-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LwD0wzMRs+tJmneg8fzWvxUBu45pD6Z/BaMcJRoYX5QJQySM9tcRwcaqWEnTCKJa R/qJm1AWlKygg/sXhXDhEQ== 0000041091-98-000021.txt : 19980305 0000041091-98-000021.hdr.sgml : 19980305 ACCESSION NUMBER: 0000041091-98-000021 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980211 ITEM INFORMATION: FILED AS OF DATE: 19980304 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: GEORGIA POWER CO CENTRAL INDEX KEY: 0000041091 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 580257110 STATE OF INCORPORATION: GA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-06468 FILM NUMBER: 98557433 BUSINESS ADDRESS: STREET 1: 333 PIEDMONT AVE NE CITY: ATLANTA STATE: GA ZIP: 30308 BUSINESS PHONE: 4045266526 8-K 1 FORM 8-K SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported) February 11, 1998 ---------------------------- GEORGIA POWER COMPANY - ------------------------------------------------------------------------------ (Exact name of registrant as specified in its charter) Georgia 1-6468 58-0257110 - ------------------------------------------------------------------------------ (State or other jurisdiction (Commission (IRS Employer of incorporation) File Number) Identification No.) 241 Ralph McGill Blvd. NE Atlanta, Georgia 30308 - ------------------------------------------------------------------------------ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (404) 526-6526 ---------------------- N/A - ------------------------------------------------------------------------------ (Former name or former address, if changed since last report.) Item 7. Financial Statements and Exhibits. (c) Exhibits. 23 - Consent of Arthur Andersen LLP. 27 - Financial Data Schedule. 99 - Audited Financial Statements of Georgia Power Company as of December 31, 1997. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GEORGIA POWER COMPANY By /s/ Wayne Boston Wayne Boston Assistant Secretary Date: March 4, 1998 EX-23 2 ARTHUR ANDERSEN CONSENT Exhibit 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report dated February 11, 1998 on the financial statements of Georgia Power Company, included in this Form 8-K, into Georgia Power Company's previously filed Registration Statement File Nos. 33-60345 and 333-43895. /s/Arthur Andersen LLP Atlanta, Georgia February 26, 1998 EX-27 3 FINANCIAL DATA SCHEDULE
UT This schedule contains summary financial information extracted from the financial statements filed as Exhibit 99 and is qualified in its entirity by reference to such financial statements. 0000041091 GEORGIA POWER COMPANY 1,000 12-MOS DEC-31-1997 DEC-31-1997 PER-BOOK 10,103,900 307,297 1,001,741 1,160,790 0 12,573,728 344,250 1,930,131 1,745,347 4,019,728 689,250 157,247 2,896,555 142,300 0 223,930 220,460 0 86,280 395 4,137,583 12,573,728 4,385,717 426,918 3,097,685 3,524,603 861,114 16,788 877,902 264,979 612,923 18,927 593,996 520,000 196,378 1,371,828 0 0
EX-99 4 AUDITED FINANCIAL STATEMENTS MANAGEMENT'S REPORT Georgia Power Company 1997 Annual Report The management of Georgia Power Company has prepared this annual report and is responsible for the financial statements and related information. These statements were prepared in accordance with generally accepted accounting principles appropriate in the circumstances, and necessarily include amounts that are based on the best estimates and judgments of management. Financial information throughout this annual report is consistent with the financial statements. The Company maintains a system of internal accounting controls to provide reasonable assurance that assets are safeguarded and that the books and records reflect only authorized transactions of the Company. Limitations exist in any system of internal controls based upon the recognition that the cost of the system should not exceed its benefits. The Company believes that its system of internal accounting controls maintains an appropriate cost/benefit relationship. The Company's system of internal accounting controls is evaluated on an ongoing basis by the Company's internal audit staff. The Company's independent public accountants also consider certain elements of the internal control system in order to determine their auditing procedures for the purpose of expressing an opinion on the financial statements. The audit committee of the board of directors, which is composed of four directors who are not employees, provides a broad overview of management's financial reporting and control functions. At least three times a year this committee meets with management, the internal auditors, and the independent public accountants to ensure that these groups are fulfilling their obligations and to discuss auditing, internal control and financial reporting matters. The internal auditors and the independent public accountants have access to the members of the audit committee at any time. Management believes that its policies and procedures provide reasonable assurance that the Company's operations are conducted with a high standard of business ethics. In management's opinion, the financial statements present fairly, in all material respects, the financial position, results of operations and cash flows of Georgia Power Company in conformity with generally accepted accounting principles. /s/H. Allen Franklin H. Allen Franklin President and Chief Executive Officer /s/Warren Y. Jobe Warren Y. Jobe Executive Vice President, Treasurer and Chief Financial Officer February 11, 1998 1 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors of Georgia Power Company: We have audited the accompanying balance sheets and statements of capitalization of Georgia Power Company (a Georgia corporation and a wholly owned subsidiary of Southern Company) as of December 31, 1997 and 1996, and the related statements of income, retained earnings, paid-in capital, and cash flows for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements (pages 11-31) referred to above present fairly, in all material respects, the financial position of Georgia Power Company as of December 31, 1997 and 1996, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. /s/Arthur Andersen LLP Atlanta, Georgia February 11, 1998 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Georgia Power Company 1997 Annual Report RESULTS OF OPERATIONS Earnings Georgia Power Company's 1997 earnings totaled $594 million, representing a $14 million (2.4 percent) increase over 1996. This earnings increase resulted primarily from lower operating expenses, lower financing costs, and increased non-operating income, partially offset by lower retail revenues and additional depreciation charges pursuant to a Georgia Public Service Commission (GPSC) retail accounting order discussed below. Earnings for 1996 totaled $580 million, representing a $29 million (4.7 percent) decrease from 1995. Earnings for 1995 included an after-tax gain of approximately $12 million from the completion of the sale of Plant Scherer Unit 4. The remaining decrease in 1996 earnings was primarily due to increased operating and maintenance expenses, partially offset by lower interest charges compared to the prior year. Revenues The following table summarizes the factors impacting operating revenues for the 1995-1997 period: Increase (Decrease) From Prior Year ----------------------------------- 1997 1996 1995 ----------------------------------- Retail - (in millions) Sales growth $ 62 $ 58 $110 Weather (74) (25) 69 Fuel cost recovery (30) 28 66 Demand-side programs (3) (10) 36 - ------------------------------------------------------------------ Total retail (45) 51 281 - ------------------------------------------------------------------ Sales for resale - Non-affiliates 1 (9) (61) Affiliates 3 (41) 16 - ------------------------------------------------------------------ Total sales for resale 4 (50) (45) - ------------------------------------------------------------------ Other operating revenues 10 10 7 - ------------------------------------------------------------------ Total operating revenues $ (31) $ 11 $243 ================================================================== Percent change (0.7)% 0.3% 5.8% - ------------------------------------------------------------------ Retail revenues of $4 billion in 1997 decreased $45 million (1.1 percent) from 1996 primarily due to milder-than-normal weather, as well as commercial and industrial customers taking advantage of load management rates. Retail revenues in 1996 increased $51 million (1.3 percent) over the prior year primarily due to strong economic growth and an increase in sales to existing customers. Fuel revenues generally represent the direct recovery of fuel expense, including the fuel component of purchased energy, and do not affect net income. Revenues from demand-side option programs generally represent the direct recovery of program costs. See Note 3 to the financial statements under "Demand-Side Conservation Programs" for further information on these programs. Wholesale revenues from sales to non-affiliated utilities increased slightly in 1997 and were as follows: 1997 1996 1995 ------------------------------- (in millions) Outside service area - Long-term contracts $ 71 $ 84 $ 98 Other sales 80 37 25 Inside service area 132 161 168 - -------------------------------------------------------------- Total $283 $282 $291 ============================================================== Contractual long-term sales to Florida utilities for 1997 and 1996 are down primarily due to scheduled reductions in the amount of capacity under those contracts. See Note 7 to the financial statements for further information regarding these sales. Revenues from other sales outside the service area increased in 1997 and 1996 primarily due to power marketing activities. Wholesale revenues from customers within the service area decreased in 1997 and 1996 primarily due to a decrease in revenues under a power supply agreement with Oglethorpe Power Corporation (OPC) and, in 1996, recognition of a refund to these customers. OPC decreased its purchases of capacity by 250 megawatts each in September 1996 and 1997 and has notified the Company of its intent to decrease purchases of capacity by an additional 250 megawatts in September 1998 and 1999. Revenues from sales to affiliated companies within the Southern electric system, as well as purchases of energy, will vary from year to year depending on demand and the availability and cost of generating resources at each company. These transactions do not have a significant impact on earnings. 3 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Georgia Power Company 1997 Annual Report Kilowatt-hour (KWH) sales for 1997 and the percent change by year were as follows: Percent Change --------------------------- 1997 KWH 1997 1996 1995 ------- ----------------------------- (in billions) Residential 17.3 (3.0)% 3.0% 10.4% Commercial 21.1 1.5 4.9 5.9 Industrial 26.7 1.9 3.6 3.9 Other 0.6 0.4 8.6 2.0 ------- Total retail 65.7 0.4 3.9 6.2 ------- Sales for resale - Non-affiliates 6.8 (13.6) 19.4 (17.3) Affiliates 1.7 44.6 (56.9) (10.4) ------- Total sales for resale 8.5 (6.0) (3.0) (15.4) ------- Total sales 74.2 (0.3) 3.0 2.8 ======= - ---------------------------------------------------------------- Residential sales declined 3.0 percent while sales to commercial and industrial customers increased slightly by 1.5 percent and 1.9 percent, respectively. Milder-than-normal temperatures experienced in 1997 contributed to the moderate sales. Residential, commercial and industrial energy sales growth in 1996 reflected strong economic growth and an increase in sales to existing customers. Expenses Fuel costs constitute the single largest expense for the Company. The mix of fuel sources for generation of electricity is determined primarily by system load, the unit cost of fuel consumed, and the availability of hydro and nuclear generating units. The amount and sources of generation and the average cost of fuel per net kilowatt-hour generated were as follows: 1997 1996 1995 -------------------------- Total generation (billions of kilowatt-hours) 66.5 63.7 64.3 Sources of generation (percent) -- Coal 74.8 74.3 73.7 Nuclear 21.8 22.4 22.6 Hydro 2.7 2.7 3.0 Oil and gas 0.7 0.6 0.7 Average cost of fuel per net kilowatt-hour generated (cents) -- Coal 1.53 1.55 1.67 Nuclear 0.52 0.55 0.60 Oil and gas * * * Total 1.32 1.35 1.44 - -------------------------------------------------------------- * Not meaningful because of minimal generation from fuel source. Fuel expense increased 2.6 percent in 1997 primarily due to an increase in generation, partially offset by a lower average cost of fuel. Fuel expense decreased 7.3 percent in 1996 because of a decrease in generation resulting from the timing of maintenance at nuclear plants and a lower average cost of fuel. Purchased power expense decreased $66 million (17.1 percent) in 1997 primarily due to decreased purchases from affiliated companies and declines in contractual capacity buyback purchases from the co-owners of Plant Vogtle. Purchased power expense increased $72 million (22.8 percent) in 1996 primarily due to increased purchases from affiliated companies as a result of the timing of maintenance at nuclear plants discussed above. The increase in 1996 was partially offset by a decrease in energy purchases from wholesale customers within the service area and declines in the Plant Vogtle contractual capacity buyback purchases. Under the terms of the 1991 GPSC retail rate order, the 4 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Georgia Power Company 1997 Annual Report declines in the Plant Vogtle contractual capacity buyback purchases were levelized over a six-year period ending September 1997. The levelization is reflected in the amortization of deferred Plant Vogtle costs in the Statements of Income. See Note 1 to the financial statements under "Plant Vogtle Phase-In Plans" for additional information. Other operation and maintenance (O&M) expenses, excluding the provision for separation benefits, decreased 4.1 percent in 1997 primarily due to initiatives in 1996 to reduce fossil generation materials inventory levels and an adjustment in 1996 to deferred postretirement benefits to reflect changes in the retiree benefits plan. Other O&M expenses increased 2.9 percent in 1996 primarily as a result of the inventory initiatives and the adjustment to deferred postretirement benefits discussed above, and increased costs under a three-year retail accounting order effective January 1, 1996. See Note 3 to the financial statements under "Retail Accounting Order" for additional information. Depreciation and amortization increased $140 million in 1997 and $11 million in 1996 primarily due to accelerated depreciation of generating plant pursuant to the retail accounting order and an increase in plant-in-service. The Company has deferred certain expenses and recorded a deferred return related to Plant Vogtle under phase-in plans. The amortization of deferred Plant Vogtle costs reflects the completion in September 1997 of the amortization of the levelized buybacks and the Plant Vogtle Unit 1 cost deferrals under a 1987 GPSC order. See Note 1 to the financial statements under "Plant Vogtle Phase-In Plans" for information regarding the deferral and subsequent amortization of costs related to Plant Vogtle. Other income increased in 1997 and decreased in 1996. The increase in 1997 is primarily due to increased tax benefits from losses of the parent company allocated to the Company under the joint consolidated income tax agreement between Southern Company and its subsidiaries. See Note 8 to the financial statements for additional information. The decrease in 1996 is primarily due to expenses in connection with the 1996 Summer Olympic games and the completion of the sale in 1995 of Plant Scherer Unit 4, which resulted in an after-tax gain of approximately $12 million. Total financing costs decreased in 1997 and 1996. These changes were primarily due to the refinancing or retirement of securities. The Company refinanced or retired $701 million and $510 million of securities in 1997 and 1996, respectively. Interest and other charges increased $17 million (6.8 percent) and decreased $52 million (17.4 percent) in 1997 and 1996, respectively. While the issuance of additional mandatorily redeemable preferred securities in August 1996, January 1997 and June 1997 increased interest and other charges by $32 million and $6 million in 1997 and 1996, respectively, dividends on preferred stock decreased $26 million and $3 million in 1997 and 1996, respectively. Effects of Inflation The Company is subject to rate regulation and income tax laws that are based on the recovery of historical costs. Therefore, inflation creates an economic loss because the Company is recovering its costs of investments in dollars that have less purchasing power. While the inflation rate has been relatively low in recent years, it continues to have an adverse effect on the Company because of the large investment in long-lived utility plant. Conventional accounting for historical cost does not recognize this economic loss nor the partially offsetting gain that arises through financing facilities with fixed-money obligations such as long-term debt and preferred stock. Any recognition of inflation by regulatory authorities is reflected in the rate of return allowed. Future Earnings Potential The results of operations for the past three years are not necessarily indicative of future earnings. The level of future earnings depends on numerous factors including regulatory matters and energy sales. The Company currently operates as a vertically integrated utility providing electricity to customers within its traditional service area located in the state of Georgia. Prices for electricity provided by the Company to retail customers are set by the GPSC under cost-based regulatory