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Annual Financial Rept 1977
	ML19326B368
Person / Time
Site:	Arkansas Nuclear
Issue date:	12/31/1977
From:	; ARKANSAS POWER & LIGHT CO.
To:	;
References
	NUDOCS 8004150744
	Download: ML19326B368 (28)
	v • d • e

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                                                              '3 H a//rr //p/?S r:L           . 7 7-RECORDS F ACidTY BR ANCH ARKANSAS POWER & LIGHT COMPANY /1977 ANNUAL REPORT 8 0 " _2 6 f ] 1 E i -       --- - -- -------                                               ------      -       b

& First, we believe our service area will continue go to experience economic and ;vpulation growth in the vears ahead with progress equalling and, in some is to be the caes.exceedinathegrowththatisratinghora throughout the entire Suntvlt. For example, best utility totai Aest customers ciimsed from 330.45s at

   .                           .                     year-eixi 1967 to 447.802 at the end of 1977.

nn the nation." Send. we have made significant uides in reinforcing our financial stability through internal ef ficiencies and an qen and cooirrative channel Like most investorowned electric utilities in of communications and action with regulatotv the nation. Arkansas Power & Ught has weathered lxdies. % have worked diligently to gain a sont very smrmy times during the Seventies. financial turnaround at AP&L and are seeking to Ilowever, we Irlieve that those troublesome times improve it fmther since this is in :he best interests have made us a stronger and, hopefully, wiser of our customers and investors. company. Net :ncome in 1977 totalui 570.7 million. That is not to say that the challenges powd by Of this amount. 534 million was due to earnings increasing costs, vast capital outlays, environmental from resenues and $36.7 million resulted from concerns, financing, various fuel options and longo d!owance for funds used during construction construe: ion leadtimes have disapirared. Those t a nonrash source of earnings.) The increase over problems remain, but we clearly irrceive that AP&L's 1976 net income was 523.7 million, reflecting ability to meet those challenges has immeasurably increres of $17 million from revenues and 510.2 improved. million f rom allowance for funds u. sed during We Irlieve that 1977 was a year of decided construction and a decrease of 53.5 million due improvement and are firmly committed to strengthen- to an accounting change in 1976. ing the Company internally arx! externally through Operating revenues in 1977 reached $537.4 luth a disciplinal and imaginatise appmach. million. a 36 percent increase over 1976 revenues. This progress is rettected in this annual report. and During this sant irriod, ogrrating expenws we encourage you to review the comments made by also increasol 36 grrcent to 546.9 million. The various key management executives along with the rise in qrratine revenues is due primarily to financial statenrna incream in energy usage in all customer classifi-We are optimistic in our outhuk for four cations aix! t( the effeet of higher retail rates priman remns. which were placed into ef fect in April following Performance Highlights 1977 1976 % Increase Revenues f rom o;rrations OHHH . 5 537.108 5 396.597 36 0;rration and mamtenance exirnses 0H Hh . 5 % 6.032 5 273Dl6 31 Net income ON HH . 5 70.685 5 46.964 5I Capitalaation (000) . $1,27 357 $ t ,170, t $4 9 Construction expenditures 0100) . 5 195, t 05 5 17.),- 19 [2 Total utih:3 plant insestment -end ot year too0)- 51.762.815 51.621.350 9 Customers (End of scar t . 147.802 438.839 2 Encrev sales to ultimate (ustomers 4 Mdlions of Kdowatt houtsi . 12.556 11.11; I3 Emplos ces ( End of year > . 3.082 3.01' Peak demand t Mecawattsi . W6 4.2 12 3 _

,\teraec use per customer (Kdowatt hoursi Residentul .                                                        10.010             S.9' 5          12 Commercial .                                                         40.611           16.6'2             6 t\veraec price per kdowatt hour (cents)

Residential . LO2 3.57 I3 Commercial 4 07 4.48 l-i

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                                                                                                                                                                                          ~J/3 3,,          3 Arkansas Public Service Commission approval                                                                               Projecting into the mid-to-late 1980's, it
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in March. appears that Arkansas lignite can be utilized ! Total energy sales increased 3.3 billion to fuel some future generation. kilowatt 4vmrs over 1976 to 17.7 billion kilowatt- Fourth, we are firmly dedicated to continue hours. a 23 percent increase. Sales to ultimate

reinforcement of our ability to develop programs customers, which excludes energy sold to others and policies that will provide logical, timely and for resale, totaled 12.6 billion kilowatt-hours-cost-effective solutions to the challenging tasks an increase of 13 percent. Occurring despite at hand. This belief is anchored in a management concerted efforts to encourage energy conservation. approach creatcJ bv a willingness to seek out this increase in energy sales was influenced 1.y non-traditional ansivers to ace-old problems. to unseasonable weather, with the winter months j discover methods for improfed manpower utilization colder than normal and the summer months hotter and productivity and to develop an organizational than normal. both contributing to increased structure best s'uited to current operations I electric energy usage. and opportunities. i Fuel for generation and purchased power cost To a major extent. these efforts are being amounted to 52S4.1 million in 1977, or 61 percent guided by AP&L staff studies, a broad management of total operating expenses of $466.9 million. audit conducted by Theodore Barry & Associates These costs also account for 568.9 million of the and specialized policv/ procedure reviews commis-increase of $122.8 million in operating expenses sioned throuch Unit'ed Research C impany. We are over 1976. Fuel oil continued as th- maict fuel used encouraged not only by the positive resUts that for generation in 1977 accounting for 55.2 percent these studies have vielded but Mso by the of all energy generated. Nuclear generation was ' responsiveness of the total AP&L team in 40.2 percent: natural gas generation. 3.8 percent: implementing more efficient programs in virtually I and 0.8 percent for hydro generation. every area of Company operations. Our third reason for optimisniis the fact Our goal is to be the best utility in the narion. that we are making maior strides toward a generatinM The attainment of that objective ' requires the personal system that will provide us with a balanced and more stable fuel mix. commitment of each of our more than 3.000 employees and the continuing support obur investors Following completion of our second nuclear-and customers. We appreciate your confidence and fuckd unit in 1978. nuclear generation will reach welcome your comments and suggestions about our 52 percent of total generation in 1979. Coal-fired endeavors at AP&L nt any time. generation is schedukd to climb to 29 percent by 1982 when White Bluff Steam Electric Station is completed and. hopfully, with the addition <=' C gg of the proposed Independence Steam Electric Station Reeves E. Ritchie Arch P. Pettit l by 1985. 49 preent of our energy generation Chairman of the Board President & Chief ! will tv fuckd with coal. Executive Officer 1

4 - i "The marketplace i for borrowed money h has become one

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y ,, to meet its a .YJ +" " ~N responsibilities." g - The maintenance of AP&I's financial Jerry L Alaulden integrity has a direct Ivaring on our ability Pice' Preside nt/Financia/ Scrdccs. to successfully fulfill our responsibility in meeting Treasurer 6 Secretart i growing electric energy needs. While we experienced

 ,            an improved financial year in 1977. wt also were                    During the year, AP&L entered into installment

! faced with record operating expenses totaling purchase contracts with Jeffeison County for

;             nore than S4M million.                                          the issuance of pollution control bonds and i                  lb some degree, our effons in achieving                     industrial revenue Ivnds in connection with the
;             financial 3 ability have ten hampered by the fact               White Bluff Steam Electric Station. Whde a total l             that many people assunc th.t we use the money                   of 547 million in bonds was issued by the county.

I we receive trem customers to totally pay for the only 59.1 million was available for use in 1977. l multi million-dollar construction projects we've the' remainder being held in construction funds for i undertaken. That's simply not true. future use. lb build generating facili ies, t we have to Also in connection with White Bluff. we

terrow the noney through the sale of common or sold a 35 [rrcent and 5 percent share of the preferred stock or mortgage lends, in other generating station to Arkansas Flectric Cooperative words. we must attract investors who will allow us ' Corporation and the City of Jonestero respectively.

to use their money for construction in return A total of 562.6 million was received as reim-for interest pay ments and dividends. Without those bursement for prior Company expenditures with i

investments and the financial performance to future expenditures to tr reiinbursed attract them we would not be able to build needed currentiv as made. generating facilities. The marketplace for borrowed We anticipate that a new load and energy money has become one of the real tests in AP&l/s forecastin efforts to meet its responsibilities. growth ojections pr'g methodology will aid us in so 'thrt energy demand. making Let's take a kok a our 1977 financing construction planning and fiscal requirements , record. In Alay we sold 515 million of common will be as finelv tuned as possible. Along with our

stock to Aliddle South l'tilities. By competitive sister companies in the Aliddle South System. we bidding in thember, we old 575 million in emploved Data Resources. Inc.. to develop a first mortgage tends with a 91/8 I rrcent interest computer-based econometric model for this r ue. Interim financine was by bank loans and purpose. Data Resources is an internationally-commercial paper. recognized economic information and forecasting 3 service firm.

