ML20217K181
| ML20217K181 | |
| Person / Time | |
|---|---|
| Site: | Farley  |
| Issue date: | 12/31/1997 |
| From: | Harris E ALABAMA POWER CO. |
| To: | |
| Shared Package | |
| ML20217K173 | List: |
| References | |
| NUDOCS 9805010117 | |
| Download: ML20217K181 (57) | |
Text
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1997 ANNUAL REI) ORT i
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9805010117 980429 PDR ADOCK 05000348 i
PDR ALABAMA POWER A $OUTHERN Company
1997 COMPETITIVE BENCHMARK STUDY Overall Customer Satisfaction 8.70 8.54 8.47 8.43 8.31 8.30 8.23 s
8.18 8.14 7.95 7.90 1.85 7.83 7.59 7.58 7.50 7.04 4
5 6
7 8
9 Average rating (0 to 10 scale)
Composite customer satisfaction score of each utility's roident al. general business and large industrial customers.
i For more information about this survey, contact Alabama Power's Public Relations Department at (205) 257-3529.
Customers say we're num 3er one.
It's very satisfying to be toldyou're number one.
AtAlabama Power, this truth recently hit home.
In a 1997 competitive benchmark study comparing our company against 16 peer utilities, we ranked number one in overall customer satisfaction. This is truly an honor for us, for two reasons.
One reason is that the study compared Alabama Power with regional and national utilities that'we believe have the potential to be ent toughest competitors in the future. The fact that we outrankad them l
all in overall customer satisfaction is quite a feat. In fact,'all five of Southern Company's operating utilities rank' d in the top quartile.
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e The other reason this ranking is such an honor is that this study went straight to the people whose opinions matter most - customers. The study surveyed three customer groups of each utility: residential, general business and large industrial customers. Knowing our customers ranked us higher in overall customer satisfaction than customers of 16 other well-positioned companies in our industry is, again, truly an honor.
For more than 90 years now, Alabama Power has gone beyond the expectations ofelectnci y customers in Alabama. We're proud of this.
At the same time, we know better than to rest on our laurels. We'll continue to find ways to better serve our customers. After all, our customers deserve the best.
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Corporate profile Alabama Power serves reliable electricity at a low price to 1.3 million homes, businesses and industries in the southern two-thirds of Alabama. It is one of five utilities in the United States operated by Southern Company, the nation's largest producer ofelectricity.
Southern Company's other four U.S. utilities are Georgia Power, Gulf Power, Mississippi Power and Savannah Electric. Other subsidiaries include Southern Energy Inc.,
Southern Nuclear, Southern Communications Services, Southern Company Energy Solutions Inc. and Southern Company Services.
Through its international subsidiaries and affiliates, Southern Company has operations on four continents. Its subsidiaries and affiliates provide electricity in Argentina, the Bahamas, Brazil, Chile, China, England, Germany, the Philippines, Trinidad and Tobago, and parts of the United States outside its traditional service territory.
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w-Table of contents Customers say we're ninnber one. Here4 wira Fi n an cial h ighligh ts....................................................... 3 Letter to Shareholders
....................................................4 Alabama Power's prices are among the lowest in the nation.......................... 6 Top-notch service adds value for customers..................................... 8 Customers can count on Alabama Power for reliable service........................ 10 Alabama Power goes to great lengths to protect the environment.................... 12 Alabama Power provides a vital link in attracting new business..................... 14 Alabama Power is an active corporate citizen.................................... 16 Southern Company enhances Alabama Power's competitive strength................18 Board of Directors and Officers............................................. 20 Fi n a n cial report..........................................
............. 14 2
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Financial highlights 1997 1996 Operating revenues (millions) 53,149 5 3,121 Operating expenses (millions)
$2,522
$ 2,504 Net income after dividends on preferred stock (millions)
$ 376 5 371 Return on average common equiry (percent) 13.76 13.75 Allowance for funds used during construction, net, as a percent of net income after dividends on preferred stock 0.8 1.1 Energy sales (thousands of kilowatt-hours)
Retail 46,575,021 45,690,068 Sales for resale 20,887,231 19,783,303 Total energy sales 67,462,252 65,473,371 Peak-hour demand (thousands of kilowatts) includes Southeastern Power Administration allotment 9,778 9,912 Total customers (year-end) 1,275,327 1,251,218 Gross property additions (millions)
$451 5425 14 10
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50 ji Atrrage Residential TerritorialPeak Donand TotalTerrisona Enngy Usageper Customer gud; Saumeasten Power Admimspahon 8kg[ icd
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- D** ***8bo" 5 ve>ar compound anth4al growm rare = 21%
5 yw compound annua! growth rate 31%
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Earnings avadable for common dividends and retained eamings interest charges and preferred stock dividends 5
federal, state and incal taxes g 200 Depreciation and amortaabon Other operation and mamtenance Fuel and purchased power Gross Property Additions Distribution ofI997 Rnrnue Dollar 3
Letter to Shareholders We're moving into the future from a position of strength.
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By any measure,1997 was an outstanding year for y.-
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Alabama Power. Our 1997 net income increased over 7s s.~
1996. We maintained a strong and viable presence in the marketplace, and our retail sales continued to e;c T.
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x.s benchmarking study. Alabama Power ranked number 4
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'~h one m overall customer satisfaction. This study was based on the opinions of residential, general business and large industrial customers. Our customers are the most satis 6ed, and that makes us proud.
The electricity industry is changing rapidly.
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k Alabama Power's business strategies and actions must anticipate the changing environment and allow us to respond quickly to our customers' needs to maintain their con 6dence and trust. We are preparing for The power of partnerships competition. We will continue aggressive strategies to reduce costs, improve service and build key I
Alabama Power President and CEO Elmer B. Harris relationships to further strengthen our position in believes building and maintaining relationsh,ips with the marketplace and to provide a growth business.
customers will help the company carry on a tradition of j
i success wellinto the future. Here, he speaks with Bill Undoubtedly, restructuring of the electncity Edmundson, an engineer with Southern Company Services, about the co generation project the industry will continue. On the federal level, company is developing with Olin Chlor Alkali Congress did not pass any far-reaching or de6nitive Products.
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re-regulation legislation in 1997. We anticipate the debate to continue in 1998. On the state level, the Alabama Public Service Commission has adopted a set of restructuring principles and scheduled a series of fact-6nding workshops. They also continue to examine the developments in other states.
While no one has a clear picture of what our industry will look like during the next few years, Alabama Power's position on re-regulation remains unchanged. We support and are ready for competition that fairly bene 6ts all customers.
Inef6cient laws, regulations or subsidies provided to 4
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l some players in the marketplace will not further We appreciate our shareholders and our customers.
competition. In fact, these things could adversely We will continue to listen and work hard to keep affect service to customers and the development of a your confidence, trust and respect. That is the only healthy competitive < nvironment. Alabama Power way we can ensure success for our customers and our will continue its focus of providing reliable service at shareholders.
a competitive price while delivering outstanding customer service.
You have our commitment and our thanks for your support.
In addition, the capacity to serve our customers remains a critical issue. The Alabama Public Service Commission approved three generation projects in 1997 - baseload combined-cycle units at llarry Elmer 11. Harris Steam Plant and co-generation projects with two President and Chief Executive Officer major customers, Olin Chlor Alkali Products near March 2,1998 Mobile and GE Plastics near Montgomery.The new capacity created by the additional generating ~ units at x
Ilarry and by these new co-generation projects will help us to continue to meet the growing nieds df our
'N customers. Again, this action illustrates opr commitment to our customers to provide low /
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reliable energy.
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l Il Our shareholders demonstrated theif' confidence in Alabama Power last year when they approved several e
amendments to our charter that will provide
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improved financing flexibilities and remove outdated -
restrictions on the payment of conimon dividends.
These measures are important in einsuring the.
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company is able to respond quickly and efTectively to.
the competitive challenges ahead.
Alabama Power will move into the future from a position of strength. Our solid values, along with bold and aggressive strategies to maintain competitive pricing and provide reliable service, will continue to add value for our customers and our shareholders. In addition, we will continue to hold strong to our corporate commitment ofcommunity service and involvement.
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Among tiie 14 west in the nation, in fact. Our customers pay about half as rnuch for their electricity as customers in states such as California, New York and New Hampshire.
Why are our prices so[loh One reason is that Alabama Power has implemented significant cost-cutting initiatives in recent years, helping the con)pany cut electricity prices for customers.
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i During the past 10 years, our average retail price has dropped by 6 percent, while ndtional electricicy prices have increased almost 20 percent and th'e Consumer Price Index has risen 40 percent.
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'Ib keep prices low, Alabama Power plans lo continue efforts to reduce power generation] costs. Already, we have converted two of the four generating units at our largest jenerating plant, the James H. Miller Jr. Electiic Generating Plant, to use Powder River Basin coal. This initiative will reduce fuel costs substantially.The remaining two units are; scheduled to be C
converted by the year 2000.
Providing a quality product at a reasonable price is imperative 1
in today's marketplace. By keeping a sharp eye on costs, Alabama Pdwer will continue to ensure that customers get the
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The price is right d
"We expect low-cost, high-quality and reliable electricity," says Hassan Arabghani of Olin Chlor Alkali Products. "We also expect our electricity supplier to understand our business, partner with us, and help us be successful."
Olin is Alabama Power's and Southern Company's largest retail customer. Meeting Olin's high expectations led to a partnership in which Alabama Power will build and operate a gas-fired co-generation plant at the Olin chemical plant in McIntosh, north of Mobile.
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U t mers say we're number one Here>s why:
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A a3ama Power offers exceptiona service.
Top-notch service adds value to our product, and Alabama Power continues to find ways to enhance customer service and use new technology to better communicate with customers.
In 1997, we implemented a new customer service computer system to provide more flexibility to anticipate and respond to customers' needs, now and in the future.
Other ways that Alabama Power seeks to better serve customers include:
- Helping individuals, families and communities who are facing an emergency, a crisis or a transitional period to utilize the Alabama Business Charitable Trust Fund inc. Alabama Power was instrumental in creating the Trust. Since its creation in 1992, the Trust has met a wide range of community
[*4 emergencies and energy needs.
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- Supporting Project SHARE, an energy-assistance program we started with the American Red Cross in 1982 to help low-income i-Alabamians who are elderly or disabled pay their energy bills.
- Offering a wide array of products and services, such as appliance sales and service, GoodCents Surge Protection, l4 GoodCents Outage Alert, GoodCents Home Energy Profile
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and outdoor lighting.
- Offering more than 60 pricing options to help customers save money on electricity.
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- Offering long-term contracts to large customers.
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- Offering electric water heating rebates and heat pump financing with approved credit.
- Providing 94 customer service locations throughout our service territory fi>r the convenience of our customers.
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- Staffing a 24-hour Customer Service Center and two a
specialized call centers - the GoodCents Energy Line for residential customers and the Business Call Center for Are you being served?
commercial customers.
Customers with special needs get special attention from Alabama Power.
Customer convenience is our goal. We're available 24 hours2.777778e-4 days <br />0.00667 hours <br />3.968254e-5 weeks <br />9.132e-6 months <br /> a Low-income families and individuals day, seven days a week to help customers and to communicate th ougje o rces "9
P to P Y " 9as oject the special services we offer. We offer discounts and alternative SHARE and the Alabama Business payment dates for low-income residential customers who Charitable Trust Fund inc.This is a real qualify, multiple payment and bill delivery options, Budget help and a comfort to people f acing a ensis or medical problems.
Billing, large-print and Braille bills, and telecommunications service fi>r the deaf.
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Customers say we're number one Here's why:
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Cu tomers can coum on Alabama Power. When they flip a switch, turn a knob or push a button, we're ready to meet their need for electricity.
Service interruptions are rare, and when they do occur, we restore service as quickly and as safely as possible. In 1997, our i reliability rate was 99.92 percent. In addition, we have a 10-year record of having electricity available to our customers 99.6 percent of theTti.me, on average.
8 8a An important ele ^ ent of reliability for an electric utility is m
careful planning to meet the electricity demand of our customers today and in the future; in 1997, Alabama Power took a bi[ step to ensure we have enough electricity available to cost-effectively meet the future demand on our system. The Alabama Public Service Commission approved our plans for three new baseload combined-cycle generating units at the J,M. Barry Electric j
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Plant Barry Manager Danny Morton and other dedicated employees help Alabama Power provide low-cost, reliable electricity 24 hours2.777778e-4 days <br />0.00667 hours <br />3.968254e-5 weeks <br />9.132e-6 months <br /> a
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day,365 days a year.
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Customers say we're number one. Here's why:
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A a3ama Power snows concern for tae environment.
Alabama Power goes to great lengths to balance the demand for electricity with the need to protect the environment.
As a leading environmental steward, we help protect our land, air, water and the wildlife that finds refuge in nature's homestead.
Our environmental programs and efforts include:
- Recycling programs, including an annual Christmas Tree
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Recycling Program through which more than 380,000 1.
Christmas trees have been recycled to save landfill space.
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a Partnerships with environmental groups. In 1992 Alabama
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Power became the first investor-owned utility in the country to sign a memorandum of agreement with the Bass Anglers Sportsman Society (B.A.S.S.) stating cooperative support for environmental initiatives.
- A specially dcsigned weigh-in trailer that nonprofit f
organizations may use during bass tournament fund-raisers t Nest egg fof the future help keep fish alive until they can be released back into the lake.
- An award-winning Nozoner Program that promotes a, ed a t$
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v engo carpooling, telecommuting and flexible work schedules to County f arm, where the tradition was reduce automobile emissions in the Birmingham area.
started by their great-grandfather 100 years ago. Not wanting to retire their f amily farm,
- An expanding company fleet of electnc vehicles, the only zero-they searched for a way to preserve it and emission form of transportation. In 1997, we helped install the protect the investment for their children state's first electric-vehicle charging stations at Birmingham's and grandchildren. Alabama Power's Summit mall and at other locations across the state.
(penl nd Tree anting o hare g9ra family will harvest the timber in 30 or 35 In addition to these voluntary environmental initiatives, years, boosting the timber industry and the Alabama Power works to meet or exceed environmental stato's economy while offsetting carbon regulations. For example, Alabama Poyver exceeded flaba naNj tri have be xid ting plants.
environmental regulanons on sulfur dioxide and nitrogen oxide landowners plant more than 5 million trees reductions mandated by the Clean Air Act's Acid Rain Program.
by the end of 1998.