principles. On January 1, 1996, the Company began operating under a three-year retail accounting order. Under the order, the Company's earnings are evaluated against a retail return on common equity range of 10 percent to 12.5 percent. Earnings 5 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Georgia Power Company 1997 Annual Report in excess of 12.5 percent will be used to accelerate the amortization of regulatory assets or depreciation of electric plant. At its option, the Company may also recognize accelerated amortization or depreciation of assets within the allowed return on common equity range. The Company is required to absorb cost increases of approximately $29 million annually during the order's three-year operation, including $14 million annually of accelerated depreciation of electric plant. During the order's operation, the Company will not file for a general base rate increase unless its projected retail return on common equity falls below 10 percent. Under the approved order, on July 1, 1998 the Company will make a general rate case filing in response to which the GPSC would be expected either to continue provisions of the accounting order or adopt different ones. See Note 3 to the financial statements under "Retail Accounting Order" for additional information. Growth in energy sales is subject to a number of factors which traditionally have included changes in contracts with neighboring utilities, energy conservation practiced by customers, the elasticity of demand, weather, competition, initiatives to increase sales to existing customers, and the rate of economic growth in the Company's service area. Assuming normal weather, retail sales growth is projected to be approximately 2 percent annually on average during 1998 through 2000. Beginning in September 1997, OPC decreased its purchases of capacity under a power supply agreement by 250 megawatts and has notified the Company of its intent to decrease purchases of capacity by an additional 250 megawatts each in September 1998 and 1999. As a result, the Company's capacity revenues from OPC will decline by approximately $26 million in 1998, an additional $25 million in 1999, and an additional $18 million in 2000. Under the amended 1995 Integrated Resource Plan approved by the GPSC in March 1997, the resources associated with the decreased purchases in 1997 and 1998 will be used to meet the needs of the Company's retail customers through 2004. The Company has entered into a 30-year purchase power agreement whereby the Company will buy electricity from a 300 megawatt cogeneration facility, starting in June 1998. Capacity and fixed O&M payments are projected to be $13 million in 1998, $14 million in 1999 and $14 million in 2000. The Company has also entered into a five-year purchase power agreement scheduled to begin in June 2000 for approximately 215 megawatts. Capacity and fixed O&M payments are estimated to be approximately $7 million in 2000. The amortization of Plant Vogtle costs deferred under phase-in plans will decline by $89 million in 1998, $12 million in 1999, and $19 million in 2000. These costs will be fully amortized by September 1999. See Note 1 to the financial statements under "Plant Vogtle Phase-In Plans" for additional information. The Federal Energy Regulatory Commission (FERC) regulates wholesale rate schedules and power sales contracts that the Company has with its sales for resale customers. The FERC currently is reviewing the rate of return on common equity included in these schedules and contracts and may require such returns to be lowered, possibly retroactively. See Note 3 to the financial statements under "FERC Review of Equity Returns" for additional information. As discussed in Note 3 to the financial statements, regulatory uncertainties exist related to the Rocky Mountain pumped storage hydroelectric plant. On January 14, 1998, the GPSC ordered that the Company be allowed approximately $108 million of its $143 million investment in the plant in rate base as of December 31, 1998. The Company has appealed the GPSC's order. If such order is ultimately upheld, the Company will be required to record a charge to earnings currently estimated at approximately $29 million, after taxes. Southern Company and the Internal Revenue Service (IRS) have entered into a settlement agreement that is subject to review and approval by the Joint Congressional Committee on Taxation. If approved, the agreement would result in a refund, including interest, to the Company. See Note 3 to the financial statements under "Tax Litigation" for additional information. Compliance costs related to current and future environmental laws and regulations could affect earnings if such costs are not fully recovered. The Clean Air Act and other important environmental items are discussed later under "Environmental Issues." The electric utility industry in the United States is currently undergoing a period of dramatic change as a result of regulatory and competitive factors. 6 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Georgia Power Company 1997 Annual Report Among the primary agents of change has been the Energy Policy Act of 1992 (Energy Act). The Energy Act allows independent power producers (IPPs) to access a utility's transmission network in order to sell electricity to other utilities. This enhances the incentive for IPPs to build cogeneration plants for a utility's large industrial and commercial customers and sell electric energy to other utilities. Also, electricity sales for resale rates are being driven down by wholesale transmission access and numerous potential new energy suppliers, including power marketers and brokers. The Company is aggressively working to maintain and expand its share of wholesale sales in the Southeastern power markets. Although the Energy Act does not permit retail customer access, it was a major catalyst for the current restructuring and consolidation taking place within the utility industry. The Company continues to compete with other electric suppliers within the state. In Georgia, most new retail customers with at least 900 kilowatts of connected load may choose their electricity supplier. Numerous federal and state initiatives are in varying stages to promote wholesale and retail competition across the nation. Among other things, these initiatives allow customers to choose their electricity provider. As these initiatives materialize, the structure of the utility industry could radically change. Some states have approved initiatives that result in a separation of the ownership and/or operation of generating facilities from the ownership and/or operation of transmission and distribution facilities. While the GPSC has held workshops to discuss retail competition and industry restructuring, there has been no proposed or enacted legislation to date in Georgia. Enactment would require numerous issues to be resolved, including significant ones relating to transmission pricing and recovery of costs. The ability of the Company to recover all its costs, including the regulatory assets described in Note 1 to the financial statements, could have a material effect on the financial condition of the Company. The Company is attempting to reduce regulatory assets and other costs through a three-year retail accounting order. See Note 3 to the financial statements under "Retail Accounting Order" for additional information. Unless the Company remains a low-cost producer and provides quality service, the Company's retail energy sales growth could be limited as competition increases. Conversely, continuing to be a low-cost producer could provide opportunities to increase market share and profitability in markets that evolve with changing regulation. The Company is subject to the provisions of Financial Accounting Standards Board (FASB) Statement No. 71, Accounting for the Effects of Certain Types of Regulation. In the event that a portion of the Company's operations is no longer subject to these provisions, the Company would be required to write off related regulatory assets and liabilities that are not specifically recoverable, and determine if any other assets have been impaired. See Note 1 to the financial statements under "Regulatory Assets and Liabilities" for additional information. The staff of the Securities and Exchange Commission has questioned certain of the current accounting practices of the electric utility industry - including the Company's - regarding the recognition, measurement, and classification of decommissioning costs for nuclear generating facilities in the financial statements. In response to these questions, the FASB has decided to review the accounting for liabilities related to closure and removal of long-lived assets, including nuclear decommissioning. If the FASB issues new accounting rules, the estimated costs of closing and removing the Company's nuclear and other facilities may be required to be recorded as liabilities in the Balance Sheets. Also, the annual provisions for such costs could change. Because of the Company's current ability to recover closure and removal costs through rates, these changes would not have a significant adverse effect on results of operations. See Note 1 to the financial statements under "Depreciation and Nuclear Decommissioning" for additional information. The Company is heavily dependent upon complex computer systems for all phases of its operations. The year 2000 issue -- common to most corporations -- concerns the inability of certain software and databases to properly recognize date sensitive information related to the year 2000 and thereafter. This problem could result in a material disruption to the Company's operations, if not corrected. The Company has assessed and developed a detailed strategy to prevent or at least minimize problems related to the year 2000 issue. In 1997 resources were committed and implementation began to modify the affected information systems. Total costs related to the project are estimated to be approximately $33 million, of which $3 million was spent in 1997. The remaining costs will be 7 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Georgia Power Company 1997 Annual Report expensed primarily in 1998. Implementation is currently on schedule. Although the degree of success of this project cannot be determined at this time, management believes there will be no significant effect on the Company's operations. Exposure to Market Risks Due to cost-based rate regulation, the Company has limited exposure to market volatility in interest rates and prices of electricity. To mitigate residual risks relative to movements in electricity prices, the Company enters into fixed price contracts for the purchase and sale of electricity through the wholesale electricity market. Realized gains and losses are recognized in the income statement as incurred. At December 31, 1997, exposure from these activities was not material to the Company's financial position, results of operations, or cash flows. New Accounting Standards The FASB has issued Statement No. 130, Reporting Comprehensive Income, which will be effective in 1998. This statement establishes standards for reporting and display of comprehensive income and its components in a full set of general purpose financial statements. The objective of the statement is to report a measure of all changes in equity of an enterprise that result from transactions and other economic events of the period other than transactions with owners (comprehensive income). Comprehensive income is the total of net income and all other nonowner changes in equity. The Company will adopt this statement in 1998. The FASB has issued Statement No. 131, Disclosure about Segments of an Enterprise and Related Information. This statement requires that a public business enterprise report financial and descriptive information about its reportable operating segments. Generally, financial information is required to be reported on the basis that it is used by the chief operating decision maker in deciding how to allocate resources and in assessing performance. This statement also establishes standards for related disclosures about products and services, geographic areas, and major customers. The Company adopted the new rules in 1997, and they did not have a significant impact on the Company's financial reporting. However, this conclusion may change as industry restructuring and competitive factors influence the company's operations. FINANCIAL CONDITION Plant Additions In 1997 gross utility plant additions were $476 million. These additions were primarily related to transmission and distribution facilities and to the purchase of nuclear fuel. The funds needed for gross property additions are currently provided from operations. The Statements of Cash Flows provide additional details. Financing Activities In 1997, the Company continued to lower its financing costs by refinancing higher-cost issues. New issues during 1995 through 1997 totaled $1.6 billion and retirement or repayment of securities totaled $2.2 billion. The retirements included the redemption of $131 million in 1995 of first mortgage bonds with the proceeds from the Plant Scherer Unit 4 sales. Composite financing rates for long-term debt and preferred stock for the years 1995 through 1997, as of year-end, were as follows: 1997 1996 1995 --------------------------------- Composite interest rate on long-term debt 6.11% 6.39% 6.57% Composite preferred stock dividend rate 5.18 6.34 6.73 - ---------------------------------------------------------------- The Company's current securities ratings are as follows: Duff & Standard & Phelps Moody's Poor's ------------------------------------ First Mortgage Bonds AA- A1 A+ Preferred Stock A+ a2 A Unsecured Bonds A+ A2 A Commercial Paper D1+ P1 A1 - ----------------------------------------------------------------- Subsidiaries of the Company have issued mandatorily redeemable preferred securities. See Note 9 to the financial statements under "Preferred Securities" for additional information. In January 1998, the Company issued $145 million of 6 7/8% unsecured senior notes due December 31, 2047. The senior notes are subordinated to all secured 8 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Georgia Power Company 1997 Annual Report debt of the Company, including its first mortgage bonds. Liquidity and Capital Requirements Cash provided from operations decreased by $15 million in 1997, primarily due to lower retail revenues. The Company estimates that construction expenditures for the years 1998 through 2000 will total $506 million, $561 million and $549 million, respectively. Investments in transmission and distribution facilities, enhancements to existing generating plants, and equipment to comply with the provisions of the Clean Air Act are planned. Cash requirements for improvement fund requirements, redemptions announced, and maturities of long-term debt and preferred stock are expected to total $693 million during 1998 through 2000. As a result of requirements by the Nuclear Regulatory Commission, the Company has established external trust funds for the purpose of funding nuclear decommissioning costs. For 1998 through 2000, the amount to be funded totals $24 million annually. For additional information concerning nuclear decommissioning costs, see Note 1 to the financial statements under "Depreciation and Nuclear Decommissioning." Sources of Capital The Company expects to meet future capital requirements primarily using funds generated from operations and, if needed, by the issuance of new debt and equity securities, term loans, and short-term borrowings. To meet short-term cash needs and contingencies, the Company had approximately $1.3 billion of unused credit arrangements with banks at the beginning of 1998. See Note 9 to the financial statements under "Bank Credit Arrangements" for additional information. The Company historically has relied on issuances of first mortgage bonds and preferred stock, in addition to pollution control revenue bonds issued for its benefit by public authorities, to meet its long-term external financing requirements. Recently, the Company's financings have consisted of unsecured debt and trust preferred securities. In this regard, the Company sought and obtained stockholder approval in 1997 to amend its corporate charter eliminating restrictions on the amounts of unsecured indebtedness it may incur. If the Company chooses to issue first mortgage bonds or preferred stock, it is required to meet certain coverage requirements specified in its mortgage indenture and corporate charter. The Company's ability to satisfy all coverage requirements is such that it could issue new first mortgage bonds and preferred stock to provide sufficient funds for all anticipated requirements. Environmental Issues In November 1990, the Clean Air Act was signed into law. Title IV of the Clean Air Act -- the acid rain compliance provision of the law -- significantly impacted the operating companies of Southern Company, including Georgia Power. Specific reductions in sulfur dioxide and nitrogen oxide emissions from fossil-fired generating plants are required in two phases. Phase I compliance began in 1995 and initially affected 28 generating units in the Southern electric system. As a result of Southern Company's compliance strategy, an additional 22 generating units were brought into compliance with Phase I requirements. Phase II compliance is required in 2000, and all fossil-fired generating plants in the Southern electric system will be affected. Southern Company achieved Phase I sulfur dioxide compliance at the affected units by switching to low-sulfur coal, which required some equipment upgrades. Construction expenditures for Georgia Power's Phase I compliance totaled approximately $167 million. For Phase II sulfur dioxide compliance, Southern