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This econometric approach will undoubtedly

                                        .                                      provide AP&L manacement with the nxtt l               -          3 q                                 )            sophisticated load projections possible. For our customers. this ability means that we wdl
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tr able to better and more efficiently forecast

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the timing of needed generating facilities. For f = g ' Q' our investors and employees. it represents another step forward in improving manacenwr.t 3 3< d control. Nearh &r t!'e n.aion 's icadin at:hti int estnx nt anah sts t sited Adansas .is afart da AlidJ!c Sarah Dihtics tour in , Not. mher to be i>r etcJ na AP&I 's performance andpians. I r e

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Federal EnergyMninistration t, necOGNIZES Arkansas Power & Light Company

Uttle Hock. Arkansas f For leeder hip and enrellence in contributing uiI$r"[y re"[u'0I. r r th,"En7e",INic September 28.1977 n% E f4}

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Arkansas Pouer & Light uus one of only 25 utilities in l the natious honoredby the FederalEnergy Administration lor i outstanding contributions to energy consertution. The l au arl u as presentedin conriection uith the Utdities John S. Williams Consertation Action Non froqram. Director of Atarbeting l

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                                                   " Effective load management and conservation programs are of

) benefit to both the Company and its customers." AP&L has made a strong commitment to virtually every state. l research and deselop new methods of energy In 1977 AP&L introduced two major efforts management to help reduce peak demand and to aid residential customers in conservation. In assist customers in conservation. June the Energy Audit program was implemented These innovative programs have brought through co-sponsorship by the Company and national recognition to the Company as a leader the University of Arkansas at Little Ilock. Endorsed in the field of load management. For instance, by the State Energv Office, the Audit provides last fall AP&L was presented a s[rcial award customers with a free evaluation of home energy by the Federal Energy Administration as a part - characteristics and recommendations on how to of the Utilities Conservation Action Now program achieve greater energy efficiencv. The Company was one of only 25 utilities in The Energy Conservation Loan program

 ,          the nation receiving such recognition and                                     was announced in late summer. Under this l             was the only utility in Arkansas honored.                                    financial program. AP&L is working with i              AP&L's marketing efforts have played a                                     r rticipating banks. savings and loan associations major role in the implementation of conservation                              and contractors. Customers who qualify can make programs for many years. The Arkansas Energy                                  home energy improvements and then pay ter them Saving i lome is a prime example. The Company                                 monthly on their AP&L bill.

helped develop and pioneer this new concept Effective load management and conservation in residential building techniques to increase programs are of benefit toluth the Company and thermal quality. In cooperation with the Federal its customers. We look fonvard to the future Housing Administration. marketing representatives development and marketing of additional services have worked with builders, developers manu- as AP&L seeks to meet President Carter's facturers and customers in securing widespread national energy goals. acceptance of the Home. In addition. AP&L staff members have participated in more than , , 100 seminars on this concept. providing information to state and federal agencies tnd utilities in y ee 3

g, i = l ; "By 1985 we hope to meet almost ! J- -

                  \(:am 90 percent of our y         energy requirements A         with generating

! facilities fueled s by coal and William Cavanaugh III Huc err." Faccuin e Director of Generation 6 Construction

We are striving to help stabilize electric enerev costs for our customers by constructing a generating system that will utilize the advantages of coal and nuclear fuel to their fullest. The chart below craphically illustrates the shift away from expensive fuel oil and scarce natural gas as boiler fuels. By 1985 we hope to

                                                                                   ,                                        meet almost 90 percent of our energy requirements
                                                                                           - s.                             with generating facilities fueled by coal and
                                                                                           *' 0            , .b'            nuclear fuel. Both of these fuels represent i                commodities that are abundant. domestically available. environmentally compatible and economically sound.
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( ' To meet that objective, we have undertaken J "- '

                                                                                                             #               the largest construction program in AP&Es Myear
                                                                        -               ,                     L              history. In 1977 AP&l's construction expenditures
                                            ..,           n v2 ,                                             t               totakd 5195.1 million and this year we estimate that costs will rise to 5215.2 million. These In Aneust AP&L an.Ienerun:entalotticials />ricthi rcs/d. nts in ibe NeuE4 area on ti,c In./cren./. nce Suan,                                             expenditures include $162.2 million in 1977 lh ctr:c Station fin?cct, Ot cr jin citt: ens .ittenslait >e                          t j%hlic_for.r.? in the Neuatb Sci >oolg1innasinon.

ENERGY SOURCES - PERCENT OF NET INPUT 1972 1977 1979 1981 1982 198', 1985

Nuclear - 29 52 50 48 42 39 Gas 41 3 3 2 1 1 - Oil 1/ 36 34 8 10 7 6 Coal - - - 16 29 40 49 Hydro 1 1 1 1 1 1 1 Purchased Power 41 31 10 23 11 9 5 Total 100 100 100 100 100 100 100 Includes first full year of operation of:

                                                                                                                         "[{                              White Bluff         Independence Unit 2                            Unit 1 Unit 2           Unit 1 Unit 2 4

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                                                                                                                                                         $j Ariansas Nucicar One. the Soult nestifirst nuclear.jueledelectricgenerating station. udi be complete in 1973 u hen Unit 2 Itguns commerc:aloperation. Or se since 1974. Unit I sct a recordin 1977forlongest continuous operationfora reactor ofits Iste and manufacture l  and 5168.4 r ullion in 1978 for construction                                of contract negotiations, pre-construction planning of new or improved production facilities.                                   and scheduling. Second. the system has brought Being built near Russellville on the Dardanelle                         various satellite and often fragmented support areas Resersoir. the second unit of Arkansas Nuclear One                         into a single coordinated effort. Third. it has is nearing completion with commercial operation                             given the Company expanded technical and i

scheduled for late 1978.1.' nit I went into administrative capabilities in controlling several commercial operation in 1974, making this facility major construction projects at the same time. the first nuclear-fueled electric generating in addition, we have developed a new station in the Southwest. construction management information system for Rapid progress is tring made on construction major project planning and control. This system of the two-unit coal fired White Bluff Steam is primarily designed to support project J Electric Statien at Redfield. The facility will management scheduling, document control, have a 1.400-megawatt net generating capability, accounting interface. materials control and utilizing low sulfur Wyoming coal as its boiler tinancial management. fuel. The first unit is scheduled to go on line We tvlieve that all of these steps will be in 1980 with the second unit to be completed valuable in helping to assure on-time, in-budget j in 1982. The total project is estimated to cost project completions. I 55(X).3 million.of which AP&l's portion will i tv 5357.8 million. In August the Company announced plar , to MAi+ -~- -- ^ build two additional 700-megawatt net unia ~ar Newark. Named independer,ce Steam Electric 77 w ? ~ mr - ~ Station. the facility is scheduled to burn low sulfur Wyoming coal. Like White Bluff, this station

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will be jointly owned by AP&L Arkansas Electric Cmperative Corporation and the City of Jonesboro. We are projecting commercial operation - in 1983 and 1985. Licensing applications have g

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been fikd with regulatory approvals y hoped for in 1978. T

Several significant steps have been taken to help assu're quality, cost-effective management f hrs of these and other construction projects.

