ML20247R678

1988 Annual Rept

ML20247R678
Person / Time
Site:	Grand Gulf
Issue date:	12/31/1988
From:	Mckamy W SOUTH MISSISSIPPI ELECTRIC POWER ASSOCIATION
To:
Shared Package
ML20247R669	List: AECM-89-0102, Forwards 1988 Annual Financial Repts for Sys Energy Resources,Inc,South Mississippi Electric Power Assoc & Mississippi Power & Light ML20247R672 ML20247R678 ML20247R685
References
NUDOCS 8906070288
Download: ML20247R678 (43)

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11988 Annum Report' i ...

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Territory Served by MemberSystems

1. Coahoma EPA ,)""  ;

2. Delta EPA .

3. Twin County EPA

4. Yazoo Valley EPA ,

5. Southwest Mississippi EPA , .

6. Magnolia EPA  ;;

7. Pearl River Valley EPA

8. Coast EPA --

9. Singing River EPA I

10. Dixie EPA ,.m I 7,

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Contents .

,1 President and General Manager's Message

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,- 6 1988 Operating Report e 'i$ 20 The Financial Section

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.' 2I I988 Financial Report iIl I f, '?[' l< ; . bl 'G L ' i

. 23 The Elements of Cost.

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30 Statements of Net

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A50rMi ns and Patronage .

Capital lg, -

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• s. Y '3.h Statement of Changes s

b N;* ,f , R: ~ y .g s h. - . in Financial Position

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34 Notes to Financial

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1

i President and General Manager's Message Id

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W. C. Mc'Kamy, Jr. .

Henry L. ' Thomas President -

General Manager 2

Knowledge ofEmerience, Pride ofProfessionals, Strength of Cooperation 1988 was a year of many accomgiishments for seeth Mississippi Electric Power Association, as it continued a pro-gressive path in effons to improve service, reliability,' and price. Many of these events have long-term advantages and will assist in cost containment into the twenty-first century.

Progress would not have been possible without the combined and dedicated effons of employees working professionally in the development of mutual goals beneficial to success.

ost significant was the successful settlement of long-standing contractual disputes which allowed SMEPA to bet-ter manage its resources while reducing cost. As a result, budget goals were met or exceeded, and financial conditions continued to improve resulting in projected cost decreases in 1989.

The spirit of cooperative effon was demonstrated as planned and unplanned events occurred which required commitments i from the entire organization in meeting industry challenges with successful and cost-effective conclusions.

he Board of Directors and management continue to evalu-ate the past, monitor the present, and plan for the future using short- and long-range criteria in its quest for improvement.

This commitment, combined with unified member and employee effons, will ensure that the energy requirements of a growing Mississippi are met.

h b hl W. C. McKamy, Jr., President b

Henry L. Thomas, General Manager 3

The Board ofDirectors M ,- t .: lea Giles Bounds Horace H.Twiford, Jr. Robert J. Occhi Gordon R. Im Coahoma EPA Coahoma EPA Coast EPA Coast EPA

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LR. Parker Yazoo Valley EPA W.C. Mcha , Jr.

Twin County EPA

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Floyd Lynk James P. Mullins Robert St. John Dr. Harlan B. Rogers Twin County EPA Southwest Mississippi EPA Southwest Missimippi EPA Southern Pine EPA 4

.a Knowledge of Experience, Pride of Professionals, Strength of Cooperation la Harry Bonner Henry C. Waterer,Jr. Robert L Graham L. G. Pierce Delta EPA Delta EPA Dixie EPA Dixie EPA

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Magnolla EPA

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(Secretary-Treasurer)

Magnolla EPA b/ / fp h[$..

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W. T. Shows Pearl River Valley EPA Donald L. Jordan Nalf Jordan Jack Ware W. W. Bond Southern Pine EPA (Vice-President) Singing River EPA Pearl River Valley EPA Singing River EPA 5

1 I

1988 Operating Report

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Left to right, Plant Morrow personne! .

Y Robert Muir, instrument Mechanic, ..

andNorman Broome, Control Keith Rittenhouse, i Room Operator Mechanic, Plant Moselle Left to right, Electricians George Rogers andLewis Ross, Plant Morrow 6

Knowledge of Experience, Pride ofProfessionals, Strength ofCooperation p.7 e q7 , ""T" f

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1988 Operating Report Mormw is now handled by one carrier, the Norfolk-NEW COAL SUPPLY AGREEMENT S uthem Railroad. Shipments previously originated TO SAVE APPROXIMATELY $7 MILLION on the CSX system and were then tumed over to the ANNUALLY IN FUEL COST Norfolk-Southem Railroad for final delivery.

On March 1,1988, Sogdi Mississippi Electric Power The coal quality specifications under the new agree-Associat6n entered a new Coal Supply Agreement ment remain the same. Coal from Addington is with Addington, Inc., of Ashland, Kentucky, to supply produced from strip mines, and the coal from a number fuel for SMEPA's R.D. Morrow, Sr., Generating of seams is blended to result in the desired overall Station. Under the new agreement, Addington pur- quality for Plant Morrow's boilers.

chased the assets of Sandy Fork Mining Company, South Mississippi Electric's previous coal supplier, In July 1988, South Misessippi Electric agreed to an and leased SMEPA's coal properties and Coal Prepara- assignment of the Coal Property Lease Agreement tion Plant located in Kentucky. from Addington,Inc., to Andalex Resources,Inc.

Under the new lease agreement, Andalex assumed Addington purchased existing clean coal stockpiles control of SMEPA's Kentucky coal properties and has from Sandy Fork and continued to ship from the staffed the operation and begun coal production on a Alamo, Kentucky, origin until the end of April. In limited basis. Andalex is expected to increase produc-May, coal deliveries were shipped from Sydney, Ken- tion in 1989 as market conditions improve for the tucky, with coal mined from Addington's strip mine ultimate sale of the mined product.

operation in Pike County. A final transition in ship-ping origin was made in July, when Addington com- South Mississippi Electric and its members have pleted the construction of a new Unit Train Imading benefitted significantly from the new fuel supply Facility at Sand Lick, Kentucky. armngement, which has resulted in a fuel cost savings of $4.6 million in 1988. These savings are expected to Under the new fuel supply agreement, the entire 1,600- continue in future years and should exceed $7 million mile movement from Sand Lick, Kentucky, to Plant annually.

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• At right, the Norfolk- .

9 Southern Railroad a .,

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of coal to the R. D.

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Generating Station.

South Mississippi Electric purchases approximately ,

750,000 tons of coal 2 peryearfor Plant -

Morrow's operation.

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l Knowledge of Experience, Pride of Professionals, Strength of Cooperation GRAND GULF BREAKS U.S. RECORD PLANT MOSELLE CONDUCTS MAJOR FOR NUCLEAR GENERATION TURBINE-GENERATOR INSPECTION On December 11,1988, Grand Gulf Unit No.1 sur- Operation of Plant Moselle, South Mississippi Elec-passed the previous United States record for gross tric's 177-megawatt oil- and gas-fired generating megawatt-hours (MWh) of electricity generated in one station, was varied throughout 1988 as required to year by any type of nuclear reactor. During 1988, a meet system demand. Plant Moselle's three 59-number of other reactors in the nation also exceeded megawatt power units were cycled into service as the old record; however, as 1988 came to a close, needed based upon load and economic considerations.

Grand Gulf Unit No. I had produced nearly 10 million megawatt-hours of electricity for the year, a record for Unfavorable natural gas pricing during the winter U.S. Boiling Water Reactors. Grand Gulf pmduced season (January, February, November, and December) electricity almost 91% of the time and at a load factor limited the use of the facility during that time frame.

of 89% during 1988. The facility received high However, attractive fuel price IcVels during the mid-ummmurammmmm Pictured atleft is the ControlRoom of the Grand GulfNuclear Station locatedin Claiborne County.

Owning a 10%

undividedinterestin Grand GuVUnit No.1, South Mississippi Electricpays 10% of the operating cost of the unit and, sn return, receives 10%

of the unit's rated

, output of1,250 MW.

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M ratings by the Nuclear Regulatory Commission in 1988 year months promoted a greater degree of operation, for performance, maintenance, and emergency prepar- and the units were called upon to help meet the peak edness. demand of the summerload season.

