ML20247R685
| ML20247R685 | |
| Person / Time | |
|---|---|
| Site: | Grand Gulf  |
| Issue date: | 12/31/1988 |
| From: | Lutken D MISSISSIPPI POWER & LIGHT CO. |
| To: | |
| Shared Package | |
| ML20247R669 | List: |
| References | |
| NUDOCS 8906070289 | |
| Download: ML20247R685 (63) | |
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f F I I qc , hhr 13 y -c M,,d; ;f 5.0 'M' s n,. p@'lu;[,,,ir A,. 5r Y N. } /m M, t (1988. 1987C 71986', M ['1,y'l t 2 Total operating; revenues (thousands)l $ 683,547.c ($ 620,836i, $. 673,948j U ll W" N $' 576,007c %g f N, y, hTotal opdating expenses (thousands) : 1 . '/ $. 570,229, 1$ 520,4167 Fuelexpanse(thousands) QE @Purchasedpowerexpense%(thousands)E _ $ ? 94,6493 N$;156,509:.l' s$199,125, ;$'404 636N $ 424 $ 395,978 $ 3 h@N 2 / t Rate defenalL net of recoveries (thousands) '; 1$(125,293) L
- 1. $(182,739) :
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$ 1113,318" ;$(100,420j 1$197,941s
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($l 7498j ($j f (22)?. t b y INhtinenme(thousands);,. ? $ T52,8865 $ 751,767;. ' $153,860f 6 ( 9 Net utility plant at' year-end (thousandsj ; l $ 783,962y .$[778,821P $ 768,523J o (- W Con'struction expenditures (thousands)i .e $ L42,613 D l $V38,4201 L$E22,1281 " ' JRetail' ust6mers at year 2endi ~ ~
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L336,780 1332,805,, e $ 4/ [Ritail energyjales to Mississippi custoniers (mkwh)? 8,551,710 j i 8,216,929 Hg 8,096,899i ! kP@ u Peakload(megawatts)? ~ '2,062; f2,0371 c2,132 t u .,h4,f, ] r ,,.1 Q, :Q,.y . r -a g k/ c i.y, A i 4 $f yr U 1 t rs: ~ Y- =Y- {'? e V l 3.j";, f-f, ' q; i_. y 1 % 'T ??A ur n-; i l' +. 'h.. [. a....., ,.. n. .i j t 6 i w" sk: ju 2, , i ,,si g.gfc ' ' ' ~ p; '- s t, t g,,j ,a '"]W ; Q;,p10 t /' U y" *Q.4 4, 5 ' m.y .1 l,o , y; ? 8.M ,'..y fr p. ,L -h;. jy 4 l ' ; ,y 1,- A t.. .I \\ .o;ge,y e. -, - - > y '3 1
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l MP&L's new MP&L's River - a historic, cultural, logo, shown emerging on parent company, Middle and economic link for the the cover of this report, South Utilities, Inc., is pro-Middle South region; and symbolizes a new posing to change its name teamwork - historically performance-driven outlook to "Entergy Corporation" and economically linked, for the Company. Its red - a name derived from the companies within the f "Systemark" identifies words " energy," " enter-Middle South Electric MP&L as a member of the prise," and " synergy " System work together to Middle South Electric These are qualities that provide electricity to their System, one of the nation's describe its response to the customers. largest investor-owned competitive marketplace The new logo electric utility companies. the electric utility industry symbolizes a well-run l is entering. The name organization committed to change is contingent upon providing efficient, i stockholder approval at the economical electric service. l annual meeting in Natchez l on May 19. The red Systemark identifies all the companies of the Middle South Electric System. Reminiscent of sunlight reflecting on the water, the Systemark stands for energy - the Company's j business; the Mississippi OMP8L
CHAIRMAN'S LETTER saww n+ c,yw,, Its 65th year MP&L also Other 1988 of operations produced announced in December its accomplishments included some of the most dramatic intent to repurchase its an expansion of MP&L's accomplishments in the customer accounts senior management team history of Mississippi Power receivable, which the and several modifications to & Light Company (MP&L). Company sold in 1987 in its orj;anizational structure. While very an effort to accelerate the In December, real challenges lie ahead for receipt of cash from the Company's Board of the Company as a result of customer bills and lessen Directors elected Michael B.- changes in the envimnment in the need for external capital Bemis president, chief I which we operate, we feel we from other sources. That operating officer, and a can approach the future with repurchase was finalized member of the board. Mike renewed confidence. January 30,1989, for has brought a successful Most note-approximately $32 million. track record to MP&L, worthy of 1988 highlig.as In another particularly in the financial was the favorable decision Grand Gulf 1-related area. by the United States matter, the Mississippi His respected Supreme Court which freed Public Service Commission expertise, dating back to his MP&L from a major (MPSC) approved a revised days as a senior partner burden and permitted a Grand Gulf 1 rate phase-in with the accounting firm of rededirmon of energies plan in September to keep Deloitte Haskins & Scils toward building financial the Company in compli-and as executive vLe strength for the Company. ance with a 1987 president with our sister The Court's accounting standard which company, Arkansas Power ruling, which reversed a iindts recovery of defnred & Light (AP&L), will Mississippi Supreme Court costs of a new plant to a further enhance the judgment in the appeal of 10-year period. MP&L's Company's operation and MP&L's Grand Gulf 1 rate initial rate phase-in plan, achievement of goals. case, held that state and approved by the commis-The local regulatory bodies are sion in September 1985. Company also was pleased required to recognize provided for recovery of to announce two other wholesale rates approved by deferred costs beyond the additions to its Board of federal regulators as 10-year limit. Directors. Jerry L. legitimate operating Subsequent to Maulden, who serves as expenses in retail rate these modifications to the chairman and chief proceedings. Upon issuance Company's Grand Gulf 1 executive officer for AP&L of the U.S. Supreme Court rate phase-in plan, MP&L and as a senior vice presi-mandate on August 8, the was dismissed as a party dent and system executive June 24 decision became from all phases of MPSC for MSU, and John O. final. Docher No. U-4900. This Emmerich Jr., a Greenwood The U.S. inquiry docket was newspaper publisher, were Supreme Court's action established by the commis-elected directors. prompted several favorable sion in 1986 to obtain a Additionally, events, including upgraded comprehensive review of all long-time board members ratings of MP&L securities aspects of the Company's leRoy P. Percy and Dr. J. by two rating agencies. current rate requirements Harvey Johnston Jr. retired Additionally, and current rate structure as full members of the Middle South Utilities of its affiliate and co-board in May, but will con-(MSU), our parent com-certificate holder in the tinue to serve the Company i pany, recognized MP&L's Grand Gulf Nuclear as advisory directors. improving financial strength Station, System Energy To further in December by purchasing Resources, Inc. increase its effectiveness, $30 million of the Company's common stock. 2
estimated that the system In 1989, Recruitment improves efficiency of the MP&L must sell approx-of new industry from out-K plant by 0.5 percent, which imately 8.6 million mega-side our service area will J' translates into about watt-hours, an increase of 1 continue to receive high $500,000 a year in savings. percent over weather-priority from MP&L's rF MP&L also adjusted sales for 1988, to economic development k continued its leadership in meet its sales goal. section. Considerable a broad range of programs With the research was completed in to enhance education in efforts of all employees, the 1988 that will allow the Mississippi during 1988. In Company expects to reach Company to target efforts pursuing its commitment to its objectives. MP&L has to better reach prospects education, the Company the talent and can match whose businesses need the won two national awards - marketing skills with the many resources that the Edison Electric Institute best companies in the Mississippi has to offer. Community Responsibility electric utility industry. With the Award and the partnerships One of the many accomplishments of I MP&L made numerous in Education Journal's ways the Company will 1988 and a future that is revisions to its organiza-Literacy award. market its product and be presently free from the tional structure in 1988. The more competitive is to dark clouds of political This reorganization effort, Company's ability to plan know its customers. A uncertainty,1989 should be which included reducing ahead to meet the many segmentation analysis cover-a milestone year for the the number of divisions challenges expected over the ing more than 40 customer Company. from five to three and the next five years, rather than groups has been developed, The number of districts from 15 having to concentrate its and programs have been Cornpany's success in the to 13, will make MP&L a resources upon solving desig,H m influence every years ahead will require stronger, more customer-pressing immediate decision maker in the more than an attempt to oriented company. problems, led to the residential and commercial respond to the times. We Some of the development of a 1989-1993 markets. must be the innovators in most extensive construction Business Plan to support To enhance order to help shape and activity in recent MP&L MSU's five-year objectives. the Company's success in create tomorrow's history also was accom-Included in the industrial market, a environment. plished in 1988. Two the business plan is a new group has been Anticipating substations and two lines recognition of the emer-established in the General change in our marketplace were completed and other gence of a market-driven Office. Representatives in is one of our gn atest projects begun to help meet era. MP&L can no longer the industrial marketing challenges. Responding to specific needs brought on rely on rate or price section will become expens change requires our greatest by rapid growth within increases as sources of in the major electro-vision, creativity, produc. MP&L's service area. increased earnings. Instead, technology developments in tivity and commitment. The major costs must be controlled order to capitalize on We believe we production project of the and profitable sales must be marketing opportunities are developing the strategies year was a distributed increased. with customers. and action plans to meet digital control system MP&L The existing those challenges of change. which impmved the implemented imaginative industry group will have With the support of our reliability of our marketing programs in full responsibility for employees and stockholders, Company's largest power 1988, ending the year with economic development we know we will be plant, the Baxter Wilson kilowatt-hour sales approx-expansion opportunities successful. Steam Electric Station. It is imately 1 percent over with existing industrial budget and 4 percent over customers as well as Sincerely, 1987. The most successful marketing responsibilities. marketing achievement was g in the industrial sector in MYO which the Company ended the year with sales 7 per-oonald C turken cent over budget. Chairman ef the Board and Chief Executive Officer March 15,1989 3
YEAR IN REVIEW Mmwppi hmer & Light Canpany The entire significant construction Meeting the electric utility industry is activity, increased efficiency challenge of change in 1988 facing some of the most and cut costs in its produc-was a springboard that will drastic changes in its tion facilities, worked send MP&L into the years history. As a result, some closely with both the ahead as a leader in the companies will move far public and private sectors to industry. Its customers, ahead of their competitors, enhance Mississippi's stockholders, and all others while others battle merely economic development and associated with the to survive. created an ambitious, five-Company will reap the MP&L year business plan. benefits. intends to be among those
- Moreover, moving far ahead of the MP&L's financial health competition by meeting the greatly improved over 1987 challenge of change with due to a decision by the immediate and long-term United States Supreme action plans.
Court concerning the Excellent Company's ability to in conjunction with the {8[8/yjectjr ser examples of this approach collect Grand Gulf 1 retail were seen in 1988 as the rates. As a result, MP&L Electric System in Company implemented was able to direct its efforts 1988, members of innovative marketing to a renewed concentration MP&L's management strategies, engaged in of energies and resources team developed a tive-m business plan upon providing quality
- hat identified high services to customers at a priority programs reasonable price.
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REGULATORY AND LEGAL MATTERS In September ~~- By far the 1988, the MPSC approved a revised Grand Gulf I rate most significant develop-phase-m plan to keep the ment in 1988 was the U.S. Supreme Court ruling Company m comphance -~ which allowed MP&L to with an accountmg stan-dard issued in 1987 by the collect retail rates for the 33 Fmancial Aawnting percent allocation of Grand Standards Board. The Gulf I costs assigned to it
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by the Federal Energy Regulatory Commission "*f'.ssary because the nSinal lan for recovering e P (FERC). This ruling gmatly d"f#"'d C *** exceeded the c'. strengthened MP&Us finan- "'* I4 "*' I'." " * - Y cial position and enabled. MP&Us the Company to once agam NVis! rate P ase-in plan . d h concentrate upon providing pmvided for a 5.3 percent the best service for its Ocmber 1 rate merease, customers without the serious legal distractions of representing an annual Add,tionally, An on-line customer i, savings to customers of in an ongoing dispute with information system. I
- The June 24 appmximately $23 million United Gas Pipeline
(#'*['Qj,'; hom the 8.7 percent Company, MP&L received instant updating or ein-ruling by the nation's inemase scheduled m the a second invoice from the ing and service highest court sustained a retail rate increase granted g mpany s 1985 rate phase-natural gas suppher in records. using this ,h in plan. The mcrease is February 1988 for approx. system. customer 8][7,'#'$',",'# '"'8 j. expected t boost MP&Us imately $100 million for u ic erv cc fissi si p f*""'S by approximately amounts allegedly owed for ciently and save time Commission (MPSC) in $41.5 m.lh,on dunng the gas not taken by the for customers as well. September 1985. It reversed first year f the new rate Company durmg 1987. a February 1987 judgment of the Mississippi Supreme Umted Gas mitially structure. I" # "I c inv iced MP&L m 1987 for Court that would have tim with the modih. "". - cations approximately $24 milhon given the MPSC authority m the Grand Gulf 1 rate for amounts allegedly owed to determine the prudence h l P ase-m P an, MP&L was under a take or pay provi-of MP&L's Grard Gulf 1 dismissed as a party from sion in the gas sales supph,er as long as over-, costs before allowing nte charges occur. The matter is all phases of MPSC Docket agreement. No. U-4900, which was MP&L con-Pending. In its deci-established in 1986 to tends that it does not owe urt hel flatsta brain a comprehensive these bills, because Unit FINANCIAL may f all aspects of was overchaq;ing the MP&Us n'v ew not alter FERC-ordered MP&Us current rate Company for gas deliveries financial condition and allocations of wholesale requirements and current during 1986 and 1987. outlook greatly improved power by substituting their rate stmetum f as a ihate Aa rdingly, MP&L filed in 1988 as many of the own determinations of and co-certificate holder, suit against Umted m, 1987, obstacles facing it a year what would be just and fair System Energy Resources, seekmg a judgment that the earlier were removed. and that the MPSC must recognize the Company's Company is not required to Inc. share of Grand Gulf 1' costs Pay for gas which it did n t receive and that it is as reasonable operating excused fr m any bhgation expenses. to take gas from the 5
YEAR IN REVIEW Muumpps Pune & Lwho Gompany Specifically, the U.S. Supreme Court ruled in June that the Company can collect Grand Gulf 1 retail rates, and, in 1 September, the MPSC 4% approved a revised rate -x phase-in plan and dismissed 'l W MP&L from a comprehen-F ;- s,1g sive review of its rate 'sY structure. As the year began, the prospects for the Company's future were uncertain because of the legal actions to block MP&L's much-needed rate increase. Principal financing requirements con-tinued to be associated with the deferred recovery of Grand Gulf 1-related costs pursuant to the rate phase-in plan. During 1988, capital requirements associated with the rate deferral totaled appmx-imately $125.6 million compared to approximately $152.4 million during 1987. New homes meant new customers in 1988, and MP&L was there with a renewed emphasis on providing needed and wanted services. 6
In order to On finance this deferral, MP&L December 29, Middle South privately placed $75 million Utilities, Inc. (MSU) of general and refunding recognized MP&L's improv-bonds under a new ing financial strength, mortgage in February. Of purchasing $30 million of this amount, $55 million, the Company's common maturing in 1993, was sold stock. at 14.65 percent interest, Additionally, and $20 million, maturing on December 30, MP&L e in 1995, was sold at 14.95 announced its intent to percent interest. The new repurchase its customer
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G' / mortgage under which the accounts receivable. That bonds were issued con-repurchase was finalized stitutes a second mortgage January 30,1989, for ( .y lien on substantially all of approximately $32 million. the physical properties and Moreover, the O assets of the Company, sub-Company's net income r} A . i g,' ject and subordinate to the increased from $51.8 ,G lien of MP&L's first million in 1987 to $52.9 r mortgage indenture. million in 1988. t During 1988, MP&L's ~ 5, the Company also con-improved financial condi-tinued a program, begun in tion represents a major . g. 1987, of selling its customer change from the problems 'Ip ' accounts receisable. This of recent years, and the process accelerated the Company is meeting the ~~,s I receipt of cash from challenge of change by P* ' C" p. '] customer bills and lessened taking financial steps that . 'M ~ _ f $ 3 {. the need for external capital will benefit its constituents 4..g } from other souces. for many years to come. Subsequent to A native of considerable research the decision by the U.S. Supreme Court concerning Mississippi, Bemis began his g(omf 1n NNNNR MN MP&L's Grand Gulf 1 rate To further career with the Middle urn to tapt enorts incmase, several favorable enhance its corporate per-S uth Electric System m to better reach
- vents occurred in late 1988 formance, MP&L expanded 1982 as senior vice presi-industria/ prospects and early 1989.
its senior management team dent for finance, regulatory whose businesses need e ma In November, and sharpened the focus of and legal affairs at Arkansas two rating agencies up-its organizational structure Power & Light Company Meissippi us to graded ratings of MP&L in 1988. (AP&L). He was subse-over securities. Stated reasons for At a special quently promoted in 1985 to AP&L executive vice the upgrades included the meeting of the MP&L U.S. Supreme Court deci-Board of Directors in President, chief fmancial sion, the revised rate phase-December, Michael B. and administrative officer in plan, and an improved Bemis was elected president, and secretary. At the time of his move to MP&L, Bemis reliability of the political chief operating officer and and regulatory environment a member of the board. was executive vice president in Mississippi. Donald C. Lutken main-tained the title of chairman of the board and chief executive officer. 7 L--
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- YEAR IN REVIEW J Mmmspro Pauw 6 Lsghu Company.