For instance. the Company's generation and

construction areas were reorganized during 19, , _- This new management system hs had three Construction is non underuas at the Wiute Ituristeam primaty benciits. Electric Station near Redsell TI,e tu o-unit bcilits uill ~ First. this forma. has already achieved bate a I..unmecauart net generating cardihty upun economic efficiencies. especially in the areas totaltroiut aunt etwn. l 5

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j "The consulting team iceported

i that it found AP&L to be a well- 5 managed utility with many strengths i and a sound nast r Ralph C. Mkehell Ill j g Director <f Management Sertices

with follow-up still continuing.

i record, but wnh in an effort to determine the rotentiai of using Arkansas lignite at.d coal as boiler some avenues for fuels in generating electric energy. AP&I. and Arkansas Electric Cooperative Corporation

;           igCyggggd                                              jointly sponsored an extensive fuel research

! project during 1977. The $300.000 study is 4 g[[iCiggCigg,M pn wntly undsay uith Stone & Webster ,,

;                                                                  Engu eerm, g Corporation and Battelle Memorial i                                                                   Institute serving as exhnical consultants.

Because of expanding operations, rising While the study will not be fully completed

costs and an aggressive management posture. AP&L until the spring of 1978, preliminary data i has undertaken several major studies to help indicates that lignite most probably will be evaluate internal organization and to analyze the a viable fuel alternative for electric generation Company's future fuel options. in the 1986-88 time frame.

In April the Company released the findings These steps demonstrate the Company's of an inslepth managenent audit conducted by desire to approach its goals openly and realistically Theodore Barry & Associates of los Angeles, a as it met 3 the challenges of this decade and nationally-known consulting firm that has prepares for the opportunities of the next. i audited more than 20 utilities. The study was l initiated by Company management to identify opportunities for additional improvenrnt of' {' -

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! AP&L operating procedures and policies. The g* i g 7 ! Company staff worked with the TB&A research di l 1 l team for over eight months keeping the Arkansas f f*" , "

!     Public Service Commission fully infermed during                      --.             -

I all study phases since the audit addressed some of the Commission s concerns. ~p The consulting team reported that it found i [' AP&L to be a well managed utility with many I strengths and a sound past [rrfornunce record. . but with some avenues for increased ef ficiencies. Q

The 162 study recommendations encouraged l continuation of some programs. minor to significant i nulifications in others and development of some new policies and pmcedures. 'p Following the report's presentation. the .. Company instituted a disciplined follow-uP Got crnor Dati.IPrior (cente riioins uith AP&L implementation plan which TB&A called the riust f.,cyjscyf a7cj, pg,f frje nf,ay;f ff;77, oyyafs ecyce;f thorough and impressive resfonse to a utility manacce ,f arisysas Fjectric coperafu e cyforafjoy. management audit they had seen. Major progress has at a ncu s contercuce on tbc comf.rdcurit c Aaantar been nude on this management improvement effort !<enetc studi. 6

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4 i ) h le 19'7 1P&L began imt ementation of a Datnhution Construction and Operations Ssstem. This neu management tool uillallou for computcri:ed control ofcustomer service requests. Intormation on iarious proiccts a dibe dnf asedon l e ideo screens !!eftiso thatfrogress can be checkedon each sertice order. ? Distrd>ution creu productitity uillhe increasedas ucilas system reliability.

                  "The Air Conditioning Switch program is a pioneering effort in the eleckic utility indushy."

The expansion of the AP&L Air Conditioning Switch program and the implementation of a , ! Distribution Construction and Operations Manage-I ment System received priority attention ir 1977. -(p ce 1- - ; l The Air Conditioning Switch program is a ' pioneering effort in the electric utility industrv. 1W

j I It involves free placement of radio-contro!!cd -

                                                                                                                                                          ;;;;;i 'y devices on qualifying residential central or                                                                                                         ,_

conditionme units. Participatme customers M(p d; agree to allow AP&L to switcn off their units for 1[j;

two-73 2 minute periods in any one hour Jurin high electric usage periods. For participation. 'g customers receive a credit on their electsic bill- O@h* averaging about 57 per month-during a three , month summer perial. At year-end, approximately J 10.000 customers had requested installation. For AP&L. the program represents a significant 3%(t y load management tool. We anticipate that it will ~

take several years to install enough switches ~ to sienificantly affect the total peak :oad of residential customers. I fowever. a Company-wide system would defer 127.000 kilowatts of tuture generation (costing about $500 per kilowatt) and M provide the capability of shedding 500 megawatts b4.Wl,,cf of Rice

of nontssential load during emergency shortage Distnhution Plant irriods.

In an effort to streamline internal organiza- benefits in the range of 53 million and require tion. improve efficiency and expedite service to about three years for Company-wide implementation. j the customers. AP&L is implementing a Distribution These two endeavors are demonstrative of l Construction and Operations Manacement System. AP&L's innovative approach to problem solving This control format will increase the productivity and cost effectiveness in the vital of designers. crews. plant accounting staff and distribution area. clerical personnel by providing a data link p to all parties involved in this Company service function. The System will produce annual A

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l A A ! "We hope to offer time-of-day l f rate schedules as a

customer option since this wiH l allow for further study of the pricing concept.n l In 1977 one of the most extensive timemf-dav l rate experiments was concluded in Arkansas. Als a result. AP&L plans to file an application before the Arkansas Public Service Commission in 1978 seeking . - approval for an optional time-of-day residential l clectric rate schWule. s

Time-of day pricing is a utility rate concept that

results in the cost of ekctric energy to the consumer , Iring at a higher cost during the time of day when

                 ;vak demand occurs. This concept more closely aligns                                                                                                     ,

rates and the cost of supplying service during periods of high usage. Atkansas was one of eight states receiving funding

l , from the Federal Energy Administration for studies l to test customer consumption patterns while electric , prices changed drastically. AP&L and the Arkansas Public Service Commission jointly applied for the n search grant. Spannin conducted'g a 13-month period. the tests were W "" in I cebe. Dumas. Hamburg and Wvnne Y since each of the communities was thought to be - L{ ! representative of the AP&L system in terms of types % of customers, population mix, energy consumption and other demographics. P- m

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2 The results showed that time-of-day cares proved ef fectis e in reducing consumption during high demand O. V. Holeman periods, especially in the hot summer months. A Duutor of Rates 6 Research study of the attitudes and opinions of persons partici-pating in the experiment showed that three-fourths of DMy Load Cum / July 26, M6 all types of customers agreed that energy conservation ! is desirable. However. 80 percent of the residential . l customers and 50 percent of the commercial customers preferred voluntary reduction. We hope to offer time-of-day rate schedules as a 9 ,,,, - customer eption since this will allow for further study 3 of the pricing concept. With this additional research. !" - we will have'an even better perspective on the benefits of *his concept loth for AP&L and our customers.

                                                                                                          . -.____/ - ,_ /

PEAK

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                                                                                                                 --                        Houns      -...-....s Tbc etiut of tinte-of-Jat r.:tes on customer us,;ce is rqlutcJin the abot c gr.z?h During tkreal dem.:nddes in 19'6. time-of-J..:t customers reduced usaec Jurme tbe critical snmmer airs nu.an hours u bc n tlc impact of >

