-steam 90.6 90.4 90.9 Nuclear 74.2 80.3 66.9 AnnualImad Fac2.>r(percent) 57.2 57.4 58.9 Average Revenue Per Kilo'*atthour (cents):
Totalsales 5.50 5.36 5.31 Residentialsales 6.73 6.71 6.67 AgCost of Fuel Per Net Kilowatthour Generated fcents) 1.89 1.95 1.95
- Georgia Ibwer, in 1982, andMississippi Power, in 1983, began accruingfor service rendered but unbilled at the end ofeachfiscalperiod.
The effect of this change was to increcse income before the cumulative effectfor priorperiods by $498,000 in 1982 and $4,987,000 in 1983. Proforma amounts assume retroactive application of this change in method ofrecording revenues.
- Excludes 2,337,004 2,423.000, 964,000, and 634,000 kilowatts ofcapabilityfrom specific generating units sold under long-term contracts 52 to three non@ated utHitiesfor theyears M6, M3, M4, and 1983, respecthely.
l 1983 1982 1981 1980 1979 1978 1977 1976
$1,577,742
$1,469,107
$1,286,103
$1,186,206
$ 952,085
$ 914,625
$ 828,200
$ 673,653 1,236,007 1,173,323 985,106 879,291 742,865 689,349 689,945 589,680 1,573,116 1,480,187 1,367,715 1,199,204 1,056,675 922,288 773,447 619,640 439,038 446,199 397,585 336,984 326,309 324,351 298,834 265,957 I
507,909 278,234 161,581 110,243 2,955 12,460 19,846 -
19,050 I
_ 37,004 34,206 29,385 26,216 22,050 20,252 18,760 16,516 5,370,816 4,881,256 4,227,475 3,738,144 3,102,939 2,883,325 2,629,032 2,184,4 %
47,227 45,927 28,762 25,339 25,230 23,347 23,053 15,035
_55,4_18,043
$ J4 27,183
$4,256,237
$3,763,483
$3,128,169
$2,906,672
$2,652,085
$2,199,531
$ 590,326 5 472,331
$ 325,979 5 344,395
$ 219,127
$ 201,568
. $ 245,067 5 194,573
$ 583,527
$ 449,401
$ 330 951 5 345J29
$ 215,554
$ 202,253
$ 250,998
$ 196,357 1
$2.70
$2.38
$1.81
$2.23
$1.51
$1.45
$1.95
$1.62
$2.61____$2.26
_51.84
$2.24
$1.49
$1.46
$1.99
$1.6_4
$1.72%
$1.66
$1.62
$1.56
$1.54
$1.54
$1.48
$1.41%
15.65 14.26 10.94 12.91 8.90 8.44 11.10 9.91
$13,475,3M
$12,301,201
$11,198,120
$10,378,699
$9,568,610
$9,011.366
$8,332,620
$7,473,500
$6,293,732
$6,104,179
$5,754,200
$5,226,851
$4,769,066
$4,522,888
$4,221,694
$3,744,495
$201,74
$211,234
$217,%3
$152,000
$149,750
$155,000
$155,000
$155,000
$1,70J6to
$1490,529
$1,288,022
$1,229,932
$1,164,956
$1,082,431
$1,218,404
$994,839
$17.60
$16.78
$16.35
$16.80
$16.80
$17.05
$17.21
$16.81 16%
15%
12 12%
11%
13%
17%
16%
218,556 198,800 180,139 154,392 145,038 139,005 125,846 120,072 229,590 208,824
-190,957 168,697 148,745 142,102 136,772 122,807 339,978 346,595 347,119 345,335 341,401 342,482 328,135 292,759 24,580,329 24,095,512 24,239,470 24,651,737 22,645,723 23,606,119 22,829,156 20,985,791 18,881,778 18,409,993 17,714,872 17,282,986 16,433,689 16,586,919 17,763,462 16,741,455 35,121,845 33,369,042 35,451,363 34,833,664 34,912,745 33,524,232 30,067,083 28,334,488 10,828,900 11,109,091 11,138,306 11,154,735 11,503,407 12,486,242 13,338,339 12,745,214 12,029,933 9,254,302 5,145,292 4,023,960 64,102 392,240 934,978 1,138,673 564,947 548,803 527,828 512,159 461,008 439,235 420,487 410,239 102,00L73_2 96,78_6,743_
94,217,131 92,459,241 86,020,674 87,034,987 85,353,505 80,355,860 l