Bill Kuh, The remain-' as a vice president. Howard director of personnel, was ing areas north of the Wooten, director of division promoted to executive Central Division were support, replaced Marsh. director of the newly-created ~ combined into one Don Arnold, human resources department. Northern Division with' manager o the Greenwood 1 Another headquarters in Grenada. office, was emed manager .of operations with respon-reorganizational change Composing the division are of the Winona office, sibility for more than 2,000 involved the restructuring the Cleveland, Greenville, following the retirement of - employees in the areas of of MP&L's customer Grenada, Senatobia and Eddie Woods. customer service, marketing services department, Southaven districts. Eddie Dixon, - and regulation. _ including the consolidation Additional engineer I in Vicksbmg, Thomas A. of the Company's five divi-changes included merging was selected manager of the . Dallas, senior vice presi-sions into three. Each of. the Kosciusko and Belzoni office, replacing i dent, administrative the restructured divisions Iexington offices of the - Dave Comans who pro-services, retired in will be headed by a divi. Lexington District into moted to Central Division - November after 40 years of. sion director assigned trne the Grenada District and accounting manager. service to the Company. division responsibilities combining the Indianola Bob Robert C. without combination District with the Greenville Gramling, manager of the Ioflin Jr., executive direc. division / district duties as District. Indianola office, was named ~ . estern Divi-Greenville District manager, W . tor, general s-rvices, was ~ under the previous structure. sion Manager Jim Pilgrim replacing John Craft who promoted in December to vice president, general The Southern - transferred to Grenada as retired in February 1989, services. Division underwent the director of the. Northern Jim Hedges, engineer in the Results of a fewest changes in that it Division. General Office, replaced ~ three-month review of - will continue to consist of Replacing Gramling. - MP&L's organizational. the three preexisting Pilgrim as manager of the Jimmy structure were announced districts (Brookhaven,. Vicksburg District was Carpenter, North Central in August. The ' study McComb and Natchez). Larry Dale, former assistant Division marketing, looked at the Company The division headquarters to the vice president of manager, was promoted to from top management will remain in Brookhaven. ' administrative services. Senatobia District manager-down to first.line super. Graham In other to fill the vacancy created vicors with particular Tempel was selected to 1988 organizational by the untimely death of emphasis on grouping continue as head of the changes, Jackson District Ray Tomlinson. L related work functions, Southern Division, while Manager Bob Marsh was spans of control, and layers Division Superintendent named executive director of of management. Iee Tinney was promoted marketing and area develop-Treasurer Jim to Brookhaven District ment in December, replac- ' Martin and Controller Jim manager. ing Johnny Ervin who Cofer switched positions as The Central moved to louisiana Power pan of a realignment of and Western divisions were & Light Company (LP&L) finance and accounting combined into one large functions. Central Divison with head-quarters 'in Jackson. In addition, the Carthage office became part of the . Madison District. Director of Division Operations John Sherrod was named director One of the ways MP&L of the Central Division. will market its product l. ' and b more com-l . petitive in the future is to know its industnal. customers bett6;; pro-vidng mariteting J specialists to each Industrial group. 9 L _________..___________._-______.______.___m_______.__.__._
YEAR IN REYlEW Mmuntp Pow & Labs (mpmy and community develop-technical sophistication of products, plastics and ment coupled with their equipment to deter-polymers, medical and customer assistance on mine opportunities for biotechnology, and distribu-electrical service issues and business expansion and tion facilities. marketing-related activities. equipment modernization. The founda-Through the Through this process, the tion of MP&L's industrial MARKETING & AREA DEVELOPMENT reorganization, MP&L has specialists become more effons are m. dividual white Today's era of placed an emphasis upon familiar with each papers pointing out what rapid technological change providing marketing particular business, its Mississippi has to offer each and intense competition in specialists in each industry management staff, its targeted industry. These industrial markets demands group rather than having suppliers and ultimate materials are not designed that electric utilities do generalists who often lacked customers. to be elaborate promotional more for major customers detailed knowledge about Consequently, pieces but rather a compila-than merely supply energy. the businesses they were MP&L's industrial sales tion of facts and figures MP&L recognizes that its trying to assist. Workshops climbed in 1988 to 2.2 that will be of value to success in industrial sales is are held periodically to million megawatt-hours, an decision makers in the directly related to the train these individuals to increase of approximately process of siting facilities. success of its industrial become key sources of 150,000 megawatt-hours To help customers and that their information on an array of over 1987. Furthermore, corporations across the success is dependent upon topics of concern to goals for both industrial nation become aware of the quality of the com-specialized industries, rang-kilowatt-hour sales and Mississippi's potential and munities in which they are ing from the most effective incentive rate sales were the availability of white
- located, use of electricity to gaining surpassed by 8.2 and 59.8 paper research, the This is the advantages from industrial percent, respectively.
Company has developed a rationale for the Company's development organizations In the area of series of magazine adver-consolidation in 1988 of its and government programs. industrial development, tisements directed at facility marketing and area develop. Industrial MP&L unveiled a study planners. Also, MP&L is ment departments. These businesses also have been spotlighting six industry planning a direct mail cam-efforts include economic segmented by Standard groups that could gain most paign to chief executive Industrial Code designa-from Mississippi's resources. officers in the targeted tions. Company marketing The target areas include industry groups, representatives make site food processing, forestry visits to inventory the products, electrical customer's load and assess the age and level of i .m l l t g.. y a, _g- .n, ,i,i ( r ['~" In a public opinion l[ survey conducted during 1988, MP&L ernplomes received a 79 percent favorable rating from customers in the area of profes-stonal and courteous service
- 0
s=* q = + + + +, plEkN 1, py &ll~ = ' T:: Presidential Speedy and ings to total electric and MN received te narenalawards /n marketing sales also played reliable service was the draw-draft customers with icy roles in the Company's thrust for a water heater good credit records. By the
- $,f,',n' rog"a$'a success during 1988, direct mail campaign. With end of 1988, more than special emphasis Special any new electric water 48,000 participants were designed to adeess emphasis was placed on heater purchased from enrolled in the program, and find solutions to the state's most heat pump sales, which rose MP&L, the promotion under which the customer's 33 pen ent over 1987 levels.
guarantees that a faulty monthly bill is the adjusted [##$#"#" This success was attributed water heater will be average of bills from the primarily to extremely replaced with a new electric previous 12 months. I effective direct mail cam-one within 24 hours or the Additionally, paigns and close working customer will be given a commercial electric cooking relationships with builders, $50 discount on the unit. continued to be a strong developers and heating and To supple-point in MP&l's commer-air conditioning dealers. ment the water heater cial sales effort during 1988. Sa es of electric fryers, grid-l replacement guarantee, the customer also receives a dies and ovens climbed 18.5 five-year unconditional percent over 1987 levels. warranty on the electric l water heater purchased. The program resulted in the sale of 1,495 units in 1988. MP&L also continued to build upon the success of its Seasonal Credit Account with mail. 11 \\
\\ ' tj; e,, s EDUCATION '~W m j The shock- .gf waves of change could be Y felt across Mississippi in 1988 as public officials pursued the goal of transforming the state's lagging educational system into a national leader. MP&L met 'h the challenge of educational change by continuing its ..e r leadership through a boad }: ? p.- range of programs. In pur-n sumg its commitment to I education, the Company won two national awards in 1988 - the Edison Electric Institute (EEI) Community J' Responsibility Award and O' the Partnerships in Educa. m p 3-tion Journal's Literacy award. The j,6 Company was selected to d receive an EEI Common Goals Award for community service from an impressive field of 145 utilities. Establish-ed in 1987, Common Goals Awards recognize electric ~" utility companies which ,j. develop outstanding con-sumer programs to find j -s g y"'# solutiors to problems 'Y shared by utilities and their s 19 4 + g
- ,b e customers.
7.{a;{ 1( *- ] e c %. f; -ewy s if. The Freeport substa-h tion, completed in 1988, util help MP&L Q better meet the grow-ing electncal needs of customers in north Mississippi and will provide for a more economical dispatch of generation for the Middle South Electnc System
YEAR IN REVIEW Mmmspps Power & bght Company graders a chance to discuss 3;;j; j "----- q their problems and to . Hit!!!!!q }. ~ ~ hj discover opportunities jjjjji{jjit,i,t,ig!!!!!:- + through education. The jjjjj;jj!!jjjg-pmgram was presented by - gj;jjiiijjjE MP&L employee volunteers 'mmEEE MP&L's in 1988 to more than 5 second national award was 12,000 students. L for its participation in the PALS, offered - t Principle of Alphabet to approximately 100 Literacy System (PALS) employees of Jackson-area ~0. conducted in cooperation businesses in 1988, was .f with MSU, Jackson State designed for functionally i University and the Jackson illiterate adults who have ~.j [g Emerprise Center. The reading and writing skills '( Company received the below a sixth-grade level.
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Literacy award, corporate The program, which division, over 10 other increases the average p - g corporations in this first student's reading level by s y I W year of the competition three grades in 20 weeks, 1-sponsored by the allows one tutor to teach 16 N y Partnerships in Education people at one timt to trad I Q ,~ Journal, a national publica-by combining the latest in tion for educators and interactive videodisc tech-j managers within nology and an innovative 0 corporations which have teaching method. partnership educational Additionally, programs. the Council for Support of MP&L Public Education was created its Energy in Educa-formed by MP&L to assist tion program in 1987 to education from kinder-address and find solutions garten through university the challenge of change Precision is an to the state's most critical levels. Composed of 34 brought on by rapid growth I8pc[in education needs, including a business leaders and chaired m commumties withm the ,,,y,,,,,,,,n,,,,3, high school dropout rate of by MP&L Chairman Company s serva, e area. Increased electrical Teamwork needs throughout 40 percent and an illiteracy Donald Lutken, the council rate of nearly 25 percent. helped influence state with the Tennessee Valley MPEs service / territory Company officials met with legislators in 1988 to raise Authority (TVA) and state education leaders to Mississippi public school Arkansas Power & Light develop a strategy to help teacher salaries to the Company (AP&L) helped MP&L better meet the resolve these critical Southeastern average and to problems. appropriate the largest gmwing electrical needs of customers m north Included in budget increase in the the Company's education nation for higher education. Mississippi, including the total plan in which 230 DeSoto County where load kilovolt transmission emphases is " Choices," a 1;rowth mereased by approx-kili i s Wih b i dropout prevention effort CONSTRUCTION imately 12 percent from AP&L's Ritchie Steam j developed to give ninth S d& Electnc Station to Tum,ca most important construc-The major with a 230 to 115 kilo-tion activity in recent project between MSU and v It Step own en route to d MP&L history occurred in TVA provided for the Freepon. 1988. Two substations and construction of a 500 two lines were completed kilovolt and a 230 kilovolt and other projects begun to substation at Freeport and help the Company meet Tunica, respectively, The Freeport substation was a segment of 13 l
YEAR IN REVIEW Mumnype hrw tv bght Compay MP&L hegan system upgrade, was begun distributed digital control upgrading the Rex Brown-in 1988. The new :ystem system, Combustion Pickens line from 115 will provide the capacity Engineering's MOD 300, kilovolts to 230 kilovolts in necessary to meet growing which improved the 1987 to accommodate communication require-reliability of the customers in the Jackson ments as well as replace a Company's largest power MSU and area, which experienced a 20-year-old microwave plant, the Baxter Wilson TVA invested appmximately 5.5 percent load growth system which uses outdated Steam Electric Station near the same amount of money, from 1987 to 1988. To technology and is no longer Vicksburg. Conservative but both systems benefited accomplish this, the supported by the estimates are that the from costs that wue im to Company also is converting manufacturer. system improvcs the effi-each than if they had substations at Canton, Hoy The new ciency of the plant by 0.5 undertaken the project Road and Charity Church communications system percent, which translates independently. in Madison County from 115 initially will be configured into about $!.00,000 a year The Freeport-kilovolts to 230 kilovolts. to provide for 672 channels in savings. Tunica project was one of Construction but will have the capability In the digital the largest construction of the 67-mile McAdams-to be expanded three-fold to control system, small com-programs ever undertaken Indianola line was begun in a tatal of 2,016 digital puters are placed at crucial by the Company, with the 1988 to prevent low channels. Each channel may operating points inside the Freeport substation voltages in the Mississippi be used for all types of power plant. Each com-representing the first 500 Delta and to meet the communication require-puter gathers specialized kilovolt substation ever requirements for new load ments from voice to high-information related to the built by MP&L crews. growth. Another purpose speed data, area it covers and sends it While the of the line, which will be The 260-mile to a data " highway." The FreeportTunica project energized in May 1989, is cable will run from Jackson plant operator, sitting at a gives MP&L a stronger to permit more economical to Vicksburg to tie in at console in the control delivery system to meet the dispatch of generation for the Baxter Wilson plant. A room, can then access any demands of the state's the Middle South Electric leg of it will go from information relating to how fastest growing area,it also System. Vicksburg to Greenville, the unit is running, such as provides for a more Transformer tying into the Gerald temperature, steam flow and economical dispatch of capacity was increased in Andrus plant, cross the pressure. generation for the Middle 1988 at several substations, Mississippi River and then In addition to South Electric System, including West McComb, tie into AP&L's fiber-optics having an up-to-the-minute consisting of MSU and its inverness, Greenbrook in system. Another leg will performance picture, the various subsidiaries. DeSoto County, and run from Jackson to the system can produce a Other major Kingswood in Jackson. Iouisiana line where it will " historical package" of j 1938 construction projects The tie into LP&L's fiber-optics operating data. If there is included a 230 kilovolt line Company also added
- network, continued trouble in an between the Rex Brown transformer capacity in area, plant personnel can 9eam Electric Station in Gloster to serve a new chip PRODULTION retrieve data from previous Jac? son and Pickens and mill, a product of MP&L's d'Y' ""d d"'##*i"# *h#"
MPM 's another 230 kilovolt line industrial recruitment the problem started and i E d"C" "
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d;velop a strategy for I between McAdams and efforts. Indianola. Additionally, met the chahnge of change solving it. m 1988 with programs that MP&L began rebuildm.g the vastly improved efficiency 115 kilovolt substation at and reduced costs. l Grand Gulf which provides The major auxiliary service to the i production project of the nuclear plant. year was installation of a Installing fiber-optic cable, as part of an MSU communications l 14 l w
Although the Baxter Wilson Steam Electric Station is not the only facility in the United States with the distributed control system, MP&L officials believe it is the most advanced use of it in I an electric power boiler l installation in the world. Because of this, the unit has generated widespread interest. l A four-man p delegation from the Soviet o r Union visited the plant in gfI gf' December to study the [p3 j yf system and consider the j u, 'i possibility of adapting it for p y Russian power plants. j'y < =" Earlier in the a'""r year, the control system was inspected by petroleum company executives from the Persian Gulf Island of Bahrain who plan to con-struct a power plant in their nation. Another w. major project of 1988 jygi,, @jh4' involved solving a serious iW # problem of cracked welds at g .y the Gerald Andrus Steam [g ' n t $( j7:. ' 4 Electric Station in 4 jy O 7, % ; 7 '" Greenville. Working as a N,u ,'a1<WW,m. , gp W ',' e1._ b ,r team, empkryees from T m' 7 ' e Jw q :,, ~" C ??gb M% q, fy ^ i MP&L and other MSU o %[$, g,gj,k.y* g [ ' +1 operating companies m,, ?l;,' y p-,?, g investigated and repaired the a.1 N6:ge .p-s y y g%Q53, 'u. + :;p@ ; fp) .p p. N !. ids W.'>, Kg h, Q (N1.l;' . '%Q.VD y,, i ..W ggng
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NNf"?lQd$f.l ~ t Y$W with the current status Y , f ' ?;l . -?lyeff Si,fy f of the plant's perfor-tmnce and historical .y ,N ~*9 + operating data are L r / two functons of f . )-., % <M Q . f ~ g.: % y(gy % %,. Combustion Engineer- ?f' %% r Q " ( *> '- 3& ing's MOD 300, a ,h;f/yYQ j'W,- y m,fg * ' distributed digital g controi system w w a YlvQ fiffi [{. , fQf; installed during 1988 at saxter wiuon p xy m m x .x A " (, (/ g:i '3 ( ";g" 9.::Gef Steam Electnc Station p cn 4fg;p;; in vicksburg. p 8 .m h h fh_k k'
l cracked welds in the secondary superheater outle header on schedule and at a significant cost n. ,+ savings. f.% f 4 9 g;g.;h.g%g.,$d,p y.g..,. ', g k Welds in the - 2 p
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. 7, y secondary outlet header had .l.,~.g-d. M p rl,;.; g. 'w.. 5.' - - been cracking since 1982, ( t.....,7.- and some tubes were leak-ing. The boiler manufac-l turer alerted MP&L of possible damage, implying ( T'.- tion with possible future high temperature degrada-Q r J replacement of the header, T <i, which could have cost more than $1 million. g 1 .j During 1988, w to reducing fuel costs by much attention was given J.. l< ~ ' {'. ""i] [ { .$,[ I ,[,- 7 y.. increasing the number of g- .2... N 1Q [ ', .[7@.,.g;j,.y,. s fs' fuel sources to the .r D 7. Company's steam electric p c:. g .m. j -_ yn stations. A gas supplier was contracted to build a ' N 12-inch natural gas pipeline 4 ~ from Clinton to the Baxter , k -, A.,j i y a-transporting 86 million i ~ ~ Wilson plant. Capable of yf e / ~~. cubic feet of gas per day, 4 ' ^ f. the line provides additional 2.i " 7-fuel supply to the plant. s Curn'ntly, [. MP&L is negotiating with several interstate pipeline companies with a goal of adding pipelines to other + 4 .9 plants in 1989. The 3 Company's objective is that natural gas costs be 90 per-g cent or less of the average o p ,e ort G"" MP&L crews worked tirelessly in 1988 - \\ through ice, tornadoes and thunderstorms - to provide quality ~ service to customers .v . [. throughout the
- 'e
..; F ' ': k. 2 service area. { Company's 45-county t;. s.. 16
YEAR IN REVIEW Mmwcpps Paw & Log n Cmsuny I desired drawing. Informa-tion then can be obtained by viewing the screen or by M making a copy of the draw-ing by merely pressing a button. cost of gas delivered to elec-Another step tric utilities in Mississippi, to save valuable time was louisiana, Texas and establishing a computerized Arkansas. drafting technique through MP&L's which drawings can be Production Department made via a laser printer. also added several state-of-Prior to making this move the-art techniques in 1988 in 1988, draftsmen produc-to ensure maximum effi-ed electrical drawings by ciency in today's climate of hand, making it necessary i change. for revisions to be done Among the manually. improvements was a stress analysis program designed COMMUNITY INVOLVEMENT to help MP&L avoid sixth and seventh graders Keeping an eye on the
- E.nizmS fmm acmss Mississippi for pepytt[e serious problems at power the direct relati nsh2P an intensive 14-day educa-unwritten respons-plants caused by stress on between the quahty of the tional experience dealing felijtjes at ugg pipes and other com-c mmunities it serves and with the problems and personnel. Through ponents. The computer the Company s long-term potentials of living in outer the Gatekeeper software, which is expected program, employees success, MP&L was actively space, employed innovative to save the Company mv Ived in severa1 teach.mg techniques with observant o/ situations are trained to be approximately $40,000 c mnmn ty sen ce pmjects special instructions from involving senior annually by not having to durmg 1988.
NASA officials. citizens and report any employ outside sources for A highlight The problems to anal sis, will enable - c unselors wim the of the year was Holiday Compam, in conjunction wor ers to ta e action ~
- '88#88#### 6 "" #~8 Jubilee, which was launched with the Salvation Army'.
service une. before problems such as by the Company m. also continued sponsorship cracking occur. December in conjunction of the Energy CONCERN j A newl installed automatic dafa*I'.h the city of Jackson's program, which helps revitalizati n eff rts t elderly and handicapped retrieval system also is attract famihes to the low. income customers pay expected to provide quicker downtown area. The four-their electric bills. Since its access to technical informa-night celebration, which inception in 1983, contribu-tion about the Company's featured spectacular lighting tions to the program by power plants. Instead of and performances focused MP&L customers and having to sort through t wards all ages, attracted employees have exceeded hundreds of drawings, m re than 3,000 persons. $1 million. engineers now can look at An ther an index and find the aper-b ' * * ""i'Y 8'#"i'* ture card number for the project involved coordma-tion of fund-raising activities for a new Student Space Station at Jackson's Davis Planetarium. The first-of-its-kind project, which brought together 17
w. A major objective for MP&L set a General Office, for the Recognizing MP&L during 7988 Company record in 1988 third consecutive year for that the electric utility for United Way giving. their record participation in industry is becoming more ic y ad productivity /n the Employee contributions the United States Savings competitive and that the Company's power and corporate gifts across Bond campaign. A total typical franchise type of plants, where even a the service area totaled of 71 percent of the monopoly will be diminish-tractionalimprovement nearly $100,000, making Company's employees ing, the Middle South subst tal savings in Electric System developed a the Company one of the signed up for the payrol1 generating costs. largest smgle contributors savmgs program, surpassing five-year plan - an in Mississippi. the 58 percent figure of a organized approach to Employees year earlier. articulating its long-term alse won the cove
- l goals, establishing targets Minutemar. T..g, a banner STRATEGIC PLANNING and outlining desired to be flown atop the milestones.
