ML20141A406

South Mississippi Electric Power Association 1996 Annual Rept

ML20141A406
Person / Time
Site:	Grand Gulf
Issue date:	12/31/1996
From:	Hughey W, Mckamy W, Thomas H ENTERGY OPERATIONS, INC., SOUTH MISSISSIPPI ELECTRIC POWER ASSOCIATION
To:	NRC OFFICE OF INFORMATION RESOURCES MANAGEMENT (IRM)
References
GNRO-97-00036, GNRO-97-36, NUDOCS 9705140282
Download: ML20141A406 (38)

Text

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EntIrgy Operttions,Inc. 1

[][g.(hI Ro. Box 756 l d

Port Gbson, MS 39150 Tel 601437-6170 W. K. Hughey Onrectcw Nuclear Safety & Regulatory Affairs May 7, 1997 U.S. Nuclear Regulatory Commission Mail Station P1-37 Washington, D.C. 20555 I

Attention: Document Control Desk

Subject:

Grand Gulf Nuclear Station Docket No. 50-416 License No. NPF-29 1996 Financial Report for South Mississippi Electric Power Association (SMEPA)

GNRO-97/00036 Gentlemen:

The 1996 Annual Financial Report for South Mississippi Electric Power Association (SMEPA), licensee of Grand Gulf Nuclear Station, is herein submitted in response to the ,

requirement of 10CFR50.71(b) .

The 1996 Annual Financial Reports for System Energy Resources, Inc., Entergy Mississippi, Inc., and Entergy Operations, Inc. were submitted as part of the Entergy Corporation Annual Report on April 23, 1997 by our Coporate Staff.

Should there be any questions concerning this submittal, please contact Ron Byrd at (601) 437-6550.

Yours truly, /

0 WKH/AMS attachment: 1996 South Mississippi Electric Power Association Annual Report (SMEPA) cc: (See Next Page) 9705140282 961231 I PDR ADOCK 05000416' I

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SOum MISSISSIPPI ELECfKIc POWER ASSOCIATION 1996 ANNUAL REPORT PERFORMANCE HIGHLIGHTS FINANCIAL Increase  % Increase

($ In Thousands) 1996 1995 (Decrease) (Decrease)

Total Revenue $306,055 $294,220 $ 11,835 4.0% l l Current Net Atargins $ 7,201 $ 10,132 6 2,981) (-29.3%) l

! Total Assets $740,857- $759,043 ($ 18,18G) (- 2.4%)

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' l Total Equity $ 75,578 $ G7,403 $ 8,175 12.1% l Equity as % of Assets 10.2 % 8.9 %

TIER 1.17 1.23 l l DSC 1.19 1.22 l

! Average Cost of 1.ong-Term Debt G.54% G.GG%

OPERADONAL i

j Wholesale Rate to Alembers - Atills/KWil 43.3G 43.71 ( 0.35) (- 0.8%)

) Energy Sales (AiWil)

! 6,712,920 Alembers G,368,144 344,77G 5.4%

Non-Members 449.450 520,2G2 ( 70,812) (- 13.6%)

Total 7,162,370 6,888,406 273,964 4.0%

1 Net Generation (MWil) 3,417,432 3,347,874 69,558 2.1 %

Member Demand (MW) 1,69G 1,554 142 9.1%

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! TABLE OF CONTFMTS i

i ExEctrrTyr' WMAGE ........... 2 M SYSW.Ms . . . . ....... 3 BOARI) OF [hED

• TORS . ........... 4 2 J. T. Qt n nry, St. ... # .... ,

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GewERAL INR)RMAMON ....s. ..... 7 IhTArrMEMI3 . . . . ' . . ..... 8

. OPERARNu REro,rr ........... 9 ,i RNANCIAL REPOKr ........... I8 ,

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! EXECUTIVE MESSAGE 1996 l i

An evolution called deregulation is underway in the electrical industry bringing exciting challenges and opportunities to SMEPA and its member systems. Evaluations of past performances are used to focus, plan l and position for the future.

! SMFPA employees continue to strive in ev .cy area of its operation meeting industry complexities in cost effective ways.

They remain committed to the cooperative philosophy and SMEPA goal of being the pmfermd pmvider for its members. This commitment is reflected throughout the 1996 Annual Report.

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W. C. McKamy, Jr.

President i

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i MEMBER SYSTEMS i

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j C MAGNOuA EPA,McCoMa f Sarumy Williarns, Manager Date energized 9/19/39 4,793 rniles of line 23,720 meters 3 PEARL RIVER VAun EPA, COLUMBIA l W. T. Shows, General Manager l Date energized 5/19/39 a,010 miles of line i 31,761 meters i

l C SNGING RIVER EPA, LUCEDALE I

Jack Ware, General Manager l

Date energized 12/5/39 5,234 miles of line 52,040 meters b SotmIERN PNE EPA, TAnoRSVIEE COAHOMA EPA, LYON Donald Jordan, General Manager I

Giles Bonnds, Manager Date energized 5/13/39 Date energized I/18/38 9,022 miles of line i 1,450 miles of line 61,735 meters G,317 meters b SotmIWEST Mississim EPA, LORMAN m A, BAY M. W Robert St. John, General Manager

[ Robert Occhi, General Manager Date energized 3/27/38 l Date energized 5/20/33 3,967 miles of line 1 4,284 miles of line 22,329 meters 53,184 meters O TWIN COLNTY EPA, Hou.ANDALE O DELTA EPA, GREENWOOD Vesper Bagley, Manager llarry 11. Bonner, General Manager Date energized 12/24/38 Date energized I/30/39 2,235 miles of line 5,248 miles of line 12,315 meters 21,553 meters O YAZOO VAun EPA, YAZOO CfrY E A,MURE Charles II. Shelton, General Manager i James T. Dudley, Jr., General Manager Date energized 3/23/38 l Date energized 7/28/39 2,G65 miles of line i

4,097 miles of line 8,937 meters l 30,097 meters i

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e SMEPA SAYS " GOODBYE" TO A CHERISHED FRIEND fle was a founding father-a pioneer

. _ of our industry-committed ta the

_ duelopment of Alississippi's first G&T and l _

~ to the purpose of its miss6n. It is with great

~ sadness that we moura the loss of J. T. (Tim)

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Dudley, Sr., who died July,1996; and in the 1 memory of his legacy, we pay tribute to all

, that he has accomplished.

x ' Tim Dud:ey was Atanager of Singing i River Liectric Power Association in 1958 when he was asked by SA1 EPA's Ik,ard of Directors to also manage SAiEPA. Without

_,,4,_ nm I wh n, ,,,,, hesitation, he not only accepted the 1950 additional responsibilities that came along <

with the new position, but also the challenges inherent in the development and creation of a G&T system.

Air. Dudley rallied together the best people; and with great leadership, he forged them through the many battles and roadblocks they would face during the formation of the G&T system. And, after l . many hard years, he successfully laid the I + 4

, foundation for Alississippi's first and only G&T.

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1. ' Air. Dudley served as Atanager of

Singing River EPA from 1948 to 1980 and l [ was Atanagerof SA1 EPA from 1958 to 1967.

' After his retirement he served as a consultant to Singing River EPA, and he

{ helped three of SAiEPA's member systems successfully ward off takeover threats in the 1980's. Air. Dudley also served as Executive Director of the George Courity Economic l Lievelopment Foundation for six years.

IIis expertise, knowledge, friendship and spirit will be greatly missed.

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J GENERAL INFORMATION d MoSEU.E GENERARNG STADON Commercial Operation: 1970 location: Moselle, Jones County Capacity: 177 MW fuel: Natural Gas / fuel Oil Employees: 30 GRAND GUIf N0CI. EAR STADON Commercial Operation: 1985 g . location: Port Gibson, Claiborne County Capacity: 125 MW s fuel: Nuclear Employees: 1 SMEPA's capacity of 125 MW represents 10% undivided interest in the 1250 MW capacity nuclear unit. The Association employs a nuclear specialist among Entergy's 800+ employees who work at the plant site.

Grand Gulf Nuclear Station is located approximately 145 miles from SMEPA Ileadquarters.

