ML19326B308

Annual Financial Rept 1975

ML19326B308
Person / Time
Site:	Arkansas Nuclear
Issue date:	12/31/1975
From:	ARKANSAS POWER & LIGHT CO.
To:
References
NUDOCS 8004150697
Download: ML19326B308 (20)

Text

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s 1965 '66 '67 '68 '69 '70 '71 '72 '73 '74 1975 The three scenes'on the front cover. (Top scene) In 1975, Unit 1 of Arkansas Nuclear One generated almost 50%

of the electricity generated by Arkansas Power & Light Company; construction continues on the second unit.

- (Middle scene) Much of the year was consumed with preparation for and public hearings on the retail rate in .

crease filing of July.1975. (Bottom scene) When the Company's request for immediate rate relief was denied,

. ' construction on the two coal-fired generating units at White Bluff had to be suspended.

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l AMessage from thePresident you, in this annual report, is the effect of the rate i

C- hearings in which we have been and are now m-l volved. l j

O My message in last year's annual report began by saying that 1974 was a most unusual year for g q  ? the energy-related industries of America and that F Arkansas Power & Light was no exception. Even j? .

though earnings at the year's end were at an accept-able level, it was pointed out that this resulted largely from benef;ts which were non-recurring i

in nature. Certainly experience has proven that

+

statement to be accurate. When comparing net in-

, come for 1974 (after adjusting for the Arkansas Public Service Commission's order of March of 1975) to net income for 1975, it is readily apparent in recent years, the electric utility :ndustry has that, in spite of an increase of total revenues, net undergone dramatic changes. Management has been income decreased appreciably from 554.3 million required to develop new insights and new strategies in 1974 to 536.6 million in 1975, a 33 percent de-j to deal with these changes. There was a time when crease. At the same time, equity capital, including j electric energy was known for its decreases in unit preferred and common stock and retained earnings,

! cost. Now we are an industry of increasing unit increased from 5434.6 million to s535 million, i cost. This change was brought on by several major or 23 percent. The magnitude of the non-cash in-l forces: inflation, raw energy shortages, increasing come from allowance for funds used during con-1 j cost of fuels we use and the tremendous increase struction was emphasized in the 1974 report. This in cost of new generating facilities. We have had non-cash item in 1974 amounted to 47 percent of to change with the times. our total net income, while in 1975 it accounted for Of particular interest to residential customers is 51.8 percent. In 1975, net income, excluding al-what has happened to your cost of electric energy  ;

lowance for funds used during construction, in recent years, which is depicted in the two charts dropped to 517.6 million. This is the lowest level on the opposite page. Using 1965 as a base year and l of such earnings since 1968.

comparing the cost of electric energy on a kilowatt- This deterioration vividly shows that the level I hour basis with the cost-of-living index, one sees of rate increases granted was totally inadequate.

that the cost per kilowatt hour dropped until about The Company filed for a 538.6 million increase 1972 even though the cost of living was rising. Be- in 1974, and the Public Service Commission sub- l ginning in 1973, the cost began to rise due to the sequently granted s20.2 million (This decision is curtailment of natural gas supplies and the depen- now being appealed by the Company to the Ar-dence on fuel oil coupled with rampant inflation. Lansas Supreme Court). It was then obvious to Even so, it was and is even now well below the management that rate increases at this level would cost-of-living index from 1965 to now. Also influ- not permit the Company to continue the construc-encing your cost of electric eriergy is the fact that tion of all the major generating facilities which the average number of kilowatt hours used annually are necessary to serve the needs of the present per residential customer in Arkansas in 1965 was customers in Arkansas in the future and to provide

, 4,134 while, for 1975, the average annual use per for new customers.

i customer was 9,211 kilowatt hours. This doubling Arkansas Power & Light Cr ,pany has the l

in the use of electric energy by our residential cus- responsibility of providing the consumers in our tomers during this ten-year period, while the price service area with an adequate supply of reliable of a kilowatt hour has increased less than the cost electric energy at the lowest cost practicable. This of living during the same period, has contributed objective has been, is, and will continue to be the sigmficantly to the higher bills being received by thrust of the Company's effort. Since the s20.2 our customers today. million rate increase granted in March of 1975 The generators needed to satisfy this growing would not permit the Company to finance and con-electric energy usage are more complex and more tinue the needed construction program to fulfill costly than ever berore. They must be built, how- its responsibility to the consumer, an application ever. The problems of financing these generators for an additional rate increase was filed on July 1 rest heavily on Arkansas Power & Light Company. of 1975 asking for immediate relief. The Company's if financing is to be found, consumers must pay request for immediate relief was turned down, and rates which will provide a reasonable compensation it became necessary to begin an orderly shutdown to the investor for the use of his money. The Com- of construction work on the two coal-fired gene-pany, in turn, must give the consumer ample and rating units at White Bluff. Construction began on

} reliable energy under pruden and efficient manage. these two units in 1974. This is the first electric j ment. Thus, the primary thrust of my message to generating plant designed to burn domestically 1

available, low-sulfur coal in our system. The Ar- The Company in 1075 had many accomplish-kansas Public Service Commission held hearings on ments in areas other' than financial which were this case in October and November of 1975. The very favorable and reflected real stre,ngth and over-Company had requested a rate increase of 55o all optimism. Unit One of Arkansas Nuclear One million. The Commission ordered the Company to ranked eighth in power generation among the 132 adjust the proposed rates to exclude the effect of nuclear generating units operating around the construction work in progress from the rate base. world during the first ten months of 1975. This This meant the rate increase was adjusted to ap- S36-megawatt unit generated 49 percent of the total proximately $34.4 million. This adjustment, with 1975 energy produced by the Comr any and saved which we totally disagreed, was necessary before an equivalent of 8.3 million barro.s of fuel oil. It is the rates could be placed in effect subject to refund. expected to generate nearly 50 per ent of the Com-The 534.4 million rates, placed in effect to retail pany's electricity production in 19m customers the latter part of 1975, are now being Also, during the summer of 1075, Arkansas collected subject to refund pending the Commis- Power & Light Company conducted an experimen-sion's final decision. Also during 1075, a second tal program involving radio-controlled switches application was filed before the Federal Power Com- for the cycling of central air conditioning compres-mission for an increase in rates to wholesale cus- sors, which has a very real potential for saving tomers. These rates were designed to yield money for the Company and its customers. Over additional revenues of approximately 58.4 million, 300 housing units participated in the first experi-based on our then-projected energy sales to the mental period covering the summer months of 1975.

affected customers for the 12-month period begin- Preliminary test data indicates that the use of such ning October 8,1975, as estimated at the time of switches on a significant portian of air conditioning preparation of the case. These rates have been units in the service area could, indeed, lower our collected subject to refund since December 1,1975. system peak demands during hot afternoon peak The resumption of construction on the two coal- electric load hours, thus reducing the amount of fired units at White Bluff is contingent now on generation that must be installed. We plan to con-favorable action of the Arkansas Public Service tinue the test program during the summer of 197o.