Company could use emission allowances, increase fuel switching, and/or install flue gas desulfurization equipment at selected plants. Also, equipment to control nitrogen oxide emissions will be installed on additional system fossil-fired units as required to meet Phase II limits and ozone nonattainment requirements for metropolitan Atlanta through 2000. Current compliance strategy for Phase II and ozone nonattainment could require total estimated construction expenditures of approximately $39 million, of which $28 million remains to be spent as of December 31, 1997. A significant portion of costs related to the acid rain provision of the Clean Air Act is expected to be recovered through existing ratemaking 9 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Georgia Power Company 1997 Annual Report provisions. However, there can be no assurance that all Clean Air Act costs will be recovered. In July 1997, the Environmental Protection Agency (EPA) revised the national ambient air quality standards for ozone and particulate matter. This revision makes the standards significantly more stringent. Also, in October 1997, the EPA issued a proposed regional ozone rule that --if implemented--could require substantial further reductions in NOx emissions from fossil-fueled generating facilities. Implementation of the standards and the proposed rule could result in significant additional compliance costs and capital expenditures that cannot be determined at this time. The EPA and state environmental regulatory agencies are reviewing and evaluating various matters including: emission control strategies for ozone nonattainment areas; additional controls for hazardous air pollutant emissions; and hazardous waste disposal requirements. The impact of new standards will depend on the development and implementation of applicable regulations. The Company must comply with other environmental laws and regulations that cover the handling and disposal of hazardous waste. Under these various laws and regulations, the Company could incur costs to clean up properties currently or previously owned. The Company conducts studies to determine the extent of any required clean-up costs and has recognized in the financial statements costs to clean up known sites. These costs for the Company amounted to $4 million, $2 million and $8 million, in 1997, 1996, and 1995, respectively. Additional sites may require environmental remediation for which the Company may be liable for a portion of or all required clean-up costs. See Note 3 to the financial statements under "Certain Environmental Contingencies" for information regarding the Company's potentially responsible party status at a site in Brunswick, Georgia, and the status of sites listed on the State of Georgia's hazardous site inventory. Several major pieces of environmental legislation are being considered for reauthorization or amendment by Congress. These include: the Clean Air Act; the Clean Water Act; the Comprehensive Environmental Response, Compensation, and Liability Act; the Resource Conservation and Recovery Act; the Toxic Substances Control Act; and the Endangered Species Act. Changes to these laws could affect many areas of the Company's operations. The full impact of any such changes cannot be determined at this time. Compliance with possible additional legislation related to global climate change, electromagnetic fields and other environmental and health concerns could significantly affect the Company. The impact of new legislation -- if any -- will depend on the subsequent development and implementation of applicable regulations. In addition, the potential exists for liability as the result of lawsuits alleging damages caused by electromagnetic fields. Cautionary Statement Regarding Forward-Looking Information The Company's 1997 Annual Report contains forward-looking statements in addition to historical information. The Company cautions that there are various important factors that could cause actual results to differ materially from those indicated in the forward-looking statements; accordingly, there can be no assurance that such indicated results will be realized. These factors include legislative and regulatory initiatives regarding deregulation and restructuring of the electric utility industry; the extent and timing of the entry of additional competition in the Company's markets; potential business strategies - -- including acquisitions or dispositions of assets or internal restructuring -- that may be pursued by Southern Company; state and federal rate regulation; changes in or application of environmental and other laws and regulations to which the Company is subject; political, legal and economic conditions and developments; financial market conditions and the results of financing efforts; changes in commodity prices and interest rates; weather and other natural phenomena; and other factors discussed in the reports--including Form 10-K--filed from time to time by the Company with the Securities and Exchange Commission. 10
STATEMENTS OF INCOME For the Years Ended December 31, 1997, 1996, and 1995 Georgia Power Company 1997 Annual Report ============================================================================================================================== 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------ (in thousands) Operating Revenues: Revenues $4,347,009 $4,380,893 $4,328,432 Revenues from affiliates 38,708 35,886 76,906 - ------------------------------------------------------------------------------------------------------------------------------ Total operating revenues 4,385,717 4,416,779 4,405,338 - ------------------------------------------------------------------------------------------------------------------------------ Operating Expenses: Operation-- Fuel 857,269 835,194 900,973 Purchased power from non-affiliates 143,409 157,308 183,009 Purchased power from affiliates 177,240 229,324 131,740 Provision for separation benefits 5,459 39,099 10,607 Other 696,700 741,383 735,918 Maintenance 317,199 315,934 292,029 Depreciation and amortization 572,640 432,940 421,850 Amortization of deferred Plant Vogtle costs (Note 1) 120,577 136,650 124,454 Taxes other than income taxes 207,192 207,098 204,675 Federal and state income taxes 426,918 435,904 449,204 - ------------------------------------------------------------------------------------------------------------------------------ Total operating expenses 3,524,603 3,530,834 3,454,459 - ------------------------------------------------------------------------------------------------------------------------------ Operating Income 861,114 885,945 950,879 Other Income (Expense): Allowance for equity funds used during construction 6,012 3,144 2,734 Equity in earnings of unconsolidated subsidiary (Note 4) 4,266 3,851 4,051 Interest income 10,581 5,333 5,524 Other, net (35,834) (43,502) (8,973) Income taxes applicable to other income 31,763 18,581 3,022 - ------------------------------------------------------------------------------------------------------------------------------ Income Before Interest Charges 877,902 873,352 957,237 - ------------------------------------------------------------------------------------------------------------------------------ Interest and Other Charges: Interest on long-term debt 194,344 207,851 254,607 Allowance for debt funds used during construction (8,962) (11,416) (12,081) Interest on interim obligations 7,795 15,478 21,463 Amortization of debt discount, premium and expense, net 14,179 14,790 15,835 Other interest charges 10,254 6,338 11,399 Distributions on preferred securities of subsidiary companies 47,369 14,958 9,000 - ------------------------------------------------------------------------------------------------------------------------------ Interest and other charges, net 264,979 247,999 300,223 - ------------------------------------------------------------------------------------------------------------------------------ Net Income 612,923 625,353 657,014 Dividends on Preferred Stock 18,927 45,026 48,152 - ------------------------------------------------------------------------------------------------------------------------------ Net Income After Dividends on Preferred Stock $ 593,996 $ 580,327 $ 608,862 ============================================================================================================================== The accompanying notes are an integral part of these statements.
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STATEMENTS OF CASH FLOWS For the Years Ended December 31, 1997, 1996, and 1995 Georgia Power Company 1997 Annual Report ================================================================================================================================ 1997 1996 1995 - -------------------------------------------------------------------------------------------------------------------------------- (in thousands) Operating Activities: Net income $ 612,923 $ 625,353 $ 657,014 Adjustments to reconcile net income to net cash provided by operating activities -- Depreciation and amortization 674,286 521,086 527,310 Deferred income taxes and investment tax credits, net (21,425) 35,700 37,150 Allowance for equity funds used during construction (6,012) (3,144) (2,734) Amortization of deferred Plant Vogtle costs, net 120,577 136,650 124,454 Loss (gain) on asset sales (974) 3,766 (23,588) Other, net 3,050 41,489 (7,980) Changes in certain current assets and liabilities -- Receivables, net 13,387 9,421 (59,370) Inventories 39,748 55,753 30,761 Payables (10,007) (35,651) 45,882 Taxes accrued (3,596) 11,766 11,373 Energy cost recovery, retail (20,103) 679 42,576 Other (30,026) (15,880) 35,175 - -------------------------------------------------------------------------------------------------------------------------------- Net cash provided from operating activities 1,371,828 1,386,988 1,418,023 - -------------------------------------------------------------------------------------------------------------------------------- Investing Activities: Gross property additions (475,921) (428,220) (480,449) Sales of property - 3,319 131,099 Other 16,223 (16,468) (42,579) - -------------------------------------------------------------------------------------------------------------------------------- Net cash used for investing activities (459,698) (441,369) (391,929) - -------------------------------------------------------------------------------------------------------------------------------- Financing Activities: Proceeds -- Preferred securities 364,250 225,000 - First mortgage bonds 284,700 10,000 75,000 Pollution control bonds - 112,825 504,700 Retirements -- Preferred stock (356,392) (179,148) - First mortgage bonds (284,700) (210,860) (505,789) Pollution control bonds (60,258) (119,665) (504,810) Other long-term debt - - (37,000) Interim obligations, net (64,266) 30,166 (24,472) Special deposits -- redemption funds 44,454 (44,454) - Capital distribution to parent company (205,000) (250,000) - Payment of preferred stock dividends (26,917) (46,911) (48,419) Payment of common stock dividends (520,000) (475,500) (451,500) Miscellaneous (20,024) (10,646) (17,413) - --------------------------------------------------------------------------------------------------------------------------------- Net cash used for financing activities (844,153) (959,193) (1,009,703) - --------------------------------------------------------------------------------------------------------------------------------- Net Change in Cash and Cash Equivalents 67,977 (13,574) 16,391 Cash and Cash Equivalents at Beginning of Year 15,356 28,930 12,539 - --------------------------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Year $ 83,333 $ 15,356 $ 28,930 ================================================================================================================================ Supplemental Cash Flow Information: Cash paid during the year for -- Interest (net of amount capitalized) $ 258,298 $ 249,434 $ 298,482 Income taxes (net of refunds) 427,596 373,886 404,129 - -------------------------------------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these statements.
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BALANCE SHEETS At December 31, 1997 and 1996 Georgia Power Company 1997 Annual Report =================================================================================================================== ASSETS 1997 1996 - --------------------------------------------------------------------------------------------------------------------- (in thousands) Utility Plant: Plant in service $ 15,082,570 $ 14,769,573 Less accumulated provision for depreciation 5,319,680 4,793,638 - --------------------------------------------------------------------------------------------------------------------- 9,762,890 9,975,935 Nuclear fuel, at amortized cost 126,882 121,840 Construction work in progress (Note 4) 214,128 256,141 - --------------------------------------------------------------------------------------------------------------------- Total 10,103,900 10,353,916 - --------------------------------------------------------------------------------------------------------------------- Other Property and Investments: Southern Electric Generating Company, at equity (Note 4) 24,973 26,032 Nuclear decommissioning trusts, at market 194,417 130,178 Miscellaneous 87,907 103,787 - --------------------------------------------------------------------------------------------------------------------- Total 307,297 259,997 - --------------------------------------------------------------------------------------------------------------------- Current Assets: Cash and cash equivalents 83,333 15,356 Receivables-- Customer accounts receivable 385,844 392,328 Other accounts and notes receivable 110,278 159,499 Affiliated companies 20,333 20,095 Accumulated provision for uncollectible accounts (3,000) (4,000) Fossil fuel stock, at average cost 96,067 117,382 Materials and supplies, at average cost 240,387 258,820 Prepayments 27,503 67,118 Vacation pay deferred 40,996 39,965 - --------------------------------------------------------------------------------------------------------------------- Total 1,001,741 1,066,563 - --------------------------------------------------------------------------------------------------------------------- Deferred Charges and Other Assets: Deferred charges related to income taxes (Note 8) 688,472 754,002 Deferred Plant Vogtle costs (Note 1) 50,412 170,988 Premium on reacquired debt, being amortized 166,609 166,670 Prepaid pension costs 67,777 42,653 Debt expense, being amortized 40,927 32,693 Miscellaneous 146,593 159,153 - --------------------------------------------------------------------------------------------------------------------- Total 1,160,790 1,326,159 - --------------------------------------------------------------------------------------------------------------------- Total Assets $ 12,573,728 $ 13,006,635 ===================================================================================================================== The accompanying notes are an integral part of these statements.
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BALANCE SHEETS (continued) At December 31, 1997 and 1996 Georgia Power Company 1997 Annual Report =============================================================================================================================== CAPITALIZATION AND LIABILITIES 1997 1996 - ------------------------------------------------------------------------------------------------------------------------------- (in thousands) Capitalization (See accompanying statements): Common stock equity $ 4,019,728 $ 4,154,281 Preferred stock 157,247 464,611 Company obligated mandatorily redeemable preferred securities of subsidiaries substantially all of whose assets are junior subordinated debentures or notes (Note 9) 689,250 325,000 Long-term debt 2,982,835 3,200,419 - -------------------------------------------------------------------------------------------------------------------------------- Total 7,849,060 8,144,311 - -------------------------------------------------------------------------------------------------------------------------------- Current Liabilities: Preferred stock due within one year (Note 9) - 49,028 Long-term debt due within one year (Note 9) 220,855 60,622 Notes payable to banks (Note 9) 142,300 207,300 Commercial paper (Note 9) 223,930 223,196 Accounts payable-- Affiliated companies 71,373 66,821 Other 261,293 263,093 Customer deposits 68,618 64,901 Taxes accrued-- Federal and state income 4,480 15,497 Other 111,541 100,661 Interest accrued 72,437 79,936 Miscellaneous 105,683 153,127 - -------------------------------------------------------------------------------------------------------------------------------- Total 1,282,510 1,284,182 - -------------------------------------------------------------------------------------------------------------------------------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes (Note 8) 2,417,547 2,522,945 Accumulated deferred investment tax credits 397,202 415,477 Deferred credits related to income taxes (Note 8) 297,560 317,965 Employee benefits provisions 169,887 186,319 Miscellaneous 159,962 135,436 - -------------------------------------------------------------------------------------------------------------------------------- Total 3,442,158 3,578,142 - -------------------------------------------------------------------------------------------------------------------------------- Commitments and Contingent Matters (Notes 1 through 7) Total Capitalization and Liabilities $ 12,573,728 $ 13,006,635 ================================================================================================================================ The accompanying notes are an integral part of these statements.