As M&L Based upon looks to the future, the MSU Chairman and Company welcomes the President Ed Lupberger's challenge of changing from a posture of having to con-centrate its resources upon solving pressing and immediate problems to a position of being able to plan ahead. 18
YEAR IN REVIEW wmm., w 6 w, c,,,,,, ~ plans to take in achieving the strategic objectives of-the Middle South Electric System. Resulting from a Companywide effort, the plan provides a comprehen-vision of the System sive view of MP&L's becoming a strong com-strategic direction and petitor in the electric describes the high-priority utility businece and follow-programs that will help the ing a planning process Company reach these developed by MSU manage-objectives. ment in conjunction with a In implement-
- E9 -
consulting firm, individuals ing the plan, the Company representing all System will place a high priority companies and the System upon innovative, customer-Executive Management oriented programs designed For more MP&L has more man 22,000 miles of Group (SEMG) developed to meet customer wants than 60 years, MP&L has transmissi n and the plan. This was followed and needs. MP&L also will developed and strengthened by MP&L and the other emphasize developing even its role of providing reliable [y"$,#$c'ity to System companies develop-higher levels of leadership and conscientious service to nearly so,ooo ing their five-year business in key activities that con-its customers, strong local customers in the plans to support the overall tribute most significantly to leadership in community company's 45-county su e area.
- plan, the overall development of activities, statewide leader-The System its service area in conjunc-ship in economic develop-plan contains five priorities tion with both public and ment programs, solid
- becoming more customer private organizations. returns on investment and oriented, becoming more These efforts, sustained emphasis upon cost competitive, energizing through which MP&L marketing and sales growth, employees, satisfying inter-works as a partner with its even during periods when nal and external constituen-customers and with many the national trend generally cies and preparing for the organizations, should downplayed such efforts. future. Each of these increase the Company's MSU and priorities has objectives set recognition as a strong, MP&L realize that, to meet by the SEMG. customer oriented and the challenge of change in While cover-socially responsible cor-the years ahead, companies ing many specifics, the five-porate citizen. Moreover, cannot afford spontaneous, year Systemwide plan also the activities should provide fragmented approaches. has the flexibility to cope many significant benefits to Sharply defined goals and with unanticipated changes. customers and to commun-priorities are needed; team-MP&l's ities in which the Company work is essential. 1989-1993 Business Plan, operates - benefits they The 1989-93 completed in November will not realize without Business Plan is pointing 1988, describes the overall MP&L's systematic and the way to MP&L's success approach the Company dedicated involvement. in the years ahead as the The business Company meets the plan has the potential of challenge of change. making MP&L one of the most competitive of all electric companies and thus becoming more capable of significantly benefiting all of'its constituencies. 19
[- i I l A TRIBUTE TO A LEADER Mmsmppe Mer & Light Comparey In 1949, just of operations, Lutken was and Middle South Energy, four years after the end of well-qualified to move into Inc., the newly-created World War II, a young the position of president in generating subsidiary of' United States Naval January 1970. Middle South Utilities, Inc. Academy engineering One of his (MSU) to finance and own graduate and former naval first challenges as head of the facility. officer joined Mississippi the company was to In 1985, the Power & Light Company develop a strategy for deal-Grand Gulf Nuclear (MP&L) to begin a 40-year ing with the effects of the Station, regarded by many career marked by battles for en:rgy crisis. As industry as a brilliant investment the Company's survival and projections for fuel short-into the future, went on some of the most ages became realities in the line and began producing impressive progress in the early 1970s, Lutken was electricity for customers electric utility industry. forced to find solutions to throughout the Middle When major problems such as South Electric System. Donald C. Lutken, who plant conversions, increased In parallel to devoted his entire business operating costs and many the energy crisis, Lutken career to MP&L, retires this new federal regulations. coordinated the switch in year, he can look back with In past years, the MP&L's marketing pride to many accomp-the Company's genenting thrusts from sales to conser-lishments which included stations had burned natural varion to benefit customers. rising fmm engineer to gas as a primary fuel with During 1973, president, chief executive oil used as a substitute in about 95 percent of the officer and chairman of the emergencies.13ecause of Company's advertising and board. severe curtailments in information efforts was At the start natural gas supplies, it devoted to stressing the of his career, Lutken was became necessary for importance of conservation involved in the core of the MP&L to adapt its plants and the wise use of energy. Company's business, that of for more efficient use of MP&L developed a generating electricity. His oil. The conversion expense innovative approach - the leadership abilities were was approximately $50 Level Pay Plan - to make recognized early when he million, and the Company it easier for customers to was called upon to assist in also faced the skyrocketing budget their electricity bringing two power plants price increases for the costs. on line and to contribute in scarce fuel. designing two others.
- Lutken, Later, however, was looking through the experiences and beyond the immediate knowledge gained as chief energy crisis. In one of his engineer and vice president first acts as president, he led MP&L in applying for a construction permit from the Atomic Energy Commission in 1972 to build the Grand Gulf I
Nuclear Station near Port Gibson. Permission was granted in 1974 to MP&L l Donald C. Lutken, who began his career with M/&L as an engineer at the Ru Brown Steam Bectric Station in Jackson, will retire in 1989 after 40 years of service to the Company. 20 l .___-____E
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A TRIBUTE TO A LEADER Mammppu Power & lsght campany y. 2 =- g fl A major niarketing accomplishment f$ p14 ' in this era was researching ( g y"yf and launchmg the concept q ]~ c A7y o= around three Es - energy, j'. M@f of the E3 Home. Centered N 'a 1 efficient and electric - the T promotion emphasized the f % -l $ advantages of an all<lectric /' V'" home. Another marketing }. -M program, referred to as h b .M fh ( ZipUp and aimed at h I~ s, 1 O existing homes, encouraged [ u conservation of home .E S L heating and cooling energy, f _d* ~ Shortly after .;y !;T taking over as chief execu-g tive officer, Lutken led the g"% V.fif Company to new heights a4 when he spearheaded the Q purchase of the Capital Electric Power Association in 1973. The purchase, The effectively coordinated Lutken, left, discusses which enabled MP&L t Company found itself on restoration of service to an engineering extend its services and pr* the brink of financial customers during some of P' *"*'# # Inf,$"th,#"c#ha$y', flan 17 saster in early 1987 after the m st adverse weather-a 0 add tio I the Mississippi Supreme related meidences in Rex Brown Steam C".stomersjn cend Court overturned a rate Mississippi history, Electnc Station. Young Mississippi, proved to be increase granted by the including floods, tornadoes twen, a graduate of a key factor m the. Mississippi Public Service and ice storms.
- 8 ""# 888 Company's growth in the Commission in 1985 to With Lutken hPanh"9loow?
greater Jackson area. cover MP&L's 33 percent as president, the Company ing a six-year career Om of allotment of Grand Gulf 1 also strengthened its base as in the Navy. Lutken,s greatest feats as costs. Under Lutken's direc-a leader in Mississippi's MP&L's captain involved tion, the Company economic development successfully guidm, g the appealed the decision to the efforts. Not only was Company through a sea of United States Supreme MP&L involved'in bringing legal battles and fmancial Court which overturned industry to the state, but uncertainties dunng the the state court's ruling in area development personnel ate Os. 1988 and allowed MP&L to became active in preparing collect Grand Gulf 1 retail community leaders to rates. mount their own economic MP&L battles development campaigns, with Lutken at the helm were not limited to legal challenges, however. He 22
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i '&(aD? !"R / pg. _y Ah In 1985, educational needs in the I MP&L launched one of the state. most aggressive economic For its educa-j development programs ever tional efforts, the Company undertaken by an electric gained national attention, utility. Through this pro-winning the Partnerships in gram, named Energy Plus, Education Joumal's Literacy the Company set a five-year award for its efforts to solve goal of creating or attrac-Mississippi's illiteracy .u - wA.s ting 14,000 new jobs over problems and the Edison 4 M L h: N d M '.7 ' Dh and above projected growth Electric Institute's in western Mississippi. Community Responsibility Within the Award for outstanding
- f773
( framework of economic consumer programs to find NManaemusem,p development, Lutken called solutions to problems for the establishment of shared by utilities and their progressed from engineer Three leaders joined Energy in Education, a customers. ha s o c &s series of programs and Throughout through positions of plant support aimed at enhancing his career, Lutken made a supenntendent, supenn-In 1973. Lutken, who education in Mississippi, personal, as well as a pro. tendent of production, chief became president in Begun in 1987, the fessional, commitment to engmeer, vice president and 7970, is IIanked, at emphasis addressed the public service. His many chief engineer, vice presi-left, by R. Baxter y8] who served as state's most critical educa-activities have included dent of operations, tional needs, incluuing a serving as a trustee for executive vice president and to 1970, and, at right, high school dropout rate of Belhaven and Mary president. Lutken became by nex L scown, 40 percent, an illiteracy rate Baldwin colleges; as state president and chief president from 7936 of 25 percent among adults, chairman for the United executive officer in 1971, to 1954 was elected chairman of the and teacher salaries among States Savings Bond drive; the lowest in the nation. and as a director of the board and chief executive officer in 1984 and chair-Additionally, Andrew Jackson Council of Lutken played a major role the Boy Scouts of America, man, president and chief executive officer in 1986. in creating the Council for the Jackson Chamber of Lutken has Support of Public Educa-Commerce, and the i tion for which he serves as Mississippi Chapter of the fought and won many chairman. Composed of 30 National Multiple Sclemsis battles during his tenure with MP&L His legacy is business leaders who Society. recognize the importance of Probably no a company that has education in the growth of other individual in MP&L's rebounded fmm near extinction to one that is Mississippi, the council is 66-year history has con. active in promoting suffi-tributed more to the success now strong and facmg the future with confidence. cient funding for several of the Company than Donald C. Lutken, In his 40 years of service, he fy? v y n ' _, ,,( 3 y A + C 7-One of Lutken's greatest challenges as head of MP&L was f,. leading the Company ihtough the unforget-pg ' l table 1979 Easter ' ;j u ~ Fbod, which took a (' tollin MP&L's service territory, particularly In ,f. Jackson and its suburbs. 23
' ABBREVIATIONS AND TERMS Mmmsppe hmer & lsght campany Abbreviations and terms used in the financial section of this report include: . Abberviation hapeson Abberviation kaptwn June 24 decision The decision of the United States AFUDC Allowance for Funds Used During Supreme Court issued on June 24, Construction 1988, affirming the Company's right AP&L Arkansas Power & Light Company to recover its Grand Gulf 1-related . Council Council of the City of New Orleans, costs louisiana LP&L louisiena Power & Light Company FASB Financial Accounting Standards Board LPSC louisiana Public Service Commission FERC Federal Energy Regulatory Money Pool MSU Money Pool which allows Commission certain System companies to borrow February 25 The decision of the Mississippi from or lend to, certain other decision Supmme Court issued on System companies February 25,1987, reversing MP&L or Mississippi Power & Light Company and remanding the Company's Company Grand Gulf I rate order MPSC Mississippi Public Service Commission Final Order An order issued by the MPSC on MSU Middle South Utilities, Inc. on Rehearing September 16,1985, with respect to NOPSI New Orleans Public Service Inc. the Company's Grand Gulf 1-related November 30 An order issued by the FERC on issues order November 30,1987, which D. C. Cimuit United States Court of Appeals for the reaffirmed and reinstated the District.of Columbia Circuit June 13 decision District Court United States District Court for the Revised Plan The Company's Grand Gulf 1-related Eastern District of Iouisiana rate phase-in plan as modified by the Fifth Circuit United States Court of Appeals for MPSC order issued September 29, the Fifth Circuit 1988, to bring such plan into G&R Bonds General and Refunding Mortgage compliance with the requirements Bonds issued and issuable under the of SFAS No. 92 Company's G&R mortgage dated as SEC Securities and Exchange Commission of February 1,1988, as amended System Agreement Agreement, effective January 1,1983, G&R Mortgage General and Refunding Mortgage as modified by FERC Opinion No. established by the Company effective 234, among the System operating February 1,1988, to provide for companies mlating to the sharing issuances of G&R Bonds of generating capacity and other Grand Gulf 1 Unit No.1 of the Grand Gulf Nuclear power resources Station System Energy System Energy Resources, Inc. Grand Gulf 2 Unit No. 2 of the Grand Gulf Nuclear SFAS Statement of Financial Accounting Station Standards promulgated by the FASB ISES Independence Steam Electric Station SFI System Fuels, Inc. June 13 decision The FERC's 1985 decision allocating SSI MSU System Services, Inc. Grand Gulf 1 costs to the four System Middle South Electric System, operating companies of the Middle comprised of MSU and its various South Electric System as reaffirmed by direct and indirect subsidiaries orders of the FERC dated November System operating MP&L, AP&L, LP&L and NOPSI, 30,1987, and January 29,1988 companies collectively United United Gas Pipeline Company 24
REPORT OF MANAGEMENT Nmampp 1%st & Loghs Genjuny The concept of reasonable accepted accounting prin-Company's affair:, according i assurance is based on the ciples. Their audit is to the highest standards of recognition that the cost of conducted in accordance personal and corporate I maintaining a system of with generally accepted conduct. To enhance the internal accounting controls auditing standards and Company's internal should not exceed the includes such procedures accounting control environ-The manage-benefits expected to be believed by them to be ment, management has a ment of Mississippi Power derived from the system. sufficient to provide Code of Conduct which & Light Company is Mississippi Power & Light reasonable assurance that emphasizes the Corrpany's responsible for the prepara-Company believes that its the financial statements are commitment to the highest tion, integrity and system of internal account-free of material misstate-standards of integrity and objectivity of the financial ing controls, augmented by ment. No material internal fairness. Management statements as well as all a comprehensive internal control weaknesses were believes that its policies and other information con-audit function, reponed to management by procedures, including its tained in this annual report. appropriately balances the the independent public system of internal account-The financial statements cost / benefit relationship. accountants during 1988. ing controls, provide have been prepared in The system of internal The report of independent reasonable assurance that conformity with generally accounting controls also public accountants does not the Company's operations accepted accounting includes the selection and limit management's respon-are carried out in principles and necessarily training of qualified person-sibility for information conformity with these reflect amounts based on nel, an organizational contamed in the financial standards. management's best estimates structure that provides for statements and elsewhere in - and judg.nents with appro. appropriate delegation of this annual report. / priate consideration given authority and segregation The Board of / A j/ to materiality. The financial of responsibilities and the Directors pursues its information included else-establishment and com-oversight responsibility for where in this annual report munication of written reported financial informa-G. A. Goff is consistent with that in accounting business policies tion through its Audit Senior Vice President & the financial statements. and procedures throughout Committee. This com-Chief Financial Officer To meet its the organization. mittee, which is composed wsponsibilities with respect The entirely of outside directors, to financial information, Company's independent meets periodically with management maintains and public accounta 1, Deloitte financial management, the enforces a system of Haskins & Sells, are internal auditors and the internal accounting controls engaged to provide an inde-independent public account-designed to provide reason-pendent assessment of the ants to make inquiry as to able assurance that degree to which the manner in which the transactions are executed in management meets its responsibilities of each are accordance with nanage-responsibility for fairness of being discharged. The inde-ment authoriz.oon financial reporting and to pendent public accountants according to established render an opinion as to and the internal audit staff policies and procedures, whether such financial have access to the Audit that the financial statements statements present fairly, in Committee without are prepared in accordance all material respects, the management's presence to with generally accepted Company's financial freely discuss internal accounting principles and position, results of opera-accounting control, auditing the Uniform System of tions and cash flows, in and financial reporting Accounts prescribed by the conformity with generally matters. FERC and that the assets of The manage-the Company are properly ment of Mississippi Power safeguarded against loss. & Light Company recognizes its responsibility for conducting the 25
AUDIT COMMITTEE CHAIRMAN'S LETTER Mwworp hower b Lght Company The Audit the independent public facilitate any private Committee oversees the - accountants the overall communication with the Company's financial report-scope and specific plans for committee desired by the ing process on behalf of the their respective audits, as internal auditors or Board of Din ctors. In well as the Company's independent public fulfilling its responsibility, financial statements and the accountants. The the committee recom-adequacy of the Company's Mississippi Power & Light mended to the Board of internal controls. Company Board of Direc-Directors, subject to The tors' Audit Cornmittee is stockholder approval, the committee also met with comprised of four directors, selection of the Company's the Company's independent Frank R. Day who are not officers of the independent public account-public accountants, without Chairman, Audit Company: Frank R. Day ants, Deloitte Haskins & management present, to Committee (Chairman), James B. Sells. discuss the results of its Campbell, Robert E. The Audit audits,its evaluations of the Kennington II, and Dr. Committee discussed with Company's internal con-Walter Washington. The the internal auditors and trols, and the overall committee held 5 meetings quality of the Company's during 19F8. financial reporting. The meetings were designed to l 26
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS Mnumppe Me & bghs Compmy terms. (See Note 2A of the Final Order on Rehearing, of that proceeding. On Notes to the Financial but only addressed the col-September 29,1988, the Statements " Grand Gulf I lection mechanism for the MPSC entered an order Rate Order" for additional deferral and subsequent adopting the agreement of information concerning recovery of the Company's the panies and dismissing i ns and evenu relating Grand Gulf 1-related costs the Company as a pany to I. Financist condition to the June 24 decm,on.) so as to bring the all phases of Docket No. On June 24, The retail rate Company's rate phase-in U-4900. l 1988, the United States phase-in plan, embodied in plan into compliance with In September l Supreme Court rendered a the MPSC's Final Order on the new standards of SFAS 1985, when construction l decision which affirmed the Rehearing and providing for No. 92. The Company was suspended, Grand Gulf l - Company's right to recover recovery by the Company believes, and has been 2 was approximately 34 through retail rates the 33 of its Grand Gulf 1-related advised by its independent percent complete based on l percent allocation of Grand costs, although in compli-auditors, that the Revised the man-hours estimated at l ' Gulf 1-related costs assigned ance with generally Plan satisfies the that time to be needed to I to it by the FERC. In its accepted accounting requirements of SFAS No. complete the unit. As of June 24 decision, the U.S. principles at the date of
- 92. (See Note 2A to the December 31,1988, System Supreme Court reversed the adoption in September Financial Statements for Energy had recorded February 25 decision of the 1985, did not meet the further information with approximately $905 million Mississippi Supreme Court criteria of SFAS No. 92, respect to the terms of the on its balance sheet as an which had held that the including in particular, the Revised Plan.)
investment in Grand Gulf MPSC had improperly requirement that all In September
- 2. In December 1986, based granted the Company retail deferred costs be recovered 1986, the MPSC established on the recommendation of rates to pay for its Grand within ten years. During Docket No. U-4900, the a special group of System Gulf 1-related costs without t'ae pendency of the purpose of which was to officials and outside first determining that such Company's appeal of the obtain a comprehensive consultants, System costs were prudently February 25 decision to the review of all aspects of the Energy's Board of Directors incurred. The U. S.