South Midsippi Electric received a total of 961,540 Plant Moselle's net generation during 1988 was 26%

MWh of generation fmm Grand Gulf during 1988, less than in 1987, due primarily to the availability of which is an increase of 24% over the unit's 1987 Unit No.1 at the Grand Gulf Nuclear Station and an output. The 1988 generation figure represents the increase in the cost of natural gas during the winter greatest annual procluction fmm the nuclear facility months.

since it became commercial in 1985. The overall good secord for Grand Gulf in 1988 reflects the operating Plant Moselle's preventive maintenance pmjects during staff's commitment to excellence. All indications 1988 included a major turbine-generator inspection of point to continued good performance in 1989. Unit No. 2 during a planned spring outage. Turbine-9

1988 Operating Report generator inspections are conducted at five-year inter. During periods when only one unit was required for vals as part of the plant's preventive maintenance operation, maximum advantage was taken to perform program to assess the condition of the equipment and maintenance activities and modification work. To the i to restore internal components as may be required to extent possible, these tasks were conducted by plant l regain design performance levels. personnel. Load demand in 1988 permitted outages in the spring and fall such that a variety of planned and ,

In November 1988, work began toward replacing the preventive maintenance could be addressed on the waterwall tubes of Plant Moselle's Unit No. 2 boiler. units and associated plant systems and equipment.

This action was taken to improve the operating safety and reliability of the unit. By the end of the year, Plant Mormw personnel, under the technical direction existing waterwall tubes had been removed, and of General Electric, conducted the first in-house material was on site for boiler reassembly. Unit No. 2 turbine-valve inspection on Unit No. 2 during a should be available for operation by April 1989. Simi- planned fall outage. De main steam stop valves, lar repair pmcedures were performed on the boilers of contml valves, and reheat intercept valves on the Unit Units No. I and 3 in 1986 and 1987, respectively. No. 2 turbine were completely refurbished.

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" Moselle ControlRoom

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Operator, inspects i -~ work on Unit No. 2

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three 59-megawatt

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totalplant cqpacity l of177 megawatts.

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\ .. . 1 PLANT MORROW GENERATION Plant Morrow's critical high voltage motors were Is UP IN 1988; PREVENTIVE removed and sent to repair facilitics for mspection and MAINTENANCE PROGRAM CONTINUES reconditioning. Three 4,004 horsepower induced draft fan motors, each weighing 25,000 pounds, were re-With Grand Gulf Unit No. I base-loaded, the produc- moved after monorails and special rigging were tion demand from the 400-megawatt R. D. Morrow, installed by plant maintenance personnel. The three Sr., Generating Station varied widely on both a daily 400-horsepower primary air fan motors and three 700-and seasonal basis during 1988, an operating condition horsepower pulverizing mill motors from Unit No. 2 which presented a significant challenge to plant staff. were also sent to a shop for reconditioning. His was At the end of 1988, Plant Morrow reported a net the first time since the plant became commercial in increase in generation of 5% over 1987. 1978 that the motors had been removed for inspection.

10

Knowledge of Experience, Pride ofProfessionals, Strength ofCooperation Additional Plant Morrow maintenance projects in 1988 g ,

included the replacement of approximately 3,990 feet > "

of conveyor betting on the plant's coal conveyor s4

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system. The new belting was installed to correct j alignment problems and to ensure proper coal move- i ment throughout the plant.

To prov!de continued service for coal deliveries, over a  !

thousand grade and switch ties were installed on the two miles of railroad track surmunding Plant Morrow, 1, ,

replacing ties which were installed when the track was originally built in 1976. Two switches were aligned to remove jogs in the spur and to case their operation.

Appmximately 1,700 feet of rail were replaced, and two sections of curved track were aligned to provide a continuous curvature, reducing wear on the track and the drag on engines and railcars. Drainage ditches were dug and existing ditches cleaned in order to impmvc drainage around the loop and to extend grade tie life.

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Preventive maintenance was performed during 1988 on three water wells at Plant Mormw. Plant Morrow depends upon a well field of five deep water wells, m;m [?

cach rated at 2,000 gallons per minute and averaging approximately 370 feet in depth, to supply its water

, needs. During 1987, two wells were overhauled due to breakdowns, and flow tests were conducted which indicated the wells were not producing at capacity. In 1988, the three remaining wells were pulled for inspec- .

tion and overhauled. The pmject included the instalia-Roger Smith, Plant Morrow Superintendent, checks on tnan of an additional pump stage on each pump to com-the electrostatic precipitator of Unit No. 2 during work pensate for the gradual drop in acquifer water level and conducted to upgrade some of the unit's original com-to restore the pumps to their ongmal rated capacity.

ponents, in the fall of 1988, work was performed on Unit No. Plant Monow impmvements in 1988 also included the 2's electrostatic precipitator which removes fly ash purchase and installation of a Ixeds & Northrup Data and paniculate from gases exiting the boiler. Approxi- Acquisition System on Unit No. 2's control board.

mately 7,680 cmitting electrodes,48 cmitting wire The new data system has the capability of real-time vibrators, and the rapper controller of the precipitator monitoring and replaces outdated instrumentation were replaced. Access door gasketing was also which monitored critical temperatures on various replaced to reduce air inleakage. The existing emitting pumps, motors, and related plant equipment. By electrodes had been in service since the unit was built providing instantaneous reports of boiler and turbine in the 1970s. The precipitator repairs will allow efficiency, the system serves as a tool to assist in greater flexibility in sequencing and controlling the optimizing plant operation. Similar equipment will be collection of fly ash. installed on Plant Morrow's Unit No. I during 1989.

11

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1988 Operating Report -

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3-Pictured at right is the .

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constructedforInrerna- l h ~ .y'~hI^ *l' g lC9 ,1 tionalPaper Company's  %' ',, , ; gNT h(i "

= Qf Vicksburg Mill. Rural ,

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electric systems u I

throughout Mississippi '4

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MAKING TIIE IMPOSSIBLE A REALITY .

The project is an outstanding example of the knowl-TilROUGII COOPERATION edge of experience, the pride of pmfessionals, and the strength of cooperation found within the rural electrifi-One of the most outstanding construction projects to cation pmgram. As Henry Thomas, General Manager take place in the history of SMEPA occurred during of South Mississippi Electric, stated, "It represents 1988. The pmject involved emergency survey, design, what member ownership and the cooperative spirit is and construction of 1.8 miles of 115-kilovolt (kV) all about-<foing the impossible."

transmission line and a 40-megavolt-amp (MVA),115/

13.8-kV substation for Intemational Paper Company.

CONSTRUCTION PROJECTS With the loss of its own generation capacity, Intema-COMPLETED TO MEET MEMBER tional Paper of Redwood, Mississippi, contacted Yazoo Valley EPA and South Mississippi Electric for SYSTEM GROWTil 40 megawatts of emergency power to operate its Vicksburg paper mill. To prevent an extended shut- To meet increased member load in 1988, South down of the 355-employee mill, an energized line and Mississippi Electric completed a 115-kilovolt (kV) substation were needed within 14 days. switching station and transmission line at Banks to serve Coahoma EPA; a 115-kV switching station at Normally an assignment which would require two Cumbust Bluff and conversion of tle Cumbust Bluff-years to complete, the pmject was able to be completed Vancleave 69-kV line to 115-kV to serve Singing in 10 days through the cooperative efforts of South River EPA's converted Vancleave Substation; a Mississippi Electric, Alabama Electric Cooperative, 69-kV transmission line at West flattiesburg to serve and rural electric systems throughout Mississippi. Dis- Pearl River Valley EPA; and 115-kV transmission tribution and G&T cooperatives supplied emergency lines at Pigott and Derby to serve Coast EPA. j manpower and material, with personnel working non-stop to have the pmject finished within the 14-day The West llauiesburg, Pigott, and Derby transmission  ;

deadline. taps were built by South Mississippi Electric's line l 12 l

i

j

~

Knowledge of Experience, Pride ofProfessionals, Strength ofCooperation  !

~

Transformersfor the  ;

completion of the l Redwood Substation l were supplied by Ala- j t.

bama Electric Coopera-tivein Andalusia,

' i ,

Alabama, and Southern

.; Pine Electric Power Association of Tay-

~

- forsville. Picturedat bottom right is the completed 1.8-mile,

115-kV transmission

-- = line .

BIE crews utilizing recently purchased tension stringing equipment.

