ML20151M718
| ML20151M718 | |
| Person / Time | |
|---|---|
| Site: | Waterford  |
| Issue date: | 12/31/1987 |
| From: | Lupberger E MIDDLE SOUTH UTILITIES, INC. |
| To: | |
| Shared Package | |
| ML20151M663 | List: |
| References | |
| NUDOCS 8804250115 | |
| Download: ML20151M718 (52) | |
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Niiddic .%uth l'tditics, Inc. OlW) b one Pt RIORMANG ll!GilllGlilh of the largest imrstor<mned public utility holding mnpanics in the l'ruted % increase / States Ranked fourth in aswts among the 1987 19Wi (decrea ) 1btal operating rncoun (milhom) $3,455 $3a86 (0.9) nationi eledric and gas utilitin in 1987, the MW $3Mem b the leading electric lbtal operating expenws (nulhon ) 52,465 $ 2,321 5.4 energy wpplier to the Sliddle south, a luci, gxirt hawd powtr & purc h.twd region conpriwd of Arkansas louisiaru, gas msts (nulliom) $ 963 s1,111 (l34) Niiwiwi;pi, and wutheastern 51iwiuri Rate deferrah - trt of write oil (milliom) $ 333 $ 'Wi (57 6) Gas senice b pnnided in New Orleans 51,165 Operating income (nulliom) $ 1,010 (13 3) and portium of Ark 2 mas and Miw>uri. The 51W System utilizes a nu, inter, Net inmme (nulhom) $ 357 $ A54 (2M) connected trammiwion and distribution Rate of return on ascrage mmmon equity 8,20% 1131% ( 2M M ) trtwork and a balan(ed estem of fowil karnings pc r comnwin share
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$ h4 - -
52 2
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21[) fuct and nuclear gener: ting pla'.ts to
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Net utility plant at ) tar-end (hdhom)
$ 11.2 5 10 H 40 meet the electric neem of I 6H million - - - - - --- - - - - - - --- - - - - - _ - - -
""'C'I"" *) IN I 3
- mstonwrs in the 91msquarc nunc I"_ "" #
Sliddle %>uth area, encompawing 1.300 Retail cicuric custonrrs at > var crxl I,67M,2M1 1.60 A 09 05
~'
mnenuruties with an ap;regate population Ret 251 electric energy ulcs ( milhon kwh) 51,411 50,1 A3 i$ of ihr nulhon SWem peak load ( megawatts) 11,270 11.69' (3 7) At 'he heart of the $ntem are fhr - - - - - - - Astr P Nmihcr of comnun durn operating companin working together: outuanding ( thouunds ) 20s,5MI 20 4,5H I -
- - ~ ~ -
Arkansas l\mtr & light funpam ( AP& L ).
~ - - - - - -
Inuisiana Pimrr & IJght Company (IPAL), Miwiwippi I\mtr & IJght various technical, administratnt, and The combined mnparum of the MW Company ( MP&L), New Oricam Public mrporate senico ttut benefit all of the s>skm are committed to pnniding the Senice Inc. ( NOISI), and 5) stem I nergy MW $3 stem mnpanin in mmnnn, Middle N oth region cmnonucal, Restirces Inc. (St RI), which h rep >n- Sntem i ucis Inc. ( SI 1). a fuels subsidiary, dependahic wnxe that un he tadored sihte for the nurugenwnt and operation and flectcc,Inc. (Li) a subsidiary that to nxrt peutic etx rp rtspirenrnts and of the Grand Gulf Nuclear Station. nurkcts the comnwrcial capahibtics to strengthening tir regional ccor>>my Additional subsidiaries include. MW cxpcrtise, and rewurto of the System through economic and educatiorul $3 stem Sensts Inc. (W L whnh pnnido cumpanies dewL pnwnt irutiatnts CO\TR PilOTth operatiom, NN '; i)on Metrxrs W pre alent and ( I O, and I)on Aswtll O ods of Mcam bilkm from twin IPAL NOI5! semor sice president. (ehng towtrs as the sun rnn tx hind etwrp supply fnl AP&lN Intkperklerxe Sicam Ilectric just as the ontt photo cornty the
~
Mation near Newark, Asumas pronuw of a riung sun. the new NN ' first reupknts of the 'Ouirnuni Systenurk Smhohen its encrp 1he S YStefT1 Wide Award presentcJ in recognition of S)stemark is the new MW 9mbol for /nfnfaofp outstanding Systenmxte Teamwurk. are, $3 stem +ide Tea nwurk our wurce of from k ft *. A King. system escrutnr - intcrnal strengta as a Cnnpany I
l y!J IM , i@ :q a.u u u w w - A 7 Dear Stm kholders authority take prcudente iner state the w >htmy of our qrrating om1pano We are awaitmg a deciuon from the rq:ulaton oimnuwions as sci forth in and the Sptent in tlut regard, we are l'X 50premc Court on an kwe of the Supreme Cairti carher Nmtahdi currcntly imohtd in comtutting an utrno4 importarxe to Middle Niuth duiwn itccauw wv irbor many kval unfasorable rate dnidon impowd on l'tihtics Inc. (Msr y its ckstric sptem. proudents and kmcr ourt rulings luse our New Orleans Public Sonice Inc. k and its stottholds.s lhe Courti heen o>nsistent with our position, we (NOPNI)(perating compan) AlkginA 3 tkusion will dctermine to a large estent lecl optinustic. A fau>rable ruhng imprudem e, the New Orleans Ot3
- wtw;ther a dnideixt w til be forthmnung cannot be awured, but we are hopeful Counal tus dNllowVd the reonery by in 19 M of attaming a suncwful rewlution NOISI of $1.M nullion of proiously As tuu trxm; kgal and regulatory of this htigation. dcfctred Grand Gulf I costt As a result I unccrtaintics inc~ the put two gars 4 recent deacon by the lighth of tir o>unuli adion. NOI51 w2s
; tuve procnteil the M4' Hoard of Court or Appeals fur'hcr fueled rcytured to rco>rd a llH nulhori write.
g Direc tors f rom reinstating a dnidcr.d Ninusm wtrn it oted tiic Nmh off and reflect that o riN ufL net of lE M e hipc the l'.S Supreur Courti . drown in upholding ii RCi rate- inconm tases as a in a in l# h dcasion will(lear away unr of these vitm. authonty in a case iraching the ihmtser, we mntinue to dulkrye the 5 umcriaintit . und allow the Sprem to rcowt ry of Grand bulf I ants in Miv councili at tion in the courts and i nunc forwnd suuri. And a rtwnt Iitth Orctut decision are wekmg speedy revcr al ni this [ lt was about tins time last Scar, on also reu yourd the NintaAdi prt cc- dnalkmunce. (ve pege n Note 2 p lcbruary 25 tlut the Mtwiwippi dent in un h cascs "Rate and Regulatory Matcri) ? Suptent Court rorrwd and renaksi to Nnularh. the 13 Suptcme ( 4 or , Notwathstanthng those dullonges { the Miwiwppi I%he vnx e Cumnuwion Ikxcrr1 cr. rt fuwd to irar appeals we renuin optmustic ab ut our prospun E ( MPsC ) the 5.42n i million Grand Gulf I dullennng 11 RCi authonty to allocate for mucu m the tourts arxl in the rate case of ou' Miwiwippi hmtr & pimtr Ib attson acurred A>rtl)
~
ouhing nurketplace. light ( M Pal ) operating company attcr il RCs decnion to rc tain its
- To hnctly reap the MPsC ordered June 19M Grand Gulf I opaoty and j MI'& L to roll ha L rates to the cirrp u nt alksanon after }
= preNptember 194 loci and file with rchcaring the nutter at th- \ the o mnuwion a plan to nfund all rcutet of the t % Court of 4 F Grand Gulf msts mliccted MP&l. Appeak for the Distna of T U # appealed arxl a stay trwn the lis Colunbia Cartuit il RCi reaf- k ( Supreme ( nurt kept rato m pur firnution has again hern j , ( l hmocr. a h >nthng arrangenent was appealed to the D C ( ircuit
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imposed by the ourts as a condmon to 04 crt. the mpral Rut bonding arrangcment Should the i 5 Nprrme (2 nirt *" tied up much of ttr 5ntemi cash and dcode the MP&l appeal faarabh 3 g unforturutcly pruluded the conedcra- the det nion would greatly onlurnc -
~
unn of a mmmon stott draknl p.13 ment the Msi~setcmi abihty to rcmup its . 2 si ttut w as immurnt. Grarxl Gutt unrunrnt and mrrre nt - ','- $ ingly impnne the Mcmi t'inancial ' y S' L'.5. Wreme Court IIcars Case outlom >L lho outwnr shoukt alm .,p." !; On ichruary 22.19M approsinutch I # #" ' "" "'" * #
,# I one ycar later, the l' % Supreme G sirt
' #'"I"'"
i e' 4 heard oral arg inrnts in the uw 4 e P'" '"' " ""# " W asked the ( oun to mnfi.o llut the "N ' " ' Thk ral i norp Regulaton ( ommmioni ""# "N * "'"" ' ( P1 RC 1 punsdidion and ratex tting
^ " " " '"""""'"'
otivt hand. would greatly dinunidi dnkk nd pnnptets u c would he fort cd to to(us our t norpes on numtainmg I! s . 5
1987 Viewed as Pivotal Year throughout the Sptem. (See the region. We beliue this long term "N #' "*"*#"' " #"""" E'I I think we'll look back on 1987 as a fundsome returns in i.he future. In addition to getting nmre output phutal 3rar in our rectnrry. V.e suniwu while New opportunities enriches from our plants at lower custs, we are sigorous legal challenges, nuintained the region's educational and ecoromic taking steps to streamline our wurk our customer energe load-be foundation, .itSU is roumping and force. Our Arkansas Powrr & IJght despite cogeneratbn,s appeal,I scred weradng wnpny wt me pace nmetunng We Wem to wymi to our defense against the threat of the challenges of the future. We don't with an 11 percent reduction in municipalizat.on, and wr're strn.u.' to interxl to merely let the future happen; authorized personnel Other "belt-attain financid stability.
* # # ***" "E #" " " * * "E "#E' " *## '" #
The challenges we'w faced hase throughout the Sptent game plan for being on top. forged us m. ?o a stronger, more effecthe on the tirancial side, we're prepar-organization, so much so, that i beliew 31ecting Future Challenges ing to shift gears in 1987 we, by newssity, wr're better prepared for the future and adW a Nanuge mmmr Mrategy liasing met the challenges that 1987 its incitable chauenges. forced upon us by the bonding posed, wr know we haw the where-One of N most promising dorlop-aqu emems asm ated with tk N withal to successfully compete in this ments has been the growth and success 8EE# # '# "U **"d* industry. We do rmt lack for a vision, rmr of Sptemwide teamwurk. We're drawing
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- are we short the enthusiasm, ambition, strength from a prewn ability to reprvt
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- M"# """"' and know-how to achior it. Still, for the to chal:enges and opportunities as a
##* ' " *
- I smcath functioning, etlicient, Sptem- past few 3rars, those qualities luw been
' *
- E "* "" '** encumbered by legal entangicments, wide team.
* * *# # "" #### regulatory recalcitrance, and a resulting Fur example,inJune 1987, when the D C Circuit Court of Appeals questioned E imestor uncertainty ainut the dilemmas
"##* C* *
- that have shadowrd us.
FERC's rnethodology in establishing
"" ## "# "E C"I"" Those clouds should lift,Ixmurr.
thc Grand Gulf I allocation plan,
* #5 * ' ' " " ' # *##"' The threats, constraints, and setbacks Sptemwide teamwurk helped sustain FERC's original aUceation. Our Sprem we'w encountered will begin to wane if Operating Efilciencies Improved the U.S Supreme Court remiers what wr Energy Resources, ine. ($ERI) subsidiary filed a single brief with I t:RC urging lowering our costs per kilowatt-hour hope will be a famrable decision. While the existing allocation's reaffirnution. through innontive financing and rot a final ansurr or parucca, a posith e On Newmber 30, FERC did just that, operational and organizatiorul effi. decision will afford the Sptem an relying heasily on arguments contained ciencies is onh urt of the solution we opportunity to finally move toward a in SERI's brief. are seeking. We mast also continue to resolution of its problems.
*ptemwide teamwurk produced improw our product marketing. Anticipating that dewtopment, I other benefits, as wru. It was crucial To that end, the Sprem is imple- haw announced a new sision for the when 511ML. SERI, and 515U worked menting a strategy that delineates the Company, and senior nunagement has together to secure the bonding most effective electric p(mer m:rketing dewtoped a set of sustaining priorities arrangements needed to keep the methods We are also applying, Sptem- for bringing that sision to reality (see A1P&L Supreme Court appeal aliw. wide, programs already prown success- scetion that folkms). As we near that and it proved beneficial as we ful within the indnidual senice areas. reality, the Sliddle %uth Electric Sptem dorloped standards of excellence Externauy, our New Opportunities can htgin to perform i xe the thorough-in p:rformance for the Sprem's three program has achiewd notable success in brcd organintion wr've become during nuclear generating stations. docloping the region ur wnr. We haw this trying period We remain comrnitted to, and kt a wil receiwd effort to imprme the Sincerely, continue to succeed in, mntrolling our literacy of, and educational and business cost of senice. Computer. based opportunities in, the Sliddle South ,
programs at our nuc! car facilities and Edwin impberger fossil fuel plants help manage and Chairman and President reduce operation and maintenance a ns gg
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'During the next decade, the Company u'ill becorne and be uidely particularly through the efforts of its arcc>gnl:ed as a customer oriented, socially responsible, financially I"ui'iu Ih"tt & U htS(LY&I-) and New O''""Y"hU'b"d " '"' S W strvng, successful cornpetitor in the etofting electric energy business." subsidiaries, has increased load demand
- The Viston m thew industdal stonm Edwin Iupberger in addition, contracts semring future senice commitments with nunv A dsion statement lus rm pmtr, only The Sptem Executhe -llunun , g y pmmise. It lists expectations. not Resources position is expected to be fulh negotiated through a customer-dwds; describes goals, but not how to filled during 1988. ta fored combination of senice <ptions achiew thent it has life, but no substance Jack King, System Executive- 9.id mmpetithe pricing. King calls it a until it is brought from the wurid of Operations, untk rstands the imp >rtance .
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ideas to the world of accomplishments. of customer orientation and cost.
..The industrial customer benctits At Sliddle South Utilities,Inc. (MSU) competitiveness in a changing business from the purciuse of electricity at much of the responsibility for translating emironment. In the face of such o tidve rates, without the risk of the Company's vision into winning challenges u deregulation, cogeneration. . .
mvesting in an on-site pmer plant. performance rests with the fiw Sptem and growing competition, King is Sliddle South benefits by keeping the Exemthes, charged with responsibility wurking to make the Company resp >nsiw gg g for Sprem nunagement in the areas of while nuintaining quality senice to the payers as a whole benefit from the operations, nuclear, legal and external Sptem's more than 1.68 million distribution of the utihty's fixed costs a!Tairs, finance, and hunun resources. customers. "We must cuttinite a commit. anmng a larger customer base,., Tbgether with the chief executhe ment to innovation heretofore unheard otticers of MSlfs principal subsidiaries, ofin the tradition-tmund utility industry Seeking New Electric Starkets the Sptem Executiws in 1987 dewhped King sap.
"We must continue to tailor our King also points out slut 31iddle 9)uth a set of sustaining priorities intended efforts to meet every customer's needs. t ~tilities is aggressively seeking out new to driw the Sptem toward its sision.
We must understand and anticipate the nurkets, both within the Sprem and 11riefly stated, those sustaining priorities economic impact cogeneration can haw be)nnd. Also, o!T-Sptem sales, a growing are to.
. become nwre miomer oritnted; on our industrial etomers, dewk p new sector stimulated by deregulation, are senices fbr resi Jential and commercial expected to contribute a larger share of become more cost mmpetithr; customers, and find wap to expand and Gmpany rtwnues owr the next few pars. . energi/c our pe(ple; Electric senice is also being . satisfy our internal and external improve existing senices in ewry sector?
modified to meet special needs. As an constituet'cies; During 1987 Aliddle South began to see tbc success of its efforts. ~Ihe Sprem example, King points to an Arkansas prepare for the future. is successfully competing with cogen. Ptmrr & IJght ;Al*I.) program tiut lhe 515U Sptem Executiws wfm cration, an industrial alternative to prmides "pront ami;rade" electricity haw mmmitted themschrs to the utility purchased power. In rtyions where for cusomers witb power-sensitive l accomplishment of these priorities are: electricity costs are high, utilities with equipment. "You might call it computer-William Caninaugh IIL Sprem Executive - Nuclear; simil customer profiles, i c., similarly grade electric pmer" King sap about high pe rcentages of chemical companies the progrant "Customers with sensithe John L Cowan. Sptem Executive - Finance; and fuel refiners, haw lost signiCcant k ad equipment can subsenbe to this senice and experience fewer computer inter-Jerry D.Jacksort Sprem Executiw - to cogeneration. 31iddle South, ixmrver, ruptions and nure cGicient operation?' Irgal and External Affairs; Jek L King. tptem Exemtive-
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1 Cost competitheness - the ability to Sleeting this standard of excellence, a computer. based program that enables l achior and retain the competitive rather than accepting some lesser management to better control main-edge afTorded a "low-cost producer"- industry average as a target, "is the best tenance schedules and note effecthely is a watchwurd for William Cannaugh, assurance wr hast of pnniding a reliable utilize personnel and other resources at I System Executive-Nuclear, as well. supply of electricity at a reasonable the Sptem's nuclear facilities. l Cavanaugh, who is also president and cost while ensuring the protection of our A S1515 derinthr, PPPIP (Power chief executive officer of Sliddle South's imrstment, and the health and safety Plant Producthity Impnnement Sptem Energy Resources, Inc. (SERI) of our employees and the public;' Program), accomplishes the same subsidiary, sees the Sptem's nuclear states Cannaugh. objecthrs for the System's fossil-fuel operations as critical to achining cost. To obtair that goal, a structured plants 2nd is operating at IP&lfs Ninemile competitiveness. IIis track record proves series of initiathes was implemented in Point plant. As with 51515, the impnnrd he means business. 1987 to pmmote Spremwide teanmurk ef"iciency and ant sasings resulting from in 1987 Sliddle N>uth's nuclear and to fmter a competithe attitude PPPIP at Ninemile is being extended operations had its best year. Each nuclear toward indhidual, facility, and program through its installation at other unit increased the length of tiac it was performance. These initiathe included: Sptem plants. available for full-load service, and each utilization of a limited r'umhes of These managemed initiathrs and station (Arkansas Nuclear One, Grand task forces to prtnide a Sptemwide technological resource progrants are Gulf, and Waterford 3) established approach to problems common to all part of a focused effort toward the new records for generation. Grand Gulf the nuclear units; establishment of standards of per-l' nit I also established a new wurid formation ofintercompany peer formance for the conduct of all Sprem record for continuous operation of a groups for the sharin", ofideas and nuclear acthities. boiling-water reactor (BWR) during the informatiora "Ihe Spicm's nuckar units represent wcond operating c>rle, and a new record increased participation by line per- cither profitable opportunity or potential for generation in a 2&lmur period by a sonnel in both the Sliddle South Sprem crisis for our Sprem" says Cannaugit single-unit BWR. Additionally, all the and Institute of Nuclear I\mtr As a profitable opportunity, they stand - Sptem's nuclear stations achiewd full Operations (INPO) aswssment at the bottom line -as the largest mcmbership in the National Academy for programs, contributors to the net income of our Nuc! car Training. Stembership in the Nudear Slanagement Committee corporation. As a potential crisis - unless Academy is a prestigious honor, granted meetings that focused on indhidual they are safely, cost-effecthcly, and only to those nuclear stations hasing unit perfornunce, unit problem areas, successfully operated - these units higtvquality, etTectise training pmgrams. significant incidents and current represent the nmst significant threat to l i regulatory issues; the continuing existence of Sliddle south 51eeting Standards of Excellence . increased emphasis on the utiliza- l:tilities," Cannaugh sap. tion of S,stemwide resources to "1 hat's why wr cannot afford -
.'The results we're after depend largely address significant problem areas at a either professionally, financially, or on the effectim management of our specif c unit. politically- awrage lewis of performance l resources" sap Cavanaugh. "We'w set Cavanaugh is employing the within our nuclear sector. It is with the our sights on a standard of excellence.
pan @ con craw techkWeal recognWn oh,e chnwances tM We're going to achieve that with rmurce as part o tM pmgram of we ne committed to one standard - the emplovces who are the best. the nust exccHence a in ornen aa M o M cek W inno tiw, the most dedicated:, Slanagement Sptem (S1515) is already operating at AP&l's Arkansas Nuclear i One and LP&l's Waterford 3, and is being installed at SERI's Grand Gulf 1. S151S is l 7
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devriopment specialist, right, obsents a [ . j demorotration of the innovatise i u)mpulcr-bas;d htcrag training pnpant PAIA performed by instructors at tbc ' i Continuing Education I carning Center in Jackson. Sliwiwippi. J ; h 4 s
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llecoming a customer oriented, Orleans City Council has assessed against program lus recorded an emiable cost-competitive electric energy NOPSI a substantial disallowance of record" says Jackson. "Our series of prmlucer will go a long way tow 2rd Grand Gulf I costs based upon alleged entrepreneurial wurkshops has attracted S satisfying Sliddle South's internal and imprudence - an action we are challeng- businessmen from every corner of the external constituencies.nese ing in the courts "Only by working region, who have been able to translate constituents, including customers, together as a System" statesJackson, their new knowledge into better bu iness regulators, stockholders, the business "will we be able to successfully meet practices" Future plans for the business community, and the general public, often thew challenges" community include fo( using on banking's spcak in competing suices, attempting relationship to new businesses and to influence Sliddle South's programs and Teamwurk Is Key to Success helping minority owned enterprises. policies. De Company's sision is to satisfy Similar advanceslure been made on
,s diem mM au these interests- a task that requires the educational and literacy fronts.
efforts have resulted in successes in expert nunagement fromJerryJackson, Recause an educated, wcIl-trained wurk gg . g Systern Executive-Irgal and f rce is essential for industrial grou?h helped persuade Congress to enact
*#**I #* "* t ay, educada cannot be sepantW Icgista: ion restricting the issuance of In 1987 the System nude con- fr m ec n mic dewtopment.With this tax free bonds as a means of funding a siderable progress toward resohmg the in mind, the Company has embarked on a utility takeowr; judicial and regulatory conflicts Jut *#d#' "I P *S'*"" * "I PC "' #"U
. helped defeat legislation that wuuld haw strained its finzncial and .u.augerial and impnne education in the senice area-ham ghen states the equh21ent of"wto.,
remurces % rough effecthe Synemwide In one f the most innovathr of power owr any plan to commence teamwurk, the Company has been able these programs. Sliddle South has helped operation of a nuckar generating facility; to overcome a number of Icgal hurdles establish four adult learning centers,
. produced a new S3 uemwide strategic concerning the Mississippi Power & w'here a computer-based lit eracy t raining planning and decishn making process Ught (MP&L) rate case. AsJackson sap, program-Principle of the Alphabet likely to be a model for the industry; "We fact that StP& L remains in businew . helped improw the economy of the
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and continues to collect Grand Gulf tutor to simultaneously teach as many region through Sptemwide efforts to costs from its customers is an example as 16 students to read. Situated in promote literacy, education, and of how important Sptemwide teamwurk I## "' PP #* ## "' "" economic development. is to meeting these challenges. 5I "' I"" *I'"#' #"d II#I#" ^'k*"***' Economic dewlopment programs, "In addition" sapjackson,"wr were # '#"I# #* ##"* #"'# y ggg ;. New Opportuni-successful in securing an order ud' Mvc been designed to stimulate I" " * " U 'I* "8 * '" * "E "" reatlirming the existing allocation of now, been limited to a few students and foster improwd long-term growth Grand Gulf I capacity and energy costs "** i for the Middle South Sptem sersice area. by the Federal Energy Regulatory # " # '" ' " " Dey are priorities that Jackson sees as Conunission (FERC) following the spms red by Middle South include essential to expanding the Company's renund by the D.C. Circuit" **#"'* "" '"'#** economic base and. ultinutely. increasing l Be legal and regulatory battles are demand for electricity. lie recognizes N IP"""" not over. Utigation is pending before uth repon for coHege educada and that an expanding business emironment P"'# ""' #####* # E"#' " j the U.S. Supreme Court imuhing MP&I's 6 M only the region, but the
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l right to recowr the costs associated Company's customers and stockholders, with its share of Grand Gulf, and some g promising students. of the parties to the FERC proc, edings "'# ""b * '#* '""*"
..In the area of economic devekp filed a second appeal before the D C. how teamwurk helped the Sprem in ment, the Sprem's New Opportunities Circuit Court seeking further judicial 1987 deal with the challenges snd resiew of the existing FERC allocation of opportunitics encountered in legal and Grand Gulf costs. Addition 2Hy, thc New l
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cxternal affairs. AsJackson notes,"We Cowan belion that competition in lluman Resources is to identify and will continue to face similar challenges the industry is likely to produce a major dewlop existing talent within the Sptem in the future which, if not handled distuption in the electric power market through mowment and exchange of properly, could be disastrous for us and and that those firms that are not employees among companies. Although for the region.1 hat is why teamwurk conpetitive, both in terms of cost and as the process of intrasptem transfers is not will continue to be as important in the imestment whicles, could become new ta the Sptem, a more organized and future as it has been in the past" casualties. l'uture rate increases bc>und sprenutic approach is being emphasized While Sliddle South is committed to those already 4cheduled wuuld definitely for 19M as another means of strength-dewtoping New Opportunities for the weaken the subsidiaries' position among ening the Slidd'c South teant region it serves, John Cowan, System their competitors. Electric unlities tend to be wry Executive - Finance, is at wurk identify . specialized in terms of engineering and ing opportunities for improving the Creating a New Competitive Edge operating functions, and economic and Company's financial picture. financial rules and regulations, so In order to prosper, Cowan says, the "Sliddle South has been preparing emplo>res with utility knowledge and S m m>w to create a for the improved financial conditions skills are an imuluable asset to the competitive edge far the future. lie is we expect to derive from a fasurable U.S. Company. working *, make the Sprem capable of Supreme Court decision on the StP&L Imrasptem transfers allow the responding quickly to changing appeal" Cowan sap.These improwd Company to promote indisiduals who m These might imuhr
<unditions will incluoc greater confidence already have public utility experience, innovative refinancing programs, fuel in th; strength of the Sptem's companies as well as experience with the Sptem, purdusing strategies, and the dewkpment amoag rating agencies, security its people, history, and operations. 'lhis of spec alized Mces analpts, and existira and p>tential cetes a cadre of employees who better ikcause the Sptem's bigh cost of imrstors in bonds and other securities. understand the interconnection of their capital makes it sulnerable to cunpetition, A program of refinancings to reduce the j hs within the Sprem, strengthening the Company must be very aggressiw in mcacy cost of the subsidiaries wuuld the teamwurk concept, and furthering managing its money costs "We are going then follow' the Company's commitment to Sptem-to do owr) thing wr can to improw the Cowan is making contingency plans, wide excellence.