Commission on the pending rate increase case. The Company also had success in an " Energy While the level of earnings obtamed in 1075 pre- Saving Home" program which is receiving nation-sents a rather bleak picture, Arkansas Power & wide recognition and acceptance. This energy sav-Light Company management continues to be opti- ing home design has been developed through a mistic about the future. Total energy sales in 1975 cooperative effort between Arkansas Power & Light were down due to the aluminum industry and other Company and the Little Rock Area Office of the industry loads being off due to the recession. How- Department of Housing and Urban Development.

l ever, consumption by residential and commercial Tests show that this type home can reduce the use customers showed a good increase over the pre- of energy for heating and coohng as much as 65 vious year. A continued growth in energy use as percent while still maintaining comfortable tem-the economy and industry return to normal is antic- peratures. These energy savings result primarily ipated. It is further anticipated that more and more from more and better insulation and insulating customers will turn to the use of electric energy due techniques.

to the shortage of natural gas, the high cost of al- The Company also is involved in a study of time-ternate fuels and the requirements to install elec- of-day pricing to determine its effectiveness. This trically operated environmental protection devices. study is a cooperative effort of the Arkansas Public Further, it is felt that regulatory authorities will Service Commission, the Federal Energy Adminis-allow the necessary increases in revenue which tration and Arkansas Power & Light Company.

will restore financial stability and permit the Com- Through these and other innovative approaches, pany to again be able to attract the investor's dol- we are constantly working to provide new insights lars to carry out the construction program for and strategies to. meet the needs of our customers needed generating facilities. tomorrow.

I am optimistic that,in the near future, Arkansas

~ Power & Light Company will again be in a more

~

~9 favorable position to fu'lfill its responsibilities to its customers of assuring them an adequate supply of reliable electric energy at a reasonable cost and paying an appropriate return for the use of the in-vestor's dollars necessary for the construction of

, needed plant facilities. All of your questions can-not possibly be answered in my message, but I will

1. ,,_.s.4% continue to welcome your questions or comments.

x x, A w t,Le

• M. Reeves Ritchie i Arkansas Nudear One president )

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1975 Arkansas Power & Light Company FinancialReview

SUMMARY

OF SIGNIFICANT ACCOUNTING POLICIES A. Systemof Accounts The accounts of the Company are maintained in accordance with the system of accounts prescribed by the Federal Power Commission.

B. Revenues The Company records revenues as billed to its customers on a cycle billing basis. Revenue is not accrued for energy delivered but not billed at the end of the fiscal period. Substantially all of the rate schedules of the Company include either fuel or power adjustment clauces under which such costs above or below the levels allowed in the vanous rate schedules are permitted to be billed or required to be credited to customers.

C. Utility Plant and Depreciation Utility plant is stated at original cost. The costs of additions to utility plant include contracted work, direct labor and materials, allocable overheads, and an allowance for the composite cost of funds used during con-struction. The costs of units of property retired, replaced or renewed are removed from utility plant, and such costs plus removal costs, less salvage. are charged to accumulated depreciation. Maintenance and repairs of property ano replacement and renewal of items determined to be less than units of property are charged to operating expenses.

Depreciation is computed on the straight-line basis at rates based on the estimated service lives of the vari-ous classes of property. Depreciation provided in 1975 and 1974 amounted to approximately 3.3% and 3.2%.

respectively, on average depreciable property. Principally all of the Company's utility plant is subject to the lien of the First Mortgage Bond Indenture.

D. Pension Plan The Company has a pension plan covering substantially all of its employees. Pension costs in 1975 and 1974 amounted to 55.035.000 and 54,183.000, respectively, including amortization of unfunded prior service costs over a remaining period of 11 years. The policy of the Company is to fund pension costs accrued. The actuarially computed value of vested benefits exceeded pension fund assets by approximately !5.800.000 at December 31, 1974. the most recent evaluation date, The Company has completed a study of the Employee Retirement Income Security Act of 1974 and the Corapany's pension plan has been amended, effective on and after January 1,1976, to comply with the Act. It is anticipated that the amendments, which are essentially technical in nature, will not have any significant effect on pension costs.

E. Income Taxes The Company joins its parent in filing a consolidated Federal income tax return and income taxes are allo-cated to all subsidiaries generally in proportion to their contribution to the consolidated tax liability.

Deferred income taxes are provided for differences between book and taxable income to the extent per-mitted by the regulatory bodies for rate-making purposes.

Investment tax credits utilized are deferred and amortized over the average useful life of the related plant.

Beginning January 1.1975. the Company has included in Other income and Deductions an amount repre-senting the income tax effect of the debt portion of the allowance for funds used during construction. Net income is not affected since the income tax effect was previously credited to operating expenses.

F. Allowance for Funds Used During Construction in accordance with the regulatory system of accounts the Company capitalizes an allowance for funds used dunng construction representing the net cost of funds (interest on borrowed funds and a reasonable rate on other funds) used to finance construction, with a corresponding credit to non-operating income. This practice recognizes these amounts as appropriate costs of utility plant which, in accordance with established regulatory practices, will be recovered through future billings to customers. A ccmposite accrual rate of 7% per annum was used in 1975 and 1974 in accruing the allowance for funds used during construction.

G. Reserves it is the policy of the Company to provide reserves for uninsured property risks. and for claims for injuries and damages. through charges to operating expense on an accrual basis. These reserves have been allowed for rate-making purposes.