Alabama Power has reduced emissions through demand-side management programs, the use oflow-sulfur coal, the installation oflow-nitrogen oxide burners and air-monitoring l"
equipment at our generating plants and the development of
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other technologies that help us use less energy, operate more efficiently and create fewer emissions.
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Customers say we're number one. Here's why:
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A a3ama Power aeas auiLc.
A a 3ama t aroug i economic c. eve..opment.
The Southeasds the fastest-gmwing region in die nation.
Alabama, in the heart of this area, is in a prime position for economic growth.
Alabama Power's economic-development team serves in many roles to woik with local and state economic-development agencies to attract new industries to Alabama and to expand existing industries.
Economic development is nothing new for Alabama Power. In ~
1926, we became the first electricity utility in the nation to f~~ )
develop an economic-development program.
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/ l1 As the state's oldest economic-development organization, Alabama Power provides a vital link in the partnerships that foster business attraction and expansion. Our experience, expertise and professional resources help attract many projects cach year.
Since 1994, Alabama Power has helped create almost 12,000 new jobs for Alabamians and has helped bring more than
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$1.5 billion in capital invesunent to the state.
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development cEorts:
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$338 million in capital investment into the state.
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= We recently developed a portable, high-tech presentation 7
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. We recently completed a directory of automotive-related companies in Alabama to document the growth of this industry. Build.mg bus.
mess isnt chicken fe.d This resource will enhance fu'iure recruiting efforts.
- We're activelv recruiting companies from Asia and Europe, as in 1997, Alabama Power's economic-well as from within the United States.
development team helped bring to the state the C P Group, a poultry processor that
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- We work closely with communitielto improve % existing invested $92 million and will create 1,500 s
infrastructures. sites and facilities. This includSifihancing new jobs in Barbour, Pike,and Russell counties.
"b speculative industrial buildings, providing grant funding for ate alcng tfi o e ectrici y pr ces, community-enhancement projects and providing expertise to make this the place we want to grow,"
leaders in interested communities, says Chanin Asawaphaisalkul of C P Group.
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Customers say we're number one. Here's why:
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Alabama Power is a.eacing corporate citizen.
Community involvement allows our company to keep in touch with the needs of customers. That's why Alabama Power encourages employees to take their talents beyond the workplace to support civic groups, charitable fund raising and other events that benefit Alabamians.
If there's a major event or activity in one of Alabama's communities, chances are an Alabama Power employee, spouse or retiree is involved.
Alabama Power created the Alabama Power Foundation Inc. in 1989. The Alabama Power Foundation is a major philanthropic organization dedicated to charitable giving throughout Alabama. The Foundation benefits education, civic and community activities,!the arts and cultural projects and health and human services.
In 1997, the Alabama Power Service Organization, a volunteer corps of employees and spouses from Southern Company subsidiaries in Alabama, contributed more than 21,500 N
l; volunteer hours and $500,000 to worthwhile activities,
'.3g Also in 1997, the Energizers, a charitable and volunteer organization made up of retirees from Southern Company subsidiaries in Alabama, volunteered thousands of hours and contributed more than $80,000 to more than 25 Alabama charities.
Promoting electric safety is another imporrant piece of Alaba'ma Power's community involvement. Througn Safe-Tee-Opolis,'a free electrical safety program, Alabama Power employees and retirees present the do's and don'ts of electricity to students, Add it uP civic groups, police officers, fire fighters and others. In 1997, we Math in the Real World. That's the name reached about 600,000 Alabamians throub>h nearly 5,000 f the educational grant Susie Lamon won for her students at Empire Junior High Safe-Tee-Opolis presentations.
Schoolin Walker County. Fifth through I
eighth-grade students use the math lab to solve problems and learn math skills used in everyday life.
17
Customers say we're number one. Here's why:
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Kabama Power is bacxec. ay a financia y strong, g o aa parent comaany.
tindependent power pro babama Power is one of five U.S. electric utilities that fall under the umbrella of Sou:hcrn Company, the largest generator of electricity in the country and one of the largest Southern Company's size gives its subsidiaries strength. Alabama Power and its sister utilities enjoy significant savings and cfficiencies by banding together to negotiate contracts, buy materials and supplies, standardize functions and share resources and best practices. %gether, these companies serve more than 3.7.
million customers in the Southeast.
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Alabama Power also benefits from the financial strength and reputation of Southern Company. Some facts about Southern Company:
- In Fortune magazine's 1995,1996 and 1997 " Corporate 7
Reputations" surveys, Southern Company ranked as the "most t
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- Southern Company has more shares of stock ' utstanding than"
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any other U.S. clectric utility. Its common stock is one of the 20 JM 1
most widely held corporate stocks in America.
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- During the past 10 years, Southern Company's total average A %
annual return to shareholders has been more than 16 percent.
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Southern Energy Inc., Southern Company supplies electricity in' f
10 countries on four continents and has operations in the United
./F States, Argentina, the Bahamas, Brazil, Chile, China, England,-
Germany, the Philippines, Trinidad and Tobago.
1 Safe and secure, p,hrough various subsid..ianes, Southern Company also..
! Southern style is mvolved in businesses such as wireless commumcations, residential and commercial security systems and the development iPowerCall Security saved my home and of energy-related products and services.
' ; my dog, Sootie, from being des,troyed by fire," says Lorraine Byrd, a resident of
- Some 26,000 miles of transmission lines - enough to circle Montevallo in Shelby County. PowerCall the earth -interconnect Southern Companv's 278 coal, oil, gas, Security is a service provided by nuclear and hydro generating units.
Southern Company Energy Solutions Inc.,
a Southern Company subsidiary. 0ffenng home security is one of the many ways Southern Company seeks to meet customers' needs, all over the globe and here at home.
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b$D OF DIRECTORS
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i Left to right: Dr. John T. Porter, A.W. Dahlberg, Carl E. Jones Jr.
1 j g.j ' S e J
N!a h
Left to right Bill M. Guthrie, William J. Ilushton 111 Whit Armstrong
- Peter V. Gregerson Sr.
Elmer B. Ilarris +
Enterpnse Gadsden Birmingham President, Chairman Chairman President and Chief Executive Officer and Chief Executive ORicer Gregenon's Foods Inc.
Alabama Power Company The Citizens Bank (Gmcery retailer)
Age 58; dected 1989 Age 50; elected 1982 Age 69; elected 1993 Carl E. Jones Jr. +
A.W. Dahlberg Bill M. Guthrie +
Birmingham Atlanta Birmingham President and Chief Executive Officer
- Chairman, Executive Vice President Regions Financial Corporation President and Chief Executive Officer Alabama Power Company (Muhibank holding company)
Southern Company Age 64; elected 1988 Age 57; elected 1988 (Electric utility hofding company)
Age 57; dected 1994 20
i 1
y.
5 y
Lefttoright g we.sm y gese,c Do*@Mei f,
9 W
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i ();;.
g.-
y Omet hght D'hggn W. Ch3e, ? BUS
- 3 g. YS*9' gon%
tett to 3tos. a\\\\BC8 ' agoced$bW N *3 1%tricia M. King Wallace D. Malone Jr. +
Dr. John T. Porter 4 Anniston Birmingham Birmingham Presid-nt and Chief thecutive OfRcer Chairman and Chief thecutive Oflicer Pastor King Motor Company SouthTrust Corporation Sixth Avenue Baptist Church (Multiple car dealerships)
(Muhibank holding company)
Age 66; elected 1993 Age 52: elected 1997 Age 61; elected 1990 Robert D. Powers James K. l.owder Dr. Wdliam V. Muse
- Eufaula Montgomery Auburn President President and Chief Executive Ofiker President The Eufaula Agency Inc.
The Colonial Company Auburn University (Real estate and insurance)
(Real estate development and sales)
Age 58; elected 1993 Age 48; elected 1992 Age 48: elected 1997 Executive Committee member 4
- Audit Committee member
BOARD OF DIRECTORS (continued)
Left to right: Robart D. Powers, Peter V. Gregerson Sr.,
James H. Sanford, John C. Webb IV, James K. Lowder w
Andreas Renschler; elected 1998 Andreas Renschler Dr. John W. Rouse +
- James H. Sanford Tuscaloosa 11irmingham Prattville President and Chief Executive OfTicer President ofThe Rouse Group LLC Chairman Mercedes-Benz U.S. Imernational Inc.
(Technology consuhing) and HOME Place Farms Inc.
(Auto manufacturing)
President Emeritus of (Diversified farmers)
Age 39: elected 1998 Southern Research Institute Age 53; elected 1983 (Science and engineering research)
C. Dowd Ritter +
- Age 60; elected 1988 John C. Webb IV llirmingham Demopolis Chairman, President and Chief Executive William J. Rushton III +
President Officer Birmingham Webb Lumber Company AmSouth Bancorporation Chairman Emeritus (Wholesale lumber)
(Multihank holding company)
Prorective Life Corporation Age 55; elected 1977 Age 50; elected 1997 (Life and health insurance)
Age 68; elected 1970 n
ng,
- Audit Committee member 22
l OFFICERS As of March 1,1998 l
l i
Elmer B. Harris Christopher C.Womack5 Michael L. Scott President Senior Vice President Vice President.
l and Chief Executive Oflicer Age 40 Marketmg l
Age 58 Age 45 Art P. Beattie6 l
Banks H. Farris Vice President, Julian H. Smith Jr.
Executive Vice President Secretary and Comptroller Vice President.
l Age 62 Age 43 Governmental Relations Age 49 l
Michael D. Garretti 7
William W. Cooper I
Executive Vice President Vice President, W. Ronald Smith Age 48 Montgomery Vice President, Age 50 Anniston Bill M. Guthrie Age 48 Executive Vice President W. Roy Crow Age 64 Vice President, Susan N. Story Eufaula Vice President, l
William B. Hutchins 1112 Age 59 Corporate Real Estate /
l Executive Vice President, Corporate Services l
Chief Financial Officer and Treasurer James M. Corbitt Age 38 l
Age 55 Vice President, 9
information Resources Cheryl A. Thompson Charles D. McCrary3 Age 53 Vice President, l
Executive Vice President Mobile Age 46 Thomas A. Fanning Age 49 l
Vice President and ChiefInformation Officer, Anthony J. Topazi Robert A. Buettner Information Resources Vice President.
Semor,vice President and Counsel Age 40 Birmingham Age 47 l
Age 56 C. Steve Fant Vice President, Terry H. Waters James H. Miller 1114 Economic Development Vice President, l
Senior Vice President Age 52 Tuscaloosa Age 48 Age 48 Robert IIolmes Jr.
l Earl B. Parsons Jr.
Vice President, E. Wayne Boston l
Senior Vice President, Ethics and Business Practices Assistant Secretary Fossil and Hydro Generation Age 49 and Assistant Treasurer Age 59 Age 53 Robin A. Hurst 4
l Jacquelyn S. Shala Vice President, J. Randy DeRieux Semor Vice President Power Delivery Assistant Treasurer l
Age 40 Age 51 Age 43
(
C. Alan Martin 8 Robert C. Giddens l
Vice President, Assistant Comptroller Marketing Age 50 Detted Executive Vke President 2/98.
Age 49 P y B. Southerland
'l:lected Treasurer 1/98 gg g3j g,g 3Resigned 3/98 u m long einted to 12ccuuve Yke President obsouthern Company's
\\fice Pres. dent, Age 51 i
Fossil / Hydro Group.
State Relations 4aated 3/98.
Age 52 William E. Zales Jr.
5Also elected Vke Presidem. Human Remurtes -
Assistant Secretarv southern company 2/98.
4 David C. Rickey and Assistant Treasurer 6dected Comptroller 1/98.
yjg pggjj Age 49 7.lected 5/97.
1 public Relations 8Also elected Chief Marketing Offker. souther" A e 4
b Company 2/98.
90ccted 1/98.
23
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4 DNE I bi 1997 Financial Report Management 1 Report.
. 25 Report ofIndependent Public Accountants..
.25 Selected Financial and Operating Data..
.26 Managements Discussion and Analysis ofResults ofOperations and Financial Condition.
30 Statements ofIncome.
.36 Statements ofCash Flow...
.37 i
Balance Sheets.
38 Statements ofCapitalization.
40 Statements ofRetained Earnings.
. 41 Notes to FinancialStatements.
. 42 24
Management's Report ~
The management of Alabama Power Company has determine their au'diting procedures for the purpose of prepared - and is responsible for - the fmancial expressing an opinion on the financial statements.
statements and related information included in this The audit committee of the board of directors, report. These statements were prepared in accordance composed of directors wh' are not employees, provides a o
with generally accepted accounting principles appropriate ' broad overview of management's fmancial reporting and in the circumstances and necessarily include amounts control functions. Periodically, this committee meets that are based on the best estimates and judgments of with management, the internal auditors and the management. Financial information throughout this independent public accountants to ensure that these annual report is consistent with the financial statements.
groups are fulfilling their obligations and to discuss
, The company maintains a system ofinternal auditing, internal controls, and financial reporting accounting controls to provide reasonable assurance that~
accountants have access to the members of the audit matters. The internal auditors and independent public assets are safeguarded and that the books and records reflect only authorized transactions of the company.
committee at any time.
Limitations exist in any system ofinternal controls, Management believes that its policies and
' however, based on a recognition that the cost of the procedures provide reasonable as'stirance that the system should not exceed its benefits. The company compan/s operations are condu.cted according to a high believes its system ofinternal accounting controls standard of business ethics.
maintains an appropriate cost / benefit relationship.
In management's opinion, the financial statements The companis system ofinternal accounting present fairly, in all material respects, the financial
' controls is evaluated on an ongoing basis by the position, results of operations and cash flows of Alabama compan/s internal audit staff. The company's Power Company in conformity with generally accepted independent public accountants also consider certain accounting principles.
elements of the internal control system in order to Elmer B. Harris William B. Hutchins, III President,,
Executive Vice President,
, and Chief Executive Officer Chief Financial Officer, and Treasurer February 11,1998' Report ofIndependent Public Accountants To the Board ofDirectors the amounts and disclosures in the financial statements.
o[ Alabama Power Company An audit also includes assessing the accounting principles used and sigmficant estimates made by management, as well as evaluating the overall financial statement We have audited the accompanying balance sheets and statements of capaahzanon ofAlabama Power presentation. We believe that our audits provide a reasonable basis for our opinion.