Company's financial r,tructure" Cowan as wcll. Should the Supreme Court Ninceren eightwseven embodied sap,"so that when some of the regulatory decision not be ewr> thing anticipated, e niinuing challenges to Sliddle South and legal questions are put to rest, the the Company will be prepared to respond Utilities. Notwithstanding these chal-SISU lloard of Directors will be in a quickly so the financial integrity of the lenges,51idd!c South is planning to move position to consider reinstating a Sptem can be maintained. "We're not just boldly ahead in 19M. The sision ar.d dhidend at an appropriate lewl:, going to let the future happen? sustaining pri rities are in place. Capable I Citimately, Sliddk South's success C(man emphasizes. Sprem Executiws are at the helm. While l in achiesing its sision as a successful 13cfore joining the Sptem last ansiting the U.S. Supreme Court decision, , competitor relies upon its peopic. The October, Cowan w2s the former chief the (empany's management has set its l em's 13,700 emplo>res are a source financial officer for UAI, Inc., and its sights Gr.nly on success, whatem the of energy that, working as a team, can United Airlines subsidiary. llis experience Court's ruling. A fasurable decision will light a road to success as surely as with the deregulation of the airline make success easier; but 51iddle South electricity illuminates the 51iddle South industry prompts him to bebew that,"Ihe must bring its vision to fruition with regiort Recognizing that potemial, a electric industry's future rests with those or without it. commitment is included in Stiddle l companies that can best adapt their total South's sision to maximize human l resources M meeting market real3ies? resources by "energizing" emp!o>res. One of the priorities that has been j estabibbed for the new Sydem Executhe - l l I1
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$'" u:a.AAw Financial Condition from external sources during the upon MP&l, if the l!.S. Supreme Court During 1987, the Middle South System period, prinurily to retinance existing renders any decision adwrse to the System's continued to face legal and regulatory debt and preferred stock and,in the case position, the application of the doctrine of uncertaintics. Significant improstment in of MP&l.and NOPSI, to also finance federal preemption could he severely the Company's financial condition cannot their rate deferrals. undermined 'Ihe doctrine of federal be expected until famrable resolution or in order to increase the liquidity and preemption is necessary in order to secure mmleration of thew uncertaintics lus been financial flexibility of MSl', the $ptem implementation of SERrs federally man-achieved. Ilowever, some pn>gress tow ard operating companies nude pa3 ment of dated wholesale rates thn> ugh the retail rate firmer financial ground was accomplished common stock dnidends to MsU for the structures of the System operating com-during 1987 as esidenced by the following: fist time since the wo>nd quarter of 1985. panies. L'nder these circunistances, the
'!he Federal Energy Regulatory Com, while the alxnc doclopments repre- o>ntinuing giability of SERI as a wholesale mission (FERC), on remand from the sent progrew, the final and fm>rable seller of pourr to the Sptem operating Court of Appeals for the District of remlution of disputes over adequate retail companies, based upon SERI's full cost of Columbia Cirutit, issued an order in rate relief for certain of the Sptem senice, wuuld be jeopardized, and it could Nostmber 198", subject to judicial rniew, operating aimpanies, as di cussed herein, he didicult for one or more of the Sprem whereby ITRC reaffirmed and reir' stated has }ct to ir achined companies to asuid a bankruptg Gling the June 13,1985, decision alh>cating the On Febrtury 25,1987, the Mississippi t urthermore, the o>qmrate structure of the capacity and energy onts of Unit 1 of the 11 die Senice Commissian's (MISC) Middle South Sprem could be placed in Grand Gulf Nuclear Station (Grand 5eptember 1985 final order on rehearing, jeopardy (See Note 2 "Rate and Regula-Gulf 1) to the Sptem ograting o>mpanics which granted rate relief to MP& L with tory Matters" and Note 8 "Commitments on a full cost-of senice basis and respect to its I LRC-ordered allocation of and Contingencies - Potential Debt Accel-prusiding SERI with recostry of its Grand Gulf 1-related costs. w ts re rrsed by cration. Ilankruptcy, and Sptem Viabilit()
costs associated with the construction the Miwwippi Supreme Court and re- On i ebrtury 4,1988. after a lengthy and operation of the unit as well as a manded to the MISC for further proceed- prudene imestigation. the New Orleans return on its imrstment (June 13 ings (Februan 25 Decision). To obtain a City Omncil adopted a resolution that Decision). (See Note 2 "Rate and stay of the Miwiwippi supreme Courti required Nol51 to write otT 5135 milbon of Regulatory Matters") nundate, pending MP&l\ appeal of the its dcferred Grand Gulf I costs in addition . Each of the $ptem operating companies Echnuo' 25 Decision to the i15. Supreme to the 55L2 nulhon of such o>sts prniously has implemented a rate strudure (in Court, SI RI and Mst ' luve prmided absorbed in connection with a March 1986 some cases pending the outcome of corporate guarantees (in the amount of rate settlement between NOISI and the challenges) for the reemtry, in part, of approxinutely 5206 nuihon)if refunds council. 'Ihe councili action tus caused its respectist allocated costs of Grand are required of M P&l, and SI RI is ncrowmg Nol51 to sutler immediate harm with Gulf I and, in the case of 1.P& L its an amount equal to MP&lN Grand Gulf I serious consequences to tht financial costs awociated with Unit 3 of the rate collections since June 1,1987 condition and siabihty of NOISI to continue Waterford Steam i lectric Generating 4 ith repect to MPalls appeal of the to exist in its present form In the near Station (Waterford 3) Certain of the Miwiwippi supreme courti lebruary 25 term. unlew the osuncili resolution is Sprem operating companies har reduced Decision, MP&L based on the opinion of rntrwd. NOISI will. in all probability. not be the deferral of owts for future o>llections its counsel and awuming ii RC has able to obtain the funds necewarv to meet and increased their current cash jurisdiction to alh>cate Grand Gulf I costs, its ongoing obbgauorw and muk! he rendered collections through implementation of is of the belief that the February 25 insohrnt in a short period of time, perlups phase in plans. Decision should be re trsed by the IN as early as the second quarter of 1988 SERI lus, through refinancing, succeeded supreme Court on the basis of constitu- liccause NOISI has not been able to obtain in reducing its bank debt from approxi. tional grounds if t;ut Court, upon further an immediate stay of the countil\ resolu-nutely 5'09 million at December 31, consideration of the iwue of its jurisdittion. tion. NOP51 was required by the toolution 1986. to approximately 53N million at accepts the appeal or otherwise agrees to and applicable accounting standards to December 31,1987. (5cc Note 4 - decide the case on the merits llowntr, no write off 5135 m!!! ion of its prniously "lines of CMt and Related llorrowings") awurancn can be pren tlut MP&l\ appeal deferred Grand Gulf I o>sts and reticct tlut MP&L NOPSI, and SERI succewfully "ill be suctewful If the I LS Supreme w nte-otT, net of income taxes as a loss in accessed the capital markets in 1987 Courti decision is atherse to MP&li 198" Af ter gising c!fet t to the write off, whereby a total of approxinutely 5 485 interest MP&lls Grand Gulf I rate order the balance of NOPsi s deterred Grand million was raised by these companies could be canceled uhit h wahout a Gulf I oests approumated Sinh million at mmnwnsurate redudion in costs, could December 31.198". Additionally. should render MP&l. insohent in a short pern>d of time in addition to the possible effects 12
i ? , the rex)1ution stand as written, NOPSI If&L to reconi apprninutely $19 million wuuld lust its future rornues reduced by in additionalWaterfo d 3 deferrals, and Dectricity Generation by Fuel 1)1r 3135 million plus the carrying charges authorizi'g i P&L t- .rnplement a rate increase of f 40 million annually.1he LPSC #'W"""# d*"" thereon (which NOI51 estinutes could he as much as another $165 million). and LP&L tute appealed the judgment to 01, 20 s 40t (io% m 10(n, l'nless the resolution is re ersed, under the Inuisiara Supreme Court. Pending the applicable regulatory, clurter, and indenture outcome of the appeals, LP&L has not 1987 3 restrictions, NOPSI could be rendered recorded ti,e additional deferrals of I uruble to effect funher borrowings or other approxima ety $19 million. IT&L has financings. Storcoser, there is no assurance implemented such rate increase effecthe 1985 U that SISU will proside any additional funds Ft bruary 1,1988, subject to refund. (See - A ~I to NOPSI under these circumstances. In Note 2 "Rate and Regulatory Statters?) I 9* ' . ( addition,in the ab cnce of a rotrsal, in ad jition to the above, several i983 g{ M) PSI could be required under its new uncertainties faced the S) stem during 198', ( general and refunding (G&R) mortgage to which ha J, and in certain cases continue 1982 E redeem up to 5115 million of G&R to lust, t he potential to impede its firuncial ,9g, '- bonds outstanding thereunder, which recostry 1hese uncertamti s included l could be tendered to NOPSI for re- (1) the tratus of L' nit 2 of the Grand Gulf gg g g3 gg demption. NOPSI lus no real ability to Station i Grand Gulf 2),(2) the possible obtain the funds to meet this obligation, adverse effect on certain of the System
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a"d could thereby be rendered insohrnt. operathg companies of recent changes Aho, should NOPSI fail :o nuintain in related to the accounting for pluse in plans, x,yfyg.,ainuunts of bntnic/atnc (3) the potentially adverse impact on SERI Renen tion are smtgottal effect adequate retail rates to recover its Grand Gulf I-related costs. NOPSI wuuld of certain findings stenuning from a FERC not luve adequate resources to meet its audit of SERI and the Grand Gulf Statio,1, contractual obligations to SERI with if such lindings are ultinutely sustained, S) stem Retail Customer Electtkity respect to Grand Gulf I and could, in a (4) tre needs of 51P&L and NOPSI to l? sage ! short period of time, he rendered insohrnt. acces s the capital markets for external nanons of Kuouutta,un NOPSI beliors tlut all ofits actions finan -ing, (5) the continuing controsersies s2 and decisions with respect to Grand Gulf I over the Grand Gulf Station and the 53 - were prudent and tlut NOPSI will ultinutely alk) cation of capacity and energy costs of be successful in defending against the Grard Gulf 1 to the System operating 50 - - - councirs actions. Storcoser, NOPSI beliots corrpanies, and (6) unresohrd prudence 49 - - - - - that the actions of the council are in sio- imt stigations of LP&L and 51P&L Certain 48 - - - - - - - lation of the Federal Power Act and FERC dev:h)pments with respect to these c .- - - - _ - - orders with reTect to the alk) cation of unc ertainties occurred in late 1986 and w_ _ _ __ - - Grand Gulf 1.related costs and will ulti- 19f,7 and are listed below g_ _ _ _ _ _ _ l l nutely be so declared by the courts. On December 5,1986, a recom. ( On January 30,1987, the Louisiana t 1endation was adopted by serfs ibard 2_ _ _ _ _ Public Ser ice Commission (LPSC) issued of Directors (with the SISU Board of , _ _ _ _ _ _ _ a permanent onler for rate relief tlut would .)irectors concurring) to continue the g_ _ _ _ _ hase allowed IP&l. a base rate increase and, anspension of construction aethities on 1982 1983 1984 19 e 1986 19s* separately, the use of the balance of Grand Gulf 2 and to nuke a decision by proceeds of a gas cuntract settlement to 1990 on the future status of Grand recoser Waterford 3 deferred expenses. Gulf 2. This decision alkms tic Sistem to Ikmrstr, this order w:s subsequently nuintain flexibility in meeting the energy modified by the ISSC through rate orders needs of its senice area. (fee Note 8 - issued in April and June of 1987. LP&L "Commitments and Contingencies - appealed certain aspects of these rate Suspended Construction Project - Grand orders to a state district court. In Nostmber Gulf 27) 1987, the court iuued a judgment allowing Ir. August 1987, the financial Accounting Standards Board (FAS13) iwued Statement 13
of Financial Accounting Standards (5FAS) panide for future issuances of long term things, carnings, disidend policy, the No. 92, Regulated Enterprises - debt based upon Grand Gulf I rate outcome of regulatory and judicial Acmunting for Phase-in Plans, an deferrals without meeting a property proceedings, financing plans, and access amendment of SFAS No. 71. SFAS No. 92 additions test. (See "lJquidity and to capital markets, if future ewnts vary requires certain conditions for the Capital Resources") significantly from these assumptions, deferral of costs of a newly completed . Various parties have filed petitions for additional capital and externa: financing plant. Certain of the System operating resiew of FERC's Nowmber 30 order requirements could result. (See Note 8 - comparues have implemented phase-in whereby FERC reaffirmed and reinstated "Commitments and Contingencies - Capital plans that do not meet the requirements itsJune 13 Decision. Requirements and Financing") of SFAS No. 92. If either AP&L or S!P&L As a result of uncertainties facing the lhe total System construction expends is requirni to ultinutely write off substan- System, SISU has been unable to declare a tures (excluding nuclear fuel) for 1988, tial anmunts of deferred costs, it could comnon stock dnidend since the second 1989, and 1990 are estinuted to be 5105.6 haw a materia!!y adwrse effect on that quarter of 1985. Ilowewr, in order to nullion, 5414.7 million, and $427.3 million, company's financial condition. (See increase the liquidity and financial flexibility respectiwly, and expenditures for nuclear Note 8 "Conunitments and Contingen- of AISU to a limited extent,in the second fuel not currently owned or under lease are cits - SFAS No. 92") half of 1987 and early 1988 the System estimated to approxinute 533.7 million . OnJune 18,1987, FERC issued an audit operating companies paid comnwn during 1988-90. report on SERI and the Grand Gulf dhidends to SISU aggregating 563 In addition, significant additional capital Station. In the report, the FERC stafY million. Resumption of AISU's common requirernents, estinuted to aggregate $532.5 states, among other things, that the Grand stock dhidend depends, anmng other million during the period 1988-90, will Gulf Station's alk)wance for funds used things, upon the famrable resolution result from the need to finance imple-during construction (ARDC) is owr. or further moderation of thew uncer- mented and assumed rate moderation plans stated, and that a significant portion of tainties, and improwment in the Sptem's for the Jptem operating companies. , SERFS unrealized recorded income tax financial condition. Furthermore, during the period Innef2s should be reclassified to accounts lastly,if the New Orleans City 1988 90, the Sliddle South Sprem will recch able from asweiated companies. CounciFs February 1,1988, resolution require funds of approximately $731.9 SERI has strongly disagreed with the staffs as discussed herein is not rarrsed or if the million from internal and external sources psition, asserting that their position existing retail rate strt.cture of any other to retire or to refinance maturing debt and is in siol. tion of the Semrities and Sistem oltrating company was to be resiwd to meet long-term debt and preferred stock Exchange Commission's (SEC) tax in a nunner tlut umkl cauw such operating sinking fund requirements. allocation regulations applicable to company to absorb (and not recover from Certain nuck ar fuel lease arrangements holdmg mmpany sprems and mntrary to mstomers) substantial Grand Gulf I and, in are schedukd to terminate in 1988 90. It FERC's accounting rules. If the staffs LP&l's case,Waterford 3 costs, the carnings, is currently anticipated that these arrange-findmgs are ultinutely sustained, the liquidity, and fuurxial condition of the affected ments will be extended or alternathe resulting charges against net ir.come and operating company and its ah;lity to meet its arrangenwnts will be semred. To the extent refund requirements would luw a nuteri. continuing obligations could be sewrcly tlut this does not occur, additiotu! financing ally adwrw impact on SER1, (See Note 8 - impaired. Such company could be rendered requirenwnts of up to an aggregate of $374
*Commitnwnts and Contingencin - ERC insobrnt and the Sliddle South Sptem could million could result. In addition, unless Audit of SERl") be materially and adversely alTected. (See certain financing arrangements of SFI, in
. SIF&L and NOPSI will require funds from Note 8 Conunitments and C7ntingencies - connection with its nuclear fuel procure-external sources to meet their capital Potential Debt Acceleration. Bankruptq, ment and scruces program for the Aliddle requirements, and their ability to obtain and Sprem Viability") Muth Sptem scheduled to terminate during these funds will be affected by legal and he period 1988 89, are extended or IJguldity and Capital Resources regulatory dewlopments and other alternatiw financing arranged, additio.ul uncertaintics. Any inability to obtain lhe capital requirements of the Sptem finanang requirements of up to $105 million external funds muld, particularly in roted herein assume the continued could result. Further, certain of SERFS NOPSFs caw, prc+ce severe liquidity aHocation of Grand Gulf I capacity and pollution control rewnue bonds nuy be problems. Due to t. ir inability to energy custs in accordance with the June 13 required to be reacquired by SFRI during issue significant amounts of first nongage Decision and the famrabic rewiution of 1988 89 in the event tiry cannot be fronds due to lar;k of property additions, certain challenges to and modifications of renurketed. I?nder this circurmtance, 51P& L and NOPSI have established new retail rate relief gr nted with respect to additional funds of up to approxinutew G&R mortgage bond indentures to Grand Gulf I and Wataford 3 msts, and are ' hased on certain other awumptions and judgments with respect to, among other 14-
$78 million may be need. d to reacquire As noted, NOl5I and SIP &L hase such imnds. Finally, as notcd, NOPSI established new G&R mortgage botxt could be required to redeem up to irklentures. I'nder its new uxlenture, NOPSI Capital Requirements Related to C""'t ction 1:xpenditures and $115 million aggregate principal amount is permitted, araong other things, to issue Rate Dcferrah of G&R bonds. G&R bonds based >pon Grand Gulf I rate Stillions ofikdLui SIP &L and NOPSI expect to raise deferrals without having to satisfy a 1 * *)
capital funds from external sources through pmperty additions :est, although NOPSI ~ the sale of G& R bonds, common stock, would have to satisfy a two-times earnings g imrrowings, or such other methods of coverage test and certain other conditions. g _ financing as may be appropriate. Ihmorr, StP&l's issuance of G&R bonds is subject to un3 ,_ - c_& y .[ h in NOPSTs case, unless the councifs a test permitting StP&L to issue G&R innds - : $ _
~ "
Febrvary 4,1988, resolution is restrsed, based upon the cumulative balance of 750 s" - NOPSI will stry likely be precluded from deferred Grand Gulf I costs recorded as an y . . asset on 51P&L's books. SIP &L wuuld also W~ ~ ' E~ ~ - ' - ~ ~ u% any addnional funds from external ," "
- T sources and could be rendered inschent. hase to satisfy certain other conditions, ~
S AP&l, LP&l, and SERI's cotimated capital requirements, including refinancing including a twutimes camings costrage test. These indentures constitute nurtpge liens n 3_ E
} _ _ _ is i requirements, are anticipated to be (subordinate to the liens of their respecthe 197H 79 x0 HI H2 M3 8i Hs 86 M' met through internal cash generation, first nortgages) on substantially all g "'
lindted short. term bornmirgs, and, possibly, properties and assets of NOPSI and SIP &L in NOP51% case, these indentures are Rate Mmis the sale of common stock, as well as the Alloww for funds ikd Dunng Qinstnxtion possible issuance of tirst nmrtgage bonds a first lien on certain of NOl5fs rights if and preferred stock. Ilowever, many the City of New Orkans purchases NOl5fs uncertainties continue to confront the property rnd aswts. Under thoc inden-Sliddle South $3 stem and, depending upon tures, NOPSI and SIP &L are eswntially the ultimate resolution of such uncertainties precluded from issuing additional first
' ""'""N^
and the effects thereof upon the Sliddle mortgage bonds under their first nortgages. NOPSIissued and x>ld $75 million of G&R A####""# "l*A"' South System, these companies may be regttired to obtain additional funds from bonds pursuant to its new indenture in 1987 2%o external sout ces, including issuances of and an additional 540 million of G&R imnds additional first mortgage bonds, preferred in January 1988. The New Orleans City 2000 l stcck, and such other sources as nuy Councirs prudence disallow ance, if rmt be appropriate. rewrsed, would stry hkely preclude NOISI 1%o l 1he ability of the S)3 tem operating from issuing any additional G& R bonds in ,, l cocupanies and SERI to obtain additional the foreseeable future. uxo - capital through the sale of comnmn stock S!P&l, based on the nmst restricthe to SISU is limited at this time because of issuance test under its new indenture, 500 - - - - - - - 5150's limited access to futuis from external could have issued 5191.5 million in sources, limited dhidends recched by 515U principal anmunt of G&R honds at 0- - from its subsidiaries, and the need for SISU December 31,1987. 51P&L v>ld $75 million 1982 1983 198i 1985 1986 19x" to conserve cash resources. Storeowr, due of G&R bonds in february 1988. After ghing effect to thh sale, StP& L could ham issued 3 m ussuane a to the uncertainties discuswd herein and in Note 8 "Commitments and Contingencies $116.5 million of additional G&R bonds D Net Iunds Prosided
'" # """#" #^ - Capital Requirements and Financings" it The amount of additional first nort. ["3 ,'"',,'*, ,'l#
cannot be predicted whether, or in what gage bonds that AP&l, LP&l, and SERJ nw anxxtnts and on what terms, other financing issue to finance their construction progran:s i l may be available to System companies. The and other capital requirements is limited la following information nith respect to the lesser of anmunts based on nmrtgage l l sources of external financing should be coverage rat!os or unfunded inndable ! read in light of the additionallimitation of property. Itased upon the nest restricthe ptential lack of access of these mmpanics test, at December 31,198?, thew companies to the capital nurkets. I5
b could haw issued an aggregate olapproxi- stock equity is, or would thereby become, the amount of approximately $206 million. mately 5719 million of firs: mortgage less than 30% of the sum of total (See Note 2 "Rate and Reguhtory Starters") lands at an assumed rate of 13%. capitalization plus short term indebtedness. Further, in connection with the Grar d Gulf ne chaner cowrage ratios of the As a result of the write-off of deferred Nuc! car Station, the Company has under. Sprem operating companies limit the Grand Gulf I costs and the substantial taken to pnnide or cause to be pnnided amounts of additional preferred stock that reduction of NOPSI's common stock to SERI sufficient capital to ( 1) maintain may be issuett At December 31,1987, equity caused by the counciFs Fthruary 4, SERTs equity capital at an aassunt at least IP&L, SIP &l, and NOPSrs earnings cowr- 1988, resolution, NOPSI is currently equal to 35% of total capiuliz2'. ion ages were such that they w ere precluded precluded from effecting any short-term (excluding short term debt). (1) c9nstruct, from issuing additional preferred stock, borrowinp, whether through bank kians or own, and place in commerci:,1 operatk)n the while AP&L and SERI could haw issued money pool borrowings. Grand Gulf Nuclear Station, (3) pnnide for preferred stock in the amount of approxi- At December 31,1987, the Sptem preoperating expenses and imerest charges mately $40d million, assuming a preferred operating companies had no existing of SERI,(4) permit the continuatian of dhidend rate of 13%. short. term borrowings outstanding under commercial operation after commencement The amounts of additional mortgage territorial bank lines of credit aggregating tnereof, and (5) pay in full all indebtedness Imnds and preferred stock that can be approximately 5131 million. In additfor., for boaowed inoney whether at maturity, issued by SERI and the Sprem operating IP&L had nonterritoripj bank lines of credit or, prepayment, on acceleration, or companies in the future are contingent of $90 million at December 31,1987, none otherwise. (See Note 8
- Commitments and upon earninp snd the amount of unfunded of which were utilized at year-end. In the Contingencies- Potential Debt Acceleratkin, bondable property or rate deferrals event of certain acherse devekipments, Bankruptcy, and System Viability")
available to support the issuance of the availability of certain of these bank At December 31,1987, the Company's additional mortgage bonds. In addition, as lines could be the subject of further cash and ca_sh equivalents on hand tataled discussed in Note 8 "Commitments and negotiation. Additional autimrized borrow- $143.6 million. De Companfs >rar-end Contingencies - SFAS No. 92," AP&L and ings of each Sptem operating company and cash position has imprtnrd xinxmhat by the SIP &L may be required to write off SERI can be effected through the Sliddle receipt of approximately $21.8 million in substantial amounts of deferred costs in South Sp'em money pool. subject to the dhidends from subsidiaries in February connection with the accounting for anilability of funds, which at any particular 1988. In addition, at December 31,1987, phase-in plans. Such occurrence could haw time may be limited. The money pool the Company had a $60 million bank line of a materially adwrw effet on these prosides the means whereby companies in credit agreement expiring December 31, companies' earninp and fiaancial condition the Sptem with anilable funds can tend 1989, all of which wm unused. Ilomtr, and their ability to issue preferred stock such funds to other participating Sptem due to uncertainties facing the Sliddle or additional mortgage bonds. companies (other than SiSU). At December South Sprem, this line of credit may not The Sptem operating companies and 31,1987, the funds anilable in the money presently be anilable to the Company. SERI are currently authorized by the SEC to pool for borrowing aggregated 8190.8 Further, the Company's ability to obtain funds effect short-term borrowinp in an aggre- million, none of which had been utilized by through dhidend payments from its subsid-gate amount outganding at any one time of the Sptem operating companies or SERI at laries is currently limited. The SWem up to 10% of their respecthe capitalization >rar-end. (tce Note 4
- lines of Credit and operating companies failed to paydnidends (as defined). Ifomer, the Sptem operating Related Borrowings ') to the Company from mid 1985 through companies and SERFS abilities to borrow In order to help meet their interim July 1987, and dhidends since July 1987 are subject to the anilability of funds needs for cash, SIP &L and SERI have haw been in limited amounts. In addition, through bank lines and other credit entered into arrangements for the sale of NOPSI is currently unable to declare sources. SERI is limited by certain of its certain of their accounts reccinble. For further common stock dhidends to the credit agreenrnts to short-term borrtmings further information, we Note 4 "Lines of Company SERI has newr paid any dnidends in an aggregate amount not exceeding the Credit and Related ik>rrowinp" on its common stock and, pursuant M its leswr of 5% of capitalization or 5200 In addition, the Company is subject to bank credit agreements, o. 31 be prohhited million. SIP & L and NOPSI are subject to contingent obligations that could expmc from pa)ing any dhidends on its common certain short-term borrowing corturaints by the Company to additional dernands on its stock until loans omtanding under the<e prosisions of their respecthe G&R cash resources and could result in potential agreements are fully p11d (presently mortgages. In addition, NOPSI is subject liquidity problems. As presiously noted, the Onluled for Februry 1989). De Company to an SEC order that prohibits incurrence Company has co-guaranteed refunds to doe not plan to effeu :wT sales ofits of short.ttrm indebtedness if common SIP &l?s retail customers that could be re. cummon stock in the near futur.-
quired in the ewnt of an adverse resolution of SIP &lfs pending UX Supreme Court appeal by prtniding a corporate guaranty in 16
l l l l AfrDC for 1987 wa approxirnately $9 Results of Operations l million, an increase of $0 8 mdlion, or 9.1%, 1he following analysis of the results of Operatir., Rewnues and I xpenses owr 1985, and a decrease of $356 million. operations reflects the effect of the early or 97,7%, from 1985, AITDC currently twons or/Adm implementation of SFAS No. 90, which represents slightly owr 2% of net income. Io j included restatement of the 1985 and 1986 1he dranutic reduction in AIUDC, as ~g l financial statements. The Middle South System's net income for 1987 was $356.6 compared to prior years, occurred because ; million, a decrease of approxinutely the System is no k>nger imesting large sunts 3o - - _.