3

s ARKANSAS POWER & LIGHT COMPANY ASSETS 1975 1974 in Thousands _

Utility Plant:

Electric olant. . . . . . .. . . $1,097,913 $ 1,051,248 Construction work in progress. . . 350,941 215,794 Nuclear fuel (Note 6). . . . 8,179 5,229 Total . . .. . . . 1,457,033 1,272,271 Less - accumulated depreciation. .. . . 240,014 211,456 Utility plant-net. . ... .. . . 1,217,019 1,060,815 Other Property and Investments:

Investments in associated companies, at equity (Note 4). . 17,157 18,152 Other, at cost (less accumulated depreciation). 1,094 1,464 Total . .. . . . 18,251 19,616 Current Assets:

Cash. . . 9,878 9,923 Special deposits. . .. . 2,222 238 Temporary investments, at cost which approximates market. 21.104 Notes receivable (less allonance for doubtful notes- $43,000). 1,313 1,524 Accounts receivable:

Custorner and other (less allowance for doubtful accounts -

$410,000 in 1975 and $290,000 in 1974). . 18,400 18,658 Associated companies. . . 85 125 Materials and supplies, at average cost. . . . 5,961 6,746 Prepayments. . .. . . . . 672 439 Other. . .... . . 3,491 1,689 Total . .... . . . . S3,126 39,342 Deferred Debitr.

Advances for 'uel oil purchases (Note 4). . . . 10,863 2.806 Other. .. . .. . .. . . . 2,174 1,598 Total. . . . .. . . . 13,037 4,404 Total . . . . . . $ 1,311,433 $ 1,124,177 See Notes to Financial Statements 4

NCE SHEET AT DECEMBER 31,1975 AND 1974 BILITIES 1975 1974 in Thousands Capitalization:

Equity capital:

Preferred stock (Page 8). S 161,720 $ 101,657 Common stock ($12.50 par value), authorized 50,000,000 shares; issued and outstanding 26,990,000 shares in 1975 and 23,390,000 shares in 1974. 337,375 292,375 Retained earnings (Notes 3 & 5). 35,917 40,593 Total equity capital. 535,012 434,625 Long-term debt (Page 8). 586,318 546,284 Total. 1,121,330 980,909 Curr::nt Liabilities:

Notes payable (Note 2):

Banks. 10,000 Commercial paper. 3,000 Accounts payable:

Associated companies. 8,720 5,940 Other. 26,998 9,741 Customer deposits. 5,904 5,442 Taxes accrued . 21,721 14,288 Interest accrued. .

12.480 10,170 Dividends declared. 2,684 1,650 Other. 1,983 1,922 Total. 80,490 62,153 Deferred Credits:

Accumulated deferred income taxes (Note 1). 53,572 51,240 Accumulated deferred investment tax credits. 24,932 19,093 Revenues subject to possible refund plus interest (Note 5). 26,892 6,379 Other. 3,219 3,540 Total. 108,615 80,252 Reserves. 998 863 Commitments and Contingencies (Note 4).

Total. $ 1,311,433 $ 1,124,177 i

See Notes to Financial Statements 5

l l

STATEMENTS OF INCOME AND RETAINED EARNINGS i For the Years Ended De:: ember 31,1975 and 1974 1975 1974 in Thousands Statement of income _

Operating Revenues (Note 5). . $309,065 $294,243 Operating Expenses:  ;

Operation: 1 Fuel. . . . . . . 76,322 83,840 l Purchased power. ... . 56,022 55.936 Other. .. . 41,239 32,528 Maintenance. . . 13,684 11,072 Depreciation. . . 33,790 23,885 Taxes other than income taxes. . . 17,989 13,973 income taxes (Note 1). . 16,072 9,641 Total.. . . 255,118 230,875 Operating income. . . . 53,947 63,368 Other income and Deductions: l Allowance for funds used during construction. 18,978 25,486 l Miscellaneous-net. 3.020 2,795 I Income taxes (Note 1). 5.111 (1,443)

Total. . . .. . .. . 27,109 26,838 Interest Charges:

Interest on long-term debt. 40,553 32,554 Other interest-net of debt premium. . 3,894 3,366 Total.. 44,447 35,920

• Net income (Note 5). . .. .. $ 36,609 $ 54,286

• income trom revenues. . . . . $ 17,631 $ 28,800 i Non-cash income from allowance for funds. . 18,978 25,486 l Net income. . . ... . . .

$ 36 16_09 $ 54,286 Statement of Retained Earnings _

Retained Earnings, January 1. . $ 40,593 $ 36,827 Add-Net income. . ... . 36,609 54,286 Total. . . . . . . 77,202 91,113 Deduct-Cash dividends:

Preferred stock-at prescribed rates of each series. 8,034 6.682 i Common stock * . 33,251 43,838 Tota'. . . 41,285 50,520 1 Retained burnings, December 31 (Note 3). . . $ 35,917 $ 40,593

• Includes in 1974, a $15.000.000 special dividend paid to the parent company which was concurrently reinvested in the Company's common stock.

See Notes to Financial Statements.

6 1

i-STATEMENT OF SOURCE OF FUNDS FOR UTILITY PLANT ADDITIONS For the Years Ended December 31,197_5 and 1974 1975 1974 In Thousands Source of Funds:

From operations:

Net income. $ 36,609 $ 54,286 Depreciation. . 33,790 23,885 Deferred income taxes and investment tax credit adjustments-net. 8,170 13,828 Ntowance for funds used during construction. (18,978) (25,486)

Total . . . .. 59,591 66,513 Dividends declared:

Preferred stock. . (8,034) (6.682)

Common stock * . (33,251) (43,838)

Total . . (41,285) (50,520)

Funds retained in business. 18,306 15,993 From (increase) decrease in workin9 capital (excluding short-term securities). 28,657 (33,165)

From sale of nuclear fuel. 31,186 Less funds used for:

Advances for fuel oil purchases. (8,058) (2,806)

Investments in associated company. 995 (8,714)

Miscellaneous-net. 20,219 8,102 Total . 60,119 10,596 From issuance (retirement) of securities:

Common stock

• 45,000 35,000 Preferred stock. .