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STATEMENTS OF CAPITALIZATION At December 31, 1997 and 1996 Georgia Power Company 1997 Annual Report ================================================================================================================================== 1997 1996 1997 1996 - ---------------------------------------------------------------------------------------------------------------------------------- (in thousands) (percent of total) Common Stock Equity: Common stock, without par value -- Authorized -- 15,000,000 shares Outstanding -- 7,761,500 shares $ 344,250 $ 344,250 Paid-in capital 1,929,971 2,134,886 Premium on preferred stock 160 371 Retained earnings (Note 9) 1,745,347 1,674,774 - ---------------------------------------------------------------------------------------------------------------------------------- Total common stock equity 4,019,728 4,154,281 51.2% 51.0% - ---------------------------------------------------------------------------------------------------------------------------------- Cumulative Preferred Stock, without par value: Authorized -- 55,000,000 shares Outstanding -- 4,719,226 shares at December 31, 1997 Outstanding -- 16,111,964 shares at December 31, 1996 $100 stated value -- 4.60% to 6.60% 52,355 117,787 7.72% to 7.80% - 30,000 $25 stated value -- $1.90 to $2.125 - 190,852 Adjustable rate -- at January 1, 1998: 4.85% 64,213 100,000 5.27% 40,679 75,000 - ---------------------------------------------------------------------------------------------------------------------------------- Total cumulative preferred stock (annual dividend requirement -- $8,141,000) 157,247 513,639 Less amount due within one year (Note 9) - 49,028 - ---------------------------------------------------------------------------------------------------------------------------------- Cumulative preferred stock excluding amount due within one year 157,247 464,611 2.0 5.7 - ---------------------------------------------------------------------------------------------------------------------------------- Company Obligated Mandatorily Redeemable Preferred Securities (Note 9): $25 liquidation value -- 9% 100,000 100,000 $25 liquidation value -- 7.75% 225,000 225,000 $25 liquidation value -- 7.60% 175,000 - $25 liquidation value -- 7.75% 189,250 - - ---------------------------------------------------------------------------------------------------------------------------------- Total (annual distribution requirement -- $54,404,000) 689,250 325,000 8.8 4.0 - ---------------------------------------------------------------------------------------------------------------------------------- Long-Term Debt: First mortgage bonds -- Maturity Interest Rates April 1, 1998 5 1/2% 100,000 100,000 September 1, 1999 6 1/8% 195,000 195,000 March 1, 2000 6% 100,000 100,000 October 1, 2000 7% 100,000 100,000 September 1, 2002 6 7/8% 150,000 150,000 2003 through 2005 6.07% to 6 5/8% 285,000 285,000 2008 6 7/8% 50,000 50,000 2023 through 2025 7.55% to 7.95% 474,250 534,508 - ---------------------------------------------------------------------------------------------------------------------------------- Total first mortgage bonds 1,454,250 1,514,508 Pollution control obligations (Note 9) 1,671,190 1,671,190 Other long-term debt (Note 9) 86,675 87,114 Unamortized debt discount, net (8,425) (11,771) - ---------------------------------------------------------------------------------------------------------------------------------- Total long-term debt (annual interest requirement -- $196,378,000) 3,203,690 3,261,041 Less amount due within one year (Note 9) 220,855 60,622 - ---------------------------------------------------------------------------------------------------------------------------------- Long-term debt excluding amount due within one year 2,982,835 3,200,419 38.0 39.3 - ---------------------------------------------------------------------------------------------------------------------------------- Total Capitalization $ 7,849,060 $ 8,144,311 100.0% 100.0% ================================================================================================================================== The accompanying notes are an integral part of these statements.
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STATEMENTS OF RETAINED EARNINGS For the Years Ended December 31, 1997, 1996, and 1995 Georgia Power Company 1997 Annual Report ================================================================================================================================== 1997 1996 1995 - ---------------------------------------------------------------------------------------------------------------------------------- (in thousands) Balance at Beginning of Period $1,674,774 $1,569,905 $1,412,543 Net income after dividends on preferred stock 593,996 580,327 608,862 Cash dividends on common stock (520,000) (475,500) (451,500) Preferred stock transactions, net (3,423) 42 - - ---------------------------------------------------------------------------------------------------------------------------------- Balance at End of Period (Note 9) $1,745,347 $1,674,774 $1,569,905 ================================================================================================================================== STATEMENTS OF PAID-IN CAPITAL For the Years Ended December 31, 1997, 1996, and 1995 Georgia Power Company 1997 Annual Report ================================================================================================================================== 1997 1996 1995 - ---------------------------------------------------------------------------------------------------------------------------------- (in thousands) Balance at Beginning of Period $2,134,886 $2,384,444 $2,384,348 Capital distribution to parent company (205,000) (250,000) - Contributions to capital by parent company 85 442 96 - ---------------------------------------------------------------------------------------------------------------------------------- Balance at End of Period $1,929,971 $2,134,886 $2,384,444 ================================================================================================================================== The accompanying notes are an integral part of these statements.
16 NOTES TO FINANCIAL STATEMENTS Georgia Power Company 1997 Annual Report 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES General The Company is a wholly owned subsidiary of Southern Company, which is the parent company of five operating companies, Southern Company Services (SCS), a system service company, Southern Communications Services (Southern Communications), Southern Energy, Inc. (Southern Energy), Southern Nuclear Operating Company (Southern Nuclear), Southern Company Energy Solutions, and other direct and indirect subsidiaries. The operating companies (Alabama Power Company, Georgia Power Company, Gulf Power Company, Mississippi Power Company, and Savannah Electric and Power Company) provide electric service in four Southeastern states. Contracts among the operating companies -- dealing with jointly owned generating facilities, interconnecting transmission lines, and the exchange of electric power -- are regulated by the Federal Energy Regulatory Commission (FERC) or the Securities and Exchange Commission (SEC). SCS provides, at cost, specialized services to Southern Company and subsidiary companies. Southern Communications provides digital wireless communications services to the operating companies and also markets these services to the public within the Southeast. Southern Energy designs, builds, owns, and operates power production and delivery facilities and provides a broad range of energy related services in the United States and international markets. Southern Nuclear provides services to Southern Company's nuclear power plants. Southern Company Energy Solutions develops new business opportunities related to energy products and services. Southern Company is registered as a holding company under the Public Utility Holding Company Act of 1935 (PUHCA). Both Southern Company and its subsidiaries are subject to the regulatory provisions of this act. The Company is also subject to regulation by the FERC and the Georgia Public Service Commission (GPSC). The Company follows generally accepted accounting principles (GAAP) and complies with the accounting policies and practices prescribed by the respective regulatory commissions. The preparation of financial statements in conformity with GAAP requires the use of estimates, and the actual results may differ from these estimates. Certain prior years' data presented in the financial statements have been reclassified to conform with current year presentation. Regulatory Assets and Liabilities The Company is subject to the provisions of Financial Accounting Standards Board (FASB) Statement No. 71, Accounting for the Effects of Certain Types of Regulation. Regulatory assets represent probable future revenues to the Company associated with certain costs that are expected to be recovered from customers through the ratemaking process. Regulatory liabilities represent probable future reductions in revenues associated with amounts that are expected to be credited to customers through the ratemaking process. Regulatory assets and (liabilities) reflected in the Company's Balance Sheets at December 31 relate to the following: 1997 1996 ---------- --------- (in millions) -------------------- Deferred income taxes $ 688 $ 754 Deferred income tax credits (298) (318) Premium on reacquired debt 167 167 Corporate building lease 52 51 Deferred Plant Vogtle costs 50 171 Vacation pay 41 40 Postretirement benefits 38 38 Department of Energy assessments 29 32 Deferred nuclear outage costs 28 18 Demand-side program costs 11 44 Other, net 10 (9) - -------------------------------------------------------------- Total $ 816 $ 988 ============================================================== In the event that a portion of the Company's operations is no longer subject to the provisions of Statement No. 71, the Company would be required to write off related net regulatory assets and liabilities that are not specifically recoverable through regulated rates. In addition, the Company would be required to determine if any impairment to other assets exists, including plant, and write down the assets, if impaired, to their fair value. 17 NOTES (continued) Georgia Power Company 1997 Annual Report Revenues and Fuel Costs The Company accrues revenues for service rendered but unbilled at the end of each fiscal period. Fuel costs are expensed as the fuel is used. The Company's electric rates include provisions to adjust billings for fluctuations in fuel and the energy component of purchased power costs, and certain other costs. Revenues are adjusted for differences between recoverable fuel costs and amounts actually recovered in current rates. The Company has a diversified base of customers. No single customer or industry comprises 10 percent or more of revenues. In 1997, uncollectible accounts continued to average less than 1 percent of revenues. Fuel expense includes the amortization of the cost of nuclear fuel and a charge, based on nuclear generation, for the permanent disposal of spent nuclear fuel. Total charges for nuclear fuel included in fuel expense amounted to $76 million in 1997, $78 million in 1996, and $86 million in 1995. The Company has a contract with the U.S. Department of Energy (DOE) that provides for the permanent disposal of spent nuclear fuel, which was scheduled to begin in 1998. However, the actual year this service will begin is uncertain. Sufficient storage capacity currently is available to permit operation into 2003 at Plant Hatch and into 2008 at Plant Vogtle. Activities for adding dry cask storage capacity at Plant Hatch by as early as 1999 are in progress. Also, the Energy Policy Act of 1992 required the establishment in 1993 of a Uranium Enrichment Decontamination and Decommissioning Fund, which is to be funded in part by a special assessment on utilities with nuclear plants. This fund will be used by the DOE for the decontamination and decommissioning of its nuclear fuel enrichment facilities. The assessment will be paid over a 15-year period, which began in 1993. The law provides that utilities will recover these payments in the same manner as any other fuel expense. The Company -- based on its ownership interests -- estimates its remaining liability under this law at December 31, 1997, to be approximately $27 million. This obligation is recorded in the accompanying Balance Sheets. Depreciation and Nuclear Decommissioning Depreciation of the original cost of depreciable utility plant in service is provided primarily by using composite straight-line rates, which approximated 3.1 percent in 1997 and 1996 and 3.2 percent in 1995. In addition, the Company recorded accelerated depreciation of electric plant of $159 million in 1997, $24 million in 1996, and $6 million in 1995. The amount of such charges in the accumulated provision for depreciation is $189 million at December 31, 1997. See Note 3 under "Retail Accounting Order" for additional information. When property subject to depreciation is retired or otherwise disposed of in the normal course of business, its cost -- together with the cost of removal, less salvage -- is charged to the accumulated provision for depreciation. Minor items of property included in the original cost of the plant are retired when the related property unit is retired. Depreciation expense includes an amount for the expected costs of decommissioning nuclear facilities and removal of other facilities. In 1988, the Nuclear Regulatory Commission (NRC) adopted regulations requiring all licensees operating commercial nuclear power reactors to establish a plan for providing, with reasonable assurance, funds for decommissioning. The Company has established external trust funds to comply with the NRC's regulations. Amounts previously recorded in internal reserves are being transferred into the external trust funds over a set period of time as ordered by the GPSC. Earnings on the trust funds are considered in determining decommissioning expense. The NRC's minimum external funding requirements are based on a generic estimate of the cost to decommission the radioactive portions of a nuclear unit based on the size and type of reactor. The Company has filed plans with the NRC to ensure that -- over time -- the deposits and earnings of the external trust funds will provide the minimum funding amounts prescribed by the NRC. Site study cost is the estimate to decommission the facility as of the site study year, and ultimate cost is the estimate to decommission the facility as of 18 NOTES (continued) Georgia Power Company 1997 Annual Report the retirement date. The estimated costs of decommissioning -- both site study costs and ultimate costs at December 31, 1997 -- based on the Company's ownership interests -- were as follows: Plant Plant Hatch Vogtle -------------------- Site study basis (year) 1997 1997 Decommissioning periods: Beginning year 2014 2027 Completion year 2027 2038 - ------------------------------------------------------------ (in millions) Site study costs: Radiated structures $372 $317 Non-radiated structures 33 44 - ------------------------------------------------------------ Total $405 $361 ============================================================ (in millions) Ultimate costs: Radiated structures $722 $922 Non-radiated structures 65 129 - ------------------------------------------------------------ Total $787 $1,051 ============================================================ (in millions) Amount expensed in 1997 $ 11 $ 9 Accumulated provisions: Balance in external trust funds $118 $ 76 Balance in internal reserves 23 13 - ------------------------------------------------------------ Total $141 $ 89 ============================================================ Significant assumptions: Inflation rate 3.6% 3.6% Trust earnings rate 6.5 6.5 - ------------------------------------------------------------ Annual provisions for nuclear decommissioning are based on an annuity method as approved by the GPSC. The decommissioning costs currently included in cost of service are $320 million and $267 million for plants Hatch and Vogtle, respectively. These amounts are based on the higher of the costs to decommission the radioactive portions of the plants based on 1994 site studies or the 1993 NRC minimum funding requirements. The estimated ultimate costs associated with the amounts currently included in cost of service are $781 million and $1.1 billion for plants Hatch and Vogtle, respectively. The Company expects the GPSC to periodically review and adjust, if necessary, the amounts collected in rates for the anticipated cost of decommissioning. The decommissioning cost estimates are based on prompt dismantlement and removal of the plant from service. The actual decommissioning costs may vary from the above estimates because of changes in the assumed date of decommissioning, changes in NRC requirements, changes in the assumptions used in making estimates, changes in regulatory requirements, changes in technology, and changes in costs of labor, materials, and equipment. Income Taxes The Company uses the liability method of accounting for deferred income taxes and provides deferred income taxes for all significant income tax temporary differences. Investment tax credits utilized are deferred and amortized to income over the average lives of the related property. Plant Vogtle Phase-In Plans In 1987 and 1989, the GPSC ordered that the allowed costs of Plant Vogtle, a two-unit nuclear facility of which Georgia Power owns 45.7 percent, be phased into rates. Pursuant to the orders, the Company recorded a deferred return under phase-in plans until October 1991 when the allowed investment was fully reflected in rates. In 1991, the GPSC levelized the remaining Plant Vogtle declining capacity buyback expenses over a six-year period. In addition, the Company deferred certain Plant Vogtle operating expenses and financing costs under accounting orders issued by the GPSC. These GPSC orders provide for the recovery of deferred costs within 10 years. Costs deferred under the 1987 order and the levelized buybacks were fully recovered as of September 1997. Allowance for Funds Used During Construction (AFUDC) AFUDC represents the estimated debt and equity costs of capital funds that are necessary to finance the construction of new facilities. While cash is not realized currently from such allowance, it increases the revenue requirement over the service life of the plant through a higher rate base and higher depreciation expense. For the years 1997, 1996 and 1995, the average AFUDC rates were 7.60 percent, 6.59 percent and 6.53 percent, respectively. AFUDC, net of taxes, as a percentage of net income after dividends on preferred stock, was less than 2.0 percent for 1997, 1996, and 1995. 