Construction projects nearing completion at the end of 1988 include the addition of two new 100-MVA autotransformers and associated buswork at Plant Moselle. ,

L Transmission line construction pmjects in progress ., ,

during 1988 include 69-kV taps at Martinville and  %

4 Stringer for Southem Pine EPA; a ll5-kV line from f 'u$ . % .p . _ ,.m N 1e Silver Creek to Georgia-Pacific Monticello for South- $ ';'

t ern Pine EPA: ll5-kV taps at Lamey and Spence for .. ,

Coast EPA: and a 69-kV tap at South Hoy for Dixie '

EPA. Right-of-way clearing for 30 miles of 161-kV ,'

transmissionline from Hintonville to Benndale was completed in 1988, and construction of the line will '

hegin in early 1989. _ _ _

Substation construction projects for the past year - -

include 69-kV oil circuit breaker additions at State -

Line and Taylorsville; a transformer addition at "P .~' - " ' ~

Lumberton; additions to the Hintonville Substation; - ' -

construction of a new 161/69-kV Benndale Substation; s Il5-kV additions to the Florence Substation for South- ..a ern Pine EPA, and additions to the 115-kV Silver i _

Creek Substation. .?' , ' ; 1..L .

gn 13 l

-m .

1988 Operating Report SYSTEM MAINTENANCE PROGRAMS during 1988. From this study, as well as input by member systems, a five-year construction plan will develop. The study will support a new transmission 1 in March 1988, South Mississippi Electric began a Right-Of-Way Reclearing Program which involved the 1 an application and the REA's required Three-Year Construction Work Plan. South Mississippi Electric reclearing of 370 miles of right-of-way. Danger trees ,

CKPects to request a new transnu,ssion loan from the were cut on 125 miles of transmission line, totaling ap-REA in 1989.

proximately 9,000 trees. 'Ihe trees were cleared on all critical transmission lines, which are defined as lines that cannot be restored by switching when failures occur. Infrared surveys were conducted on South Mississippi Electric's entire system consisting of 54 gang operated air break (GOAB) switches and 25 - 4:

~

switching stations. In addition, infrared surveys werc coordinated for five member distribution cooperatives.

Flying inspections were perfonned on South Missis- i sippi Electric's transmission line network on a bi- [

monthly basis during 1988. SMEPA's system contains 9 over 1,300 miles of high-voltage lines. The aerialline [

inspections help South Mississippi Electric personnel >

identify and correct problems before outages occur. [

SMEPA's Pole Maintenance Program began in Octo-ber 1988. Approximately 2,500 poles were inspected and treated for damage. Pole climbing inspections >

netted 307 miles of climbing, tightening hardware, and [

replacing damaged crossarms and insulators. Pole >

changeout, which began in early 1988, resulted in the [ j replacement of 54 damaged poles. >

South Mississippi Electric completed a Life Extension -

Program on all 69-kV oil circuit breakers. This refur-

• bishment program, implemented by in-house and con-tractor substation crews, should extend the life of each device by 25 years.

SYSTEM PLANNING AND PROTECTION PROJECTS Ron Delaney, Lineman Helper, cleans and lubricates South Mississippi Electric completed a Power Require- switches at the Homewood Switching Station as part of ments Study Update in 1988 which used econometric South Mississippi Electric's ongoing preventive main-modeling and forecasts load requirements for tenanceprogram. Annualirlfraredinspections are SMEPA's members through the year 2008. Approval conducted on SMEPA's system andfor requesting from the Rural Electrification Administration (REA)is member systems. Corrective maintenance is then expected on the study in 1989. A 20-year GT Area performed to ensure dependable servicefor distribu-l Transmission Planning Study was also completed tion members and consumers.

14

Knowledge of Experience, Pride ofProfessionals, Strength of Cooperation A Joint Planning Guidelines document was adopted by requesting member distribution system. The coordi-South Mississippi Electric in 1988 which provides nated study will consider all costs (transmission and consistent planning criteria for member systems and distribution) for selected attematives. Expected project describes the criteria South Mississippi Electric will lead times and loop service requirements are also use tojustify transmission impmvements. The guide addressed.

results in new delivery point requests being a coordi-nated study between South Mississippi Electric and the In the area of system pmtection, a Transient Recorder with Master Analysis Station was purchased and 5 installed during the year. The recorder monitors I selected system voltages and currents and makes a recording at preset levels. 'Ihese recordings contain actual system waveform data which can be used to analyze system problems and to detect abnormal conditions before problems develop.

South Mississippi Electric also purchased equipment for a pilot program to evaluate remote accessible

+ 'a s metering installations. The equipment may replace D< South Mississippi Electric's existing magnetic tape h[ system which currently requires personnel to physi-7*+ , - cally remove tapes and manually read meters at system

.,5+p delivery points. The new system climinates the need o . i for manual meter reading through its ability to access if **a*=[ , pl i

all necessary billing data from a central computer connected to appmpriate communication lines.

, *

• e f[ At the end of 1988, South Mississippi Electric is

. ;Y .m ar *, ' g nearing completion of a joint Transmission Intercon-

?X# /

SMMJ aii.,

f'Nei"A[lf } nection Study for Alabam

&=

Electric Power Cooperative, and SMEPA. The empha-sis of the study is to ensure delivery oflong-term a** power purchased by Alabama Electric and South

~*; [ [

• Mississippi Electric fmm Cajun.

e -

p _

4,4. &

ct n.m: wo "i SMEPA IMPLEMENTS

?P '.e3N m *%. _ MARKETING PROGRAM m w.h l 6 2 m.

l MARKETING GOALS:

Hal Haddon, Planning and Protection Engineer, Load Factor Improvement collects voltage and current informationfrom remote Increased Value in EPA Membership transient recorder installed in Pearl River Valley's Big South Mississippi Electric began a marketing effort in LevelSubstation. The system is one of three remotes 1988 which focuses on two primary goals for the used to collect iriformationfrom various points Association: first, to improve SMEPA's annual system throughout SMEPA's tratumission network. The load factor to 60% by the year 2000, and sccond, to information is then analyzedfor abnormal unite member cooperatives in an effort to increase their operating conditions before severe problems develop. perceived value by member consumers.

15

1988 Operating Report

, Jw , O

, ny.jR ^ " !)

Mary Lou Powell. South q pg' 7 y, '

,o Q MississippiElectric's h_ G % '[ ;' \ y ,, S*

f Marketi:rg Specialist,  % ( g '" 3 ,' )

reviews Good Cents  ; Q R)'

Home Program which I

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}"

was adopted by f &'Y:

A Ykw  ?;h n

' i' ?

SMEPA's Board of k )Y , <

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X )' %Q/['

\

Directors in December. ( . ,

Thisprogram is in use Y**% & - 2 by severalutilities '

throughout the United ,,.W, -

States andis expected to play a large role in E '

forming the basisfor manyfuture marketing ._

programs. ,, _ ,

m ,

Marketing Committee and Staff Formed Peak Rider offers a viable option for cogenerating During 1988, a board marketing committee was industrial consumers to take advantage oflower cost formed to ensure compatibility of SMEPA's marketing off-peak SMEPA generation. The Standby Rider also efforts with the overall goals of the Association. A offers backup generation to those cogenerating indus-full-time marketing specialist was employed to de- trial consumers who desire that security. South Missis-velop marketing options to offer to member coopera- sippi Electric has worked with member cooperatives tives, coordinate member and G&T marketing efforts, and industrial consumers in 1988, achieving several and to develop and maintain marketing education pm- successful applications of the new economic develop-grams. SMEPA will coordinate training and offer ment riders. I support for member system marketing in addition to monitoring program effectiveness. The Good Cents Home Program Adopted in 1988 In December 1988, South Mississippi's Board of Rate Designs Developed in 1988 Directors voted to adopt the Good Cents Home Pro-Rates designed to accomplish SMEPA's goals and t gram as a coordinated marketing effort among its meet the needs of member cooperatives provide a members. Currently being used by 228 utilities in the common support forjoint marketing efforts. During United States, the Good Cents Pmgram pmmotes the the past year, SMEPA adopted a variety of rates use of modem technologies and principles to build new designed to encourage economic growth and load energy efficient homes and to improve the energy factorimpmvement. Availability of the Economic efficiency of eristing homes. Rights to the pmgram Development Rate, SMEPA's full cost-of-service rate, will be purchased from Southem Electric Intemational, was expanded to include any single consumer with a Inc., of Atlanta, Georgia. The Good Cents Program monthly measured demand of not less than 1000 kW. will pmvide umbrella coverage for a variety of future The Economic Development Rate carries a rider that marketing pmgrams.