U. S. Supreme Coun, the Company's current rate (with the MSU Board of Supreme Court ruled that Company continued to requirements and current Directors concurring) states may not alter FERC-record its deferred Grand rate structure of its affiliate
- lecided that suspension of orden d allocations of Gulf 1-related costs as assets and cxenificate holder in construction should be wholesale power by on its books in accordance the Grand Gulf Nuclear continued and that a substituting their own with transition provisions Station, System Energy. In further decision be made determinations of what contained in SFAS No. 92.
connection with discussions by 1990 on the future would be just and fair, that On August held in August and status of Grand Gulf 2 in the MPSC must recognize 12, 1988, the Company September 1988 among the light of alternatives the Company's 33 percent filed with the MPSC, under MPSC staff, the Mississippi available at that time. allocation of Grand Gulf provisions contained in the attorney general, the System Energy has 1-related costs as reasonable Final Order on Rehearing, Mississippi legal Services previously indicated that it operating expenses and that requesting modification of Coalition and the Company has no intention, prior to the Company is therefore its rate phase-in plan such regarding the modification further decision on the entitled to continue to that the plan would be in of the Final Order on status of Grand Gulf 2, of cohect increased rates compliance with the Rehearing and the imple-seekirig FERC approval for associated with the purchase requirements of SFAS No. mentation of the Revised the recovery through of capacity and energy
- 92. On September 29,1988, Plan as discussed above, the charges to the System i
from Grand Gulf 1. This the MPSC entered an order parties agreed that Docket operating companies of its very favorable decision approving the Revised Plan No. U-4900 should be investment in the unit. (See removed much of the to become effective for bills dismissed as to the Note 8A of the Notes to ) uncenainty surrounding the rendered on and after Company, and that the the Financial Statements - ) Company's financial condi-October 1,1988. The Company should be severed " Commitments and l tion and is expected to MPSC's adoption of the as a party from all phases Contingencies Suspended provide the Company with Revised Plan did not effect Construction Project - improved access to capital any change in the Grand Gulf 2" for funher markets on reasonable Company's Grand Gulf 1 information concerning revenue requirements, as established and fixed in the n l
y - CANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS we um+ cm,y which extended the effec-Company tive date of SFAS No. 96 to crews, as well as cmws fmm The . fiscal years beginning after neighboring utilities and Company's principal financ-December 15,1989. Based other comracted crews ing requirements continue on a preliminary study, it is worked steadily under to be associated with the expected that the adoption adverse conditions to deferred recovery of Grand Grand Gulf 2, including of SFAS No. 96 will result restore service to customers Gulf 1-related costs ~ issues regarding recovery by in a net increase in accumu-during the days following pursuant to the Grand Gulf , ' System Eneq;y of its invest. lated deferred income taxes the storm and by February 1 rate phase-in plan ordered ment in Grand Gulf 2 and with a corresponding 13, 1989, all customers were by the MPSC in September the possible material and increase in assets. The-returned to service. 1985 and modified by the advene effect on the Company's results of opera-The MPSC in September 1988. - Company if costs associated tions are not expected to be Company estimates that 'In the future, additional with Grand Gulf 2 were - significantly impacted by costs associated with the capital funds will be needed allocated to the Company the adoption of SFAS No. restoration of electric ser-for construction expendi-and it was unable to 96. vice following this storm tures, for the refinancing of recover these costs from its 'In early may approximate $5 maturing long-term debt customers). February 1989, a severe ice million. Pursuant to a June and for the satisfaction of In December storm was experienced over 1985 order of the MPSC, preferred stock sinking fund. 1987, the FASB issued a large portion of the the Company completely requirements. SFAS No. 96, Accounting Company's service area. amortized its storm damage In 1988, for Income Taxes, which This storm caused one of reserves by July 1988. construction expenditums was effective for years the longest and most exten-Consequently, at the time (including AFUDC) totaled beginning after December sive outages in the of this storm, the Company appmximately $42.6 15, 1988. In December Company's history as ice had no storm damage million, compared to 1988, the FASB issued felled tree limbs, power reserves to be applied approximately $38.4 million SFAS No.100, Accounting lines and poles. The peak against the costs associated in 1987 and $22.1 million - for Income Taxes - Deferral number of Company with this ice storm. The in 1986. of the Effective Date of customers without power accounting treatment given During 1988, FASB Statement No. 96, was reached on February 7 to these costs will be 1987 and 1986, Grand Gulf and totaled approximately dependent on the 1.related billings and 93,000. regulatory treatment given deferrals were as follows: to this situation by the MPSC. Description 1988 1987 1986 (in Mdlwm) Billed to the Company by System Energy $308.3 $317.5 $316.7 Add: Carrying chaq;es 50.8 40.3 23.9. - Less: Fuel 42.7 22.0 14.9 Less: Flowback of eness deferred income taxes ,,2 0 Subtotal ,, 314,.4 ,,33,5.8 ,,3,25,.7 Less: Amounts billed to the Company's customers 188.8 152.4 108.0 Less:(Over)/Under collection of revenue ,0.3 ,,,,0.7 ,,,(5,.5) Rate deferral-net of recoveries ,$,125,.3 , $1,8,2.7 , $22,3.2 l 26
As indicated through increased rates The among other things, in the preceding table, the billed to customers, the Company's 1989-1991 earnings, dividends, the amounts of Grand Gulf impact of the rate phase-in estimated capital and outcome of regulatory and 1-related costs deferred for plan has been removed external financing judicial proceedings, future recovery have been. from the statement of requirements shown in the financing plans and access decreasing with correspond-income. Since the actual following table assume the to capital markets. See ing increases in the collection of revenues to continued allocation of information elsewhere amounts billed to the recover these deferred costs Grand Gulf 1 capacity and in this section of Company's customers will not occur until the energy costs in accordance Management's Financial under the Final Order on future, the rate phase-in with the June 13 decision Discussion and Analysis Rehearing and the Revised plan does result in and the November 30 with respect to the Plaa. By deferring Grand additional current capital order, the continued Company's short-term Gulf 1-related costs that are requirements. suspension of construction borrowing capabilities and not currently billed to activities at Grand Gulf 2 limitations. customers to the future and are based on cenain when they will be collected other assumptions and judgments with respect to, Description 1989 1990 1991 Total (in Mdlwns) Capital Requirements: Construction expenditures S 51.2 $50.5 $51.5 $153.2 Rate phase-in plan requirements 76,.1 ,,39.1 , (4,.9) ,11,0,.3 Total capital requirements ,$127 3 ,$,89.6 , $,4,6.6 , $2,6,3.5 Financing Requirements: Total capital requirements $127.3 $89.6 $46.6 $263.5 Less internally generated funds and changes in cash and short-term debt ,80,0 ,, 92.3, ,,5,6.3 ,22,8,6 Net financing requirements 47.3 (2.7) (9.7) 34.9 Plus refinancing requirements: Long-term debt maturities and sinking funds (1) 30.2 .2 30.4 Preferred stock sinkir.g funds ,1,3 ,,1,3, ,8.3 ,1,0.9 Total external financ'ng requirements ,.$,78 8 , SQ.2) , $(1,.4) , $,7,6,2 l (1) Assumes the early redemption, in 1989, by the Company of its 151/8 percent series first mongage bonds due June 1,1990, in the amount of $30.0 million. Included in The and appropriate. Also The the above c mstruction Company's present plan is during the period Company plans to proceed, expenditure estimates is to obtain the necessary 1989-1991, the Company subject to reccipt of neces-AFUDC o $2.1 million, externally generated funds may issue additional G&R sary regulatory approval, $2.5 millio i and $2.0 identified above through Bonds in connection with a with arrangements for the million for the years 1989, the utilization of short-term possible debt and preferred possible redemption, 1990 and 1491, respectively. borrowings and such other stock refinancing program purchase or other acquisi-securities and such other and may enter into arrange-tion of all or a portion of methods of obtaining ments for the sale and certain outstanding series of necessary funds as may be leaseback of property in the Company's high-cost deterrnined to be available which the proceeds from debt and preferred stock. such transactions could be used to retire certain debt issues at par.
FT - [_ O t: - MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS mm, w uw c.,,m additions smce December additional first mortgage The mini-31,1987, plus up to 50 bonds (including for refun-mum earnings coverage percent of cumulative ding purposes) pursuant to. requirements for the deferred Grand Gulf the Company's first mort-
- issuance of additional G&R 1-related costs recorded as. -
gage indenture, except for Bonds and preferred stock c; an asset on the books of ~ such first mortgage bonds - (which are not applicable in In February the Company, provided that as may hereafter be issued the case of certain refund-
- 1988, the Company the maximum amuunt of from time to time at the ing issues) are 2.0 times and established a new G&R G&R Bonds issuable.
Company's option to the - 1.5 times the pro forma - Mortgage _ indenture to . against cumulative deferred corporate trustee under the annual mortgage interest provide for issuances of Grand Gulf-1 related costs new mortgage to provide - and pro forma annual G&R Bonds. Under this may not exceed $400 additional security for the preferred stock dividend - ' indenture, and subject to : million. This indenture G&R _ Bonds. In February requirements, respectively. . the earnings coverage test constitutes a second 1988, the Company issued For the Company's G&R-1 discussed below, the mortgage lien on substan-and sold $75 million Bonds and preferred stock, Company may issue G&R tially all of the physical aggregate principal amount the earnings coverages and - Bonds in an aggregate prin-properties and assets of the of two initial series of issuable amounts based on cipal amount not exceeding Company, subject and G&R Bonds pursuant to. an assumed annual interest 70 percent of property . subordinate to the lien of this new indentum. and preferred dividend rate the Company's first mort-of 11 percent were as gage indenture. The terms follows (dollars in millions): of the new G&R Mortgage prohibit the issuance of Earnings Coverages Issuable 12 Months Ended Amount 12/31/88 12/31/87 at 12/31/88 G&R Bonds 2.45 2.52 $118.6 Preferred stock 1.51 1.32 $ 3.6 The earnings coverage test is currently the most restrictive test under the G&R Mortgage indenture. On December 30,1988, under amount outstanding at one capitalization plus short-December 29,1988, the ' terms contained in the time of up to $100 million, term indebtedness. The Company issued and sold agreement, the Company subject to increase to a Company's new G&R approximately $30.0 million gave notice of its intention maximum of 10 percent of ' Mortgage also limits short-of its common stock to to terminate this agreement the Company's capitaliza-term borrowings to an MSU. effective January 30,1989. tion with further SEC aggregate amount not In October .On that date, the Company approval, in addition, the exceeding, in general, the - 1987, the Company entered repurchased all of its out-Company is subject to an greater of 10 percent of into an agreement for the standing customer accounts SEC order that prohibits capitalization or 50 percent daily sale of its billed and ' receivable for approximately incurrence of short-term of Grand Gulf 1 rate defer-unbilled customer accounts $32.4 million. indebtedness if common rals available to support the receivable. During 1988, the The stock equity is, or would issuance of G&R Bonds. Company continued to sell Company is authorized become, less than 30 its billed customer accounts thmugh 1990 by the SEC percent of the sum of total receivable. However, on under the Public Utility Holding Company Act of 1935 to effect short-term borrowings in an aggregate . 30
As of The may be limited. The the Money Pool have been i December 31,1988, the Company also participates Company may borrow made during the first Company had lines of with certain other System from these sources subject quarter of 1989. cmdit with Mississippi Companies in a Money to its maximum authorized banks t6taling $30.0 Pool arrangement whereby . level of short-term borrow- ~ W. ResWts W OpersHons million, all of which were those companies with ings. The Company did not ' Listed below . evailable at that date. These available funds can lend make use of short. term are those significant factors j bank lines of credit have those funds to other par-borrowings from the affecting results of opera-i i remained available to the ticipating companies in the Money Pool during 1988. tions for which changes - j l Company during the first System (other than MSU) However, borrowings from have occurred between the quarter of 1989. having short-term borrow-years 1988 and 1987, and ing needs. The availability 1987 and 1986. The of Money Pool funds at principal reasons for the any particular point in time significant changes fmm period to period are discussed following the tables. ] 1988 Compared to 1987 Description 1988 1987 Increase or Percent (Decrease) Change l (Ddl.m in %unds) Net income $ 52,886 $ 51,767 $ 1,119 2.2 ' Operating mvenue 683,547 620,836 62,711 10.1 i-Fuel expense 99,125 94,649 4,476 4.7 l Purchased power expense 395,978 404,636 (8,658) (2.1) l Other operation expense 77,913 69,822 8,091 11.6 Maintenance expense 31,143 28,407 2,736 9.6 Rate deferral-net of recoveries (125,293) (182,739) 57,446 31.4 Income taxes 26,031 42,737 (16,706) (39.1) Interest expense 63,533 49,892 13,641 27.3 Energy sales to Mississippi customers (mkwh) 8,551,710 8,216,929 334,781 4.1 The increase customers accounted for adjustment clause, less while approximately $7.9 in the Company's 1988 net approximately $7.5 million credits recorded under million of the increase was income was due to a of the increase, net of the other miscellaneous rate due to changes in genera-number of factors as effects of the income tax riders, increased by tion requirements among discussed below, adjustment rider mentioned approximately' 53.3 million the System operating Revenue above, while approximately over 1987. companies. aseociated with sales to $38.3 million of this Revenue from In accordance Mississippi customers increase was due to higher sales for resale increased with the provisions of the increased approximately rates billed to customers approximately $12.5 million Revised Plan, the $49.1 million or 8.8 percent pursuant to the rate phase-or 25.8 percent in 1988 Company implemented an compared to 1987 levels in increases implemented in over 1987. Approximately increase in rates billed to despite a 1988 reduction of October 107 and October $4.6 million of this increase customers effective October $12.4 million resuhing from 1988. Additionally, revenue was due to higher sales to 1,1988. It is estimated that an income tax adjustment billed to Mississippi non-associated companies this 5.33 percent increase in - rider placed in effect in customers during 1988 base rates will increase the ' perent increase in 1988. under the Company's fuel Company's base operating January 1988. The 4.1 revenues by approximately energy sales to these $41.5 million during the 31
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS h Mmmyp Amor & bg t Compmy period October 1,1988 by approximately $2.7 The decnase through September 30, million in 1988 due in the amount of Grand 1989. In conjunction with primarily to lower average Gulf 1-related costs deferred this revenue increase, the unit prices of coal burned in 1988 (rate deferral-net of amount of Grand Gulf at ISES. recoveries) reflects the fact 1-related costs currently The decrease that the Company,. Net income charged to expense and in 1988 purchased power pursuant to its rate phase-in (In m&m) billed to customers expense as compared to plan under the Final Order ~ increased concurrently with 1987 was due primarily to a on Rehearing and the a corresponding decrease in reduction in capacity and Revised Plan, collected a "O the amount currently energy charges from System greater amount of Grand deferred for future recovery. Energy for Grand Gulf Gulf 1-related costs from its Included in this revenue 1-related costs. customers than was DO increase is the billing to The increase recovered in 1987. customers of a portion of in other operation expense Income taxes the balance of deferred in 1988 as compared to decreased in 1988 as 'UO Grand Gulf 1-related costs 1987 was due primarily to compared to 1987 due to a as of September 30,1988, costs incurred throughout n: duction in 1988 pre-tax which totaled approxi-1988 as compared to only book income and due to UO mately $648.4 million, the last quarter of 1987 in the nduction in the federal The increase connection with the corporate income tax rate in fuel expense was due to continued daily sale of the from the 1987 blended rate U0 several factors. Fuel Company's billed customer of 40 percent to the 1988 expense associated with oil, accounts receivable, to rate of 34 percent, which fired generation increased in increases in sales expenses was effective January 1, "O 1988 by approximately and to increases in various 1988. $19.4 million due to higher administrative and general The increase oil-fired generation require-expenses. in 1988 interest expense as
- 0 88 87 86 8'
ments than in 1987. The increase compared to 1987 reflects Gas-fired generation in 1988 maintenance the interest on additional decreased in 1988 causing a expense was due primarily long-term debt issued to reduction of approximately to the resumption of the finance the deferral of $12.2 million in natural gas necessary maintenance work Grand Gulf 1-related costs. costs. Coal costs decreased on distribution property which had been postponed in recent years. 1987 Compared to 1986 Description 1987 1986 Increase or Percent (Decrease) Change (Dollan in %uunds) Net income 5 51,767 $ 53,860 $ (2,093) (3.9) Operating revenue 620,836 673,948 (53,112) (7.9) Fuel expense 94,649 156,509 (61,860) (39.5) Purthased power expense 404,636 424,172 (19,536) (4.6) Other operation expense 69,822 75,307 (5,485) (7.3) Maintenance expense 28,407 32,639 (4,232) (13.0) Rate deferral-net of recoveries (182,739) (223,155) 40,416 18.1 l Income taxes 42,737 50,635 (7,898) (15.6) Interest expense 49,892 45,369 4,523 10.0 Energy sales to Mississippi customers (mkwh) 8,216,929 8,096,899 120,030 1.5 32
The decline The reduc-The increase in the Company's 1987 net _ tion in 1987 fuel expense in 1987 interest expense income was due to a was due to a lower volume reflects the current expense number of factors as of gas purchased because of - related to the financing of ' discussed below. a decrease in generation the inventory and phase-in Revenue requin ments and lower portions of Grand Gulf associated with sales to average unit prices. 1-related costs and the Operating Revenue - Mississippi customers The decrease higher interest rates gn minion 3) decreased approximately in 1987 purchased power incurred by the Company $12.2 million compared to expense as compared to in connection with 1987 1986 levels despite a small 1986 was due to reductions financings, primarily due to increase of 1.5 percent in in power purchased from the uncertainty created by energy sales. Of this non-associated utilities and the February 25 decision revenue decrease, approxi-reductions in purchases and related appeals. mately $10.2 million was from System companies due to the income tax other than System Energy, iv. Summary adjustment rider Other opera-The outlook implemented in January tion expense decreased in for the Company's future 1987, recognizing the 1987 as compared to 1986 financial condition has been ' decrease in the 1986 federal due primarily to the greatly improved due to (1) corporate income tax rate recognition of certain the June 24 decision of the from 46 percent to the engineering and design costs U.S. Supreme Court (2) the blended 1987 rate of 40 associated with delayed approval by the MPSC of a percent. generating stations in 1986. Revised Plan that satisfies Sales for Maintenance the requin ments of SFAS s200 resale declined approxi-expense decreased in 1987 No. 92 and (3) the dismissal mately $42.1 milliun or primarily due to delays in by the MPSC of the 46.6 percent in 1987 due maintenance performed at Company as a party to all i primerily to changes in the Company's steam phases of Docket No. { generation requirements electric stations. U-4900. among the System The decrease The
- 8 operating companies.
in the amount of Grand Company's future financial In accordance Gulf 1-related costs deferred condition could be with the provisions of the in 1987 (rate deferral-net of materially and adversely rate phase-in plan approved recoveries) reflects the fact affected if a portion of Rate Deferral Net of Recoveries by the MPSC in the Final that the Company, Grand Gulf 2 costs were g,,jujoy,j . Order on Rehearing, the pursuant to its rate phase-in allocated to the Company Company implemented its plan under the Final Order and it was unable to second annual increase in on Rehearing, collected a recover such costs from its s240 rates billed to customers greater amount of Grand customers. effective October 1,1987. Gulf 1-related costs from its See Notes 2 In conjunction with this customers than was and 8 to the Financial
- 200 l
increase, Grand Gulf recovered in 1986. Statements for further 1-alated costs which were The 1987 information concerning chaq;ed to expense and decrease in income taxes these matters and certain
- 1" colle:ted through rates, was due to a reduction in uher contingencies.