60,000 First mortgage bonds:

Issues . .

40,000 100,000 Retirements. (30,000)

Debentures. (4,475)

Short-term securities-net. (34,104) 49,822 Total . .

110,896 150,347 TOTAL. $ 171,015 $160,943 l UTILITY PLANT ADDITIONS: l Construction expenditures (excludes allowance for funds '

used during construction). $151,056 $156,647 i

Fabrication costs of nuclear core. 2,434 5,376 Other plant additions-net . 17,525 (1,080) i l

TOTAL. $ 171,015 $160,943 l l

l l

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• Includes in 1974. a $15.000.000 special dividend paid to the parent company which was concurrently reinvested in the Company's common stock.

See Notes to Financial Statements 7

. SCHEDULE OF PREFERRED STOCK AND LONG-TERM DEBT Current Shares Shares Outstanding Call Price Preferred Stock Authorized 1975 1974 Per Share CUMULATIVE $100 PAR VALUE:

4.32% series. .. 70,000 70,000 70,000 $103.647 4.72% series. , 93,500 93,500 93,500 107.00 4.56% series. 75,000 75,000 75,000 102.83 4.56%-1965 series. 75,000 75.000 75.000 102.50 6.08% series. , 100,000 100,000 100.000 104.33 7.32% series. .

100,000 100,000 100,000 104.67 7.80% series. 150,000 150,000 150,000 109.10 7.40% series. 200,000 200,000 200,000 108.35 7.88% series. 150,000 150,000 150,000 108.91 10.60% series * . 200,000 200,000 112.04 11.04% series * .. 400,000 400,000 112.54 Unissued. 886,500 TOTAL. 2,500,000 1,613,500 1,013,500 in Thousands STATED AT S100 A SHARE. . . . . . . . . $161,350 $101,350 PREMlUM ON PREFERRED STOCK. 370 307 TOTAL. $161,720 $101,657 Long-Term Debt 1975 1974 FIRST MORTGAGE BONDS: In Thousands 2-7/8% series due 1977. $ 11,000 S 11,000 3-1/8% series due 1978. 7,500 7,500 2-7/8% senes due 1979. . , 8,700 8,700 2-7/8% series due 1980. 6,000 6,000 3-5/8% series due 1981. 8,000 8,000 9-1/4% series dt e 1981. 60,000 60,000 3-1/2% serie; due 1982. 15,000 15,000 3-1/4% series due 1984. 7,500 7,500 3-3/8% series due 1985. . 18,000 18,000 4-7/8% series due 1991. 12,000 12,000 4-3/8% series due 1993. . 15,000 15,000 4-5/8% series due 1995. 25,000 25,000 5-3/4% series due 1996. . . 25,000 25,000 5-7/8% series due 1997. 30,000 30,000 7-3/8% series due 1998. . . 15,000 15,000 9-1/4% series due 1999. 25,000 25,000 9-5/8% series due 2000. . 25,000 25,000 7-5/8% series due 2001. 30,000 30,000 8% series due 2001. 30,000 30,000 7-3/4% series due 2002. . , 35,000 35,000 7-1/2% series due 2002 . . 15,000 15,000 8% series due 2003. 40,000 40,000

. 8-1/8% series due 2003. . 40,000 40,000 10-1/2% series due 2004. 40,000 40,000 10-1/8% series due 2005. _ 40 000 Total first mortgage bonds" . . . . . . . . . . . . . . . 583,700 543,700 UNAMORTIZED PREMlUM ON LONG-TERM DEBT. _ 2.618 2,584 j TOTAL., . . . $586,318 $ 546,284 j

' Commencing in the year 1980 and annually thereafter.10.000 shares of the 10 60% series and 20.000 shares of the 11.04%

senes must be redeemed at $100 per share plus accumulated dividend to date of redemption.

• • Annual sinking fund recuirements, whicn may be met by certification of property additions at the rate of 167% of such re-Quirements amount to $5.537,000in 1976-See Notes to Financial Statements.

8

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Notes to Financial Statements noome Taxes

, Income tax expense consists of the following:

/ Charged to operating expenses: 1975 1974 Current: In Thousands Federal. S 6.059 5(4,965)

State. 1.843 778 Total . 7.902 (4.187)

Deferred-net:

Federal . 1,968 4,284 State. 363 647 Total. 2.331 4.931 Investment tax credit adjustments - net. 5.839 8.897 Total . 16,072 9.641 Charged (credited) to other income & deductions. (5.111) 1,443 Total income tax expense. $10.961 511,084 Total income tax expense reflects reductions resulting primarily from:

a) the exclusion from taxable income of the allowance for funds used during construction, b) the effects of currently deducting certain overhead costs, which for book purposes are capitalized as part of the cost of utility plant, c' the allocated tax benefit of the parent company operating loss, and d) the difference between straight-line tax depreciation and book depreciation, inciuding nuclear fuel.

The effective income tax rates for 1975 and 1974 were 23.0% and 17.0% respectively.

The provision for dLferred income tax expense represents principally the net amounts resulting from the excess of liberalized tax depreciation and amortization over the straight-line tax depreciation and amortization, less the taxes on unbilled revenues related to meters read before the end of the year but billed in the subsequent year, and revenues collected subject to refund which are deferred for accounting purposes.

The Federal income tax returns for the years 1967 through 1970 have been examined and assessments have been proposed by the Internal Revenue Service which are or will be protested: also, the years 1971-1975 remain open. Management is of the opinion that adequate provisions have been made for any taxes that may ultimately be assessed.