$97.9 million, or 21.5%, from 1986. in constructioa now that Grand Gulf I and This decrease was primarily attributable to Waterford 3 are in sersice and because of
- T
, { -
the suspension of construction on Grand 20 - - ' 3- L (1) the write-otf by NOPSI in 1987 of $ 135 ~ l Gulf 2 in September 1985. million ( $72.9 million net of tax) of di3 L5 7
~
allowed Grand Gulf I costs that were Earnings per share on MSU common stock decreased to $1.74, down from the 3g presiously deferred, (2) a nonrecurring _ accounting adjustment reported by NOPSI $2.22 recorded in 1986 but up from the . 05 - - - - 'i - -
;986, and (3) the discontinuance of Icd 5 annunt of $1.08 (as restated). The Wterford 3 deferrals by LP&L throughout 1987 decrease reflects the presiously g_ ,
most of 1987.1hc System's net income for mentionad decreases in net income. 1982 1983 1986 1985 1986 1987 1986 was $45 LS nullion, an increase of Fuel for electric generation declined
$103 9 million. or I1,7%, from 1986. This E Tiol Operating Roenues approximately $238.9 million, or 110 8%,
decrease was due primarily to increased O it> tai oper2ung expense, owr 1985.1his increase was due prinurity nuclear generation, which is at a lower G ruci and Purdused Power Costs to (1) the restatement of 1985 net incmie in connection with the write-off of awrage unit price tiun other r> pes of disallowrd Waterford 3 costs, (2) the ef5ct ger.eration, and to a general decline in unit of Grand Gulf I and Waterford 3 rate prices for other fuel types. inarases implemented during the latter part Purchased pwer expenses in 1987 declined $31.8 million, or 24 8%, compared of 1985 and first quarter or 1986, including with a decrease of $102 nullion, or 44.3%, Wholesale Electricity Sales to the rate deferral of $786 million recorded in 1986. Such decreases were due primarily Adjoining l'tihty 5) stents I in 1986 as compared to $237 million in 1985, and (3) the recording of provisions to the use of nuclear generating capacity 3fimons oflcd-rrhm for estinuted losses as of December 1985, prosided by Grand Gulf I and Waterford 3 i
** ~
(wiuch began commercial operation in July whereby the System operating companies *4 exprrtsed certain engineering and design 1985 and Septernber 1985, respectiwly) rather than the purchase of power from um I costs and estinuted liabilities aw>ciated with indefinitely dela>rd future fossil generating companies outside the Middle South Systent 3 son in connection with their respectiw rate I facilities and with certain imtstments in the , _ System's fuel procurement progrant The moderation plans, the Sy, tem operating ;#' ~ - ~ recording of such prosisions had the net c mpanies deferred for future recowry through rates certain operating expertses 2tm - - - effect of reducing 1985 net income by - - totaling $333 milhun, $786 million, and 1500 - - approxinutely $66 milliott Partially offwtting thew factors were (1) the substantial
$237 million. respecthely, in 1987,1986, um . .
and 1985. The decrease from 1986 was g, _ reduction in the amount of AltDC accrued in 1986 when compared to 1985,(2) the prinurity due to ( I ) NOP5rs writeorfin 1987 9 _ increased amounts of d(preciation expense f presiously deferred Grand Gulf I costs 1982 1983 1986 19 M 1986 p>8' (2) LP&l's discontinuance, pursuant to in 1986 associated witn Grand Gulf I and orders of the LP5C,of additionalWaterford 3 Waterford 3, and (3) the recording of
eferrals, and (3) NOPSrs oneqime deferral additional write-offs in 1986 related to the System's indefinitely dela)rd future fossil in 1986 of $29.5 million ofits Grand Gulf 1 related costs that had been expenwd in 1985-generating facilities (approximately $39.6 million) and SFfs uranium expleration in addition, certain of the System operating program (approximately $19.2 raillion). companies are currently able to recover a larger portion of their o>sts thnsugh incre;tsed base rates, and thereby defer a lesser amount l of such costs.
- l' I
1 l i 1 I l i Depreciation expen4 increased $44.9 compared with a slight decrease of 51.9 certain System conpanics to waare necessary
- million, or 13.2%, in 1987 compared with million, or 0.7% in 1986.1hc 1987 deacaw financing in order to fund deferred Grand an increase of $75A million (as restated), is primarily attributable to the early Gulf 1 related costs until they are collected or 28.8% in 1986. EffectiwJanuary 1,1987,- retirement or refinancing of presiously through rates,(6) the continuing contro-3 SERI's depreciation rate was changc I from outstanding high-interest rate bonds. The wrsics owr the Grand Gulf Station and the the units-of-production method to a clunge in long term debt during 1986 was alh> cation of capacity and energy costs of straight line lusis lhe uw of the straight line mininut as nxwt of the financings effected Grand Gulf I to the Sprem operating method in IW7 resulted in increawd were in connection with the refundtng of companics, and (7) unresohrd prudence depreciation expen c mer the prior 3rar due outstanding indebtedness. imrstigations.
primarily to the fact that the units-of. Other interest - net increawd $9.5 The ability of the Middle South Sptem prmluction method was applied in a 3rar of million, or 27.4% in 1987 compared with to make progress toward its financial gignificantly lower generation.1he 1986 a decrease of $18.7 million, or 35.1L in recmtry depends prinurity upon the increase was due prinurily to the recording 1986.The increase in 1987 is due nrmurity prescrution of the retail rate structures
'of additional depreciation expense in to the issuance in April 1987 of $1% *nillion implemented in 1985 and 1986 for the connection with tin commercial operation of short term notes that matured :m were recowry of costs associated with Grand of Grand Gulf I and Waterford 3 paid inJanuary 1988.1he 1986 decre;& Gulf I and Waterford 3. Certa.n of the retail Total income tax expense decreawd retlects a reduction in the amount of rate st ructures are the subject of challenges,
$251.9 million. or 48% in 1987 compared short term borrowings and in interest rates one lusing been rewrsed by the Slississippi with an incre?se of $ 459.7 million (as re- on such borrtmings. Supreme Court and appraied to the U.S.
stMed)in 1986 T1e !987 decream is Supreme Court, and another hasing been Summary prinurity attributable to a decline in pre tax substantially rnodified by the regulator and tnx)k income and the cruoment of the Tax inpruwrnent in the financial condition of appealed in the courts $hould one or nx>re Reform Aa of 1986, which effeanely reduced the Middle South Sprem is & pendent upon of these rate structures ultinutely be tl e maximum mrporate income tax rate from the resoludon of significant ucertaintics materially modifW or cease to be in eff(n the l 46% to 3 W ctrettiwJuly 1,1987. The 1986 that cmunue m face the Waa Ecw Middle South $ntem would be materially
. increase was due primarily to an increase in laciude (1) dullenges to and 't r rewrsals and adwrsely affected. (ke Note 2 "RAc pre-:ax lxx>k income recorded by I.P& L and of rate ordas and wulementsM)hunute and Regulatory Matters" and Note 8 -
SERI as a restdt of the commercial operation of rmAudm of the stams omrand M 2 "Commaments and Conungencies - Waterford 3 and Grand Gulf 1, respectiwly W the possitk adwrse effect on certain Ibtential Debt Acceleration. Ibriruptcy, Intenst on long-term debt shtmrd a f the Sptem operating companies of recent and Sntem Viability") decrease of $55.8 million, or 8.1 % in 1987 clunges related to the accounting for pluw-in plans,(4) the outcume of the appeal of , FERC s audit findings. ( 5) the ability cf Souras of Rennue in 19p tWanng OxnpaNci Gnmhn N CW w in W ] to O[vrating Resenic i Reekntul 31 W Gas RotTmc - 3 ' t for Roule - 2 5 m n gly- t . x Ownmrr&l- 24 5 L trutusinal- 2' 2 4 M HN
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l l Report of Management Tne management of Middk South the financial records and as to the reach and express an opinion on the l'tilities, Inc. has prepared and is proteetion of assets.1his system fairness of the financial statements. responsible for the financial statements includes communication through 5f anagement beliews that these and related financial information in- written policies and procedurer, and policies and procedures pnnide reason-cluded in this annual report.1he an organizatiorul structure that prtnides able assurance that its (perations are financial statements are based on for appropriate dhision of tryonsibility carried out with a high standard of generally accepted accounting prin- and the training of personnel.1h:s business conduct. ciples. Financial information included sptem is also tested by a conprehenshe elsewhere in this report is consistent internal audit program. _ _ , with the financial statements. De independent public accauntants To meet its responsibilities with prmide an objeuhr assessment of the Edwin lupberger respect r e finarxial infornution, maruge- Jegrre to which management meets its Chairnun and President ment mana. as and enforces a swtem of responsibility for fairness of financial internal accounting controls th$t is reporting. They regularly evaluate the 't-. Carw*%---- designed to prmide reasonable assur- sptem Aternal accounting controls John L Cowan ance, on a cost-effecthe basis, as to the and prform sch tests and other Senior Vice President, integrity, olvethity, and reliability of procedures as they icm necessary to Sptem Executhe - Finance Audit Committee Chairman's Irtter The SISU Board of Directors' Audit subject to stoskholder approval, the nunagement present, to discuss the Committee is comprised of five selection of the Company's independent results of its examinations, its evaluations directors, who are not otlicers of the public accountant (Deloiue liaskins & of the Conpany's internal controls, and 4 Company: Kancaster ik>dges Jr. (Chair- Sells).1he Audit Committee diwussed the owrall quality of th( Company's man), W. Frank lilount,Janrs R. Nichols, with the internal auditor and the firuncial reporting. The neerings were Wm. Clifford SmiU, and Dr. Walter ind(pendent public accountant the designed to facilitate any private Washington. The comnuttee held four mrrall smpe and specific plans for their mmmunication with the committee meetings during 1987, respecthe audits, as well as the desired by the intertul auditor or lhe Audit Committee owrsees the Company's consolidated financial state- independent public acmuntant. Company's financial rtporting process ments and the adequacy of the on behalf of the Board of Directors. In Company's internal controls. The w244tQl 4 fulfilling its responsibility, the mmmittee comnnttee abo nnet with the Company's Kancaster ik>dges Jr. remmmended to the Ibard of Direuors, independent public accountant, without Guirman Audit Conunittee Auditors' Opinion 1he Stockholders and the lioard of potential rewrsals of certain of the tainties referred to in the preceding Directors of Sliddle South l'tilities, Inc.: 5ptem companies' rate structures, paragraph been known, the ahmr-including prudence imestigations and a nwntioned consolidated financial state. We luse examined the consolidated regulatory audit; uncertainties as to the ments prmnt fairly the financial position balance sheets of 5 fiddle south 1 tilities, recuwrahility of the companies'imest- of the Company and its subsidiaries at Inc. as of December 31,1987 and 1986, ments in a suspended construction December 31,1987 and 1986, and the and the related statements of condi- project and in rate deferrals; uncertainty results of their operations and tlwir ctsh 2 dated income, retained earnings and as to the ability of one of the Sprem flmn for each of the three >rars in the paid-in capital, and cash flows for each operating companic3 to continue in period ended December 31,1987, in wn-of the three years in the period ended existenca in its present form; and, a formity with generally acctpted acumnt-December 31,1987. Our examinations potentif for debt acceleration under ing principles applied on a consistent were nude in acmrdance with generally certain loan agreements. We outcome basis, after restatement for the change, acc(pted auditing standards and, of these uncertainties carnot presently with which we contur, in the nwthod of accordingly,includeo such tests of the be deterndned and no prmision for any acmunting fi>r dhallowrd plant costs by accounting records and sin h other loss that nuy result has been made in one of the subsidiaries, as descnbed in auditing procedures as %e considered the financial statements. Note 10 of Notes to Conwlidated necewary in the cirmmstances. In our opinion, subject to the effects Iinancial Statements. As disussed in Notes 2 and 8 of on the financial statements of suc h Notes to Consolidated f inancial State- adjustments if any. as might have been o (b /dAA. f M New Orleans. Inuisiana ments there are challenges and/or required had the outmme of the uncer-Wrch 10,1988 19
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b L. ,ghj%?J-t Lua I _ Jm ; Middle 9)uth I*tilities. Inc. & Subsidiarin December 31. 1987 1986 Assets (In thousands) Utility Plant (Notes I,8, and 9): Electric __
$12,975,581 812,538,090 Natural g.ts _
135,989 130,488 Construction work in progress _ 263,465 282,747 Nuclear fuel 580,424 241,812 Total 13,955,459 13,193,137 Irss- Accumulated dqreciation and amortization 2,715,314 2,386,723 1 tility plant - net 11,240,145 10,806,414 Other Property at:d Investments: Irtter of credit escrow (Note 4)_ 108,562 19,162 Other (Note 9) 103,635 54,933 Total 212,197 74,095 Current Assets: Cash and special depmits (Note 4) _ 35,473 34,972 Tenp>rary imrstments - at cost, which approximates market (Note 12) 579,899 542g Total cash and cash equh alents (Note 1) 615,372 577,399 Funds held by first mortgage bond truvec (Note 6) 60,000 - Escrow bonding arrangement (Notes 2 and 8) 101,202 - Notes recchuble _ 1,170 1,669 Accounts recchuble: Custemer (less alkmance for doubtful accounts of [in ,nousands] $7,574 in 1987 and $7.825 in 1986)(Note 4) _ _ 136,807 174,209 Other _ _ _ _ _ _ ___ _ __ _ _ 20,407 26,381 Accrued unbilled restnues (Note 1) 50,936 54.973 State income taxes reccis2ble (Note 3) 8,778 20,750 Fuelimrntory(Ne'es I and 4)_ _ _ 95,312 93,366 Materials and sqplies- at astrage cost __ 110.323 90,459 Rate deferrals (Notes I,2, and 8) _ _ 11,765 24,398 Prepayments and other 55,910 66.999 Total 1,267,982 1,130,606 ( Deferred Debits Rate deferralt (Notes I,2, and 8) 1,346,090 998.909 Suspended u,nstraction project (Note 8) __ _ _ _ . _ 889,780 908,572 Other 200,638 171,835 lotal 2,436,508 2h79,316 Ibt21 $15,156,831 81__4.090,431 SW Notes to (~cmsobdatallurkmdal Statements. IMor litar Restatal:o Reflect fix AH>tkm of AELS No. W .! O
)
1987 1986 Capitalization and Ilabilities (In thousands) Capitalization: Common stock, 85 par value, authorized 250,000,000 shares; issued and outstanding 204,581,092 shares $ 1,022,905 5 1,022,905 Paid-in capital 1,565,466 1,565,889 Retained earnings (Notes 7 and 10) 1,939,757 1,583,402
'Ibtal common shareholders' equity _ _ 4,528,128 4,172,196 Subsidiaries' preferred stock (Note 5):
Without sinking fund _ _ _ 330,967 330,967 With sinking fund 496,405 508,165 tong-term debt (Notes 6 and 8) 5,915,054 5,983,029 Total 11,300,554 10,994.357 Other Noncurrent llabilities (Note 1): Obligations under capital leases (Note 9) 245,477 8,336 Other 50,581 51,810 Total 296,058 60,146 Currect Liabilities: Notes payable (Notes 4 and 8): Commercial paper 65,000 105,000 Other 190,667 31,000 Currently maturing long-term debt (Note 6) 336,382 318,854 Acajunts papble_ 271,293 280,191 Gas contract settlements -liability to customers (Note 12) 60,765 254,446 Deferral fuel cost 32,458 76,314 Customer deposits 67,944 64,934 Taxes accrued 76,142 66,363 Accumulated deferred income taxes (Note 3) 9,773 21,073 Interest accrued 168,896 170,542 l i Preferred dMdends 22,192 22,220 Obligations under capital leases (Note 9) 318,460 2,483 Other &4,279 87,121 l 1,450,541 Total 1,704,211 l l L / Deferred Credits: 1,035,407 l Accumulated deferred income taxes (Note 3) 1,32",932 Accumulated deferred imestment tax credits (Note 3) 55,332 60,577 l Gas contract settlement -liability to customers (Note 12) 281,612 338,076 Other 191,133 151.327 Total 1,856,009 1.585.387 I Commitments and Contingencies (Notes 1, 2,8, and 9) l i Total $15,156,832 s i4,090A 31 l n
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ver - '- il 'e _t u; , v-,,. gj ' :& &C n&d l Sliddle South l'tilities, Inc. & Subsidiaries For the wars ended December 31, 1987 1986 1985 Operating Rcienues: (in thousands) Flcctric __ $3,327,117 $3,339,I 32 f 3,081,877 Natural gas 127,703 146,780 153,582 liital 3,454,820 3A85,912 3,238,459 Operating Expenses: Operation: Fuel for electric generation _ 780,662 884,560 1,001,373 Purchasal power _ _ __ _ %,595 128,405 230,399 Gas purchavd for resalc _ _ _ _ _ 86,183 98,337 120,542 Deferred fuel and other__ . __ _ -_ 705,009 703,153 593,57i Stainten>nce ___ 256,202 242,261 176,293 Depreciation . ______ __ __. ___ _________ _ 3&l,374 339,439 263.622 Taxes other than inmme taxes __ 169,6 % 161,012 132,759 inu)me taxes (Note 3) _____ 161,817 166,036 122,037 Rate deferralv Rate deferrals (Netes 1,2, and 8) (468,495) (785,897) (236.676) Write.off of presiouW deferred Grand Gulf ! expenses (Notes 2 and 8) 135,000 - - Income taxes (Note 3) _ 137,721 383,180 117,245 li>tal 2,444,7M 2.320,515 2,521,165 Operating income 1,010,056 1,165,397 717,294 Other income: Allowance for equity funds used during a>nuruction (Note 1) _ 7,901 8,830 217,73i Sliscellancais income and deductions - ret. __ _ 85,M9 76,403 80,120 Inosme taxes - credit (Note 3) 24,918 22,656 82,171 Total 118,668 107,889 380,025 Application of 5LM No.90(Note 10): Disallowed plant costs _ . _ . _ - - 276,900 Related income taxes - - (90.259) Total - - 186,641 interest and Other Charges Interest on long term debt ___ _ _ _ 637,139 692,980 697,853 Other interest - net _ _ _ _ _ _
. . _ _ _ 44,095 34,608 53,306 Alh>wance for borrowed funds used during c onst ruction ( Not e 1 ) ._ _ ___ _ _____ _ _ _ _ _ _ _ _ _ (1,092) 590 (146MO)
Preferred dnidend requirements of subsidiaries 91,978 90.613 90.601 d Tota l 772,120 81 H,821 695,080 l Net income 5 356,604 $ 154.465 $ 21535 Earnings per Average Common Share ___ _ -_._ _ _ _ _. _ _ -
$1.74 52 22 $ 1.08 Dividends Declared per Common Share (Note 8) _____._..-_ ___ - -
50 89 Average Number of Common Shares outstanding 204,581,092 204.581,092 199,496 115 .W Notes to Consolidatal!inancialStatements. I'nor ) hors Restatal to Rc)Mt the Adoption of AIAS Nn W l 22 l
l l Middle South Utilities, Inc, & Subsidiaries For the 3rars ended December 31, 1987 1986 1985 Opetuting Activities: (in thousanus)
$ 356,604 8 454,465 h 215,598 Net income Noncash items included in net income: (469,548) (780,563) (242,744)
Rate deferrals (Notes 1,2, and 8) 135,000 - - Writecff of presiously deferred Grand Gulf I e menses (Notes 2 and 8) 339,438 263,622 384,374 Depreciation 269,433 565,007 65,293 Deferred income taxes (5,246) (5,019) (4,699) Imtstmect ta credits - net (8,093) (8,240) ( %1,414) Allowance for funds used during coretruction (Note 1) - - 276,900 Writcoff of disallourd plant costs (Note 10) Write-off of deferred costs relating to staadard coal plant design - 31,657 16,790 and eguipment- - 19,151 - Write-ott of deferred costs relating to 5FI s fuel acquisition program 52,707 (4,551) 13,978 Prosisions for estimated losses Changes ire 59,887 (65,862) 13.824 Receivables _ (1,946) 26,177 33,237 Fuel imentory ___ 119,906 Accounts payable (8,898) (82307) (11,898) (54,373) (47,363) Other wtrking capital accounts I I,8 46 168,65i Proceeds from gas contract settlements (Note 12) 20,138 Refunds to customers -gas contract settlements (Note 12) (252,785) (56374) (62,964) Increase in escrow bond 4 arrangement (Notes 2 and 8) (101,202) - - 26,497 (33,174) (40,562) Other 386,866 455d88 381,096 Net cash Ibw prosided by operating acthities Investing Activities: (335,289) (876,473) Construction expenditures (351,227) 8,993 8,210 364,414 Allowance for funds used during construction (Note 1) 143,998 54,045 125,053 Nuclear fuel sales to lessors (65,800) (74,718) (64,225) Nuclear fuel expenditures Expenditures on susnended construction project (Note 8) (10,403) - - (293,384) (257,769) (522,239) Net cash flow used by imesting acthities Financing Activities: Proceeds from issuance of. - - 208,539 Common stock ._ 35,000 85,000 - Preferred stock 375,000 1,750,000 130,000 First mortgage bonds _ . _ _ General and refunding mortgage bonds _ 75,000 - - 446,686 51,377 427,846 Bank notes and other long-term debt _ (107,365) (860,548) (73,600) Retirement of first mortgage bonds Retirement of bank notes and other long-term debt __ (406,758) (1,352,912) (298,070) (48,030) (40,961) (9,848) Redemption of preferred stock - - (256,720) Common stock dhidends paid (89,400) {19,162) - Escrow payments (Note 4) (60,000) - - Funds held by first mortgage bond trustee (Note 6) __ 119,667 (162,295) 84,670 01anges in short-term borrowings (55,509) (173,032) 231,655 Net cash flow prosided (used) by financing acthities 37,973 24,687 93.512 y Net increase in casn and cash equh21cnts 552,712 459,200 Cash and cash equh21cnts at beginning of3 rar 577,399
$ 615,372 5 577,399 $ 552,712
_ Cash and cash equh21ents at end of >rar Supplemental Disclosures of Cash Flow Infortnation:
) Cash paid during the 3rar for;
$ 681,788 8 721373 $ 618,631 Interest (net of amount apitalized) 2,479 8 16,546
$ (5,421) $
Income taxes (net of refunds) Noncash investing and Financing Activities: 4,021 Capital lease obligatiors recorded (Note 9)
$ $55,104 8 1.773 $
ke Notes to Cemsolklatal firwmdid Statements. 1%or li' art Restatal to Reflect the Adqptkm of5fM No. W 23
hm ci M m$Nu.o@ fi dh MNd MWm ?MiRW $ c^, C @@Mi ur- : m.u a[ a Q&w%@MiWM@ Middle South Utilities, Inc. & Subsidiaries For the irars ended December 31, 1987 1986 19d5 (in thousands) Retained Earnings, January 1, as previously reported __ _ $1,765,632 $ 1,316,388 81Jao,839 Cumulathr effect of retroacthely applying SFAS No. 90 (Note 10) (182,230) (185.393) - Retained Earnings, January 1, as adjusted 1,583,402 1,130,995 1,090,839 Add - Net income 356,6M 454,465 215.598 Total 1,940,006 1,585,460 1,306,437 Deduct: Dhidends declared on common stock - 50 89 per share for 1985 (Notes 7 and 8) - - 175,128 Capital stock and other expenses 249 2,058 314 Total 249 2,058 175.442 Retained Earnings, December 31 (Note 7) $1,939,757 31,583,402 81,130.995 Paldin Capital, January 1 _ $1,565,889 51,567,866 81,435,570 Add: Escess of net proceeds owr par ulue _ _ - - 131,470 Other (423) (l,977) 826 i Paldin Capital, December 31 _