offers to new and existing expanding industrial con-sumers a four-yearincentive credit. SMEPA's mem- Heat Pump Incentive Program Implemented I ber cooperatives are now able to quote competitive The Heat Pump Incentive Program, which was imple-rates for these desirable loads. The newly adopted Off- mented by South Mississippi Electric in 1988, will be 16 l

l

Knowledge of Experience, Pride ofProfessionals, Strength of Cooperation an integral part of future member housing pmgrams. 99.7% reliability rating by NERC was based on South SMEPA offers member cooperatives $100 for each Mississippi Electric's abilities as a generation and qualifying air-to-air heat pump installation and $175 transmissir's cooperative to supply the energy require-for each ground-source heat pump installation. The ments of consumers at all times and to withstand incentive is passed on directly to the homeowner or sudden disturbances within its operating system.

builder, along with additional incentives offered by Competition for NERC's number one reliability rating individual member systems. A joint appmach by in the Southeast Region included 36 electric utilities in SMEPA's member systems to attain mutual marketing Mississippi, Virginia, Georgia, Florida, North Cam-goals facilitates plans for media coverage. Emphasis lina, South Camlina, and Tennessee, will be placed on marketing promotion and consumer education during 1989.

IMPROVED SAFETY RECORD SOUTH MISSISSIPPI RANKS NUMBER ONE IN RELIABILITY During 1988 South Mississippi Electric recorded the lowest number of reportable accidents in the past 12 The Nonh American Electric Reliability Council years. New safety policies were implemented during (NERC) ranked South Mississippi Electric number one the year which contributed to the improved perform-in reliability among power companies in the Southeast- ance.

em United States and fifth among electric utilities thmughout the North American Continent. NERC, The Association received its fifth accreditation from which was created in the aftermath of the New York the National Rural Electric Coopemtive Association Blackout of 1965 to increase reliability among electric (NRECA)in 1988. South Mississippi Electric is one utilities, serves as the chief spokesman in measuring of 10 generation and transmission cooperatives in the reliability among 250 interconnected power companies United States to be awarded safety accreditation by throughout the United States and Canada. The NRECA in 1988.

Q!E . nn_?

e

. k, .

2 N South Mississippi w Electric's improved safety recordis the result ofdedicated employees such as  ;

Jimmy McCardle, we . ~~

Plant Morrow Mechanic, pictured a, * , at left.

, ,4 y.

h aW7m~$[ yg a

'MY c.,

JE"M , -

& "W G *l (4m +

g ;,. ), wlw , w%m,+hy bNCdDekOfa %k J badh MAEN*d 17

1988 Operating Report MEMBER SERVICE PROGRAMS i "'

Q.v

~ .

': 2 }'1 U

4 * '

CONTINUED IN 1988 l P_ m South Mississippi Electric continued to offer publica- Q,y tion and video support for member systems and - g, , . .

intemal departments in 1988. Continued upgrading of . .-

printing equipment enabled SMEPA and its members A

i pC y to produce publications more economically thmugh the ,o use ofin-house personnel and equipment. Bmchtres, g -.

logos, annual repons, ecorviic development booklets, ' % -

office forms, graphics, and newsletter layout and design work were conspleted for members and intemal departments during the year.

In the area of public and employee information, South Mississippi Electric upgraded its employee newsletter and orientation pmgram in 1988. The newsletter and orientation program are being forwarded to South ,"'q_

Mississippi's members in 1989 in suppon of member 4' I distribution systems' general public and employee in- ,

formation programs.

In 1988, South Mississippi Electric exparxled its touring program to include the employees of member distribution systems, as well as new board members.

The progra n was highly successful in 1988 and will be continued in 1989.

&h g yy e -

-mu jj.;

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- ogh gn a; e; AJMW '

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bw m <>

-a Q $y%uc b 2%4@.[.. m&';;

y

$Nlh M y :~ .

~ : a;; _ . -  ;)( '&Qik -M Above, Tommy Hutson, yQQ ^

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QffQ - J,Q yrk Printer, makes preparationsfor

• "# ? printing publication y.; .

d(5*p.s 1

ll? for a member M - -- * - . . .

distribution system.

A

, ^A ...

.% < . Q At left, Laura Wicker,

~. ' 'W _l Video Specialist, edits

1 '. quarterly SMEPA Side-W ,

nff, ^ J lines presentation .

m J

,a .n n 18

Knowledge ofExperience, Pride ofProfessionals, Strength of Cooperation FLEET AND EQUIPMENT SMEPA PREPARES FOR UPGRADED IN 1988 FUTURE EXPANSION I

South Mississippi Electric continued its goal of up- South Mississippi Electric purchased approximately  !

grading the vehicle and equipment fleet in 1988 to 3.2 acres adjacent to the south side ofits existing head- )

ensure reliability of service to its members. The fleet quarters facilities, along with an existing residential evaluation and upgrade was initiated in 1985, with dwelling situated on the property. With the acquisition scheduled full-cycle completion in 1989. Established of the additional acreage, SMEPA is now in a much guidelines have been implemented which allow for better position for future planning and expansion of the planned fleet replacement and capital outlay. headquarters facilities. The land purchase brings the total acreage of the headquarters facility site to ap-proximately 15 acres of prime land in a rapidly grow.

WAGE AND BENEFIT ing residential and commercial area.

PROGRAMS EVALUATED During 1988, the Wage and Salary Administration Program was updated, resulting in a continued com- The photograph at bottom represents a portion of mitment by South Mississippi Electric to recognize South Mississippi Electric's upgraded vehicle and merit and market considerations in determining com- equipmentfleet, which includes approximately 55 pensation policies. A benefit evaluation also began in rolling stock vehicles and some 30 pieces ofof-road 1988 with emphasis on cost containment of the Asso- equipment. Fleet additions in 1988 included thepur-clation's insurance programs in relation to maximum chase of tension stringing equipmentfor transmission employee coverages. line construction.

^

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I e Financial Sectip

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Libby Br Accoundng Cterk.

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Dona Do" Accond"8 g arters W

20

s 1988 FinancialReporti 4

-INDEX TO. WHOLESALE POWER COST TO j FINANCIAL SECTION MEMBERS DECREASES BY 6.3% l .

I The average cost of wholesale power fumished to 1988 Financial Report - Page 21 members in 1988 was 49.35 mills per kilowatt-hour ~

. (kWh). This represented a 6.3% reduction from the The Elements of Cost Page 23 52.68 mills per kWh charged to members in 1987.

' Several factors helped to account for the reduction in Compa'~ative Operating Cost Page 24 cost to SMEPA's members.

The Compantive Summary Page 26 Foremost among these was the successful completion

.] '

of protracted negotiations which resulted in the execu-Auditor's Report Page 27 =

tion of a contract with a new coal supplier and cancel-lation of the contract with the former coal supplier.

The Balance Sheets Page 28 Although this contract did not become effective until March 1,1988, it resulted in fuel cost savings of Statements of Net Margins and approximately $4.6 million in 1988. Fuel cost savings Patronage Capital Page 30 in excess of $7 million annually are expected for future I""" "' * * #' #*#""

Statement of Cash Flows Page 32 Another major factor contributing to the lower cost of Statement of Changes energy to SMEPA's members was the signing of power in Financial Position Page 33 contracts with two neighboring G&Ts. - SMEPA entered a long-term purchase contract with Cajun Notes to Financial Statements Page 34 Electric Power Cooperative to meet the needs of consumers in the Mississippi Power & Light Company (MP&L) area. Also, a long-tenn sales contract was signed with Alabama Electric Cooperative to meet some of their power requirements. An agreement was

- ENERGY SALES also entered into whereby SMEPA wheeled power for INCREASE IN 1988 MP&L to Alabama Electric Cooperative. These non-

ncmber transactions, although in effect for only part of Revenues from saics of electricity to members in 1988 . 1988, favorably innpacted SMEPA's cost.