. BENNDAI.E UNrr Commercial Operation: 1969 location: Porge County Capacity: 1 2MW fuel: Naturai Gas 199G Production: 443 MWil

. PAULDING UNTT SMEPA HEADQUARTERS Commercial Operation: 1972 Iocation: llattiesburg, Forrest County location: Jasper County Employees: 112 Capacity: 20.3 MW SMEPA is fertunate to have its Morrow and fuel: Diesel fuel Moselle generating stations each located 1996 Production: 385 MWil approximately fifteen miles from lleadquarters. Energy from both stations is SMEPA's two combustion turbines, Benndale dispatched from SMEPA's Control Center in and Paulding, are unmanned llattiesburg. stations remotely operated from the Control Center located at SMEPA's headquarters R.D. MORROW, SR., GENERAENG STATION facility. Personnel from Plant Moselle Commercial Operation: 1978 maintain the two units.

location

Lamar County During 1996, the units were operated on I

Capacity: 400 MW occasion to support load demand. The units fuel: Bituminous Coal were also placed in service from time to time Employees: 95 for test purposes to assure continued

. availability and reliability. I

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j 14 wn .unn,.o n 1996 South Mississippi

' Electric Power Association 1 witnessed the Eginning of many .:hanges in the electric l

util3y industry.

The uncertainties of a deregulated iruh stri prc ents I

many new and exciting challenges. SMEPA's employees continue to evaluate the past and j

anticipate the future as deregulation unfolds.

j United under the leadership of a strong j

management team, SMEPA remains committed to a successful future, with all of its l possibilities and opportunities.

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s 9 =t OPERATING REPORT 6

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1 MOSELLE GENERAnNG STAnoN _

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l he plant was again operated in an intermediate and hgD Y T peaking mode for the entireM5 a gf. . _3 T-S -

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year. Availability of the Atoselle units remained relatively gcod for

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.a the year, and operating efficiency s> M.C  :

remained consistent. Units were #

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l cyded into service as needed to **

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i meet system generation demand.

The net generation during 199G 1 g i

! amounted to 335,025 AiWif-j .-A ~ ~

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almost 51% less than the 1995 production-and represents the -

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least production since 1985. The ""d"" " #

,i decrease m. output can be the exceptional increase in market the#new l attributed to the unexpectedly _

prices for the fuel,

! high cost of natural gas. turtnne at Plant Fuel oil usage for 1996 As a result of a 1995 amounted to 1,0F7,981 gallons.

decision to secure and install a 'durmx 199R Atost of the fuel oil was used in the 'rhe prutect u simple cycle combustion turbine first quarter winter season when pictumi here at at the Moselle Station for peakin$ natural gas availability was limited. apprunmately 50%

purposes, contracts were awarded The greatest portion of the complete.

and construction began durinS remainder was utilized as part of 199G. An 83.5 MW General an effort to deplete the plant stock '

Elec:dc combustion turbine was of No. 6 and No. 4 fuel oil. A purchased and delivery was made limited volume was used in prior to the end of the year. conjunction with annual Initial site development was continuous emissions monitoring completed, foundations were equipment (CEMS) testing during installed, and most of the major the last quarter of the year.

equipment had been set into place as the year came to a close. Plans call for the unit to be initially g, p, Moggow, gg, operated in April 1997.

CENERATING STATION Natural gas purchases were scheduled on a monthly lant Morrow was primarily basis to meet projected generation operated in an intermediate requirements. Usage amounted to and base load mode during 3,694,401 MMiltu for the year, the year. Simultaneous operation which was about 50% less than of the two Morrow units was '

the volume used during 1995, experienced primarily during the and represents the lowest annual winter and summer load seasons. -

volume of gas usage since 1985. Coal usage amounted to 925,650 The change may be attributed to tons, and the annual net (,

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maintenance activities, equipment reliability was addressed with g

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components; and scheduled g~ repairs were completed on coal i . and waste handling equipment to i .

.f 'M ensure continued reliability and j -

safe operation.

O A new boiler control 4 scheme for l' nit #2 was placed ,

l g  ; mto service during 199G. Plant L employees provided the eipertise ,

for the installation, check-out,

. and start-up of the " state-0f-the-I

, art" control system. New digital

'- control transmitters and damper drive units were added to provide reliability and to enhance a

lant generation from the facility performance of the control h amounted to 2,158,975 MWii, system. l

't F""*' which was about 15% above 1995 The existing demist l production. The output was 18% sections on Unit #1 and Unit #2 l Pmentwy mamtenance on more than the average annual scrubbers were replaced after the m e generation provided by the facility bems in service for about 18 recycle pumps. during the ten-year period 1986 years. The task was performed by 1995. plant personnel with a high A scheduled five year degree of success. The new demist preventive maintenance turbine vanes are more efficient and inspection was performed during a designed for a larger load capacity

, spring maintenance outage. The than the original components.

I main turbine was disassembled The performance testing was and thoroughly examined by performed by SMEPA, and the means of visualinspections, results confirm that guarantees evaluation of clearance data, and were achieved.

! non-destructive techniques. As The combined volume of planned in advance, the first stage dry ash and landfill material rotating blades were replaced. The marketed during the year totaled j inspection process revealed only 52,782 tons, generating income to normal wear, and reconditioning SMEPAjust over $60,000. This was performed, as necessary, to reflects a slight increase in income restore original condition. Restart when compared to 1995 figures j of the unit was on schedule and as a result of renegotiated sales I without incident. Enhanced rates. Approximately 60% of the i performance was confirmed ash produced during the year was i during subsequent periods of high marketed.

f, lead demand.

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l GRAxo Guu' NCCLLtx Sntnox verall,1996 was a very v.

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successful year for Grand O Gulf. The plant capacity i

7 I factor for the year was 88.5%, i -

l which was higher than the goal of .

86.6%; the plant availability "

factor was 87.6%; and net

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generation was 9,224,700 MW at '- J ,

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an average thermal efficiency of .

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?Y f 10,686 Btu /KWil. The capacity factor, availability, and net p Q generation were particularly good -

in light of the fact that 1996 was ~.

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a refueling outage year. The j g

, thermal efficiency improved by l.2% due mainly to the upgrade of the high pressure turbine section during the 1995 refueling MW (net) on December 20 during outage. The yearly average heat the cold temperature period. More rate for 1996 was the lowest ever production records are expected to for Grand Gulf. be established in the future when During the 1996 refueling the remaining two low pressure outage, which was Grand Gulf's turbines are upgraded.

eighth refueling outage (RF08), SMEPA received a total of l the "A" low pressure turbine was 922,613 MWil of generation from i

upgraded and a leading edge flow Grand Gulf during 1996, which meter in the feedwater system was was 15% greater than 1995 installed, both of which had a deliveries. The increase in output positive impact on performance in can be attributed to high unit December and should improve availability, the impact of the high the results of 1997 and beyond. pressure turbine upgrade during The eighth refueling outage was the 1995 outage, and the short the shortest and safest from a duration of the 1996 refueling personnel safety and nuclear outage.

safety point of view and was the The production during l least costly to date. 1996 established a new record for i With the upgrade of the annual production for a refueling

! first low pressure turbine rotor outage year. The output was during Rf08, plant output greater than the 1992 prior record increased by 22 MW. As a result by more than 12%

of this production improvement j and the installation of a new flow j measuring system for feedwater Krxtuc10: COAL PRorEKrY j earlier in the year, the plant set a kerd Bandy, a coal-mining j new record for the highest daily firm, continued to develop the l average plant power of 1,28G 1 coal reserves on SMEPA's ,,

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ExcINEERixa SER\7CES he design and procurement

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phase of the new Control l 4 '

I Center preject was l completed in 1996 with the signing of a contract for the l

• delivery of equipment and software. The concept of a joint j

effort with four other utilities during this phase proved to be very successful in the reduction of 3 .

. the overall price of the project.

After comprehensive training of

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1. SAtEPA personnel in 1997, this y system will be placed in service during 1998.

j In preparation for possible deregulation of the electric utility industry, the board adopted a Atarket Based Kate to offer to new property in castern Kentucky i larger power customers. T his rate under the provisions of a property '

will be somewhat different from lease arrangernent. Clean coal SAtEPA's existing rates in that the production during 1996 amounted term of the contract for the new to approximately 592,434 tons i

dehvery tvint v ill be only three l from Lvth surface and deep mine operations. This represents an yearp The p6ce for power will be

m some degree to power cost increase of 12G% over 1995 in the marketplace at the time of f production and retlects the highest the contract i 'mnual production from this l property since 1991, and the most j coal mined since Ikerd-Bandy M4pgg77xa assumed control of the property.

l uring 1996 SA1 EPA's i Royalty payments were received for coal produced from certain Marketing Specialist l assisted a member isolated tracts of SAtEPA's property l cooperative, Magnolia EPA, in under two separate property

' sublease arrangements. launching the Good Cents IIome SMEPA also received prcgram to promote energy royalty payments as a result of oil efficiency in their service territory.

i and gas production from the Other members continued to enjoy I

property, under an Oil and Gas success in building Good Cents l

Lease Agreement with AKS Energy homes, adding to the success of l

Corporation. A relatively small but SAiEPA's heat pump rebate j

1 steady volume of gas flowed from program.

a total of fourteen wells SMEPA continued to f promete geothermal heating, throughout the year. Revenue was l cooling, and water heating j also provided from a limited amount of oil production each technokyy by promoting a month.