19 NOTES (continued) Georgia Power Company 1997 Annual Report Utility Plant Utility plant is stated at original cost with the exception of Plant Vogtle, which is stated at cost less regulatory disallowances. Original cost includes: materials; labor; payroll-related costs such as taxes, pensions, and other benefits; and the cost of funds used during construction. The cost of maintenance, repairs, and replacement of minor items of property is charged to maintenance expense. The cost of replacements of property (exclusive of minor items of property) is charged to utility plant. Cash and Cash Equivalents For purposes of the Statements of Cash Flows, temporary cash investments are considered cash equivalents. Temporary cash investments are securities with original maturities of 90 days or less. Financial Instruments The Company's financial instruments for which the carrying amounts did not approximate fair value at December 31 were as follows: Carrying Fair Amount Value ------------------------ Long-term debt: (in millions) At December 31, 1997 $3,125 $3,170 At December 31, 1996 3,174 3,206 Preferred securities: At December 31, 1997 689 720 At December 31, 1996 325 333 - -------------------------------------------------------------- The fair values for securities were based on either closing market prices or closing prices of comparable instruments. Materials and Supplies Generally, materials and supplies include the cost of transmission, distribution and generating plant materials. Materials are charged to inventory when purchased and then expensed or capitalized to plant, as appropriate, when installed. 2. RETIREMENT BENEFITS Pension Plan The Company has a defined benefit, trusteed, non-contributory pension plan covering substantially all regular employees. Benefits are based on one of the following formulas: years of service and final average pay or years of service and a flat-dollar benefit. The Company uses the "entry age normal method with a frozen initial liability" actuarial method for funding purposes, subject to limitations under federal income tax regulations. Amounts funded to the pension trusts are primarily invested in equity and fixed-income securities. FASB Statement No. 87, Employers' Accounting for Pensions, requires use of the "projected unit credit" actuarial method for financial reporting purposes. Postretirement Benefits The Company also provides certain medical care and life insurance benefits for retired employees. Substantially all employees may become eligible for these benefits when they retire. Qualified trusts are funded to the extent deductible under federal income tax regulations and to the extent required by the GPSC and the FERC. During 1997 and 1996, the Company funded $24 million and $25 million, respectively, to the qualified trusts. Amounts funded are primarily invested in debt and equity securities. FASB Statement No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions, requires that medical care and life insurance benefits for retired employees be accounted for on an accrual basis using a specified actuarial method, "benefit/years-of-service." In October 1993, the GPSC ordered the Company to phase in the adoption of Statement No. 106 to cost of service over a five-year period, whereby one-fifth of the additional cost was expensed in 1993, and the remaining additional costs were deferred. An additional one-fifth of the costs were expensed each succeeding year until the costs were fully reflected in cost of service in 1997. The cost deferred during the five-year period will be amortized to expense over a 15-year period beginning in 1998. 20 NOTES (continued) Georgia Power Company 1997 Annual Report Funded Status and Cost of Benefits The funded status of the plans and reconciliation to amounts reflected in the Balance Sheets at December 31 are as follows: Pension --------------------- 1997 1996 --------------------- (in millions) --------------------- Actuarial present value of benefit obligations: Vested benefits $ 841 $ 806 Non-vested benefits 29 52 - ---------------------------------------------------------------- Accumulated benefit obligation 870 858 Additional amounts related to projected salary increases 249 314 - --------------------------------------------------------------- Projected benefit obligation 1,119 1,172 Less: Fair value of plan assets 1,931 1,797 Unrecognized net gain (753) (591) Unrecognized prior service cost 48 56 Unrecognized transition asset (39) (47) - --------------------------------------------------------------- Prepaid asset recognized in the Balance Sheets $ 68 $ 43 =============================================================== Postretirement Benefits --------------------- 1997 1996 --------------------- (in millions) Actuarial present value of benefit obligation: Retirees and dependents $246 $217 Employees eligible to retire 33 29 Other employees 156 184 - --------------------------------------------------------------- Accumulated benefit obligation 435 430 Less: Fair value of plan assets 151 112 Unrecognized net loss 47 50 Unrecognized transition obligation 139 157 - --------------------------------------------------------------- Accrued liability recognized in the Balance Sheets $ 98 $111 =============================================================== The weighted average rates used in actuarial calculations were: 1997 1996 1995 ---------------------------- Discount 7.5% 7.8% 7.3% Annual salary increase 5.0 5.3 4.8 Long-term return on Plan assets 8.5 8.5 8.5 - ---------------------------------------------------------------- An additional assumption used in measuring the accumulated postretirement medical benefit obligation was a weighted average medical care cost trend rate of 8.8 percent for 1997, decreasing gradually to 5.5 percent through the year 2005 and remaining at that level thereafter. An annual increase in the assumed medical care cost trend rate of 1 percent would increase the accumulated benefit obligation as of December 31, 1997, by $43 million and the aggregate of the service and interest cost components of the net postretirement cost by $4 million. The components of the plans' net costs are shown below: Pension ---------------------------- 1997 1996 1995 ---------------------------- (in millions) Benefits earned during the year $ 30 $ 35 $ 33 Interest cost on projected benefit obligation 82 86 78 Actual return on plan assets (301) (202) (317) Net amortization 161 62 185 - ----------------------------------------------------------------- Net pension benefit $ (28) $ (19) $ (21) ================================================================= Of net pension amounts recorded, $20 million in 1997, $14 million in 1996, and $15 million in 1995 were recorded as a reduction to operating expense, and the remainder was recorded as a reduction to construction and other accounts. 21 NOTES (continued) Georgia Power Company 1997 Annual Report Postretirement Benefits ------------------------- 1997 1996 1995 ------------------------- (in millions) Benefits earned during the year $ 7 $ 9 $13 Interest cost on accumulated benefit obligation 32 30 34 Amortization of transition obligation 9 9 16 Actual return on plan assets (8) (6) (8) Net amortization 2 3 4 - --------------------------------------------------------------- Net postretirement cost $42 $45 $59 =============================================================== Of the above net postretirement benefit costs recorded, $32 million in 1997, $29 million in 1996, and $33 million in 1995 were charged to operating expenses. In addition, $3 million in 1996 and $11 million in 1995 were deferred, and the remainder was charged to construction and other accounts. During 1996, the Company expensed an additional $19 million due to an adjustment to amounts previously deferred under the GPSC order as a result of changes in the postretirement benefit plan. Work Force Reduction Programs The Company has incurred costs for work force reduction programs. The costs related to these programs were $5 million in 1997, $39 million in 1996 and $11 million in 1995. Additionally, the Company recognized $4 million in 1997, $9 million in 1996, and $3 million in 1995 for its share of costs associated with SCS's work force reduction programs. 3. REGULATORY AND LITIGATION MATTERS Retail Accounting Order On February 16, 1996, the GPSC approved a three-year accounting order for the Company. Under the order, effective January 1, 1996, the Company's earnings are evaluated against a retail return on common equity range of 10 percent to 12.5 percent. Earnings in excess of 12.5 percent will be used to accelerate the amortization of regulatory assets or depreciation of electric plant. At its option, the Company may also recognize accelerated amortization or depreciation of assets within the allowed return on common equity range. The Company is required to absorb cost increases of approximately $29 million annually during the order's three-year operation, including $14 million annually of accelerated depreciation of electric plant. During the order's operation, the Company will not file for a general base rate increase unless its projected retail return on common equity falls below 10 percent. Under the approved order, on July 1, 1998, the Company will make a general rate case filing in response to which the GPSC would be expected either to continue the provisions of the accounting order or adopt different ones. The Company's 1996 retail return on common equity was within the 10 percent to 12.5 percent range. During 1997, for earnings in excess of the 12.5% retail return, the Company recorded charges of $135 million that are presented in the financial statements as depreciation expense of electric plant and as an addition to the reserve for depreciation. In November 1996, on appeal by a consumer group, the Superior Court of Fulton County, Georgia, reversed the GPSC's accounting order and remanded the matter to the GPSC. The Court found that statutory requirements applicable to rate cases should have been, but were not, followed. The GPSC and the Company subsequently appealed the Superior Court's decision. In October 1997, the Court of Appeals upheld the accounting order. No appeal of that decision was filed within the allowable time frame. The order stands as written, and this matter is now concluded. FERC Review of Equity Returns In May 1991, the FERC ordered that hearings be conducted concerning the reasonableness of the Southern electric system's wholesale rate schedules and contracts that have a return on common equity of 13.75 percent or greater. The contracts that could be affected by the hearings include substantially all of the transmission, unit power, long-term power, and other similar contracts. In August 1992, a FERC administrative law judge issued an opinion that changes in rate schedules and contracts were not necessary and that the FERC staff failed to show how any changes were in the public interest. The FERC staff has filed exceptions to the administrative law judge's opinion, and the matter remains pending before the FERC. In August 1994, the FERC instituted another proceeding based on substantially the same issues as in the 1991 proceeding. In November 1995, a 22 NOTES (continued) Georgia Power Company 1997 Annual Report FERC administrative law judge issued an opinion that the FERC staff failed to meet its burden of proof, and therefore no change in the equity return was necessary. The FERC staff has filed exceptions to the administrative law judge's opinion, and the matter remains pending before the FERC. If the rates of return on common equity recommended by the FERC staff were applied to all the schedules and contracts involved in both proceedings, as well as certain other contracts that reference these proceedings in determining return on common equity and if refunds were ordered, the amount of refunds could range up to approximately $71 million at December 31, 1997. Although management believes that rates are not excessive and that refunds are not justified, the final outcome of this matter cannot now be determined. Rocky Mountain Plant Status In its 1985 financing order, the GPSC concluded that completion of the Rocky Mountain pumped storage hydroelectric plant in 1991, as then planned, was not economically justifiable and reasonable and withheld authorization for the Company to spend funds from approved securities issuances on that plant. In 1988, the Company and Oglethorpe Power Corporation (OPC) entered into a joint ownership agreement for OPC to assume responsibility for the construction and operation of the plant, as discussed in Note 6. In 1995, the plant went into commercial operation. In June 1996, the GPSC initiated a review of the plant. On January 14, 1998, the GPSC ordered that the Company be allowed approximately $108 million of its $143 million investment in the plant in rate base as of December 31, 1998. The Company has appealed the GPSC's order to the Superior Court of Fulton County, Georgia. If such order is ultimately upheld, the Company will be required to record a charge to earnings currently estimated at approximately $29 million, after taxes. The final outcome of this matter cannot now be determined. Accordingly, no provision related to the GPSC's disallowance has been recorded. Tax Litigation In August 1997, Southern Company and the Internal Revenue Service (IRS) entered into a settlement agreement related to tax issues for the years 1984 through 1987. The agreement is subject to the review and approval by the Joint Congressional Committee on Taxation. If approved by the Joint Committee, the agreement would resolve all issues in the case for the years before the U. S. Tax Court, resulting in a refund to the Company of approximately $140 million. This amount includes interest of $61 million. The tax litigation was related to a timing issue as to when taxes should have been paid; therefore, only the interest portion will affect future income. There can be no assurance that such Joint Committee approval will be received. Demand-Side Conservation Programs In August 1995, the GPSC ordered the Company to discontinue its current demand-side conservation programs by the end of 1995. Rate riders previously approved by the GPSC for recovery of the Company's costs incurred in connection with these programs remained in effect until January 1998 when costs deferred were fully collected. Under the Retail Accounting Order approved February 16, 1996, the Company will recognize approximately $29 million of deferred program costs over a three-year period which will not be recovered through the riders. Certain Environmental Contingencies In January 1995, the Company and four other unrelated entities were notified by the EPA that they have been designated as potentially responsible parties under the Comprehensive Environmental Response, Compensation and Liability Act with respect to a site in Brunswick, Georgia. As of December 31, 1997, the Company has recognized approximately $5 million in expenses associated with this site. This represents the Company's agreed upon share of removal and remedial investigation and feasibility study costs. The final outcome of this matter cannot now be determined. However, based on the nature and extent of the Company's activities relating to the site, management believes that the Company's portion of any remaining remediation costs should not be material. In compliance with the Georgia Hazardous Site Response Act of 1993, the State of Georgia was required to compile an inventory of all known or suspected sites where hazardous wastes, constituents or substances have been disposed of or released in quantities deemed reportable by the State. In developing this 23 NOTES (continued) Georgia Power Company 1997 Annual Report list, the State identified several hundred properties throughout the State, including 25 sites which may require environmental remediation that were either previously or are currently owned by the Company. The majority of these sites are electrical power substations and power generation facilities. The Company has remediated nine electrical substations on the list at a cost of approximately $3 million. In addition, the Company has recognized approximately $17 million in expenses through December 31, 1997 for the assessment of the remaining sites on the list and the anticipated clean-up cost for 11 sites that the Company plans to remediate. Any cost of remediating the remaining sites cannot presently be determined until such studies are completed for each site and the State of Georgia determines whether remediation is required. If all listed sites were required to be remediated, the Company could incur expenses of up to approximately $15 million in additional clean-up costs and construction expenditures of up to approximately $65 million to develop new waste management facilities or install additional pollution control devices. The accrued costs for environmental remediation obligations are not discounted to their present value. New Wholesale Agreement On January 10, 1997, the Company and the Municipal Electric Authority of Georgia (MEAG) reached an agreement to enter into a new power supply relationship which would replace the partial requirements tariff pursuant to which the Company sells wholesale energy to MEAG and the scheduling services agreement between the Company and MEAG. The new power supply contract was approved by FERC and was implemented in August 1997. Nuclear Performance Standards In October 1989, the GPSC adopted a nuclear performance standard for the Company's nuclear generating units under which the performance of plants Hatch and Vogtle will be evaluated every three years. The performance standard is based on each unit's capacity factor as compared to the average of all comparable U.S. nuclear units operating at a capacity factor of 50 percent or higher during the three-year period of evaluation. Depending on the performance of the units, the Company could receive a monetary reward or penalty under the performance standards criteria. The first evaluation was conducted in 1993 for performance during the 1990-92 period. The GPSC approved a performance reward of approximately $8.5 million for the Company. This reward was collected through the retail fuel cost recovery provision and recognized in income over a 36-month period which ended in October 1996. In January 1997, the GPSC approved a performance award of approximately $11.7 million for performance during the 1993-95 period. This reward is being collected through the retail fuel cost recovery provision and recognized in income over a 36-month period that began in January 1997. 