2. Lines of Credit and Short-Term Borrowings The Company has arrangements with certain banks and a commercial paper dealer providing for short-term borrowings of up to $95.000.000. Accounts are maintained with certain lending Arkansas banks and, although balances in some of these accounts may be deemed to be compensating balances. most of these accounts are working accounts and fluctuations in their balances do not reflect or depend upon fluctuations in the amounts of bank loans outstanding. In support of the arrangements with non-Arkansas banks, the Company maintains compensating balances ($4,000,000 at December 31,1975) equal to 2M% to 10% of the lines of credit with these banks which are not restricted as to withdrawal. Borrowing under these arrangements requires compen-I sating balances of 10% to 20% of the average annual amount of outstanding loans from these banks. The amount of the unused lines of credit as of December 31,1975. was S95.000,000.

l The bank and commercial paper notes are unsecured short-term loans with various maturity dates not in i

encess of nine months. Interest rates on bank loans are the prime rates in effect from time to time of the lending banks. During 1975 the maximum aggregate amount of short-term borrowings outstanding at the end of any month was $60.608.000. The average amount of short-term borrowings outstanding during 1975 (based on the average of the sum of daily outstanding principal balances) approximated $4.827,000 of bank loans and 319,625.000 of commercial paper.The approximate average interest rate (determined by dividing tt'e actual interest expense on short-term borrowings during the year by the average short-term borrowings) was C.43%

for bank loans and 6.06% for commercial paper.

3. Retained Earnings The indenture relating to the Company's long-term debt provides for restrictions on the payment of cash 9

dividends on common stock. As of December 31,1975, $26,837,000 of retained earnings are free from such restrictions.

4. Commitments and Contingencies The Company s construction program contemplates expenditures of approximate!y $204.100,000 in 1976.

The Company has a 35% interest in System Fuels, Inc. (SFI), a jointly-owned subsidiary of four of the prin-cipal operating subsidiaries of Middle South Utilities, Inc. (SFl stockholders). SFI operates on a non-profit basis in planning and implementing programs for the procurement of fuel supplies for the generating units of these operating companies; its costs are recovered through charges for fuel delivered.

The Company has made loans to SFi to further its fuel supply business under certain loan agreements which provide for SFI to borrow from its stockholders up to $156,500,000. As of December 31,1975, the Company had loaned $16,975,000 to SFI pursuant to the loan agreements, and the Company's share of the unused loan com-mitment is approximately $34,560,000. Loans mature in 10 and 25 years from the date of borrowing.

In connection with certain bank borrowings by SFI totaling 542,435.000 at December 31,1975, the Company and the other SFl stockholders have covenanted and agreed severally in accordance with their respective shares of ownership of SFI's common stock, that they will take any and all action necessary to keep SFl in a sound fi-nancial condition and to place SFI in a position to discharge, and to cause SFl to discharge, its obligations to the lending banks.

During 1974 SFI entered into a ccntract with ECOL Ltd. (ECOL), a non-affiliated company, to purchase over a twenty-year period up to 50,000 barrels per day of No. 6 fuel oil to be produced in a refinery being constructed by ECOL in Louisiana. Deliveries of the refined oil to SFI are scheduled to commence in late 1976. The con-struction of the refinery is baing financed in part by monthly advance payments for oil by SFl aggregating

$67,500.000. These funds are being supplied to SFl by the Company and the other SFl stockholders as prepay-ments for future deliveries of oil. The Company's share of the prepayment is $23,625,0C3 of which $9,860,000 had been advanced through December 31,1975. The prepayments plus interest thereon are to be repaid in fuel oil deliveries through the tenth contract year.

On June 25,1975, the Company announced that, due to economic factors, the completion dates for its two coal-fueled units at the White Bluff Steam Electric Generating Station (White Bluff Plant) site had been extended from 1978 to 1979 for Unit No.1 and from 1979 to 1981 for Unit No. 2. Subsequently, a decision to effect an orderly shutdown of construction of the White Bluff Plant was announced due to the failure of the Company to recet've necessary rate relief. The shutdown of construction of the White Bluff Plant is presently scheduled to continue until approximatelyJuly,1976. However, resumption of construction at that time is oependent upon the outcome of penc;ng rato proceedings and the ability of the Company to raise adequate capital funds Without an increase in earnings from operations (which will be largely dependent upon receiving fair and adequate rate relief) the Company will be precluded from issuing additional first mortgage bonds, except for refunding pur-poses, and additional shares of preferred stock. At December 31,1975, approximately $82,000,000 in costs related to the White B!uff Plant were included in construction work in orogress.

5. Rate increase -

On September 1,1974, the Company placed in effect, subject to refund with interest, revised retail rate schedules designed to yield approximately $38,600,000 in additional annual revenues. In its order dated March 14,1975, the Arkansas Public Service Commission (APSC) approved rate increases which would yield approximately $20,200,000 annually, and ordered the Company to refund all revenues collected in excess of that amount. The Company filed a petition for rehearing with the APSC; such petition for rehearing was deemed denied on May 2,1975. On May 13,1975, the Company filed a petition with the Circuit Court of Pulaski County, Arkansas, to review, partially set aside and modify the order of the APSC. The decision of that court, which is subject to appeal, was issued subsequent to December 31,1975, upholding the APSC order.

Until December 23,1975, the Company continued to bill its retail customers on the basis of the full rates

, piaced in effect on September 1,1974. However, pending final decision by the courts, the Company decided to defer, for accounting purposes, the difference between the amounts billed, retroactive to September 1,1974, and the amounts allowed by the APSC and to accrue interest on the amounts so deferred. Consequent ly. the Financial Statements for 1974 have been restated. The effect of this action is to reduce operating revenues and net income for 1974 from previously reported amounts by $6.274,000 and $3,118,000, respectively, and for 1975 by $18,978,000 and $10.027,000, respectively.

On December 23,1975, the Company placed in effect, subject to refund with interest, revised retail rate schedules designed to yield approximately 534,300,000 in annual revenues (reduced from the $56.000.000 re-l 10

e cuested by the Company by order of APSC of October 29,1975) in addition to those allowed by the APSC order of March 14,1975 On January 1,1974 and December 1,1975, the Company placed in effect, subject to refund with interest, revised wholesale rate schedules designed to yield approximately S2,400,000 and $8,400,000, respectively, in additional annual revenues. Hearings have been held on the first increase with additional headngs to be held in early 1976. Hearings are expected to be held in 1976 on the second proposed increase.

Operating revenues for 1975 and 1974 include approximately $4,900,000 and $3.093.000, respectively, from increases under rate schedules placed in effect at various dates during the periods, s,ubject to refund with interest.