Company (an Alabama corporation and a wholly owned subsidiary of Southern Company) as of December 31, In our opinion, the financial statements (pages 36-1997 and 996, and the related statements ofincome,
- 52) referred to above present fairly, in all material retained earnings, and cash flows for each of the three respects, the fmancial position of Alabama Power Company as of December 31,'1997 and 1996, and the' L years in the penod ended December 31,1997. These financ_al statements are the responsibihty of the results ofits operations and its cash flows for each of the i
compan/s management. Our responsibility is to express '
three years in the period ended December 31,1997, in an opinion on these financial statements based on our conformity with generally accepted accounting audits.
principles.
We conducted our audits in accordance with generally accepted auditing standards. Those standos require that we plan and perform the audit to obtain Arthur Andersen LLP reasonable assurance about whether the financial statements are free of material misstatement. An audit Birmingham, Alabama
' includes examining, on a test basis, evidence supporting February 11,1998' 25
Selected Financial and Operating Data 1997 1996 1995 1994 Operating Revenues (in thousands)
$ 3,149,111
$ 3,120,775
$ 3,024,774
$ 2,935,142 Net income after Dividends on Preferred Stock (in thousands) 375,939 371,490
$ -360,894 356,338 Cash Dividends on Common Stock (in thousands) 339,600 347,500
$ 285,000 268,000 Return on Average Common Equity (percent) 13.76 13.75 13.61 13.86 Total Assets (in thousands)
$ 8,812,867
$ 8,733,846
$ 8,744,360
$ 8,459,217 Gross Property Additions (in thousands) 451,167 425.024
$ 551,781 536,785 Capitalization (in thousands):
Common stock equity
$ 2,750,569
$ 2,714,277 5 2,690,374
$ 2,614,405 Preferred stock 255,512 340,400 440,400 440,400 Preferred stock subject to mandatory redemption Subsidiary obligated mandatorily redeemable preferred securities 297,000 97,000 long-term debt 2,473,202 2,354,006 2,374,948 2.455,013 Total (excluding amounts due within one year)
$ 5,776,283
$ 5,505.683
$ 5,505,722 5 5,509.818 Capitalization Ratios (percent):
Common stock equity 47.6 49.3 48.9 47.4 Preferred stock 4.4 6.2 8.0 8.0 Company obligated mandatorily redeemable preferred securities' 5.2 1.7 Long-term debt 42.8 42.8 43.1 44.6 Total (excluding amounts due within one year) 100.0 100.0 100.0 100.0 First Mortgage Bonds (in thousands):
Issued 150,000 Retired 74,951 83,797 20,387 Company Obligated Mandatorily Redeemable Preferred Securities (in thousands):
Issued 200,000 >
97,000 Preferred Stock (in thousands):
Issued Retired 184,888 Security Ratings:
First Mortgage Bonds -
Moody's Al Al Al Al Standard and Poor's A+
A+
A+
A Duff & Phelps AA-AA-A+
A+
Preferred Stock -
Moody's a2 a2 a2 a2 Standard'and Poor's A
A A
A-DufT& Phelps A+
A+
A A-Customers (year-end):
j Resident:al 1,092,161 1,073,559 1,058,197 1,042,974 i
Commercial 177,362 171,827 166,480 162,239 Industrial 5,076 5,100 5,338 5,341 Other 728 732 725 716 Total 1,275,327 1,251,218 1,230,740 1,211,270 Employees (year-end) 6,531 6,865 7,261 7,990 26
s 1993 1992 1991 1990 1989 1988 1987
$ 3,007,609
$ 2,846,840
$ 2,846,794
$ 2,722,424
$ 2,629,354
$ 2,476,626
$ 2,574,634 346,494 338,555 5 339,666 5
312,803 311,146 2' 3,475
$ 257,239 8
252,900 273,300
$ 232,900 220,800 217,300
$ 212,700
$ 201,100 13.94
,14.02 14.55 14.00 14.53 14.03 13.56
$ 8,248,683
$ 6,593,618
$ 6,549,462
$ 6,362,293
$ 6,279,431
$ 6,180,945
$ 5,912,000 435,843 367,463
$ 397,011 444,680 459,199
$ 643,892
$ 600,589 S 2,526,348
$ 2.443,493
$ 2,387,198
$ 2,280,590
$ 2,188,811
$ 2,094,815
$ 1,946,747 440,400 489,400 484,400 484,400 484,400 484,400 384,400 12,500 17,500 22,500 27,500 2,362,852 2,202.473 2,382,635 2,397.931 2,435,129 2,496,492 2,386,258
$ 5,329,600
$ 5,135,366
$ 5,254.233
$ 5.175.421
$ 5,125,840
$ 5.098,207
$ 4,744,905 47.4 47.6 45.4 44.1 42.7 41.1 41.0 8.3 9.5 9.2 9.6 9.8 9.9 8.7
+
44.3 42.9 45.4 46.3 47.5 49.0 50.3 100.0 100.0 100.0 100.0 100.0 100.0 100.0 860,000 745,000 250,000 150,000 200,000 699,788 931,797 227,695 33,122 75,650 42,445 108,082 158,000~
l50,000 100,000 207,000 145,000 17,500 5,000 5,000 2,500 5,000 Al Al Al Al Al Al A1 A
A A
A A
A A
A+
A A
A A
6 6
a2 a2 a2 a2 a2 a2 a2 A-A-
A-A-
A-A-
A.
A-A.
A-A-
A-7 7
1,027,130 1,012.294 997,585 985,566 974,622 964,581 950,101 157,337 152,530 148,228 144,340 141,265 137,955 134,533 5.391 5,434 5,496 5,322 5,200 5,120 4,955 713 704 697 690 684 678 713 1,190,571 1,170,962 1,152,006 1,135,918 1,121,771 1,108,334 1,090.302 8,009 8,116 8,513 9,473 9,698 10,302 10,457 27
Selected Financial and Operating Data (centin.ed>
1997 1996 1995 1994 Operating Revenues (in thousands):
Residential 997,507 998,806
$ 997,069 913,146 Commercial 724,148 696,453 670,453 647,202 Industrial 775,591 759,628 805,596 803,587 Other 13,563 13,729 13,619 13,515 Total retail 2,510,809 2,468,616 2,486,737 2,377,450 Sales for resale - non-aMliates
~
431,023 391,669 370,140 354,760 Sales for resale - affiliates 161,795 216,620 127,730 164,762 Total revenues from sales of electricity 3,103,627 3,076,905 2,984,607 2,896,972 Other revenues 45,484 43,870 40,167 38,170 Total 5 3,149,111 5 3.120,775
$ 3,024.774 5 2,935,142 Kilowatt-Hour $ ales (in thousands):
Residential 14,336,408 14,593,761 '
14,383,231 13,183,147 Commercial 11,330,312 10,904,476 10,043,220 9,645,798 Industrial 20,727,912 19,999,258 19,862,577 19,479,364 Other 180,389 192,573 186,848 185,876 Total retail 46,575,021 45,690,068 44,475,876 42,494,185 Sales for resale - non-amliates 11,893,905 9,491.237 8,046,189 6,775,176 Sales for resale - a$liates 8,993,326 10,292,066 6,705,174 8,432,533 Total 67,462,252 65,473,371 59,227,239 57,701,894 Average Revenue Per Kilowatt-liour (cents):
Tesidential 6.96 6.84 6.93 6.93 T.ommercial 6.39 6.39 6.68 6.71
.ndustrial 3.74 3.80 4.06 4.13 Total retail 5.39 5.40 5.59 5.59 Sales for resale 2.84 3.07 3.38 3.42 Total sales 4.60 4.70 5.04 5.02 Residential Average Annual Kilowatt-Hour Use Per Customer 13,254 13,705 13,686 12,746 Residential Average Annual Revenue Per Customer 922.21 5
937.95 948.71 882.88 Plant Nameplate Capacity Ratings (Note 1)
(year-end) (megawatts) 11,151 11,151 10,831 10,431 Territorial Peak-Hour Demand (megawatts) (Note 2):
Winter 8,478 8,413 7,958 8,217 Summer 9,778 9,912 10,090 9,028 Annual load Factor (percent) (Note 2) 62.7 61.3 59.2 62.2 Plant Availability (percent):
Fossil-steam 86.3 86.6 88.3 86.9 Nuclear 88.8 90.5 81.1 92.5 Source of Energy Supply (percent):
Coal 66.0 67.0 67.1 62.9 Nuclear 18.0 18.5 17.1 21.7 Hydro 7.6 7.1 7.0 8.4 Oil and gas 0.7 0.4 0.4 Purchased power - From non-amliates 2.3 2.4 2.7 1.3 From amliates 5.4 4.6 5.7 5.7 Total 100.0 100.0 100.0 100.0 Total Fuel Economy Data (Note 11:
BTU per net kilowatt-hour generated 9,984 10,035 10,025 9,961 Cost of fuel per million BTU (cents) 148.61 147.09 148.68 157.62 Average cost of fuel per net kilowatt-hour generated (cents) 1.48 1.48 1.49 1.57 1
il Notes:
(1) Generating capacity and fuel data indudes Alabama Power Company's 50% portion of SEGCO.
(2) Indudes Southcar crn Power Administration allotmtnt; less than one-tenth of one percent.
L.
1993 1992 1991 1990 1989 _
1988 1987 947,277 845,660
$ 864,347 825,645 781,982 5 761,805
$ 759,957 634,G95 589,816 582,730 551,634 533,487 510,910 501,088
' 832,938 800,311 790,224 777,580 762,274 738,755 721,298 13,344 12,734 12.662 12,103 -
11,743 11,255 10,968 2,428,454 2,248,521 2,249,963 2,166,962 >
2,089,486 2,022,725 1,993,311 364,105 407,791 407,912 434,996 409,202 355,362 443,880 181,975 158,088 159.375 93,473 104,488 76,691 118,746 2,974,534 2,814,400 2,817,250 2,695,431 2,603,176 2,454,778 2,555,937 33,075 -
32,440 _
29,544 26,993 26,178 21,848 18,697 5 3,007,609
$ 2,846,840
$ 2,846,794
$ 2,722,424
$ 2,629,354
$ 2,476,626
$ 2,574,634 13,185,062 12,069,268 12,324,898 11,996,794 11,34'6,736 11,332,285 11,149,225' 9,185,462 8,629,869 8,526,131 8,201,534 7,915,685' 7,711,092 7,476,924 18,595,237 18,260,274 17,511,579 17,713,153 17.360,791 16,881,342 15,969,075 18),673 176,798 174,760 170,420 166,485 165,122 159,422 41,147,434 39,136,209 38,537,368 38,081,901 36,789,697 36,089,841 34,754,646 7,143,672 8,382,571 8,810,442 10,277,060 10,292,329 7,905,750 10,523,554 8,081,324 7,210,697 7,784,285~
4,519,275 5,048,743 3,551,142 4,963.997 56,372,430 54,729,477 55,132,095 52,878,236 52,130.769 47,546,733 50,242,197
- 7. I 8 7.01 7.01 6.88 6.89 6.72 6.82 6.91 6.83 6.83 6.73 6.74 6.63 6.70 4.48' 4.38 4.51 4.39 4.39 4.38 4.52 5.90 5.75 5.84 5.69 5.68 5.60 5.74 3.59 3.63 3.42 3.57 3.35 3.77 3.63 5.28 5.14 5.11 5.10 4.99 5.16 5.09 12,936 12,017 12,435 12,256 11,717 11,839 11,848 929.36 842.00 872.04 843.50 807.50 795.84 807.61 10,431 10.431 10,539 9,879 9,879 9,279.
9,337 l
~
l 7,152 7,077 6,586 6,293 7,264 6,377 6,138 9,457 8,801
,8,627 8,878 8,256 7,991 7,886 58.6 59.6 59.9 57.4 59.5 59.6 58.3 89.7 88.9 93.1 92.2
~90.7 91.3 90.2 86.6 80.2 87.0 86.5 83.1 91.9 83.3 63.9 64.3 61.5 57.0 54.1 53.9 52.5 l
20.1 19.0 20.8 21.6 21.0 26.1 21.7 6.9 8.5 8.2 8.7 11.0 4.8 6.3 I
0.1 0.1 0.1 0.2 l
1.1 1.2 1.6 0.9 1.8 0.5 0.2 8.0 7.0 7.9 11.7 12.0 14.6 19.1 100.0 100.0 100.0 100.0 100.0 100.0 100.0 l
10,003 10,000 9,985 10,072 10,061 10,137 10,214 i
173.66 164.57 170.49 _
171.55 172.20 168.21 176.72 1.74 1.65 1.70 1.73 1.73 1.71 1.80 i
29 l
9 Management's Discussion and Analysis of-Results of Operations and Fmancial Condition Results ofOperations Retail revenues of $2.5 billion in 1997 increased
$42 million (1.7 percent) from the prior year, compared with a decrease of $18 million (0.7 percent) in 1996.
Earnings Fuel revenues increased in 1997 due to slightly higher Alabama Power Company's 1997 net income aftec dividends on preferred stock was $376 million, generation and higher fuel costs. This was the primary reason for the in' crease in 1997 retail revenues over 1996.
representing a $4.4 million (1.2 percent) increase from lower fuel c succ very was the primary reason for the the prior year. This improvement can be attributed decrease in 1996 retail revenues as compared to 1995.
primarily to lower non-fuel related operating expenses.
Despite the inild weather experienced during 1997, retail Fuel revenues generally represent the direct recovery of sales increased approximately 2 percent. However, the fuel expense, including the fuel component of purchased expected net income effect was offset by reductions in energy, and therefore have no effect on net income.
certain industrial and commercial prices.