increased by approximately 1987 pre-tax book income n20 $2 million per month. and due to the reduction in the 1986 federal corporate income tax rate of 46 percent to the blended 1987 rate of 40 percent, which was effective January 1, 1987. $0 88 87 86 85 84 33
INDEPENDENT AUDITORS' REPORT Maimy Pouer tv bght Compmy Deloitte Haskins+ Sells 39th Floor One Shell Square New Orleans, Louisiana 70139-3997 To the cash flows for each of the whether the financial In our Shareholders and the Board three years in the period statements are free of opinion, the above-of Directors of Mississippi ended December 31,1988. material misstatement. An mentioned financial Power & Light Company: These financial statements audit includes examining, statements present fairly, in are the responsibility of the on a test basis, evidence all material respects, the We have Company's management. supporting the amounts financial position of the audited the balance sheets Our responsibility is to and disclosures in the finan-Company at December 31, of Mississippi Power & express an opinion on these cial statements. An audit 1988 and 1987, and the Light Company as of financial statements based also includes assessing the results of its operations and December 31,1988 and on our audis. accounting principles used its cash flows for each of 1987, and the related We con-and significant estimates the three years in the statements of income, of ducted our audits in made by management, as period ended December 31, retained earnings and of accordance with generally well as evaluating the over-1988 in conformity with accepted auditing standards, all financial statement generally accepted account-Those standards require presentation. We believe ing principles. that we plan and perform that our audits provide a the audit to obtain reason-reasonable basis for our gg able assurance about opmion. 1 February 10,1989 l l l 4 l l l l 34 l
STATEMENTS OF INCOME g unumfpe korr tv Lghs Gmpa,y. For the Years ended Ikwnle 31 1988 1987 1986 (In husands) L . Operating Revenues $ 683,547 $ 620,836 $ 673,948 Operating Expenses: Operation: Fuel 99,125 94,649 156,509 Purchased power 395,978 404,636 424,172 Other 77,913 69,822 75,307 Maintenance 31,143 28,407 32,639 Depreciation 35,945 35,151 34,672 Taxes otner than income taxes 30,747 28,864 ' 27,135 Income taxes (Note 3) (20,916) - (36,952) (59,948) Rate deferral:- Rate deferral-net of recoveries (Notes 1 and 2) (125,293) (182,739) (223,155) Income taxes (Note 3) 45,587 - 78,578 108,676 Total operating expenses' 570,229 520,416 576,007 Operating Income 113,318 100,420 97,941 Other income and Deductions: Allowance for equity funds used during construction 859' 11 192 Other-net 3,602 2,339 3,003 Income tsxes (Note 3) (1,360) (1,111) (1,907) Total 3,101 1,239 1,288 Interest Charges: Interest on long-term debt 61,946 47,073 43,245 Other interest-net 2,409 3,306 1,910 Allowance for borrowed funds used during construction (822) (487) 214 Total 63,533 49,892 45,369 Net Income $ 52,886 $ 51,767 $ 53,860 STATEMENTS OF RETAINED EARNINGS For the Years ended Ihwnber 31 1988 1987 1986 (in husands) Retained Earnings, January 1 $ 178,430 $ 147,099 $ 106,837 52,886 51,767 53,860 Add-Net income ~ 231,324 198,866 160,697 Total Deduct-Cash dividends: Preferred stock 12,499 12,679 11,300 Common stock 16,507 7,749 { 2,298 Premium paid on capital stock redemption Total 29,006 20,428 13,598 Retained Eamings, December 31 (Note 7) $ 202,318 $ 178,438 $ 147,099 See Notes to Financial Statements. 35 = = _ = _ _ _ _ _ _ - _ _ _ - _ _ _ _ _ _ _ _ _ _ _ - _ - _ _ _ - _ _ _ _ - - _ _ _ -
l' l . BALANCE SHEETS l Mummppi hmr & lsght Cenpany . Assets As offkremier 31 1988' '1987 Utility Plant: Electric $1,199,705 $1,163,081 Construction work in progress 16,743 16,852 Electric plant acquisition adjustments '772 953' Total 1,217,220 1,180,886 i Less accumulated depreciation 433,258 402,065'- l ' Utility plant-net 783,962 778,821' l l i Other Property and investments: Investment in subsidiary company, at equity (Note 8) 5,531 -
- 19,444 Other 702 702
.1 Total 6,233 20,146 : 4 Current Assets: Cash and special deposits 2,728 3,014-j Temporary investments-at cost which approximates market: Associated companies (Note 4) 30,000. Other 27,380 22,274 l Total cash and cash equivalents 60,108 25,288 j Funds held by first mortgage bond trustee 60,000 j Accounts receivable: Customer and other (Note 4) 6,167 4,022 .l Associated companies 409 233 l Materials and supplies-at average cost: { Fuel oil 2,957 3,070 l Other 8,530 8,004 j Rate deferral (Notes 1 and 2) 62,808 11,765 . Other 8,592 8,715 Total 149,571 121,097 .1 1 1 Deferred Debits: Rate deferral-net of recoveries (Notes 1 and 2) 610,402 535,851 Other ' 4,981 3,489 j Total 615,383 539,340 i .I Total $1,555,149 $1,459,404 See Notes to Financial Statements. . 36
Liabilities 1988 1987 (In husands) Capitalization: Common stock, no par value (stated value $23 per share) authorized 15,000,000 shares; issued and outstanding 7,579,400 shares in 1988 and 6,275,000 shares l in 1987 (Note 5) $ 174,326 $ 144,325 l Retained earnings (Note 7) 202,318 178,438 Total common shareholder's equity 376,644 322,763 Preferred stock (Note 5): i l Without sinking fund 38,077 38,077 l With sinking fund 90,189 90,689 Long-term debt (Note 6) 568,071 483,010 Total 1,072,981 934,539 l Od>er Noncurrent Liabilities: Obligations under capital leases 6,066 6,635 Accumulated provision for property insurance 597 Total 6,066 7,232 Current Liabilities: Currently maturing long-term debt (Note 6) 150 70,150 Notes payable (Note 4) 3,490 Accounts payable: Associated companies 37,907 46,190 Other 15,352 16,614 Customer deposits 17,931 17,027 Taxes accrued 24,349 20,317 Interest accrued 18,990 16,563 Preferred dividends declared 3,129 3,144 Accumulated deferred income taxes (Note 3) 28,509 7,272 Obligations under capital leases 1,662 1,688 Other 12,472 9,165 Total 163,941 208,130 Deferred Credits: Accumulated deferred income taxes-net (Note 3) 267,297 260,496 Accumulated deferred investment tax credits (Note 3) 39,169 41,102 Other _ 5,695 7,905 Total 312,161 309,503 Commitrnents and Contingencies (Note 8) Total $1,555,149 $1,459,404 See Notes to Financial Statements. 37
STATEMENTS OF CASH FLOWS Mmuurp 1%rv 6 Light Compmy for the Years ended December 31 1988 1987 1986 (In 7housands) Operating Activities: Net income $ 52,886 $ 51,767 $ 53,860 Noncash items included in net income: Rate deferral-net of recoveries (125,293) (182,739) (223,155) Depreciation 35,945 35,151 34,672 Deserred income taxes 27,242 43,741 152,407 Investment tax credits-net (1,933) (4,858) (5,033) Allowance for equity funds used during construction (859) (11) (192) Changes in: Accounts receivable (Note 4) (2,321) 26,128 550 Materials and supplies (413) 388 (324) Accumulated provisions for losses (597) (3,154) (3,655) Accounts and notes payable (6,055) 2,492 (8,054) Customer deposits 904 1,038 1,183 Taxes accrued 4,032 (142) (53,317) Income taxes receivable 38,133 (38,133) Interest accrued 2,427 1,414 4,349 Proceeds from gas contract settlement 166 20,138 11,846 Refunds to customers-gas contract settlement (1,148) (196,273) Power purchase advance repayments 25,833 Other 2,363 8,390 (5,836) Net cash flow used by operating activities (12,654) (158,397) (52,999) Investing Activities: Construction expenditures (42,613) (38,420) (22,128) Allowance for equity funds used during construction 859 11 192 Proceeds from reduction of investment in subsidiary company 13,913 Net cash flow used by investing activities (27,841) {38,409) (21,936) Financing Activities: Proceeds from issuance of: Common stock 30,001 Preferred stock 35,000 35,000 First mortgage bonds 75,000 70,000 General and refunding bonds 75,000 Retirement of preferred stock (500) (30,000) Retirement of first mortgage bonds (60,000) Retirement of other long-term debt (150) (100) (100) Funds held by first mortgage bond trustee 60,000 (60,000) Preferred dividends paid (12,529) (11,825) (11,732) Common dividends paid (16,507) (7,749) Net cash flow from financing activities 75,315 30,326 63,168 Net increase (decrease) in cash and cash equivalents 34,820 (166,480) (11,767) Cash and cash equivalents at beginning of period 25,288 191,768 203,535 Cash and cash equivalents at end of period $ 60,108 $ 25,288 $ 191._768 Supplemental Disclosures Of Cash Flow Information: Cash paid (received) during the period for: Interest $ 58,401 $ 48,957 5 40,870 Income taxes (2,030) (36,819) (8,922) See Notes to Financial Statements. 38
NOTES TO FINANCIAL STATEMENTS Mmmspin Iw & laght compay In order to mitigate the
- 1.
SUMMARY
DF SIGNIFICANT ACCOUNTING POUCIES immediate effect upon ratepayers of the inclusion of all Grand Gulf 1-related costs in retail rates, the Revised Plan provides for a rate phase-in plan under which ponions of the Company's The Company is subject to Grand Gulf 1-related costs will be deferred through September regulation by the MPSC and the FERC and maintains its 30, 1992 and will then be collected by October 1,1998. In accounts in accordance with the Uniform System of addition, the balance of deferred Grand Gulf 1 related costs as Accounts prescribed by those agencies. of September 30, 1988, which were recorded pursuant to the Final Order on Rehearing, will also be collected by October 1,1998. The Company records By deferring costs to the revenues as billed to its customers on a cycle-billing basis, future when they will be collected through increased rates Revenue is not accrued for unbilled energy delivered at the billed to customers, the impact of the rate phase-in plan on end of the fiscal period. The rates of the Company include the statement of income has been removed. Because the fuel adjustment clauses under which fuel costs above or actual collection of revenue to recover the deferred costs below the base levels allowed in the various rate schedules will not occur until the future, the Company records a are permitted to be billed or required to be credited to deferred asset (" Rate deferral-net of recoveries"), reduces operating expenses by the amount of the deferral and customers. ca%al reNemem b der m n a na e C. Utility Plant and Depreciation imance the deferral. The carrying charges associated with Utility plant is stated at the financing of the deferral are being recovered currently original cost. The costs of additions to utility plant include from customers. contracted services, direct labor, materials, allocated E. Postretirement Benefits overheads and allowances for borrowed and equity funds used during construction. The costs of units of property The companies of the retired are removed from utility plant, and such costs plus System have various postretirement benefit plans covering removal costs, less salvage, are charged to accumulated substantially all of their employees. The pension plan is depreciation. Maintenance and repairs of property and noncontributory and provides pension benefits that are replacement and renewal of items determined to be less based on employees' credited service and average than units of property are charged to operating expenses. compensation, generally during the last five years before Substantially all of the utility plant is subject to the lien of retirement. Pension costs have been funded in accordance the Company's first mortgage bond indenture and the with contribution guidelines established by the second lien of the Company's new general and refunding Employment Retirement income Security Act of 1974, as mortgage bond indenture. amended. The costs of postretirement health care and Depreciation is computed insurance benefit plans are recorded on the cash basis. using the straight-line method at rates based on the ,,,,,,,,7,,,, estimated service hves of the various classes of property. Depreciation provisions on average depreciable property The Company joins its approximated 3.3 percent in 1988,1987 and 1986. parent and affiliates in the filing of a consolidated federal inc me tax return. Pursuant to an intra-System income tax D. m Dels allocation agreement, income taxes are allocated to the On September 29,1988,the Company in proportion to its contribution to the con-MPSC issued the Revised Plan, a modification of the Final solidated taxable income. In accordance with SEC regula-Order on Rehearing which was issued in September 1985 tions, no System company is required to pay more income and granted the Company full recovery of its Grand Gulf taxes than would have been paid had a separate income tax 1-related costs. This modification was necessary due to the return been filed. Deferred income taxes are provided for issuance of SFAS No. 92 by the FASB in August 1987. differences between book and taxable income to the extent (See Note 2A for additional details of the Revised Plan). permitted by the Company's regulatory bodies for ratemaking purposes. Investment tax credits allocated to the Company have been deferred and are amortized based upon the average useful life of the related property in a manner consistent with ratemaking treatment. In addition, the Company files a consolidated Mississippi state income tax return with certain other System companies. 39
NOTES TO FINANCIAL STATEMENTS Munmpre howr* & Loght Compmy In October 1985, the Mississippi attorney general filed a notice of appeal with the G. Ahwance For Funds Used During Construction Mississippi Supreme Court, and the Mississippi Legal In accordance with the Services Coalition filed a notice of appeal with the MPSC, Uniform System of Accounts, the Company capitalizes each giving notice of its appeal of, among other things, the AFUDC as an appropriate cost of utility plant. Under this Final Order on Rehearing. On Febraary 25,1987, the utility industry practice, construction work in progress on Mississippi Supreme Court issued a decision reversin and the balance sheet is charged and the statement of income is remanding the rate case to the MPSC for further credited for the approximate composite interest cost of proceedings not inconsistent v.ah the court's opinion. In borrowed funds and for a reasonable return on the equity May 1987, after the Mississippi Supreme Court denied the funds used during construction. This procedure is intended Company's petition for a rehearing, the Company filed an to remove the effect of the cost of financing the construc-application with the United States Supreme Court asking tion program from the statement of income and results in the court to stay the mandate of the Mississippi Supreme treating the AFUDC charges in the same manner as con-Court's decision pending final disposition of the appeal to struction labor and material costs in that each is capitalized the U.S. Supreme Court. rather than expensed. As non-cash items, these credits to On June 1,1987, the U. S. the statement of income have no effect on current cash Supreme Court granted the Company's application for stay earnings. After the property is placed in service, the of the Mississippi Supreme Court's mandate, conditioned AFUDC charged to construction is recoverable from upon the posting of a good and sufficient bond in a customers through depreciation provisions included in rates manner and amount which was to be determined by the caarged for utility service. The effective composite Mississippi Supreme Court. Later in June 1987, the AFUDC rates were 12.38 percent,7.09 percent and 7.25 Mississippi Supreme Court issued an order setting bond percent for the years 1988,1987 and 1986, respectively. which provided that the Company file an undertaking to refund past collections from September 20,1985 to June 30, H. Statement of Cash Flows 1987, such undertaking to be co-guaranteed by System The Company considers Energy and MSU. The order further provided that the all highly liquid debt instruments purchased with a Company's future Grand Gulf 1-related collections were to maturity of three months or less to be cash equivalents, be secured by System Energy placing the amount of such collections into escrow in a trust account on a monthly
- 2. RATE AND REGULATORY MATTERS basis until final resolution of the Company's appeal to the U. S. Supreme Court. The Company collected the rates A. Grand Gulf 1 Rate Order oved by the MPSC in the Final Order on Rehearing, In July 1985, Grand Gulf I subject to refund during the period the stay was in effect.
was placed into commercial operation. Pursuant to the unit On October 5,1987, the power sales agreement among System Energy and the U. S. Supreme Court decided to hear full argument of the System operating companies, as modified and approved by Company's appeal of the February 25 decision but FERC in the June 13 decision and reaffirmed by the postponed further consideration of the U. S. Supreme November 30 order,33 percent of System Energy's share of Court's jurisdiction to the hearing of the case on the the capacity and energy costs of Grand Gulf 1 was allocated merits. Oral argument was held on February 22,1988. by the FERC to the Company. The Company, thereupon, On June 24,1988,the became obligated to make substantial payments, approxi. United States Supreme Court rendered a decision reversing mately $24 milSon per month currently, to System Energy the February 25 decision of the Mississippi Supreme Court for wholesale power from Grand Gulf 1. which had held that the MPSC had impmperly granted the Following extensive Company retail rates to pay for its Grand Gulf 1-related proceedings before the MPSC with respect to the expenses without first determining that such expenses were Company's recovery through retail rates of the FERC-prudently incurred. The U. S. Supreme Court held that allocated wholesale power costs associated with Grand Gulf states may not alter FERC-ordered allocations of wholesale 1, the MPSC, in September 1985, issued its Final Order on power by substituting their own determinations of what Rehearing thereby providing the Company with full would be just and fair, that the MPSC must recognize the recovery of its Grand Gulf 1-related costs through the Company's 33 percent allocation of Grand Gulf 1 related operation of a rate phase-in plan. costs as reasonable operating expenses and that the Company is therefore entitled to continue to collect increased rates associated with the purchase of capacity and energy from Grand Gulf 1. 40
The U. S. Supreme Court's On August 12,1988, the mandate in this proceeding was issued on August 8,1988. As Company filed with the MPSC, under provisions contained a result, the judicial determination of the Final Order on in the Final Order on Rehearing, requesting modification Rehearing became final thereby allowing the Company of its rate phase-in plan such that the plan would be in thereafter to collect rates under the Final Order on Rehearing compliance with the requirements of SFAS No. 92. On not subject to refund. Further, the Company, System Energy September 29,1988, the MPSC entered an order approving and MSU were released from their respective obligations under the Revised Plan to become effective for bills rendered on the various corporate undertakings filed with the Mississippi and after October 1,1988. The Revised Plan provides, Supreme Court as part of the Company's bond arrangement among other things, for thb recovery by the Company, in with that court, and on August 11, 1988, System Energy equal twelve-month installments over the ten-year period obtained the release and return to it of the escrow deposits made beginning October 1,1988, of all Grand Gulf 1clated under the above-mentioned trust arrangement, costs defermd through September 30,1988, pursuant to the Pursuant to a briefing Final Order on Rehearing. These deferred amounts totaled schedule set b" the Mississippi Supreme Court upon receipt approximately $648.4 million at September 30,1988. of the mandate of the U. S. Supreme Court following the Additionally, the Revised Plan provides that the Company June 24 decision, the Company filed a brief on September will defer, in decreasing amounts, a portion of its Grand 20,1988, stating its view that no further proceedings were Gulf 1-related costs over the next four twelve-month necessary or appropriate in connection with this retail rate periods, commencing October 1,1988, with the total case, as all issues with respect to the Company's Grand deferrals estimated to approximate $152 million, $114 Gulf 1 and non-Grand Gulf 1 rates had been finally million, $70 million and $33 million for each such twelve-resolved. On October 20,1988, the Mississippi attorney month period. These deferrals will then be recovered by the general filed its brief with the Mississippi Supreme Court Company over the succeeding six year period ending requesting that court to remand the matter to the MPSC to September 30,1998, in accordance with the recovery determine whether savings could be realized in other areas schedule specified in the Revised Plan. It is currently to offset the Company's Grand Gulf 1 related costs. The projected that the maximum balance of deferred Grand Company opposed the remand in its reply to the attorney Gulf 1-related costs will total approximately $786 million. general's brief, which was filed on November 3,1988. In The Revised Plan further allows for the recovery by the the event that the Mississippi Supmme Court remands that Company of carrying charge on all deferred amounts on a proceeding to the MPSC, the Company believes that any current basis. subsequent review by the MPSC would not justify a The MPSC's adoption of the decrease in the Company's retail rates. Revised Plan did not effect any change in the Company's In order to mitigate the Grand Gulf 1 revenue requirements, as established and fixed immediate effect upon retail customers of the inclusion of in the Final Order on Rehearing but only addressed the all of the Company's Grand Gulf 1-related costs in retail collection mechanism for the deferral and subsequent 1 l rates, the Final Order on Rehearing provided for a rate recovery of the Company's Grand Gulf 1-related costs so as ) phase-in plan under which significant portions of the to bring the Company's rate phase-in plan into compliance Company's Grand Gulf 1 related costs were to be with the new standards of SFAS No. 92. In the event the inventoried or deferred in the early years of commercial Company is unable to finance for certain specified reasons operation of the unit and collected in the later years, all or any portion of its deferred costs on reasonable terms, Although the Final Order on Rehearing was in compliance after notice and possible hearing contesting the Company's with generally accepted accounting principles at the date of inability to finance, such costs could be reduced and the issuance, certain provisions of the rate order were not in amount of costs currently recovered from customers would compliance with the new accounting standard requimments be increased accordingly. Further, in the event of further of SFAS No. 92, issued in August 1987, including the changes to the accounting standards relating to deferral of requirement that all costs deferred under a rate phase-in costs for future collection, the Revised Plan permits the plan be recovered within ten years of the date when Company to apply to the MPSC to consider the effect of deferrals begin. During the pendency of the Company's such changes. appeal of the February 25 decision to the U. S. Supreme The Company believes, and Court, the Company continued to record its deferred has been advised by its independent auditors, that the Grand Gulf 1 related costs as assets on its books in Revised Plan satisfies the requin ments of SFAS No. 92. accordance with transition provisions contained in SFAS No. 92. 41 J
NOTCS TO FINANCIAL STATEMENTS Mmmyps 1%. & l.asht Company .In accordance with the' several procedural and legal actions were taken by the provisions of the Revised Plan, the Company implemented Company, System Enemy and the MPSC in connection an increase in rates billed to customers effective October 1, with this docket. There was no additional action taken 1988. It is estimated that this 5.33 percent increase in base with respect to'the Company in this docket unt'il . rates will increase the Company's revenues by September 1988. In connection with discussions conducted approximately $41.5 million during the period October 1, in August and September 1988 among the MPSC staff, thel 1988 through September 30,1989.. Mississippi attorney general, the Mississippi Lebal Services C alltion and the Company regarding the modification of: B. MPSC Docket No. U4900 the Final Order on Reheanng and the Revised Plan as - In September 1986, the discussed in part A of this Note, the parties agreed that MPSC issued an initial order establishing Docket No. Docket No. U-4900 should be dismissed as to the ' U-4900 din cting the opening of a multi-phased proceeding Company, and that the Company should be severed 'as a designed to obtain a comprehensive review of all aspects of party from all phases of that proceeding. On September 29, the Company's current rate requirements and the current 1988, the MPSC encered an order adopting the agreement ute structure of its affiliate and co-certificate holder in the of the parties and dismissing the Company as a party to all.- l Grand Gulf Nuclear Station, System Enegy. During 1987, phases of Docket No. U-4900.