6. Leases On June 25,1974, the Company sold to Southwest Fuel Company 'an unaffiliated company) the initial core of nuclear fuel for Unit No.1 of Arkansas Nuclear One for $31,185.701, representing book value. On the same date, acting pursuant to a Memorandum Opinion and Order issuea by the Securities and Exchange Commission, the Company entered into a $40.000.000 fuel lease with Souinwest Fuel Company under which Southwest Fuel Company leased the said nuclear fuel to the Company ar'd agreed to lease additional fuel in the future for said Unit No.1. Lease payments are based upon nuclear fuel use. The nuclear plant was placed into commercial operation on December 19,1974, and $12,157.000 and 5466,000 of nuclear fuel lease expense were charged to operations in 1975 and 1974, respectively. The lease. unless sooner terminated by one of the parties, will continue through December 31,2013.

t Subject to approval by the Securities and Exchange Commission, the Company has made a commitmut to enter into an greement with Razorback Nuclear Properties, Inc. (an unaffiliated company) to sell its interest in the supply of nuclear fuel for the initial core of Unit No. 2 of Arkansas Nuclear One, and simultaneously cnter into a $50,000,000 fuel lease. The fuel company will pay the Company its book value at date of closing and will make additional payments to suppliers, processors and manufacturers, necessary to carry out the terms of the Company's contracts for nuclear fuel for Unit No. 2. Unit No. 2 lease payments will be based upon nuclear fuel use. It is expected that the fabrication of the initial core will be completed in 1977 and that fuelloading will commence in 1977. Annual lease payments, based on normal generation and an investment in the initial fuel core of approximately S30,000.000, will be approximately $16,000,000 and will be treated as cost of fuel. The lease, unless sooner terminated by one of the parties, will continue through June 30. 2018.

Rental expense under leases currently in effect, excluding the nuclear fuel fease, is not neterial

7. Accounting PoFcies The summary of significant accounting policies on page 3 is an integral part of these notes to financial statements.

Accountants' Opinion HASKINS & SELLS Ten Broadway Certified Public Accountants Saint Louis, Missouri 63102 Arkansas Power & Light Company: -

We have examined the balance sheet of Arkansas Power & Light Company as of December 31,1975 and 1974 and the related statements of income, retained earnings, and source of funds for utility pbnt additions for the years then ended. Our examination v.as made in accordance with generally accepted auditing standards and, accordingly, included such tests of the accounting records and such other auditing procedures as we con-sidered necessary in the circumstances.

As discussed in Note 5 to financial statements. the Company has placed into effect electric rate increases which are subject to refund with interest and has excluded, retroactive to September 1,1974, from operating revenues the amount disallowed by the Arkansas Public Service Commission in its order dated March 14,1975.

pending final adjudication of that order.

In our opinion. subject to the settlement of the rate matters referred to above the above-mentioned financial statements present fairly the financial position of the Company at December 31,1975 and 1974 aM the results of its operations and its sources of funds for utility plant additions for the years then ended. in conformity with generally accepted accounting principles applied on a consistent basis.

January 30.1976 /s/ HASKINS & SELLS 11

capitalization Ten Years of Progress / Financial 1975 ,

MILLloNs oF DOLLARS 6m - (in Thousands of Dollars) 550 - g g 4 ecuiry -

Capitalization-End of period:

5N - L  ? Cf.?,".%nn.no. - .

, Equity capital:

450 _ TT re cw.mu.i.on _ -

Preferred stock and premium. $ 161,72 4w -

Common stock. 337,37 3g 7_ Retained earnings. 35.91 m a Total . 535,01 25 D

h- '

fF Long-term debt:

2m f

N First mortgage bonds and premium 1 Sinking fund debentures.

586.31 4 -

k-

'50' ix  :

k

~

7- g

%- J i

h-4 Total .

Total ctlpitalization .

586.31

$ 1,121,33

_$srMfut sc u v uno y u n

_.E) -

g uiup2 una viu ec % unq syc s4te ssoa sr22 i swt si 12i 1%6 1968 1970 1972 1974 1975 Annual Payment Requirements:

Interest on first mortgage bonds. S 42,83 Dividends on preferred stock. 13,13 Utility Plant MILLloNS OF DOLLARS tem j Utility Plant-End of period:

i i i i t

%, ,, g ,,,, I l f Electric plant completed. $ 1,097,91 14N - %.i r.ot i Construction work in progress. 350,94

' 2" i

l ,(i / ~

Nuclear fuel . 8,17 l' Total utility plant . 1,457,02 imo __ __ ,

Less-accumulated depreciation . 240,01 Net utility plant. S1,217,01 800 -

6*

Income Statement:

400 Operating revenues 2 $_309.0E Operating expenses:

200 Fuel. 76.32 Purchased power. . 56,02 1966 67 68 69 '70 ~71 72 73 74 1975 ay@tenance.4perah aM main .. 24,28 Other operation and maintenance. 30,63 Depreciation . 33,7E Net income Taxes 2 34.0f M:LLIONs oF DOLLARS Total .

60 255.11._

Operating income. 53,94 g_  % 3'o 0 .*'/."? a ea, us.o Other income and deductions-net noc- w e

• __

(excluding allowance for funds used during construction). 8.12 40 Interest and other charges:

Intaest on long-term debt. 40,55 Other interest-net of debt premium 2 3.8c 20 Total . 44.44

' income from revenues. . . . . . . 17,63 Non-cash income from AFDC* 18.97 Net income . S _ 3.6.6C 1966 67 68 69 70 71 72 73 74 1975 Incluces unamcrt::ad premit.m on long term cect b.mnning in 1973

'1974 has been resta:ed to reflect tne effect cf cefernng the difference in re.

nues betseen new retail rates olaced into effect on September 1.1974 and i amount allowed cy the Arkansas Public senace Ccmmission in its order March 14.1975 12 'AFDC - AHowance for funcs used cunng construchcn