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geothermal field day at the .

Canebrake community outside of .

llattiesburg. Joining SAiEPA in the Abt S

promotion. which was attended by more than 200 consumers, was .

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one of our member cooperatives, Pearl River Valley EPA, and .i

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Alississippi Power Company. .i During the year, SA1 EPA , , ' .

also conducted a workshop for continuing education for .

architects and engineers in the conunercial construction market, dealer training schools, and sponsored a local downsite for a national geothermal teleconference.

EW7RONAfDVTAL AFFAIRS Obtaining workable permits was 199G focused on necessary before the addition of E uvironmental efforts for implementing requirements of the Clean Air Act amendments, any permanent equipment associated with the project could finalizing operating permits for be installed. Title V operating SA1 EPA's existing generating units permits for SAiEPA's existing and the Aioselle combustion generating units were received in turbine project, and securing 1996, ensuring the operating enviromnental approval for flexibility to meet generation SA1 EPA transmission projects. requirements for the next five in 1996 Plant Atorrow years.

completed its second year of Borrower's Environmental participation in the Acid Rain Reports or Assessments were Program. The plant was originally submitted to and approved by RUS schtduled to be affected by the for approximately ten miles of program in the year 2000. transmission lines and two SAiEPA elected to substitute the member substations, units into the pregram as early as allowed by the regulations. ELECTRONICS MAINTENAuct Successful early participation has reduced emission rates of acid AiEPA continued the rain pollutants as well as the expansion of its microwave

" banking" of emission credits for communications system in use in meeting future generation 1996. The communications group requirements. assisted in the installation of an Permits to construct and extension from Plant Aterrow to operate the new Atoselle Columbia. The group also j combustion turbine were received upgraded the communications by SAtEPA carly in 1996. system by replacing two older d'

power line carrier links with

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, .nd selling wholesale power. As a result, the Control O.nter doubled l g. i A its activ.ty with p.,we man keters.

h. ,dditien SW '.s was an early l

leader M the swt, W.z of natural.

gas ter an electric purchase. At j - '

times when market power was j cheaper than gas, the Control

/ . 'p', Center would accept an electric purchase and move the gas l p ,

allotment to another market.

y Tliese transactions not only N4

%w reduced cost, but also confirmed the importance of the A10selle l .;

generating units.

A Through optimization et

+ generating resources and power n

purchases, the annual output at

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Plant Aterrow was the thint highest m th history of the plant.

1 The improsed management of 960 Alb zdigital radios.

i generating units and other power The computer support resources reaped significant gr oup was involved in the savings over budgeted amounts selection process for the new _

centrol system. 'I.his grour will be for other power supply and fuel.

Attempts to seh. ett the responsible primaril" .o: the maintenance of IN new system federal hydro projects from which

. SA1 EPA purchases power ud will be m.volved m. extensive continues, and L,ontrol L, enter b . :ng during the coming year ersonnel were involved in The group expanded their duties f off th in  !

by assuming irom an outside '

. addition, SA1 EPA personnel l contractor the responsibility ter directly assisted the Southeastern mamtenance of the telephone Power Administration in systems at Plant A10rrow, Plant A10selle, and the Control Center.

establishing a control area and e crations center for the federal hydropower projects in the OITRATIONS CONTROL CcvT1 southeast. 1 hanges in federal C opportunities in the TRANSAfiSSION regulations and added CONSTRUCTION UnawtS Axo

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wholesale power market made for an interesting year in Control outh Alississippi Electri' Center operations. Iluring 19tH; Power Association crews the Federal Energy Regulatory completed installation of Commission mandated open access three-way switches to serve

< for the use of transmission Alagnolia EPA's Pisgah and systems. This move opened up an Arlington substations, and a line d' already active market for buying of extension for theJayess Sub. In I

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- -J addition, these crews began -

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j constructing a switching station 5 .

and a 69 kV transmission line to g ~ .. ' ' , f .,

serve Pearl River Valley's new q ,f~ ' ' , i ' J ' j()

p' ., eh. 6 1.ake Serene substation. This 'g* -

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project is scheduled for completion m early 1997. -

• 6 4> 'YMNU The Transmission

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Department is responsible for coordinating the surveying and n

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g, construction management of 1 orgoing projects. This includes the completion of 38 miles of -

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,, , g , l 230 kV transmission line, . ' u..- yA } )

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completion of a 115 kV i -

transmission line for Delta EPA, .

I four 115 kV transmission lines for .

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Singing River EPA, two 115 kV transmission lines for Coast EPA, a

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.L. W 115 kV transmission line for Southwest EPA, two 69 kV line treatments were performed on l projects for Dixie EPA, and several 2,812 poles in the transmission g on-system transmission projects.

system. Seasonal vegetation control was also m formed at 100 line TRANSMISSION 8DTEM switch locations and stations, and MtINTENANCE aerial patrol inspections of the -

system were performed live times AiEPA is committed to beirg in 1996.

S asignificant reliable power supplier. A element of this ELL %'ING AND PROTECITON commitment is the maintenance of approximately 1,477 miles of AiEPA received approval from transmission lines, rights of way RUS for the 1995 fong Ratge and numerous switches. SAtEPA's Transmission Study (1.RTS).

line crews performed climbinS After completion of this study, inspections on 3,298 structures SAiEPA prepared a five-year and completed 1,298 line Construction Work Plan (CWP) maintenance *vork orders which covering April 1996 through included changing or repairir3 Alarch 2001. RUS also approved broken crossarms, braces, this CWP.

insulators, guys, conductors, and These studies recommend IVleS- 47 miles of new 69 kV or 161 kV The annual reelearing of lines and two new 161/69 kV approximately 25% of the substations during the CWP time transmission system's right of way penod. The I.RTS also recommends consisted of reclearing 4,694 line that SAiEPA operate the 69 kV acres. A total of 1,977 danger system looped. The CWP trees were removed from critical determines the steps required to transmission linc ,ection.s, sad g,vc bped 69 kV operation.

I pole groundline inspections and There will be :me incremental

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y modificali0ns and at year end, i

were involved in its construction.

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In addition, the Design

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'9 gg -2 j [7 E *"'% - miles of new transmission lines j

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that included the West 4

.] Waynesboro to Alissionary 230

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" kV line and four lap lines for new

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' member delivery points.

% Atajor stibstation l

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mai, .cnance activities included l rerlacing two lead tap changers e.

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. u FC's) on 161/Gt) kV f , .,... . ,,-_ . me tl dl;;LM autotransformers with

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refurbished units and installing a

'hT t W_ g . -- rebuilt 161/61) kV 50 AWA s ' *-19*5y.' . ..areG autotransformer at the Columbu

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. ~ a substation.

& new p.

Missic"*T CoAuvitR throRAtArios stages over several years before the 4

- hM G5) kV 3ystem is looped as SYSTE.MS I996. Here the recommended by the IXFS. Capital he Computer Information

, f.unds for the required projects are Systems staff began to l gg allocated beginning in !!)t)7. finalize the Association's the wmp of The Planning and conversion from a distributed rh se i. Protection section installed terminal system to a client / server advanced relaying equipment at environment in Itt!)6. Software several sites that automatically updates were installed on me provides fault location estimates to Novell operating System, and a the Centrol Center. They also master network directory was applied and installed reverse developed on the main server, power relaying for the three with replicas on all other servers.

A10selle steam units. A utility server was also configured to perform ftmetional tasks which reduced user DEstGx EvGINEERLVG AND downtime and improved SuesrAnox MUNTENANCE performance.

i .

A1 EPA's Design Engineermg Individu.a projects t

d l

staff spent much of 11)!)6 completed durir.;, ,ae~year required participation and concentrating on the new j,g g gg ggg g g g ,

Atoselle cembustion turbine. They j Atanagers, d users as the were responsible for writing 1

specificatiens, ordering and A ation ontinued to 1 implement the necessary witnessing testing, jmd mirastructure to meet rapidly

l. supervision of the installation of changing computing 4 the 75/100/125 AtVA GSU .

{ requirements.

transformer. They also designed I O the required 161 kV substation db t - - - - . - - - . . . - - . - , .. .-. __ --. . _ _ . __ _ . _ _ _ . _ _ _ _ _ _ _ - _ _ _ _ _ _ - - - _ _ _ _

. , e. .