- 3. INCOME TAXES
' Income tax expense (credit) consists of the following: 1983 1987 1986 (in &mands) Cunent: Federal 571 $ 3,725 $ (96,617) State ,151 ,,,,129 ,,, (122). Total ,,,,722 ,,,3,,854 , (9,6,739) Delerred not: Rate deferral-net of recoveries 45,587 78,578 108,676 Liberalized depreciation 10,787 6,221 8,612 Alternative minimum tax 1,013 (2,171) Federal reclassification due to net operating loss carryforward (18,806) (24,852) (35,767) State reclassification due to net operating loss carryforward (2,768) (3,864) (15,387) Unbilled revenue (6,851) (5,051) 750 Contributions in aid of construction (2,365) (330) Gas contract settlement 1,037 81,096 Engineering and design costs-delayed generating stations and proposed FERC audit adjustments (6,473) 5,361 . Other ,,,645 ,,, 6M ,, (934) Total ,,27,242 ,4,3,741 ,15,2 407 1 Investment tax credit adjustments-net ,, (1,933) ,,(4,,8M) ,,(S033,) t ' Income tax expense ,$,26,0g ,$,4,2,737 $,50,635 Charged to operating expenses 3 24,671 5 41,626 5 48,728 Charged to other income and deductions ,1,360 .,,1,1p, ,,,1,907 Total income taxes ,$,2,6 031 ,$,42,;737 S, 5,0,6p 3
l Total income taxes differ from the amounts computed by applying the statutcry federal income tax rate to income before taxes. The reasons for the differences are as follows: . 1988.. 19?7 . 19?6 ...... #" *'".""d'! % of % of % of Pre-Tax Pre-Tax Pre-Tax amount Income Amount income Amount income Computed at statutory rate $26,832 34.0 $37,802 40.0 $48,067 46.0 Increases (decreases) in tax resulting from: Depreciation (1,269) (1.6) 1,563 1.7 2,678 2.6 State income taxes - net 2,572 3.3 2,969 3.1 2,761 2.6 Investment tax credit amortization (1,645) (2.1) (1,979) (2.1) (1,732) (1.7) Gas contract settlement 975 1.0 Other - net ,,(459) , (.6) ,,1,407 ,,,,1,.5 ,,(1,139) ,,, (1,.1,) Total income taxes ,$,26,031, 33.0 ,$42,737 , 4,5.2 $50,635 ,,,4,8.4 The tax effects of the date of SFAS No. 9 to fiscal years beginning after portion of 1988,1987 and 1986 federal net operating tax December 15,1989. SFAS No. 96 expands the requirement Imses that are carried forward have been recorded as to record deferred income taxes for all temporary differences reductions of deferred income taxes. These tax losses that are reported in one year for financial reporting pur-totaling $228.8 million are available to offset taxable income poses and a different year for tax purposes. This will re-in future years and, if not utilized, will expire in the years quire the recognition of deferred tax balances for certain 2001 through 2003. items not previously reflected in the financial statements, The alternative minimum tax such as a deferred tax liability relating to AFUDC. Under (AMT) credit at December 31,1988 is $1.0 million. This the hability method adopted by SFAS No. 96, deferred tax AMT credit can be carried forward indefinitely and will balances will be based on enacted tax laws at tax rates that reduce regular income tax in the future. are expected to be in effect when the temporary differences Unused investment tax
- reverse, credits at December 31,1988 amounted to $4.9 million It is expected that reductions after the 35 percent reduction required by the Tax Reform in deferred taxes resulting from the lower corporate federal Act of 1986. These credits may be applied against federal income tax rates will be reflected as liabilities to customers income tax liabilities in future years. If not used, they will since the Company's regulator may require such savings to expire in years 1992 through 2003.
be passed on to the ratepayers. However, based on a Cumulative income tax preliminary study, the Company expects that the adoption timing differences for which deferred income taxes have not of SFAS No. 96 will result in a net increase in accumulated been provided are $4S.5 million, $66.6 million and $69.9 deferred income taxes with a corresponding increase in million in 1988,1987 and 1986, respectively. assets. Results of operations for the Company are not In December 1987, the expected to be significantly impacted by the adoption of FASB issued SFAS No. 96, Accounting for Income Taxes, SFAS No. 96. which was effectin for years beginning after December 15, 1988. In Decembt 1988, the FASB issued SFAS No.100, Accounting for Income Taxes - Deferral of the Effective Date of FASB Statement 96, which extended the effective 43
NOTES TO FINANCIAL STATEMENTS Muumpts homm & bght Compny in October 1987, the Company entered into an agreement for the daily sale of its
- 4. SRORT-TERM BORROWINGS, UNES OF CREDIT' billed and unbilled customer accounts receivable. During AND SALE OF ACCOUNTS RECEIVABLE 1988, the Company continued to sell its billed customer The Company is authorized accounts receivab!e. However, on December 30,1988, under through 1990 by the SEC under the Public Utility Holding terms contained in the agreement, the Company gave Company Act of 1935 to effect short-term borrowings in an notice of its intention to terminate this agmement effective aggregate amount outstanding at one time of up to $100 January 30,1989. On that date, the Company repurchased million, subject to incmase to a maximum of 10 percent of all of its outstanding customer accounts receivable for the Company's capitalization with further SEC approval. In approximately $32.4 million.
addition, the Company is subject to an SEC order that The Company's short-term prohibits incurrence of short-term ini
- dness if common borrowings and applicable interest rates (determined by stock equity is, or would become, less than 30 percent of dividing interest expense by the average amount borrowed) the sum of total capitalization plus short-term indebtedness.
for the years 1988,1987 and 1986 were as follows: The Comparr/s new G&R Mortgage also limits short-term borrowings to an aggregate amount not exceeding,in general, the greater of 10 percent of capitalization or 50 1988 1987 1986 percent of Grand Gulf 1 rate deferrals available to support
- "" ""#~*
the issuance of G&R Bonds (See Note 6). Maximum borrowing: As of December 31,1988, Bank loans $9,500 $10,000 the Company had lines of credit with Mississippi banks Associated companies 70,800 $50,700 totalirg 330.0 million, all of which were available at that date. Year end borrowing: $3,490 The Company also participates with certain other System companies in a Average borrowing: Money Pool arrangement whereby those companies with Bank loans S 489 $ 4,535 available funds can lend those funds to other participating Associated companies 17,050 $ 4,6?9 System companies having short-term borrowing needs. The availability of Money Pool funds at any particular point in Average interest rate: time may be limited. The Company may borrow from During the period-these sources subject to its maximum authorized level of Bank loans 8.55 % 8.11 % short-term borrowings. The Company did not make use of Associated companies 6.87 % 6.84 % short-term borrowings from the Money Pool during 1988. At end of the period 8.00 % 44
l l
- 5. PREFERRED AND COMMON STOCK Preferred stock at December 31,1988 and 1987 consisted of the following:
Shares Call Price Authorized Shares Outstanding Amount Outstanding Per Share at 12/31/88 at 12/31/88 at 12/31/87 a112/31/88 at 12/31/87 at 12/31/88 (in husands) Without sinkin0 fund ($100 per share): ( 4.36% Series 60,000 59,920 59,920 $ 5,992 $ 5,992 $103.86 4.56% Series 44,476 43,883 43,888 4,389 4,389 107.00 4.92% Series 100,000 100,000 100,000 10,000 10,000 102.88 7.44% Series 100,000 100,000 100,000 10,000 10,000 102.81 9.16% Series 75,000 75,000 75,000 7,500 7,500 104.06 Premium 196 196 Total .$79,476 378,808 378,808 $38,077 $38,0_77 Cith slektra fund ($100 per share):* 9.00% Series 350,000 350,000 350,000 $35,000 $35,000 109.00 9.76% Series 350,000 350,000 350,000 35,000 35,000 108.68 12.00% Series 95,000 05,000 100,000 9,500 10,000 109.00 16.16% Series 150,000 150,000 150,000 15,000 15,000 116.16 Discount (4,311) (4,311) Total 945,000 945,000 950,000 $90,189 $90,689 Unissued 375,000 Total 1,699,476 'These series are to be retired in full through the operation of sinking funds in accordarice with the schedule shown below. Number of Dollars Series Redemption Dates Shares per Year per Year (in husands) 9.00 % July 1,1991 and each July 1 th;reafter through 1995 70,000 $7,000 9.76% January 1,1993 and each January 1 thereafter through 1997 70,000 7,000 12.00 % March 1,1988 and each March 1 thereafter through 2007 5,000 500 16.16 % November 1,1989 and each November 1 thereafter through 2008 7,500 750 45
NOTES Tb dN/ NCIAL STATEMENTS Mmmspyi Pw & Light Chmpe,y in addition to the sinking
- 6. LONG-TERM DEST fund requirements identified in the preceding schedule, for the 12.00 percent and the 16.16 percent series, the long-term debt at Company has the noncumulative option to redeem an December 31,1988 and 1987 consisted of the following:
' additional like amount 'of said shares each year commencing in the first year of redemption for each series. 1988-1987 'In the first quarter of 1989, the Company redeemed 10,000 shares of its 12.00 percent series of preferred stock, thereby exercismg its optmn t 41/8% Series due 1988 $ 15,000 double the number of shares redeemed m accordance with 111/4% Series due 1988 45,000-the precedmg smkmg fund schedule. 151/8% Series due 1990 ' $ 30,000 30,000 In 1988, the Company sold 121/4% Series due 1992 30,000 30,000 1,.}04,400 shares of its common stock to MSU for $30.0 14.40% Series due 1992 .75,000 75,000 milh,on. There were no sales of common stock to MSU in 4 5/8% Series due 1995 20,000 20,000 r 6. 51/8% Series due 1996 25,000 25,000 The Company did not sell 6 3/8% Series due 1996 10,000 10,000 any of its preferred stock during 1988. Preferred stock sales 9 5/8% Series due 1999 20,000 20,000 of 350,000 shares totalmg $35.0 million were made m both 91/4% Series due 2000 17,500 17,500 1987 and 1986. 7 3/4% Series due 2002 15,000 15,000 The Company redeemed 7 3/4% Series due 2003 30,000 30,000 . 5,000 shares of its preferred stock for $500,000 dunng 1988 81/4% Series due 2003 20,000 20,000 i in accordance with its smkmg fund requirement. None of 9 7/8% Series due 2004 25,000 25,000 the Company,s preferred stock was redeemed m 1987. In 10 7/8% Series due 2005 25,000 25,000 - 1986,300,000 shares of preferred stock were redeemed for 141/2% Series due 2014 35,000 35,000 $ 0.0 mWmn. ,000 9 5/8% Series due 2016 70,000 70 The Company plans to proceed, subject to receipt of necessary regulatory approval, Total First Mortgage Bonds ,44,7,500 5p7,,500 with arrangements for the possible redemption, purchase or General and Refunding Bonds: other acquisition of all or a portion of certain outstanding 14.65% Series due 1993 55,000 i series of the Company's high dividend rate preferred stock. 14.95% Series due 1995 , 20,000 The series of the Company's $100 par value preferred stock Total General and Refunding - being considered for acquisition include, but may not be Bonds 75,000 limited to, the 16.16 percent series and the 12.00 percent 1 p,,,,,,,,g,,,,,,,,,,,,,,,,,,; S'"
- S' 71/4% to 81/2%
due 1989 to 1995 1,250 1,400 71/2% due 2004 9,400 9,400 81/2% due 2004 8,575 8,575 91/2% due 2012** 10,000 10,000 l 9% due 200 10,000 10,000 91/2% due 2014 ,10,000 , 10,000 ) Total Pollution Control i Revenue Bonds , 49,225 ,,49,,375 Unamortized premium on debt 609 664 j Unamortized discount on debt ,,(4,113) ,,(4,3p) j Total long-term debt 568,221 553,160 Less-amount due within one year ,,,150 , 70,150 Long-term debt excluding amount due within one year $568 071, $,4,83,,010 1.. 46
l l At December 31,1988,the annual interest rate of 11 percent, would have been approx-sinking fund requirements and maturities for long-term debt imately $118.6 million, for years 1989 through 1993 were as follows: The Company plans to proceed, subject to receipt of necessary regulatory approval, Vear Sinking Fund
- Maturities with arrangements for the possible redemption, purchase or other acquisition of all or a portion of certain outstanding 6" """'""M series of the Company's high interest rate first mortgage 1989
$2,037 150 bonds. The series of the Company's first mortgage bonds 1990 2,037 30,150 being considered for acquisition include, but may not be 1991 2,037 10,000** limited to, the 141/2 percent series due October 1,2014, 1992 2,037 105,000 and the 151/8 percent series due June 1,1990. 1993 1,987 55,000
- 7. RETAINED EARNINGS The Company's bond
- Sinking fund require-indentures relating to long-term debt provide for restrictions ments may be satisfied by certification of property on the payment of cash dividends on common stock. As of additions at the rate of 167 percent of such additions.
December 31, 1988, approximately $59.8 million of retained
- This series of pollution earnings were free from such restrictions.