1974 1973 1972 1971 1970 1969 1968 1967 1966

$ 101,657 S101,657 S 86.615 S 51,529 $ 51,529 $ 51,529 S 41,487 5 41,487 S 41,487 292,375 257,375 202,375 172,375 137,375 121,375 111,375 102,750 99,750 40,593 36,827 34,714 31,043 25,982 26,582 23,954 27,736 24,427 434,625 395,859 323,704 254,947 214,886 199,486 176 816 171,973 165,664 546,284 476,354 393,700 343,700 283,700 258,700 233,700 218,700 188,700 4,475 4,475 4,700 4,925 5,150 5,375 5,600 5,825 546,284 480,829 398,175 348,400 288,625 263,850 239,075 224,300 194,525

$ 980,909 5876,688 $721,879 $603,347 $503,511 $463,336 $415,891 $396,273 $360,189 5 38,787 5 29,974 $ 23,524 5 19,687 5 15,000 $ 12,593 5 10,281 5 9,174 5 7,412 6,600 6,600 5,418 2,768 2,768 2,768 2,036 2,036 2,036

$1,051,248 $762,319 $727,558 $684,668 $658,853 $587,608 5563.176 $540,917 5451,002 215,794 330,585 216,055 151,797 49,595 56,557 28,808 7,690 49,015 5,229 29,953 26,722 9,148 1,272,271 1,122,857 970,335 845,613 708,448 644,165 591,984 548,607 500,017 211,456 193,400 175,144 160,665 145,712 131,726 120,060 108,114 98,796

$1,060,815 5929,457 $795,191 $684,948 5562,736 $512,439 $471,924 S440,493 $401,221 l $ 294.243 $209,327 $184,810 $166,063 $149 317 S136.044 $118,943 S105,516 S 97,058 83,840 46,605 36,648 30,151 27,124 20,516 17,187 10,639 12,910 55,936 28,737 25,334 16,705 9,592 13,808 9,052 14,663 8,223 19,486 17,647 15,731 14,841 13,840 13,108 12,045 11,124 10,780 24,114 19,416 16,799 15,621 14,501 12.396 11.206 9,421 9,249 23.885 21,373 19,609 18,742 17,400 16,059 15.060 12,970 12,212 23,614 25,766 25,288 30,235 31,110 29,375 26,685 21,955 21,470 230,875- 1592 544 139,409 126,295 113,567 105,262 91,235 80,772 74,844 63.368 49,783 45,401 39,768 35.750 30,782 27.708 24.744 22,214 l

1,352 572 45 75 (127) (149) (179) (66) (87) 32,554 25,528 21,843 17,750 13,594 10,543 9.888 8,976 7,343 l

3,366 1,557 1,002 592 701 1,134 635 439 493 35,920 27,085 22.845 18.342 14.295 11,707 10,523 9.415 7,836 28,800 23,270 22,601 21,501 21,328 18,926 17,006 15,263 14,291 25.486 18,676 14,170 7,407 3,429 2,878 1,405 3.039 1,425

'S 54.286 5 41,946 5 36,771 S 28,908 5 24,757 $ 21,804 S 18,411 $ 18,302 S 15,716 i

13

Average Annual Kilowatt Hour Use Ten Years of Progress / Operating 1975 Residential Customers sAes & m 96 g 84 '

I (in Thousands of Dollars)

Residential . $ 109,2E 4,-t -4 64,76 72 J Commercial . .

60 [ Industrial-Aluminum processing.

Industrial-Other.

12,6E 66,40 e 'T /,/ ,,

Government and municipal. 7,62 48 Revenue adjustment 1 (20,37 36 v! Total from ultimate customers. 240,3E I

Public utilities. 65,3e 24 -

_* 3',qaL^p;*y Miscellaneous revenues. 3,3E Total electric operating revenues. 5309,0E g Electric Sales (Millions of Kilowatt Hours):

1966 67 68 69 ~70 '71 '72 73 '74 1975 Residential . 3,3E Commercial . . 2,07 Industrial-Aluminum processing. 1,01 Industrial-Other. 2,8z Kilowatt Hour Sales Government and municipal.... 25 to Ul,timtegtomers Total sales to ultimate customers. 9,6C 20 s Public utilities. 3,54 18 -

! I Total energy sold. [13,1!

ie Number of customers-end of year:

Residential . 371,45

'4 l

Commercial . . 45,6!

i2 Industrial-Aluminum processing.

--% Industrial-Other. 10,4:

10 m

' g r Government and municipal.... 1,4<

8 7 Total ultimate customers. 429,0; 6

. Total customers. 429,0!

4 Electric Energy:

n -

Source and disposition (Millions of Kilowatt Hours) 0' Generated-net station output 1966 67 68 69 ~70 71 ~72 '73 74 1975 2,6<

Gas .

Oil . . . 2,2<

Nuclear. 4,8 Payroll Hydro. 1:

MILLloNs oF DOLLARS Total generated. 9,9:

5 i i i i i Purchased. 4,0:

45 -

10,,, p,,, Net interchange. 1C 4g _ -*- goeg.oa a w." e.ac. , Total . .. 14,1 C 35

' / Less: Company uses, losses and unaccounted for. . 9f

~

30  ! lotal energy sold . 13I1 f

,, M '

Peak demand (Megawatts) . 2.8f

> W 'l }

i sr7 %  ;

y The adjustment for 1974 and 518 978.000 of tne aajustment for 1975 reflect t 10' I

^ J 'a effect of deferring the offference in revenues betAeen new retail rates c!ac 5 into effect on Sectember 1,1974 and the amount allowed by the Arkans l

[, .---: a a%j .$ Public Service Commission in its orcer of March 14.1975 0 in accition. 51395.000 was accrued in 1975 for a refund. which was mace 1966 67 68 69 70 71 72 73 74 1975 January 1976 resulting from an order of the APSC retating to the acercera date for placing the 1975 retail rate recuest into effect 14

a 1974 1973 1972 1971 1970 1969 1968 1967 1366 S 87,329 ? 68,098 5 57,976 $ 49,718 $ 45,230 $ 41,045 S 36,998 $ 33,656 $ 31,552 53,975 43,448 38,092 33,989 31,214 28,697 26,575 24,631 22,731 28,061 17,358 14,803 13,132 12,334 12,147 12,173 11,247 8,523 60,601 43,865 36,380 31,141 27,930 27,246 25,057 22,740 21.322 6,126 4,737 4,248 3,836 3,594 3,424 3,139 2,952 2,789 (6,274) 229,818 177,506 151,499 131,816 120,302 112.559 103,942 95,226 86,917 61,169 28,942 30,392 32,209 27,067 21,934 13,894 9,172 9,338 3,256 2,879 2,919 2,038 1,948 1,551 1,107 1,118 803