totaled $230,913,770, a decrease of approximately

. $44,000 from revenues recorded in the year ended Finally, the reliable operation of the Grand Gulf December 31,1987. 'Ihe decrease in sales revenue Nuclear Power Station Unit No.1 in 1988 helped to occurred despite the increase in energy sales to mem- lower cost duough its operation at an 89% load factor, bers which rose from 4,383,903 megawatt-hours This high utilization reficcted not only reliable opera-(MWh) in 1987 to 4,678,823 MWh in 1988, a 6.7% tion, but also the fact that there were no refueling increase. Contributing to this substantial increase was outages at the nuclear station in 1988. 'Ihus, SMEPA ,

the sale by Yazoo Valley Electric Power Association and its members benefitted from the increased use of )

of 46,803 MWh to an Intemational Paper Company the Association's cheapest generation fuel source. {

L plant which experienced a failure ofits own generation l facilities. Disregarding this temporary load, megawatt- Net margins for 1988 totaled $4,856,425 compared to hour sales to members still increased by approximately $5,148,686 the previous year. These margins enabled 5.7%. SMEPA to achieve a Debt Service Coverage Ratio of 21

1988 FinancialReport 1.22 and a Times Interest Eamed Ratio of 1.07. These As anticipated, the cash position of the Association ratios were vinually unchanged from 1987, when the continued to improve in 1988. Year-end cash and tem-same ratios were, respectively,1.22 and 1.08. porary investments (as adjusted for a founh quaner 1988 FFB debt service payment made January 3,1989)

The Association's investment in Unit No. 2 at the increased to approximately $19,500,000 frorn approxi-Grand Gulf Nuclear Station decreased approximately mately $7,000,000 at year-end 1987. Further strength-

$418,000 to $103,990,847. The decrease occurred as a ening of the Association's cash position is anticipated result of transfers of propeny from Unit No. 2 to Unit during 1989.

No.1, as Unit No. 2 remained in a suspended state of construction. The remaining obligation of the Associa- The $25,000,000 line of credit with the National Rural tion for Unit No. 2 under the Supplementary Agree- Utilities Cooperative Finance Corporation (CFC) was ment entered into in 1986 between SMEPA and renewed in 1988, although it was not utilized except on Systems Energy Resources, Inc., was $1,015,000 at the a temporary basis for the convenience of making pay-end of 1988. At the present rate of funding of the ments on maturing 1985 G Series Pollution Control ,

suspended unit, SMEPA's remaining obligation will be Bonds which are in the short-term, flexible mode.

t completed in early 1990.

'pm The Association did not apply for any new loan

'"k .

commitments in 1988. A total of $5,966,000 was ad- }jf vanced to the Association against existing loans from gy' ,

the Federal Financing Bank (Fr 3), the Rural Electrifi- <

jg cation Administration (REA), and the Jackson Bank , >< g for Cooperatives (now National Bank for Coopera- , >y' y tives). These funds were used primarily to finance f 4 transmission fa<ilities and to complete financing of

~

,W, .'

N, '

• ~

SMEPA's Control Center and related facilities.

AN y  ?

[ .

Totallong-term debt decreased approximately

$2,473,000, although the average cost of the debt rose } . N

\ '

slightly from 8.86% at December 31,1987, to 8.94% at Em December 31,1988. Loans from the Federal Financ- 34 ::g -

ing Bank comprised 80% of the totallong-term debt, a j % f, "

proponion of which was unchanged from the previous year. Almost all of the FFB debt has been fixed at Q +

l long-term rates. Of the total long-term debt of

$737,577,931 at December 31,1988, approximately

$61,400,000 or 8.3% represented financing in variable rate and/or short-term rate modes.

$MEPA received $3,460,686 from System Energy Resources, Inc., as the Association's final share of a tax net operating loss carryover related to tax years during the construction period of the Grand Gulf Nuclear Station. As required by the REA, $2,768,478 of this m amount, with earnings thereon, will be used to reduce FFB debt through payment of a short-term note Above, Chief Accountant Woody Spence reviews maturing in October 1989. printoutsfor year-end 1988.

22

g.

l ,.Y :

l The Elements ofCost l

1984 1985 1986 1987 1988 i

' I. . SMEPA's Own Genasuon & Transmission

[ . System lr .. .

L . Cost of Fuel Burned in SMEPA's Plants- g/MMBTU 227.00 214.54 195.27 = 17638 181.64.

l5 Producuan Costs and .

Purchased PowerAnterchanged Power - Mills /kWh - 26.16 28.09 '27.66 25.49 25.27 :

Transnussion O&M-Mills /kWh 2.41 2.44. 2.50 2.77- 2.46:

A & G Expense - Mills /kWh ' 1.00 1.12 1.14 1.25 L 1.09

Depreciahon and Amortization - Mihs/kWh 2.85 430 4.79 ' 6.16 .5.41 Inscrest- Mills /kWh. 7.11 12.77 21.23 20.81 17.80 -

Taxes and Othw-Mills /kWh .14 .19 .88 '41

. .22

'IOTAL- Mills /kWh of Sales 39.67 48.91 58.20 - 56.89 52.25

. II. Borderline System t

Purchased Power 4 interchanged Power - Mills /kWh - 41.65 41.62 40.12 38.91. 3434

Depreciation & Amortization-Mills /kWh .03 .03 .02 .02 .02 Interest - Mills /kWh .04 .04 .03 .05 .03 TOTAL-Mills /kWh of Sales 41.72 41.69 40.17 38.98 3439-111. Total System

. Production Costs and ,

Purchased Power / Interchanged Power -Mills /kWh 30.48 31.79 31.08 29.23 27.59 ,

Transmission O & M-Mills /kWh 1.74 1.77 1.81 2.00 .1.83

A & G Expense- Mills /kWh .72 .82 .83 .90 .81 Depreciaban and Amortization - Mills /kWh 2.06 3.13 3.48 4.46 4.03 Interest-Mills /kWh 5.14 9.29 15.41 15.04 13.25 >

. Taxes and Other - Mills /kWh .10 .13 .64 .29 .17

'IDTAli^} - Mills /kWh of Sales 40.24 46.93 53.25 51.92 47.68 4

Excludes Kentucky coaloperations. -j (A)

(P.) Extraordmary item excluded.

23

q p a

n. ,

[

Comparative Operating Cos~t f\

^/

~

1984 1985 1986 1987 1988 REVENUE

[ Sales of Energy $156,606,556 ' $192,307,266 $225,201,107 . $231,025,124 . $237,797,763 Other 1,636,127 697.964 :249,449 138,691 (230,848),

Total Revenue 158,242,683 193,005,230 225,450,556 _ 231,163,815 237,566,915-EXPENSE Operation Expense:

Prahr tum-Fuel Cost 53,932,527 - 61,653,239 57,970,573 57,521,531' 62,232,299' Other Production Expenses 2,211,866 7,038,621 11,324,392 10,270,142 11,138,366 :

Purchased Power : 59,082,453- 55,137,353 60,107,447 53,892,164. 57,526,467 Transmission 5,540,686 6,002,402 ~ 6,912,131 7,269,310 7,454,432 :

Consumer Accounts- 38,523 47,527 53,964 56,447 40,144 Sales 11,522

, Administrative & General 2,418.037 2,849,402 3,211,115 3,468,286 3,390,732 TotalOperauon Expense 123.224,092 '132,728,544 139,579,622 132,477,880 141,793,962 Maintenance Expense:

Producuon 1,672,461 4,278,423 6,579,862 6,525,996 4,872,231 Transmission - 1,128,478 1,130,358 1,030.377 1,509,539 1,553,780 GeneralPlant 294,279 3 %,459 358,880 433,135 525,626 Total Maintenance Expense ~ 3,095,218 5,805,240 7,969,119 8,468,670 6,951,637 Depreciation . 7,921,214 12,626,522 15,233,182 19,559,144 19,846,754 Taxes 380,939 515,171 649,579 650,720 754,384 '

l Interest Expense (Net)and _ .

Other Deductions '20,572,428 41,302,119 61,870,198 66,902,644 65,585,509 TotalExpense 155,193,891 192,977,5 % 225,301,700 228,059,058 234,932,246 (A) The financial statements for year ended December 31,1985, have been restated to correct the recording of allowance for funds used during construction of Grand Gulf Nuclear Station Unit No. 2. The effect of the restatemer t was to decrease net margins for 1985 and patronage capital and construcuon work in progress at December 31,1985, by

$3,366,841.