control revenue bonds reaches its next fixed interest rate t CommMS AND CONmGNIES date on July 1,1991. The holders of these bonds will have the right to have their bonds repurchased by the Company g, on the above fixed rate date. The intent of the Company will be to remarket these bonds on July 1,1991. From late 1979 until As of February 1,1988, the September 1985, only a limited amount of construction was Company established a new G&R Mortgage to provide for performed on Grand Gulf 2. Effective September 18, 1985, issuances of G&R Bonds. On February 11,1988, the System Energy suspended construction activities on Grand Company issued and sold $75 million in aggregate principal Gulf 2 following an order of the MPSC. As of that date, amount of two series of G&R Bonds in accordance with Grand Gulf 2 was approximately 34 precent complete based the provisions of the G&R Mortgage. on the man-hours estimated at that time to be needed to This new indenture complete the unit. As of December 31,1988, System constitutes a second mortgage lien on substantially all of Energy had recorded approximately $905 million (including the physical properties and assets of the Company, subject approximately $401 million of AFUDC) on its balance and subordinate to the lien of the Company's first sheet as an investment in Grand Gulf 2. mortgage indenture. The terms of the G&R Mortgage In September 1983, the pmhibit the issuance of additional first mongage bonds MPSC, in Docket No. U-4387, issued a citation to show under the Company's first mortgage indenture, except for cause to the Company and System Energy to show why such first mortgage bonds as may hereafter be issued fmm they should not be ordered to adhere to representations time to time at the Company's option to the corporate allegedly relied upon by the MPSC in determining the need trustee under the G&R Mortgage to provide additional and economic justification for additional generating capacity security for the Company's G&R Bonds. in the form of the Grand Gulf Station. In January 1984, Under the terms of the the MPSC (1) limited the proceeding to relate solely to G&R Mortgage indenture, the Company may issue G&R Grand Gulf 2 and (2) ordered System Energy and the Bonds in an aggregate principal amount not exceeding 70 Company to show cause for the continued construction and percent of property additions since December 31,1987, need for Grand Gulf 2. In September 1985, the MPSC plus up to 50 percent of cumulative deferred Grand Gulf issued an order directing suspension of construction of 1-related costs recorded as an asset on the books of the Grand Golf 2, which directed System Energy and the Company, provided that the maximum amount of G&R Company to suspend construction of Grand Gulf 2 as of Bonds issuable against cumulative deferred Grand Gulf the date of the order and to formally report to the MPSC 1-related costs may not exceed 3400 millian. The G&R before the end of the year regarding future plans for the Mortgage also contains an earnings coverage test requiring a unit. As an addendum to the order, the MPSC advised the minimum earnings coverage (except for certain refunding Company and System Energy that it was the MPSC's issues) of twice the pm-forma annual bond interest charges position at that time that any potential plan for recovery for the issuance of additional G&R Bonds. The maximum by the Company of " sunk costs" in Grand Gulf 2 through amount of additional G&R Bonds issuable at December 31, retail rates was unjustifiable. 1988, based on this earnings coverage test and assuming an 47
NOTES TO FINANCIAL STATEMENTS Mmmspre Power & Lught Company Since September 1985, In the event that System following the suspension order of the MPSC in Docket No. Enemy were ultimately to seek recovery of Grand Gulf 2 U-4387, System Energy has limited expenditures on the unit costs, System Energy would likely be required to make a to only those activities which are necessary for demobiliza-filing with the FERC requesting such recovery over a tion and suspension of the unit. A special group of System period of years through charges to the System operating officials and outside consultants completed in late companies. The System operating companies would in turn November 1986 its evaluation and review of Grand Gulf 2. be required to file applications with state or local regulatory Among the possibilities evaluated were (1) immediate authorities to recognize the FERC-allocated Grand Gulf 2 resumption of construction of the unit,(2) cancellation of chages in retail rates. In view of the controversies over the the unit,(3) continued suspension of construction Grand Gulf Station, including the adverse reaction of of the unit through 1989 or beyond and (4) conversion of various rate regulatory bodies to allocation of costs, the unit to an alternative fuel source. In December 1986, regulatory uncertainties, including ratemaking, attendant to System Energy's Board of Directors (with the MSU Board a delay in the decision as to the future of Grand Gulf 2 of Directors concurring) adopted the group's recommenda-and imprudence issues, there can be no assurance that the tion that suspension of construction be continued and that cost of Grand Gulf 2 will be recovered or as to the timing a further decision be made by 1990 on the future status of of any recovery. As was the case with Grand Gulf 1, Grand Gulf 2 in light of alternatives available at that time, proceedings before the FERC and, with respect to recogni-During the period of tion in retail rates of FERC-approved rates, before state or suspension, System Energy's expenditures on Grand Gulf 2 local regulatory authorities could be protracted and strongly have continued to be limited, and System Enegy during contested on various grounds, including imprudence. If this time has not accrued AFUDC on its investment in the costs associated with Grand Gulf 2 were allocated to the unit. Consequently, during the suspension period, System System operating companies and they were unable to Energy has foregone any return on this investment. recover these costs from their customers, the System Further, System Energy has previously indicated that it has operating companies' financial condition could be no intention, prior to a further decision on the status of materially and adversely affected. Any nonrecovery of Grand Gulf 2, of seeking FERC approval for the recovery System Energy's investment in Grand Gulf 2 would result through charges to the System operating companies of its in a charge against current income for any unrecoverable in-investment in the unit, vest, ment when that event becomes probable. In the event System Energy is continuing such a charge was substantial, the financial condition of to evaluate various alternatives for the future of Grand Gulf System Energy could be materially and adversely affected 2 and to assess wbther the equipment and facilities con-and System Energy's ability to pay dividends on its structed and acquirel to date should continue to be carried common stock could be impaired. at their full cost. In this connection, in 1989, System Failure to obtain rate relief Energy will analyze the future status of Grand Gulf 2, for all or a substantial portion of the cost of Grand Gulf 2 including an evaluation of various possibilities similar to could have a material and adverse effect upon the financial those studied in 1986. Any determination that the value of condition of System Energy, MSU and possibly the System System Energy's investment should be reduced and the operating companies, depending upon, among other things, amount of any such reduction written off could adversely the timing of the realization of any such loss. affect various companies in the System. Certain issues In January 1988, the FERC relating to the value of System Energy's investment in issued an order which modified its policy regarding Grand Gulf 2 also exist in connection with an audit by the recovery of cancelled or abandoned plant cces by utilities FERC of System Energy and the Grand Gulf Station. subject to its jurisdiction. The revised policy provides for a While System Energy "50/50 sharing" of prudently incurred costs of a cancelled believes that all of its investment to date in Grand Gulf 2 plant between the owner and the ratepayers, whereby 50 has been prudent, in connection with any further decision percent of the prudently incurred costs of the cancelled as to the value of Grand Gulf 2 or the ultimate decision plant would be amortized and recovered from ratepayers with respect to the future of Grand Gulf 2, System Energy over the expected life of the plant as if it had been will, at an appropriate time, make a determination as to the completed. The currently unamortized portion of such appropriate recovery of all or a portion of its investment, amount would also be included in rate base, thereby including, in the event of cancellation of the unit, the allowing for a return thereon. The remaining 50 percent of possibilities of seeking recovery. In making such determina. prudently incurred costs would be written off. In May tion, System Enemy will consider, among other things, the 1988, the FERC denied requests for rehearing pertaining to regulatory environment generally, legal standards then that portion of its January 1988 order which adopted the applicable, and the anticipated financial, regulatory and "50/50 sharing" methodology, and the FERC's order is political effects upon System Energy and the other System now final. companies of various alternatives. 48
l In December 1986, the agreed to sell all of the capacity and enemy available to it FASB issued SFAS No. 90, Regulated Enterprises - from Grand Gulf 1 and Grand Gulf 2 to the Company, Accounting for Abandonments and Disallowances of Plant LP&L, and NOPSI in accordance with percentages specified Costs, an amendment of SFAS No. 71. SFAS No. 90 therein, which conformed with the percentages set forth in requires among other things, that, when abandonment of a the reallocation agreement, as discussed in part D of this plant becomes probable, the costs of such plant in excess of Note below. The unit power sales agreement was, with cer-the present value of estimated recoveries through rates with tain modifications, approved by the FERC in its June 13 respect thereto, net of related tax benefits, shall be reported decision and ordered to become effective upon the initia-by recording a charge against current income. The tion of service of Grand Gulf 1, which occurred on July 1, l provisions of SFAS No. 90 would apply should System 1985. In the June 13 decision, capacity and enemy from Energy decide to cancel Grand Gulf 2 or should cancella-Grand Gulf 1 and the cost thereof was allocated as follows: tion of Grand Gulf 2 become probable. the Company,33%; AP&L,36%; LP&L,14%; and NOPSI, 17%. In its June 13 decision, the FERC did not rule on the
- 8. Capital Requirements and Financing allocatmn of Grand Gulf 2 and ordered System Energy to Deferred purchased power remove the proposed Grand Gulf 2 percentage allocation costs in connection with the Company's rate phase-in plan from the unit power sales agreement.
were approximately $125.3 million, $182.7 million and The unit power sales $223.2 million in 1988,1987 and 1986, respectively. agreement, as currently in effect, specifies the rates to be The Company estimates its charged to the System operating companies for their respec-1989 1991 capital and financing requirements to be as tive entitlement to receive capacity and energy from Grand follows: Gulf 1. Such rates are computed monthly on the basis of System Energy's total cost of service based on System Energy's operating expenses, depreciation and capital costs Description 1989 1990 1991 Total attributable to the unit for the month. Such rates are paid in consideration for the respective entitlement of such (In ud/mm) companies to receive such capacity and energy, and are Rate phase-in plan payable irrespective of the quantity of enen;y delivered so requirements $76.1 $39.1 $ (4.9) $110.3 long as such unit remains in commercial operation. The Construction expenditures 51.2 50.5 51.5 153.2 Company's monthly obligation for payments to System Maturities of long-term Energy for Grand Gulf 1-related capacity and energy debt (1) 30.2 0.2 0.0 30.4 charges is approximately $24 million. Preferred stock sinking On November 30,1987, fund requirements 1.3 1.3 8.3 10.9 after a series of rehearings, reversals and reconsideration, the FERC, in its November 30 order, reaffirmed and reinstated the June 13 decision, thus maintaining the (1) Assumes the early redemption, in 1989, by the Company previous allocation of Grand Gulf I capacity and energy of its 151/8 percent series of first mortgage bonds due June among the System operating companies. In issuing the 1,1990, in the amount of $30.0 million. November 30 order, the FERC found that the allocation in The Company presemly the June 13 decision was not unduly discriminatory. estimates that approximately $76.2 million of the above Various parties filed requests for rehearing of the November capital and financing requirements will be externally 30 order and by order dated January 29,1988, the FERC financed during the period 1989-1991. The Company's denied such requests. Petitions for review of the FERC's present plan is to obtain these necessary externally November 1987 and January 29,1988 orders have been generated funds through the utilization of short-term filed with the D. C. Circuit by various parties. The APSC borrowings and such other securities and such other and other Arkansas and Missouri parties are attempting to methods of obtaining necessary funds as may be determined raise again the issue of FERC jurisdiction to allocate to be available and appropriate. capacity and energy and related costs to AP&L. A motion
- "Y *.
C. Unit Power Sales Agreement and Grand Gulf 1 Prudence the FERC. The D.C. Circuit ordered that the jun. dictional s In June 1982, System Energy issue be referred to the panel of judges which will decide and the System operating companies entered into a unit this appeal on the merits, and that the parties are not to power sales agreement pursuant to which System Energy further brief the jurisdictional issue. Oral argument is scheduled for May 8,1989. 49
N,0TES TO FINANCIAL STATEMENTS Mwwspre Prmer & Lught Company It is not possible to predict to Grand Gulf 1 that might be made before the FERC and the uhimate outcome of this matter, including possible believes that its investment in Grand Gulf I was prudently reallocation, if any, of Grand Gulf 1-related costs or the incurred. effect thereof upon the Company, the other System
- p. Availatillity and Reallocation Agreements operating companies and System Energy, meludmg poss.ble i
refunds, if any. Any material modification of the allocation The availability agreement established by the June 13 decision could give rise to addi-was entered into among System Energy and the System tional litigation, disputes and challenges in the affected operating companies in 1974 in connection with the finan-jurisdictions, cing by System Energy of the Grand Gulf Station and On February 4,1988, after a provided that System Energy would join in the agreement lengthy prudence investigation, which was vigorously among the System operating companies with respect to the contested by NOPSI, the Council adopted a resolution that sharing of generating capacity and other capacity and required NOPSI to write off, and not recover from its retail energy resources on or before the date on which Grand electric customers, $135 million of its previously deferred Gulf 1 was placed in commercial operation, and that Gmnd Gulf 1-related costs in addition to the $51.2 million System Energy would make available to the System of such costs that NOPSI absorbed as part of its rate settle-operating companies all capacity and energy available from ment with the Council in March 1986. The consequences System Energy's share of the Grand Gulf Station. of the resolution, so long as it remains in effect, are that The System operating NOPSI's ability to effect long or shon-term external bor-companies are severally obligated to System Energy under rowings or to satisfy potential obligations to purchase all or this agreement in accordance with stated percentages (the a portion of its outstanding general and refunding mortgage Company 31.3 percent, AP&L 17.1 percent, LP&L 26.9 bonds will continue to be significantly and adversely percent, NOPSI 24.7 percent) to n. he payments or affected and NOPSI could ultimately be rendered insolvent. subordinated advances at least equal to System Energy's Insolvency of NOPSI, total operating expenses, including depreciation and interest should it occur, could, under certain of SFPs financing charges. agreements and leases, require payments by the Company As discussed in part C of and the other System operating companies or MSU in the this Note, a separate unit power sales agreement has been event SFrs obligations under such agreements are entered into among System Energy and the System accelerated as a result of the insolvency of NOPSI, and in operating companies under which the allocation percentages the event that SFI is unable to meet these obligations or to for sales of capacity and energy from Grand Gulf 1 have otherwise satisfy these obligations through the sale of col-been changed. However, the allocation percentages under lateral securing such obligations. In addition, insolvency of the availability agreement remain in effect and would NOPSI could affect the terms of financing, including an govern payments made thereunder in the event of a short-increase in the cost of financing, or could preclude financ-fall of funds available to System Energy from other sources, ing for other System companies. including payments by the System operating companies to As discussed in Note 2A, System Energy under the unit power sales agreement. the U.S. Supreme Court's June 24 decision affirmed the Based on the June 13 principle that various matters regarding the prudence of decision which was affirmed by the November 30 order, as Grand Gulf 1 are within the FERC's exclusive jurisdiction. discussed in part C of this Note, amounts that have been In this connection, representatives of certain governmental received by System Energy under the unit power sales agree-bodies, including the MPSC, the Mississippi attorney ment have exceeded the amounts payable under the general, the Arkansas attorney general, the LPSC and the availability agreement, and consequently, no payments Council, have publicly stated that they are considering under the availability agreement by the System operating whether to retain a consuhing firm that would develop companies have ever been uguired. l information regarding the construction and operation of In November 1981, the SEC Grand Gulf 1 that may be used to approach the FERC authorized the Company, LP&L and NOPSI to enter into a l with a request to open a prudence proceeding. The System realk> cation agreement which would indemnify AP&L cannot predict whether any consulting firm will be against, among other things, its responsibilities and obliga-retained for this purpose, whether any proceeding before tions with respect to the Grand Gulf Station contained in the FERC regarding Grand Gulf 1 prudence issues will be the availability agreement and the assignments thereof. initiated or in what context any prudence issues might Under this reallocation agreement, the Company, LP&L arise. However, the System would vigorously defend and NOPSI wuld have assumed all of the responsibilities against any possible allegations of imprudence with respect and obligations of AP&L with respect to Grand Gulf 1 and Grand Gulf 2 under the availability agreement and the assignments thereof, and in consideration thereof, AP&L would have relinquished its rights to capacity and enen;y 50
from those units. Each of the System operating companics, articulated by the Fifth Circuit, whether the defendants are including AP&L, however, would have remained primarily entitled to summary judgment as a matter of law. The liable to System Energy and its assignees for payments District Court was directed, if it makes such a determina-under the availability agreement and the assignments tion, to provide a detailed analysis supporting its thereof. AP&L would have been obligated to make its share conclusions that would facilitate judicial review. of the payments or advances under the availability agree-Alternatively, the Fifth Circuit noted, the District Court ment and the assignments thereof if any other System could decline to rule on the defendants' motion for operating company were unable to meet its contractual summary judgment until further development of the case obligations. However, the FERC's June 13 decision has taken place and the issues have been narrowed through allocating a portion of Grand Gulf 1 capacity and energy to the available pre-trial techniques. On September 6,1988, AP&L and the November 30 ord supersede the realloca-MSU and certain other System companies and individual tion agreement insofar as it relates to Grand Gulf 1. defendants filed a petition for a writ of certiorari with the United States Supreme Court. On October 31,1988, the E. Shareholder Litigation U.S. Supreme Court denied this petition. Based upon the M5U, certain other System Fifth Curcuit's decision, the District Court allowed the companies, including the Company, and individuals are parties to rebrief the motion for summary judgment and, defendants in a purported consolidated class action suit. on January 17,1989, the System defendants filed a renewed The initial complaint was filed on August 19,1985 by an motion for summary judgment and a verified answer to the MSU shareholder (purporting to represent a class which consolidated, amended and supplemental complaint. The purchased MSU common stock). Four similar complaints District Court has scheduled the trial to commence on were filed on August 20,1985, August 23,1985, September March 12,1990. The outcome of this matter and its impact 6,1985 and September 19, 1985, respectively, by on the Company's financial condition cannot be predicted. shareholders of MSU (purporting to represent classes which The matter is pending. purchased MSU common stock). The five actions were D***'" consolidated in the District Court. The consolidated, amended and supplemental complaint alleges violations of The Company has a 19 the disclosure requin ments of the Securities Exchange Act percent interest in SFI, a jointly-owned subsidiary of the of 1934 and the Securities Act of 1933, common law fraud four operating companies (the Company, AP&L, LP&L, and common law negligent misrepresentation in connection and NOPSI) of MSU. SFI operates on a non-profit basis for with the financial condition of MSU and prays for compen-the purpose of implementing certain programs for the satory and punitive damages, legal costs and fees and other procurement, delivery and storage of fuel supplies for the I proper relief against MSU, System Energy, LP&L, the System operating companies and System Energy. SFI's costs Company, AP&L and NOPSI; certain of the members of are primarily recovered through chaq;es for fuel delivered. MSU's Board of Directors; certain officers and former The parent companies of officers of MSU, System Energy, LP&L, the Company, SFI had agreed to make loans to SFI to finance its fuel AP&L and NOPSl; the independent auditor of MSU and supply arrangements under a loan agreement dated January certain underwriters of MSU common stock. On March 14, 4,1978, as amended through December 31, 1983. At this 1986, the plaintiffs in the consolidated action filed a mo-time, no future loans may be made to SFI by the parent tion for class action determination. On April 18,1986, companies. During 1988, SFI repaid loans from the MSU and cert:in other System companies and individua! Company in the amount of approximately $13.9 million, defendants (System defendants) filed a motion to dismiss or, resulting in remaining loans to SFI at December 31,1988, in the alternative, a motion for summary judgment. On of approximately $5.5 million under the above loan agree-January 12,1987, the District Court entered a judgment ment which matures in the year 2008. granting defendants' motions for summary judgment and in connection with certain dismissed the suit. On February 6,1987, the plaintiffs in of SFI's outside borrowing arrangements, SFI's parent the consolidated action fded a notice of appeal with the companies, including the Company, have covenanted and i l Fifth Circuit. On June 7,1988, the Fifth Circuit rendered a agreed severally in accordance with their respective shares of l decision vacating the judgment of the District Court, based, ownership of SFI's stock, that they will take any and all in part, on the conclusion that the District Court had not action necessary to place SFI in a position to discharge, and adequately explained the bases for its decision. In remand-to cause SFI to discharge its obligations under these arrange-l ing the case to the District Court for further proceedings, ments. At December 31,1988, the total loan commitment the Fifth Circuit sun;csted that the District Court could again consider the merits of the defendants' motion for summary judgment and determine, with the benefit of certain guidelines as to the interpretation of governing law S1
NOTES TO FINANCIAL STATEMENTS Mmmmp Pow & Lsght Cwee,y under these arrangements amounted to approximately $105 H. February 1989 Ice Storm million of which approximately $43.5 million was outstand-In early February 1989, ing at that date. Also, SFI's parent companies, including the a severe ice storm was experienced over a large portion of Company, have made similar covenants and agreements in the Company's service area. This storm caused one of the connection with long-term leases by SF1 of oil storage and longest and most extensive outages in the Company's handling facilities and coal cars. At December 31,1988, the history as ice felled tree limbs, power lines and poles. The aggregate discounted value of these arrangements was peak number of Company customers without power was approximately $70.6 million. reached on February 7 and totaled approximately 93,000. Company crews, as well as G. Gas Contract Litigation crews from neighborm.g utlh.. ties and other contracted crews In January 1987, and worked steadily under adverse conditions to restore service February 1988, United submitted invoices to the Company to customers during the days following the storm and by for approximately $24 million and $100 million, February 13, 1989, all customers were returned to service. respectively, for amounts allegedly owed United for the The Company estimates that Company's failure to take certain volumes of gas during costs associated with the restoration of electric service 1986 and 1987 under a take or pay provision in a gas sales following this storm may approximate $5 million. Pursuant contract, which expired December 31,1987. The Company to a June 1985 order of the MPSC, the Company is of the opinion that it does not owe these bills, because completely amortized its storm damage reserves by July United was overcharging the Company for gas deliveries 1988. Consequently, at the time of this storm, the during 1986 and 1987. Accordingly, in February 1987, the Company had no storm damage reserves to be applied Company filed a declaratory judgment suit against United against the costs associated with this ice storm. The seeking an adjudication and declaration of rights that it is accounting treatment given to these costs will be dependent not required to pay United for any gas not actually received on the regulatory treatment given to this situation by the during 1986 ard 1987 by the Company, and that the MPSC. Company is excused from any obligation to take gas from
- 9. TRANSACTIONS WITH AFFILIATES Umted so long as Umted continues to overcharge the Company for gas. This suit was amended by an order of the court on March 25,1988, to include usues raised by United's second invoice. On April 18, 1988, United filed its The Company owns 25 amended answer and counterclaim for the amount of the percent of ISES, a two-unit, coal-fired generating station 1987 and 1983 bills, plus interest, costs and attorney's fees.