4. COMMITMENTS Construction Program While the Company has no traditional baseload generating plants under construction, the construction of one jointly owned combustion turbine peaking unit was completed in January 1997. In addition, significant construction of transmission and distribution facilities, and projects to upgrade and extend the useful life of generating plants will continue. The Company currently estimates property additions to be approximately $506 million in 1998, $561 million in 1999, and $549 million in 2000. The estimates for property additions for the three-year period include $28 million committed to meeting the requirements of the Clean Air Act. The construction program is subject to periodic review and revision, and actual construction costs may vary from estimates because of numerous factors, including, but not limited to, changes in business conditions, load growth estimates, environmental regulations, and regulatory requirements. Fuel Commitments To supply a portion of the fuel requirements of its generating plants, the Company has entered into various long-term commitments for the procurement of fossil and nuclear fuel. In most cases, these contracts contain provisions for price escalations, minimum purchase levels and other financial commitments. 24 NOTES (continued) Georgia Power Company 1997 Annual Report Total estimated long-term fossil and nuclear fuel commitments at December 31, 1997 were as follows: Minimum Year Obligations ---------------------- (in millions) 1998 $ 985 1999 799 2000 777 2001 673 2002 614 2003 and beyond 1,635 - --------------------------------------------------------------- Total minimum obligations $5,483 =============================================================== Additional commitments for coal and for nuclear fuel will be required in the future to supply the Company's fuel needs. Purchase Power Commitments In connection with the joint ownership arrangement for Plant Vogtle, discussed in Note 6, the Company has made commitments to purchase portions of OPC's and MEAG's capacity and energy from this plant. Declining commitments were in effect during periods of up to seven years following commercial operation and ended in 1996. As discussed in Note 1, the Plant Vogtle declining capacity buyback expense was levelized over a six-year period which ended in September 1997. In addition, the Company has commitments regarding a portion of a 5 percent interest in Plant Vogtle owned by MEAG that are in effect until the latter of the retirement of the plant or the latest stated maturity date of MEAG's bonds issued to finance such ownership interest. The payments for capacity are required whether or not any capacity is available. The energy cost is a function of each unit's variable operating costs. Except as noted below, the cost of such capacity and energy is included in purchased power from non-affiliates in the Company's Statements of Income. Capacity payments totaled $54 million, $68 million, and $76 million in 1997, 1996, and 1995, respectively. The current projected Plant Vogtle capacity payments are: Year Amounts ---------------------- (in millions) 1998 $ 57 1999 59 2000 62 2001 61 2002 60 2003 and beyond 771 - ---------------------------------------------------------------- Total $ 1,070 ================================================================ Portions of the payments noted above relate to costs in excess of Plant Vogtle's allowed investment for ratemaking purposes. The present value of these portions was written off in 1987 and 1990. The Company and an affiliate, Alabama Power Company, own equally all of the outstanding capital stock of Southern Electric Generating Company (SEGCO), which owns electric generating units with a total rated capacity of 1,020 megawatts, as well as associated transmission facilities. The capacity of the units has been sold equally to the Company and Alabama Power under a contract which, in substance, requires payments sufficient to provide for the operating expenses, taxes, debt service and return on investment, whether or not SEGCO has any capacity and energy available. The term of the contract extends automatically for two-year periods, subject to either party's right to cancel upon two year's notice. The Company's share of expenses included in purchased power from affiliates in the Statements of Income, is as follows: 1997 1996 1995 --------------------------------- (in millions) Energy $45 $47 $44 Capacity 30 30 29 - -------------------------------------------------------------- Total $75 $77 $73 ============================================================== Kilowatt-hours 3,038 2,780 2,391 - -------------------------------------------------------------- At December 31, 1997, the capitalization of SEGCO consisted of $50 million of equity and $72 million of long-term debt on which the annual interest requirement is $4 million. 25 NOTES (continued) Georgia Power Company 1997 Annual Report The Company has entered into other various long-term commitments for the purchase of electricity. Total long-term obligations at December 31, 1997 were as follows: Year Amounts ---------------------- (in millions) 1998 $ 16 1999 17 2000 21 2001 22 2002 23 2003 and beyond 360 - --------------------------------------------------------------- Total $ 459 =============================================================== Operating Leases The Company has entered into coal rail car rental agreements with various terms and expiration dates. These expenses totaled $11 million for 1997 and 1996 and $12 million for 1995. At December 31, 1997, estimated minimum rental commitments for these noncancelable operating leases were as follows: Year Amounts ---------------------- (in millions) 1998 $ 11 1999 11 2000 11 2001 12 2002 12 2003 and beyond 132 - --------------------------------------------------------------- Total $ 189 =============================================================== 5. NUCLEAR INSURANCE Under the Price-Anderson Amendments Act of 1988, the Company maintains agreements of indemnity with the NRC that, together with private insurance, cover third-party liability arising from any nuclear incident occurring at the Company's nuclear power plants. The act provides funds up to $8.9 billion for public liability claims that could arise from a single nuclear incident. Each nuclear plant is insured against this liability to a maximum of $200 million by private insurance, with the remaining coverage provided by a mandatory program of deferred premiums that could be assessed, after a nuclear incident, against all owners of nuclear reactors. The Company could be assessed up to $79 million per incident for each licensed reactor it operates but not more than an aggregate of $10 million per incident to be paid in a calendar year for each reactor. Such maximum assessment for the Company, excluding any applicable state premium taxes, -- based on its ownership and buyback interests -- is $160 million per incident but not more than an aggregate of $20 million to be paid for each incident in any one year. The Company is a member of Nuclear Electric Insurance Limited (NEIL), a mutual insurer established to provide property damage insurance in an amount up to $500 million for members' nuclear generating facilities. The members are subject to a retrospective premium assessment in the event that losses exceed accumulated reserve funds. The Company's maximum annual assessment is limited to $10 million under current policies. Additionally, the Company has policies that currently provide decontamination, excess property insurance, and premature decommissioning coverage up to $2.25 billion for losses in excess of the $500 million primary coverage. This excess insurance is also provided by NEIL. Additionally, NEIL covers the costs that would be incurred in obtaining replacement power during a prolonged accidental outage at a member's nuclear plant. Members can be insured against increased costs of replacement power in an amount up to $3.5 million per week -- starting 17 weeks after the outage -- for one year and up to $2.8 million per week for the second and third years. Under each of the NEIL policies, members are subject to assessments if losses each year exceed the accumulated funds available to the insurer under that policy. The maximum annual assessments under the current policies for the Company would be $11 million for excess property damage and $11 million for replacement power. For all on-site property damage insurance policies for commercial nuclear power plants, the NRC requires that the proceeds of such policies issued or renewed on or after April 2, 1991, shall be dedicated first for the sole purpose of placing the reactor in a safe and stable condition after an accident. Any remaining proceeds are to be applied next toward the costs of decontamination and debris removal operations ordered by the NRC, and any further remaining 26 NOTES (continued) Georgia Power Company 1997 Annual Report proceeds are to be paid either to the Company or to its bond trustees as may be appropriate under the policies and applicable trust indentures. All retrospective assessments, whether generated for liability, property or replacement power, may be subject to applicable state premium taxes. 6. FACILITY SALES AND JOINT OWNERSHIP AGREEMENTS The Company has sold undivided interests in plants Hatch, Wansley, Vogtle, and Scherer Units 1 and 2 to OPC, an electric membership generation and transmission corporation; MEAG, a public corporation and an instrumentality of the state of Georgia; and the City of Dalton, Georgia. The Company has sold an interest in Plant Scherer Unit 3 to Gulf Power Company, an affiliate. Additionally, the Company has sold 76.4 percent of Plant Scherer Unit 4 to Florida Power & Light Company (FP&L) and the remaining 23.6 percent to Jacksonville Electric Authority (JEA). The Company has also sold transmission facilities to Georgia Transmission Corporation (formerly OPC's transmission division), MEAG, and the City of Dalton. Except as otherwise noted, the Company has contracted to operate and maintain all jointly owned facilities. The Company includes its proportionate share of plant operating expenses in the corresponding operating expenses in the Statements of Income. As discussed in Note 3, the Company owns 25.4 percent of the Rocky Mountain pumped storage hydroelectric plant, which began commercial operation in 1995. OPC owns the remainder, and is the operator of the plant. The Company owns six of eight 80 megawatt combustion turbine generating units and 75 percent of the related common facilities at Plant McIntosh. Savannah Electric and Power Company, an affiliate, owns the remainder and operates the plant. Four of the Company's six units began commercial operation during 1994, and the remaining two units began commercial operation in 1995. The Company and Florida Power Corporation (FPC) jointly own a combustion turbine unit at Intercession City, Florida, near Orlando. The unit began commercial operation in January 1997, and is operated by FPC. The Company owns a one-third interest in the unit, with use of 100 percent of the unit's capacity from June through September. FPC has the capacity the remainder of the year. At December 31, 1997, the Company's percentage ownership and investment (exclusive of nuclear fuel) in jointly owned facilities in commercial operation, were as follows: Total Nameplate Company Facility (Type) Capacity Ownership - ------------------------------------------------------------------ (megawatts) Plant Vogtle (nuclear) 2,320 45.7% Plant Hatch (nuclear) 1,722 50.1 Plant Wansley (coal) 1,730 53.5 Plant Scherer (coal) Units 1 and 2 1,636 8.4 Unit 3 818 75.0 Plant McIntosh Common Facilities N/A 75.0 (combustion-turbine) Rocky Mountain 848 25.4 (pumped storage) Intercession City 142 33.3 (combustion-turbine) - ------------------------------------------------------------------ Accumulated Facility (Type) Investment Depreciation - ---------------------------------------------------------------- (in millions) Plant Vogtle (nuclear) $3,299* $1,100 Plant Hatch (nuclear) 840 477 Plant Wansley (coal) 298 136 Plant Scherer (coal) Units 1 and 2 112 44 Unit 3 542 164 Plant McIntosh Common Facilities (combustion-turbine) 19 1 Rocky Mountain (pumped storage) 202 44 Intercession City (combustion-turbine) 13 ** - ---------------------------------------------------------------- * Investment net of write-offs. ** Less than $1 million. 27 NOTES (continued) Georgia Power Company 1997 Annual Report 7. LONG-TERM POWER SALES AGREEMENTS The Company and the operating subsidiaries of Southern Company have long-term contractual agreements for the sale of capacity and energy to non-affiliated utilities located outside the system's service area. These agreements consist of firm unit power sales pertaining to capacity from specific generating units. Because energy is generally sold at cost under these agreements, it is primarily the capacity revenues that affect the Company's profitability. The Company's capacity revenues were as follows: Year ------------------------------------- (in millions) (megawatts) 1997 $ 42 159 1996 41 173 1995 53 248 ------------------------------------- Unit power from specific generating plants is being sold to FP&L, FPC, JEA, and the City of Tallahassee, Florida. Under these agreements, the Company sold approximately 159 megawatts of capacity in 1997 and is scheduled to sell approximately 162 megawatts of capacity in 1998 and 1999. In 2000, 129 megawatts will be sold. After 2000, capacity sales will decline to approximately 105 megawatts -- unless reduced by FP&L, FPC, and JEA -- until the expiration of the contracts in 2010. 8. INCOME TAXES At December 31, 1997, tax-related regulatory assets were $688 million and tax-related regulatory liabilities were $298 million. The assets are attributable to tax benefits flowed through to customers in prior years and to taxes applicable to capitalized AFUDC. The liabilities are attributable to deferred taxes previously recognized at rates higher than current enacted tax law and to unamortized investment tax credits. Details of the federal and state income tax provisions are as follows: 1997 1996 1995 ------------------------------- Total provision for income taxes: (in millions) Federal: Currently payable $ 352 $325 $349 Deferred - Current year 49 70 84 Reversal of prior years (68) (41) (55) Deferred investment tax credits - - 1 - ----------------------------------------------------------------- 333 354 379 - ----------------------------------------------------------------- State: Currently payable 65 56 60 Deferred - Current year 8 12 15 Reversal of prior years (11) (5) (8) - ----------------------------------------------------------------- 62 63 67 - ----------------------------------------------------------------- Total 395 417 446 - ----------------------------------------------------------------- Less: Income taxes credited to other income (32) (19) (3) - ----------------------------------------------------------------- Total income taxes charged to operations $ 427 $436 $449 ================================================================= The tax effects of temporary differences between the carrying amounts of assets and liabilities in the financial statements and their respective tax bases, which give rise to deferred tax assets and liabilities, are as follows: 1997 1996 ------------------- (in millions) Deferred tax liabilities: Accelerated depreciation $1,732 $1,736 Property basis differences 968 1,038 Other 142 174 - ----------------------------------------------------------------- Total 2,842 2,948 - ----------------------------------------------------------------- Deferred tax assets: Other property basis differences 216 225 Federal effect of state deferred taxes 99 100 Other deferred costs 83 93 Disallowed Plant Vogtle buybacks 23 24 Other 14 36 - ----------------------------------------------------------------- Total 435 478 - ----------------------------------------------------------------- Net deferred tax liabilities 2,407 2,470 Portion included in current assets 11 53 - ----------------------------------------------------------------- Accumulated deferred income taxes in the Balance Sheets $2,418 $2,523 ================================================================= Deferred investment tax credits are amortized over the life of the related property with such amortization normally applied as a credit to reduce 28 NOTES (continued) Georgia Power Company 1997 Annual Report depreciation in the Statements of Income. Credits amortized in this manner amounted to $15 million in 1997, $17 million in 1996, and $22 million in 1995. At December 31, 1997, all investment tax credits available to reduce federal income taxes payable had been utilized. A reconciliation of the federal statutory tax rate to the effective income tax rate is as follows: 1997 1996 1995 -------- -------- -------- Federal statutory rate 35% 35% 35% State income tax, net of federal deduction 4 4 4 Non-deductible book depreciation 4 3 2 Other (4) (2) (1) - --------------------------------------------------------------- Effective income tax rate 39% 40% 40% =============================================================== Southern Company and its subsidiaries file a consolidated federal income tax return. Under a joint consolidated income tax agreement, each subsidiary's current and deferred tax expense is computed on a stand-alone basis. Tax benefits from losses of the parent company are allocated to each subsidiary based on the ratio of taxable income to total consolidated taxable income. 