~'

PERSONhTL * .

3  %

mployee participation and e*

Q- g -

l' E aggressive cost management L allowed the Association to

~

g' I /

continue to control medical , . . __

insurance cost in 1996. An unprecedented seventh

/ >

consecutive year without an .-

increase in funding requirements yb -

of the self-insured medical plan

_' 4

,,-4 k was aclueved. On-line claims g '

g adjudication was also introduced during the year resulting in M

~

improved claims administration # ' -

and administrative cost savings.

SMEPA's cooperative

\

education prqqram was expanded __

in 1996 to include work students in the areas of Power Plant Engineering and Conununications.

presentations and community involvement.

8M" A conununications needs assessment survey was conducted among member systems m. order to S MEPA employees contmued a trend of breaking all past enhance communications.110ard safety records. This year rientati ns were als done for marked the third consecutive year several systems board memtvrs.

that employees have worked SMEPA,s employees without having a lost time .

continued their Meadon to We accident. In addition, reportable C """"" Y YI" P" "3 "

accidents were reduced to an all such events as .he United Way time low of one during the year. .

Campais;n,the

' American L,ancer Association achievements Society's Relay for 1.ife, the United m 1996 are many but none are Way L,orturate Challenge, more significant than SMLPA,s Adopt-A-Pamily, the EPA's Youth safety record which is a pure .

leadership Tour, MathCounts and result et employee involvement the Adopt-A-School partnership and conunitment. with North Forrest Elementary.

ASSOCIATION RELATIONS continued to be a priority P ublic and member relations for SMEPA during 1996.

The amount of publications support provided to member systems increased, as did the d'

number of community

.a k - 4d

4 FINANCIAL Reorr I

million last year. SA1 EPA's equity

{

he year 1996, was increased to $75.6 million and is i now 10.2% of total assets, the T anotheryear .

i..mancial results for of solid highest ever.

Total debt outstanding at

SA1 EPA. The wholesale power l

l rate to SMEPA's eleven member year end 1996 was $629 cooperatives averaged slightly million, down $23 million from l

more than 43 mills per kilowatt the previous year and the lowest hour, the lowest level since 1981. debt balance since 1982. I for the ninth consecutive year, Another $45 million of the non-fuel components of the outstanding debt was repriced in wholesale rate structure have late 1996 reducing the interest

'en reduced. rate to G.4% from 10.G% Since Revenues from members 1992, SMEPA has repriced or amounted to $291 million for refinanced more than one-half 1996, up 4.6% or $13 million of debt outstanding, reducing the averge interest rate on all trom the previous year. Energy ,

sales to members were up 5.4% debt to 6.5% from 8.4% and say r I to G.7 million megawatt hours - about $15 million p-year in interest costs.

the highest ever. Generation by SA1 EPA owned plants in 199G set As mentioned elsewhere, a new all-time record at 3.4 SMEPA invested $33 million million megawatt hours. Demand during the year in a new 83.5 meawatt gas-fired combustion billings to members were up turbine generator and in several 7.7% to a monthly average of 1,346 megawatts - also the transmission assets needed to highest ever recorded. For the serve the growth in sales to second consecutive year, all members. As these projects are completed in 1997, SMEPA's eleven member cooperatives had increased individual purchases of nvestment in utility plant energy from SMEPA. Overall, the assets in service will exceed n ember cooperatives are $800 million for the first time ever.

- a:4 at a strong five-year "mpounded rate of 4.9%. Discretionary nvestments amounted to $32 SMEPA's total revenues from all million at year-end 1996 sonrres exceeded $300 million compared to $65 million at the for the first time ever.

Margins for 1996 were start. In order to minimize the use of loan funds, SMEPA had

$7.2 million compared to $10.2 accumulated internal funds prior to 1996 and used those funds for the capital projects mentioned above.

l dD

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. 91

___ . . _ . . _ . _ _ .__ _ . _ . . _ . _ ~ . . . _ . _ _ . _ . - - . . . _ _ > .

. .

• i .

ELEMENTS OF COST ,

L 1996 1995 1994 1993 TOTAL SYS'IT.M MILIS/KWil Of SALES 1992 Production Costs, Purchased Power, and Interchanged Power 29.87 28.99 28.03 27.90 Transmission Operation and Mamtenance 26.24 1.63 1.65 1.70

1.62 1.60 Administrative and General Expense 0.80 i 0.87 0.80 0.79 0.76 Depreciation and Amortization 3.80 3.60 3.66 3.57 Interest (Net) 3.72 ,

5.94 6.39 6.82 8.69  !

Taxes and Other 9.43 0.39 0.41 0.41 0.50 TOTAL MILIS/KWii Of SALES OJ l_

__4 2.g . 41.91 41.42 43.07 _ _4136 COMPARATIVE BALANCE SHEETS AND SELECTED FINANCIAL RATIOS ($ In Thousands) 1996 1995 1994 1993 1992 unuTy rtu<r -

j in Service $770,186

$762J21 $751,518 $737,175 $733,882 j Construction Work in Process 37,525 13 Idl, 13,396 20,213 16,987 l 807,711 775,382 764,914 757,388 750,869 Depreciation 284,463 261,583 240,410 199,257 NLT UTILITY PLANT 218J34_

$523,248 $513,799 $524,504 $538,454 $551,612 OTIIER ASSEr5 Unrecovered Plant Cost 72,316 75,213 78,036 80,789 83,489 Cash and Temporary Investments 3,793 31,522 i

27,591 51,421 21,990 inventories 26,057 25,169 24,759 21,604 32,568 Deferred Charges 38,492 33,221 35,228 12,809 7,696 Other 76,951 80,119 TOTAL OTl!ER ASSLTS .

7291 1 67,555 59,253_ '

217,609 245,244 2381529 234,178 204913 i

-TOTAL ASSLTS ,_$740,8X $759,043, ,g6103 _$77_2,632 $756,601 EQUITIES AND LIABILITIES l Equities and Patronage Capital $75,578 $67,403 $57,221 $43,397 $34,556 Long term Debt 606,840 626,735 651,518 674,597 686,045

! Other Liabilities 58,439 64,905, 54,294 54,638 36,007 TOTAL EQUTTIES AND LIABILITIES _$740,g51 ,$759,043.. .._ $763,033_ _ $772,632_ _ $756,608 RATIOS TIER 1.17 1.23- 1.31 1.15 1.07 DSC 1.19 1.22 1.27 1.24 1.17 l Equity as % of Assets 10.2% 8.90% 7.50% 5.62% 4.57%

DEBT Long term Debt $606,840 $626,735 $651,518 $674,597 $686,045 Current Matunties 22,603 25,677 20,294 16,791 15,375 TOTAL DEBT _ $629,443 $691,388 _ $7.01,4 20

$652411 _ .$671 Al2 l Average Rate 6.54 % 6.66% 6.64 % 7.96% 8.41%

i WilOLESALE RATE TO MEMBERS d Mills /KWil 43.36 43.71 44.64 47.02 45.32 h

~

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. , s.

COMPARATIVE OPERATING STATEMENTS ($ In Thottsands) 1994 1993 1992 1996 1995 REVENUE $274,176 $248,409

$291,060 $278,359 $266,971 Electric Energy Revenue from Members 19,489 14,401 16,374 19,264 Other Electric Energy Revenue 13,667 1,328 1,460_ 1,580_ (146) 14_

Other $293,294 $267,912

$306,055 $294,220 $284,925 TOTAL REVENUE

(

{

l EXPENSE Operation Expense: 64,674 52,149 62,809 59,770 59,904 Production - Fuel Cost 15,338 14,000 14,056 15,661 12,034 Other Production Expenses 93,881 131,697 119,143 106,704 99,571 Purchased Power 9,243 8,587 9,766 9,306 9,391 Transmission 66 55 48 46 64 Consumer Accounts 121 167 170 151 132 Sales Expense 4,908 4,529 6,046 4 08_6_

Administrative and General 5180 209,276 192,777 195,070 172,879 Total Operation Expense 223,451 Maintenance Expense: 6,724 5,404 5,145 7,238 6,636 IYoduction 1,546 1,593 1,911 2,060 1,880 Transmission 593 569 601 581 584 General Plant 8,775 8,886 7,916 7,786 9,702 Total Maintenance Expense 24,803 24,293 23,822 23,614 Depreciation and Amortization 27,188 1,039 1,121 1,031 1,037 1,064 Taxes Interest Expense (Net) and 44,300 45,740 46,847 58,670_ 60g48_

Other Deductions 288,669 274,658 287,458 266,658 303,892 TOTAL EXPENSE 5,551 10,267 5,836 1,254 OPERATING MARGINS 2,163 NON-OPERATING MARGINS 3,214 5,038 4,631_ 3,557 33005_

AND NON-RECURRING ITEMS

$ 2gt, _ $10182_ __ $13,824 3 ,__$8,8Q _ _$4 A68, NET MARGINS b

_ _ _ - _ 4

_ __ ._ m. . _ - - . _ . . . .. ___ . _ _ _ . . .>

4 / a .