$_294,243 $209,327 $184,810 $166,063 $149,317 $ 136,044 $118,943 $105,516 $ 97,058 3,077 3,103 2,770 2,393 2,182 1,917 1,644 1,401 1,300 1,893 1,903 1,753 1,614 1,503 1,3 73 1,247 1,116 1,025 2.569 2.594 2,569 2,540 2,574 2,574 2,564 2,511 2,312 3,042 2,920 2,702 2.426 2,230 2,170 1,969 1,753 1,677 284 290 285 276 265 262 242 229 233 10,865 10,810 10,0~79 9,249 8,754 8,296 7,666 7,010 6,547 3,640 2,899 3,382 4.594 4,906 4,12J 2,470 1,297 1,259 14,505 131 709 13,461 13,843 13,660 12,419 10,136 8,307 7,806 364,954 355.673 343,468 330,566 318,732 311,815 306,950 301,335 296,211 l

44,957 44,073 43,188 46,785 45,606 44,771 44,195 43,747 42,930 1 1 1 1 1 1 1 1 1 l 9,926 9,508 9,175 4,733 4,638 4.532 4,428 4,259 4,076 1,396 1,317 1,282 1,235 1,188 1,131 1,085 1,043 1,002 421,234 410,572 397,114 383,320 370,165 362,250 356,659 350,385 344,220 l

25 25 _ _ 24 71 75 75 78 73 77

_4.2M59_ 410,5_97 397.138 383,391 370 240 1

362,325 356,737 350,458 344,297 l 3,609 3,919 5,932 7,630 9,676 7,386 6,416 4,000 5.586 3,920 4,089 2,484 1,496- 382 177 82 21 14 171 230 321 125 92 133 139 208 97 112 7,530 8,329 8,541 9,218 10,191 7,702 6,706 4,118 5,712 l 7,670 5,890 5,944 5,474 4,268 5,467 4,078 4,874 2,743 l 181 361 10 17 36 41 88 (62) (43) 15,381 14,580 14.495 14,709 14,495 13,210 10,872 8,930 8,412 876 871 1,034 866 835 791 736 623 606 14,505 13,709 13.461 13,843 13,660 12,419 10,136 8,307 7,806 3.049 2,744 2,607 2,565 2,512 2,176 1,927 1,710 1,692 15

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Lawrence Blackwell Richard C. Butler L. C. Carter Floyd L. Lewis

! Attorney Chairman et the Board President President Pine Blutt', Arkansas Commercial National Bank Riceland Foods N!iddle South Utihties. Inc.

E'ected 1o38 Little Rock, Arkansas Stuttgart, Arkansas New Orleans. Louisiana

Elected 1%7 Elected 19c0 Elected 1071 i

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William C. Nolan, Jr. J. D. Phillip , Robert D. Pugh. Reeves E. Ritchie

.\;torney Senior Vice President Partner. Pugh and Company Pre 3ident or the Company El Dorado. Arkansas ot the Company Portland. Arkansas Little Rock, Arkansas Elected 1071 Pine Blutt', Arkansas Elected 1071 Elected 1%2 Elected 1o72 Arkansas Power & Light Company m

Service Area

% Arkansas Power & Light Company owns

• P h'; '~ ' electric facilities in 02 or Arkansas' 75 counties.

O At December 31,1975, the Company furnished retail electric energy in 252 incorporated municipalities. AP&L also furnished power at wholesale to eight municipalities, three rural electric cooperatives, one association of rural electric cooperatives, and one small investor-owned system. AP&L's system is interconnected

.- . __. ..e with and operated as a part of the Sliddle South Dr. Ntarshall T. Steel R. E. L. Wilson l'tilities System, which supplies the power President Ementus l'rnident requirements of more than 1.3 million customers l Hendris Co!!cee  ! ce Wiken and Company in a 02,000-square-mile area of Arkansas, Hot Sprmgs. Arkansas Wilson. Arkansas Louisiana, Slissis3ippi and Southeast Alissouri.

E'et ted 147 Elected 1%7 16

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Reeses E. Ritchie W. N1. N1urphey Ar Pettit J. D. Phillips President Sen:or Vice President Se V:ce President Senior Vice President AP&L smce IJ30 AP&L smce 103o AP 2L smce 1%0 AP&L smce 143

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.g % %m a QQGk, Jerry L. N1aulden Charles L. steel W.A..Niebane Ntrs. Helen Leftwich Vne Pres:dimt Vice President Assistant Treasurer & Assistant Secretary Ireasurer & Secretary AP&l.smceIC0 Assistant Secretary AP&L smce 141

.\P&! Smce 143 AP&L smce 1014 Company Directory Tran~ter Agents tor Preterred Stock-Union National Bank of Little Rock,1 Union Nat:ona:

rla:a, Little Rock, Arkansas ^2:03, and Ti:e Conunc>cial National Bank of Little Rock, Second and .\ lain Streets, Little Rock, Arkansas '2:03 1

' Registrar tor Creterred Stock- Ti:e First National Bank in Littlc Rock, Capital and Broad: cay Streets, littlc Rock, Arkansas ~::03 Certnticti runic Accountants-Haskins e Sells, Ten Broad: cay, Saint Louis, .\lissouri c3102 Exet utive Ottice- The First Nat:onal Bu:l ding, Litt!c Rcck, Arkansas ~2:03, ri:ane !301) 3~1-4000 Engtneering Ottice-Sinh A;'enue and Pine Streets, rine Bluff, Arkansas ~1c01, rl:os:e I301) 534-1330 hnnual \lecting-?o:irtI: II:ursday of ,\Iay n, ,,g., < , , , , . .a , c. f .g . . .c , , , , , . c : e , . - cc, .

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,' ,h 1 ,j Return postage guaranteed by Bulk Rate Arkansas Power & Light Company U. S. Postage Litte Rock. Arkansas 72203 PAID Permit No. 7302 Little Rock, Ark.