Revenues from sales to utilities outside the service In 1996, earnings were $371 million, representing a area under 1 ng-term contracts consist of capacity and 2.9 percent increase from the prior year. This increase energy c mp nents. Capacity revenues reflect the was due to an increase in retail energy sales of 2.7 percent rec very f fixed costs and a return on investment under from 1995, levels and lower net interest charges compared the contracts. Energy is generally sold at variabfe cost.
to the prior year. This improveinent was partially offset by a 4.4 percent increase in operating costs.
These capacity and energy components were:
j The return on average common equity for 1997 was 1997 1996 1995 (in thousands) l 13.76 percent compared to 13.75 percent in 1996, and 13.61 percent in 1995.
Capacity
$136,248
$150,797
$157,119 Energy 134,498 107,996 83,352 Total
$270,746
$258,793
$240.471 Revenues Operating revenues for 1997 were $3.1 billion, Capacity revenues fmm non-aE.ates in IN t
reflecting a 0.9 percent increase from 1996. The decreased 9.6% compared to 1996 primarily due to a following table summarizes the principal factors that netime unit p wer sales adjustment in 1997 Capacity afTected operating revenues for the past three years:
revenues from non-afliliates were relatively constant m 1996 and 1995.
increase (Decrease)From Prior Year 1997 1996 1995 Kil watt-hour (KWH) sales for 1997 and the (in thousands) percent change by year were as follows:
Retail -
Growth and price KWH Percent Change change
$ 33,813 $ 42,385 $ 19,164 1997 1997 1996 1995
- Weather, (22,973)
(29,660)' 54,888 Fuel cost recovery (rnillions) and other 31,353 (30,846) 35,235 Residential.
14,336 (1.8)%
1.5%
9.1%
Total retail 42 193 (18,12_lL 109,287 Commercial
- 11,330 3.9 8.6 4.1 1
Sales for resale -
Industrial
- 20,728
. 3.6 0.7 2.0 Non-affiliates 39,354 21,529 15,380 Other.
181 (6.3) 3.l' O.5 Aflitiates (54,825) 88,890 (37,032)
Total retail 46,575 1.9 2.7 4.7 Total sales for resale (15,471) 110,419 (21,652)
Sales for resale -
Other operating Non-affiliates 11,894 25.3 18.0 18.8 revenues 1,614 3,703 1,997 Afliliates 8,993 (12.6) 53.5 (20.5)
. Total operatmg Total 67,462 3.0 %
10.5 %
2.6 %
revenues
$ 28,336 5 96,001 $ 89,632 Percent chance 0.9%
3.2%
3.1 oi>
The Kuu sales for 1996 reflect a reclamheiion of approximarcly 30 mstomers from mdustrial to commercial, which 'esuhed m a shift of 473 million KVH. Ab em the reclauification. the percentage change in INH sales for commercial and industrial would have been 3% and 33.
30
. respeciively.
The increases in 1997 and 1996 retail energy sales in 1996 by $85 millicn or 10.8 percent. This increase were primarily due to the strength of business and can be attributed to higher generation.
economic conditions in the company's service area.
Residential energy sales experienced a decline as a result Purchased power consists primarily o'f purchases of milder than normal weather in 1997, compared to from the afliliates of the Southern electric system.
relatively normal weather in 1996. Assuming normal Purchased power tra'nsactions among the company and weather, sales to retail customers are projected to grow its affiliates will vary from period to period depending on approximately 2.3 percent annually on average during demand, the availability, and the variable production cost 1998 through 2003.
of generating resources at each company. Total KWH purchases increased 12.4 percent from the prior year.
Expenses Total operating expenses of $2.5 billion for 1997 The 6.1 percent decrease in maintenance expenses were up $18 million or 0.7 percent compared with the in 1997 is attributable primarily to a decrease in prior year. This increase was primarily due to a
. distribution expenses. The increase in maintenance
$19 million increase in fuel costs and a $10 million expenses for 1996 is due to increased nuclear expenses, increase in depreciation and amortization expense. These primarily outage related accruals.
increases were somewhat offset by a $16 million decrease in maintenance expenses.
Depreciation and amortization expense increased 3.2 percent in 1997 and 5.6 percent in 1996. These Total operating expenses of $2.5 billion for 1996 increases reflect additions to utility plant.
were up $105 millibn or 4.4 percent compared with
' 1995. The major components of this increase include Total net interest and other charges increased
= $85 million in fuel costs, $15 million in maintenance
$25.4 million (11.2 percent) in 1997 primarily due to an expense, and $17 million in depreciation and increase in company obligated mandatorily redeemabic amortization offset by a decrease in purchased power of preferred securities outstanding. This increase was offset
$15 million.
by a $12 million (45.2 percent) decrease in dividends on preferred stock. The decline in net interest and other Fuel. costs constitute the single largest expense for charges in 1996 by $11 million (4.5 percent) was due the company. The mix of fuel' sources for generation of primarily to a charge of $10 million in 1995 to the electricity is determined prinprily by system load, the amortization of debt discount, premium, and expense.
unit cost of fuel consumed, and the availability of hydro net, pursuant to an Alabama Public Service Commission and nuclear generating units. The amount and sources (APSC) order. See Note 3 to the financial statements,
of generation 'and the average cost of fuel per net KWH under " Retail Rate Adjustment Procedures" for generated were as follows:
additional details.
1997 1996 1995 Effects ofInflation Total generation The company is subject to rate regulation and (billions of KWHs) 65 65 58 income tax laws that are based on the recovery of Sources of generation historical costs. Therefore, inflation creates an economic (percent) -
loss because the company is recovering its costs of Coal 72 72 73 investments in dollars that have less purchasing power.
Nuclear 20 20 19 ^
While the inflation rate has been relatively low in recent Hydro 8
8 8
years, it continues to have an adverse effett on the Average cost of fuel per net company because of the large investment in long-lived KWH generated utility plant. Conventional accounting for historical cost (cents) -
does not recognize this economic loss nor the partially Coal 1.73 1.71 1.71 offsetting gain that arises through financing facuities with Nuclear 0.54 0.50 0.50 fixed-money obligations, such as long-term debt and Total 1.49 1.46 1.48 preferred stock. Any recognition ofinflation by regulatory authc;, - 5 is reflected in the rate of return Note: Oil & Gas comprise leu than 1% of generation.
gy
,g Fuel expense increased in 1997 by $19 million or 2.2 percent. This increase can be attributed to slightly higher generanon and fuel costs. Fuel expense increased 31
Future Earnings Potential competition initiatives have been or are being discussed The results of operations for the past three years are in Alabama, Florida, Georgia, and Mississippi, none have not necessarily indicative of future earnings potential.
been enacted to date. Enactment would require The level of future earnings depends on numerous numerous issues to be resolved, inclu' ding significant factors ranging from energy sales growth to a less ones relating to transmission pricing and recovery of any.
regulated more co'mpetitive environment.
stranded investments. The inability of the company to
- recover its investments, including the regulatory assets The company currently operates as a vertically described in Note 1 to the financial statements, could integrated utility providing electricity to customers have a material adverse efTect on the financial condition within its traditional service area located in the state of of the company. The company.is attempting to Alabama. Prices for electricity provided by the company minimize or reduce stranded cost exposure.
to retail customers are set by the APSC under cost-based regulatory principles.
, Continuing to be a low-cost producer could provide opportunities to increase market share and Future earnings in the near term will depend upon profitability in markets that evolve with changing growth in electric sales, which are subject to a number of regulation. Conversely, unless the company remains a factors. Traditionally, these factors have included low-cost producer and provides qualiti service, the weather, competition, changes in contracts with company's retail energy sales growth could be limited, neighboring utilities, energy conservation practiced by and this could significandy erode earnings.
customers, the elasticity of demand, and the rate of~
economic growth in the company's service area.
Rates to retail customers served by the company are However, the Energy Policy Act of 1992 (Energy Act) is regulated by the APSC. Rates for the company can be having a dramatic effect on the future of the electric adjusted periodically within certain limitations based on '
utility industry. The Energy Act promotes energy earned retail rate of return compared with an allowed efficiency, alternative fuel use, and increased competition return. In June 1995, the APSC issued an order for electric utilities. The company is pcsitioning the granting the company's request for j;radual adjustments business to meet the challenge of this major change in to move toward parity among customer classes. This the traditional practice of selling electricity. The Energy order also calls for a moratorium on any periodic retail Act allows independent power producers (IPPs) to access rate icreases (but not decreases) until 2001, a utility's transmission network in order to sell electricity to other utilities. This enhances the incentive for IPPs to in December 1995, the APSC issued an order build cogeneration plants for a utility's large industrial authorizing the company to reduce balance sheet items and commercial customers and sell excess energy
- such as plant and deferred charges - at any time the generation to other utilities. Also, electricity sales for company's actual base rate revenues exceed the budgeted
~
resale rates are being driven down by wholesale revenues. In April 1997, the APSC issued an additional transmission access and numerous potential new energy order authorizing the company to reduce balance sheet suppliers, including power marketers and brokers. The asset items. This order authorizes the reduction of such company is aggressively working to maintain and expand items up to an amount equal to five times the toial its share of wholesale business in the Southeastern power estimated annual revenue reduction resulting from future markets.
rate reductions initiated by the company. See Note 3 to the financial statements for information about this and Although the Energy Act does not permit retail other matters.
customer access, it was a major catalyst for the current restructuring and consolidation taking place within the
. The staff of the Securities and Exchange utility industry. Numerous federal and state initiatives Commission has questioned certain of the current are in varying stages to promote wholesale and retail accounting practices of the clectric utility industry -
competition. Among other things, these initiatives allow including the company - regarding the recognition, customers to choose their electricity provider. As these measurement, and classification of decommissioning initiatives materialize, the structure of the utility industry costs for nuclear generating facilities in the financial could radically change. Some states have approved statements. In response to these questions, the Financial initiatives that result in a separation of.he ownership Accounting Standards Board (FASB) has decided to and/or operation of generating facilities from the review the accounting for liabilities related to closure and ownership and/or operation of transmission and removal oflong-lived assets, including nuclear j
distribution facilities. While various restructuring and decommissioning. If the FASB issues new accounting 32
rules, the estimated costs of closing and removing the Exposure to Market Risk company's nuclear and other facilities may be required to Due to cost-based rate regulation, the company has be recorded as liabilities in the Balance Sheets. Also, the limited exposure to market volatility in interest rates and annual provisions for such costs could change. Because prices of electricity. Iro mitigate' residual risks relative t'o of the company's current ability to recover closure and movements in electricity prices, the company enters into removal costs through rates, these changes would not fixed price contracts for the purchase and sale of have a significant adverse effect on results of operations.
electricity through the wholesale electricity market.
See Note I to the financial statements under Realized gains and losses are recognized in the income
" Depreciation and Nuclear Decommissioning" for statement as incurred. At December 31,1997, exposure additional information.
from these activities was not material to the company's financial position, results of operations, or cash flows.
The company is heavily dependent upon complex computer systems for all phases ofits' operations. The New Accounting Standards year 2000 issue - common to most corporations -
The FASB has issued Statement No.130, concerns the inability of certain software and databases Reporting Comprehensive income, which will be to properly recognize date sensitive information related effective in 1998. This statement establishes standards to the year 2000 and thereafter. This problem could for reporting and display of comprehensive income and result in a material disruption to the company's its components in a full set of general purpose financial operations, if not corrected. The company has assessed statements. The objective of the statement is to report a and developed a detailed strategy to prevent or at least measure of all changes in equiry of an enterprise that minimize problems related to the year 2000 issue. In result from transactions and o' her economic events of t
1997 resources were committed and implementation the period other than transactions with owners began to modify the affected information systems. Total (comprehensive income). Comprehensive income is the costs related to the project are estimated to be total of net income and all other nonowner changes in
~
approximately $26 million, of which $2.1 million was equiry. The company will adopt this statement in 1998.
spent in 1997. The remaining costs will be expensed primarily in 1998. Implementation is currently o-The FASB has issued Statement No.131, schedule. Although, the degree of success of this project Disclosure about Segments of an Enterprise and Related cannot be determined at this time, management believes Information. This statement requires that a public there will be no significant effect on the company's business enterprise report financial and descriptive operations.
information about its reportable operating segments.
Generally, financial information is required to be The company is involved in various matters being reported on the basis that it is used by the chief litigated. See Note 3 to the financial statements for.
operating decision maker in deciding how to allocate information regarding material issues that could possibly resources and in assessing performance. This statement affect future earnings, also establishes standards for related disclosures about products and services, geographic areas, and major Compliance costs related to current and future customers. The company adopted the new rules in environmental laws and regulations could affect earnings '
1997, and they did not have a significant impact on the if such costs are not fully recovered. The Clean Air Act company's financial reporting. However, this conclusion and other important environmental items are discussed may change as industry restructuring and competitive later under " Environmental Matters."
factors influence the company's operations.
The company is subject to the provisions of FASB Statement No. 71, Accounting for the EfTects of Certain Financial Condition Types of Regulation. In the event that a portion of the
- company's operations is no longer subject to these Overview provisions, the company would be required to write oft The company's financial condition remained stable related regulatory assets and liabilities that are not in 1997. This stabilityis the continuation over recent specifically recoverable, and determine if any other assets years of growth in energy sales and cost control measures have been impaired. See Note 1 to the financial combined with a signifNant lowering of the cost of statements under " Regulatory Assets and Liabilities" for capid adieved through the refinancing and/or addmonal informauon.
redemption of higher-cost long-term debt and preferred stock.
33
4 The company had gross property additions of.
The company will replace all six steam generators at
$451 million in 1997. The majority of funds needed for Plant Farley at a total cost of approximately-gross property additions for the last several years have
$234 million. Additionally, the company plans to been provided from operating activitics, principally from construct and install 800 megawatts of new generating earnings and non-cash charges to income such as capacity and associated substation facilities at Plant Barry.
depreciation and deferred income taxes. The Statements The projected capital expenditures for this project of Cash Flows provide additional details.
amount to approximately $289 million.
Capital Structure Other Capital Requirements The company's ratio of common equity to total In addition to the funds needed for the capital capitalization - including short-term debt - was 44.7 budget, approximately $320 million will be required by percent in 1997, compared with 45.3 percent in 1996, the end of 2000 for maturities of first mortgage bonds.
and 45.0 percent in 1995.