conditioning is most heanis (dt. S

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h 1977 ARKANSAS POWER & LIGHT COMPANY FINANCIAL REVIEW

     %E!E

SUMMARY

OF SIGNIFICANT ACCOUNTING POLIGFS A. System of Accounts The accounts of the Company are maintained in accordance with the system of accounts prescr:ised by the Federal Energy Regulatory Commission f FERC), formerly the Federal Power Commission (FPC). D. Revenues and Fuel Costs The Company records revenues as billed to its customers on a cycle billing basis. Revenue is not actrued for energy delivered but not billed at the end of the fiscal period. Substantially all of the rate schedules of the Company include adjustment clauses under which fuel costs above or below the levels allowed in the various rate schedules are permitted to be billed or required to be credited to customers. The Company has adopted a deferral method of accounting for those fuel costs recoverable under fuel adjustment clauses. Under this method, such costs are deferred to the month in which the related revenues are recorded. Beginning in 1977, the fuel adjustment factor contains an amount for a nuclear reserve fund, estimated to cover the replacement cost of energy which would have been generated using nuclear fuel when the nuclear plant is down for refueling. The fund bears interest and is credited to fuel and purchased power expenses when the plant is down for refueling. 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 construc-tion. The costs of units of property retired are removed from utility plant and such costs plus removal cost, less salvage, are charged to accumulated depreciation. Maintenance and repair of property and replacement 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 various classes of property. Depreciation provided in 1977 and 1976 amounted to approximately 3.3% on the average depreciable property. Principally all the Company's utility plant is subject to the lien of its mortgage. D. Pension Plan The Company has a pension plan covering substantially all of its employees. Pension costs in 1977 and 1976 amounced to $4,560,000 and 54.137.000, respectively, including amortization of unfunded prior service costs over a period of 20 years. The policy of the Company is to fund pension costs accrued. E. Income Taxes The Company joins its parent in filing a consolidated Federal income tax return and income taxes are allocated to the Company in proportion to its contribution to the consolidated tax liability. Deferred income taxes are provided for differences between book and taxable income to the extent permitted by the regulatory bodies for ratemaking purposes. Investment tax credits are deferred and amortized over the average useful life of the related property. F. Allowance for Funds Used During Construction In accordance with the regulatory system of accounts, the Company capitalizes, as an appropriate cost of utility plant, an allowance for funds used during construction. This allowance (a non-cash item) represents the net costs of funds used to finance construction. Prior to January 1,1977, the corresponding credit was to non-operating income. Effective January 1,1977, the Company adopted FPC Order No. 561 as to rate determination and reporting requirements which provide for separation of the common equity component and borrowed funds component of funds used during construction. The rates used for such allowances were 7.38% and 7.50% for the years 1977 and 1976, respectively. The Company has not reclassified the allowance for funds into its debt and equity components for periods prior to January 1,1977 since the allocation between such components for prior periods would not be comparable utilizing the revised procedures. The Company continues to capitalize allowance for funds used during construction on projects during tem-porary periods of interrupted construction when it can be justified as being reasonable under the circumstances. G. Reserves It is the policy of the Company to provide reseives for uninsured property riska a-d for claims for injuries and damages through charges to operating expense on an accrual basis. Accruals for these reserves have been allowed for raremaking purposes. 9

f _

 %%IIE EAI.ANCE SHEER AT DECEMBER 31,1977 AND 1976 ASSETS 1977              1976 In Thousands Utility Plant:

Electric plant . 51.139,511 51.111.119 Construction work in progress . 610.557 505.669 Nuclear fuel . 12.747 4.562 Total . 1,762.815 1.621.350 1.ess-accumulated depreciation and amortization . 297,464 265.099 Utility plant-net . 1,465.351 1.356.251 Other Property and Investments: Investments in associated companies, at equity (Note 6) . 21,027 15,707 Other, at cost (less accumulated depreciation) . 1.777 1.166 Total . 22.804 16.873 Current Assets: Cash and special deposits (Note 4) . 4.135 10.273 Temporary investments, at cost which approximates market . 29.315 1.500 Notes receivable (less allowance for doubtful notes) . 1,227 1.302 Accounts receivable: Customer and other (less allowance for doubtful accounts -

         $410.000) .                                                   22.884             18,594 Associated companies .                                               966                78 Deferred fue! cost (Note 2).                                         5,185             8.167 Materials and supplies. at average cost .                            5,184            'i,275  l Prepayments and other .                                             4.025              1.720 Total .                                                 72.921            46.909 1

Deferred Debits. 2.468 1.907 Total . 51.563.544 51.421.940 see :ecuo rinmui suiemenn l l l 10 l l

T uABEmES 1977 1976 In Thousands Capitalization: Equity capital: Preferred stock (Page 14). . . . . . . $ 171,772 S 171,772 Common stock ( $ 12.50 par value), authorized 50,000,000 shares; issued and outstanding 30.636,773 shares in 1977 and 29,436,773 shares in 1976. . . 382,960 367,960 Retained earnings (Notes 1 & 7). . 55,641 39.040 Total equity capital . .. . . .. . 610,373 578,772 Long-term debt (Page 14) . .. . . . . . . 667,484 591.382 Total . . .... . . . . . 1,277,857 1,170,154 Current Liabilities: Notes payable-Banks (Note 4) . . . . . 4.500 Currently maturing long-term debt (Page 14) .. . 7,500 11,000 Accounts payable: Associated ccmpanies . .. .. , 8.272 8,432

        -Other.          .                                                                                                           57,071          30,392 Customer deposits .                 .            ..          .                              .                     .. .           6,994           6,415 Taxes accrued .               .               .                                                                                 28,242           6,323 Accumulated deferred income taxes .                                                            . ..               .              2,651           4,175 Interest accrued .                .                                       .

13.951 12,245 Dividends declared . . . ... . 3,505 3,284 Nuclear fuel reserve. . . 9,264 Other. . . . . . 3,431 2,353 Total . . . . .. . 140.881 89,119 Deferred Credits and Other Liabilities: Accumulated deferred income taxes . . . . . 87,369 78,311 Accumulated deferred investment tax credits . . ... 43.969 33,066 Revenues subject to possible refund plus interest (Note 1) . . 15.887 Deferred payments on construction contracts . . . 4.200 26,709 Other. . .. .. . . . . . 8,133 7,875 Total . . . .. 143.671 161.848 Reserves . . . . .. ... .. . 1.135 819 i Total . . . 51.563.544 S1,421.940 ! L see Notas to Financial scarements 11

YTATEMENTS OF INCOME AND RETAINED EARNINGS god! gg For the Years Ended December 31,1977 and 1976 _ 1977 1976 In Thousands Statement of Income Operating Revenues (Note 1) . 5537.408 5396.597 Operating Expenses: Operation: Fuel . 169,890 107.213 Purchased power . I14.225 107.983 Other. 63,827 44.056 Maintenance . 18,090 13.794 Depreciation . 36,768 35,025 Taxes other than income taxes . 20,154 18.858 Income taxes (Note 3) . 43.937 17.164 Total . 466.891 344.093 Operating Income . 70.517 52,504 Other Income and Deductions: Allowance for funds used during construction: Total (prior to 1977) . 26.445 Other. 26.703 Miscellaneous-net . 5,806 3.314 Income taxes (Note 3). 6.660 7.014 Total . 39.169 36.773 Interest Charges: Interest on long-term debt . 45.047 43.152 Other interest-net of debt premium . 3.917 2.703 Allowance for borrowed funds used during construction . (9,963) Total . 39,001 45,855 Income Before Cumulative Effect of Accounting Change . 70,685 43.422 Cumulative Effect to January 1,1976 of Change in Accounting for Fuel Costs (Note 2) . 3.541 Net income (Note 2) . 5 70.685 5 46.963 Statement of Retained Earning Retained Earnings, January 1 (Note 1) . 5 39.040 5 41,297 j Add-Net income . 70.685 46.963 l Total . 109,72_5 88.260 l 1 Deduct-Cash dividends: Preferred stock . 14.039 13.136 l Common stock . 40.045 36.084 Total . 54.084 49.220 Retained Earnings. December 31 (Notes 1 & 7) . 5 55.641 5 39.040 See Notes to i inanaal Statements 12

i STATEMENT OF SOURCE OF HJNDS FOR UTILnY PLANT ADDITIONS "JRJ E For the Years Ended December 31,1977 and 1976 197) 1976 In Thousands Source of Funds: From operations: Net income . . S 70,685 5 46,963 Depreciation . 36,768 35,025 Deferred income taxes and investment tax credit adjustments-net . 19,960 19.114 Allowance for funds used during construction . (36.666) (26,445) Total . 90,747 74,657 Dividends declared: Preferred stock. . (14,039) (13,136) Common stock . _ (40,045) (36.084) Total . (54.084) (49,220) Funds retained in business . 36,663 25,437 From decrease in working capital (excluding short-term securities and currently maturing long-term debt) . 61,564* 15,435 Book value of utility plrc sold . 62.631 Refund of revenues in excess of that allowed by Arkansas Public Service Commission . (15,887) Advances for fuel oil purchases: Payments . (12,629) Refund . 23,492 Deferred payments on construction contracts . (22.509) 9,139 Miscellaneous-net . (6,142) (l.699) Total . I16.320 59,175 From financing transactions: Common stock . 15.000 30.585 Preferred stock . 10,000 First mortgage bonds: Issues . 75,000 Retirements . (l1,000) Installment purchase transactions . 9,130 53.317 Short term securities-net. (32.315) 24.104 Total . 55,815 118,006 TOTAL. S172.135 5177.181 Utility Plant Additions (excludes allowance for funds used during construction): Construction expenditures . 5159.012 5148,495 Nuclear fuel . 7.613 3.669 Other plant additions-net . 5.510 25,017 TOTAL. 5172,135 5177.181