2,723,923 2,659,494 2,619,673 2,565,461 2,522,284 2,472,646 -
2,415,939 2,363,877 l
30,875 29,882 28,944 27,940 26,540 26,465 24,632 22,385 i
20.517,600 17,840,100 19,412,500 19,553,100 18,015,300 18,172,900 16,973,700 16,683,500 25,877,400 26,435,300 25,834,000 23,694,600 23,986,500 23,356,400 21,988,100 21,002,900 90.8 89.8 37.3 86.5 84.9 83.9 78.7 75.4 75.8 67.9 61.7 69.6 47.5 79.6 66.4 83.1 53.9 59.8 56.5 55.6 58.3 58.1 60.6 58.2 5.27 5.04 4.49 4.04 3.61 3.31 3.08 2.72 6.42 6.10 5.31 4.81 4.20 3.87 3.63 3.21 1.9_0 l.93 1.81 1.61 1.52 1.36 1.27 1.13 53
THESOUTHERNELECTRICSYSTEM AAA 44 Y
A inimonnation
,-sm.
- ~.,
m.,-
.~.3 3 m. m.
~. _. - -
~,
i 11986 data
~ Netlaceae -
Reture on EBenetthour ;
l Opeenting Aftee Dividends, /- Aveenge.
. Bond-
-Total Assets Revenees.
-- On Feefemd Steek Common Equity Rosings* ~
( Sales (in thousands) (in th>usends) lin thousands) -
- (parentJ *
(in thoensands) -
0 Aishman Power 55,570,653 4 $2,425,751 - - $273,456 ~
15.12 -
'Al/A/6; 141,776,403 3
s--
' Geessia Power.-
.310'465,063 53,461,7641 $535,003; 1 6.51 i Baal /BBB+/9164 863151.
1 Gulf Power ~.
51,028,864 $ ? $15,806 $ 46,421 >
15.06f '
J Al/A+/4
- 8,245,764:
i h Mississippi Power -l 15 _ 767,1101 $
- 1. 454,008 $ 33,814 -
~
1 5.28 -
(Al/A+/5
.8,542,060 1
L
[. Southern Company Services -- an organization of nearly 3,000 emplo3tes who provide en at cost, to the other members of the Southern electric system.-
~
- Southern Electric International - a consulting subsidiary formed in 1982 to market the Southern electric system's i technical expertise to utilities and industrial firms worldwide, 1
[ The Southern Investment Group - an investment subsidiary established in 1985 to dottop new business opportunities.
- Current retings onfirst enortgage bonds assigned by Moody's investors Service, St.'ndard & Pbor's Corporation, and Duff & Phelps lac, respectively,.
^ 1 v.-
L.
... ~ a.,... a r..
-a
.,.x~.
u 54
STOCKHOLDER INFORMATION Listed below are materials traded on the New York Stock Direct Deposit l
that may be helpful to investors.
Exchange. In addition, the stock Of Dividend Payments Fcrm 10-K is traded on regional exchanges Upon request, The Southern across the United States. (The Company willmaila stockholder's A copy of Form 10-K as filed with ticker symbol for Southern dividend check directly to a finan-the Secunties and Exchange Com-Company stock is SO. The symbol cial institution for deposit. Direct mission will be provided without SouthCo is used in newspaper deposit order forms are available charge to stockholders upon re-stock listings.)
from Stockholder Services.
quest to the office of the Cor-porate Secretary. The company's Common Stock Data Annual Meeting Financial and Statistical Review Dividends Price Range The 1987 annual meeting of and annual reports of the system Per Share High low stockholders will be held on operating companies are also 1986 Wednesday, May 27, at available on request.
First Quarter 5.51 24M 21%
10:00 a.m. (EDT) at the msette Recordings Second Quarter
.51 25 204 Ritz-Carlton, Buckhead, in Third Quarter
.51
.7 <.