$1,565,466 51,565,889 51,567,866 SeeNotes to ConsolidatalFiruancLalStasts,nersts 1 l
Prior llurs Restatal to Reflett the Adoption of SELS No. %. 1 - [ pg. @ [hhNF Systems of Accounts Revenues and Fuel Costs ki lb k@bhfb' lhe accounts of the Campany and its lhree of the operating subsidiaries
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senice subsidiary, ssi, are numtained in record electric and gas rewnues as billed accordance with the Public l'tihty llolding to their customers on a c)tle billing basis. Principles of Consolidation Company Act of 1935 (liolding Company Racnues are not accrued for energy Act ), as administered by the smirities and dcIncred but not 3rt billed by the end of The accompanying consolidated financial NM Gnhion Ol'C), which lus the fiscal reriod. LP& L accrues revenue for statements include the accounts of Sliddle M a m of accounts consistent the non-fuel portion of estimated unbilled Muth Utilities, Inc. ('Se Company or 51W) w th the swtem prescribed by the iederal rewnues. L nbilled revenues result from and its direct and indirect subsidiatics Arkanus Ibwer & Ught Company ( AP&1 ). b 'R Commission (ITRC). energy delivered since the period cowred louisiana Power & Ught Company (IT&l ), .Ihe accounts of the Spem operating by the latev billings to customers. Substan-companies ( AP& L LP& L St P& L, and tially all of the rate schedules of the Alissiv.ippi Power & Ught Company (31P&L). New Orleans Pubhc senice Inc. NOP51) are nuintained in accordance with operating subsidiaries include adjustment the sptems of auourts prescribed by the $ (NOP51), SINt,5)', tem $cnices Inc. (551), clauses under which the cost of fuel used I 5ptem I.nergy Resources Inc. (51 RI), applicable regulitory in.bes whkh sprents for generation and gas purchased for i I 5ptem I ucts, Inc. ( 51I), Asociatt J Natural of accounts substantially conform to thow reule alxive or below specified luse lewis G.as ( ANG), and Electec Inc. .The alue prewribed by 1i LC. lhe accounts of is permitted to be billed or required to be the generanng subsidiarv. $l.RJ, are mJn. credited to customers companies cxcluding i lectec, Inc, are collecthrly referred to as the sprem tained m, accordance with the sptem of SIP &L lus a fuel adjustment clauw dut accounts pascribnl by iI RC 1hc accounts allows current recowry of fuct cmts. lhe companics or the Sliddles outh $ptem. All . signifkant intercompany tranuctions have of the non utihty subsidiary, I lectec, Inc., three other operating subsidiaries utilire a ' twen chminated empt as allowtd by State. are nuintained in accordance with the deferral method of accounting for thme ment of i man (ial A(counting standards sprem of.at(ounts pn scribed by the si C. fue.1 msts rtuntrable under fuel adjustment q.g ,, (lauses i nder this mcrbod, such costs are deferred until related rewnues are billed. 2s l t - - -- _--
~ Rate Deferrals established by the Employre Retirement The fuel adjustment factor for AP&L Inmme Sewrity Act of 19N and to fund contains an amount for a nuclear resent The Sptem operating companies lure in ther pntretirement plan ctwts as incurred. estimated to cmtr the cost of replacement etIcct (or hast filed for apprtn21 of) nrious energy when d- iclear plant is down for rate moderation or phase-in plans in order Income Taxes scheduled nuintuance and refueling. The to reduce the immediate effect on The Company and its subsidiaries file a resent bears interest and is uwd to reduce ratepa>rrs of the inclusion of Grand Gulf I consolidated federal income tax return. fuel expense for fuel adjustment purpmes and Waterford 3 costs in rates. L'nder thew income taxes are alk)cated to all subsidi-during the shutdown period. plans, certain etwts are either permanently aries based on their contributions to the Utility Plant and Depreciation retained (and not recostred from rate- comolidated taxable income. Deferred pay n), e en d in the carbran of neome taxes are prosided for differences Utility plant is stated at original cost. o ail pu i n nd coHected in the Partial disallow 2nces of plant costs, as betwren book and taxable income to the
* # " I
- extent permitted by the regulatory bo lies ordered by the Inuisiaru Public Senice customers. These plans vary both m. the Comminion (thC), hasr been mmmrd for ratemaking purposes. Imtstment tax proportions of costs tlut each company credits utilized are deferred and amortized from utility plant. (ke Note 10 '3FAS No. ei , ddes, w reonen amt in the length 90:') The cost of additions to utility plant bawd upon the astrage useful life of the of the deferral / recostry penods. By related property includes contracted wurk, direct labor and deferring costs associated with thr rate nuterials, alk) cable ostrheads, and an m &9 % Miowann for Funa L'M allow 2nce for the composite cmt of funds During Construction illir 011 ded hmgh incread as uwd during constructiort 1he costs of units billed to customers, the impact of the To the extent ttut the Compan>'s of prtperty retired are remoned from utility deferral aspect of these plans on the income operating subsidiaries are not permitted by
; plant and such costs, plus removal cmts, statement has lxen renxntd. Only tlxwe their regulatory tx) dies to recosvr in less sahuge, are charged to accumulated current rates the carrying costs of funds ct ts permanently retained and not depreciation. Mainterunce and repairs of rectnrred through rates or tiuvugh sales to used for comtruction, they capitalize, as an property and rcplacement of items de. third parties result in a reduction of net appropriate cost of utility plaat, an termined to be less than units of property alknvance for funds used during con truc-income. Because the actual collection of cre charged to operating expertses. tion ( ATU)C) that is calculated and resenues to recmtr the deferred anxants Depreciation is computed on the ill not occur until the future, each recorded as prosided by the regulatory straight.line basis at rates based on the 5)sterre ot' accounts. Under this utility company records a deferred asset rq.re-estimated senice Ints of the wrious classes senting the amount of the deferrah and, at industry practice, comtruction work in of pnperty llowvser, depreciation on the same time, incurs additional capital progress on the balance sheet is charged Unit I of the Grand Gulf Station (Grand requirements to finance these deferrals. In and the income statemcat b credited for Gulf I) w2s computed on the unitsof. most cases, the carrying chnges associated the approxinute net conomite interest cost prududion method for the inith! 12 months with the financing of the deferrals are of borrowrd furwis and for a reax>nable (f commercial operation (whidi begin July l' recovered currently from customers. (ke return on the equity funds used for 1985) and, with FERCs apprmal, for an , . Rate and Regulatory Matters") construction. This procedure is intended to additional six months thereafier. Suttwquent renxnr from the income statement the The recording of such deferred costs as to December 31,1986, depreciation is assets is governed by Tecific requirements etIcet of the cmt of financing the being computed on a straight.line basis ~ as set forth in the new accounting standard, construction progrant it effectistly results LERI filed an application with FERC and SFAS No. 92, Regulated Enterprises - in treating the AFIT)C charges in the same FERC initiated a proceeding to determine g gg .
g_ , , g the appnpriate straight-line depreciation O W n p M FM eb M h M b @W W h rate for Grand Gulf 1. On kptember 15, expemed As txm-cuh items, thew tredits No. 92:') 1987, TERC approved a settlement w hkh, to the income statement hast no effect on among other things, established a depreda. Fcstretirement Benefits current cash earnings. After the property is tion rate of 2.85% under the Unit INmtr lhe Q)mpany and its subsidiaries hast placed in senice, the AIU)C charged to Sales Agreement effectiveJanuary 1,1987. uriom defined pwretirement benefit plans construction costs b recmtrable from Depreciation prosistom on astrage depre- oncring substantially all of their emplo>tes' customers through Npreciarion pnnisions ciable property approxinuted 3.0% 17%. The policy of tne Company and it' ncluded in rates for utility senice. and 2 9% in 1987,1986, and 1985 sub4 diaries is to furxl pemion cmts in incctive March 2,1981,IJ%t.used an respecthrly accordance with contnbution guidelines accrual rate for AIUDC of 3.5% on its Sutwtantially all of the $3 stem's utility imt-tment in Waterford 3 up to an plant h subject to the tiens of the subsidiaries' mortgage bond indentures
i imrstment of $ 1,7 billion. During the first cost. In July 1986, SF1 adopted, retroacthe to Statement of Cash Flows half of 1985, SERI used an accrual rate for January 1,1986, the last in, first.out (IJFO) De Company has adopted SFAS No. 95, , AFUDC based on a return on astrage niuation method for its fuel oil imentory in l Statement of Cash Flows, and has presented ' common equity of 14%, plus actual interest order to achiese a better matching of statements of cash flows for the years 1987, costs r.et of related income taxes. As a current market conditions with the cost of 1986. and 1985. For purposes of this l result of FERC'sJune 13,1985, Decision, fuel oil it charges the S} stem operating ' statement, the Company considers all highly SERTs 14% accell rate for the equity companies.nis change in niuation method liquid debt instrunents purchased with a component of AFUDC was increased to did not hase a material effect on the maturity of three months or less to be cash 16%, effecthe July 1,1985. On Sep- amounts charged to such companies. ) equh alents. I tember 15,1987. FERC approsed a settlemer:r that, among other things, g <*(N reduced the rate of return on common [ equity from 16% to 14%, effecthe retro- . 4[i , k[I' k appmximately $99.4 million under this i requirement, and such deposits are acthely to July 1,1987. SERTs effecthe 8f - 1 's 7 e, E estimated to astrage approximately 514 composite AFUDC rate w2s 6% for 1987, i ;. g~ f million per month througSjune 1988, at ne effecthe composite rates of the 1 -m . w which time it is expected tlut a decicion operating subsidiaries for the balance of shall have been rendered by the US AFUDC were 9.0%,9.2%, and 9.7% for 1987, U.S. Supreme Court Ut8gation Supreme Court in MP&L's appea) Further, 1986,and :985, respecthrly- On February 25,1987, the Mississippi SERI and MSU hase provided, as required, On Septerrber 18,1985, the Mississippi Supreme Court restrsed and remanded the corporate guarantees (in the amount of Public fersice Commission (MPSC) ordered September 1985 order of tne MPSC approximately $206 million) of MP&L's SERI tnd MP&L to suspend construction of (February 25 Decision) tlut granted refund obligations for Grand Gulf I collec-Grand Gulf 2 as of that date. Concurrent permanent rate relief of $326.5 million to tions from September 1985 through with the suspension of construction, SERI MP&L with respect to its recostry of Grand June 1987 if refunds are required. To the ceased accruing AIUDC on the unit Gulf I costs. Subsequently, MP& L filed an extent that either MSU or SERI makes effecthe September 18,1985. (See appeal of the February 25 Decision with the pa}ments to discharge MP&l's obligations Noic 8 - Dmmitments and Contingencies - US Supreme Court and also filed an to nuke refunds to its customers as a result Suspeeded Construction Project - Grand application asking that Court to stay the of an adstrse linal judicial determination in Gulf 27) mandate of the February 25 Decision MP&rs appeal of:he February 25 Dechion, Other Noncurrent 11 abilities pending final disposition of the appeal. On MSU and/or SERI, as the case may be, would l June I,1987, the US Supreme Coart have immediate right of reimbursement It 13 the policy of AP&l, LP&l, and NOPSI ! g I to prmide for uninsursd properry risks and claims for injuries and damages through tion for a stay conditioned upon the post ng ofits creditor banks, to demand immediate ! of a good and sufficient bond in a manner reimbursement from MP&L on account of charges to operating expenses on an accrual basis. Accruals for these prosisions, classified and amount to be determined by the all amounts paid by SERI (whether directly as other noncurrent liabilities, hase been Mississippi Supreme Court. or from monies placed in trust) on behalf allowrd for ratemaking purposes. Prior to OnJune 10,1987, the Mississippi of MP&L and to take promptly all January 1,1985, M?&L lud a similar policy regarding such prmisicas. Howestr, t comply with a regulatory agreement, MP&l, to customers of amounts collected by On October 5,1987, the US Supreme I g, g effectheJanuary L 1985, suspended pro-order (approximately $280 million as of MP&rs appeal of the Mississippi Supreme sisions for its uninsured property risks and December 31,1987). The requirements of Court's February 25 Decision, but post. J"IY l 5 P le red a e setting bond hase been, and are currently I to amortize, mtr a threcqrar period, the Supreme Court's jurisdiction to the hearing ) accumulated baiarTs of such prc.stsions as being, satisfied. Dese bonding require- of the case on the merits the stay granted ofJune 30,1985. ments proside that, among other things, by the US Supreme Court onJune I,1987, 5ERI shall make monthly deposits into an remaim in effect. Accordingly, MP& L is Inventories escrow account equal to MP&B Grarvi continuing to collect its Grand Gulf I rates, Prior toJanuary 1,1986, all fuel imen. Gulf I rate collections from June i,1987, tories of the System were valued at astrage until final resolution of M P&l?s appeal to the US Supreme Court. nrough December 31,1987 SERI had deposited 16
subject to refund, pending the Court's nection with the Alarch 1986 settlement NOPSI beliews that all ofits actions decision. Oral arguments wrre heard cn agreement betwren NOPSI and the counctL and decisions with respect to Grand Gulf 1 February 22,1988. SIP &l, based on the ne councirs action has caused NOPSI to were prudent and that NOPSI will ultimately . opirdon of its counsel, and assuming FERC suffer immediate harm with serious conse- be successful in defending against the has jurisdiction to allocate Grand Gulf I quences to the financial condition and cotwirs actions. Alorcoser,NOPSIbeliers costs,is of the belief that the Slississippi stability of NOPSI to continue to exist in its that the actions of the council are in sio-Supreme Court's February 25 Decision present fornt in the near term, unless the lation of the Federal Power Act and FERC shculd be rewrsed by the U.S. Supreme councirs resolution is ren . sed, NOP51 will, orciers with respect to the allocation of Ccurt on the basis of constitutior. &cals in all probability, not be able to obtain the Grand Gulf I related costs and will ulti-if that Court, upon further ccnsideration of funds necess;uy to meet its ongoing obliga- nutely be so dedated by the courts. the issue of its jurisdiction, accepts the tions and could be rendered insohrnt in a With repect to hip &l, on September 16, appeal or otherwise agrees to decide the short period of time, perhaps as early as the 1986, the SIPSC iwued an initial order case on the merits. No assurances can be second quarter of 1988. Ilecause NOPSI establishing a docket for the stated ghrn that 51P&Us appeal before the U.S. has not been able to obtain an immediate purposes, among other things, of examining Supreme Court will be successful. It is stay of the councirs resolution, NOPSI was the prudence of actions of alp &L and/or expected that the case will be decided by required by the resolution and applicable SERI relating to the construction and the end ofJune 1988. If the ultimate judicial accounting standards to write otT $135 operation of the Grand Gulf Nuclear Station resolution is adverse to SIP &l's interest, million of its proiously deferred Grand and the appropriate regulatory treatment of SIP &Cs Grand Gulf I rate order could be Gulf I costs and reflect that wTite-off, net the awociated costs, and of inquiring canceled. If AIP&Us Grand Gulf I rates are of incon- taxes, as a loss in 1987 After generally into the appropriateness of , canceled,in addition to the substantial ghing effect to the write off, the balance 51P&Cs general rate structure, blP&L and refund obligations of StP&L with respect to of NOP5Fs deferred Grand Gulf I costs SERI have asserted that the SIPSC does not proiously collected amounts as well as approximated $108 mdbon at December 31, hast the jurisdiction to conduct such a SIP &Us ceasing to collect and to defer for 1987. Additionally, should the resolution pruderKr roiew. A1P&L cannot predict the future collection its Grand Gulf 1 related stand as written, NOPSI would haw its ultimate outcome of any such proceedings. costs, AIP&L uvuld, under generally future tornues reduced by $135 million g.,,gg 3 % accepted accounting principles, be required plus the carrying charges thereon (which During 1987, the 1PSC issued sorral rate to write off proiously deferred costs NOPSI estimates could be as much as rders with respect to a Waterford 3 rate (approximately $548 million at December another s165 million). L'nless the rewlution increase f r LP&L ne net effect of such 31,1987). A cancellation of Grand Gulf 1 is rewrsed, under applicable regulatory, chaner, and indenture restrictions, NOPSI nien resulted in, ammg oMer Ws, W rates without a commensurate reduction in a $48 nGon anmal nte increase, al(2) l costs would render 51P&L insohent in a could be rendered unable to effect further the adequate assurance of future reconry short period of time. borrowings or other financings. Storcowr, f appr ximately $247 million of deferred there is no awurance that StSU will Waterford 3 costs accumulated as of proside any additional funds to NOPSI I Prudence imestigations haw been con- under these circumstances. In addition, in Januadt,1987 &&L appealed certain ducted with respect to NOPSI = Grand die absence of a rorrsal, NOPSI could aspecu of the Ns wden to a state Gulf I cost recowry and haw bcen initia ted district court. In Nowmber 1987, the court be reprd uMer in ogM W with respect to SIP &Cs Grand Gulf I cost issued a judgment allowing IP&L to record refunding (G&R) mortgage to redeem up recowry. In addition, the IP5C lus to s115 million of G&R bonds outstanding appr xinutely 519 million in additional conducted pn:dence imrstigatio .s into Waterf rd 3 deferrals and authorizing IP&L maeuMa, wM coul& teMad to Grand Gulf 1.Waterford 3, and IP&l's to imp!cment an ammat nte increase of NOPSI for redemption. NOPSI has no real management but has not indicated its ability to obtain the funds to meet this $40 million annuauy, effecthe February 1, cmclusi ns n these manen 1988. IP&L ami the WSC haw appealed the obligation, and a>uld thereby be rendered With respcct to NOPSI, on February 4, inschent. Alm, should NOPSI fail to judgment to the louisiana Supterne Court. 1988, after a lengthy prudence imestigation, Pemhng se etcome of the appeal, &&L maintain in effect adequate retail rates to the New Orleans City Council adopted a recowr its Grand Gulf 1.related costs, has mx recwded the additional Watedon! 3 resolution that required NOPSI to write off deferrals of approxirnately $19 million. NOPSI wuuld not haw adequate resources j as a prudence disallou arxe and not renner to meet its contractual obilgations to %e ammal authwired rate increase of j from its retail electric cuMomers $ 135 8 m mMm anmaHy was implemented on SERI with reyect to Grand Gulf I and i million of its Grand Gulf I custs in addition February 1,1988, subject to refund. l could, in a short period of time, he to the 551.2 millbn of wch costs proiously In February 1988, IPAL filed an j rendered inwhrnt.
- agreed to be absorbed by NOPSI in con- application with tt + Wsc requesting a net annual rate increase of approximately i r s
$38 million, subpct to the outcome of the On Nowmber 30, i987, IIRC is,ued an appeals mentioned above. Should the ordct in *esponse to theJune 24 Renund judgment of the state district court be . whereby FERC reaffirmed and reinstated thett conclusion that municipalization holds merturned, the amount of net annual rate theJune 13 Decision, thus nuintaining the the potential for prmiding significant increase requested would increase to proious allocation of Graral Gulf I capacity sasings for electric custorners of NOPSI apprmimately $78 million. As part of this and energy costs among the Sprem and asserting that the "better siew" is that application, LP&L has submitted a formal operating companies. in issuing the the City would not be required to assume phase in plan for the recovery of approxi. Nowmber 30 order, FLRC found that the NOPSfs Grand Gulf I obligations. De nutely $266 million of deferred Waterford 3 allocation in theJune 13 Decision w2s em:ncirs consultants made no recommen-wsts. Such phase in plan, if approved, not unduly discriminatory Various parties dation as to whether the City should go wuuld comply with SFAS No. 92. filed requests for rehearing of FERCs forwurd with municipalization. NOPSI, Nowmber 30 order. On January 29,1988, on the basis of its ongoing studies and CWune O Dech FERC denied these requests. Petitions for on the adsice ofits legal arxl engineering FERCsJune 13,1985, Decision allocating review of FERCs Nowmber 30,1987, and consultants, continues to believe tha; the the capacity and energy costs of Grand January 29,1988, orders haw been filed conclusions of the updated report are Gulf I among the Sprem operating with the court of appeals by wrious parties. based on legal, financial, and engineering companics (June 13 Decision) was appealed it is not possible at this time to predict assumptions that are unfounded, unprown, by wrious parties to the U.S. Court of the ultimate outcome of these matters, or so subject to a variety of future cuntin-Appeals for the Distria of Columbia Circuit.