located near Newark, Arkansas. AP&L owns 31.5 percent The time for discovery in this case ended on June 30,1988. of the station and operates the facility. The Company The MPSC has intervened in opposition to United in this records its investment in and expenses associated with this action. station to the extent of its ownenhip and participation. The In the event that the court Company's investment in ISES at December 31,1938, was holds that United did not overcharge the Company during approximately $226.4 million, less accumulated depreciation 1986 and 1987 and that a deficiency occurred in the of $38.6 million. amount of gas taken by the Company during those years In August 1984, the after all credits have been applied, it would be the Company and AP&L entered into a unit power purchase Company's intention to pay United for the deficiency and agreement for the Corapany's purchase of AP&l's capacity ask the court to allow it te take the gas paid for during the and energy from ISES Unit 2 for a five-year term, which year following any such final judicial ruling. In addition to will end in December 1989. In October 1984, the LPSC the questions of whether the Company was excused from filed a complaint with the FERC requesting that the unit its obligation to United under the gas sales agreement in power purchase agreement be declared null and void on the 1986 and 1987, and whether or not United overcharged the grounds, among others, that the agreement was uniust, Company under the agreement, the court will address issues unreasonable, unduly discriminatory or preferential against such as (1) the amount of any credits available to the LP&L and NOPSI. In an order entered September 23, Company under the agreement,(2) the method of calcula-1988, the FERC, finding no merit in the LPSC's conten-tion, the timing and the manner of any payment due to tion that the unit power purchase agreement was unjust, United and (3) the method of accounting for takes of gas unreasonable, unduly discriminatory or preferential, after payment under the agreement. The matter is pending. declined to declare the unit power purchase agreement null and void. The FERC also ordered that the System operating companies file with the FERC copies of all future long-term (meaning five years or longer) contracts executed under the System Agreement on an informational basis. 52
Any interested pany to such long-term contract may file a investment in the equipment and facilities of the mine to complaint with the FERC with respect thereto. Based upon the extent of its ownership interest. The Company's invest-the complaint, or its own investigation, the FERC may ment in the coal mine equipment and facilities at institute further proceedings with respect to the long-term December 31,1988, was approximately $15.8 million, less contracts. The FERC further ordered that the docket is accumulated depreciation of $3.9 million. ermbated. B. Other Affiliated Transactions The Company owns certam coal mining equipment and facilities at the North Antelope The Company buys from Coal Mine which is located near Wright, Wyoming. The and/or sells electricity to the other operating subsidiaries of low-sulphur coal produced at this mine is dedicated MSU (including System Enen;y) under rate schedules filed exclusively to ISES and the mine's estimated reserves are with the FERC. In addition, the Company purchases fuel presently expected to provide for at least 30 years of the from SFI and receives technical and advisory services from projected requirements of ISES. The Company records its SSI. 1988 1987 1986 (In %mns) Ravenuos: Power sold to the System $ 50,701 $ 42,821 $ 80,925 Purchased Power Expenses: Power purchased from the System (excluding Grand Gulf 1) 75,094 82,546 86,233 Power purchased from System Energy (Grand Gulf 1) 308,346 317,519 316,713 Power purchased from System Energy (Grand Gulf 1-deferred) (125,293) (182,739) (223,155) Fuel Expense: Fuel purthased from SFI 24,231 21,973 33,610 Othor: Technical & advisory services purchased fmm SSI 13,235 13,532 12,003
- 10. POSTRETIREMENT BENEFITS The Company's pension
- I##"
The companies of the System have various postretirement benefit plans covering Year Amount substantially all of their employees. The pension plans are noncontributory and provide pension benefits that are
- " *"*5l based on the employees' credited service and average 1988
$(1,2651* compensation, generally during the last five years before 1987 (893)* retirement. The policy of the Company is to fund pension 1986 4,895 ** costs in accordance with conuibution guidelines established by the Employment Retirement Income Security Act of
- Includes $(250) pertaining 1974, as amended.
to the amortization of the special early retirement program offered in 1985. m, The pension plans are adm, istered by a trustee who is responsible for pension The Company's 1988 payments to retirees. Various investment managers have and 1987 pension cost (income) included the following responsibility for management of the plans assets. In components: addition, an independent actuary performs the necessary 1988 1987 actuarial valuations for the individual company plans. Service cost-benefits carned during the period $ 2,020 $ 2,253 Interest cost on projected benefit obligation 5,938 5,521 Actual return on plan assets (10,654) (4,718) Net amortization and deferral ,1,68,3,, (3,,699,) Net pension cost (income) ,$,(1,(113) $,(643) 53
.l l NOTES TO FINANCIAL STATEMENTS : Mumuppe how & bght Company. The assets of the plan The cost of providing these benefits for retirees is not - consist primarily of common and preferred stocks, fixed separable from the cost of providing benefits for active l Lincome securities, interest in a money market fund, and employees. The total cost of providing these benefits and j ' insurance contracts.' the average number of active employees and retirees for the -I The funded status of the last three years were as follows-Cottpany's pension plan was as follows at December 31: 1 1988 1987 '1986 i '1880 1987 k$tal cost of health and kife
- nsurance (in thousands)
$2,899 $2,212_ $2,572** On hud> Number of active employees
- 1,585 1,512 2,431**
Actuanal present value of accumulated Number of retirees 344 - 391-375 pension plan benefits: Vested $ 54,457 $ 51,924 Nonvested ,,,4p4,, 3,400
- Figures for 1986 include Accumulated benefit obligation
$ 59,431 $ 55,:324 employees assigned to and costs allocated to System Energy. Effective January 1,1987, approximately 950 employees of ~ Plan assets at fair value $ 90,454 $ 87.124 the Company transferred to System Energy. The related Projected benefit obligation ,,72,,104, 66,9E pension liabilities and estimated assets as of that date of Plan assets in excess of projected $4.4 million and $19.1 million (including accrued arnings benefit obligation 18,350 20,177 thereon), respectively, were transferred to a postxtirement; Unrecognized transition asset (16,254) (17,504) benefit plan administered by MSU. Unrecognized prior service cost. 1,350 Unrecognized net gam ,,(5.252),,(5,492) Accrued pension liability S y,806) $,(2,83) Unaudited operating results by quarters were as follows: Transition assets are being Quarter Er.ded amortirehve. the greater of the remaining service period March...... June September December' of aCtlVc participants or 15 years. Assumptions used in the gn mua; actuarial calculations were as follows: 19st Operating 1988 1987 revenues $150,933 $ 1,805 $205,787 $175,022 Operating Weighted average discount rate 9.0% 9.0% income 26,961 21,691 38,260 26,406 Rate of increase in future compensation 5.6% 5.6% Net income 12,514 6,161 22,825 11,386 - . Expected long-term rate of return on r 8.5% 8.5% 1987 plan assets Operating revenues $134,011 $148,048 $184,105 $154,672 The Company provides Operating certain health care and life insurance benefits for retired income 20,578 21,315 36,354 22,173 . employees. Substantially all employees may become eligible Net income 8,664 8,824 24,058 10,221 for these benefits if they reach retirement age while still employed by the Company. These and other similar benefits for active employees are provided through The business of the payments of premiums and fees to insurance companies. Company is subject to seasonal fluctuations with peak periods occurring during the summer months. Accordingly,. earnings information for any three-month period should not be considered as a basis for estimating the resuhs of operations for a full year. 1 1 $4
, / RECORD OF PROGRESS 19841988 { n,.,n em s t+ om,,,y 'l Selected Financial Data (000's Omitted) i 1988 1987 1986 1985 1984 j .j Electric Operating Revenues: l ' Residential ' $ 258,378 $ 240,867 $ 246,150 $ 207,738 $ 186,296 ') L ' Commercial 195,451 175,418 178,240 152,007 -134,276 Industrial 134,378 121,999 125,133 113,044 106,924 j ' Governmental & municipal 21,143 22,001 22,947 19,480 17,694 Cooperatives & municipalities 4,189 - . Total from energy sales (Mississippi area) 609,350 560,285 572,470 492,269 449,379 ~ Sales to other public utilities 60,772 48,310 90,411 104,384 73,218 Total from energy sales 670,122 608,595 662,881 596,W 522,597 ] Miscellaneous revenues 12,973 12,129 10,302 6,100 10,422 -l . Deferred fuel adjustment revenues 452 112 765' 2,376 (1,092) i Total electric operating revenue $ 683,547 $ 620,836 $ 673,948 $ 605,129 $ 531,927 Net income $ 52,886 $ 51,767 5 53,860 $ 50,913 $ 48,333 l ' Total Electric Utility Plant: Production $ 575,320 $ 573,379 $ 572,828 $ 572,646 $ 572,938 Transmission 270,655 255,010 248,675 247 476 218,383 l Distribution 310,964 296,305 281,036 267,162 256,146 General & other 38,798 34,449 26,721 25,383 40,233 Total utility plant completed 1,195,737 1,159,143 1,129,260 1,112,667 1,087,700 Plant held for future use 3,968 3,938 3,939 3,939 3,939 Construction work in progress 16,743 16,852 3,947 2,365 16,643 E'ectric plant acquisition adjustments 772 953 1,135 1,317 1,498 Total atility plant $1,217,220 $1,180,886 $1,138,281 $1,120,288 $1,109,780 7btal Assets $1,555,149 $1,459,404 $1,453,172 $1,332,482 $ 93fi,220 Rate Deferral-Net ofRecoveries (Asset) $ 673,210 $ 547,616 5 364,234 $ 146,608 ' Long-term Debt S 568,071 $ 483,010 $ 468,156 $ 401,065 $ 369,200 Preferred Stock, WitI/ Sinking fun.1 $ 90,189 $ 90,689 $ 56,193 $ 54,802 $ 55,000 I 55
[.; (s t REC 090 0F PROGRESS 19641988 Mmmspri1%uer 6 Light Compmy i Selected Financial Data (000's Omitted) 1988-1987 1986 1985 1984 . Other Data? - Electric Energy Sales (MKWH): Residential 3,429,923 3,365,404 - 3,336,542 3,191,980 3,051,947 ' Commercial. 2,602,871 2,440,477 ~~2,412,868 2,318,724-2,172,115 - Industrial 2,227,588 2,081,977 2,009,932 2,018,793 2,085,639 Governmental & municipal 291,328 329,071 337,557 323,269 315,885 Cooperatives & municipalities 94,295 Total energy sales (Mississippi area) 8,551,710 8,216,929 8,096,899 7,852,766 7,719,881 Sales to other public utilities 1,350,855 966,351 2,389,355 2,272,493 1,605,347 Total electric energy sales 9,902,565 9,183,280 10,486,254 10,125,259 9,325,228 Electric Customers (End of Period): Residential 291,137 288,577 285,400-282,043 276,586 Commercial 42,660 42,095 41,308 41,016 40,290 Industrial 3,490 3,425 3,461 3,411 3,387 Governmental & municipal 2,711 2,683 2,636 2,526 2,448 Cooperatives & municipalities Total customers (Mississippi area) 339,998 336,780 332,805 328,996 322,711 , Other public utilities 2 2 2 2-2 ' Total electric customers 340,000 336,782 332,807 328,998 322,713 Energy Source and Disposition (MKWH): Total generation 4,619,983 4,583,486 6,826,689 6,471,405 6,724,724 Purchased and net interchange 6,138,223 5,376,143 4,372,089 4,435,969 3.,294,151 Total 10,758,206 9,959,629 11,198,778 10,907,374 10,018,875 Less: Company use, losses and unaccounted for 855,641 776,349 712,524 782,115 693,647 Total energy sold 9,902,565 9,183,280 10,486,254 10,125,259 9,325,228 Net Input (Mississippi area)--NKWH 9,407,351 8,993,278 8,809,423 8,634,881 8,413,528 . Peak Load (Mississippi arca)-KW 2,062,000 2,037,000 2,132,000 1,858,000 1,758,000 Load Factor (Mississippi area)-Percent 52 50 47 53 54 Net Plant Capacity-KW ' 3,136,000 3,136,000 3,136,000 3,136,000 3,183,000 ' Circuit Niles ofElectric Eines 23,231 20,284 20,016 19,871 19,578 . 56
OFFICERS Mmmspfn Iterv & rsght Company 4 i OFFICERU j 5 c Donald C Lutken s; Chairman of the Board [ & Chief Executive Officer g. Michael & Bemis f President & Chief Operating Officer George A. " Pat" Goff Senior Vice President, Chief Financial Officer & Corporate Secretary f Bill E Cossar ^ Vice President g, Public Affairs Frank E Gallaher ~ Vice President and Chief Engineer Robert C li>flin Jr. Vice President DIVISION DIREC1DRS MP&L offcers are: (first row, ir) Menaet James L. Afoore Vice President James S. Pilgrim B. Bemis. Donald C. l Corp. Communications Northern, Grenada Lurken and George A. GoM. e nd C Hiram Walters John E. Sherrod l Vice President Central, Jackson C. Hiram watters, Customer Services Graham H. 7i,npel Frarik F Gallaher and James E. Cofer Southern, Brookhaven James L. Moore; (third row. Fr) Robert ,l**' C. Loflin Jr., James R. PLANT MANA;lERS James R. Martin Martin, James E Cofer and Allan H. \\ Controller & Malcolm A. Alfred Assistant Secretary Baxter Wilson, Vicksburg Allan H. MaPP L. Otis Dewcase Assistant Treasurer Natchez, Natchez & Assistant Secretary A.I]ohnwn Rex Brown, Jackson Alan J. Schren Gerald Andrus, Greenville Rex M. Shannon Delta, Cleveland 57
BOARD OF DIRECTDRS Mmmspp Mer & lsght Compmy BOARD OF DIRECTORS Jerry L. Maulden*
- In February i
Chairman of the Board 1989, the MP&L Board of MichaelR Bemis & Chief Executive Officer Directors elected Jerry L i Arkansas Power & Light Maulden as chairman of the Chie perating Officer Little Rock - board and chief executive Mississippi Power & Light Richard D. McRae Sr. officer effective April 1. He Jackson Chairman of the Board will succeed Donald C. f Dau.d C Bramlette 1/I & Chief Executive Officer Lutken who will retire I Attorney-at-Law McRae's,Inc. (Dept. Stores) from active status but who Adams, Forman, Truly, lackson will continue to serve on Ward, Smi h & Bramlette the board as c1iairman Natchez John N. Palmer Sr. Chairman of the Board emeritus. James a Cun/>M Mobile Telecommun. Maulden's - Chairman of the Board electi n resulted from the ication Technologies (Mtel) & President broader responsibility that Jackson MISSCO Corporation he assumed in December as E.R Roln.ns n Jr. Jackson senior vice president and i f the Boap system executive of Middle i a man Frank R. Day & Chief Executive Officer Chairman of the Boad South Utilities, Inc., with I & Chief Executive Officer Deposit Guaranty responsibility fur operations I National Bank Trustmark Natl. Bank in Mississippi, Arkansas and I Jackson Missouri. i Jackson John O. Emmerich Jr. Dr. Wajter Washington The newly P'"d#"* elec ;d MP&L chairman Publisher / Editor Alc rn State Um.vemty joined the Middle South The Commonwealth l"m *" Greenwood Electric System in 1965 and Robert M. Williams Jr. has held management posi-Norman R Gillis Jr. Partner tions in both New Orleans Attu ney-at-Law Reeves-Williams Builders and Little Rock. Maulden is Gillis & Gillis S uthaven a former president and McComb ?. chief executive officer of Robert E. Kennington II ADVISORY DIRECTDRS Middle South Services, Inc., Chairman of the Boani & Chief Executive Officer Lawrence Adams a past member of the board f directors of MSU, and Sunburst Bank Attorney-at-Law has served m van,ous MSU Grenada Adams, Forman, Truly, Edwm-Lupberger Ward, Smith & Bramlette management capacities wnh Chairman of the Board Natchez Middle South Energy, Inc., i System Fuels, Inc. and Electec, Inc. j & President Herman Hines Middle South Utilities Inc. Chairman Emeritus In 1979, he i New Orleans Deposit Guaranty was named as president and National Bank Donald C Lutken chief executive officer of Chairman of the Board Jackson AP&L and promoted to & Ch:ef Executive Officer Dr. J. Harvey Johnston chairman and chief Mississippi Power & Light Physician executive officer in 1988, a I Jackson Surgical Clinic Associates position he will continue to Jackson hold in addition to his new leRoy R ltrcy responsibilities at MP&L. President 1 Greenville Compress Co. 1 Greenville l 58 I
s rp ^ l,. t Lawrence Adams Michael B. Bemis David C. Bramlette III James B. CampbeII Frank R. Day .3-g<. l e John O. Emmerich Jr Norman B. Gillis Jr Herman Hines Dr J. Harvey Johnston Robert E. Kennington II .,f l% l,_ j .g?, ,f' Edwtn Lupberger Donald C. Lutken Jerry L Maulden Richard D. McRae St John N. IkIr:ar Sr '.T .A-s ( hi ,7-7: I LeRoy R Itrcy E.B. Robinson Jr Dr. Walter Washington Robert M. Williams Jr. 59
l 1 c ~ - SHAREHOLDER INFORMATION Muumpp hw & Logk Company y EXECUTIVE OFFICES TAX STATUS OF PREFERRED REGISTRAR DMDEND PAYMENT 5 (lor preferred stock): Mississippi Power & Light Company The Deposit Guaranty 308 East Pearl Street Company's 1988 distribu-National Bank Jackson, MS 39201 tions on all otr3tanding Post Office Box 1200 Telephone: (601) 969-2311 series of its preferred stock Jackson, MS 39215-1640 were entirely a return of SEC FORM 10 K AmlLABLE capi:al and, therefore, were TRANSFER AGENT not taxable to stockholders (for Prolerred stoc$ fed jdend income for
- 'di Trustmark National Bank the Middle So th U il es, Inc.1988 Annual Report t Poses, fhe tax,Pur-Post Office Box 291 asis o suc Jackson, MS 39215-0291 the Securities and Exchan8e outstanding shares should Commission on Form 10-K, be reduced by the amount
-which includes the report of the 1988 distributions-mortoaos tends): of the Company, is MP&L available without chaq;e to presently believes that it is Irving Trust Company One Wall Street any stockholder upon likely that 1989 distribu. written request to: tions on all outstanding New York, NY 10015 shares of its preferred stock G. A. Goff will constitute a return of TRUSTEE Senior Vice Firsident, capital and not be taxable I'""'. Chief Financial Officer to shareholders as dividend and Corporate Secretary income for federal income Bank of Montreal Trust Co. Mississippi Power 77 Water Street tax purposes. & Light Company New York, NY 10005 Post Office Box 1640 Jackson, MS 39215-1640 CERTIFIED PUBLIC ACCOUNTANT 5 Telephone: (601) 969-2311 Deloitte Haskins & Sells ( One Shell Square. - 39th Floor New Orleans, LA ' h 70139-3997 60 u
l COMPANY DESCfilPTION - Mmmpyn Pow & bght Compo,y vided electric service to 140 More than and New Orleans Public municipalities and provided 1.6 million retail customers Service Inc. ') transmission service to the in Arkansas, Louisiana, System 'I South Mississippi Electric Mississippian Missouriare Energy Resources,Inc.is Power Association and to provided electric services responsible for the manage-the Municipal Energy through the System's vast ment of the Grand Gulf Mississippi-Agency of Mississippi. network of interconnected Nuclear Station near Port - P3wer & Light Company MP&Lis a transmission and distribu-Gibson, Mississippi, and is "(MP&L)is a regulated whc!!y-owned subsidiary of tion lines, and a balanced currently seeking regulatory public utility company Middle South Utilities,Inc., grid of fossilfueland nuclear approval to assume operat-i- engaged in the generation, one of the largest investor-generatingplants that are ing responsibility, subject to . purchase, distribution and owned public utility holding controlled and operated as AP&L and LP&L oversight, i sale of electric energy. companiesin the United a unit. of the System's other three MP&L States. Headquar-nuclear units. serves approximately For the past tered in New Orleans, the Additional - 340,000 customers in 45 40 years, the Middle South Middle South Electric subsidiary companies ? System includes four retail include MSU System counties of western Electric System has been the ~ Mississippi with an esti-leading electric energy operating companies, one Services,Inc., System Fuels, E mated population of 1.3' supplier to the Middle South nuclear generating company, Inc., and Electec,Inc. ' million. As of December 31, region, a 91,000-square-mile and three additional subsidi-1988,the Company pro-area along the lower reaches ary companies. of the Mississippi River. The operating companies are MP&L, Arkansas Power & Light, Louisiana Power & Light,- e g . MIDDLE SOUTH ELECTRIC SYSTEM I D RetailService Area JMississippiPower & Light Companyprovides electric
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