COMPARATIVE

SUMMARY

/ ENERGY SOURCES AND SALES 199G 1995 1994 1993

' ENERGY SOURCES - MW11 1992 Generated 3,417,432 3,347,874 3,391,859 3,342,187 2,892,049 Purchased 1,702,434 1,498,994 1,559,822 1,870,626 1,958,228 P

Interchanged Power (Net)

_2,161f 91_ _22 146,362_ 3 795,851 11 579,136 1,597,162, 7

TOTAL ENERGY AVAllAliLE FOR SALE - MWil 328pg _6,993,230, JM,5A ,6,791,919, y 47,4J9, ENERGY SALES - MWii Members Coahoma EPA i 111,778 107,630 101,366 100,573 89,130 Coast EPA 1,045,075 958,341 923,389 863,922 823,751

- Delta EPA 448,928 428,443 399,291 399,880 367,242 Dixie EPA 638,819 554,745 505,377 505,394 491,085 Magnolia EPA 463,651 442,355 428,158 420,146 380,878 i Pearl River EPA 603,743 571,759 5C3,356 475,793 440,102 j Singing River EPA 1,036,248 985,226 911,066 880,723 847,965 Southern Pme EPA 1,474,607 1,415,464 1,389,295 1,374,206 1,267,927 Southwest Mississippi EPA 403,979 389,941 372,818 378,546 348,734 Twin County EPA 252,552 247,178 229,376 217,716 204,507 Yazoo Valley EPA 5 229,062

_ _2332540 216) R 214,072_ 219,443_,

TOTAL SALES TO MEMBERS 6,712,920 6,368,144 5,979,874 5,830,971 5,480,764 Non-Members 449,450_ _ 520,262 651,485 843,908 873,955 TOTAL SALES 2 162,370, ,6,888f 06_ 1 631,359 63674,879 6p54,719_

MEMBER DEMAND -- KW 3 63 672 3 553,633, ,1,394,243, _1,375,0,70 '

1,281,899_

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1 i

I 22 .

.,. to INDEPENDENT AUDITOR'S REPORT To the lloard of Directors of South Alississippi Electric Power Association We have audited the accompanying t,alance sheets of South Alississippi Electric Power Association ("SAiEPA") as of December 31,1996 and 1995, and the related statements of revenues, expca= and patronage capital and cash flows for the years then ended.

These financial statements are the responsibility of SAiEPA's management. Our responsibility is to express an opmion on these financial statements based on our audits. ,

We conducted our audits in accordance with generally accepted auditing standards and Government Auditing Standards issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable a;surance about whether the financial statements are free of material misstatement. An audit includes examinirs, on a test basis, evidence supportiry the amounts and di closures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluatity the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such financial statements present fairly, in all material respects, the financial position of SAiEPA as of December 31,1996 and 1995, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles.

As discussed in Note 2 to the financial statements, SAiEPA changed its method of accounting for nuclear refueling outages included in deferred charges in 1996.

In accordance with Government Auditing Standards, we have also issued a report dated February 5,1997, on our consideration of SAtEPA's internal control structure and a report dated February 5,1997, on its compliance with laws and regulations.

M dit+T5ucha. LLP february 5,1997

)

23

af 4 .

- BALANCE SHEETS i

($ In Thousands) I December 31

(

1996 1995 i ASSLTS ELECTRIC LTTIIIIY l'LANT .

In service - at cost 1

$770,186 $762,221 Construction work in process 37,525 13,161  !

807,711 775,364 {

Less allowance for depreciation j84A63_

_ 261,583 i Net utility plant ' 523,248 513,709

.i OTHER ASSLTS AND INVESTMENTS .

Unrecovered plant cost - at cost 72,316 75,213 Investments in associated organizations 10,569 10,646 '  !

Debt service reserve investments 9,694 4,473 l Decommissioning trust investments 6,087 4,311 i Otherinvestments 3,000 1,500 I Other noncurrent assets 4 4  ;

[

101,670 96,147 f CURRENT ASSLTS i Cash - general funds and cash equivalent investments 3,793 31,522

{"

Other invested funds - 20,001 32,433 Accounts receivable: i Members 24,577 23,589  !

Others 1,709 1,424 j Inventories (at average cost):  ;

Coal and other fuel 10,785 11,347 P Materials and supplies 15,272 13,822  ;

Other 1,310 11 39_- t Total Current Assets 77,447 115,876 DEITERED C11ARGES 38,492 33,22_1_ i TOTAL ASSLTS _ $740,857 $759,043 See " Notes to fmancial Statements" l

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--e,-. . ,,- + - - , - - - .-w -

• J I/

EQUmES AND LIABILITIES December 31 1996 1995 EQUmES

$74,069 $66,868 Patronage capital 535 535 l Memberships and donated capital 974 Unrealized gain on avaable for sale investments _

75,578 67,403 606,840 626,735 LONG-TEFM DEBT (excludmg current matunties) 5,113 4,311 ACCRUED DECOMMISSIONING OBLIGATION DEIT.RRED CREDTTS AND 011tER LONG-TERM 3,714 3,879 LIABIlJilES CURRENT LIABILMES 24,610 19,197 Accounts payable 666 10,018 Accruedinterest 1,988 1,568 Other accrued expenses 25,677 Current maturities of long-term debt 22 26_03_

49,447 56,880 COMMITMENTS AND CONI 1NGENCIES (Notes 4 and 14)

_$759,043 TOTALEQUmES AND LIABILmES _M852 25

I

a. T a .

STATEMENTS Of REVENUES, EXPENSES AND PATRONAGE CAPITAL ($ In Thousands)

Years Ended Decernber 31 1996 1995 -

OPERATING REVENUES Electric energy revenue from members

$291,060 $278,359 I Other electric energy revenue 13,667 14,401 Other - net 1,328_ 1,460 306,055 294,220 OPERATING EXPENSES l fuel G2,809 59,770 Production 14,056 15,661  ;

Purchased Power 131,697 119.143 ,

l Transmission 9,766 9,306 Administrative and general '5,123 5,396  ;

Alaintenance expenses: '

?

Production 5,404 5,145 Transmission 1,911 2,060 c General 601 581 Depreciation and amortization 27,188 24,803 Taxes 1,037_ 110_64_

l l

259,592_ 242,929 OPERATING A1ARGIN BEFORE INTERTST AND OTifER DEDUCTIONS 46,463 51,291 INTEREST AND OTIIER DEDUCTIONS  ;

- Interest 44,215 45,665 Other deductions 85 75 44,300 45,740 OPERATING A1ARGIN 2,163_ 5,551 NONOPERATING MARGIN:

Interest income 4,354 4,327 Allowance for funds used during construction G19 236 Other GS 68 Total Nonoperating Margin 5,038_, 4,631 NET MARGIN 7,201 10,182 PATRONAGE CAPITAL AT BEGINNING Of YEAR 66,868_ 56,686 i

i l

PATRONAGE CAPITAL AT END Of YEAR _$74,069 _$66,868_

i l

%e " Notes to fmancial Statements" t

{

) .