.3 Atlanta, Georgia. A report on Audio cassette recordings of the Fourth Quarter
.53% 27 24 1986 annual report are available the meeting will be mailed to Total
$2.063 stockholders and also will be without charge as a service t available on request to Corporate the visuallyimpaired. Requests Dividend Payments Information~
should be directed to Corporate Inf nnation.
The board of directors sets the record date and payment date Milling List for Publications for each quarterly dividend. For The Southern Company main.
1987, the record dates are Feb-tains a mailing list for stock.
ruary 2, May 4, August 3, and holders whose shares are not held November 2. Payment dates for The Southern Company in their own names and for other dividends declared during 1987 64 Perimeter Center East interested parties. Requests to be are March 6, June 6, September 5, Atlanta, Georgia 30346 added to this list should be sent to and December 5.
(4N) 393-0650 Corporate Information.
Dividend Reinvestment Plan Transfer Agent,
^ "'
Stockholder Inquiries The Dividend Reinvestment and Re s me Agent, Questions regarding ownership Stock Purchase Plan provides a of Southern Company stock, the convenient method for stock-And Registrar status of an account, or inquiries holders to acquire additional S uthern Company Services, Inc.
about the company's operations shares through the investment of Stockh rS pOB 88 M may be directed to Stockholder quarterly dividends and through Services (404) 668-2774.
optional cash payments. For each Atlanta, Georgia 30346 account, stockholders can make (4N) 668-2774 InstitutionalInvestor Inquiries optional cash payments from a Auditors The Southern Company main-minimum of $25 per payment to a Arthur Andersen & Co.
tams an mvestor relations office maximum of $6,000in a calendar 133 Peachtree Street, N.E.
quarter. The company charges no Atlanta, Georgia 30303 (212) 269-8842 - to meet the,n-service fee or commission for the i
formation needs ofinstitutional purchase of stock, and all stock-Legal Counsel
(
investors.
holders of record are eligible to Troutman, Sanders, I
Common Stock Listing participate. A prospectus describ-Lockerman & Ashmore The common stock of The ing the plan and the method for 127 Peachtree Street, N.E.
Southern Company is listed and determining the price of the shares Atlanta, Georgia 30043 may be obtamed from the office l
of the Corporate Secretary.
55 a
(
THESOUTHERNCOMPANY k
OFFICERS DIRE CTORS Joseph M. Farley William J. Rushton,111 President Chairman and Chief Edward L Addison Edward L Addison Alabama Power Company Executive Officer President President Birmingham, Alabama Protective Life Corporation Age 56; 32 years of service The Southern Company Age 59; elected 1970 (Life and health insurance)
Atlanta, Georgia Birmingham, Alabama W.L Westbrook Age 56; elected 1978 LG. Hardman, Ill Age 57; elected 1971 l
Financial Vice President Chairman of the Board, Age 47; 22 years of service Alan R. Barton President, and Treasurer Robert W. Scherer President Harmony Grove hiills,Inc.
Chairman of the Board Alan R. Barton hiississippi Power Company (Textile manufacturing) and Chief Executive Officer Vice President Gulfport, hiississippi Commerce, Georgia Georgia Power Company Age 61; 38 years of service Age 61; elected 1982 Age 47; elected 1986 Atlanta, Georgia Age 61; elected 1977 A.W. Dahlbe William J. Cabaniss, Jr.
Douglas L McCrary Vice President President President Dr. Gloria M. Shatto Age 46; 26 years of service Precision Grinding,Inc.
Gulf Power Company President (hietal machining)
Pensacola, Florida Berry College Birmingham, Alabama Age 57; elected 1983 hiount Berry, Georgia Joseph M. Farley Age 48; elected 1985 Age 55; elected 1984 Vice President Earl D. McIsan, Jr.
Age 59; 34 years of service Charles H. Chapman, Jr.
Principal Partner Herbert Stockham Chairman of the Board T.C. Griffith Chairmanof theBoard Douglas L McCrary Chapman Corporation Insurance Agency,Inc.
and President Vice President (Construction, real estate)
Columbia, hiississippi Stockham Valves & Fittings, Inc.