The dureaw in working capital for 197 is primarity attributaNe to increaws in accounts pasable and tnes accrued See Notes to rinanual statements 13

E

    %%!!E SCHEDULE OF PREFERRED STOCK AND LONG-TERM DEBT Current Shares             Shares Outstanding               Call Price Preferred Stock                                    Authorized               1977           1976            Per Share, CUMULATIVE, $100 PAR VALUE:

4.32?. senes . 70,000 70,000 70,000 $103.647 4.727. senes . 93.500 93,500 93,500 107.00 4.567. senes . . 75,000 75,000 '5,000 102.83 4.567.-1965 senes . 75.000 75,000 75,000 102.50 6.08% series . 100.000 100,000 100,000 102.S3 7.32% series . 100,000 100,000 100,000 104.67 7.80*. senes . 150,000 150,000 150,000 107.15 7.40". senes . 200.000 200,000 200,000 106 50 7.887. series . 150,000 150,000 150,000 108.91 10.60% senes' . 200,000 200.000 200,000 112.04 11.04% series' . 400,000 400,000 400,000 112.54 Unassued . _2] S6.500 TOTAL. 4,010,000 1,613,500 1,613,500 CL%1ULATIVE, $25 PAR VALUE: 8.84% series . 400,000 400,000 400,000 $ 28.21 Unissued , 9.60(1000 TOTAL. 10.00(1000 400,000 400,000 TOTAL PREFERRED STOCK 14.ONLOOO 2,013,500 2.013,500 in Thousands STATED AT $100 A SHARE. $161.350 $161,350 STATED AT $25 A SitARE _ . . . ... 10.000 10,000 PREMlUM ON PREFERRED STOCK . 422 422 TOTAL. $ 171,772 $ 171,77 ? Long-Term Debt 1977 1976 FIRST MORTGAGE BONDS: In Thousands 2-7/8?. series due 1977. $ 11,000 31/es senes due 1978. 5 7,500 7,500 2 7/8% senes due 1979 8,700 8.700 2 7/8*. series duc 198G . 6,000 6,000 3-5 8% senes due 1981. 8,000 8.000 9-1/47. senes due 1981. 60.000 60,000 3-1/27. senes due 1982. 15,000 15,000 3-I/4*. series due 1984. 7,500 7,500 3-3/8*. senes due 1985. 18,000 18,000 4 7/8*. series due 1991. 12,000 12,000 4 3/8% senes due 1993 15,000 15,000 4-5/8*. senes duc 1995. 25,000 25.000 5-3/4?. serio due 1996. 25,000 25,000 5-7/87. series due 1997. 30.000 30.000 7-3/87. senes due 1998. 15,000 15,000 91/4% series due 1999. 25,000 25,000 9 5/87. senes due 2000 25,000 25,000 7 5/87. series due 2001. 30,000 30,000 8*. senes due 2001. 30,000 30,000 7-3/4*. series due 2002 35,000 35,000 71/2% series due 2002. 15.000 15.000 8% senes duc 2003 40,000 40,000 8-1/87. senes due 2003 40.000 40,000 141/27. series due 2004. 40,000 40,000 10-1/87. senes due 2005. 40.000 40,000 9 I/87. senes due 2007. 75,(X)0 TOTAL FIRST MORTGAGE BONDS ** . 647.700 583,700 INSTALL \ LENT PURCHASE CONTRACTS: Pty County, Arkansas Due 2006,7-3 87...._ 16,600 16.600 Jefferson County, Arkansas, Due 2007,6 1/8*. 47,000 Less: Amount held in construction funds. 37,870 TOTAL INSTALL \ TENT PURCHASE CONTRACTS . 25,730 16.600 UNAMORTIZED PREMlUM AND DISCOUNT ON DEBT-NET. 1,554 2,082 TOTAL... 67'.,984 602.482 LESS: CURRENT MATURITIES INCLUDED LN..... ....... ............ CURRENT LIABILITIES . 7,500 11,000 LONG-1ERM DEBT. EXCLUDING AMOUNT DUE WITHIN ONE YEAR . $667,484 5591,382

           *Cornmenung in the veer 1920, and annually thereatter,10,000 Shares of the 10 60*. nef tes and 20.000 shares of the 11.0% series sust be redeevned of 5 t00 per share plus accumulatej Av.Jend to date of redempe on
          " Annual sanlung fund requirements, which may be met by certstetation of property additions at the rare of 167*. of such requeremeng ernount te is.M 2.000 in 1978 see Notes to Financial seneements 14
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                                                                                                                                               \

MIDDLE SOUTV urums smru Notes to Financial Statements

1. Rates In September 1974. the Company pixed into effect, subject to refund with interest. revised retail scha!ules designed to yield

   $38.600.000 additional annual revenues. In March 1975, the Arkansas Public Service Commission ( APSC) granted the Company an increase of $20.200.000. The decision of the APSC was appealed and the Company continued to bill customers on the basis of the rates designed to yield $38.600.000, but deferral. retroactive to September 1.1974 for accounting purposes the ditference beween amounts billed and the amounts allowed by the APSC. In February 1977, the Supreme Court of Arkansaa issued an opinion which allowed the Company to retain approximately 59.678.000 of the additional revenues which had been deferred. The Company re-funded approximately $15 A00.000, including interest. in 1977. and restated its financial statements for 1974 and 1975 to reflect increases in ret income of $1.276,000 and 54.104.000, respectively.

2. Accounting Change in 1976, the Company adopted, effertive January 1,1976. the accounting policy of deferring fuel costs in excess of base levels allown! ;n rate schedules until their recovery through the fuel adjustment clause. !%ferral of the excess fuel costs for accounting pur-poses was adopted due to ( 1 ) the continuing increase in the unit cost of fuel, and (2) the significant increase in unrecovered fuel costs during those periods when the Company's nuclear plant is not operating.

This accounting change. net of deferred income taxes, resulted in an increase in net income for 1976 of $3,992.000. of which 53,541.000 represents the cumubtive e!'ect of the change as of January 1,1976.

3. Income Taxes Income tax expense consists of the following:

1977 1976 _ In Thousands

                  . Current:

Federal. 521.089 $< 3.434) State. 4.412 1.012 Total . 25.501 (2.422) Deferred-Net: 1.iberalized depreciation . 8.514 9.277 Taxes. pension costs, and interest capitalized on twks and duluctcd on tax rearn. 5.653 6.241 Revenues collected in advance - nuclear fuel reserve . (4.657) - Drfeirn! fuel expenses . (l.524) 471 Gain on sale of assets . - (3.729) Other. (453) (801) Total deferred taxes '.533 11.459 Investment tax credit adjustment net . 10.903 8.127 Total charged ro operations . 43.937 17.164 Credited to ockr income and deductions . (6.660s (7.014i Total . 537.277 310.I50 15

                      ~                                                                                                       _               J

The total income tax expense reflects reductions resulting primarily from the exclusion from taxable income of the allowance for funds used during construction. The effective income tax rates for 1977 and 1976 were 357, ard 23%, respectisely. Investment tax credits generated in 1977. including approximately 59,200.(XX) in excess of the amount utilized, have bten deferred. Unused credits are available to reduce the income taxes to be guid in futare years. The Federal income tax returns for the years 1%7 tbrough 1972 have been examined aal assessments, which have been protested, have tren propmed by the Internal Revenue Service. The years subsequent to 1972 r 'su6 ject to examination. .Tlanagement is of the opinion that adequate provisions have tren made for any taxes that may ultimately be assessed. 4.1.ines of Credit aral Short Term Borrowings. The Company has arrangemesv ; vich certain banks and a commercial paper dealer providing for short term borrowing

          $ 110AXXMXR Accout ts are maintained wit h certain tending Arkansas banks and. although balances in some of these accounts m deemed to be compensating tulances, nust of these accounts are working accounts and fluctuations in their balarres do not ret or depend upon fluctuations in the amounts of bank loans outstanding. In support of the arrangements with non-Arkans Company maintains compensating balancs of 10% of the lines of credit with these banks (57,150JXX) at December 31
         . ahich are not restricted as to withdrawal, li>rrowings under these arrangenwnts require compensating balances of up co an additional 10% of the average annual arnount of outstanding loans from these banks. The aggregate amount of the unused lines of cred Dttember 31,1977 was 5110,000,0(X).