Including possible realkration, if am; or the gencies, and that the report is otherwise OnJanuary 6,1987, the court of appeals effect thereof upon SERI and the Sptem so internally flawrd that such o>nclusions affirmed theJune 13 Decision, holding, operating companies, including possible should not be relied up>n. among other things, that FERC had refunds,if any Any material modificatk>n of NO151 further betints tlut any attenyt authority to re icw and modify the the allocation established by the June 13 by the City to municipalize NOl50s electric allocation of power from Grand Gulf I and Decision could ght rise to additional utility facilities in order to enable electric to establish an allocation of such power litigation, disputes, and challenges in the cuuomers in the City to asuid pa)ing that FERC found to be just and reasonable afIccted jurisdictions their federally alkicated share of Grand under the Federal Power Act. Subwquently, in addition, the Sprem operating Gulf I related o>sts would result in extensiw the court of appeals onJune 24,1987, companies haw initiated a study, currently and complex proceedings before urious reversed,in part, theJune 13 Decision and scheduled to be completed in the near regulatory authorities and the courts, all rer:unded the June 13 Decision to FERC future, to determine whether a more of which could take many 3rars to resohr. (theJune 24 Rentand) for reconsideration equitab!c method of allocating costs, Any acquis': ion of NOi50s aswts by the ofits decision to equalize the capacity and including those relating to Grand Gulf 1, City would presumab!y be acconplished at costs of all Sliddle South Sptem nuclear wuuld be appropriate in the future. least in part by the use of tax <xempt plants and for an explanation of the criteria financing. Recently enacu i fedcral legis-used to determine what constitutes "undue 31unicipalization lation has significantly linuted the anil-discrimination" under the Federal Power ne New Orleans City Council, in con-ability of taxrxenyt financing for such Act and why theJune 13 Decision is not nection with controwrsies surruunding the an acquisition. ne o>uncil has sought and unduly discriminatory. In rewrsing, in part, allocation of capacity and energy costs receiwd permiwion from the State of theJune 13 Decision, the court of appeals of the Grand Gulf Station, is considering Inuisiana to haw a portion of the state's did not change that part ofitsJanuary 6. the acquistion by the City of Nov Orleans of available tax-exempt bonding authority 1987, decision upholding FERCs authority the electric utility properties of NOP51 and set aside for possible use in fituncing a to review arxl modify the alk) cation of those of LP&L in the 15th Ward of the City portion of the potential purchase of NOPSFs p wer from Grand Gulf 1. Various parties ne ordinances under wiich NOP5I assets. In light of the council s own estimate filed prtitions for certiorari with the US operates state, among other things, that the of the total cost to municipalize, this Supreme Court seeking re icw of the City has a wntinuing option to purchase alkication of tax-exempt bonding authority principle underlying that portion of the NOPsrs properties. On Starch 7,1985, the constitutes a relatively small portion of the court of appeali decision that aHirmed council established a public power required external financing NOPSI cannot FERCs jurixliction to allocate Grand authority for the purposes, among others- predict the ultimate impact,if any, thew Gulf I costs. On December 14,1987, the of acquiring and operating electric power financing limitations rtuy lure on a potential US Supreme Court denied, without utilities in the City of New Orleans On municipalization. comment, these petitions, thereby leaving O dober 16,1987, the o>unars ontsultants ne o>uncil held a public twaring on in place that part of the court of appeali the municipalization twuc on October 29, decision upholding II.RCs jurisdiction to 1987. We matter h pending. alkicate Grand Gulf I costs. 2M
l , ; v ' .
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I o. L enggnA. '!9_ . . ..
- - : -a_a 1987 1986 1985 Irtrume tn espense (credit) ctmsist; of the folkming Current. (in thmunds) 8 10,138 - -
Federal 295 8(33.423) 8 6.258
- Mate 10,433 6.258 (3s.423)
Total beferrrd - Net: 1(6.272 274,790 141,741 literalind uoreciation 7,598 (12.530) 730 l'nballed t esent:c __ 13',*21 383,180 117,245 Lie deferrals _ . 17306 11.091 11.238 other deferred pur juwd parr (tnts _ ____ _ _ Nuslear refuchng and rnaintenance _ (9328) 2.17H (3 H79) Artmttzation of excew ' ferred incter tues __ (l5368) (3.954) -
- 3,'60 (M9,629)
Disalhyurd plant ctnts _ _ __ (J.660) 12,585 - Dcferred rnrnue and reland interest _ I,037 81.096 (82.133) Gas contrut settlement _ has on sale of fuct ud and nuclear fuel to third parties __ _ _ _ _ _ . 5355 3.171 l' *~9 AdMment of pnor >rari tas prusisms 5.75H (l.022) (19.410) (3,401) 1.040 (43,415) Prmision for estimated losses - Alternatnr nunimum tat _ ______. _ ____ _ _ _ _ (32.302) - (209.'99) (l.461) Redudion due to tn k ns carr)forw2rds Reinuatement due to net operating kas utihiation _ 32.0'8 - - ( 14.5 /5 ) 6.156 9.619 Other _ 269. d 4 %65.002 65.293 Total (5.246) (5.019) (4.699) Imtstnrnt tax credit adnastments - net
$ 2'4 h20 8526.560 $ (n.H52 Kro.r&J im ume in espense 8299.53H $ 9 49.216 8239.232 Oarged to operatums _ _ _ _ .
_ _ _ _ _ (24.918) (22.656) (H2.171 ) trett ited to odwr irunne _____ _- . Garged to diulkmed plant costs (90.259) 2'4,620 526.560 (6.852 Reo>rded income tax expense _ _ _ _ _ _ _ _ _ _ _ _ _ (2.545) ( 3.15? ) 133.4?H Income tnes apphed again4 the debt cono ment of AR1X: 82'2.0'5 8523.403 8200330 Total income ines Tetalimumt taes dit!ct from the anw,unts unmputed ty apphing the statutory federal i. rome tn rate it income before taus 'the reastms for the QYertwrs are as folk ms (dollars in thouunds) 1987 19No 19M 5
% of Pre-Tn % (( Prc.Tn % c4 Pre-Tas Annunt Irn ome Arnount inmnr Amount income 40 0 8492.96? 46 0 8 l'150t 46 0 Computed at Marutory rate __ _ _ __ . . _ . _ _ _ _ . ~ . . _ _ _ _ _ _ _ _ 82N9.281 Intreases (redudions)in tn resulting from AR DC - equi r> __ _ _ _ . _ _ _. _ _ __. . ._ _ _ __ _._ . _ _ _ _ _ (2.022) (0 3) (2.142) (0 2) (164N99) (44 2)
Mate income tues net of 16,25) 22 28. l Hi 26 I N 6H' 50 federat income tn etfett . _ _ _ _ _ _ _ _ _ _ _ . _ . . _ . _ _ _ . . . _ _ _ _ _ _ Wnte4 of IT&I s statedefertd tnes relied to dgretiation timing ddferer4es _ _ _ _ - _ ___. . _ _ . - _ ( 2 3.H28) (3 3) - - - - Anurtiration of euew dtferred inomr tnes ._ _ _ . _ _ _ . _ _ _ _ . - . . _ _ _ ( 23. 4(m (3 2) (3.954) (0 3) - - Disalk m rd plan! O nt s _ __ .- __. __ _ _ __ __ _ . . _ _ _ _ _ _ _ _ _ _ _ - - - - 36M1 99 Imtsinrnt tn tredit arnorti/ation _ ____ _ _ _ _ _ _ _ _ . _ _ _ _ _ _ - . _ _ _ ( 5.15') (O ') (5,044) (0 %) ( 4 h99) (l 3) 24hS9 35 21.536 20 3,9'O II Drpreciat on ___.-- _ _ _. _ __ __ _ _ _ _ _ _ (2 09(O (02) ( 4 9xM ) (09) 9. 6'iN 14 Other - net Recorded iruonr tax 2*4 620 3N O 526 % ) 49 1 6h.H 51 I? 9 expense _ __ .. __ _ . . _ . _ _ _ _ _ . IrKome inct afphed sgJinst the
&bt umpur,. of Allix; (2.544) (0 4) ( 3.15' ) (o 3) 1 R4'd 4% M Total snumr tnes $ 2'2 0'9 3' 6 8524.404 6M M 8 200MO 54*
i l
1he tax eBects of the conmlidated 1985 1he impact of Sr2 No. 96 on the financial The years 1986 and 1985 have been and 1986 federal tu losses haw been position or results of opeations of the restated to reflect the adoption of SFAS No. recorded as reductions of deferred income System companies has not been deternunex!. 90. (See Note 10 '5FAS No,90:') taxes. The renuining federal tax loss carryforw2rds at December 31,1987, 7
,y g .g;W M g c s ' g -
amounted to $8%5 million and are 4 y -~ (:E to mandatory semimnual payments of available to offset taxable income in future g. kb 34125 million to be made on February 5 3rars. If not used, they will expire in 1994 thnmgh 2001. Unused imestment tax {44 h. ( and Aups 5 of each year. h~g j- A w% 3- '- NJ e InJanuary 1987, SERI prepaid $52.82 ! credits at December 31,1987, amounted to d - " million of bank notes under the U.S. bank ! S47'.1 million after the 35% reduction Th Copy has a rouhing credit kun agreement and $15 million under the ! required by the Tax Reform Act of 1986. agreement with a group of banks, wtuch foreign bank loan agreement. In addition, l Thew crtslits may be applied against federal prosides for borrowings of up to $60 SERI paid, in Fchruary 1987, the $47.25 f income tax liabilities in future irars. If not million and, by its terms, terminates million semiannual payment due under the I used, they will expire in 1992 through December 31,1989. No bornmings were foreign bank loan agreement. On March 2, 2m outstanding under this agreement at 1987, SERI paid the scheduled semiannual The ahernathe minimum tax (AMT) December 31,1987. Due to the uncer. installment due under the U.S. bank loan credit at December 31,1987, was 810.1 tainties facing the Middle South System, the agreement. raillion. This AMT credit can be carried Company may not be able to effect With the consent of the foreign and I'.S. forwerd indefinitely and will reduce regular borrowings under this line of credit at the baris, SERI deferred the August 1987 income tax in the future. present time. semiannual payment to the foreign banks Cumulathe income tax timing ddferences Prior toJune 28,1985, SI-R1 had twu and the September 1987 semiannual for which deferred income tax expenses rouhing credst aercements with wrious payment to the U.S. banks, which wrre har not been pnnided are $427.5 million-banks prosiding for bornmings totaling subsequently paid in Nostmber 1987. In 5431.6 million, and $431.7 million in 1987'
$2.089 million. One agreement, for $1,711 connection with these deferrals SERI 1986, and 1985, respecthrly million, was with U.S. banks; the other agreed, among other things, not to pay any in December 1987, the Financial agreement, with foreign banks, was for dhidends on its common stor.k to MSU Accounting Standards Board (FASil) issued
$378 million. On A9 gust 2,1985, and until all loans outstanding under the U.S.
5FA5 No. 96, Accounting for Income Taxes. August 9,198',, ,15 ccthely, the foreign and and forrign bank loan agreements are fu!!y which is effecthe for >rars beginning after U.S. bank kvc wrements wrre amended, paid, the final maturities being in February j December 15,1988, l'nder the liability effedhm o% 28,1985 to mmrrt the 1989. SERI is presently current with mrthed adopted by SFAS No. 96, deferred bornmings thcreunder to term loans At respect to the scheduled semiannual tax balances will be based on enacted tax December 3 L 198 , SERI had outstanding payments under these agreements. lawi at tax rates that are expected to be in bornmings of $247.6 ruillion and $126.7 $ERI has separate "interest rate swap" l cffect when the temporary differences million, respecthcly, undct the U.S. and agreements, each with a bank, through l roerw. SFAS No. % expands the require-foteign bank loan agreements. The loans Iebruary 1989 for $78.7 million and !63 ment to record deferred income taes for with U.S. banks hae a enaturity date of million, respecthrly,(as of December 31, all temporary dPferences that are reported February 5,1989, subject to mandatory 1987) under the foreign bank loan in one irar for financial reporting purposes mia-$ual payments of $ 125 million, due agrcement. SERI has agreed to nuke . and a ddierent }rar for tax purpows. This on W -M day of each March and semiannual interest pa3ments based upon will require the recognition of deferred tu Septe riber, with the unpaid balance due on an i1.5% and an 11.16% fixed rate, remec-balances for certain iterns not proiously the maturity date. A portion of these thrly, in exchange for semiannual interest ! reflected in the financial natements, such semiann tal payments will be applied to an payments by the baras based upon the { as a defened tax d;Niity relating to Af1TX1 escam account for the benefit of certain Inndon Interbank Offered Rate (IJilOR). It is expected ihat reductions in banks participatmg in the l'.S bank loan 1hese agreements sent to offset fluouations i deferred taxes resulting from the kmrt agreement th .t prmided a !ctter of credit in variable rates to be paid under serfs i corporate federal tax rates will be reflected in cunnection wah 5ERfs Scnes C lb!!ution foreign har,k kun agreement. They do as liabilities to mstomers since the 5p, tem Control Rornue ik>nds (Series C Irtter of not change SFRI s chtigations to the mmpanies' regulators may require any such Credit Ilanks). The uncollateralimi amount foreign banks for intcrest pa)ments of saings to be pawed on to the ratepa trs. necded to fund the esenm account was IJilORplus2% approximately $126 million at December 31 On April 30.198',51 R1 issued and sold 198'. The maturity date for the loans with 31%8 million of unsemred promhsory noies i foreign banks is Icbruary 5,1989, subt ed 30
l l tA l DC8 24 $ )MG,56 $ )mC.81 5 )mG,04 A - )Mm.05 $ __ IFS
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- doirep gniruD stibihorp t ht redro CES na ot tcejbus si
- etar tseretni egarevA ISPON ,noitidda nI .sdnob R&G fo ecnaussi 531,94 $ 000 13 8 766,091s _ rehtO eht troppus ot elbalina slarrefed etar 00C,5215 000 501 $ 000,56 s repap laicremmoC fo %05 ro noitazilatipac fo %01 fo retaerg eht ,lareneg ni ,gnideecxe ton tnuoma 061,421$ - -
htaol knail
- gniworrob dne raeY etagergga na ni sgniworret mret.trohs rehtO ot segagtrom R&G rieht fo smret eht DC6,45 s 531,94 5 766,012$ _
000,531 $ 000,521s 000,58 s repap laicremmoC yb detimil era ISION dna L & PIA .elbalina yltnenuc tiderc fo senil knab yna wah ton 596,991$ 061,521$ 000,62 5 snael knaB
- gnimnrob mun.ixat\ seod IRES .noillim 0025 ro noitazilatipac fo 207,15 5 245,23 5 855,371s ehtO %5 fo ressel eht gnideecxe ton tnuoma repap laicremnnu etagergga na ni sgniwortmt mret trohs 879,1318 306,1218 837,27 s
._ ot stnemeerga naol knab sti fo smret 59G,8118 072 % 5 566,21 $ ___ snaol kabI
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)sdnasumit ni sralloD(
dna senil knab hguorht sdnuf fo ytilibalina 5891 6891 7891 ,13 rebmeceD dedne sraw eht ro., eht ot tcejbus era 'mnrot ot seitiliba smklof sa erew metpS htuoS elddilA eht iiRES dna seinapmoc gnitarepo metpS rof )dr,vorrul tnunna egarwa eht yb esnepxe tseretni elbacilppa gnidihd yb deniarreted( eht ,revewoil tdenifed sa( snoitazilatipac setar tseretni eht dna )sgniworrob loop yenom gnidu:cxe( sgniworrob mret trohs ehl ehtcepser rieht fo %01 ot pu fo emit eno yna ta gnidnatstuo tnuoma etagergga na ni sgniworrob derucesnu mret-trohs tceffe egarwa dna gnimtrroh mumixam ehT .sgni ,ISS , IRES ,U$lS htiw rehtegot ,seinapnoc ot CES eht yb dezirohtua yltnerruc era IRES worrwt mret trohs lanretxe no ecnedneyd gnitarepo metpS ruof eht ,yllanoitiddA dna seinapmoc gnitarepo metp$ ehl s metpS eht gnicuder ybereht , loop eht 12wardhtiw ot sa detcirtser ton era .mret eht fo morf worrob nac sdeen mret trohs gnisah secnalul gnitasnepmoc wxn' .sknab gnhwrel redniamer eht rof munna rep 4'5786 9 ot
)UflS tpecxe( metpS eht ni seMapmoc eseht d niatrec yb deriuqer era seef teser saw e:ar eht nehw ,7891,72 rebotcO rehto elih w loop eh ,h tsemi nac sdnuf tnelahuqe ro )tnuoma tnemtim.rruc eht fo hguorht munna rep %5 9 ta tseretni erob elbaliava htiw metpS eht ni seinapmoc %5 yletamixorppa( secnal.xt gnitasnepmoC ,8891,52 yraunaJ diap errw dna derutam soht yberehw , loop yenom metpS .aera ecines metpS htuoS elddilS eht hcihw , seton hcuS .srotsemi lanoitutitsni a ni cioricitrap ot dezirohtua era , IFS dna fo edistuo detacol sknab htiw noillim 09$ ngierof dna citsemod fo puorg a ot
i borrowing by participants from the System Changes in the ntunber of shares of preferred stock of the operating subsidiaries, all of money pool during 1987 were $188.1 which were with sinking fund, during the last three ) rats wrre as follows: millica and a73 9 million, respecthrl) At December 31,1987, the funds aivitable in Number of Shares 1987 1986 1985 the money pool for borrowing aggregated
$190.8 millio1, with System money pool Sales:
bornmings of $19A million outstanding at AP&L that date. In addition, Ssl has a line of 8.52%, 8100 par. - 500,000 - credit with MSU for $30 million through MP&L December 31,1939. G2, 8100 par - 350,000 - At Decerntwr 31,1987,5F1 had a fuel oil 9./6%, 8100 par _ . _ _ . 350,000 - - haancing arrangement allowing for turrtm.. Retirements: ings of up to $40 million subject to a limit AP&L equivalent to tne lower of the cost or the 9.92%, $25 par (l11,000) (18,000) (58,100) falz market value of SFI's fuel oil Imentory 10.60%, 8100 par (l3,880) - (6,105) and certain related recch2htes. SFTs I1.04%, 8100 par (24,675) (37,572) (9,245) Imrrowings under this fuel oil finatag 13.28%, $25 par . (280,325) - (14,000) arrangement were 532 million at 3rar end. LP&L This agreenwnt is scheduled to terminate 10.72t, $25 par (480,000) (l19,750) (120A(0) in July 1988. In addition, at December 31, 12M%, 525 par (134,500) - - 1987, SFI had an arrangement to horrow up 13.12%, $25 pu (202,489) (85,000) (80,000) to $65 million (all of which was utilized at 14.72%, 325 par (366,684) - -
}rar.cnd) in the aggregate through the sale 15.20%, $25 par (l19,960) (65,000) (60,000) of commercial paper for use in financing MP&L its nuc! car fuel imenter): florrowings under i4.75%, 8100 par - (100,000) -
these short-term arrangement. are restricted 17.00%, 8100 par - (200,000) - as to use and are secured by SITS fuel oil NOPSI imentury and a portion of its nuc! car fuel 15A4%, $100 par (18,000) (100) - imentory, respecthel); and certain accounts Total ( 1 A01.513) 224,578 (347,850) recmable a.ising from the sale of these irnentories. SFI W) has a secured rnuhing credit agreement, to finance in pan its The amounts of preferred stock of the operating subsidiaries as of the end of the last two nuclear fuel imrntory, which alkms for
} rats were as follows
, terrowings of up to $50 million through December 31, , April 10,1989. There were no terrowings __ 1987 1986 outstanding under this arrangement at Without sinking fund. (In thousands) December 31,1987, and SFI has agreed not Stated at $100 a shire 8304,511 8304,511 to use this facility while fuel is leased under ' Stated at $25 a share 25,000 25,000 a SEPJ nuclear fuel financing entered int Premium 1A56 i A56 in February 1988. It is currently contem-Total without sinking fund 3330,967 $330,967 plated that the ater financing arrange-rnents, which are scluluted to terminate W th sinking fural;
. during the period 1988 89, will be Stated at 5100 a share _ $189,834 8160A88 extended if necessary or alterr:athe Stated at $25 a share -- 323,250 365,625 financitig arrangements will be secured.
Premium _ 645 728 in October 1987, MP& L entered into an Iv,uance and discount expense (17,324) (18.676) spcd for the sale ofits billed custonwr TM al with sinking fund $496.405 8508,165 l accounts recchuble Proccetis from ttw initial sale appmximated 539 million. SER] r has also entered into an greerr,ent for the ' i sale of certain ofits customer accounts recen2ble. Proceeds from SERFS initial sale in February 1988 approxinuted $50 milhan. 32
Cash sinking fund requirements for the that it will be in arrears with respect to be entitled to elect the remaining directors. ensuing fhe years for preferred stock future preferred stock dhidends until at least NOPSI will be precluded from making outstanding at December 31,15tl7, are as 1990. If and when dhidends pa>2ble on any sinking fund payments on its preferred stock . follows (in thousands); 1988, 810 825; 1989, outstanding shares of NOl5rs preferred until arrearages in preferred stock dhidends
$22,350; 1990, 832,250; 1991, 841,750, and stock shall be in arrears in an anwn: equal luw been paid. Furtix r, NOPSI cannot 1992, 841,750. to four quarterly dhidends, and thereafter declare dhidends on its cimtmon stock until All of the System (perating companies until all dhidends in arrears on any such arrearages in preferrd aock dhidend were current with respect to their quarterly preferred stock shall haw been paid, the payments and preferred stock sinking fund preferred stock dhidend payments through holders of NOPSrs 4%% preferred stock, payments haw becn eliminated, and NOPSI january 1,1988. Ilowrver,if the New Orleans mting separately as a single class, shall be estimates that the councirs February 4,1988, City Councirs February 4,1988, resolution entitled to elect the smallest number of resolution will preclude it from pa)ing that required NOP51 to record a $135 mdbon directors necessary to constitute a majority future dhidends on common stock for a miteoff is not rewrsed, assuming NOPSI of NOPSPs full Board of Directors, and the number of 3rars.
is able to remain sohrnt, NOPSI estinntes - holder of NOPSrs common stock, MSU, shall lhe number of shares of preferred stock of the operating subsidiarles as of the end of the last two years w2s as follows: Shares Shares Outstanding Authorized at at December 31, Call Price December 31,1987 !987 1986 Per Share Cumulathr, $100 par nlue Without sinking fund.