Also, the company will continue to retire higher-cost debt and preferred stock and replace these obligations in January l'997, Alabama Power Capital Trust 11 with lower-cost capital if market conditions permit.
(Trust II), of which the company owns all of the contmon securities, issued $200 million of 7.60 percent Environmental Matters mandatorily redeemable preferred securities.
In November 1990, the Clean Air Act was signed Substantially all of the assets ofTrust II are $206 million into law. Title IV of the Clean Air' Act - the acid rain i
aggregate principal amount of the company's compliance provision of the law - significantly impacted 7.60 percent junior subordinated notes due the operating companies of Southern Company, December 31,2036.
including Alabama Power. Specific reductions in sulfur dioxide and nitrogen oxide emissions from fossil-fired _
j
, ' During 1997, the company redeemed generating plants are required in two phases. Phase I
$162.0 million of preferred stock and reacquired an compliance began in 1995 and initially affected 28 additional $22.9 million through tender offer.
generating units of Southern Company. As a result of Southern Company's compliance strategy, an additional The company's current securities ratings are as followsi 22 geherating units were brouAt into compliance with Phase I requirements. Phase 11. ompliance is required in Duff &
Standard 2000, and all fossil-fired generr.,g plants will be Phelps Moody's affected.
Poor's First Mortgage Bonds AA-Al
-A+
Southern Company achieved Phase I sulfur dioxide Company Obligated compliance at the affected plants by switching to low-Mandatorily sulfur coal, which required some equipment upgrades.
Redeemable.
Construction expenditures for Phase I compliance totaled Preferred Securities A+
a2 A
approximately $25 million for the company.
' Preferred Stock A+
a2
-A For Phase 11 sulfur dioxide compliance, the Capital Requirements company could use emission allowances, increase fuel Capital expenditures are estimated to be switching, and/or install flue gas desulfurization
$615 million for 1998, $723 million for 1999,'and equipment at selected plants. Also equipment to control
$524 million for 2000. The total is $1.9 billion for the nitrogen oxide emissions will be installed on additional three years. - Actual capital costs may vary from this system fossil-fired units as necessary to meet Phase 11 estimate because of factors such as changes in business limits. Current compliance strategy for Phase 11 could conditions; revised load growth projections; changes in require total estimated construction expenditures of environmental regulations; changes in the existing approximately $33 million, of which $27 million nuclear plant to meet new regulatory requirements:
- remains to be spent.
increasing cost oflabor, equipment, and materials; and cost of capital. In addition, there can be no assurance A significant portion of costs related to the acid rain that costs related to capital expenditures will be fully provision of the Clean Air Act is expected to be n: covered recovered.
through existing raremaking provisions. However, there can be no assurance that all Clean Air Act costs will be recovered.
34
In July 1997, the Environmental Protection Agency pollution control revenue bonds issued for its benefit by (EPA) revised the national ambient air quality standards public authorities, to meet its long-term external.
for ozone and particulate matter. This revision makes the financing requirements. Recently, the company's standards significantly more stringent. Also, in October financings have consisted of unsecured debt and trust
]
1997, the EPA issued a proposed regional ozone rule preferred securities. In this regard, the company sought that-ifirhplemented-could require substantial further and obtained stockholder approval in 1997 to amend its l
reductions in NOx emissions from fossil-fueled corporate charter eliminating restrictions on the amounts j
generating facilities. Implementation of the standards of unsecured indebtedness it may incur. To issue L
and the proposed rule could result in significant additional debt and equity securities, the company must additional compliance costs and capital expenditures that comply with certain earnings coverage requirements cannot be determined at this time.
designated in its mortgage indenture and corporate charter. The company's coverages are at a level that i
The EPA and state environmental regulatory would permit any necessary amount of security sales at i
agencies are reviewing and evaluating various other current interest and dividend r:ites.
matters including: emission control strategies for ozone nonattainment areas; additional controls for hazardous As required by the Nuclear Regulatory Commission air pollutant emissions; and hazardous waste disposal and as ordered by the APSC, the company has requirements. The impact of new standards will depend established external trust funds for nuclear on the dmelopment and implementation of applicable decommissioning costs. In 1994, the company also regulations.
established an external trust fund for postretirement benefits as ordered by the APSC. The cumulative effect The company must comply with other of funding these items over a long period will diminish environmental laws and regulations that cover the internally funded capital and may require capital from j
handling and disposal of hazardous waste. Under these other sources. For additional information concerning various laws and regulations, the company could incur nuclear decommissioning costs, see Note I to the i
costs to clean up properties. The company conducts financial statements under " Depreciation and Nuclear j
studies to determine the extent of any required cleanup Decommissioning."
costs and has recognized in the financial statements costs to clean up known sites.
Cautionary Statement Regarding Forward-Looking Information Several major pieces of environmental leg:slation are The company's 1997 Annual Report co.' rains being considered for reauthorization or amend nent by forward-looking statements in addition to historical Congress. These include: the Clean Air Act; che Clean information. The company cautions that there are' Water Act; the Comprehensive Environmental besponse, various important factors that could cause actual results Compensation, and 1.iability Act; the Resource to differ materially from those indicated in the forward-Conservation and Recovery Act; theToxic Substances looking statements; accordingly, there can be no Control Act; and the Endangered Species Act. Changes assurance that such indicated results will be realized.
to these laws could affect many areas of Southern These factors include legislative and regulatory initia'tives Company's operations. The full impact of any such regarding dengulation and restructuring of the electric changes cannot be determined at this time.
utility industry; the extent and timing of the entry of additional compeddon in the company's markets; Compliance with possible additional legislation potential business strategies - including acquisitions or related to global climate change, electromagnetic fields.
- dispositions of assets or internal restructuring - that -
and other environmental and health concerns could may be pursued by Southern Company; state and federal significantly affect Southern Company. The impact of rate regulation; changes in or application of new legislation - if any - will depend on the environmental and other laws and regulations to which subsequent development and implementation of the company is subject; political, legal and economic applicable regulations. In addition, the potential exists conditions and developments; financial market for liability as the result oflawsuits alleging damages conditions and the results of financing efforts; changes in caused by electromagnetic fields.
commodity prices and interest rates; weather and other
. natural phenomena; and other factors discussed in the Sources of Capital reports-including Form 10-K-filed from time to time The company historically has relied on issuancet of by the company with the Securities and Exchange first mortgage bonds and preferred stock, in addition to Commission.
35
Statements ofIncome For the Years Ended December 31,1997,1996, and 1995 1997 1996 1995 (in thousands)
Operating Revenues:
Revenues (Notes 1,3, and 7):
- $ 2,987,316
$ 2,904,155
$ 2,897,044 Revenues from affiliates 161,795 216,620 127,730 Total operating revenues 3,149,111 3,120,775 3,024,774 l
Operating Expenses:
l Operation --
Fuel 896,014 877,076 791,819 Purchased power from non-affiliates 41,795 36,813 30.065 l
Purchased power from affiliates 95,538 91,500 112,826 Other 510,203 505,884 501,876 Maintenance 242,691 258,482 243,218 Depreciation and amortization 330,377 320,102 303,050 j
Taxes other than income taxes 185,062 186,172 185,620 Federal and state income taxes (Note 8)
~ 220,228 228,108 230,982 Total operatingspenses 2,521,908 2,504,137 2,399,456
- Operating Income 627,203 616,638 625,318
,Other Income (Expense):
Allowance for equity funds used during construction (Note 1) 1,649 l
Incorne from subsidiary (Note 6) 4,266 3,851 4,051 (6,800)
(11,542) l Charitable foundation Interest income 37,844 28,318 13,768 l
Other, net (38,522)
(39,053)
(21,536)
Income taxes applicable to other income.
12,351 22,400 14,142 l
Income Before Interest Charges and Other 643,142 625,354 625,850 Interest Charges and Other:
Interest on long-term debt 167,172 169,390 180,714 Allowance for debt funds used during construction (Note 1)
(4,787)
(6,480)
(7,067) l Interest on interim obligations 22,787 20,617 16,917 L
Amortization of debt discourit, premium, and expense, net, 9,645 9,508 -
20,259 Other interest charges 36,037 27,510 27.064 Distributions on preferred securities of Alabama Power Capital Trust I & II (Note 9) 21,763 6,717 Interest charges and other, net 252,617 227,262 237,887 Net Income 390,525-398,092 387,963 Dividends on Preferred Stock 14,586 26,602
'27,069 Net Income After Dividends on Preferred Stock 375,939 -
371,490
$ 360,894 The accompanying notes are an integral part of these statements.
36 '
Statements of Cash Flow For the Years Ended December 31,1997,1996, and 1995 1997 1996 1995 ~
(in thousands)
Operating Activities:
Net income
$ 390,525
$ 398,092 5 387,963 Adjustments to reconcile net income to net cash provided by operating activities -
Depreciation and amortization 394,572 383,438 371,382 Deferred income taxes and investment tax credits, net (12,429) 16,585 32,627 Allowance for equity funds' used during construction
. (1,649)
Other, net (11,353) 6,247 459 Changes in certain current assets and liabilities --
Receivables, net (30,268) 3,958 (54,209)
Inventories 13,709 36,234 18,425 Payables (9,745) 1,006 (63,656)
Taxes accrued 6,191 (5,756) 551 Energy cost recovery, retail 7,108 25,771 1,177 Other 7,127 8,205.
16,890 Net cash provided from operating activities
.755,437 873,780 709,960 investing Activities:
Gross property additions (451,167)
(425,024)
(551,781)
Other (51,791)
(61,119)
(53,321)
Net cash used for investing activities
.(502,958)
(486,143)
(605,102)
Financing Activities:
Proceeds:
Company obligated mandatorily redeemable preferred securities 200,000 97,000 Other long-term debt 258,800 21,000 131,500 Retirements:
Preferred stock (184,888)
First mortgage bonds (74,951)
(83,797) 1 Other long-term debt' (951)
(21,907)
(132,291)
Interim obligations, net (57,971)
(25,163) 210,134 Payment of preferred stock dividends (22,524)
(26,665)
(27,118)
Payment of common stock dividends (339,600)
(347,500)
(285,000)
Miscellaneous (16,024)
(3,634)
(4,143) -
Net cash used for fmancing activities (238,109)
(390,666)
(106,918)
. Net Change in Cash and Cash Equivalents 14,370 (3,029)
(2,060)
Cash and Cash Equivalents at Beginning ofYear 9,587 12,616 14,676 Cash and Cash Equivalents at End ofYear
$ 23,957 9,587 12,616 Supplemental Cash Flow information:
Cash paid during the year for --
Interest (net of amount capitalized)
$ 209,919
$ 193,871
$ 189,268 Income taxes 207,653 195,214 172,777
- () Denotes use of cash.
The accompanying notes are an integral part of these statements.
37
r Balance Sheets At December 31,1997 and 1996
(
l ASST.13 1997 1996 (in thousands)
Utility Plant:
Plant in service, at original cost (Note 1)
$ 11,070,323
$ 10,806,921 Irss accumulated provision for depreciation 4,384,180 4,113,622 L
6,686,143 6,693,299 Nuclear fuel, at amortized cost 103,272 123,862 l
Construction work in progress 311,223 256,802 i
Total 7,100,638 7,073,963 l
Other Property and Investments:
Soutbern Electric Generating Company, at equity (Note 6) 24,972 26,032 Nuclear decommissioning trusts (Note 1) 193,008 148,760 Miscellaneous 22,233 20,243 Total 240,213 195,035 Current Assets:
Cash and cash equivalents 23,957 9,587 l
Receivables-Customer accounts receivable 368,255 334,150 Other accounts and notes receivable 28,921 '
28,524 l
Affiliated companics 50,353 47,630 l
Accumulated provision for uncollectible accounts (2,272)
(1,171)
Refundable income taxes 5,856 Fossil fuel stock, at average cost 74,186 81,704 Materials and supplies, at average cost 161,601 167,792 Prepayments 20,453 17,841 l
Vacation pay deferred 28,783 28,369 Total 754,237 720,282 Deferred Charges and Other Assets:
l Deferred charges related to income taxes (Note 8) 384,549 410,010 Debt expense, being amortized 7,276 7,398 Premium on reacquired debt, being amortized 81,417 84,149 Prepaid pension costs 130,733 114,029 l
Department of Energy assessments (Note 1)
,34,416 37,490 l
Miscellaneous 79,388 91,490 Total 717,779 744,566 Total Assets
$8,812,867
$8,733,846 The accompanying notes are an integral part of these balan'cc sheets.
f a
/
38
4 o
4 Balance Sheets At December 31,1997 and 1996 s
CAPITALIZATION AND LIABILITIES 1997 1996 (in thousands).
. Capitalization (See accompanying statements):
Common stock equity 2,750,569 2,714,277 Preferred stock 255,512 340,400 Company obligated mandatorily redeemable preferred securities of subsidiary trusts holding company Junior Subordinated Notes (Note 9) 297,000 97,000 Long-ferm debt 2,473,202 2,354,006 Total 5,776,283 5,505,683 Current Liabilities:
. Preferred stock due within one year (Note 11) 100,000 long-term debt due within one year (Note 11) 75,336 20,753 Commercial paper 306,882 364,853 Accounts payable-Affiliated companies 79,822 64,307 Other Customer deposits 159,146
, 182,563 34,968 32,003 Taxes accrued-
/
Federal and state income 21,177 35,638 Other 15,309 15,271 Interest accrued 50,722 51,941 Vacation pay accrued 28,783 28,369-Miscellaneous 103,602 96,485 Total 875,747 992,183 Deferred Credits and Other Liabilities:
Accumulated deferred income taxes (Note 8) 1,192,265 1,177,687 Accumulated deferred investment tax credits 282,873 294,071 Prepaid capacity revenues, net (Note 7) 109,982 122,496 Department of Energy assessments (Note 1) 30,592 33,741 Deferred credits related to income taxes (Note 8),
327,328 364,792 Natural disaster reserve (Note 1) 22,416 20,757 Miscellaneous 195,381 222,436 Total 2,160,837 2,235,980 Commitments and Contingent Matters (Notes 1, 3, 4, 5, 6, 7, and 12)
Total Capitalization and Liabilities 8,812,867 8,733,846 The accompanying notes are an integral part of these balance sheets.
l e
.s.