The bank and commercial paper notes are unsecured short-term ioans with various maturity dates not in excess of nme months. The interest rates on bank loans are the pr ime rates in effcct from time to time of the lendingbanks. During 1977 the maximum aggre-gate amount of short-term borrowings outstanding at the end of any month was 581,700,000.'Ihe average amount of short term twrowings outstanding during 1977 (based on the average of the sum of daily outstanding principal balances) approximated 537A08.000 of bank loans and $8,139,000 of commercial paper. The approximate average interest rate (determintd by dividing the actual interest expense on short term borrow ings during the year by the average short-term terrowings) was 6.58% for bank kians 6.86% for commercial paper.

5. Leases The folknving dischisures have tren made to fulfill the requirements of the Financial Accounting Standards Board (FASB)

Statenrnt No.13 for those le.as which meet the criteria used to define a capitallease.The Company is continuing to account for leases on the saw basis as that used by its regulatory authority in the raremaking process which determines the reunues utilind to ritmer the lease costs. Application of FASB Statenrnt No.13 would permit recording the following assets and liabilities on the balance sheet: 1977 1976 _ In Thousands Assets: 532,018 532,048 Utility plant . Accumulated amortization . . . 5.718 3.627 526,330 528 121 Net leased proprty. , , Liabilities: 525.876 527,599 Noncurrent obligations unok r capital letses . 5 1,723 $ 1,557 Current obligations under capital leases . 16 u _

The app;ication of FASB Statement No.13 mxild not materially affect the amounts reported as either expense or net income. At December 31.1977, there were noncancelab'e leases with minimum rental comnutments as follows: InThousands 1978 5 4.855 1979 4.754 1980 4.144 1981 2.728 1982 2.676 For years thereafter 54.491 TOTAL 573.648 The Company has entered into two nuclear fuel feases aggregating $90.000.000 and has agreed to lease additional fuel in the future. Irase payments, which are not included in the tabulations abc.e. are based on nuclear fuel use. Payments on the second lease are exptred to commence in 1978. Nuclear fuel expense of $11603.000 and $9,057,009 was charged to operations in 1977 and 1976, respectively. The leases, unless sooner terminated by one of the parties, will continue through 2013 and 2018, respectively. The unrecovered cost base of the leases was 570.892.000 and $63.100.000 at December 31,1977 and 1976, resortively. Rental expense (excluding nuclear fuel) amounted to agiroximately 56.863.000 and $4.606.000 in 1977 and 1976. resortively.

6. Commitments and Contingencies The constructicn program contemplates Company construction expenditures of approximately 5215.200.000 in 1978 and

         $ 168.500.000, in 1979.

During 1977. the Company sold a 40Lnterest in the White Bluff Steam Electric Statien to unrelated parties. At December 31. 1977, af ter the sale, construction work in progress related to White Bluff anuunted to approximately 5156 mil! ion; the Company's share of additional construction costs is estimated to approximate $201 million. The Company has a 35% interest in System Fuels. Inc. (SFli, a jointlyevned subsidiary of four of the principal operating subsidiaries of Middle South Utilities. Inc. ( S Fi stockholders ). SH operates on a nonprofit basis in planning end implementing procrams for the procurement of fuel supplies for the generating units of these crerating companies: its costs an 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 f rom its stockholders up to 5209.500.0001540.000.000 of n hich is subject to receipt of furtherrequisiteorderof the Securities and Exchange Commission). As of December 31.1977 the Company had loaned $20.825.250 to SFIpursuant to theloan agreements. and the Company's share of tb unused loan commitment is approximately 548.840.000. Ioans mature in 10 and 25 years from the date of borrowing. In conrxtrion with certain bank borrowings by SFI, totaling 541.887.000 at December 31.1977 the Company and the ether SFI stockholders have covenanted and agreed severally in accordance with their respective shares of ownership of SFFs common stock, that they will take any and all action necessary to keep SFI in a sound financial condition and to place SFI in a position to discharge. and to cause SFI to discharge, its obligations to the lending banks. Also, SFFs stockholders. including the Company, have made similar covenants and agraments in connwrion with arrangements entered into by SFI covering the sale. for a consideration of $20.827.104, and leaseback pursuant to a 25-year lease of certain oil storage and handling facilities located at a generating station of one of the qrrating companies. The Company has agreal to purchase over a 20 year period.100 million tons of coal for use at the White Bhiff Steam Bectric Station. In addition. SFI has entered into a contract with a joint venture for a supply of coal from a mine to be developxf in Wyoming. which is exptted to provide 150 to 210 million tons over a period of 26 to 42 years: coal so supplied is exptted to be used in the proposed Independence Steam Electric Station. 17

7. Retained Earnings

                  'the indenture relating to the Company's long-term debt and provisions of the articles of incorpdation relating to the Company's prefernd stock povide for restrictions on the payment or cash dividends on comnon st<xk. As of Decemirr 31.1977. 545.891.0LX) of retairxd earnings are free from sixh restrictions.

8. Transaction with Affiliates The Company buys fmm and sclh electricitv to the op ratmg subsiduries of AlidJ!e South Utilities. Inc., its parent, under rate sclxdu!es filtd with the Faleral Energy Regulatory Commission. In .ukhtion. the Company purchases fuel from System Fuels. Inc.

Operating reventrs include revenues from sales to affili.ites annunting to $48.934.0H)in 1977 and $14.948.000 in 1976. l Qvrating expenses im!ude fuel cost and purclusal power charges from af filiares totaling $235.253.0 X)in 1977 and $ 1"'4.108.00) I I in 1976. l

9. Quarterly Results (Unaudited) )

l Onrating results for the four quarters of 1977 and 1976 are as follows-l 1977 Alarth Setember Ditemtvr f in Thousarus, l O i rratmg resenues . 596.9J1 5140.362 $170573 5129.253 l 9.561 13.825 29.620 17,511 l Oprating income . . 8.903 13.823 29.415 Ig,4gl Net income . 1976 Alarch ,Iune Mtemlvr Decemlrr (in Thousarxh) 0 5rrating revenues . $R6.918 5 83.331 5125.224 $103.13 i l 0;rrating inmme . 11.543 9.481 18.108 13.37 i I Inmnr trtore cumulanve ef fat of accounting change . 8.801 7.436 16.154 11.028 ! Net Income . 12.34H a n '436 16.154 11.028 l (.0 The quarter ended Alarch 31.1976 has tren Jiusted for the change in accounting described in Note 2. The cumulative effa: of the chance as of January 1.1976 mcreami net inconn for the quarter endal Alarch 31.1976 bv 53.541.000. In addition to the adjustment noral in Ia) alute, the qturterly figures refktt the seasonal fluctuations w hich are normal to the Ccmpany's operations. Accordingly, earnings infornution for any threenunth perad should not be mnsideral as a basis for esti-mating the results for a full year.

10. Replacement Cost Information (Unaudited)

Tir impact of the rate of inflation extrrienced by the Company in atent ye.; has nsulted in nplatenrnt costs of paductive capacity that are significantly greater than the historical cmts of such assets reportal in the Company's financial statements. In mmpliance with npirting requirements. estinutal nplacement cost infornution is disclosed in Aliddle South Utilities. Inc. annual nysrt to the Suunties and Exchange Commission on Form 1&K. I1. Accounting Policies The summary of significant accounting policies on pace 9 is an Mtegral part of these tutes to fiiiarx-ial st.itements. 18

Accountants

Opinion i

           . Haskins & Sells                                                                                        One Shell Square Certified Public Accountants                                                                            New Orleans. I.ouisiana 70139 Arkansas Power & Ught Company:

We have examined the balance sheets of Arkansas Power & 1.ight Company as of Dxember 31,1977 and 1976 and the related state-rnents of income, retained earnings, and source of funds for utility plant additions for the years then ended. Our examinations were made in accordance with generally accepted auditing stanards and, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessa:y in the circumstances. In our te xt dated January 31,1977, our opinion on the 1976 financial state rwats was qualified as being subject to any increase in operating revenues which might result from the final settlement of a rate matter. As explained in Note 1. the rate matter has been settled and the financial statements have been restated. Accordingly, our opinion on the 1976 financial statements, as presented herein. is different from that expressed in our previous reprt. In our opinion, the above-mentioned financial statements present fairly the financial position of the Company at December 31,1977 and 1976 and the results of its operations and source of funds for utility plant additions for the years then en&d. in conformity with generally accepted accounting principles applial on a consistent basis, subsequent to the change in 1976, with which we concur, in accounting for fuel costs as discussed in the 2.- February 10.1978 - 1 doe / ? v. l l i l i

                                                                           ,19 a                                           ,        -                                           . _ . . --.