9. CAPITALIZATION First Mortgage Bond Indenture & Charter Restrictions The Company historically has relied on issuances of first mortgage bonds and preferred stock, in addition to pollution control revenue bonds issued for its benefit by public authorities, to meet its long-term external financing requirements. Recently, the Company's financings have consisted of unsecured debt and trust preferred securities. In this regard, the Company sought and obtained stockholder approval in 1997 to amend its corporate charter eliminating restrictions on the amounts of unsecured indebtedness it may incur. The Company's first mortgage bond indenture contains various restrictions that remain in effect as long as the bonds are outstanding. At December 31, 1997, $852 million of retained earnings and paid-in capital was unrestricted for the payment of cash dividends or any other distributions under terms of the mortgage indenture. If additional first mortgage bonds are issued, supplemental indentures in connection with those issues may contain more stringent restrictions than those currently in effect. The Company's charter previously limited cash dividends on common stock to the lesser of the retained earnings balance or 75 percent of net income available for such stock during a prior period of 12 months if the ratio of common stock equity to total capitalization, including retained earnings, adjusted to reflect the payment of the proposed dividend, was below 25 percent, and to 50 percent of such net income if such ratio was less than 20 percent. These restrictions were removed by a vote of preferred shareholders on December 10, 1997. Preferred Securities In December 1994, Georgia Power Capital, L.P., of which the Company is the sole general partner, issued $100 million of 9 percent mandatorily redeemable preferred securities. Substantially all of the assets of Georgia Power Capital are $103 million aggregate principal amount of Georgia Power's 9 percent Junior Subordinated Deferrable Interest Debentures due December 19, 2024. Statutory business trusts formed by the Company, of which the Company owns all the common securities, have issued mandatorily redeemable preferred securities as follows: Date of Maturity Issue Amount Rate Notes Date ------------------------------------------------------- (millions) (millions) Trust I 8/1996 $225.00 7.75% $232 6/2036 Trust II 1/1997 175.00 7.60% 180 12/2036 Trust III 6/1997 189.25 7.75% 195 3/2037 Substantially all of the assets of each trust are junior subordinated notes issued by the Company in the respective approximate principal amounts set forth above. The Company considers that the mechanisms and obligations relating to the preferred securities, taken together, constitute a full and unconditional guarantee by the Company of Georgia Power Capital's and the Trusts' payment obligations with respect to the preferred securities. 29 NOTES (continued) Georgia Power Company 1997 Annual Report Georgia Power Capital, L.P., and the Trusts are subsidiaries of the Company, and accordingly are consolidated in the Company's financial statements. Pollution Control Bonds The Company has incurred obligations in connection with the sale by public authorities of tax-exempt pollution control revenue bonds. The Company has authenticated and delivered to trustees an aggregate of $1.3 billion of its first mortgage bonds, which are pledged as security for its obligations under pollution control revenue contracts. No interest on these first mortgage bonds is payable unless and until a default occurs on the installment purchase or loan agreements. Details of pollution control bonds are as follows: Maturity Interest Rates 1997 1996 - -------------------------------------------------------------- (in millions) 2000 4.375% $ 50 $ 50 2004-2005 5% to 5.70% 104 143 2011 Variable 10 10 2017 8.375% to 9.375% - 140 2018-2022 6% to 6.35% & Variable 112 218 2023-2026 5.40% to 6.75% & Variable 1,110 1,110 2029-2032 Variable 235 - 2034 Variable 50 - - -------------------------------------------------------------- Total pollution control bonds $1,671 $1,671 ============================================================== Senior Notes In January 1998, the Company issued $145 million of 6 7/8% unsecured senior notes due December 31, 2047. The senior notes are subordinated to all secured debt of the Company, including its first mortgage bonds. Bank Credit Arrangements At the beginning of 1998, the Company had unused credit arrangements with banks totaling $1.3 billion, of which $919 million expires at various times during 1998, $300 million expires at June 30, 1999, and $60.3 million expires at May 1, 2000. The $300 million expiring June 30, 1999, is under revolving credit arrangements with several banks providing the Company and Alabama Power Company up to a total credit amount of $300 million. To provide liquidity support for commercial paper programs, $165 million and $135 million are currently dedicated to the Company and Alabama Power Company, respectively. However, the allocations can be changed among the borrowers by notifying the respective banks. Approximately $1.1 billion of the credit facilities allow for term loans of between one and three years. Most of the agreements include stated borrowing rates but also allow for negotiated rates. In addition, these agreements require payment of commitment fees based on the unused portions of the commitments or the maintenance of compensating balances with the banks. Of the Company's total $1.3 billion in unused credit arrangements, a portion of the lines is dedicated to provide liquidity support to variable rate pollution control bonds. The credit lines dedicated as of December 31, 1997, totaled $879 million. In connection with all other lines of credit, the Company has the option of paying fees or maintaining compensating balances. These balances are not legally restricted from withdrawal. In addition, the Company borrows under uncommitted lines of credit with banks and through a $225 million commercial paper program that has the liquidity support of committed bank credit arrangements. Average compensating balances held under these committed facilities were not material in 1997. Other Long-Term Debt Assets acquired under capital leases are recorded in the Balance Sheets as utility plant in service, and the related obligations are classified as long-term debt. At December 31, 1997 and 1996, the Company had a capitalized lease obligation for its corporate headquarters building of $87 million with an interest rate of 8.1 percent. The lease agreement provides for payments that are minimal in early years and escalate through the first 21 years of the lease. For ratemaking purposes, the GPSC has treated the lease as an operating lease and has allowed only the lease payments in cost of service. The difference between the accrued expense and the lease payments allowed for ratemaking purposes is being deferred as a cost to be recovered in the future as ordered by the GPSC. 30 NOTES (continued) Georgia Power Company 1997 Annual Report At December 31, 1997, and 1996, the interest and lease amortization deferred on the Balance Sheets are $52 million and $51 million, respectively. Assets Subject to Lien The Company's mortgage dated as of March 1, 1941, as amended and supplemented, securing the first mortgage bonds issued by the Company, constitutes a direct lien on substantially all of the Company's fixed property and franchises. Securities Due Within One Year The current portion of the Company's long-term debt and preferred stock is as follows: 1997 1996 ------------------- (in millions) First mortgage bonds $ 220 $ 61 Preferred stock - 49 - ---------------------------------------------------------------- Total $ 220 $ 110 ================================================================ The Company's first mortgage bond indenture includes an improvement fund requirement that amounts to 1 percent of each outstanding series of bonds authenticated under the indenture prior to January 1 of each year, other than those issued to collateralize pollution control obligations. The requirement may be satisfied by June 1 of each year by depositing cash, reacquiring bonds, or by pledging additional property equal to 1 2/3 times the requirement. The 1998 requirement was met in the first quarter of the year by depositing cash with the trustee. These funds were used to redeem first mortgage bonds. Redemption of Securities The Company plans to continue a program of redeeming or replacing debt and preferred stock in cases where opportunities exist to reduce financing costs. Issues may be repurchased in the open market or called at premiums as specified under terms of the issue. They may also be redeemed at face value to meet improvement fund requirements, to meet replacement provisions of the mortgage, or through use of proceeds from the sale of property pledged under the mortgage. In general, for the first five years a series of first mortgage bonds is outstanding, the Company is prohibited from redeeming for improvement fund purposes more than 1 percent annually of the original issue amount. 10. QUARTERLY FINANCIAL DATA (UNAUDITED) Summarized quarterly financial information for 1997 and 1996 is as follows: Net Income After Dividends on Operating Operating Preferred Quarter Ended Revenues Income Stock - ------------------------------------------------------------------- (in millions) -------------------------------------------- March 1997 $ 959 $180 $106 June 1997 1,015 205 131 September 1997 1,407 317 257 December 1997 1,005 159 100 March 1996 $1,029 $192 $114 June 1996 1,134 233 154 September 1996 1,311 339 256 December 1996 943 122 56 - ------------------------------------------------------------------- Earnings in the fourth quarter of 1997, compared to the fourth quarter of 1996, increased primarily as a result of higher retail sales and the recognition in 1996 of an agreement to refund $14 million to municipalities and cooperatives in Georgia. The Company's business is influenced by seasonal weather conditions. 31
SELECTED FINANCIAL AND OPERATING DATA Georgia Power Company 1997 Annual Report ========================================================================================================================== 1997 1996 1995 - -------------------------------------------------------------------------------------------------------------------------- Operating Revenues (in thousands) $4,385,717 $4,416,779 $4,405,338 Net Income after Dividends on Preferred Stock (in thousands) $593,996 $580,327 $608,862 Cash Dividends on Common Stock (in thousands) $520,000 $475,500 $451,500 Return on Average Common Equity (percent) 14.53 13.73 14.43 Total Assets (in thousands) $12,573,728 $13,006,635 $13,470,275 Gross Property Additions (in thousands) $475,921 $428,220 $480,449 - -------------------------------------------------------------------------------------------------------------------------- Capitalization (in thousands): Common stock equity $4,019,728 $4,154,281 $4,299,012 Preferred stock 157,247 464,611 692,787 Preferred stock subject to mandatory redemption - - - Company obligated mandatorily redeemable preferred securities 689,250 325,000 100,000 Long-term debt 2,982,835 3,200,419 3,315,460 - -------------------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) $7,849,060 $8,144,311 $8,407,259 ========================================================================================================================== Capitalization Ratios (percent): Common stock equity 51.2 51.0 51.1 Preferred stock 2.0 5.7 8.2 Company obligated mandatorily redeemable preferred securities 8.8 4.0 1.2 Long-term debt 38.0 39.3 39.5 - -------------------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) 100.0 100.0 100.0 ========================================================================================================================== First Mortgage Bonds (in thousands): Issued - 10,000 75,000 Retired 60,258 210,860 505,789 Preferred Stock (in thousands): Issued - - - Retired 356,392 179,148 - Company Obligated Mandatorily Redeemable Preferred Securities (in thousands): Issued 364,250 225,000 - - -------------------------------------------------------------------------------------------------------------------------- Security Ratings: First Mortgage Bonds - Moody's A1 A1 A1 Standard and Poor's A+ A+ A+ Duff & Phelps AA- AA- AA- Preferred Stock - Moody's a2 a2 a2 Standard and Poor's A A A Duff & Phelps A+ A+ A - -------------------------------------------------------------------------------------------------------------------------- Customers (year-end): Residential 1,561,675 1,531,453 1,500,024 Commercial 211,672 205,087 198,624 Industrial 9,988 10,424 10,796 Other 2,748 2,645 2,568 - -------------------------------------------------------------------------------------------------------------------------- Total 1,786,083 1,749,609 1,712,012 ========================================================================================================================== Employees (year-end) 8,354 * 10,346 11,061 *In 1997 Georgia Power Company transferred 1,855 employees to Southern Nuclear Operating Company.
32
SELECTED FINANCIAL AND OPERATING DATA Georgia Power Company 1997 Annual Report ============================================================================================================================= 1994 1993 1992 - ----------------------------------------------------------------------------------------------------------------------------- Operating Revenues (in thousands) $4,162,403 $4,451,181 $4,297,436 Net Income after Dividends on Preferred Stock (in thousands) $525,544 $569,853 $520,538 Cash Dividends on Common Stock (in thousands) $429,300 $402,400 $384,000 Return on Average Common Equity (percent) 12.84 14.37 13.60 Total Assets (in thousands) $13,712,658 $13,736,110 $10,964,442 Gross Property Additions (in thousands) $638,426 $674,432 $508,444 - ----------------------------------------------------------------------------------------------------------------------------- Capitalization (in thousands): Common stock equity $4,141,554 $4,045,458 $3,888,237 Preferred stock 692,787 692,787 692,792 Preferred stock subject to mandatory redemption - - 6,250 Company obligated mandatorily redeemable preferred securities 100,000 - - Long-term debt 3,757,823 4,031,387 4,131,016 - ----------------------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) $8,692,164 $8,769,632 $8,718,295 ============================================================================================================================= Capitalization Ratios (percent): Common stock equity 47.6 46.1 44.6 Preferred stock 8.0 7.9 8.0 Company obligated mandatorily redeemable preferred securities 1.2 - - Long-term debt 43.2 46.0 47.4 - ----------------------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) 100.0 100.0 100.0 ============================================================================================================================= First Mortgage Bonds (in thousands): Issued - 1,135,000 975,000 Retired 133,559 1,337,822 1,381,300 Preferred Stock (in thousands): Issued - 175,000 195,000 Retired - 245,005 165,004 Company Obligated Mandatorily Redeemable Preferred Securities (in thousands): Issued 100,000 - - - ----------------------------------------------------------------------------------------------------------------------------- Security Ratings: First Mortgage Bonds - Moody's A2 A3 A3 Standard and Poor's A A- A- Duff & Phelps A+ A+ A- Preferred Stock - Moody's a3 baa1 baa1 Standard and Poor's A- BBB+ BBB+ Duff & Phelps A- A- BBB - ----------------------------------------------------------------------------------------------------------------------------- Customers (year-end): Residential 1,466,382 1,441,972 1,421,175 Commercial 193,648 188,820 183,784 Industrial 10,976 11,217 11,479 Other 2,426 2,322 2,269 - ----------------------------------------------------------------------------------------------------------------------------- Total 1,673,432 1,644,331 1,618,707 ============================================================================================================================= Employees (year-end) 11,765 12,528 12,600 *In 1997 Georgia Power Company transferred 1,855 employees to Southern Nuclear Operating Company.
33A
SELECTED FINANCIAL AND OPERATING DATA Georgia Power Company 1997 Annual Report ======================================================================================================================= 1991 1990 1989 - ----------------------------------------------------------------------------------------------------------------------- Operating Revenues (in thousands) $4,301,428 $4,445,809 $4,145,240 Net Income after Dividends on Preferred Stock (in thousands) $474,855 $208,066 $449,099 Cash Dividends on Common Stock (in thousands) $375,200 $389,600 $394,500 Return on Average Common Equity (percent) 12.76 5.52 11.72 Total Assets (in thousands) $10,842,538 $11,176,619 $11,372,346 Gross Property Additions (in thousands) $548,051 $558,727 $727,631 - ----------------------------------------------------------------------------------------------------------------------- Capitalization (in thousands): Common stock equity $3,766,551 $3,673,913 $3,860,657 Preferred stock 607,796 607,796 607,844 Preferred stock subject to mandatory redemption 118,750 125,000 155,000 Company obligated mandatorily redeemable preferred securities - - - Long-term debt 4,553,189 5,000,225 5,054,001 - ----------------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) $9,046,286 $9,406,934 $9,677,502 ======================================================================================================================= Capitalization Ratios (percent): Common stock equity 41.7 39.1 39.9 Preferred stock 8.0 7.8 7.9 Company obligated mandatorily redeemable preferred securities - - - Long-term debt 50.3 53.1 52.2 - ----------------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) 100.0 100.0 100.0 ======================================================================================================================= First Mortgage Bonds (in thousands): Issued - 300,000 250,000 Retired 598,384 91,117 91,516 Preferred Stock (in thousands): Issued 100,000 - - Retired 100,000 83,750 7,500 Company Obligated Mandatorily Redeemable Preferred Securities (in thousands): Issued - - - - ----------------------------------------------------------------------------------------------------------------------- Security Ratings: First Mortgage Bonds - Moody's Baa1 Baa1 Baa2 Standard and Poor's BBB+ BBB+ BBB+ Duff & Phelps BBB+ BBB BBB Preferred Stock - Moody's baa1 baa1 baa2 Standard and Poor's BBB BBB BBB Duff & Phelps BBB- BBB- BBB- - ----------------------------------------------------------------------------------------------------------------------- Customers (year-end): Residential 1,397,682 1,378,888 1,355,211 Commercial 179,933 178,391 177,814 Industrial 11,946 12,115 12,311 Other 2,190 2,114 2,050 - ----------------------------------------------------------------------------------------------------------------------- Total 1,591,751 1,571,508 1,547,386 ======================================================================================================================= Employees (year-end) 13,700 13,746 13,900 *In 1997 Georgia Power Company transferred 1,855 employees to Southern Nuclear Operating Company.