24

t '

(Continued...) Comparative Operating Cost  ;

1984 1985 1986 1987- 1988 l~

. OPERATING MARGINS $ 3,048,792 $ 27,634 $ .148,856 $ 3,104,757 $ 2.634,669 NON-OPERATING MARGINS - 543,867 681,947 2,026,816 2,043,929 2,221,756  ;

I NETMARGINS BEFORE

EXTRAORDINARY ITEM $ 3,592,659 $ 709,581 $ 2,175.672 $ 5,148,686 $ 4,856,425 (B)

EXTRAORDINARY ITEM $ 2,074,712  ;

I

' NET MARGINS $ 3,592,659 $ 709,581 $ 100,960 $ 5,148,686 $ 4,856,425 '

1 (B) Net loss on early extinguishment of debt.

25

w 41.

The Comparative Summary

-1984 1985 . 1986 1987 1988 ENERGY SOURCES - MWh '

Generated:

' Steam 2,218,262 '2,625,376 2,686,598 2,953,615 3,135,747 1 Other Generabon 663 '505 1,910 1,322 ' 1,595 2,218,925 2,625,881 2,688,508 2,954,937 3,137,342-Purchased:

Direct Purchase - 488,178 197,317 519,003 298,487 - 562,736:

Borderline-(SEPA) 97,334- 73,236- 61,120 72,098 60,346.

585,512 270,553 580,123 370,585 623,082-Interchanged Power -(Net) 1,105,403 1,215,490 - 1,200,497 1,163,930 1,263,398 Total 3,909,840 4,111,924 4,469,128 4,489,452 5,023,822

SALES - MWh Southwest MississippiEPA 247,112 270,005 290,948 287,278 304,212 Dixie EPA . 395,807 392,633 413,306 400,435 411,036 PearlRiver Valley EPA 380,715 401,597 415,442 410,533 414,742 Singing RiverEPA 661,742 675,179 710,062 716,158 738,911 Southern Pine EPA' 735,695 7 % ,395 911,339 946,401 952.333.

Magnolia EPA 238,029 251,781 276,749 301,036 33h915 Coast EPA 535,605 563,372- 630,812 - 645,410 673,761 Yazoo Valley EPA 167,883 181,129 123,316 '118,094 203,598 Coahoma EPA 75,782 79,219 81,165 83,143 90,108 Delta EPA ' 255,659 269,094 '297,388 305,681 334,935

' Twin County EPA 135,276 149,521 162,473 169,734 187,272 Arkansas Electric Cooperative Corp. 5,967 - - - -

Alabama Electric Cooperative' - - 62,285 3,015 239,851-Cajun Electric Power j Cooperative .

567 - - - -

Southeaster Power Administration -- - - - 3,416

'IOTAL 3,835,839 4,029,925 4,375,285 4,386,918 4,922,090

'IOTAL SYSTEM DEMAND - kW 1,177,057 1,006,570 1,211,133 1,067,395 1,248,607 26

e t

Auditor's Report

)

Financial Statements and h' ; i=.t Auditor's Report i of Touche Ross & Co.

l l

Board of Directors South Mississippi Electric Power Association ]

Hattiesburg, Mississippi 1 We have audited the accompanymg balance sheets of South Mississippi Electric Pbwer Association as of December 31,1988 and 1987, and the related statements of net margins and patronage capital for the years then ended, cash flows for the year ended December 31, 1988, and changes in fmancial position for the year ended December 31,1987. These financial statements are the responsibility of the Association's management. Our responsi.

bility is to express an opuuon on these fmancial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing standards.Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of malenal misstatement. An audit includes exammmg, on a test basis, evidence -,Mg the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management. as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of South Mississippi Electric Power Association as of December 31,1988 and 1987, and the results ofits operations for the years then ended,its cash flows for the year ended December 31,1988, and the changes in its fmancial position for the year ended December 31,1987,in conformity with generally accepted accounting principles.

As discussed in Note H to the financial statements, the Association has presented a statement of cash flows for the year ended December 31,1988, and a statement of changes in financial position for the year ended December 31,1987.

N b -

Certified Public Accountants Jackson, Mississippi February 14,1989 l ..

l l 1 l

l 27 b - - -- - - - - - - - - _--___ __-

. i ..

t The Balance Sheets.

L December 31, .

1988 1987' ASSETS ELECTRIC UTILITY PLANT (Noacs A-1, A-2, A-3,

~ B and C): . ..

In service $705,806,158 = $704,144,750 '

Construction work in process 115,160,337. 114,293,585 820,966,495 818,438,335.

' Less allowance for depreciation 129,602,412 ' 112,824,748 -

691,364,083- 705,613,587:

- OTHER ASSETS ANDINVESTMENTS:

Investment in associssed organizations - , .

(NoacD) _

11,287221 11,226.031

Debt service reserve for peilution ,.

controlbonds 4,457,285 _ 4,460,847

'Other noncurrent assets 23,727 15,897-15,768,233 15,702,775 CURRENTASSE73:

General furJ cash and temporary cash

_ equivalent investments (Note A-9) 35,943,224 -7,005,131 Construction fund cash 2,106 1,657-Accounts receivable (including receivables from members of approximately $18,515,000 (1988) and $17,238,000 (1987)) (no allowance for doubtful accounts deemed necessary) 18,963,975 18,503,954 inventories (Note A-4):

Coal 12,648,268 15,464,338 Other fuel 1,272,682 1,340,088 Material and supplies 9,584,015 9,217,885 23,504,965 . 26,022,311 Other 4,219,466 1,236,659-82,633,736 52,769,712

' DEFERRED CHARGES (Note A-5) 1,561,048 2,588,803

$791,327,100 $776,674,877 See notes to fm' ancial statements.

28

a: p. 7 i g i

L t t_.

(

4, -.

December 31, 1988 1987-EOUITIES ANDLIABILITIES EQUITIES (Note A-6):

Memberships $ $5 $ Donased capital 535,436 535,436 Patronage capital 22,017,683 : 17,161,258 22,553,174 17,696,749-I

- LONG-7ERM DEBT, excluding current maturities (Note F) 726,6 %,092' 730,012,835 CURRENTLIABILITIES:

Accounts payable 14,195,407 16,849,721 Accrued interest 15,317,305 1,091,104-

-Otheraa: rued expenses 1,183,283 986,413-Current matunties oflong-term debt 10 881,839

, 10,038,055 42,077,834 28,% 5,293 COMMITMENTS ANDCONTINGENCIES (Notes C andI) i 1

1

$791,327,100 $776,674,877 29

I g .

V Statements ofNetMargins andPatronage Capital p

' Year Ended December 31, 1988 1987 OPERA *IING REVENUE:

Electric energy revenue $237,797,763 $231,025,124 Other(expenses) income - net (230,848) 138,691 237,566,915 ; 231,163,815 OPERATING EXPENSES:

Operation expenses:

Fuel 62,232,299 57,521,531

' Produchon 11,138,366 10,270,142 Purchased Power $7,526,467 53,892,164 Transmission 7,454,432 - 7,269,310 Administrative and general 3,442,398 3,524,733 141,793,962 132,477,880' Maintenance expenses:

Production 4,872,231 6,525,996 Transmission ' 1,553,780 1,509,539 General 525,626 433,135 6,951,637 8,468,670 Depreciation and amortization (Note A-1) 19,846,754 19,559,144 Taxes 754,384 650,720 169,346,737 161,156,414 OPERATNG MARGINS BEFOREINTEREST AND OTHER DEDUCTIONS 68,220,178 70,007,401

, IN111 REST AND OTHER DEDUCTIONS:

Interest 66,087,297 66,680,675 Allowance for funds used during construction (Note A-3) (584,902) (434,872)

Other deductions - net 83,114 656,841 65,585,509 66,902,644 OPERATING MARGINS 2,634,669 3,104,757 30

Statements ofNetMargins.

< (Continued...) And Patronage Capital q

Year Ended December 31 I 1988 1987 j i

)

NON-OPERATING MARGINS - PRINCIPALLY INTEREST INCOME $ 2,221,756 $ 2.043.929 ]

i' NETMARGINS 4,856,425 5,148,686 PATRONAGE CAPITAL AT BEGINNING OF YEAR 17,161,258 12,012,572

b PATRONAGE CAPITAL AT END OF YEAR $ 22,017,683 $ 17,161,258 See notes to financial statements.