7

    ./
  /

Capitallation and Capitalization Ratios MILLIONS OF DOLLARS ggo (In Thousands of Dollars) e scuos Capitalization-End of period: yoo _ 4 b N ,N [o* " Equity capital: Yetir cao.e.ac. ,ane. & Preferred stock and premium . $ 171.77: 600 - Sao ** ca.4= an _ :' Common stock . 382.96( 500 m i } Retained eunings . 55.641 610.37?

                                                                        ^                1                        Total .

4o0 N *S E Long-term debt: l First mortgage bonds and premiumt . 642.97' s { ->;'s } l 300 - _j i h Installment purchase contract

                  -             S L     %               s                         and discount .                                                        24.50'     !

200 m

i 5-4 $-go I a

Sinking fund debentures . l

s m :

g i loo d 5 E-Y I -E -2 i Total . 667A + ' Total capitalization . 51.277.85' j o h upc 9m

                                                                          . , , r0 i v 4e

w. .o .rn .= ., v. i !

! 1968 1970 1972 1974 1976 1977 Annual Payment h@cments: , '; Interest on: i First mortgage bonds . 5 49.36 l Installment purchase contract - 4.10 Utility Plant Dividends on preferred stock . 14.02( MILLIONS OF DOLLARS . Utility Plant-End of period: 1eoo 51.139.51 Electric plant completed . l Construction work in progress . 610,55' 1600 [ [,*[" , Nuclear fuel . 12.74

          00                                                                                                                                                                       1.762.81 Total utility plant .

Less-xcumulated depreciation . 297.46 1200 Net utility plant . 51.465.35 1000 Income Statement: Boo Operating revenues . 5 537 A0 600 Operating expenses: Fuel. 169.89 400 Purchased power . I14.22

           ,                                                                                                    Payroll-Operation and maintenance .                                      29A4
           'gg Other operation and maintenance .                                        52A6 o                                                                                                Depreciation .                                                            36.76 1968 69            '70       '71           72     '73   '74       '75         '78 1977           Taxes.                                                                   64.09 Total .                                                            466.81 Operating income .                                                            70.51 Net income                                                   Other income and deductions-net MILLIONS OF DOMRS                                                       (excluding AFDC').                                                         12 A(-

80 Interest and other charges: 70 - ro uo ,c. ry s una. Interest on long-term debt . 45.m u=oounace.w e Other interest-ner of so debt premium . 3.91 Total (excluding AFDC'). 48.9( So income from revenues . 34.01 N n< ash income from AFDC* 36.6( 40 - - - Income f rom accounting chance: . 30 Net income . 5 70.6F 20 _

                                        - -E -                                                                                                                                                       l l

to - : - - l I

                                                                                                           '""d""'""d8"""""'"" " " ' ' " " ' " '            ""'""'"I       '

l 1968 69 To 71 '72 73 '74 75 ~76 1977 'Lumularise ef twt to janisaty 1.19*(i. ed t hange in .nounting for f uel a mts. I ' AlIX' Allowant'e inr f unch uwd during co Nruction. i 20

e _

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1976 1975 1974 1973 ' 1972 1971 1970 1969 1968 ; 5 171.772 5 161.720 5 101.657 5 101.657 5 86.615 5 51.529 5 51.529 5 51,529 5 41,487 367.960 337.375 292,375 257,375 202.375 172.375 137.375 121,375 111,375 39.fMO 41,297 41.869 3(i.827 34.714 31.043 25.982 26.582 23.954 978.772 540.392 435.901 395.859 323.704 254.947 214.886 199.486 176.'116 575,184 586.318 546.284 476.354 393,700 343.700 283.700 258.700 233,700 16.198 4.475 4.475 4.700 4,925 5.150 5.3"J 591.382 586.318 546.284 480.829 398.175 348.400 288.625 263.850 239.075 51.170.154 $ 1.126.710 $ 982.185 5 876.688 5721,879 5603.347 $503.511 5463.336 $415.891 5 42.837 5 42.837 5 38.787 3 29,974 5 23.524 5 19.687 5 15.000 5 12.593 5 10.281 1,224 14,020 13.136 6.600 6.600 5,418 2.768 2.768 2.768 2.036 S1.111.119 51.097.913 51,051.248 5 762.319 5727,558 5684,668 $658.853 $ 587,608 5563.176 505.669 350.911 215.794 330.585 216.055 151.797 49,595 56,557 28.808 4.562 8.179 5.229 29.953 26.722 9.143 1.621.350 1.457,033 1.272.271 1.122.857 970.335 845.613 708.448 644,165 591.984 265.099 240.014 211.456 193.400 175.144 160.665 145.712 131.726 120.060

      $1356.251     $1.217.019   $1.060.815   5 929.457    $795.191   5684.948   5562.736   $512.439   5471.924 5 396.597     5 316.831    5 296.811    5 209.327    $184.810   S166.063   S149.317     136,044  5118.943 107.213       76.322       83.840       46.605     36.M9      30.151     27.124     20,516     17.187 107.983       56.022       55.936       28.737     25.334      16.705     9.592     13.808      9.052 26.626       24.286        19.486      17,647     15.731      14.841    13.840     13.108     12.045 31.224       30.637       24.114        19,416    16.799      15.621    14,501     12.396     11.206 35.025       33.790       23.885       21.373     19.609     18.742     17.400     16.059     15.060 36.022       38.352       24.949       25.766     25.288     30.235     31.110     29,375     26.685 344.093      259,409      232.210       159,544    139.409    126.295    113.567    105.262     91.235 52.504       57.422       64.601       49.783     45.401     39.768     35.750     30.782     27.708 10.328        8.131         1.352          572         45         75      (127)      (149)      (179) 43.152        40.553       32.554       25.528     21.843     17.750     13.594     10.543      9.888 2.703         3.265        3.323        1.557     1.002         592       701      1.164        635 45.855       43.818       35.877       27.085     22.845     18.342     14.295     11.707     10,523 16,977       21.735       30.076       23.270     22.601     21.501     21.328     18.926     17.006 26.445       18.978       25.486       18.676     14.170       7.407     3.429      2.878     -1.405 3.541 5 46.9M         $ 40.713     5 55.562     5 41.946     5 36.771   5 28.908   5 24.757   5 21.804   5 18.411 21
                                                                                                                    ;

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Average Annm! Elemet Hour Use Ten Year 5 Of Progress / Operating 1977 Residential Custoniers resmos ce rm - Electric Operating Revenues: 10 0 tin Thousands of Dollars) l 5154.35 2 N [i* ~ b, 4 ' Residential . Commercial 93.31 80 l ['# _ t _ " ' Industrial- Aluminum processing . 40.48 103.24 Industrial-Other . Government and municipal . 10.63 60 [*' p " - Revenue adjustment . 70 Total from ultimate customers . 402.72 40 Public utilities . 128.17 Aliscellaneous revenues . 6.51 Total electric operating revenues . 5537,40

                 . . w,ana $,,,

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Electric Sales (Alillions of Kilowatt Hours): Residential . 3.83 l *- 968 69 '70 71 72 73 74 75 '76 1977 2.5c Industrial- Aluminum processing . Industrial-Other . 3,44 Government and municipal . 3: Miowatt Hour Sales Total sale- to ultimate customers . 12.5! to Ultiniste Customers 5.l~ suwcas cs we Public utilities . 14 O Total energy sold . 17 : h 12 0 Number of customers-end of vear: ~ 10 0 f jH(

                                                                              ,y .
                                                                                   /                       Residential .

Commercial . 287.45 47.5t r

                                               %j ?e                                                       Industrial- Aluminum processing .
                   ;#g-                                    .+
                                                                  .D      -
                                                                                  .~

Industrial-Other . 11. l t

r. . . . . , .