I - . . .

e iJ STATEMENTS OF CASil FLOWS ($ In Thousands) Years Ended December 31 1996 1995 CAS!! TLOWS FROM OPERATING AC11VITIES

$7,201 $10,182 Net Margin Adjustments necessary to reconctic net margin to net cash provided by operatmg activities: 29,367 27,201 Depreciation, amortizatten, and depletion (619) (236) '

Allowance for funds used durmg construction (1,274) (2,833)

(Increase) decrease in accounts receivable (888) (408) f I (Increase) decrease in inventories 427 (145)

(Increase) decrease in other assets 5,157 4,924 Increase (decrease) in accounts payable and other habihties (9,351) (537)

Increase (decrease) in accrued interest payable 837_

801_

increase in accrued decommissioning payable 30,821 38,985 Net Cash Provided by Operating Activities CASl! ROWS FROM INVESilNG ACTIVITIES (2,524)

Nuclear refuchng costs (33,855) (11,607)

Construction and acquisitions of electric utthey plant 420 174 Retirements of electnc utthty plant (net of rerroval costs) (1,391)

Purchase of available for sale secunties 590 Sale of available for sale securities 77 68 investment in associated orgamzations 32,431 Maturities of held to matunty secunties (26,714_) (8,324)

Purchase of held to matunty securities (30,966) (19,689)

Net Cash Used in Investing Activities CASil FLOWS FROM FINANCING ACTIVITIES (26,034) (16,154)

Pnncipal payments on long term debt 3,072 789 Proceeds from long term borrowings (4,622)

Penalty associated with repncing of debt (27,584) (15p65)

Net Cash Used in Financing Activities (27,729) 3,931 NET INCREASE (DECREASE) IN CAS!! AND CASH EQUIVALENTS 31,52_2_

27,591 CASil AND CASil EQUIVAIINTS AT BEGINNING Of YEAR

___ $3,793 $31,522, CASil AND CASl! EQUIVALENTS AT END Of YEAR Supplemental Disclosure of Noncash Investmg and financing Activities:

Untcahzed gam on available for sale secunties

_ _ $974 Secunties held by creditor as a cushion of credit and used to reduce __$4,029_

_$0 long term indebtedness See " Notes to rmancial Statements" 27 m

tr .,.

NOTES TO FINANCIAL STATEMENTS .

YEARS ENDED DECEMBER 31,1996 AND 1995 i

NOTE 1 -

SUMMARY

OF SIGNIFICANT ACCOUNTING POLICIES '

South Mississippi Electric Power Association ("SMEPA") is a member-owned, not-for-profit electric generation and transmission cooperative supplying wholesale electricity and other services to eleven member systems '

}

which,in turn, provide retail electric service to approximately 300,000 consumers in certain areas of Mississippi .I l . Financing assistance is provided by the United States Department of Agriculture, Rural Utilities Service ("RUS").

In addition to being mbject to regulation by its own governing board of directors, SMEPA is subject to certain i

rules and regulation: promulgated for rural electric borrowers by RUS. SMEPA maintains its accounting records in accordance with the federal Energy Regulatory Commission'sChart of Accounts as modified and adopted by t

' RUS. The preparation of financial statements in conformity with generally accepted accounting principles '

requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts  ;

of revenues and expenses during the reporting period. Actual results could differ from those estimates. As a .

regulated utility, the 'nethods of allocating costs and revenue to time periods may differ from those principles

[ generally applied by nonregulated companies.

l SMEPA owns a 10% undivided interest in a nuclear generating plant known as Grand Gulf Unit I (" Grand Gulf").

System Energy Resources, Inc. (" System Energy"), a subsidiary of Entergy Corporation ("Entergy") owns the remaining 90% either outright or through leasehold interests. Entergy Operations, also a subsidiary of Entergy, operates the plant along with other nuclear plants owned by Entergy subject to owner oversight. Grand Gulf commenced commercial operation on July 1,1985.

i The more significant accounting policies are generally described as follows:

r A. Electric Utility Plant and Depreciation Electric utility plant is stated at cost, which includes contract work, materials and direct labor, allowance 3

for funds used during construction, and allocable overhead costs. 'Ihe cost of electric generating stations l and related facilities also includes costs of training and production incurred,less revenue earned, prior to the date of commercial operation.

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

\

Nuclear generation plant 3.33%  ;

Non nucleargeneration plant 3.00% to 3.10%

Transmission plant 2.75%

General plant and transportation equipment 2.00% to 25.00%

At the time units of electric utility plant are retired, their original cost and cost of removal,less net ,

salvage value, are charged to the allowance for depreciation. Replacements of electric utility plant i involving less than a designated unit value of property are charged to maintertance expense.

l B. Cost of Decommissioning Nuclear Plant and Amortization of Unrecovered Plant Costs SMEPA's portion of the estimated decommissioning cost of Grand Gulf is charged to operating expenses  ;

over the service hfe of approximately 35 years. i Plans for constructing a second unit at the Grand Gulf site were terminated in 1989. SMEPA was to have been a 10% owner in the second unit and had invested approximately $104 million, net of recoveries and i

!' transfers. With the approval of the RUS, SMEPA is amortizing its remaining investment over a 27 year l period ending in 2016, and was $2,897,000 and $2,823,000 in 1996 and 1995, respectively. 4 l

28 .

~ .

.,a ts C. Allowance for funds Used Dunng Construction Allowance for funds used during construction represents an allowance based on the average cost of appropnate borrowmgs when general funds are used to fund construction. The allowance is capitalized as a component of the cost of electnc plants and related facilities while it is under construction.

D, investment Securities Debt service investments, other investments and other invested funds are categonzed as held to maturity and are carried on the balance sheet at amortized cost. SMEPA has the intent and ability to hold these securities until their estimated maturities,but may sell them under certain circumstances.

Decommissioning trust investments are categorized as available for sale and are carried on the balance sheet at fair value with changes in the fair value of such securities being accounted for as changes in member equities.

Premiums and discounts are amortized and accreted to operations using the level yield method,

• adjusted for prepayments as applicable.

E. Deferred Charges Cost of preliminary surveys for development of possible methods to obtain and deliver energy to fulfill members' future requirements,mcluding feasibihty studies leading to financing necessary plant expenditures, are recorded as deferred charges. If construction of a project results from such surveys, the deferred charges are transferred to the cost of the facilities. If a preliminary survey is abandoned, the costs incurred are expensed.

Bond issue costs are being amortized by the straight-hne method, which does not differ materially from the interest method,over the term of the related debt. The amortization during the period of construction is capitahzed.

Nuclear refuchng outages represent SMEPA's ten percent share of Grand Gulf's incremental maintenance costs during refueling outages. Beginning in 1996, these costs are recorded as deferred charges when incurred and are amortized by the straight-line method over eighteen months.

Deferred decontamination and decommissioning of past uranium enrichment operations represents SMEPA's ten percent portion of the Grand Gulf assessment pursuant to provisions of the Energy Policy Act of 1992. SMEPA plans to expense the estimated $2.0 million assessment as it is paid over fifteen years.

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

G. Interchange Power SMEPA records the electrical power received or provided on an interchange basis at its cost as determmed under various contractual arrangements.

H. Employee Benefits Substantially all of SMEPA's employees participate in the National Rural Electric Cooperative Association ("NRECA") retirement programs, which include both a defined benefit pension plan and a defined contnbution pension plan. Both plans are quahfied under Section 401 and are tax exempt under Section 501(a) of the Internal Revenue Code. In this multiemployer plan, which is available to all member cooperatives of NRECA, the accumulated benefits and plan assets are not determined or allocated separately by individual employer. SMEPA paid $238,600 in pension expense for the defined benefit pension plan in 1996 and $336,000 in 1995. SMEPA makes monthly payments to NRECA for the benefit of those employees who voluntarily participate in the defined contnbution pension plan. SMEPA expenses the payments as they are accrued and such expense amounted to $329,500 and $316,000 for 1996 and 1995, respectively.

O kU

e t c, .

1. Income Taxes I SMEPA is exempt from United States income taxes pursuant to Section 501(c)(12) of the Internal Revenue Code, which requires that at least 85% of SMEPA's gross income be denved from its members.

J. Cash and Cash Equivalents for purposes of reportmg cash flows, all temporary investments with onginal matunties of three months or less are deemed to be cash equivalents.

NOTE 2 - ACCOUNTING CHANGES Change in Accounting for Nuclear Refueling Outage Costs in December 1996, SMEPA changed its method of accounting for nuclear refueling outage costs to better match revenues and expenses. The change, effective January 1,1996 results in the defetTal of incremental maintenance costs incurred during an outage and amortizing those copts over the approximately eighteen morML operating period immediately following the nuclear refuelmg outage.

Previously, en% outages were expensed as incurred. System Energy,90% co-owner in Grand Gulf, changed to the new method effective the same date. The effect of this change resulted in a $2,400,000 increase in net margm in 1996.

Depreciation Kate for Grand Gulf System Energy provided SMEPA an updated depreciation study in 1996 that recommended the Grand Gulf depreciation rate be changed to 3.33% from the 2.85% that had been used previously. Among other matters, the study noted that the higher rate was necessary to recover the costs of additions and improvements within the time remaining for the Nuclear Regulatory Commission ("NRC") approved operating license. SMEPA changed its rate to 3.33% effective January 1,1996 and also adjusted the rate for one half month of 1995 to be consistent with the date the change was made by System Energy.

'the effect of this change in estimate was a decrease in net margin of $2,034,000 in 1996.