31

y f '

b

.j 5 ,

1 m .

iStt a ement ofCash Flows +

l Year Ended

~

December 31,1988 OPERA 11NG ACITVITIES:

Net margins ..

$ 4,856,425 -

Adjusenent necessary to reconcile net margms to net cash provided by operating activities:. .

4 Depreciation, amortizaten and depletion - 21,034,651' ,

Accounts receivable ~ (460,021)

Coalinventory 2,816,070 ~

Other fuelinventories 67,406 Other .

.(2,058,179)

Accounts payable and accrued expenses '(2,459,283)

Accrued interest payable ' 14,726,201-.

NETCASH FROM OPERATING ACTIVITIES 39 223,270-INVESTING ACITVITIES: .

. Acquisition of electric utility plant (9,545,315)'

Tax refund credited to electric utility plant 3,460,686 Other (1,029,428)

NETCASH USEDIN' INVESTING ACI1VITIES (7.114,057)

FINANCING ACITVITIES:

Payment of debt (13,949,817)

Proceeds fuorn debt 11,478,697 NET CASH USED IN FINANCING ACTIVITIES (2.471,120)-

NET INCREASE IN CASH AND CASH EQUIVALENTS 28,938,093

- CASH AND CASH EQUIVALENTS AT:

Beginning of year 7,005,131 End of year $35,943,224 CASH AND CASH EQUIVALENTS AT YEAR END:

' Cash . . $ 434,925 Commercialpaper 35,508,299

$35,943,224 See notes to fmancial statements.

32

i /

'j

" ~

^ Statement of Changes. <

In FinancialPosition

! Year Ended December 31,1987 i g ,

From operations: .. .;

$ 5,148,686 Net margms y liems not affecting working capital:

Provimon for depreciation, amortization, and deplenon .

20,727,236 .

Recognition of defened revenue and margins . (22,259,493)

Funds provided by operations 3,616,429 Additionallong-term borrowings' 1,093,600 Decreasein other noncurrent assets 540 Decreasein defened charges .

1,269,019 Disposals of electric utility plant, net of additions 1,971,436 Decrease in wodung capital 13,625,951 -

$20,976,975 USES OFFUNDS:

- Payments of long-term debt $20,943,268 Increase in investment in associated

. organizations '33,707

$20,976,975 CHANGES IN COMPONENTS OF WORKING CAPITAL:

Generalfund cash and temporary cash equivalentinvestments . ($ 7,760,170)

Acmunts receivable (8,529,283)

Inventories 6,003,654 Other . .

. (9,332)

Acmunes payable (362,207)

Accrued intaest and other accrued expenses (592,013)

Current matunties oflong-term debt (1,776,600)

($13,025,951)

See trates to financial statements.

33

Notes to Financial Statements _.

NOTE A - Summary of Significant Accounting Policies:

South Mississippi Electric Power Association (SMEPA) is a rural electric cooperative established under the laws of the State of Mississippi. SMEPA is a generation and transmission cooperative which provi)es electric power to eleven owner-members which are rural electric distribution cooperatives providing clectric power to consumers in certain areas of Mississippi. Financing assistance is pmvided by the United States De-partment of Agriculture, Rural Electrification Administration (REA). In addition to being subject to regulation by its own governing board of directors, SMEPA is subject to certain rules and regulations pmmulgated for rural electric borrowers by REA. SMEPA maintains its accounting records in accordance retth the Federal Energy Regulatory Commission's Chart of Accounts as modified and adopted by REA. As a regulated utility, the methods of allocating costs and revenue to time periods may differ from those principles generally applied by nonregulated companies. The more significant accounting policies are generally described as follows:

1. Electric Utility Plant and Depreciation Electric utility plant is stated at cost, which includes contract work, materials and direct labor, allowance for funds used during construction and allocable overhead costs. The cost of electric generating stations and related facilities also includes costs of training and production incurred, less revenue camed, prior to the date of commercial operation.

Depreciation is provided on the straight-line method for utility plant at the following annual composite rates:

Nuclear plant 2.85 %

Non-nuclear plant 3.00% to 3.10%

Transmission plant 2.75 %

General plant and transportation equipment 2.00% to 25.00%

At the time units of electric utility plant are retired, their original cost and cost of removal,less net salvage value, are charged to the allowance for depreciation. Replacements of electric utility plant involving less than a designated unit of property are charged to maintenance expense.

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

2. Cost of Decommissioning Nuclear Plant SMEPA's portion of the estimated decommissioning cost of Grand Gulf Nuclear Station Unit 1 (GGNS) is charged to operating expenses.

3. Allowance for Funds Used During Construction Allowance for funds used during construction represents the cost of directly related bormwed funds used for construction of the electric plant, where applicable, and an allowance based on the average cost of appmpriate bormwings when general funds are used to fund construction. The allowance is capitalized as a component of the cost of the electric plant while it is under construction.

1 1

For the Years Ended December 31,1988 and1987 NOTE A - Summary of Significant Accounting Policies (Continued):

Capitalization ceases when the electric plant is placed in service, or in the case of electric gener-ating stations and related facilities, at the date of commercial operation.

4. Inventories )

Inventories are stated at average costs.

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

Bond issue costs are being amortized by the straight-line method, which does not differ materi-ally from the interest method, over the term of the related debt. The amortization during the period of constmc-tion is capitalized.

6. Patronage Capital The by-laws of SMEPA provide that any excess of revenue over expenses and accumulated prior year deficits shall be treated as advances of capital by the member patrons and credited to them on the basis of their patronage.

7. Interchange Power SMEPA records the electrical power received or provided on an interchange basis at its cost as

' determined under various contractual arrangements.

8. Income Taxes SMEPA is exempt from United States income taxes pursu:nt to Section 501 (c) (12) of the Intemal Revenue Code, which requires that at least 85% of SMEPA's gross income come from its members.

9. Cash and Cash Equivalents l

Cash in excess of daily requirements is invested in marketable securities consisting of commer-l cial paper and repurchase agreements. Investments with maturities of three months or less are deemed to be cash equivalents for purposes of the statement of cash flows.

Note B - Electrie Utility Plant:

1 Electric utility plant consisted of tlx: following:

35 i

_ _-_ __ __ . _ _ _ _ ___ ___ _ __ _ _ _____ _ a

1

},'

Notes to Financial Statements Note B I Electric Utility Plant (Continued): December 31, 1988 1987 Nuclear pmduction plant $390,154,146 > $394,039,690 Non-nuclear production plant 208,198,609 208,041,205 .

Transmission plant _ 60,260,362 59,167,458 ~

. Coal properties and preparation plant. ._ 24,687,603 24,687,603

~ Land and land rights 11,242,918 10,898,014 General plant and transportation equipment 11,262,520 7.310,780 ELECTRIC PLANTIN SERVICE 705,806,158 .704,144,750 Ca.Uoction work in process 115,160,337 114,293,585

$820,966,495 $818,438,335 NOTE C - Construction Work in Process and Commitments:

. SMEPA is a 10% participant in the construction and operation of a 2,500-megawatt nuclear .

generating station known as " Grand Gulf Nuclear Station" (GGNS), consisting of two 1,250-megawatt generat-ing units. Commercial operation for Unit 1 began on July 1,1985.

The Mississippi Public Service Commission held heanngs in 1984 to consider rescinding the Certificate of Necessity authorizing construction of Unit 2.

On September 18,1985, the Commission issued an Order suspending construction on Unit 2.

During 1986, the majority owner announced its intention to defer any final decision on the status of Unit 2 until 1990.

On August 1,1985, SMEPA discontinued payments on Unit 2 and began negotiations to limit its investment in Unit 2. On February 7,1986, SMEPA signed a Supplementary Agreement limiting its future obligation for Unit 2. The Agreement provides that SMEPA's obligation to pay its proportionate share of the cost of construction of Unit 2 incurred subsequent to July 31,1985, will not exceed approximately $4,951,000.

SMEPA's share of such costs incurred to December 31,1988 and 1987, amounted to approximately $3,936,000 and $3,201,000, respectively, and have been included in the accompanying balance sheets.

In the . event the majority owner elects to resume full constructica, the Supplementary Agreement provides SMEPA with the option to either have payments made subsequent to July 31,1985, refunded or to leave such payments invested in Unit 2. In the event full construction resumes, the ownership interest of the partici-pants will be adjusted periodically to reflect the proportionate investment of each participant.