Age 57; 33 years of service Dothan, Alabama Age 61; elected 1985 Birmingham, Alabama Age 66; elected 1984 Age 58; elected 1978 Robert W. Scherer William A. Parker,Jr.
Vice President William P. Copenhaver Chairman of the Board Vince Whibbs Age 61; 40 years of service President Cherokee Investment Chairman of the Board Columbia Nitrogen Corp.
Company, Inc.
Vince Whibbs Pontiac.GhtC Tommy Chisholm (Agriculturaland industrial (Private investments)
Trucks,Inc.
Secretaryand Assistant chemicals)
Atlanta, Georgia Vince Whibbs hlazda Company Treasurer Augusta, Georgia Age 59; elected 1973 First h1utual Savings Association Age 45; 22 years of service Age 62; elected 1986 Pensacola, Florida H.G. Pattillo Age 66; elected 1986 William A. Maner,III A.W. Dahlberg President and Treasurer and Assistant President Chairman of the Board Secretary Southern Company Pattillo Construction Age 47; 21 years of service Services, Inc.
Company, Inc.
Birmingham, Alabama Decatur, Georgia Age 46; elected 1985 Age 60; elected 1972 Virginia A. Dwyer Robert H. Radcliff,Jr?
Retired Senior Vice Chairman of the Board President - Finance htidstream Tuel Service, Inc.
American Telephone &
(Generalmarine services)
Telegraph Co.
hiobile, Alabama New York, New York Age 69; elected 1966 Age 65; elected 1986
- Retires November 14,1987.
I 1
l l
56
ADVISORY DIRECTOR SYSTENI CON 1PANIES
~ ~ "
Alabama Power Alsin W. Vogtle, Jr.
600 North 18th Street Former Chairman of the Board The Southern Company Birmmgham, Alabama 35291
- 3 Atlanta, Georgia (205) 250-1000 Age 68; elected 1962 Georgia Power Named (visor > Director,1983 333 P edmont Avenue, N.E.
Atlanta, Georgia 30308 1907 CO N11TTEES 6526 OF Till* )ARD Gulf Power Audit Chmmittee 500 Bayfront Parkway William J. Cabaniss, Jr.,
Pensacola, Florida 32501 Chairman (904)444-6111 Earl D. N! clean, Jr.
William J. Rushton, til Mississippi Power Gloria N1. Shatto 2992 West Beach Gulfport, Niississippi 39501 Compensation Committee (601)864 1211 Robert 11. Radcliff, Jr.,
Southern Company I
Ci a les I Chapman, Jr.
64 e r Certer East
%,illiam A. Parker, Jr Atlanta, Georgia 30346 System Chief Executives - (standing, left to right) Robert W. Scherer, (404)393-0650 Alan R. Barton, Joseph M. Farley;(sested) A.W. Dahlberg, Doug! s L. McCrary;(far right) Edward L Addison.
Executise Committee 800 Shades Creek Parkway Edward L. Addison, Birmingham, Alabama 35209 Chairman (205)870-601I William A. Parker, Jr.
II.G. Pattillo One Wall Street Robert H. Radcliff, Jr.
Suite 4200 William J. Rushton,111 New York, New York 10005 (212)269-8842 Independent Litigation Comgittee 1101 17t h Street, N.W.
William 7. Copenhaver, Suite 405 ChairnAin Washington, D.C. 20036 Virginia E. Dw yer (202) 775-0944
" *YDh' Southern Electric International, Inc.
Nom.inating Comm.ttee 100 Ashford Center North i
Herbert Stockham, Suite 400 Chairman Atlanta, Georgia 30338 William J. Cabam.ss, Jr.
(404) 261-4700 The 1986 annualreportis L.G. Hardman, IiI submittedfor stockholders' William J. Rushton, Ill The Southern Insestment information. It is not intended GIoria N1. Shatto Group,Inc.
for use in connection with any 64 Perimeter Center East sale orpurchase of, or anv
- Chairman upon Mr. Radcliff's At1anta, Georgia 30346 solicitation ofoffers to bity retirement.
(404)393-0650 orsell, securities.
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