STAS 121 The financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards

(" STAS") No.121 " Accounting for the impairment of Long-1.ived Assets and for long-1.ived Assets to be Disposed of", which was effective January 1,1996. This standard requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrymg amount of an asset may not be recoverable. SMEPA is recovering the costs of all assets utdizing accounting methods that have been reviewed and approved by RUS and that have been applied consistently for 1996 and prior years. Management has detennined that no impairment exists at this time and, based on current estimates of future cash flows, management anticipates that future revenues from all assets and operations will fully recover all related costs.

NOTE 3 - ELECTRIC UTILITY PLANT Electric utility plant consisted of the fo'iowmg (in thousands):

1996 1995 ,

Nucleargeneration plant $402,299 $400,273 Non-nucleargeneration plant 216,272 214,418 Transmission plant 98,957 95,669 Coal properties and preparation plant 23,159 23,235 land and land rights 14,389 13,692 General plant and equipment 15,110 14,934 Electric plant in service 770,186 762,221 Construction work in process 37,525 13,161

_ $807,711 J75,38_2_

e V .

.,e is NOTE 4 - COMMITMENTS REGARDING GRAND GULi' SMEPA and System Energy are parties to a joint ownership contract that sets forth the rights and obligations cf the Grand Gulf owners and SMEPA is generally obligated to pay 10% of all operating and capital costs and is entitled to receive 10% of the electricity generated by the plant. SMEPA paid $19.5 million and $21.6 milhon under the contract in 1996 and 1995, respectively. Ownership of nuclear capacity entails risks and uncertainties somewhat more complex than those for non-nuclear capacity and these are discussed below.

Nuclear Insurance and Assessments As the 90% majority co-owner of Grand Gulf, System Energy is responsible for arranging appropriate insurance and industry assessment programs for itself and SMEPA. SMEPA is obligated to pay 10% of all appropriate costs and assessments,if any. L'nder the incident assessment program, SMEPA could be assessed up to approximately $8 million for each nuclear mcident involvmg other licensed reactors payable at a rate of $1 million per mcident per year.

The property insurance presently arranged by System Energy exceeds the NRC's minimum requirement for nuclear power plant licensees of $1.06 billion per site. NRC regulations provide that the proceeds of this insurance must be used, first, to place and maintain the reactor in a safe and stable condition and, second, to complete decontamination operations. Only after proceeds are dedicated for such use and regulatory approval is secured would any remaining proceeds be made available for the benefit of plant owners or their creditors. L'nder a member assessment program, SMEPA could be assessed approximately $3 million for property damage, decontamination or premature decommissioning expense involving other members' nuclear generation plants.

Spent Nuclear fuel System Energy and SMEPA provide for estimated future disposal costs for spent nuc! car fuel in accordance with the Nuclear Waste Pohcy Act of 1982. System Energy entered into contracts with the Department of Energy (" DOE"), whereby the DOE will furnish disposal service at a cost of one mill per net KWh generated and sold. The fees payable to the DOE may be adjusted in the future to assure full recovery.

Delays have occurred in the DOE's program for the acceptance and disposal of spent nuclear fuel at a permanent repository. The DOE has asserted that it does not have a legal obligation to accept spent nuclear fuel without an operational repository for which it has not yet arranged. Currently,the DOE projects it will begin to accept spent fuel no earlier than 2015. Current on-site spent fuel storage capacity at Grand Gulf is estimated to be sufficient until 2004. The initial cost of providmg any additional on-site spent fuel storage capability required at Grand Gulf is expected to be approximately $5 million to $10 million.

In addition, about $3 million to $5 milhon will be required every four to five years subsequent to 2004 until the DOE's repository begins acceptmg spent fuel. SMEPA will be responsible for paymg 10% of whatever costs are necessary.

Decommissioning Costs The total cost to decommission Grand Gulf has been estimated to be approximately $407 milhon (based on a 1994 cost study using 1993 dollars.) SMEPA is responsible for 10% of the estimated cost and has submitted a formal plan to the NRC that demonstrated assurance that sufficient financial resources would be available at the time it becomes necessary to decommission. In addition, SMEPA received approval from the Internal Revenue Semce to estabbsh a " tax-free" grantor trust as a vehicle to fund the estimated decommissioning costs. SMEPA estimates, based on a revised calculation, that the funding requirement will approximate

$571,000 annually through 2022, the expected date of decommissioning. The estimated funding requirement willcontinue to be recalculated and adjusted periodically.

The amounts recovered in rates are deposited in trust funds and reported at market value as quoted on nationally traded markets. Trust fund earnings remam in the trust and are recorded by SMEPA as income with a corresponding decommissionmg expense. 'Ihese trust fund assets which are carried at fair value, offset the accumulated decommissionmg liabihty as set forth separately on the Balance Sheet.

The staff of the Securities and Exchange Commission ("SEC") has questioned certam of the financial accounting practices of the electric utihty industry regardmg the recognition, measurement, and classification c of decommissioning costs for nuclear generating stations. In response to these questions, the FASB has been reviewing the accountmg for decommissioning and has expanded the scope of its review to mclude liabihties '

related to the closure and removal of alllong-hved assets. An exposure draft of the proposed SFAS was issued

i 3 e, .

in february 1996 which would be effective in 1997. The proposed SFAS would require measurement of the liabihty for closure and removal of long-lived assets (including decommissioning) baxd on discounted future cash flows. Management anticipates that adoption of the proposed SFAS will not have a material effect on SA1 EPA's financial statements.

%e Energy Policy Act of 1992 has a provision that assesses nuclear utihties with fees for the decontammation and decommissioning of the DOE's past uranium enrichment operations. The decontamination and decommissioning assessments will last for. fifteen years and will be used to set up a fund into which contributions from utilities and the federal government will be placed. SMEPA's aggregate liability is estimated at $2.0 million and is being paid over the fifteen year term.

NOTE 5 - INVESTMENTS IN ASSOCIATED ORGANIZATIONS Investments in associated organizations are stated at cost and consisted of the following (in thousands):

1996 _ 1995 National Rural Utilities C.coperative Finance Corporation ("CFC") Certificates:

Membership subscription $6,223 $G,223 loan and guarantee 3,943 4,018 Other 403 405

, _ . $10,569 _$10g46_

' CFC membership subscription certificates bear interest at a 5.0% rate and mature in 2070 through 2080. The loan and guarantee certificates bear interest at rates between 3.0% and 9.9% and mature in 2007 through 2015.

NOTE 6 - INVESTMENT SECURITIES ne amortized cost and related approximate fair values of investment securities were as follows (in thousands):

Gross Cross Amortized Unrealized Unrealized fair December 31,1996 Cost Gains _ tosses Value

. Securities Available for Sale:

Equity mutual funds $2,105 $998 $3,103 fixed income mutual funds __ 3,008, $24 2,984

= , $5,113, $998 , . _$24, _$%087_

i Securities to be field to Maturity:

CFC and Collank Obligations $17,000 $11 $23 $16,988 U.S. Government securities 4,000 4,000 U.S. Government agencies 2,000 2,000 Obligations of states and political subdivisions 4,477 412 4,889 Unapplied debt prepayments . _ _ 5,218 _ 5,218_

$32,695_ .

$423 ,_$21 ,,_. $33J95_

December 31,1995 Debt Service Reserve - Obligations of States and

$4,473 $508 $4,981 Pohtical Subdivisions Decommissioning Trust investments 4,311 565 4,876 Other long-Term investments Primarily CFC 1,500 8 1,508 Obligations Other Invested funds - Pnmarily CFC Obligations _ 32,433 ,

21_0, _

_ 32,643_

_$1J91, $0 $44,008_

Total $42217 32 .