9 39
T Statements of Capitalization At December 31,1997 and 1996 l
l 1997-1996 1997 1996 (in thousands)
(percent of total)
Common Stock Equity:
Common stock, par value $40 per share -
Authorized -- 6,000,000 shares Outstanding -- 5,608,955 shares in 1997 224,358 $
224,358 Paid-in capital 1,304,645 1,304,645
remium on preferred stock 99 146 Retained earnings (Note 13) 1,221,467 1,185,128 Total common stock equity 2,750,569 2,714,277 47.6 %
49.3 %
l Cumulative Preferred Stock:
~
$1 par value --
l Authorized -- 27,500,000 shares l
, Outstanding - 6,020,200 shares
$25 stated capital--
l 6.40%
50,000 50,000 6.80 %
38,000 38,000 7.60 %
150,000 Adjustable rate 4.82% - at January 1,1998 50,000 50,000
$100 stated capital -
Auction rate - 4.235% at January 1,1998 50,000 50,000
$100,000 stated capital -
Auction rate - 4.20% at January 1, I? 98 20,000 20,000
$100 par value --
Authorized - 3,850,000 shares Outstanding -- 475,117 shares 4.20% to 4.52%
18,512 41,400 i
4.60% to 4.92%
29,000 29,000.
5.96% to 6.88%
12,000 Total cumulative preferred stock (annual dividend requirement -- $13,313,000) 255,512 440,400 Less amount due within one year (Note 11) 100,000 i-Cumulative preferred stock excluding amount due within one year 255,512 340,400 4.4 6.2 i
Company Obligated Mandatorily l
Redeemable Preferred Securi:les (Note 9):
l
$25 liquidation value - 7.375%
97,000 97,000
$25 liquidation value -- 7.60%
200,000
~
Total (annual cfistribution requirement -- $22,354,000) 297,000 97,000 5.2 1.7 Long-Term Debt:
First mortgage bonds -- Maturity Intercsr Rates l
February 1,1998 51/2%
50,000 50,000 August 1,1999 63/8%
170,000 170,000 March 1,2000 6%
100,000 100,000 August 1,2002
. 6.85%
100,000 100,000 2003 through 2007 6 3/4% to 71/4%
475,000 475,000 2021 through 2024 7.30% to 9%
946,108 1,021,059 Ktal first mortgage bonds 1,841,108 1,916,059 Pollution control obligations 541,140 476,140
[
Long-term senior notes 193,800 Other long-term debt 7,105 8,056 Unamortized debt premium (discount), net (34,615)
(25,495)
Total long-term debt (annual interest requirement - $181,726,000) 2,548,538 2,374,759 Less amount due within one year (Note 11)
.75,336 20,753 L_ong-term debt excluding amo~unt due within one year 2371,202 2,354,006 42.8 42.8 T:tal Capitalization
$5,776,283 55,505,683 100.0 % 100.0 %
The accompanying notes are an integral part of these statements.
40
Statements of Retained Earnings For the Years Ended December 31,1997,1996, and 1995 1997 1996 1995 (in thousands)'
l Balance at Beginning of Year
$ 1,185,128
$ 1,161,225
$ 1,085,256 i
Net income after dividends on preferred stock 375,939 371,490 360,894 Cash dividends on common stock (339,600)
(347,500)
(285,000) j Preferred stock transactions, net (45)
(7)
Other adjustments to retained earnings 45 (80) 75 Balance at End of Year (Note 13)
$ 1,221,467
$ 1,185,128
$ 1,161,225 The accompanying notes are an integral part of these statements.
/
t 1
e 1
9 0
41
Notes to Financial Statements LSummary ofSignificant Accounting Policies Regulatory Assets and Liabilities The company is subject to the provisions of G:ncral Financial Accounting Standards Board (FASB) Statement Alabama Power Company (the company) is a No. 71, Accounting for the Effects of Certain Types of wholly owned subsidiary of Southern Company, which is Regulation. Regulatory assets represent probable future the parent company of five operating companies, a revenues to the company associated with certain costs system service company, Southern Communications that are expected to be recovered from customers through Services (Sou'thern Commu.nications), Southern Energy, the raremaking process. Regulatory liabilities represent Inc. (Southern Energy), Southern Nuclear Operating probable future reductions in revenues associated with Company (Southern Nuclear), Southern Company amounts that are expected to be credited to customers Energy Solutions, and other direct and indirect through the ratemaking process. Regulatory assets and (liabilities) reflected in the Balance Sheets at December subsidiaries. The operating companies (Alabama Power Company, Georgia Power Company, Gulf Power 31 relate to the following:
Company, Mississippi Power Company, and Savannah 1997 1996 Electric and Power Company) provide. electric service in (in thousands) four southeastern states. Contracts among the companies Deferred income taxes
$ 384,549 $ 410,010 dealing with jointly-owned generating facilities, Deferred income tax credits (327,328)
(3,64,792) interconnecting transmission lines, and the exchange of electric power - are regulated by the Federal Energy Premium on reacquired debt 81,417 84,149 Regulatory Commission (FERC) or the Securities and Department of Energy assessments 34,416 37,490 Exchange Commission (SEC).'The system service Vacation pay 28,783 28,369 Natural disaster reserve (22,416)
(20,757) company provides, at cost, specialized services to W rk force reduction costs 19,316 45,969 Southern Compa and subsidiary companies. Southern Other, net 59,726 45,521 Communications rovides digital wireless e
Total
$ 258,463 $ 265.959 communications services to the operating companies and also markets these services to the public within the Southeast. Southern Energy designs, budds, owns and In the event that a portion of the company's operates power production and delivery facilities and operations is no longer subject to the provisions of provides a broad range of energy related services in the Statement No. 71, the company would be required to United States and international markets. Southern write off related net regulatory assets and liabilities that Nuclear provides services to Southern Company's nuclear are not specifically recoverable through regulated rates.
power plants. Southern Company Energy Solutions In addition, the company would be required to develops new business opportunities related to energy determine if any impairment to other assets exists, products and services.
including plant, and write down the assets, ifimpaired, to their fair value.
Southern Company is registered as a holding Revenues and Fuel Costs company under the Public Utility Holding Company Act of1935 (PUHCA). Both Southern Company and its The company accrues revenues for services rendered subsidiaries are subject to the regulatory provisions of the but unbilled at the end of each fiscal period. Fuel costs PUHCA. The company is also subject to regulation by are expensed as the fuelis used. The company's electric the FERC and the Alabama Public Service Commission rates include provisions to adjust billings for fluctuations (APSC). The company follows generally accepted in fuel and the energy component of purchased power accounting principles and complies with the accounting costs. Revenues are adjusted for differences between policies and practices prescribed by the respective recoverable fuel costs and amounts actually recovered'in
. regulatory commissions. The preparation of financial current rates.
statements in conformity with generally accepted accounting principles requires the use of estimates, and The company has a diversified base of customers.
. the actual results may differ from those estimates.
No single customer or industry comprises 10 percent or more of revenues. In 1997, uncollectible accounts continued to average less than 1 percent of revenues.
f b
w 42
Fuel expense includes the amortization of the cost estimate of the cost to decommission the radioactive of nuclear fuel and a charge, based on nuclear generation, portions of a nuclear unit based on the size and type of for the permanent disposal of spent nuclear fuel. Total reactor. The company has filed plans with the NRC to charges for nuclear fuel included in fuel expense ensure that - over time - the deposits and earnings of amounted to $68 million in 1997, $64 million in 1996, the external trust funds will provide the minimum and $54 million in 1995. The company has a contract funding amounts prescribed by the NRC.
with the U.S. Department of Energy (DOE) that provides for the permanent disposal of spent nuclear fuel, Site study cost is the estimate to decommission the which was scheduled to begin in 1998. However, the facility as of the site study year, and ultimate cost is the actual year this service will begin is uncertain. Suflicient estimate to decommission the facility as of retirement storage capacity currently is available to permit operation date. The estimated costs of decommissioning - both into 2010 and 2013 at Plant Farley units 1 and 2, site study costs and ultimate costs - at December 31, respectively.
1997, for Plant Farley were as follows:
Also, the Energy Policy Act of 1992 required the Site study basis (year) 1993 establishment in 1993 of'a Uranium Enrichment Decontamination and Decommissioning Fund, which is Decommissioning periods:
to be funded in part by a special assessment on utilities Beginning year 2017 with nuclear plants. This assessment will be paid over a Completion year 2029 IF year period, which began in 1993. This fund will be 6n nuHions)
S.ite study costs:
used by the DOE for the decontamination and Radiated structures
$489 decommissioning ofits nuclear fuel enrichment facilities.
Non-radiated structures 89 The law provides that utilities will recover these Total
$578 payments in the same manner as any other fuel expense.
i The company estimates its remaining liability at On minions)
Ulu. mate costs:
December 31,1997, under this law to be approximately Radiated structures
$1,504
$34 million. This obligation is recognized in the Non-radiated structures 274 accompanying Balance Sheets.
Total
$1,778 Depreciation and Nuclear Decommissioning Depreciation of the original cost of depreciable Gn miHions) utility plant in service is provided primarily by using Amount expensed in 1997
$18 composite straight-line rates, which approximated 3.3 percent in 1997 and 1996, and 3.2 percent in 1995.
Accumulated provisions:
When property subject to depreciation is retired or Balance in external trust funds
$193 otherwise disposed ofin the normal course of business, Balance in internal reserves 44 Total
$237 its cost - together with the cost of removal, less salvage
-is charged to the accumulated provision for depreciation. Minor items of property included in the Significant assumptions:
~
original cost of the plant are retired when the related Inflation rate 4.5%
property unit is retired. Depreciation expense includes Trust earning rate 7.0 an amount for the expected cost of decommissioning nuclear facilities and removal of other facilities.
Annual proeions for nuclear decommissioning are based on an annuity method as approved by the APSC.
In 1988, the Nuclear Regulatory Commission All f the company's decommissioning costs are approved (NRC) adopted regulations requiring all licensees for ratemaking.
operating commercial power reactors to establish a plan for providing, with reasonable assurance, funds for The decommissioning cost estimates are based on decommissioning. The company has utablished external prompt dismantlement and removal of the plant from trust funds to comply with the NRC's regulations.
service. The actual decommissioning costs may vary Amounts previously recorded in internal reserves are from the above estimates because of changes in the being transferred into the external trust funds over assumed date of decommissioning, changes in NRC periods approved by the APSC. The NRC's minimum requirements, or changes in the assumptions used in makm.g estimates.
external funding requirements are based on a generic 43
Inccme Taxes Materials and Supplits The company uses the liability method of Generally, materials and supplies include the cost of accounting for deferred income taxes and provides transmission, distribution, and generating plant deferred income taxes for all significant income tax materials. Materials are charged to inventory when j
temporary differences. Investment ta'x credits utilized are purchased and then expensed or capitalized to plant, as deferred and amortized to income over the average lives appropriate, wh,in installed.
of the related property.
Natural Disaster Reserve Allowance For Funds Used During Construction In September 1994, in response to a request by the (AFUDC) company, the APSC issued an order allowing the AFUDC represents the estimated debt and equity company to establish a Natural Disaster Reserve.
costs of capital funds that are necessary to finance the Regulatory treatment allows the company to accrue construction of new facilities. While cash is not realized
$250 thousand per month, until the maximum currently from such allowance, it increases the revenue accumulated provision of $32 million is attained.
requirement over the service life of the plant through a However, in December 1995, the APSC approved higher
, higher rate base and higher depreciation expense. The accruals to restore the reserve to its authorized level composite rate used to determine the amount of whenever the balance in the reserve declines below $22.4 allowance was 5.8 percent in 1997 and 1996, and 7.1 million.
percent in 1995. AFUDC, net ofincome tax, as a percent of net income after dividends on preferred stock was 0.8 percent in 1997, 1.1 percent in 1996 and 1.7
- 2. Retirement Benefts percent in 1995.
Pension Plan -
Utility Plant -
The company has a defined benefit, trusteed, non-Utility plant is stated e original cost. Original cost contributory pension plan that covers substantially all includes: materials; labor; minor items of property; regular employees. Benefits are based on one of the appropriate administrative and general costs; payroll-followin' formulas: years of service and fmal average pay g
related costs such as taxes, pensions, and other benefits; or years of service and a flat-dollar benefit. The company and the estimated cost of funds used during uses the " entry age normal method with a frozen initial construction. The cost of maintenance, repairs and I ability" actuarial method for funding' purposes, subject replacement of minor items of property is charged to to limitations under federal income tax regulations.
maintenance expense. The cost of replacements of Amounts funded to the pension trusts are primarily property (exclusive of minor items of property) is invested in equiry and fixed-income securities. FASB charged to utility plant.
Statement No. 87, Employers' Accounting for Pensions, requires use of the " projected unit credit" actuarial Financial Instruments method for financial reporting purposes.
The company's only financial instruments for which the carrying amount did not approximate fair value at Postretirement Benefits' December 31 are as.follows:
The company also provides certain medical care and j
l life insurance benefits for retired employees.
Carrying Fair Substantially all these employees may become eligible for Amount Value these benefits when they retire. Amounts funded are (in millions) primarily invested in debt and equity securities. In long-term debt:
December 1993, the APSC issued an accounting policy i
~ At December 31,1997
$2,541
$2,638 statement which requires the company to externally fund At December 31,1996
$2,367
$2,420 net annual postretirement benefits.
Preferred Securities:
At December 31,1997 297 300 FASB Statement No.106, Employers' Accounting At December 31,1996 97 94 for Postretirement Benefits Other Than Pensions, requires that medical care and life insurance benefits,for The fair value for long-term debt and preferred retired employees be accounted for on an accrual basis securities was based on either closing market prices or using a specified actuarial method, " benefit / years-of-closing prices of comparable instruments.
service."
44
i l
l Fun'ded Status cnd Cost cf Benefits accumulated benefit obligation as of December 31,1997, The funded starus of the plans and reconciliation to by $21 million and the aggregate of the service and amounts reflected in the Balance Sheets at December 31 interest cost components of the net retiree cost by l
are as follows:
$2 million.