1.5 q.y. ..M l'y, ' MD 2

                                                 'y        ~-                      ,                       Government and municipal .

Total ultimate customers 447.7' 60 ... 47f.a*J.,wl sx g,y p 4]

\ "

Public utilities . Total customers . 44?.Si 40 .. .. kh h$)J Oih

                                                                '. G 4l                                 Electric Energy:

20 JV 3. V 4 ae ,g c Source and disposition i Alillions of Kilowatt Hoursi

f &y. 2 Generated-net station output gl EAi Cd5 - 4 1968 69 ~70 71 72 73 '74 75 '76 1977 Oil . 6.9 Nuclear . 5.0 livdro. Total generated . 12.6 MILLIO O LLARS 6.1 Purchased . 50 ' 45 I

                  -e- Tees Peyron I         I
                                                                                                 )             Net interchance .

Total ' 18~- i , co-non a mm wa ( P'v"* I.ess: L,ompany uses. losses and 40 - j[' unaccounted io: 9 1

35 Totd erargv sold . 1 -' . - 1

                                                              /                             g               Peak deman J Alegawatts) .                                        3.3 ig r W

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o 1968 69 70 71 72 73 74 ~75 '76 1977 22

1976 1975 1974 1973 1972 1971 1970 1969 1968

      $120,423     $109.258    $ 87,329   $ 68,098    5 57,976       5 49,718    5 45,230   $ 41,045    $ 36.998 75.199      64.760     $3,975      43.448      38.092         33.989      31.214     28,697      26,575 33,100       12,652    28.061      17,358      14.803         13.132      12.334     12.147      12,173 l

82.873 66,431 60.601 43,865 36 N 31,141 27,930 27.246 25,057 i 8.451 7,623 6,126 4.737 4.248 3,836 3 594 3A24 3,139 2.342 (12.607) (3,706) 322,388 248.117 232,386 177,506 151,499 131.816 120.302 112,559 103.942 70.362 65,346 61,169 28.942 30,392 32.209 27,067 21.934 13.894 3.847 3.368 3.256 2.879 2.919 2.028 1,948 1.551 1.107

      $ 396.597    $316.831    $296.811   $209,327    $184.810       $ 166.063   $149.317   $136.044    5118.943 3,369        3.386      3.077      3.103       2,770          2,393       2,182       1.917       1.644 2,162        2,072      1,893       1.903       1,753          1.614       1,503      1,373       1,247 2,145        1.011      2,569       2.594      2,569          2,540       2,574      2.574       2,564 3,160        2.840      3.042      2.920       2,702          2,426       2,230      2.170        1,969 307         297         284        290          285           276         265        262         242 11,143        9,606    10.865      10.810      10.079          9.249       8,754      8.2%        7.666 3,247        3.548      3.640      2.899       3.382          4.594       4.906      4.123       2.470 14.390      13,154     14.505      13.709      13.461         13.843      13.660     12,419      10.136 379.556      371A91      364,954    355.673     343A68         330,566     318,732    311,815     306,950 4, 344        45.657     44.957      44.073     43.188         46.785      45.606     44,771      44.195 1           1          1           1              1           1          1           1           1 10.913       10.431       9,926      9.508       9,175          4.733       4,638      4.532       4.428 1.500        IA46       1,396       1.317       1.282         1.235       1,188      1.131       1.085 438.814      429.026     421.234    410,572     397.114        383.320     370.165    362.250     356.659 25          25          25         25             24          71          75         75          78 448.839      429.051     421.259    410.597    _397.I38        383.391     370.240    362.325     356.737 1.168       2.645      3.209       3,919       5.932          7,630       9,676      7.386       6A16 4.010       2.242       3,920      4,089       2A84           1A%           382        177           82 3.858       4.874         171 94         172        230         321          125            92        133         139        208 9,130        9,933      7,530       8.329       8.541          9.218     10,191       7,702      6.706 6.172        4.070      7.670       5.890       5.944          5.474      4.268       5,467      4.078 43          101        181         361              10         17          36         41          88 15.345        14.104     15.381      14.580     14A95          14,709      14.495     13.210      10.872 955         950         876        871       1.034            866         835        791         736 14.390       13.154      14.505     13.709      13.461         13.843      13.660     12A19       10.136 3.242        2.868      3.049       2.744      2.607          2.565       2.312      2.176        1.927 23

4 Directors p r ;, - t 1

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           ,          y Lawrence Blackwell                          L C. Carttr                                             Floyd W. Le vis                        Roy Murphy
                                                                                                                                                                                    ]

Attornev Past P.Tsident rident President i Pine Blutf. Arkansas Riceland Foods. Ret. '-- a South L'tilities. Inc. Mid-South Engineerine Co. ElatW 1958 Stuttgart. Arkansas vrieans. 6..iana Hot Sprines. Arkansas Elected 1960 Electal 1971 Elected 1977

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William . Nolan. Jr. Arch P. Pettit J. D. Phillips tiobert D. Pugh Attorney President and Chiet Entutive Senior \' ice President Partner. Puch and Company El Dorado. Arkansas Otiicer of the Company of the Company Portland. Arkansas Ektted 1971 Little Rock. Arkansas Pine Bluff. Arkansas Eletted 1971 Ektted 1976 ElectW 1972 VE .a Arkansas Power & Light Company Service Area

                                                                                               ]  ,.

5 A. kansas Power & Light Company owns electric fac.iities in 62 of Arkansas' ~5 counties. i.: , A: December .;1.1977 the Company furnished

                                                                        ,   i,y T                           retail electric energy in 254 incorporated p /5 g,,           i muniemalities. AP&L also furnished power at wholesJe to eight municipalities, one association p
        "                                            '                                       .              of rural electric cooperatives. and or.e smal!

gs - g .c investor-owned system. AP&Us system is inter-f Reeves E. Ritchie R. E. L Wilen connected with and operated as a part of :he Cha:rman , t the Board Chairman et the ikurd .\ liddle South Utilities Ssstem. which supplies the or the Company & Ch(ct Executne Otticer pwer requirements of more than 1.4 nullion lattle Rxk. A. kansas Lee % u,3en and Compant . Wilson. Arkansas cu.stomers in a 92.Nhsquare-milt. area of Arkansa.s. Ektted 1%2 E!ccttd l'XC Louisiana. Alississippi and southeast Alissouri. 24

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_ kh Reeses li. Ritchie Arch P. Pettit W. .\L .\1urphey J. D. Phillips Ch.nrnun of the lkurd President & Chier Euturne Seriior Vice President Senior Vice Pres .'ent i APsI. since 19 % Ottier APrL since 19% AP&L since 1963 AP&l. since 1%9 xpfrjp;e. A .jy -. 4 . gqea . .n ; l 1 s e es e s. lWArre { . , *:' % lt' - ' lA

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C- 4 : ' i (6 L G - je y I.. .\laulden Charles 1. Steel W. A. .\lebane .\liss Jean lirim n ; We Preudent Vke President Assistant T casurer & Ave tant Secretary ' Treasurer A M retarv APAL snxe 19 n Assntant Strerarv AP&L since 1%n APAl.nst UL5 AP&L sure 1941 Company Directory Transfer Agents for Preferred Stock-Union National llank of Little Rock. I Union National Plaza.1.itt!c Rot k. Arkansas ~220;. and The Commercial National llank of I.ittle Rock. Second and .\ lain Strnts.1.ittle Rak. Ark.msas ~220; Registrar of Preferred Stock-The First National 13ank in Little Rock. Capitol and 13roadw.n Starts. I.ittle Rock. Arkansas ~2203 l Certified Public Accountants-1 Lskins & Sc!!s. One Shell Square. Neu ()rleans. l 1 oliis.all.17)l ;9 Executis e Of fice-The First Natien.il flui!Jine. Caprol and 13roadw at Streets. I ittle Rock. Arkansas ~220;. Phone t 501i ;~ l- 1000 Engineering Ottice-Sixth Avenue anJ Pme Stmets. Pme 131ntt. Arkansas ~1Wl.

Phone < 501 i i 11 - t 00 Antrial '.ieetine-Fourth ThursJar et .\tav I ,,,,.. .

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, .A:s t l MlOOLE SOUTH UTILITIES SYSTEM ARKANSAS POWER & LIGHf COMPANY

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