_~.__.._._._._..-.___._-_.___...._.__._.___._.__m . . __

. v .I l

4 j  : The amortized cost and approximate fair value of debt securities to be held to matunty at December 31,1996, {

[

by contractual matunty, were as follows (in thousands): '

5 l Amortized . fair Cost Value j

< J

} Due in one year or less $20,001 $19,985 j Due af ter one year through five years 3,000 3,003

' Due after ten years

{ 4,476 4,889 i Unapplied debt prepayments 5,218 5,218_

__$32,695 __ $33,095, ,

4

Actual maturities may differ from contractual maturities because of the issuers' right to call or prepay obligations, i

a NOTE 7 - DEFERRED CHARGES i The followmg is a summary of amounts recorded as deferred charges (in thousands): * '

i 1 1996 1995_

l Unamortized penalties on repriced debt $32,957 $30,025 l

} Unamortized debt discount and issuance cost 1,127 1,212

} Past service retirement benefit cost 280 350

]' Nuclear fuel costs 65 47 ,

Nuclear refueling outages 2,400 0 l Deferred decontamination and decommissioning of past l uranium enrichment operations 1,663 1,587

$38,492 $33,22 },

s i NOTE 8 -- PATRONAGE CAPITAL >

} Patronage capital consisted of the following (in thousands):

l 1996 1995 I

Cumulative rnargins $79,922 $72,721 Less

Retirements to date 5,853 5,853 -

1

$74g61 _. $66/68, 1

Under the provisions of debt covenants, until the patronage capital equals or exceeds forty percent of the total assets ,

of SMEPA, the return to patrons of contributed capitalis generally. limited to twenty five percent of the patronage ,

capital or margins received by SMEPA in the prior calendar year. The patronage capital of SMEPA represents 10.2%

and 8.9% of the total assets at December 31,1996 and 1995, respectively,  :

NOTE 9 - SHORT-TERM BORROWINGS SMEPA has a $25,000,000 short-term line of credit available with CFC which expires in September,1997 and a

$5,000,000 short term line of credit with a bank which expires inJuly,1997. At December 31,1996 and 1995, i SMEPA had no borrowings against these lines of credit.

6 I

. 33).

c-3 o,.

'- NOTE 10 - LONG-TERM DEST 1996 . 1995 long-term debt consisted of the followmg (in thousands):

Mortgage notes payable to Federal financmg Bank (arrB")

at interest rates varying from 5.382% to 10.985%, due in

$507,305 $527,7(;7 quarterly installments through 2020 2% RUS mortgage notes payable, due in quarterly 19,276 17,324 installments through 2009 5% RUS mortgage notes payable,due in quarterly ~

16,505 17,276 -

installments through 2015 5%,5.375% and 5.75% RUS mortgage notes payable,due in 14,165 11,309 monthly installments through 2019 Mortgage notes payable to National Bank for Cooperatives at interest rates varying from 6.42% to 7.01%,due in 2,581. 2,695  ;

quarterly installments through 2019 tamar County, Mississippi, Pollution Control Bonds:

1,690 1,790 1978 A Series,5.85% to 6.125%,due semi-annually through 2008 615 655 1978 A-1 Series,6.25% due semi-annually through 2008

'2,770 24,335 1993 S Series,4.15% to 5.00%,due annually through 2007 Claiborne County, Mississippi, Pollution Control Bonds:

1985 C Series, variable interest rates (3.45% to 3.80% at 44,200 45,000 December 31,1996) due annually through 2015 Mortgage notes payable to CFC bearing interest at variable rates (6.20% at December 31,1996) due in quarterly installments 2,207 2,221 through 2022 81  : 88, Unamortized net premium on 1993 S Series bonds 629,443 _ 652,412 221603, 25,677 less current maturities .$626,735-

__$GOGk40 Substantially all assets of SMEPA are pledged as collateral on long-term debt.

' Approximate annual maturities (scheduled periodic principal payments) of outstanding long-term debt for the nextJ five years are as follows (in thousands):

l 1997 $22,603 1998 $23,086 1999 $24,366 2000 $25,934 F

2001 $27,648 The unamortized net premium on bonds issued is being amortized over the remaining life of the affected bonds using a method which approximates the interest method.

SMEPA paid approximately $51,817,000 and $44,540,000 in 1996 and 1995, respectively,in interest on long-term debt.

SMEPA is required by mortgage covenants to maintain certain financial ratios of interest coverage and annual debt service coverage. SMEPA was in compliance with such requirements at December 31,1996 and 1995.

j

t ege .L

• SMEPA amended certain ffB mortgage notes in 1996 accomplishing a repricing of $45,212,000. Penalties of l

I

$4,622,000 were paid upon execution and will be deferred and amortized by equal monthly amounts over the hfe of the debt. Amortization of repricing penalties was $1,674,000 in 1996 and $1,655,000 in 1995.

I NOTE 11 - DEFERRED CREDITS AND OTliER LONG-TERM LIABILITIES l The following is a summary of deferred credits and other long-term liabihties (in thousands):  ;

199_6_ _ _ 1995 _

$2,503 $2,248 Postretirement benefit obligation (other than pensims)

Deferred decontamination and decommissioning of past 1,362 1,438 uranium enrichment operations 14 28_

Prior service pension benefit cost _

$3,879 j3_,71,4 NOTE 12 - FAIR VALUES Of FINANCIAL INSTRUMENTS

'lhe followmg methods and assumptions were used by SMEPA in estimating its fair value disclosures for financial mstruments:

Cash and cash equivalents: The carrymg amount reported in the balance sheet for cash and cash equivalents approximates fair value.

Investment securities: The fair values for debt and equity securities are based on quoted market prices when available and the present value of future cash flows discounted at a commensurate market rate. Medium term CFC obligations have been estimated baxd upon published terms of recent issues of comparable instruments smce quoted market prices are not available. See Note 6 for additionalinformation.

Investments in associated organizations: The fair value of investments in associated organizations is not estimable since these instruments must be held by SMEPA and can only be returned to CFC. CFC requires SMEPA to hold these investments as a condition of CFC financing.

Iong-term debt: The fair values of SMEPA's long-term debt are estimated using discounted cash flow analyses based on SMEPA's current incremental borrowmg rates for similar types of borTowing arrangements and rates which would be charged by the applicable lender where appropriate.

The carrymg amounts and approximate fair values of long-term debt are as follows (in thousands):

1996 1995 Carrymg Estimated Carrymg Estimated Amount Fair Value Amount Fair Value long. term debt, including current maturities:

Fm $507,305 $523,251 $527,767 $570,690 Kl'S 47,994 ~ 5,556 47,861 44,736 Po!'ution Control Bonds 69,356 69,301 71,868 72,062 Other _

4,788_ 43 788 4,916 4 116

_ $.629,443_ $642,896 _$652,412 . $692A04 There was no material difference between the contract or notional amount and the estimated fair value of loan commitments.

The aggregate estunated fair value amounts presented do not represent the underlytng value of SMEPA and may not be indicative of amounts that might ulttmately be realized upon disposition or settlement of these asuts and liabilities.

l

- - - - - _ - _ - - - - _ - - _ - - - - - - - . - _ _ _ _ _ - - - _ _ _ _ _ _ - _ _ _ _ - _ _ - - - _ . - - _ _ . - _ )

. - . . - . . . . - - , ~ . _

i 4.A . 4 4* ;

. t NOTE 13 - EMPLOYEE BENEFITS 6 SMEPA provides certain health benefits to retired employees and their elig:ble dependents and also ,

provides hfe insurance benefits to a closed group of seven employees wl o retired prior toJanuary 1,1990.

The approximate periodic expense for postretirement benefits other than pensions, included the following I 1

components (m thousands):

1996 1995 Service cost of benefits earned $85 $85 Interest cost on accumulated benefit obligation 170 167-  !

Total current year expense _ . _ $255 .$252 ,

)

De Accumulated Postretirement Benefit Obligation ("APB0"),is comprised of the following (in thousands): l I

199G _1995 _ j Retirees and dependents $400 $359 l'ully eligible active plan participants 236 213 Active participants not yet eligible Ig67 1,6]G_ I

__$2,503 $2,2J8, The weighted average discount rate used in determining the AFB 0 was 8.75 percent. The assumed health care cost trend rate of increase used in measuring the APD0 was 11.3 and 12.3 percent in 199G and 1995,respectively, dectmmg to six percent by the year 2005.

The health care cost trend ra;e of increase assumption has a sigmficant effect on the AFB 0 and periodic expense.

A one percent increase in the trend rate for health care costs would have increased the AFB 0 by approximately 23% a id service and interest costs by approximately 25%

NOTE 14 - COMMITMENTS AND CONTINGENCIES

- Contract commitments for coal, coal transportation, and purchases of energy and capacity are as follows (in thousands):

rm1 and eml Tranmortatinn rnerev and Canacity 1997 $38,988 $26,648 1998 38,988 23,715  !

1999 38,988 21,868 2000 30,298 21,748 ,

2001 28,560 21,442 2002 and thereafter 33 t320 160M 5_

_ $209,_142 $276J06 Mmimum costs are based on contractual prices which include inflation and escalation clauses.

SMEPA has construction commitments totaling approximately $10,600,000. j SMEPA is a defendant in certain htigation incurred in the normal course of business. Management, based on 1

advice of legal counsel,is of the opinion that the ultimate resolution of the litigation will not have a material adverse effect on SMEPA's financial statements. 1 36 .

.