Pension 1997 1996 Components of the plans' net cost are shown below:
(in millions)
Pension Actuarial present value of 1997 1996 1995 benefit obligations:
(in millions)
Vested benefits
$ 626
$ 603 Benefits earned during Non-vested benefits 22' 30 the year
$20.3 $21.5
$21.2 Accumulated benefit obligation 648 633 Interest cost on proj:cted Additional amounts related to benefit obligation 58.4 59.5 54.3
_ projected salary increases 165 180 Actual (return) loss on plan Projected benefit obligation 813 813 assets (227.8) (148.9) (236.3)
Less:
Net amortization and deferral - 116.8 43.8 136.9 Fair value of plan assets 1,521 1,334
' Net pension cost (income)
$(32.3) $(24.1) $(23.9)
Unrecognized net gain (585)
(413)
Unrecogniied prior service cost 43 46 Of the above net pension income, $24.8 million in
_ Unrecognized transition asser (35)
(40) 1997, $20.3 million in 1996, and $17.1 million in 1995 -
Prepaid asset recognized in the were recorded as credits to operating expenses, and the Balance Sheets
$ 131
$ 114 remainder was recorded as credits to construction and other accounts.
Postretirement Benefits 1997 1996 Postretirement Benefits (in millions) 1997 1996 1995 Actuarial present value of (in millions) benefit obligation:
Benefits earned during the year $4
$5
$7
- Retirees and dependents
$135
$ 116 Interest cost on accumulated Employees eligible to retire 24 28 benefit obligation 18 17 18 Other employees 93 98 Amortization of transition Accumulated benefit obligation 252 242 obligation 4
4 7
Less:
Actual (return) loss on plan Fair value of plan assets 135 108 assets (14)
(7)
(10)
Unrecognized net loss 3
15 Net amortization and deferral 7
2 5
Unrecognized transition Net postretirement costs
$19
$21
$27 obligation 61 65 Accrued liability recognized Of the above net postretirement costs recorded, in the Balance Sheets
$ 53
$ 54
$16.3 million in 1997, $17.8 million in 1996, and
$22.7 million in 1995 were charged to operating The weighted average rates assumed m. the actuarial calculations were:
expenses and the remainder was charged to construction gg 1997 1996 1995 Discount 7.5%
7.8%
7.3%
W rk Force Reduction Progratns Annual salary increase 5.0 5.3 4.8 The company has incurred additional costs for work Long-term return on f rce reduction programs. The costs related to these plan assets 8.5 8.5 8.5 programs were $33 million, $26.7 million and An additional assumption used in measuring the
$14.3 million for the years 1997,1996 and 1995, accumulated postretirement benefit obligation was a respectively. In addition, certain costs of these programs weighted average medical care cost trend rate of were deferred and are being amortized in accordance o
8.8 percent for 1997, decreasing gradually to 5.5 percent with regulatory treatment. The unamortized balance of through the year 2005 and remaining at that level these costs was $19.3 million at December 31,1997.
thereafterc An annual increase in the assumed medical care cost trend rate of 1 percent would increase the l
45
- 3.. Litigation and Regulatory Matters operatins companies' wholesale r te schedules and contracts that have a return on common egmty of Retail Rate Adjustme:it Procedures 13.75 percent or greater. The contracts that could be In November 1982, the APSC adopted rates that affected by the hearings include substantially all of the provide for periodic adjustments based upon the gansmission, unit power, long-term power and other smular cmuracts.
- company's earned return on end-of-period retail common equity. The rates also provide for adjustments to recognize the placing of new generating facilities in retail In August 1992, a FERC administrative law judge issued an opinion that changes in rate schedules and service. Both increases and decreases have been placed
- into e&ct since the adoption of these rates. The rate mntraas were n t necessary and that the FERC staff failed t show how any changes were in the public adjustment procedpres allow a return on common equity range of 13.0 percent to 14.5 percent and limit increases interest. The FERC staff has filed exceptions to the
' or decreases in rates to 4 percent in any calendar year.
administrative law judge's opinion, and the matter remains pending before the FERC.
In June 1995, the APSC issued a rate order granting the company's request for gradual adjustments to move In August 1994, the FERC instituted another toward parity among customer classes. This order also pr ceeding based on substantially the same issues as in calls for a moratorium on any periodic retail rate the 1991 proceeding. In November 1995, a FERC increases (but not decreases) until July 2001, administrative law judge issued an opinion that the FERC staff failed to meet its burden ofproof, and
'In December 1995, the APSC issued an order therefore, no change in the equity return was necessary.
authorizing the company to reduce balance sheet items The FERC staff has filed exceptions to the administrative
- such as plant and deferred charges - at any time the law judge's opinion, and the macter is pending before the FERC.
company's actual base rate revenues exceed the budgeted revenues. In April 1997, the APSC issued an additional order authorizing the company to reduce balance sheet If the rates of return on common equity as' set items. This order authorizes the reduction of such rewmmended by the FERC staffwere applied to all of items up to an amount equal to five times the total the schedules and contracts involved in both proceedings, as well as certain other contracts that reference these estimated annual revenue reduction resulting from future rate reductions initiated by the company.
Proceedings in determining return on common equity, and if refunds were ordered, the amount of refunds could The raremaking procedures will remain in e&ct range up to approximately $194 million at December 31, until the APSC votes to modify or discontinue them.
1997 for Southern Company, of which the company's portion would be approximately $95 million. Although Appliance Warranty Litigation management believes that rates are not excessive and that In 1996, legal actions against the company were refunds are not justified, the final outcome of this matter filed in several counties in Alabama charging the cannot now be determined.'
company with fraud and non-compliance with regulatory statutes relating to the o&r, sale, and financing of Tax Litigation
" extended service contracts" in connection with the sale In August 1997, Southern Company and the of electric appliances. Some of these suits were filed as Internal Revenue Service entered into a serdement class actions, while others were filed on behalf of agreement related to tax issues for the years '1984 multiple individual plaintiffs. The plaintiffs seek through 1987. The agreement is subject to the review t
damages for an unspecified amount. The company has and approval by the Joint Congressional Committee on offered extended service agreements to its customers since Taxation. If approved by the Joint Committee, the January 1984, and approximately 175,000 extended agreement would resolve all issues in the case for the service agreenients could be involved in these years before the U.- S. Tax Court, resulting in a refund to proceedings. The final outcome of these cases cannot the company of approximately $22 million. This
- now be determined.
amount includes interest of $14 million. The tax litigation was related to a timing issue as to when taxes FERC Reviews Equity Returns should have been paid; therefore, only the interest In May 1991, the FERC ordered that hearings be portion will a&ct future income.
conducted concerning the reasonableness of the
'46-
i 1
4.
7apitalBudget additional debt and equity securities, the company must comply wah certain earnings coverage requirements The company's capital expenditures are currently designated in its mortgage indenture and corporate estimated to total $615 million in 1998, $723 million in charter. The most restrictive of these provisions requires, 1999, and $524 million in 2000. The capital budget is for the issuance of additional first mortgage bonds, that subject to periodic review and revision, and actual capital before-income-tax earnings, as defined, cover pro forma cost incurred may vary from the above estimates because annual interest charges on outstanding first mortgage of numerous factors. These factors include: changes in bonds at least twice; and for the issuance of additional business conditions; revised load growth projections; preferred stock, that gross income available for interest changes in environmental regulations; changes in the cover pro forma annual interest charges and preferred existing nuclear plant-to meet new regulatory stock dividends at least one and one-half times. The requirements; increasing costs oflabor, equipment, and company's coverages are at a level that would permit any materials; and cost of capital.
necessary amount of security sales at current interest and i
I dividend rates.
l The company will replace all six steam generators at Plant Farley at a total cost of approximately $234 -
Bank Credit Arrangements million. Additionally, the company plans to construct The company, along with Georgia Power Company, and install 800 megawatts of new generating capacity has entered into agreements with several banks outside and associated substation facilities at Plant Barry. The the service area to provide $300 million of revolving projected capital expenditures for this project amount to credit to the companies through June 30,1999. To approximately $289 million.
provide liquidity support for commercial paper programs, the company and Georgia Power Company have In addition, significant construction will continue exclusive right to $135 million and $165 million, related to transmission and distribution facilities and the respectively, of the available credit. However, the upgrading of -nerating plants.
allocations can be changed among the borrowers by notifying the respective banks. The companies have the option of converting the short-term bmrowings into
- 5. Financing, Investment, and Commitment, tenn loans, payable in 12 equal quarterly installments, with the first installment due at the end of the first General calendar quarter after the applicable termination date or at an earb.er date at the companies' option. In addm..on, To the extent possible, the company,s construction these agreements require payment of commitment fees program is expected to be financed pnmanly from based on the unused portions of the commitments or the mternal sources. Short-term debt is often utilized and maintenance of compensating balances with the banks.
the amounts available are discussed below. The company may issue additional longterm debt and preferred
- Additionally, the company maintains committed securities for debt maturities, redeeming higher-cost lines of credit in the amount of $679 million (including securities, and meeting additional capital requirements.
$208 million of such lines under which borrowings may be made only to fund purchase obligations relating to Financing variable rate pollution control bonds) which expire at The ability of the company to finance its capital various times during 1998 and, in certain cases, provide budget depends on the amount of funds generated for average annual compensating balances. Because the internally and the funds it can raise by external arrangements are based on an average balance, the financing. The company historically has relied on company does not consider any ofits cash balances to be issuances of first mortgage bonds and preferred stock, in restricted as of any specific date. Moreover, the company _
addition to pollution control revenue bonds issued for its borrows from time to time pursuant to arrangements benefit by public authorities, to meet its long-term with banks for uncommitted lines of credit.
external financing requirements. Recently, the company's finahcings have consisted of unsecured debt and trust At December 31,1997, the company had regulatory preferred securities. In this regard, the company sought approval to have outstanding up to $750 million of and obtained stockholder approval in 1997 to amend its short-term borrowings.
corporate charter eliminating restrictions on the amounts of unsecured indebtedness it may incur. In order to issue 47
Assets Subject to Li:n contract which, in substance, requires payments sufficient The company's mortgage, as amended and to provide for the operating expenses, taxes, interest supplemented, securing the first mortgage bonds issued expense and a return on equity, whether or not SEGCO 4
by the company, constitutes a direct lien on substantially has any capacity and energy available. The company's all of the company's fixed property and franchises.
share of expenses totaled $73 million in 1997,$75 million in 1996 and $71 million in'1995, and is Fuel Commitments included in " Purchased power from affiliates" in the To supply a portion of the fuel requirements ofits Statements ofIncome.
generating plants, the company has entered into various long-term commitments for the procurement of fossil In addition, the compmy hrs guaranteed and nuclear fuel. In most cases, these contracts contain unconditionally the obligation oiSEGCO under an provisions for price escalations, minimum purchase levels installment sale agreement for the purchase of certain and other financial commitments. Total estimated long-pollution control facilities at SEGCO's generating units, l
term obligations at December 31,1997, were as follows:
pursuant to which $24.5 million principal amount of pollution control revenue bonds are outstanding. Georgia Year Amounts Power Company has agreed to reimburse the company (in millions) for the pro rata portion of such obligation corresponding 1998-
$ 869 to its then proportionate ownership of stock of SEGCO 1999 632 if the company is called upon to make such payment 2000 388 under its guaranty.
2001 377
^
2002 317 At December 31,1997, the capitalization of 2003 - 2013 2,538 SEGCO consisted of $50 million ofequity and
$72 million oflong-term debt on which the annual hah.ommitments
$ 5,121 interest requirement is $4.5 million. SEGCO paid dividends totaling $10.6 million in 1997, $10.1 million Operating Leases in 1996, and $7.6 million in 1995, of which one-half of The company has entered into coal rail car rental each was paid to the company. SEGCO's net income i
agreements with various terms and expiration dates. At was $8.5 million, $7.7 million, and $8.1 million for December 31,1997, estimated minimum rental 1997,1996 and 1995, respectively.
commitments for noncancellable operating leases were as follows:
The company's percentage ownership and l
investment in joindy-owned generating plants at Year Amounts December 31,1997, follows:
(in millions) 1998 5.6 Tbtal l
1999 5.6 Megawatt Company 2000-5.6 Facility (Type)
Capacity Ownership l
2001 5.6 2002 5.6 Greene County 500 60.00 % o) l 2003 - 2017 55.5 (coal) i Total minimum payments
$ 83.5 Plant Miller i
Units 1 and 2 1,320 91.84 % (2)
(coal)
- 6. Joint Ownership Agreements o) Joina o-nea -;<h an arraiaic. ui.si ieri ro-er company.
r (2) Jointly owned with Alabama Electric Cooperative. Inc.
The company and Georgia Power Company own equally di of the outstanding capital stock of Southern Company Accumulated Facik.
Investment Deprman,on Electric Generating Company (SEGCO), which owns I.'" ""E. ")
electric generating units with a total rated capacity of 1,020 megawatts, together with associated transmission Greene County,
$ 93
$ 40 facilities. The capacity of these units is sold equally to
^"'. # I
mts I and 2 717 311 the company and Georgia Power Company under a
- 48
- 7. ' Long-Term Power Sales Agreement in order to secure AMFAs advance payments and the company's performance obligation under the l
General c ntracts, the company issued and delivered to an escrow The company and the operating affiliates of agem Grst mongage bonds representing the maximum fliquidated damages payable by the company, am unt
- Southern Company have entered into long-term contractual agreements for the sale of capacity and.
in the event of a default under the contracts. No Princi al or interest is payable on such bonds unless and P
energy to certain non-afliliated utilities located outside
- the system's service area / These agreements - expiring until a default by the company oc' curs. As the liquidated at various dates discussed below - are firm and pertain damages decline under the contracts, a portion of the to capacity related to specific generating units. Because bonds equal to the decreases are returned to the the energy is generally sold at cost under these c mpany. At December 31,1997, $113.8 million of agreements, profitability is primarily affected by revenues such bonds was held by the escrow agent under the c nuacts.
from capacity sales. The company's capacity revenues amounted to $136 million in 1997,$151 million in
'1996, and $157 million in 1995.