- 4.16% - 5.56% 1,070,774 1,070,106 1,070,106 8102.50 to $107.00 6.08 % - 8.56 % 1,180,000 1,180,000 1,180,000 $102.80 to 8105.28 9.16% - 11.48% 795DX) 795,000 795.000 $104.06 to $111,11 Total 3,045,774 3,045,106 3,045,106 With sinking fund:
8.52% - 9.76% 1,200,000 1,200,000 850,000 $108.52 to $109.76 l 10im,- 121)0% 431,337 431,337 469,892 $106.74 to 8112.00 ( 14.75% - 17.00% 266,995 266,995 284.995 8111,58 to 8116.16 Total 1,898.332 1,898,332 1,604,887 f L'niwued 5,306,500 Total 10.250,606 Cumulathe, 325 par value Without sinking fund 8 84% 400,000 400,000 400,000 827,11 10.40% 600.000 600.000 600.000 $27.95 lbtal 1,000,000 1,000,000 1,000,000 With sinking fund. 9.92% - 12.64% 5.671,871 5,671,871 6,397,371 827.01 to $28.16 13.12% - 15.20% 5,258,168 5,258,168 6,227,626 827A6 to $29.05 19 20% 2,000.000 2,000.000 2,000.000 $28.20 Total 12.930.039 12,930.039 14.624,997 L'nis. sued 15,200.000 Total 29,130.039 33
e 4 8 W .. w yW' w ;- y. y.yn e w p: y
'y V:_
4-- w.w k ) N1}$' n a,w ,_x; , lhe long term debt of the Company and its subsidiaries as of the end of the last twu 3rars w as as follows Decernher 31, 1987 1986 (in thousands) First mortgage bonds $4,809,293 $4.541,658 General and refunding tx>nds - due 1997,10.95% Series 75,000 - Bank rntes: Due-1988, at negotiated money market rate - 18,000 1988-89, at i10% of the sum of prime and 1.3% (Note 4) 247,599 473,200 1988 89, at LlHOR plus 2% (Note 4) 126,750 236,250 Total bank notes 374,349 727,450 Other: Inng term obligation - Department of Energy (Note 8) 71,106 66,729 51unicipal restnue bonds - due serially through 2004,1 %%8% 26,344 29,118 lbilution control restnue bonds and installment purchtse contracts Due serially through 2014,6.4 % 11.5 % 60,870 61,805 Due 1995 2016,5%%12h% 896,225 896.225 Purchase obligations under imrntory supply agreement 25,110 28,058 Total other 1,079,655 1,081,935 l'nar.ortiicd premium and discount - net (56,861) (49,160) Total long term debt _ 6,281,436 6,301,883 Irss - amount due within one 3rar 336,382 318,85_4, long term debt excluding amount due within one 3rar $ 5,9 4 5,054 $ 5,983,029 Staturities and sinking fimd requirements for the ensuing fhr yrars on 1,ng-term debt in December 198',51P&l. iwued 5'S mitstanding at Decemixr 31,1987, are as follows million of first mortgage tends and Sinking Fund depositeil with the first mortgage bond Staturities Requirements trustec $60 million of the proceeds thereof Ca4 Other" for the redemption and retirement of 560 (in thousands) million of tir r mortgage tx>nds nuturing 1988 _ 5335.062* 5 1,320 823,523 in 1988 $ubsequent to December 31, 1989 _ $ 163,263' $ 54,820 523,(306 198', SIP &l. sold 555 million of 14 M% 1990_ -_ ___ 5 54,7'? $ 5 4,890 $23.156 General and Refunding lionds due in 1993 1991 $330,822 569,790 522,686 and $20 million of 1 L953, General and 1992._. 52'6,558 $69,790 522,606 Refunding lionds due in 1995 NOP$1 mld
- Erchules mjuinsnents aggnyating $126.0 trulhon for esavu'fwayrnents by SERIfor the 5l i miIlion of i3 2% General and benefit of the Senes Cietter of Cmlit Ikinks arul crchulesfmtential obliga tion o)WOI51 to Re(wuhng Ik>nds due in 199l, 519:n million mksyn up to $115 rnWion of G&R boruh (see Note 2 "Rate arul Regulatory.\fatters") of 13 m, General and Refundnng bonds
" Ainkingfutui m/uinvnents trus,) he rnet by cavfification offirty>(7t>'attelitions at the nate of due in 1993, and 59 2 million of 13 9%
16N, of the m/sumf arrount. General and Refunding ik>nds due in 1995. In addition. N1P&l. redeenrd its $ 45 million of I!!.3, $ cries Iirst Alortgage ik>nds duc June 1,1988 56
The outstanding first mortgage bonds of the Company's subsidiaries as of December 31,1987 and 1986, were: Staturity 44% - 5%% 6% - 8%% 9% - 11%% 12% - 14%% 15%- 17%% Tbtal 1987 (In thousands) 8 15,283 - 8 45,000 - - 8 60,283 1988
- - 5 45,000 - - 45,000
'1989 8 20,700 - - - 5 30,000 50,700 1990 5 27,000 - 8300,000 - - 327,000 1991 8 8,000 - - $265,000 - 273,000 1992 5251,250 $287,160 5914,900 $315,000 5500,000 2,268.310 1993-2002
- $260,000 5450,000 $ 75,000 - 785,000 2CD3-2012
- - 5600,000 $365,000 8 35,000 1,000,000 2013-2016 54,809,293 Total first mortgage bonds 1986
- - $ 26,000 1987 5 26.000 - -
8 15,328 - 5 45,000 - - 60,328 1988
- - 8 45,000 - - 45,000 1989 5 20,800 - - - 5 30,000 50,800 1990 8 27,000 - $300,000 - 5 80,000 407,000 1991 8259,250 $172,760 815,520 $205,000 5500,000 2,052,530 1992 2001 5375,000 5450,000 - - 825.000 2002 2011 -
- - 5600,000 5440,000 5 35,000 1,075.000 2012 2016
$4.541,658 7btal first mortgage Ix>rwis
@ . '-, , . - .--.~w .:..; y m,m u -
r 4 ' 'I... As of December 31,198', 5302.4 million restnue bonds. I nder these agreements, l: }, 'l I } . 9.d }
-w q of comolidated retained earnings were SERI is presently limited in the annunt of
- f
- 1. g - - -
1 , free from such restrictions, including dhiderxis it may pay on its capital stock A, Q.fy.. s.r g4gl%h3 5259.3 million of unrestricted, undistributed (i,ther than dhidakis payabie solely in g .2
- .#%s,.. -
retained earnings or the Compan>% shares of cumnnn stock and dhidends subsidiaries The unrestricted, undistributed payable in cash where, concurrently, SERI '!he llolding Company Act of 1935 retained earnings of any subsidiary of SISU ttcchts a capital contribution or sells prohibits the C.ompany s sub ,idiaries from are rot available for distribution to the shares of its common stock)in an amount nuking loans or ath2nces to 515U. The equal to its accumulated net income for common stockholiers of SISU until such indenture and charter pr(nisiom relating to earnings are made asui!able to the Company the period July 1,1985, to the date of the the operating subsidiaries, kmg-t erm debt through the declaration of dhiderxis by such pa3 ment. Such amount was approximately and preferred st(xk, respecthrly, and the subsidiary. (Oc Note 8 ~ Commitments $498.4 million as of December 31,1987. prosisions of certain of $1'RIs financing and Contingencies - Common St(xk $ERI has paid tu dniderxis on its capital agreements and indenture restrict the stock to date. In the esent SERI experienced Dnidend.") anmunt of consolidated retained earnings 5ERI, in connection with the deferral a loss that excenled such accumulated availabic for cadi dnidends on comnxm " "#' #' # '" * "' '#"# " stock of the subsidiaries in addition,
}"
U.S. bank loan agreements, has agreed not dhidends paid since July 1,1985, dnidends tramfers by the operating subsidiaries from could not be paid until such a deficit was to declare or pay any dnidend , on comnnn retained earnings to the stated value of sak until all loam outstanding under these restored by subsequently earned net comnun stak impose similar restrictions Mcome, emp wMe mmemh MRI agremnb am fuh pad k N on the anxmnt of conmlidated retained " *I "' " carnings available for cash dnidends on A er hew hl nutuMes m paM, M hree mmnon std common stock of the subsidiaries. At "" " '# ~ December 31,198', the restricted retained "" * " E'}*#" * "E carnings of the Compami comolidated *" "" " # " subsidianes aggregated St 637A million.
'" E" ""* '# 'I '"
agreements for its pollution control comnor' stock
;M
-3pm%r ; x % g g g+ w^ ^
q x y N h &m i,y& & & bdaRieuwaha OveTiew . On Februaq 25,1987, the Stississippi mntinue to exist in its present form. At December 31,1987, the Sliddle South Supreme Court rewrsed and renunded in the near term, unless the council's Sptem's nwwt significant commitments and the September 1985 order of the 51PSC rew)lution is rewrsed. NOP51 will, in all mntingencies related to (1) the final granting pernunent rate relief to SIP &L prutubility, not be able ti obtain the funds resok: tion of certain retail rate structures with respect to its recowry of Grand necessary to meet its ongoing obligations implemented by the Sptem operating Gulf I costs Subsequently, StP&L IVed and could be rendered ins)hrnt in a short companies that luw either been clul. an appeal of the February 25 Decision period of time, perhaps as early as the lenged, rewesed by judicial decisions, or wi'h the U.S. Supreme Court and also second quarter of 1988 (Alv), certain haw been or mrrently are sub}ect to filed an application asking that Court to prudence issues imuhing StP&L's Grand prudence imestigations or disallowances, stay the mandate of the February 25 Gulf I ant recowry and LP&L's expendi. (2) the needs of 51P&L and NOISI to access Decision pending final disposition of the tures on Waterford 3 remain unresohrd.) the capital nurkets for external financing, appeal. On June 1,1987, the U.S. Supreme For further infornution regarding thew (3) the powible adwrse etTect on certain Court entered an order granting SIP &l's rate issues and the potential financial 5ptem operating companic< as a resuh of application for a stay conditioned upon inplications to S1P&l, NOP51, and the Sliddle recent clunges related to the accounting the posting of a good and sufficient bond South Sprem, see "Potential Debt Accel-for phase-in plans (see "SFAS No. 92"), in a manner and amount to be determined cration,11ankruptcy, and Sptem Viability" (4) the ultinute rev>lution of the status of by the Slississippi Supreme Court. On and Note 2 "Rate and Regulatory 5 tatters" Grand Gulf 2 (see % trended Construdion June 10,198', the Alississippi Supreme g Project - Grand Gulf 2"),(5) the poten. Court entered its order setting Imnd. The Financing ti.,lly athrrse impact on SERI if artain requirements of the Sliwi.wippi Suprcme . Capital requirenxnts of the Sliddle South findmgs stemming from a FERC audit of Court's order setting bond haw been
#*" "E # E# "# #
SERI and the Grand Gulf Station are and are currently being satisfied. On funds nented for (1) mnstn etion expen-ulticutely sustained (see 'TERC Audit of October 5,1967, the U.S. Suprerr,e Court ditures, ( 2) financing by AP&l, 51P&l, and SFRl"), and (6) the continuing mntrover. decided to hear full argument of 51P&L,s NOPSI of cost deferrals associated with sies over the Grand Gulf Station and the appeal of the Sliwiwippi Supreme Court's Grand Gulf I and, m LP&Ls case, alh> cation of capacity and energy ants February 25 Decision, but postponed V.aterford 3, and (3) costs of nuclear fuel from Grand Gulf 1 to the Sprem operating further consideration of the U.S. Supreme
,n addition to amounts that nuy be leased companies As discuwed in more detail Court's jurixtiction to the hearing of under existing nuclear fuel leases, in herein. atherse resolutions of certain of the case on the merits. Oral argtmients .
addition, the Sptem will reym.re camtal these nutters could tuw a nuterial at.hrrse wrre heard on February 22,1988. It is - u o a mnce nuturing k>ng term debt efTnt on the affedn! mnpany and, in some expected that the case will be decided by and to meet sinking fund requirements. cases. could render the affected company the end ofJune 1988. ," * " ' "# 8 '"I" *#***"* imohrnt and threaten the siabihty of the
- On February 4,1988, after a lengthy
" """'"""##"" " " I Sliddle South Sptem as a whole. (See prudence imrstigation, the New Orleans E #'N #"" #" # " "Potential Debt Acceleration. Ilankruptcy, City Council adopted a resolution that trquired NOPSI to write off, and not ne e ma amraW and Sptem Viabihty")
As mentioned in (1) abow, final and recowr from its retail eledric mstomers, " " " " #"* ""#"P '" *" modifications of retail rate relief granted famrable resoh tion of disputes owr $135 million of its Grand Gulf I cmts
- T## " "" **'
adequate retail rate relief for certain of the in addition to the 551.2 milhon of such costs that NOPS! had agreed to absorb in arch 3 mA W am M m anain Sptem operating companies tus 3rt to be other awumptiom and judgments with achiewd. and some of the rate stnwtures, the Starch 19tm rate settl ement. NOPsi is rtspect to, among other things, pending as initially implemented, luve (lunged, are seeking relief in the courts against this agulatory am1 NcW pnwenimp, earn in litigation, or have been or wrrently are finding of alleged imprudence by the council. The o>uncil's ac* ion has caused not e p y, Smndng plam, ami the subint of prudence investigations or
"'""'C"""
dnallowances. I urther dunges to or NOPSI to sufTer immediate harm with *#""'".I'*P"*I""$# nry sir,mf tcantly from these ammptions, reversals of existing rate structures could serious consequences to the financial ahiorul capital and extertul firuncing occur, depending upon further actiom of condition and siabihty of NOPSI to . regulatory bodies or the courts in this '#9* *"*"" "" ^*""N ' # conne crion, the folhmir.g dewh pments a m cap al mqu nwnts am are precated _ s
(1) In NOPSrs case, the couned determined System operating company, and its ability to extended, the expiration of certain fuel imen-in February 1988 to reduce its proiously etIcct extenul finandng to nret its continuing tory financing airangements of SFl and granted Grand Gulf I rate relief by $135 obligations (including those with respect to nuclear fuel lening arrargements s of the million because of alleged imprudence. Grand Gulf 1) could be se crely impaired. System op rating companies and SERI during L
' 1he following assumes tlut ultinutely a : The esumated capital requirements for 1988-90 could result in additional financing rnrrsal of such determination is obtained the }rars 1988,1989, and 1990 approxinute requirements of approxinutely $105 million from the courts. (2) In MP&rs case,its $715.0 million 5636.3 million, and $462.5 and $374 million,respechtly Further,urJess Gratul Gulf I rate relief, includmg its pluetn million, remechtly These estinutes are net the councifs February 4,1988, resolution plan, has been rnrr3ed by the 51ississippi of financing to repay nuturing long-term is rorrsed, NOPSI could be required to l
I Supreme Court. As a result of stays obtaired debt and sinking fund requirements and ex. redeem up to 5115 million of G&R bonds by AIP&L frem the U.S. Supreme Court, clude the refinancing of nudear fuel leves outstanding. which could be tendered to such relief will renuin in effect, subject and changes in simrt-term ocht. NOPSI for rnlemption under circumstances to refund, during the appeal of this decision Construction expenditures (excluding where NOPSI has no real ability to obtain i arnt the folkming assumes Out such appeat nuclear fuel) for the Sliddle South System funds necessary to meet this obligation. is successful (3) in LP& L's case, it is during the >rars 1988,1989, and 1990 are In addition, the System operating com-assumed that a rate moderation plan is estinuted to be approximately 5405 6 panies and SER] nuy choose to refinance ultimately implemented for Lpa rs senice million, 5414.7 million, and $427.3 million, or retire, through the use of internally or territory in Algiers, and that the current respecthrly. No significant costs in connec externally generated funds, high-cost debt, r rectnety of 540 million on an annual basis, tion with generating facilities are expected and preferred stock in annunts that caruwt 4 implemented February 1,1988, for its LISC to be incurred, except for certain post. presently be determined. Further, certain 2 jurisdictional customers pursuant to a commercial operation work on variotu System companies nu) enter into arrange-November 1987 court order, will renuin nuclear units.1he construction expendi- nwnts for the sale and ledetude of pnperty 4 in effect after resolution of appeals of such tures assune no acthities at Grand C utf 2 in which the proceeds from such trans-order. (4) It is awumed Out in adjustments except for dennbilization and suspcasion. actions could be used to retire debt at par. to the implemented or filed and pending It is als) estinuted that appruxinutcly $33.7 1he System's capital requirements, phase in plans of the Sptem operating million will be required during the period inckxting refinancing requirements, will companies are required as a result of SFAS to acquire nuclear fuel in addition to
- hat t'e met through a combinatkm of in ernally No. 92. (5) In serfs case,1988 estinuted currently owned or under lease. and externally generated funds. Due, how-extertul financing requirements relicct The Sptem operating companies will orr, to the uneettam'ics inherent in, anung SERTs bonding commitments to the 51issis- incur additional capital requirements of other things,51P&L and NOISrs retail rate sippi Supreme Court and assurne that approxinutely 5332 8 million, s155 9 situations, and the adstrw impact thereof on
- 51P&l's appeal to the U.S. Supreme Court million, and $418 million for the years indhidual companies and the 51iddle South ,
will tre rev)hrd on or before June 30,1988, 1988,1989, tnd 1990, respedhrly, in con. Sptem as a wlmle,it cannot be predicted and that cash deposited by SERI (estinuted nection with implemented and assumed whether, or in what annunts and on what to be $177.5 million byJune 30,1988) will rate Inoderation plans. ternw, such financing may be available to I:e returned to SERI upon successful com- In addition to the total capital require. Sptemcompanies.Inparticular,it thee rnt pletion of the appeal (6) It is assumed that ments shown above, the Sptem operating that the councifs recent action is tot the issues raised by the FERC staff in an companies and SERI will require funds of rorrsed, NOPSI will stry likely be pre-audit of SERI will be rev)hrd in SERrs approxinutely $731.9 million during the cluded from raising any additional funds l famt. In the event that any of the existing perkx! 1988-90 to refinance rtuturing long- from external sources and will suffer sestre rate stnxtures were abrogated or rescinded, term debt and to meet sinking fund require- liquidity pnblems. or future recovery by any Sptem operating ments with respect to first nwrtgage bonds Potential Debt Acceleration, i company under its phase-in plan of deferred and preferred stock Of this annunt- llankruptcy, and System Vlability costs were disallowrd in any material $ 181 A million represents SERI s payment Adstrse regulatory or judicial decisions respect or, in NOPSfs case, the cuuncifs obligatiom under its various bornming & npys' recrnt prudence disalkwunce is not rorrwd, arrangements. In addition, certain of sERrs retail rate structures relating to their
- the capital requirements of the affected pollution wntrol revenue innds nuy be f g3 g l 4 Sptem operating company could he sigmf- required to be reacquired by SERI during e vaning consequences that could Icantly altered and the earnings, liquidity, 1988-89 in the esent they canrut be and/or financial condition of the particular renurketed l'nder this cirmrmtance, addi-tional funds of up to $78 million nuy tr i required to reamluire such lunds Alm, unless S'
I Jeopardize the Sliddle South Sptem, at this time be in a position to satisfy companies not in bankruptg cannot be including those set forth below $ Errs obligations,if ao;elerated. prrdided. In any ornt, xturity imiders and
. If the US Supreme Court, on the appeal . Certain of SFrs financing agreements creditors of the company or companies of the February 2'> Decision, renders any and leases enay requite pajnwnts by the inivhed in bankrupicy pnaccedingi cuuld decision adverse to the Sliddle South Sptem operating companies, AISU,or be significantly affnux! by such pained-Sptem's positioit, the application of the SERI in the ornt $Ffs obligations under ings lhe proceedings could last for >rars, doctrine of federal preemption could be such agreements are accelerated as a and there are nuny uncertainties as to imw wserely undermined.The doctrine result of the insobrncy of a Sptem prtnisjons of the law would be applied.
of federal preeny,lon is necessary in operating company and $FI is unable to Rights and renxxhes of semrity holders and order to secure implementation of meet ther obligations or otherwiw satisfy credacts nuy be altered, denied, or limited SERrs federally mandated wholesale rates these obligations through the sale of the under such laws 'the obligations of 515U l tjuuugh the retail rate structures of the collateral semring such obligations in and the $ptem operating cumpanies under ' Sptem operating companies. addition,insobrncy of a $ptenuperating the Capital Funds Agreement and the
. Without adequate rates to recmtr Grand company wuuld affect terms of financing. Anilability Agree ment, respathrly, and the Gulf I charges,51P&l. and NOPSI could including an increase in cost of financing, assignments thereof, could also be litigated sutTer such liquidity constraints that or could preclude financing for other and possibly reduced or eliminated. See they m>uld, in a short period of time, Sliddle South $ptem companics. "Capital Funds, Anilability, and Realkicatkin be unable to meet their contractual in the ornt of any of the foregoing Agreements" for a discuwion of 51$U and obligations to SERI with respect to athrr c darkpments, the continuing the Sptem operating o>npanics' respecthe the Grand Gulf Station and could be siability of the hiiddle N>uth Sptem would obligations to nuke payments or otherwise rendered inx>hrnt. be placed in jeopardy, and it could be support $ERJ under the Capital funds Failure of any Sptem operating company diffimit to au>id a bankruptcy filing by one Agreement, the Availability Agreement, and to maintain its current rate structure or or more of the affected Sliddle N>uth the Realk> cation Agreement. There (tmid be to meet its cuntractus) obligations to SERI Sptem companies in this a nnection. AISU, tm awurance that any creditors m>uld be with respect to the Grand Gulf Station hlP&l, and $ERI hac each retainnt inde. able to rectner the full anmunt of their could, under certain agreements relating pendent special counsel experiencnl in clainw, and securities and stock with to serfs indebtedness (but only upon tunkruptg nutters and haw been sttslying inferior rights could be substituted for further action by the requisite percentage the relief and protection that might be those with priorities. Further, holders of of serfs creditors), lead to acceleration anilable to them under Gapter Ii of equity secunties nuy not be ahic to renner of such indebtedness unless ( 1) waivers the United States llankrupty Code. While any substantial amount of tirir imestnwnts.