The failure of the 90% owner to complete Unit 2 due to an inability to obtain regulatory approval for the completion of construction would be excused under the force majeure provision of the Joint Ownership Agreement, and SMEPA would have no recourse against the 90% owner. If this occurs, SMEPA would have to recover the costs of Unit 2 through future rate increases even though no power would be generated by Unit 2.

36

For the Years Ended December 31,1988 and 1987 NOTE C - Construction Work in Process and Commitments (Continued):

At December 31,1988, SMEPA's accumulated cost in Unit 2, included in construction work in pmcess, was appmximately $103,991,000 including allowance for funds used during construction of approximately

$42,340,000.

Prior to SMEPA's entry as a participant in GGNS, the constmetion of GGNS generated tax net j operating losses for the other participant. The other participant has utilized all of these losses and has refunded i appmximately $3,461,000 and $10,676,000 in 1988 and 1987, respectively, to SMEPA. These amounts were credited to utility plant.

1 SMEPA has construction commitments for various projects other than GGNS totaling approxi-mately $3,227,000 at December 31,1988. .

l l

NOTE D -Investments in Associated Organizations: i Investments in associated organizations are stated at cost and consisted of the following:

December 31, 1988 1987 National Rural Utilities Cooperative Finance Corporation (CFC) Capital Term Certificates $ 8,414,533 $ 8,414,533 CFC Subordinated Term Certificates 2,490,000 2,490,000 i Other _ 382,688 321,498

$11,287,221 $11.226,031 Capital Term Certificates bear interest at 3% and 4% and mature in 2007 thmugh 2080. 'Ihe Subordinated Term Certificates bear interest at 9.873% and mature in 2015. l l

NOTE E- Short-term Borrowings:

S.MEPA has a $25,000,000 short-term line of credit available with National Rural Utilities Cooperative Finance Corporation (CFC). At December 31,1988 and 1987, SMEPA had no borrowings against this line of credit. Interest rates on short-term borrowings with CFC averaged approximately 8.32% and 7.68%

for 1988 and 1987, respectively. Capital Term Certificates in CFC, which are included in other assets and invest-ments, cannot be redeemed so long as the line of credit is in place.

NOTE F - Long-term Debt:

long-term debt consisted of the following:

37

i

~ Notes to Financial Statements NOTE F - long-terna Debt (Contimsed): December 31,-

2% REA mortgage notes payable, .

due in quartedy installments through 2009. $ 31,910,001 = $ 33,572,941 -

- 5% REA mortgage notes payable, 1 due in quarterly installments - 1 through 2015. 21.723,429 22,241,011-  !

5% REA mortgage notes payable. l due in monthly installments l through 2019. 5,462,1 % 3,901,507' l i

Mortgage notes payable to Federal l Financing Bank (FFB) at interest  !

rates varying from 7.160% to l 14.512%, due in quartedy ~

'i installments through 2019. 590,074,255 591,979,283 ..

Notes payable to National Bank  !

for Cooperatives atinterest rates .l varying from 8.5% to 10.8%,due in  !

quarterly installments through 2022. 3,278,050 1,794,000 )

Lamar County, Mississippi, a Pbilution Control Bonds:

1977 Series,5.15% to 6.125%, due semi-annually  ;

through 2007 32,925,000 33,870,000 j 1978 A Series,5.30% to -  !

6.125%, due semi-annually j through 2008 2,355,000 2,415,000  ;

1978 A-1 Sedes,6.25% due semi- )

annually through 2008. 850,000- 870,000

{

1

' Claibome County, Mississippi, Pollution Control Bonds - 1985 G Sedes, variable interest rates  !

(5.9% to 6.5% at Decernber 31,1988),

due annually through 2015. 49,000,000 49,400,000 Other 7,148 737,577,931 740,050,890 Less current maturities 10,881,839 10.038,055 i

$726,696,092 $730,012,835 Substantially all assets of SMEPA were pledged as collateral on long-term debt. -j 1

38

.s ..- 7 . . ..

For the Years Ended December 31,1988 and 1987 NOTE F- Long-term Debt (Continued):

SMEPA has the option on FFB promissory note advances to elect (subject to REA appmval) l interim maturity dates of appmximately two years after the date of the advance or a long-tenn maturity ranging from approximately 27 to 34 years (depending on the terms of the particular note) after the end of the calendar year in which the advance was made. If the long-term maturity date is not selected, then on subsequent interim maturity dates, SMEPA may designate that it desires either another short-term maturity or the long-term maturity date as specified in the note.

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

1989 $10,881,000 1990 12,321,000 1991 13,516,000 1992 14,538,000 1993 15,420,000 i The above maturity schedule reflects management's prerogative of convening FFB advances at interim maturity dates from 1989 through 1993 to long-term maturities. SMEPA has used a rate it estimates to be an appropriate long-term rate, based on the December 31,1988 interest rates, to compute the annual principal requirement.

At December 31,1988, SMEPA had unfunded loan commitments from FFB, CFC, and REA of

$53,040,000, $2,306.000, and $8,277,000, respectively. Management feels that FFB commitments of

$34,287,000 for GGNS are not available for advances due to uncertainties surrounding the status of Unit # 2.

SMEPA had a loan commitment fmm the National Bank for Cooperatives for $3,542,000, of which $1,606,000 and $666,000 were advanced in 1988 and 1987, respectively.

During 1988, SMEPA paid approximately $51,258,000 in interest on long-tenn debt.

SMEPA is required by mortgage convenants to maintain certain levels of interest coverage and annual debt service coverage. SMEPA was in compliance with such requirements at December 31,1988.

i NOTE G - Pension Plan: I Substantially all of SMEPA's employees panicipate in the National Rural Electric Cooperative Association (NRECA) Retirement and Security Program, a defined benefit pension plan qualified under section  ;

401 and tax-exempt under section 501(a) of the Intemal Revenue Code. SMEPA makes annual contributions to the program equal to the amounts accrued for pension expense except for the period since July 1,1987, when a moratorium on contribution was placed in effect due to reaching full funding limitation. In this multiemployer plan, which is available to all member cooperatives of NRECA, the accumulated benefits and plan assets are not determined or allocated separately by individual employer. SMEPA had no pension expense for this plan in 1988 and had approximately $145,000 in 1987.

In addition to providing pension benefits, SMEPA provides certain health care insurance benefits for retired employees. Substantially all of SMEPA's employees may become eligible for those benefits if they 39

s

[' '

For the Years Ended y

' Notes to Financial Statements accemser 31,1988 and1987 NOTE G - Pension Plan (Continued):

reach nonnal retirement age while working for SMEPA. SMEPA recognizes the cost of pmviding these benefits by expensing the annual insurance premiums, which were approximately $20,000 and $15,000 for 1988 and 1987, respectively.

NOTE H - Cash Flows:

In November 1987, the Financial Accounting Standards Board issued Statement 95, " Statement of Cash Flows." As permitted by the statement SMEPA has presented a statement of cash flows for 1988 and a statement of changes in financial position for 1987.

NOTE I - Commitments and Contingencies:

J SMEPA's coal mine was operated under an agreement with a third party which terminated in February 1988. In March 1988, SMEPA began receiving its coal supply under an agreement with a new sup-plier. This agreement includes certain conditions be met for the delivery of coal and does not require the coal produced for SMEPA's consumption be taken from SMEPA's coal reserves, so long as the coal meets tir quality

- requirements of the agreement.

SMEPA is defendant in certain litigation incuned in the normal course of business. Manage-I ment, based on advice oflegal counsel, is of the opinion that the ultimate resolution of the litigation will not have a material adverse effect on SMEPA's financial condition.

L 40

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R. D. Morrow, Sr., Generating ' 'I '

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Station is shown at right. , 3jy; \

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powerplant entered ,

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-  ?

1978 and was designed to - ;,

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environmental regulations. .

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theplant contain abundant

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wildlife. Black Creek, which j .' ' '

runs adjacent to theplant site, is monitored regularly to y preserve the creek's natural .

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water quality and excellent fishing.

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i South Mississippi Electric Power Association P. O. Box 15849

.. Hatticsburg, Mississippi 39402 Thone

(601)-268-2083 f _ __ _ _ _ _ _ _ _ _ _ _ _ _ _ . _ - ___.__.m___.___ _i_