- 8. Income Taxes -
i Unit power from Plant Miller is being sold to l
Florida Power Corporation (FPC), Florida Power &
At December 31,1997, the tax-related regulatory Light Company (FP&L), Jacksonville Electric Authority assets and liabilities were $385 million and $327 million, (JEA) and the City ofTallahassee, Florida. Under these respectively. These assets are attributable to tax benefits agfeements, approximately 1,200 megawatts of capacity fl wed through to customers in prior years and to taxes is scheduled to be sold through 1999. Thereafter, these applicable to capitalized AFUDC. These liabilities are
' sales will remain at that approximate level-unless attributable to deferred taxes previously recognized at reduced by FP&L, FPC, and JEA for the periods after rates higher than current enacted tax law and to 1999 with a minimum of three years notice - until the unam rnzed investment tax credits.
expiration of the contracts in 2010.
Details of the federal and state income tax Alabama Municipal Electric Authority (AMEA)
P'"
"'"'**'f""*'
Capacity Contracts 1997 1996 1995 In August 1986, the company entered into a firm (in thousands) power purchase contract with AMEA entitling AMEA to Total provision for income taxes:
sche'duled amounts of capacity (to a maximum 100 Federal-megawatts) for a period of 15 years commencing Currently payable
$197,159 $172,911 $166,105 September 1,1986 (1986 Contract). In October 1991, Deferred -
the company entered into a second firm power purchase current year 32,884 (6,309) 43,493-contract with AMEA entitling AMEA to scheduled reversal of prior years (44,300) 18,948' (15,817) amounts of additional capacity (to a maximum 80 Deferred investment tax megawatts) for a period of 15 years commencing credits (75)
October 1, 1991 (1991 Contract). In both contracts the 185,743 185,550 193,706 power will be sold to AMEA for its member State -
municipalities that previously were served directly by the Currently payable 23,147 16,212-18,108 company as wholesale customers. Under the terms of Deferred -
the contracts, the company received payments from current year 1,409 697 5,117 AMEA representing the net present value of the revenues reversal of prior years (2,422) 3,249 (91) associated with the respective capacity entitlements,.
22,134 20,158 23,134 discounted at effective annual rates of 9.96 percent and Total 207,877 205,708 216,840 11.19 percent for the 1986 and 1991 contracts, Less income taxes credited respectively. These payments are being recognized as to other income
- (12 351)
(22,400) (14,142) 3 operating revenues and the discounts ' re being amortized Total income taxes a
to other interest expense as scheduled capacity is made charged to operations $220,228 $228,108 $230,982 available over the terms of the contracts.
49
i The tax effects of temporary differences between the subsidiary based on the ratio of taxable income to total carrying amounts of assets and liabilities in the financial consolidated taxable income.
I statements and their respective tax bases, which give rise to deferred tax assets and liabilities, are as follows:
- 9. Company ObligatedMandatorily
' ".(m md. h.'")
Redeemable PreferredSecurities
~
ons Deferred tax liabilities:
Accelerated depreciation
$ 847
$ 816 In January 1996, Alabama Power CapitalTrust I Property basis differences 4G3 466 (Trust 1), of which the company owns all of the common Premium on reacquired debt 30 31 securities, issued $97 million of 7.375 percent Other 31 51 mandatorily redeemable preferred securities.
Total 1,371 1,364 Substantially all of the assets ofTrust I are $100 million Deferred tax assets:
aggregate principal amount of the company's 7.375 Capacity prepayments 31 34
. percent junior subordinated notes due March 31,2026.
Other deferred costs 33 27 Postretirement benefits 18 21 In January 1997, Alabama Power CapitalTrust II Unbilled revenue 16 15 (Trust II), of which the company also owns all of the Other 66 54 common securities, issued $200 million of 7.60 percent Total 164 151 mandatorily redeemable preferred securities.
Net deferred tax liabilities 1,207 1,213 Substantially all of the assets ofTrust II are $206 milFon (liabilities), net (15) aggregate principal amount of the company's 7.60 Portion included in current assets (35) percent junior subordinated notes due December 31, Accumulated deferred income taxes 2036.
in the Balance Sheets
$ 1,192
$ 1.178 Deferred investment tax credits are amortizeil over
- 10. Other Long-Term Debt the life of the related property with such amortization normally applied as a credit to reduce depreciation in the Details of other long-term debt at December 31 are Statements ofincome. Credas amornzed m this manner
,, g9;g,,'
amounted to $11 million in 1997 and 1996, and $12 1997 1996 million in 1995. At December 31, '1997, all investment (in thousands) tax credits available to reduce federal income taxes Obligations incurred in payable had been utilized.
connection with the sale of A reconciliation of the federal statutory income tax Pollution control revenue rate to the effective income tax rate is as follows:
bonds by public authorities-Cdlateralized -
1997 1996 1995 S,% to 6.5 % due Federal statutory rate 35.0 % 35.0 % 35.0 %
2023-2024
$ 223,040
$ 223,040 State income tax, Variable rates (4.1%
net of federal deduction 2.4 2.2 2.5 to 4.8% at I/1/98)
Non-deducuble book due 2015-2017 89,800 89,800 depreciation 1.5 1.5 1.6 Non-collateralized -
Differences in prior years' 7.25% due 2003 1,000 1,000 deferred and current tax rates (2.3)
(1.6)
(1.8) 5.8% due 2022 9,800 9,800 Other (1.9)
(3.0)
(1.4)
Variable rates (4.50%
Effective income tax rate 34.7 % 34.1 % 35.9 %
to 5.9% at 1/1/98) s
. ciue 2021 - 2022 217,500 152,500 Southern Company files a consolidated federal
~
541,140 476,140 income tax return. Under a joint consolidated income Capitalized lease obligations 7,105 8,056 tax agreement, each subsidiary's current and deferred tax tong-term senior notes -
expense is computed on a stand-alone basis. Tax benefits 7.125% due 2047 193,800 _
from losses of the parent company are allocated to each jtal
$ 742,045
$ 484,196 50
l i
Pollution control obligations represent ins'tallment '
- 12.. Nuclear Insurance purchases of pollution control facilities financed by funds
~
. derived from sales by public authorities of revenue bonc s.,
Uncier the Price-Anderson Amendments Act of The company is required to make payments sufficiem tor 1988 (Act), the company maintains a^ reements of -
g the authorities to meet principal and interest -
ir.demnity with the NRC that, together with private requirements of such bonds. With respect to.
insurance, cover third-party liability arising from any
$312.8 millio~ of such pollution control obligations, the nuclear incident occurring at Plant Farley. The Act n
company has authenticated and delivered to'the trustees
. provides funds up to $8.9 billion for public liability '
a like principal amount of first mortgage bonds as claims that could arise from a single nuclear incident.
security for its obligations under the installment purchase Plant Farley is insured against this liability to a maximum agreements. No principal or interest on these first of $200 million by private insurance, with the remaining mortgage bonds is payable unless and until a default' coverage provided by a mandatory program of deferred occurs on the installment purchase agreements.
, premiums which could be assessed, after a nuclear incident, against all owners bf nuclear reactors. The The estimated aggregate annual maturities of other company could be assessed up to $79 million per long-term debt through 2001 are as follows: $1.0 million incident for each licensed reactor it operates but not in 1998, $1.2 million in 1999, $1.1 million in 2000, more than an aggregate of $10 million per incident to be
$1.0 million in 2001 and $1,1 million in 2002.
paid in a calendar year for each reactor. Such maximum assessment, excluding any applicable state premium taxes, for the company is~$159 million per incident bu
.t lle Securities Due Within One Year more than an aggregate of $20 million to be paid for A summary of'the improvement fund requirements and scheduled maturities and redemptions oflong-term The company is a member of Nuclear Electric debt and preferred stock due within one year at Ins 6rance Limited (NEIL), a mutual insurer established December 31 is as follows:
to provide property damage insurance in an amount up 1997 1996 to $500 million for members' nuclear generadng (in thousands) facilities. The members are subject to a retrospective Bond improvement fund premi'um assessment in the event that losses exceed requirements
$ 18,450
$ 19,410 accumulated reserve funds. The company's maximum First mortgage bond maturities annual assessment per incident is limited to $8 million and redemptions.
55,895 391 under the current policy.
Other long-term debt maturities (Note 10) 991 952 Additionally, the company has policies that Total long-term debt due within currently provide decontamination, excess property one year 75,336 20,753 insurance, and premature decommissioning coverage up Preferred stock to be reacquired 100,000 to $2.25 billion for losses in excess of the $500 million Total
$ 75,336 $ 120.753 primary coverage. This excess insurance is also provided by NEIL The annual first mortgage bond improvement fund requirement is 1 percent of the aggregate principal NEIL also covers the additional cost that would be amount of bonds of each series authenticated, so long as incurred in obtaining replacement power during a a portion of that series is outstanding, and may be prolonged accidental outage at a member's nuclear plant.
satisfied by the deposit of cash and/or reacquired bonds, Members can be insured against increased cost of the certification of unfunded property additions or a replacement power in an amount up to $3.5 million per
- combination thereof. The 1998 requirement of week (starting 17 weeks after the outage) for one year
$18.5 million was satisfied by the deposit of cash in and up to $2.8 million per week for the second and third 1998, all of which was used for the redemption of years.
outstanding first mortgage bonds. Also in early 1998, the company redeemed $5.9 million first mortgage Under each of the NEIL policies, members are f
bonds and retired $50 million first mortgage bonds.
' subject to assessments iflosses each year exceed the Scheduled maturities amount to $991 thousand in accumulated funds available to the insurer under that connection with capitalized office building leases and a policy. The maximum annual assessments per incident.
l r
. street light lease, under current policies for the company would be 51
$10 million for excess property damage and $8 million
]d QuarterlyFinancialInformation for replacement power.
(Unaudited)
For all on-site property damage insurance policies Summarized quarterly financial data for 1997 and for commercial nuclear power plants, the NRC requires 1996 are as follows:
that the proceeds of such policies issued or renewed on Net income or after April 2,1991, shall be dedicated first for the sole Afwr purpose of placing the reactor in a safe and stable Dividends l
condition after an accident. Any remaining proceeds are Quarter Operating Operating on Preferred to be applied next toward the costs of decontammation Ended Revenues Income Stock and debris removal operations ordered by the NRC, and (in thousands)
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any further remaining proceeds are to be paid either to the company or to its bond trustees as may be March 1997
$704,768 $123,455
$57,807 appropriate under the pohcies and applicable trust June 1997 728,089 125,750 63,137 mdentures September 1997 962,446 249,487 191,800 ecen er
, 08 128,M1 63,B5 All retrospective assessments, whether generated for liability, property or replacement power may be subject March 1996
$732,809
$i42,052
$73,159 to applicable state premium taxes.
June 1996 779,587 151,673 95,778 September 1996 913,308 222,523 152,589 December 1996 695,071 100,390 49,964 1c1 Common Stock Dividend Restrictions The company's business is influenced by seasonal j
The company's first mortgage bond indenture weather conditions.
contains various common stock dividend restrictions that remain in effect as long as the bonds are outstanding. At
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December 31,1997, retained earnings of $7.96 million were restricted against the payment of cash dividends on common stock under terms of the mortgage indenture.
Shareholder Information Alabama Power Company Registmrs and Transfer Agents Legal Counsel Corporate Headquarters Southern Company Services, Inc.
Balch & Bingham LLP.
600 North 18th Street Stockholder Services P.O. Box 306 Birmingham, Alabama 35291 270 Peachtree Street Birmingham, Alabama 35201 (205) 257-1000 Atlanta, Georgia 30303 (All series except the Auction Class A 1988 and 1993 Series)
StochholderInquiries -
Questions regarding ownership of Bank of New York Alabama Power preferred stock may 101 Barclay Street be referred to Stockholder Services at New York, New York 10286
(
l-800-554-7626 (For the the Auction Class A 1988 and 1993 Series)
A copy ofForm 10-Kasfiled with the Securities and Exchange Commission uiill be available to stockholders upon written request to Art R Beattie, Vice President, Secretary & Comptroller.
Produced by Alabama Power's Public Relations Department.
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A c ecade of progress Customers say we're number one because we make their lives easier, safer and better.
Take a look at some things weve done during thepast 10 years.
Alabama Power has controlled costs to keep prices low...
.We lowered generation costs by almost $115 million since 1995.
- We refmanced senior securities.
We worked with the Alabama Public Service Commission to establish a storm restoration reserve.
=We consolidated five Customer Service Centersintbjme.73
- We functionalized some corporate responsibilities,luch[as htiman resources, in Southern Company.
s
[h Alabama Power has enhanced cust6,niers]e,itice!.Dh ~ r i;.,,,
x v
- We upgraded our customer service system tii giVe us inore flexibility and speed to serve customers
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well into the future.
- We created two call centers to cater to customer needs and generate sales leads - the GoodCents Energy Line for residential customers and the Ilusiness Call Center for commercial customers.
- We developed pricing options to help customers take advantage of the lower cost of a kilowatt-hour during off-peak times.
- We began ofTering long-term contracts to large customers to help them better predict their long-term energy costs.
- We implemented a co-generation program in which we work closely with businesses to provide on-site generation.
Alabama Power has helped make Alabama a better state...
- We helped create the Alabama Resource Centers to provide relocating or expanding companies updated and extensive inP :mation about Alabama and its communities.
- We created the Alabama Power Foundation Inc., a major philanthropic organization, which supports education, civic and community activities, arts and cultural projects, and health and human services.
- We created the Alabama Power Service Organization and the Energizers to supplement the community service initiatives of the company.
We opened The Water Course in Clanton to educate Alabamians about the state's water resources.
We were instrumental in creating the Alabama Ilusiness Charitable Trust Fund Inc. to provide assin nce to low-income Alabamians and communities facing emergency situations.
- We promoted electrotechnologies such as electric vehicles, bikes, transit and school buses and forklifts.
- We educated hundreds of thousands of Alabamians about electric safety through our popular Safe-Tee-Opolis program.
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_ Li Customers say we're nuniberlone.
The men and women of Alabama Power salute our cusfomers, our shareholders, and the many civic and community leaders of our state svith whom we enjoy excellent relationships. Without you, we could nc,t he number one. We are proud to serve you and pledge tofgive you our best, k
ALABAMA L POWER A SOUTHERN COMPANY