wrre obtained, (2) the debt was restruc, no decisions with regard to bankruptg Atornnrr, it is uncertain as to whether the tured, or (3) other arrangements could filings haw )tt been nude,it must be bankrupt entity or entities could be suc. be negotiated. In addition,in the absence recognized,in light of the risks discussed cessfully reorganized in their present form, of such wahrrs, debt restructuring or herein, that future nrnts, either singly or whether the mrrent relationships betwren other negotiated arrat.gements, accelera. in combination, may result in such athrrse and anmng wrious Niiddle South Sptem tion of such indebtedness could occur if clunges in business circumstances or such companies would be significantly altered, a Sptem operating cunpany were a dnTease in liquid ty as to nuke it prudent or whether the Sliddle South Sptem m.mid rendered insohrnt as a result of a for one or more of the affected Aliddle continue to exist in its present form after reducion in rates. Ghrn the substantial South Sprem companies to file a petition bankruptg of one or nure Stitkile South armmnt of SERrt dcht, it mold mt be able for reorganization under Chapter 11. Stany $ptem companies. to meet its obligations,if accelerated. of these future ntnts are bc>und the Under $ Errs financing agreements, the cuntrol of the Aliddle South Sptem W No. 92 Sptem operating companies m>uld not The effects of a funkruptg prturding in August 19C, the lash iwun! $ris in responsibic for the payment of serfs imuhing one or nm Sliddle N wth Sptem No 92, Regulated I nterpri*cs- Accounting accelerated obligations if SERI could not companies and the extent oflurisdiction of for liuse-in I lans, an anwndnrnt of $FAS meet them at$U, with its financial the SEC under the llokling Company Act Nu 't. SI AS Nu 92 requires, among other resources currently limited, m>uld not and of other federal and state regulatory thmgs, the following conditions for deferral bodies mrr the bankrupt entity or entities of costs ( 1) the wsts are deferred pursuant and mrr any other Sliddle N>uth Sptem
i to a fornul plan that has tren agreal to by will anwnd the phase in plan so that it util pnnisions of SFAS No. 92. If the etTort to the regulator, ( 2 ) the plan specifies w hen comply with the deferral criteria of 51 A5 nxxidy its rate pluse in plan is not reuntry of onts will occur,(3) the onts No. 92. If AP&L h ultinutely required to succewful and tir terms of SFAS No. 92 are deferred are scheduled for nontry within comply with the pnnisiom of SFAS No. 92, applied, alp &L will be required to cene 10 3rars of the date when deferrals trgin, it may seek, under terms of the Arkamas deferring Grand Gulf I costs on its books and (4) the percentage increaw in rates for settlement agreement, to negotiate a and instead to r wrd these costs as current each future irar is no greater tiun the mutually acceptable amendment to modify operating expertses. In addition, certain percentage increase in rates for each the pnnisions of the Arkansas settlement presiomly deferred costs (up to approxi-imnrdiately preceding war 'lhe new agreement so that deferrals of mst would nutely S5 48 million at ikcember 31,1987) statement is effectiw for fiscal years comply with pnnisiom of 5FAS No. 92. will be requirnt to be written off, width beginning after December 15,1987,and floworr,if AD&L wrre to seek such will luw an immediate and nuterially requires that amounts deferred under plans nxxiifying anrndment and not succeed in :_dwrse effect on the fliuncial condition of tlut do tw>t meet the requirements of the obtaining such nxxiifications to its pluw in N!P&l, particularly in hght ofits already statement be written oft $FAS Nu 92 lus plan, the agrecruent wuuld terminate, a wrakened firuncial condition. transition rules designed to alk>w any write-off of presiously deferred msts wuuld in February 1988, LP&L fikd a rate affected wmpany to delay application of the be required for financial reporting pur- increase application with the IP5C, widch new statement and to continue deferral of poses, further deferrah wuutd not ir included a formal pluse-in plan for costs under its existing pluse in plan permitted, and AP&l's financial position and the renntry of approxinutely $266 prmided that both of the folkming results of operations would tw materially fullion of deferred Waterford 3 costs. conditions are met: ( 1) the emnpany has and adwrwly affected.1hc Arkansas such pluse-in plan, if appnned, wuuld fikxl a rate application to luw the plan witlenrnt agreenrnt panides that all costs comply with 5FAS No. 92. amended so and $- ~qu!rements of the awociated with Grand Gulf 1, which lute NOPs! beliews tlut its pluse in for the statement or it intends to do so as soon as been deferred by AP&L prior to any su(h reonery of deferred Grand Gulf I costs pradical, and (2) it h reavmably possible te.mination of the Arkamas settlement sathfies the requirements of SI AS No. 92. tlut the regulator will clunge the terms of agreement, would he recowred in accord- NOP51 cannot predict wlut effect,if any, the the pluse in plan so that it will meet the ance with its pnnisiom. AP&L h presently outcome of the litigation relating to the requirements of the statement. unable to predict the ultinute outcome of councifs lebruary 4,1988, resolution will AP&li deferrah of cost under the these matters haw on its phase in plan-pluse in plan embistied in its settlement 'Ihe terms of alp &lN Grand Gulf I Common 5tock Dividends agreement with the Arkansas Public Sersice rate order pnnide for tir reonery of In August 1987, Nmtmber 1987, and Gmuniwion ( AP5C) and otl a parties do significant amounts of deferred wsts , lebruary 1988, the Sptem operat ng not nret the aiteria for deferral estahtisixxl bc>und the 10->rar recover) cap required in SI AS Nu 92. StP& L interxh to attempt mmpanies paid dnidends to StSl? aggre-by SFAS No. 92. llowort, AP& L believes to restructure its rate pluse-in plan, as soon gating approxinutely 818.8 rt'ill;on, 322.8 tlut onts it lus deferred in accordance miHiort and 32LH miUion, respectiwly.*Ihe with the Arkansas wttlement agreement are as pradical, folkming the dechion of the declaration and payment of common stock l probable of future recmcry and should t!S Supreme Court on stP&l's appeal of the mntinue to be deferrett in thh connection, dnidends by the Sptem operating mm-February 25 Decision. The rate order panics has, to a limited extent because of AP&L has requested and obtained the omtaim pnnisium tlut permit AlPAL to the linuted site of the dividends, increased appnmtl of f ERC to continue deferrah of nuke application to amend its pluse in plan dr hquidity arx! firun(ial flexibility of 51$tt emts for purposes of firuncial reporting to if StP&L establkhes the exhtence of an Prior to July 198', the 5ptem operating Fl:RC. In Febnury 1988, AP&L filed with iruhility to firunce on reawinable ternn and mmpaWes last declared dnidends on their the SI:C an applicati<m for an order that alv) permits StP&L to nuke application to the Silas C to comider the etted of a clunge (unmin mk in the end quarter of wuuki perndt AP&L to continmukferrah of 1985. $1 RJ lus newr declared any comnum xxh msts in its financti statements filed in Ste Nu -'I. During the perxlerxy of dnidends arxt, pursuant to recent amend-with the SI:C. I'rx!ct the tomition StP&li appeal to the its Supreme Court, ents to the l!.S. and foreign hank kun pnnisiom of $1 As Nu 92, appcation of SIP &L Intends to continue to remrd its agreenrnts, will be prohibited from paying that statement nuy be delagd if AP&L has deferred Grand Gulf I costs ar awets on its any di idends on its comnxin stock until fikd or intends to file, as soon as practical, books in accordance with the transition loam outstanding under these agreements an application to amend its pluse-in plan ne fuW paid %c mu xifs Ichruary 4,1988, arxlit is reavmably pmible the regtdator 39
rmlution. if not rtwrmi. will haw the cticct estinuted nun hours nculed to complete reduction written otI could adstrsely allect of precluding the further declaration and the uait. Effecthe kptember 18,1985, SERI various nimpanics in the Sliddle South payment by NOPSI of dhidends on its suspended comtruction aethities and Systent SERI beliews, lxmtser, that it is comnun stock for a number of 3rars.To the ceased accruing AIUDC on Grand Gulf 2 justified in carrying Grand Gulf 2 at its full extent 513tTs receipt of dhidends from its following an order of the alPSC. nlue because the property currently subsidiaries is limited or precluded,5151Ts Since Rptember 1985, SERI lus con- comprising Grand Gulf 2 is of the same financid re ources will be strained and . tinued suspemion of cmstruction on Grand design as tlut of Grand Gulf I and is being SISthuuld be without the requhite funds to Gulf 2 and has limited expenditures to only pmperly maintaine 1 and is therefore imest in or otherwise make anilable to the thow acthities that are absolutely necessary suitable for its intended purpose, Certain System operating companies and SERI. As for demobilization and suspension of the issues relating to the value of SERI s f a irsuit of uncertainties facing the Sliddle unit. In Nostmber 1986, a special study imrstment in Grand Gulf 2 also exist in L
- xmth Ssstem. htSU lus been uruble to declare team formed by management, which connection with an audit by FERC, as - a dhidend an its common Stock since the included Sliddle South System ollicials and discussed in *FERC Audit of SERI" second quarter of 1985. outside consultants, completed a compre- As a result of the decision of SERTs Resumption of SISLTs common stock hensht 3rar.long study that analyved Board of Directors with respect to dnidend remains dependent, among other in<lepth the urious alternathes regarding continuation of suspension of construction, things, upon the resolution or moderation Grand Gulf 2 and the complex iwues SERI does not intend to make an application of various uncertainties facing die Sliddle concerning its future status. After con. to FERC during the perk)d of suspension South $33 tem, as discussed, and improgr- sidering the ucious alternathrs, SERl's with respect to the recowry through rates ment in the System's fi uncial conditiort In Board of Directors (with the SISU Board of of SERTs imestment in Grand Gulf 2.
addition ; Errs agreement not to pay dhi- Directors concurring),in December 19f4 While SERI beliests that all of its deixh on its common stixt until all amounts adopted the recommendation of the study imestment to date in Grand Gulf 2 lus bctm outstanding under the US and foreign tunk team that suspension of construction be prudent,in connection with any subsetpmt loan agreements are fully paid and the recent continued and that a further decision be decision as to the nlue of Grand Gulf 2 or ! Impairment of NOPSI's ability to declare nude by 1990 on the future status of Grand the ultinute dechion with respect to the common dhidends could adversely affect Gulf 2,in light of alternathrs anilable at future of Grand Gulf 2 SERI will, at an SIStTs abihty to declare dhidends on its that time. During the period of suspension, appropriate time, nuke a determination as common stock, or the anx)unt thereof, as the energy needs of the region senrd by to the appropriate rectnrry of its imest- b SIStTs ability to declare dhidends in excess the System, as well as mme of the ment. In nuking such determirution SERI of dnidends recchrd from its subsidiaries is uncertainties surrounding the costs of wuuld consider, among other things, the limited further, the requirement that SISU, constructing nucicar ptmrr plants, should regulatory emironment generally. and legal in mniuretion with SIP &Cs obtaining a stay be further clarified standards then applicable. Any action to of the February 25 Decision, co-guarantee During the period of continuation of seek recowry of Grand Gulf 2 costs would t refumb to retail customers tlut nuy ultimattly suspension, SERTs expenditures on Grand likely imuhr a filing by SERI with FERC be required of SIP &L upon an atherse Gulf 2 will be limited, and it will continue requesting such reconry, owr a period of resolution of StP&l's pending appeal, has not to accrue AWIX: on its imrstment >rars, through clurges to the Sptem necessitated that SISU consene anilable cash in the unit. Cortsequently, during the operating companies, and related filings by resources and, pending outcome of the suspension period, the increase in SERI s the Sptem operating companies before j appeal, will furthcr restrict NISU's ability to imrstment in Grand Gulf 2 will be state or k>eal regulatory autimritio to , resume common stock dhidends limited and SERI will forego any return on recognize FERC-allowed charges in ! Suspended Construction Project- thk imestment. retail rates. In siew ef the contrtntrsies Grand Gulf 2 SERI will mntinue during the suspen. mrr the Grand Gulf Station, irxtuding the ; As of December 31,1987, SERI had P## '" # # "'* "" ** * ** " """'"'# '*'I imrsted approximately 5890 million in
"""""# **#"* # ##"* " #N" "" " '" " " #" "N' "" #"'
- Grand Guli 2 (including approxinutch- '
"*" " # #' " """""# " "
- I" # # "' #
$392 million of AWDC), which w as approxinutely 3 n. complete tused on the
#* ** "" ^"I #"" "" I that the nlue of SERI's imtstment simuld be reduced and the amount of any such
) j 1 40
future of Grand Gulf 2, there can be no canceled plant betwren the owner and the SERI has strongly disagreed with the assutance tlut the full cost of Grand Gulf 2 ratepayers,whereby 50% of the prudently staffs positior, asserting . hat the staffs willle recowred or as to the timing of any incurred costs of the cancele jplant wuuld pmition is in siolation of the SEC's tax ! recowry. Proceedinp before FERC amt, be amortiscd and reontred from rate. alkwation regulations applicable to lx>lding with respect to recognition in retail rates pa>rrs owr the expected hfe of the plant as company sptems and cc ntrary to IERCs of FERC.apprmrd rates, before state or ifit had been completed The currently own accounting rules. A hearing has tren local regulatory authorities could be unamortiacd portion of such amount would set for May 16,19883at tous parties, 7 l protracted and strongly contested on also be included in rate tuse thereby mcluding the APSC, LP$C, MPSC, and the l J l various grounds, including imprudence. II alkming for a return t!vreon. The renuidng New Orleans City Council, has e interwned costs associated with Grand Gulf 2 were 50% of prudently incurred costs wuuld be in this proceeding. allocated to the Sptem operating com- written ofE If the staffs findings are ultinutely panies and they were unable to recos er sustained, the resulting durges against net i FERC Audit of SERI they costs from their customers, the income and refund requirements wuuld FERC has performed an audit of SERI ham a material adwrst impact on 5ERI. Sptem operating conpanies' financial and the Grand Gulf Station as part ofits SERI estinutes that as of December 31, condition omid be materially snd adwrsely regulatory function in auditing utilities 1987, the impact on nt t income could be affected. Anynonrecowryof serfs subject to its jurisdiction 1he audit report' as high as approximattly $290 million (net imrstment in Grand Gulf 2 wuuld result in which pertains to the period from $ERii of tax etTect), and SERI could be obligated a clurge against earnings for any unre. inception through December 31, !985, wa* to refund approxinuttly 5250 milhon, onrrable imestment when that ewnt issued onJune 18,1987 In the report, the including interest, to its mstomers. In becomes probable. In the ewnt such a FERC staff states, among other things. tlut addition, the staffs proposed adjustments clurge wrre substantial, the financial condition of SERI could be materially and the Grand Gulf Stationi AIUDC l' wuuld adwrselyimpa t $ERTs prospectiw overstated by 5152 8 million ( $ 120.7 net income, earninp ontrages, and cash adwrnly affected (although its cash mWon relating to Grand Guy I and $32.1 tiow. SERI cannot predict the ultimaic position would not be adwrsely affected). million relating to Grand Gulf 2) because outcome of the exam. nation 1 and $ERTs ability to pay dhidends on its the "AfrDC calculation failed to take into capital stock u>uld be impaired for uds aUa i ,and account all cost-free capital generated by information concerning an accounting
$ERI expenditures and (laimed on conmli-
{l Mandard that addresses the accounting l'nder the Capital iun Agreement, as treatment of the iwucs disctmed herein, dated income tax returns" The FERC staff recomnwnds that SERI record an account. supplemented, the O)mpany has agreed to see Note 10 *5FAs No. 90:, ing emry to day We aHegd Am qW cauw to N ghd m W W j During the perkid to 1990, certain sud anumms M caphal as nuW WW owmatement againu net Wome, remm. issues, including those descrifwd alxne, in order to nuintain equity capital at an pure billing to custonwrs sinw July 1,1985, muld cause a decrease in the 5aluation of anusunt equal to at least 35% of STRTs total reflecting adjusted plant and equity the imestment in Grand Gulf 2. Failure io capitalization (excluding short term debt), balances, and refund, with interest, the obtain rate refief for au or a substantial and ( 2) such amounts of capital as slull be difference between the remnputed billmp portion of the cost of Grand Gulf 2 could required in order (a ) for $ERI to construct, and amounts presiously charged cusmmers. h,nr a rnaterial and a<herse effect upon the Further, the FERC staff recommends that own. and place in emumercial operation the , financial condition of SERI. MSl?, and 5 6 million of "recowrable taxes" Grand Gulf Station. Ib) to proside for , possibly tne 5ptem operating companks, preoperating experres and interest ciurges representing a significant portion of SERTs depending upon, among other things, the of 3ERI,(c) to pern it the contintution of unrealized recorded inmme tax benefits, timing of the realization of any suca loss. should be reclassified to "acmur.ts such wmmercial cocration after com-In January 1988, FERC issued an mencement thereo , and (d) to pay in full recekaNe imm awodated mmpanies: , onter that nwxiified its policy regarding all indchtednew for borrowed nwwwy i the net effect of which wuuld be a 1270 reantry of cancekd or abandoned plant wbcther at nuturitg on prepayment, on mil';on reduction of Grand Gulf li f costs by utildies subject to us jurisbetkm. acceleration. or otherwise. In atklition, tiv rste base.11w stati recomnwmis slut I The resised polky pnnides for a '508) Gnpny b agreN to nuk ca4 capual WRI refund wth imerc9, the change sharing" of prudently incurred costs of a contributiom te enable SERI to make
- in billinp since July 1,1985, due to this rate base reduction pa)ments when dt e on its long term debt ,
l i { l i l t 4I
lhe Spiem operating companies are claw action suit.1he initial complaint w as 30 3rars of the prointed cul requirements .sovrally obligated under the Availability fiksiin Auyust 1985 by an 515U stockholder of the Intkpendence Statkm in Arkansas was Agreement in accordance with stated (purputing to represent a class llut awignal by SFl to AP&l, etht1hr December percentages ( AP&L 17.1% LPA L 26.9%, purchased 5150 comnx>n stock) followed 31,1987. In addition,5FI h.ts a long terin AIP& L 31.3%, NOPSI 21.7't,) ta nuke by four similar amplaints filed by 31sti oil supply agreement with a major oil payments or subordituted advances ade- stocklm!ders in August and Rptember mnpany pnniding for the purchase of quate to unrr all of the operating expatses, 1985. Ihc the actions were ontv)lidated in 25fn1 barrels of oil per day through 1996 including d(ptrciation and interest charges, the U.S. District Q)urt for the Eastern with an option to reduce, within certain of SERI. SERI has, with the cortsent of the District of InuisianaJihe comolidated, limits, the contract quantity either tempor. Sptem operating companies, awigned its amended and supplemental cumplaint arily or pernunently An agreement was j rights to payments and asances from the alk ged siolations of tne disch>sure require. reached, etfectbr Jantury 1,1988, tem- i Sptem cperating companies under the ments of the Securities Exclunge Act of porantv reducing slP. obligation to Amilability Agreenwnt to the holders of its 1934 and the Semrities Act of 1933, purcluse fuel oil to 12,500 barrels per day long-term dcht. comrnon law fraud and common law AP&L is currently purchasing coal for the In Nowmher 1981, the Sptem ogrrating negligent mhrtpresentation in onmettion White Bhitf Station under an agreement tlut companies entered into the Realkic:ition with the finarxial cond. tion of Mst ' arwt will pnnide appruxinutely 100 niillion tom Agreement, which would luw allocated the pra)nt for conpensator) an,1 puruthe cf cual owr a 20-)rar period. capacity and energy availabic to $ER) from danuges, kgal costs and fees, and oth.r IP&L,h> xparate s,7wrnent, gturamoxxl the Grand Gulf Station and the related msts prtper relief agaimt 51W, various otixt SFli perfornunce under the coal contract to IF&l, SIP &l, and NOP51.1hese Sprem comparues, and certain officers (and for the Wilton Station and agreed to compa nies thus agreed to assume all the former officers) and direttors of MW, tin purcluse the cual from $FI Sil, after hasing responsibilities and obligations of AP&L Company's outside auditors, anJ certain kept the coal supplier a61 sed of powible with respect to the Grand Golf Station underwriters of Slw comnon stock. In delJp, asised the supplier,in August 1985, under the Availability Agreement with April 1986,51sU and the other r efendants that, based on its latest appraisal, for AP&L relinquishing its rights to capacity and filed a motion to domiw or,in the planning purposes, the System's require-energy costs from the Grand Gulf 5tatiort alternathr, a motion for sumnury judgment. ment for additional mal capacity is tow Each of the Sptem operating companics, On Jar uary 12,1987, the district murt forecast to be in a time frame that nukes including AP&l, wuuld han renuined entered a judgment granting defendants' the exhting contract in fact nomiable, primarily liable to SERI and its assignees nmtions for smnnury judgnwnt and l'pon receipt of the August 1985 notifi-for paiments or advances under this dismiwxl the suit. On February 6,1987, the cation, the supplier fikxl a Demand f or agreernent. AP&L was obligated to nuke plaintith in the cortvalidated action fikd a Arbitration under the coal supply agree-its slure of the payments or advances only Notice of Appealin the UA Giurt of ment to estahinh tlut the agreement if the other Sptem operating companies Appeals for the Fifth Circet. Oral renulm in full force and effect and clut $rl were unable to meet their contradual argunrnts wrre Ixard on Nmenber 5,1987. is not exmsed from performing its obligatiom. Ikmrwr, i ERCiJune 13 'the defendants intend to sigorously oppose obligations and, alternatiwly, that SFli Decision alkicating a portion of Grand tue appeal of the distrid orarti decisiott actium mmtitute anticipatory rtpudiati >n Gulf I capacity and energy costs to AP&L in the ewnt the domiwal is re ersed on of the mal supply agwement. 'the parties supercedes the Realk> cation Agreement appeal, the ntntual outcome and impact haw agreul to a postponement of the ins,far as it relates to Grand Gulf 1. (See on the Middle South Sptem's financial arbitration on the basis that it can be Note 2 "Rate and Regulatory 5 tatters" condition cannot tv predidal. restarted by either party on 10.dap notice, for further informatkut) IP&L tm fikd an application with the IN Fuel Contracts Stockholder Litigation for a certificate autharizing the con- - SFI has a numtwr of mntracts for the struction of the Wilton plant within a time in 19M5, MSU, artain other Middle South purchase of fuch for use at urious frame of 1995 or earlier, and hearings wev sprem companic3, and indniduals becanx generating statk>m within the Middle South held on April IH,1984 and Nmtmber 12, defendants in a purported mnv>lidated $ptem Anwng the contracts i one for an 19H7 in sinv of the reduction in pr@cted estinuted 100 milhon tom of out for load requirements within IP&Ls sersice If&Es proposed Wihon Station. Another o>ntract expected to pnnide for at kast 42
b area tince the time the coal supply reactor it operates er up to a nuximum per cuntanunation or other spedfied damage agreement was entered into and in siew of reactor owned of $10 million in any (NEll !!). AP&l, IP&1, and SERI cach , other factors relating to IP&l, the IPSC calendar year.1he Sliddle South 5) stem im lust an additional
- 0" ~11 ion of CAW nuy not grant such a certificate. On four licensed reactors. property and dewntanunation insurance October 30,1987, cumultants to the IPSC Certain prtnisiom of the Ad expired on with American Nelear Insurers (ANI) and filed a report concluding that such August 1,1987, and Congress is caldering hiutual Atomic Energy Ibbility l'nderwriter, t certificate should be denied. It b Sin se tral proposals to amend and extend the a pool of private insurance carriers, thus counsers opinion that a refusal by the thC Act. In this connection, the U.S. ilouse of ghing AP&l, IP&l, and SERI cach a total of to grant a certdicate on a reawnable bash Representathrs. on July 29,198', pawed a $P95 nullion excess property and decon-will comtitute the exhtence of a force bill that would rabe the pubbe liability linut tamination insurance abmr the $500 makure, widch would relior IP&L and SFl associated with any nuclett incident to million prinury anmunt. 5ERI is a of a substantial part,if not all,of their approximately $7 billion. the bill further member insured under a primary property obligation under the cual supply agreement. pnnides that each reactor licensee is damage imurance program pnnided by .
In an cifort to resohr the dispute, SFI, respomible to share in this nuximum Nuclear Alutuallimited, another industry IP&l, and the coal supplier entered into liability (therefore, licemees are required mutual insurce, paniding $500 million of settlement discussi(ms; as a result thereof, to share in the assesment). Each reactor cmtrage. AP&L and IP&l's primary IP&L and the coal supplier h.nr agreed in licemee woule be liaole for approxinutely property and decontamination damage principle to a 25 year natural gas supply 566 million per incident, panided tiut not imurance is pnnided by ANI. As member-arrangement.1hc definithe agreement is more than $10 million would be required imureds with these industry mutual enpreted to be cornpleted in the first half to be paid per incident per year. The U.S. imurers, AP&l, IP&l, %1P&l, NOP51, and of 1988. Unsatisfactory resolution of this 5cnate tus under consideration a similar bill SERI are subject to assessments if losacs o a nutter could expose SF1 and IP&L to claims relating to the extemion of the Act. Until a exceed the accumulated funds available to , for significant danuges in the ornt $U is billis adopted by both the Senate and the imurer. At December 31,1987, the unable to negotiate a new arrangement flouw of R(presentathrs and signed into pmpo ed auximum awessment for incl. with the coal supplier, $FI does noi law by the President, the prmisiom of the dents ocmtring during a policy >rar w23 uhinutely prouil in aswrting that ornis of Aa, which expired August 1,1987, will approMmately $11 million. 310 m"lion, force majeure hast excused performance, continue to apply to all currently licensed 50.5 mdlion, 50.2 million, and $37 million or other efforts to mitigate any possible reactors (including all Aliddle South System for AP&l, IP&l, StP&l, NOPSI, and significant damages are unsuccewful. reactors).1he Sliddle Muth System h SERI, resycthrly unable to predict what action Congre's Effecthe October 5,1987, the NRC Nuclear Insurance amended its regulatium to require nuclear might ultinutely take regarding the Act and An of December 31,1987, the Pricc- what effect such actium might nase on (be pmtr plant licemees to obtain property Anderson Act (Act) limited the public Sliddle south systent insuranw onrrage in the minimum anmunt ' liability of a licensee of a nuclear pourt AP&l, IP& t, StPal, and NOPSI are of $1.06 billion 1he regulatiom further plant to 5720 million for a single nuclear nd rimureds of Nudcar Electric pnnide that the proceeds of this imurance incidrnt.The Act in its present form Imurance Umited (NitL), an indmiry shall be used to first ensure that the pnnides tlut this limit increases by 55 mutual insurer that pnnides its members licensed reactor is in a safe and stable million for exh askhtional operating licenw with insurance costrage for certain costs condition and can be nuintained in that twued by the Nuclear Regulatory Commis- of replacement pmtr Inwrred due to onlition so as to prornt any significant
- sion (NRC). Imurance for this exposure is certain prolonged outages of nuclear units rbk to the public health and safer). Within presided by prhute insurance and an (NEll1). In addition, AP&I, IP&l, and SERJ 30 da)s of stabilization, the licemce k irdmnit) agreement with the NRC. Every are member. insureds under an curu required to prepare and submit to tlw NRC ,
hcensee of a nuclear pmtr plant h pnperty imurance pn, gram that pnnides a deanup plan for approval 'the plan is obligated,in the ornt of a nuclear incident 5775 million of ctnrrage for property required to identify all cleanup operattom imuhing any commercial nuclear facility in danuge sustained by the imured in excen newssary to deamtamirute the reactor the United States that restdts in danuges in of $500 millhm caused by radioacthe sufficiently to permit the resumption of excess of the prhute insurance, to pay operatiom or to aimmence decomnns-retrospectiw aswssments of up to 85 sioning. Any pnpcrty in uran (e pmceeds million per incident for each licensed P
4 . , 4 not already expendett to place the reactor sib!c for the disposal of spent nuclear fuct Disposition of Subsidiary i in a safe and stable condition must be uwd 1hese companies comider all ctnt'
~ AP&Llus entered into a mntract with
- bt to complete those decontamination incurred or to be incurred in the use and 7 Southwrstern Energy Company and its ,
aq>erations that are ordered by the NRC. disposal of nuclear fuel to be proper subsidiary, Arkansas Western Gas Company Vme-:y insurance proceeds subject to the components of nuclear fuel expense aml 31 (Arkansas Western), for the disposition of
.' det stamination priority must be payable pnnisium to renner such msts have been AP&I's interest in its wholly <mned sub-to p rarate .tust estabibbed for the sole or will be nude in applications to sidiary, Awociated Natural Gas ( ANG), by
- , p. cose of papng for costs incurred in regulatory commissiom. The alTected means of a cash merger of ANG into j du ninating the reactor and renxning Middle 'outh Sprem companies luw Arkansas Western.'the cash merger i a
radnthe dthris. lhe NRC fUrther exemted contracts with the Department of consideratkm will be 527.1 million, with I requires that the decontamirution priority Energy (IX)E) whereby the DOE will Arkansas Western assuming approxinutely and trug requirements set forth in the furnish disposal senice for the companies' 502 million of outstanding long term regulation be incorporated in on site spent nuclear fuel at a cmt of one mill per d(ht of ANG.The tramaction, which is
- property danuge losurance policies not kilowatt-hour of gnm generation on or subject to appnn21 by various regulatory later than October 4,1988, and apply after April 7,1983, plus (la AP&ils case) tudies, is expated to be completed in the unifor mly to all requirni on site property one time fees for pre iously discharged fuel scaand quarter of 1988.
damage insurance policies 'or nuclear and in-core burned fuel prior to ilut date. power phnts AP&L has selected an option nude anilable IFAL and NOPSI Consolidation Diecthe Jtnuary 1,1988, the aggr(yate by the IX)E to pay the one time fee, plus in the interest of increased emimmic amount of property and decontamination interest accrued until date of pa) ment, no efficiency LP&L and NOP51 haw darkipal expense insurance anilable for nuclear earlier than 1998. AP&L has recorded the a long-term plan to comolidate the twn generating plants increased to 51.525 approximately $71 million including companies and their operations. L'nder the billiort With this increase, the untrage accrued lmerest at December 31,1987, proposed arrangement, subject to the anilable ahmr the amount required necewary for payment to the DOE for the receipt of necessary regulatory and other by the NRC to be set aside for reactor disposal of all spent nuclear fuel on hand appnw2h, the twu a>mpanies wuuki be stabilization and cleanup is $465 milliort at Apnl 6,1981 In addition to the rectnery comolidated into a new company to be liownrr, the Middle South 5ptem h of ants awociated with the disposal of called touhlana Power & Ught Company unable to predict what effect the NRC's spent nuclear fuel, AP&L h reanering a M5l'. which currently owns a'l the new regulation may haw at the time when total of ariproxinutely $160 million for outstanding (ununon stock of If&L and insurance procenh would be nude decomr.nweing costs for its two nuclear NOP51, wuuld own all the common stock anilah!c to any a#ected sprem company units. liased upo1 a study performed by of the new company While functiorul or the trustee for the hondholders of APal, nuckar plua decommissioning cc 23 comolklation,in ternis of nunagement and such affected sprem company are pnkted to be in exsen of this personnel has already tren achined in a anmunt. AP&L h re luedng reonery of nurnber of areas 1(yal mmumnution of the Spent Nuclear Fuel and Decommissioning Costs eminatni inneased ,n and authorization conwlidation h not expeded to be t'nder the terms of their nuclear fuel in menul ms in an appucats ach in the war futum leaws, AP&L IP&l, and 5ERI are reyon-are presently reantring annually a tatal of a;proxinutely $2.1 millkm and $1 1 millkm, respeantly, for d(commiuioning costs for l their respn1hr nuclear units 4 a i {
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j*. _[ , f . . M: [ .; ;; o L;; . : wr dM. f.:A 0 ' L,,,# 4 d6f E . Prior to 1987, the Company's operating Excluded from the preading anumnts at assumed that such credit lines will either be subsbaries accounted for leases entertM into December 31,1987,is approxinutely $397.9 extended pursuant to agreements subsc-before 1983 as operating leases, consistent million recorded in connection with nuclear quently negotirted or that alternathe new with the basis used in the ratemaking fuel leaws. lines will be semred. In February 1988, SERI process. The Gimpany's operating sub- At December 31,19F7, the Sptem entered into a new nuclear fuel lease for up shliaries account for capital leases entered companies had noncancelable leases to $50 million.The lease exterxis for one into subsequent to 1982 in accordance with (excludmg nuclear fuel leases) with 3rar with monthly extensions thereafter until 5FAS No,13 and 5FAS No,71. minimum rental commitments as follows: notice is ghrn by one of the parties thereto. Ik ginnmg in 198', cumpliance with SFAS Capital Operating 1. case payments are based on nuclear fuel i i No 71 for pre 1983 capital leases required If**C5 I#1'C5 use. Nuclear fuel lease expeme of $190.8 the recording of assets and liabilities on (in thouunds) million, 8161.4 million, and $111.8 million 1988 5 29,793 $ 54,12I was charged to operations in 1987,1986, and the balance sheet with respect to such leases. 1989 30,302 48,227 1985, respecthrly. The unrecowred cost l The recording of these capital leaws did 1990 28.816 37,394 ba3c of the leases was $397.9 million, 5 410.8 ! not affect the amounts reported as either 1991 26,387 31,037 million, arvi 3400.1 million at December 31. l ex;nnses or net income. The assets and 1992 22,345 29,821 1987,1986, and 1985, respecthrly. liabilities aw>ciated with these leases at Years thereafter 173,391 189,358 December 31,1987, are prewnted below. Am shown are thos amounts which wuuld Minimum rental haw been included on the balance sheet at commitments __ 311,066 $389.958 December 31,1986, had earlier compliance los: Anwont with SFAS No. 71 ly:en adepted. representing interest 147 708 198" 1986 Present value of net (in thouunds) minimum lease Aswts: paymc nts $ 163.356 l'tility plant $ 134,518 $ 142.911 Acamulated R ntal expense for capital and operating amort >ation (36.393) (40.012) leases (excluding nuclear fuel leases) Net 5 98.125 8102.899 anv>unted to approximately $77.6 million, Other progwrty 576.6 million, and $70.5 million in 1987, and imrst- 1986, and ;985, respecthely ments - net 5 45,237 5 47,151 Three subsidiaries haw entered into liabilities: nuclear fuellea3es aggregating $423.7 million as of December 31,1987, Credit lirws Noncurrent obli. gatiom under supporting twu of these nuclear fuel leases cap;tal leases $135,799 $141.224 terminated in 1987 and the affected sub-sidiaries are in the process of attempting to
.umt Mga. obtain new lines of credit.4hile fuel tiom under capital lears 5 7,564 5 13. 02 I #'#" 'I " ## "" #'#' ""I omiinue to be k awd until September 1,1990, and June 1,1991, re pectnely, no new fuel nuy be leas ed unk ss new lines of credit are obtairwd The cretht lines supporting the renuining nuclear fuel leases are currently schedukd to termirute in 1988. It h currently 45
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<M_ Lwagauw _ w4 in December 1986, the I AS11 iwued SEb SI As Na 90 will imt hee any current The mmpanies of the Middle South Sprem Nu 90, Regulate 1 i nterprises - Aconanting effect upon SLR1 in light of the decision to hast variom pntretirtment benefit plans for Abandonnwnts and Diclknvances of continue suspension of Grand Gulf 2 The cos cring substantially all of their employres.
Plant Cants an amendment of Si'AS Nu *t. pnnisions of SEU Na 90 wuuld spply The pen ion plam are noncontributory SEb Na 90 prtnides that, when an should $ERI decide to abandon Grand and pnnide pension benefits that are based abandonment of a plant or a dnallowance Gulf 2 and would result in $1 R1 rtwrding a on the employres' credited senice and of casts with r :sgwct ta a newly compkted low for any unreanered amount. ;ntrage compensation, generally during the plant becot? s pnM , the following in Nostmber 1985, the LPsC granted last five ) cars before retirement.1he polig amounts net W related tax txw 6tt would LP&L a rate increase subject to LP&L of the Company and its subsidiaries is to be reported either by restating the agreeing to pernunently absorb and not fund pension costs in accordance with appnprute prior 3rars' finarxi, statenwnts rectner from it> retail ontomers $28 6 contribution guidelines estahtished by the or by clurgirt . drm against nu cent irwtnr million (of whkh the LINCs juriwlictiorul Emplo>re Retirement income knirity Act (1) t ic oN of an abandoned plant in portion is appnninutely 52*6 9 million) of of 1974. cxcew of the present value of estimated itWaterford 3 unty LP&L has chosen to Pension plans are administcred by a reoncries, or (2) the amount of a partial adopt the prtnisium of SEB Na 90 in 198' trustee w ho is responsible for pension dnallowance by regulators of a recently and has restated prior yeari financial paycients to retireesMarious imrstment completed p! ant for ratemaking purposes. statements to reflect application of the new managers have respomibilit c for manage. The new statement is ct!ccthe for thcal statement. ment of the plans' auets. In addition, an 3rars beginning after December 15,198', The following table illustrates the indqwndent actuary performs the necessary with retroacthr application for prior cffects of adoption ef SEO No 90. actuarial valtution for the indnidual tranuctions. l~or the yrars ended December 31, company plans Tbtal pcmion cost of the Company and 1986 1985 ts subsidiarie% for 1987,1986, and 1985 Net income rqorted before application of (in thousands) was 51 million (includes miscellaneous
$1.0 No 90 $i51302 5 m 99I imnutcrial ad fustnwnts not reflected in Adrustments to operating income; the table that follm). 513A million. arni Depreciation presiously taken ______ __ _ _ 6,923 1.88 51'.I million, re pecthrly.
Rel tied income tnes ( net )* ( 3,*71 ) (635) The Company and its subsidiaries Total ~(152 1.243 #U# " ^' for Pensions, effecthe January 1,1987 Ad;ustments to other income- Adoption of SEb No 8' reduced 1987 . Retared inaime tnes (net)* 11 5 pen ion ont by approumately 59.3 milnort I Disallow ed a nts Total 1987 pemion cost of the Company and i Direct dnallowance - ___ _ _ _ _ - - _ _ - _ _ _ _ (2*6.900) its sutwidiaries. including amounts capital-Related income tnes' - 90.259 iied, included the following mmponents. Total - ( l86f>41 ) (In thouunds) knice cost - benefits earned Change in net income 3.163 (185.393) during the period _ 5 18,501 Net income (as restated )" 5454J65 5215.598 Interest etnt on projeded hencfit obligation _ _ _ 38.280 larnings per ecrage common share: Actuai return on plan awett (19.554) liefore apphcation of SEO No. 90. _. - - . 52 21 52 01 Net miimion and I!!ccis of SEb Na 90 0 01 (0 93) deferral (38?13) After application of SEu No 90 52 22 51 08 Net remion etnt (income) 5(lA86)
'lkpm,I t<tres nlatal to tiv %terfun!.1 shsalinu ance lute Iwn(wt slalat rates thst. un.hr amvnt tsu latn arv effnrttu e u hen the tsu lusts of theplant is dqmistol The a"cts of the plam comist prinurity
( #6 L in r#i arul /%% Mt. in IWF arul.1 J l thmufhr) to detennine tiv net of common and preferred stmks, fited nuh:..hle ruhee of tly t.u benefit. income wasntics interest in a nunn nunct rund, and insurante mntracts 'clunges on net incorne rvsultol sn a ainndatu e adjmtment to lhwnher.fI.1%% rrtainot n amings of 1IM2 2 nuthon 46
1he funded status cf the (onpany's expected long term rate of return on plan that the refunds he nude as folkms the urkxn pemion plam at Decemtwr 31,1987, awts was 8.5% Tramition awts are twing $587 million recchrd by IPAL on June 4, is as folknvs amottlied oser the greater of the remaining 19H2 plus interest,or a total of $637 l senice period of adhr partkipants or 15 million, he refun&d in 1983, the $250 (In thouunds)
~ Actuarial prewnt ulue of >rars lhe actuarial present nlue of the million receised inJanuary 1983 he accumulated pension accumulated plan benefits at January 1,1986, refunded in 10 equal annual imtallnwnts plan benefits was $322.5 million (of wtuch $1".5 million trginning in 1984: and the $250 million
. Wsted 5 349,437 was nomrsted), conparn! with net awets recched in January 1981 be refunded in Nomested 26.680 anilable for pemion benefits of 5534.2 nine equal annual installnrnis irginning in nullion. The awumed rate of return used in 1985. In addition,in February 1984 the Accumulated benefit 5 376,t17 determining the actuarial present nlue of IJ5C orderniIP&L to refund 532.6 mi!!k>n.
obligabon accumulated plan benefits at that date npresenting interest not already unrred in Pngted benedt w as 9% its hlarch 19H3 refund order, to customers obliption 8 469,141 in equal annual installnwnts mer a rune-yrar 1he $ tem companin also pnnide Plan assets at fair ulue 589,959 [wrksitrginning with the 1985 refund, As certain health care and life imurance Plan assets in excess of benefits for retired employres. Substantially a re uit of the IJ5C orders, LP&L accrued in progrcted benefit all emplo>res nuy become eligible for thne 1985 net internt expeme in the amount of obliption 120.818 benefits if they reach retirenwnt age while 50.2 milhon. No accruals were required for l'nrecognued prior senice still wurking for the Sptem companies. 198' and 19H(t lhrough Decemler 31,198', cost __ 2.206 These benefits and similar benefits for acthe LP&L tud refunded a total of approximately L'nrecognized tramition emplo>res are prtnidal through nrkxn $826 million to its notonrrs. awet (126,440) means including papnents of premiums to A settknwnt har been negotiated l'nreugni/cd net pin (30,546) insurance companies and f or accruals for heturen NOISI and a ps supplier in Accrued pcmion liability 5 (33.962) self insurance palicies rnanagni by imurance long+tanding litigatkin stemming from the companies. The ctnt of pnniding these gas supplier's failure to delhrt oblipted , lhe neighted astrage dncount rate and benefits for retiren h not separable from quantities of rutural ps for pourt pir,t use rate ofincrease in future compenution used the cost of pnniding benefits for acthe during the perkid 1973 75. A chil dhtrict in determining the actuarial present nlue emplo>res 1hc total cost of pnniding these court appnnrd the settlement on August of the projeded benefit obhption were benefits and the number of acthe enployro 18,1987, whkh will result in the refurd of ; generally 9 0% and 5 6% respedively The and retirees for the last three > rats were: approxinutely 573 million to electric notonwrs senrd by NOi51 in that time pas' 19s6 1985 frame, lhe court's judgment h final and no longer subject to appeal Announcement of Total emt of health care and life imurance
$ 32,133 $ 25.718 519,771 the =cttk ment was made in iebruay 1987.
( in thouunds) ___ _ --.__- [ Numhrt of acthe enployres - 13,560 13.307 13.214 It h espected that this refund will be made 3.098 2.9N3 2,577 during 1988. Numhrt of retirees - luu lawwits betwren SIPAL arm a gas suppher arisHg from 51P&l's claim that the ps suppher breached the ternw of a ps D7 win agreenwnt wrre settkd by the E
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6 settlement agreenrnt onJune 4.1982 The c%euition of a settlenwnt agreement betaren the partimm Mptemfer 25,1985. 4 :: :,, , j Settlement agreenrnt pnnidn for the in (onnedion with thh - Mtlement, SIP & L payment of 5108' Nihon in cash (of whkh gg ;m gg hl 55H' milhon. 4250 m*llion, and $ 250 million were retrned by I P&L in June reoised $165 nulhon in kptember 1985 and .tn addition.d 517.5 million in i 190,2, January 1983, and January 198 6. kptc mber 1987 from the ps suppher In A ditute bcturen a ps suppher and respeantly ) p!m a gturanty of sasings of 19M", pursuant to a plan of dhtrdution IP&l arning from the ps suppl cri clainwd at least $585 million in certain ps prn ornly estabhstwd by the MISC, SIP &L inaNhry to delhcr full ytuntitin of foci ps acquhition onts between 1982 and 1996 rehnJni, in(luding internt, approsinutely l due IP&l. under sorral rutural ps ' mntracts was settied by the esecution of a In Marth 1983, the IPZ ordered $196 3 milhon to fornwr wtmlesale and currem retail tustonwrs , 4-
. ?; ,'K57 m_ .
Conolidated operating results for the four quarters of 198' and 19Fl> were as follows: Quarter Operating Operating Net Earnings l-noed Rewnues Income' income' Per Share
- 1987- (in thousands except per share annunts)
Starth _ $ 769,650 $268,414 3100,707 5 0.49 Jane - ! 831,617 8258,753 5 91,451 5046 September $ 1,075,019 $350,086 8186,391 5 0.91 December 8 778,504 8132,803" 5(24,9 68)" $(0.12)" 1986; Starch _ $ 8W,809 $297,487 5115,378 $0.56 June 5 810,795 $283,451 3101,184 $0.51 M premtwr _ $ 1,073,400 $350,731 $ 172,286 $0 81 Decemixr S 796,908 5233,728"' 5 62.617'" $0 31"'
' Restatal to nf1wt the ach$> tion of SEU No. 90 ' inchutes the net effert of( /) the u site <fofADIMpnuhisce disallou unce ofafymainuttely I'2 9 milh<m, arul(2) the disamlin tamce of uitterfontJ rate defernds oftgymaimately $24 4 rmthon.
'
- Inclu ks the net e))itt of artain usite<fs rmmialin the ytuarttr erulatihremb<r31, l'A% ofcqfirtninuttely $19 6 nulhon er
$U 10psv sbarr.
fhe business of the Stick 11e South System is sub;ctt to scannal fluttuathms with tlx peak period tuurring dunng tir summer months Accordingly, earn.ngs information for any three month period should not be considered as a basis for estimating results of <perations for a full 3rar. Selected Firutnetal Data-rive-Year Comparison (In thouunds, execpt per share annunts) 1987 1986 1985 1984 1983 Net operating restnues. $ 3,454,820 s 3,485,912 8 3,238,459 5 3,146.035 8 2,909,657 Net income $ 356,604 8 454.465 8 215,598 8 508,437 8 378 050 Earnings per srt.re $ 1.74 8 2 22 8 1.08 8 2.86 8 2.46 Dnidends declared per share _._ - - 8 0 89 8 1.75 8 1.7 i Total assets $15,156,832 514,090,431 813,390,015 $ 12,565,546 811,107,166 fong-term debt (excluding current rnaturities) $ 5,945,054 s 5,983,029 8 5,680,590 8 5,865,304 8 5.032,175 Preferred st(d with sinking fund $ 496,405 8 508,165 8 467,293 $ 476,928 8 429/4)1 4M
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{ ,L9 gign4N *f.m w b L,Lauru. .1 . - __a MSU DIRECTORS MSU OFFICERS William C. Battle leitoy P. Perry Edwiri Lupberger Cotton farmer; Chairman of the Boards of Chairman and President. Age 51. Joined the Retired President and Chief Executhe Officer of Fieldcrest Mills, Inc., hy, Virginia; Mississippi Chemical Coinparty and First MSU S) stem in 1979. Sixteen > rats prior Mississippi Corporation: President of utility industry senice. Chairrnan of the Scard of W. AhonJones Cell Sciew Center. Finance and Public ' Greemille Compress Co., Greemille' W111La n Cavanaugh til Affairs Committees. Mississippi. Executhe, Nuclear (Gairman), Senic.t Vice President,5) stem Execuche - and Personnel Committecs' Nur. lear. Age 49. Joined the SiSU S) stem W. Frank Blount President, Network Operations Group, Itobert D. Push in 1%9 AT2T Company, Basking Ridge, NewJersey. Chairman of the Board of Portland Gin ,}ohn L Cowan Audit, Nuclear, and Personnel Committees. Company (agricultural and agribusiness), Senior Vice President,5) stem Executhe - P nlami a Pontand AgrNt Finance. Age 60. Joined the MSU System in John A.CooperJr. Cwpwahn, PonW Arkansas Executin, 1987, henty 3rars prior experience in President of Cooper Communities, Inc., Finance, W PcNnnel Annan) financial executhe positions with seural Bentomille, Arkansas. Executhr, Finance
**I""* major companies.
(Chairman), and Nuclear Committees. H. Duke Shackelford Jerry D. Jackson Brooke H. Duncan President of Wckeywd Ca, Inc., President of Foster Company,Inc., New. Senior Vice President,5) stem Executhe - Shackelford Gin, Inc., and laulslana Irgal and External Affairs. Age 43. First Orleans, louisiana. Executhe, Finance, and Conwi Warchwse Ca Im'.; Wnnan of joined the MSU System in !?79. Public Affairs (Chairman) Committees. Union Oil Mill, Inc. (all agricultural and Kaneaster HodgesJr. agribusinesses), Bonita, loulslana. Jack L King Attorney, Newport, Arkuisai Audit Senior Vice President,5) stem Executhe - Personnel and Public Affairs Committees. (Chairman), Nuclear, and Public Affairs Operations Age 48. Joined the M5U System vm. CllNord Smith in 1966. Committeet President of T. Baker Smith & Son,Inc., Edwin Lupberger and Energy liclicopters, Inc., llouma, H. Susart Ball touisiana. Audit, Nuclear, and Public Treasurer. Age 44. Joined the MSU S) stem Chairman and President of Middle South Utilities, Inc., New Orleans, Louisiana. In 1985. Affairs Committees. Executhe (Chairman), Nuclear, and Daa E. Stapp Dr. Walter Washington President of Alcorn State Unhersity, Sectrtary Age 53. Joined the MSU 5) stem torman, Mississippi. Audit and Public in 1958. James R. Nichols Partner of Nichols and Pratt Affairs Committees. Dorothy M. Antoine (Family Trustees) and Attorney, Boston, Assistant Secretary Age 55. Join -d the MSU Massachuwtts. Audit and Finance S)vem in 1952 Committeet
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Annual Meeting Transfer Agent and Reghtrar Annual Report and lorm 10 K are The 1988 Annual Meeting of Stockholders Morgan Shareholder Senices1tust anilable in the Company's 1987 Firuncial and Statistical Resiew, which will be - will be held at to a.n. (CDT) on May 20, Conpany is the transfer agent and registt at 1988, G the Ililton flotel, New Orleans, for MSU. All curropondence concerning anilable for distribution inJune, Copies 1 misiana. A notice of the meeting and the issuance or transfer of common stock of the Resiew may be obtained by contacting proxy material will be nuiled on or about certificates should be directed to. System Imtstor Relations at the address April 15,1988, to stock!wk! cts cf record Morgan Shareholder Senices as of the chise of business on April 11, 1)ust Conpany Investor Relations 1988. A badge for admission nuy be obtained Stock Tr nsfe d the meeting regiuration desk. Stock- 30 West Broadway holders whose shares are held in "street kew York, New York 10007-2192 name i c., la the name of their broker, S)Mem's perf nuance to institutional must present a letter from their broker Form 10-K imestors, security analysts, regivered indicating ownership of the Conpany's The Middle South Utilitics System 1987 represe ntathes, and indhidual imrstors. mmmon stock as of April 11,1988. Annual Report to the Semtities and System Imtstor Relations may be contacted EWnge Commission on Form 10 K by writing or calling: Stockholders of Record (inchiding financial statement schedules) Middle South Utilitics, Inc. At the ckise of 1987, there were 104,226 h available to stockholders upon request. 5) stem Imestor Relatiom Cockholders of record of Middle South To recche a copy without charge, RO, Ikix 61005 Utilities,Inc. A total of 204,581,092 shares New Orleans, Inuisiana 70161 call or write to: were outstanding. Dan E. Stapp, Secretary (50 0 529 5262 DhMends Middle South Utilities, Inc. Exchange Listings Declaration of a quarterly dhidctwl lus PO. Ik3x 61005 heen omitted $1nce the second quarter of New Orleans, louisiana 70161 The common stock of Middle South l'tJ1ities, Inc, is listed and traded on the 1985. The Directors and matugement of (504) 529 5262 Middle South Utilities are committed to New York, Midwest, and Scific Rock "8" 8 8 '* exclunges.The ticker symbol for the reinstring a dhidend as soon as pmdently powihte, as stated in the Cluirman's Irtter liivorical stativics and financial Conpany is MSU. Newpaper stock table of this report. inf rmath>n supplemental to the 1987 listing is MidSUt. Stockholder Inquiries All currepondence concerning stockhokler Composite Common Stock Prices by Quarters records should be directed to: 1987 Price Range First Second Third Fourth Middle South Utilities, Inc. Iligh-low $16% 13 514 % 10 S I1%-9% Silh 74 C#' 1986 Price Range EO. liox 61236 New Orkw, Louisiana 70161 liigh-inw 513 % 10 % $14% 12% $1512 514% 12 % Middle South Utilities, Inc. Post Office Box 61005 New Orleans, Inuhlana 70161}}