33B
SELECTED FINANCIAL AND OPERATING DATA Georgia Power Company 1997 Annual Report ============================================================================================================ 1988 1987 - ------------------------------------------------------------------------------------------------------------ Operating Revenues (in thousands) $3,897,479 $3,786,485 Net Income after Dividends on Preferred Stock (in thousands) $479,532 $240,057 Cash Dividends on Common Stock (in thousands) $386,600 $377,800 Return on Average Common Equity (percent) 13.06 6.85 Total Assets (in thousands) $11,130,539 $11,197,494 Gross Property Additions (in thousands) $929,019 $1,034,059 - ------------------------------------------------------------------------------------------------------------ Capitalization (in thousands): Common stock equity $3,806,070 $3,538,182 Preferred stock 657,844 657,844 Preferred stock subject to mandatory redemption 162,500 166,250 Company obligated mandatorily redeemable preferred securities - - Long-term debt 4,861,378 4,825,760 - ------------------------------------------------------------------------------------------------------------ Total (excluding amounts due within one year) $9,487,792 $9,188,036 ============================================================================================================ Capitalization Ratios (percent): Common stock equity 40.1 38.5 Preferred stock 8.6 9.0 Company obligated mandatorily redeemable preferred securities - - Long-term debt 51.3 52.5 - ------------------------------------------------------------------------------------------------------------ Total (excluding amounts due within one year) 100.0 100.0 ============================================================================================================ First Mortgage Bonds (in thousands): Issued 150,000 500,000 Retired 206,677 217,949 Preferred Stock (in thousands): Issued - 125,000 Retired 3,750 150,000 Company Obligated Mandatorily Redeemable Preferred Securities (in thousands): Issued - - - ------------------------------------------------------------------------------------------------------------ Security Ratings: First Mortgage Bonds - Moody's Baa2 Baa2 Standard and Poor's BBB BBB Duff & Phelps 9 9 Preferred Stock - Moody's baa2 baa2 Standard and Poor's BBB- BBB- Duff & Phelps 10 10 - ------------------------------------------------------------------------------------------------------------ Customers (year-end): Residential 1,329,173 1,303,721 Commercial 174,147 169,014 Industrial 12,353 12,307 Other 1,993 1,858 - ------------------------------------------------------------------------------------------------------------ Total 1,517,666 1,486,900 ============================================================================================================ Employees (year-end) 15,110 14,924 *In 1997 Georgia Power Company transferred 1,855 employees to Southern Nuclear Operating Company.
33C
SELECTED FINANCIAL AND OPERATING DATA (continued) Georgia Power Company 1997 Annual Report ================================================================================================================================ 1997 1996 1995 - -------------------------------------------------------------------------------------------------------------------------------- Operating Revenues (in thousands): Residential $1,326,787 $1,371,033 $1,337,060 Commercial 1,493,353 1,486,586 1,449,108 Industrial 1,110,311 1,118,633 1,141,766 Other 47,848 47,060 44,255 - -------------------------------------------------------------------------------------------------------------------------------- Total retail 3,978,299 4,023,312 3,972,189 Sales for resale - non-affiliates 282,365 281,580 290,302 Sales for resale - affiliates 38,708 35,886 76,906 - -------------------------------------------------------------------------------------------------------------------------------- Total revenues from sales of electricity 4,299,372 4,340,778 4,339,397 Other revenues 86,345 76,001 65,941 - -------------------------------------------------------------------------------------------------------------------------------- Total $4,385,717 $4,416,779 $4,405,338 ================================================================================================================================ Kilowatt-Hour Sales (in thousands): Residential 17,295,022 17,826,451 17,307,399 Commercial 21,134,346 20,823,073 19,844,999 Industrial 26,701,685 26,191,831 25,286,340 Other 538,163 536,057 493,720 - -------------------------------------------------------------------------------------------------------------------------------- Total retail 65,669,216 65,377,412 62,932,458 Sales for resale - non-affiliates 6,795,300 7,868,342 6,591,841 Sales for resale - affiliates 1,706,699 1,180,207 2,738,947 - -------------------------------------------------------------------------------------------------------------------------------- Total 74,171,215 74,425,961 72,263,246 ================================================================================================================================ Average Revenue Per Kilowatt-Hour (cents): Residential 7.67 7.69 7.73 Commercial 7.07 7.14 7.30 Industrial 4.16 4.27 4.52 Total retail 6.06 6.15 6.31 Sales for resale 3.78 3.51 3.94 Total sales 5.80 5.83 6.00 Residential Average Annual Kilowatt-Hour Use Per Customer 11,171 11,763 11,654 Residential Average Annual Revenue Per Customer $857.01 $904.70 $900.28 Plant Nameplate Capacity Ratings (year-end) (megawatts) 14,437 14,367 14,344 Maximum Peak-Hour Demand (megawatts): Winter 10,407 10,410 9,819 Summer 13,153 12,914 12,828 Annual Load Factor (percent) 57.4 62.2 59.6 Plant Availability (percent): Fossil-steam 85.8 85.2 85.8 Nuclear 88.8 89.3 91.8 - -------------------------------------------------------------------------------------------------------------------------------- Source of Energy Supply (percent): Coal 64.3 60.4 63.0 Nuclear 18.8 18.2 19.3 Hydro 2.2 2.2 2.5 Oil and gas 0.6 0.5 0.6 Purchased power - From non-affiliates 2.7 5.6 7.7 From affiliates 11.4 13.1 6.9 - -------------------------------------------------------------------------------------------------------------------------------- Total 100.0 100.0 100.0 ================================================================================================================================ Total Fuel Economy Data: BTU per net kilowatt-hour generated 9,990 10,468 10,039 Cost of fuel per million BTU (cents) 132.61 128.72 143.85 Average cost of fuel per net kilowatt-hour generated (cents) 1.32 1.35 1.44 ================================================================================================================================ * Less than one-tenth of one percent.
34
SELECTED FINANCIAL AND OPERATING DATA (continued) Georgia Power Company 1997 Annual Report ============================================================================================================================ 1994 1993 1992 - ---------------------------------------------------------------------------------------------------------------------------- Operating Revenues (in thousands): Residential $1,180,358 $1,291,035 $1,128,396 Commercial 1,367,315 1,354,130 1,285,681 Industrial 1,100,995 1,113,067 1,083,856 Other 42,983 41,399 39,504 - ---------------------------------------------------------------------------------------------------------------------------- Total retail 3,691,651 3,799,631 3,537,437 Sales for resale - non-affiliates 351,591 534,370 640,308 Sales for resale - affiliates 60,899 61,668 67,835 - ---------------------------------------------------------------------------------------------------------------------------- Total revenues from sales of electricity 4,104,141 4,395,669 4,245,580 Other revenues 58,262 55,512 51,856 - ---------------------------------------------------------------------------------------------------------------------------- Total $4,162,403 $4,451,181 $4,297,436 ============================================================================================================================ Kilowatt-Hour Sales (in thousands): Residential 15,680,709 16,649,859 14,939,172 Commercial 18,738,461 18,278,508 17,260,614 Industrial 24,337,632 23,635,363 22,978,312 Other 484,009 460,801 436,144 - ---------------------------------------------------------------------------------------------------------------------------- Total retail 59,240,811 59,024,531 55,614,242 Sales for resale - non-affiliates 7,968,475 14,307,030 15,870,222 Sales for resale - affiliates 3,056,050 3,027,733 3,320,060 - ---------------------------------------------------------------------------------------------------------------------------- Total 70,265,336 76,359,294 74,804,524 ============================================================================================================================ Average Revenue Per Kilowatt-Hour (cents): Residential 7.53 7.75 7.55 Commercial 7.30 7.41 7.45 Industrial 4.52 4.71 4.72 Total retail 6.23 6.44 6.36 Sales for resale 3.74 3.44 3.69 Total sales 5.84 5.76 5.68 Residential Average Annual Kilowatt-Hour Use Per Customer 10,766 11,630 10,603 Residential Average Annual Revenue Per Customer $810.39 $901.79 $800.88 Plant Nameplate Capacity Ratings (year-end) (megawatts) 13,943 13,759 14,076 Maximum Peak-Hour Demand (megawatts): Winter 10,509 9,067 8,938 Summer 11,758 12,573 11,448 Annual Load Factor (percent) 63.0 58.5 60.5 Plant Availability (percent): Fossil-steam 83.1 85.9 86.6 Nuclear 88.4 85.5 87.7 - ---------------------------------------------------------------------------------------------------------------------------- Source of Energy Supply (percent): Coal 61.3 62.1 61.4 Nuclear 18.0 16.2 17.0 Hydro 2.6 2.3 2.5 Oil and gas 0.1 0.2 * Purchased power - From non-affiliates 9.7 10.2 12.2 From affiliates 8.3 9.0 6.9 - ---------------------------------------------------------------------------------------------------------------------------- Total 100.0 100.0 100.0 ============================================================================================================================ Total Fuel Economy Data: BTU per net kilowatt-hour generated 9,915 9,912 9,900 Cost of fuel per million BTU (cents) 145.33 153.62 153.08 Average cost of fuel per net kilowatt-hour generated (cents) 1.44 1.52 1.52 ============================================================================================================================ * Less than one-tenth of one percent.
35A
SELECTED FINANCIAL AND OPERATING DATA (continued) Georgia Power Company 1997 Annual Report ================================================================================================================ 1991 1990 1989 - ---------------------------------------------------------------------------------------------------------------- Operating Revenues (in thousands): Residential $1,111,358 $1,109,165 $1,022,781 Commercial 1,243,067 1,218,441 1,143,727 Industrial 1,057,702 1,061,830 1,006,416 Other 37,861 36,773 34,775 - ---------------------------------------------------------------------------------------------------------------- Total retail 3,449,988 3,426,209 3,207,699 Sales for resale - non-affiliates 736,643 784,086 760,809 Sales for resale - affiliates 65,586 168,251 150,394 - ---------------------------------------------------------------------------------------------------------------- Total revenues from sales of electricity 4,252,217 4,378,546 4,118,902 Other revenues 49,211 67,263 26,338 - ---------------------------------------------------------------------------------------------------------------- Total $4,301,428 $4,445,809 $4,145,240 ================================================================================================================ Kilowatt-Hour Sales (in thousands): Residential 14,815,089 14,771,648 14,134,195 Commercial 16,885,833 16,627,128 15,843,181 Industrial 22,298,062 22,126,604 21,801,404 Other 429,016 428,459 414,107 - ---------------------------------------------------------------------------------------------------------------- Total retail 54,428,000 53,953,839 52,192,887 Sales for resale - non-affiliates 18,719,924 20,158,681 20,479,412 Sales for resale - affiliates 3,885,892 8,272,528 7,489,948 - ---------------------------------------------------------------------------------------------------------------- Total 77,033,816 82,385,048 80,162,247 ================================================================================================================ Average Revenue Per Kilowatt-Hour (cents): Residential 7.50 7.51 7.24 Commercial 7.36 7.33 7.22 Industrial 4.74 4.80 4.62 Total retail 6.34 6.35 6.15 Sales for resale 3.55 3.35 3.26 Total sales 5.52 5.31 5.14 Residential Average Annual Kilowatt-Hour Use Per Customer 10,675 10,795 10,530 Residential Average Annual Revenue Per Customer $800.78 $810.56 $761.96 Plant Nameplate Capacity Ratings (year-end) (megawatts) 14,076 14,366 14,366 Maximum Peak-Hour Demand (megawatts): Winter 10,001 8,977 10,101 Summer 13,090 13,196 12,735 Annual Load Factor (percent) 55.2 55.5 56.3 Plant Availability (percent): Fossil-steam 93.3 92.5 93.0 Nuclear 81.6 81.3 89.2 - ---------------------------------------------------------------------------------------------------------------- Source of Energy Supply (percent): Coal 63.6 65.1 64.0 Nuclear 15.3 13.7 14.1 Hydro 2.3 2.2 2.1 Oil and gas * 0.1 0.1 Purchased power - From non-affiliates 10.3 11.0 10.2 From affiliates 8.5 7.9 9.5 - ---------------------------------------------------------------------------------------------------------------- Total 100.0 100.0 100.0 ================================================================================================================ Total Fuel Economy Data: BTU per net kilowatt-hour generated 9,960 9,939 10,020 Cost of fuel per million BTU (cents) 157.97 166.22 164.27 Average cost of fuel per net kilowatt-hour generated (cents) 1.57 1.65 1.65 ================================================================================================================ * Less than one-tenth of one percent.
35B
SELECTED FINANCIAL AND OPERATING DATA (continued) Georgia Power Company 1997 Annual Report =========================================================================================================== 1988 1987 - ----------------------------------------------------------------------------------------------------------- Operating Revenues (in thousands): Residential $979,047 $904,218 Commercial 1,054,995 915,540 Industrial 983,822 911,933 Other 31,743 29,350 - ----------------------------------------------------------------------------------------------------------- Total retail 3,049,607 2,761,041 Sales for resale - non-affiliates 707,076 822,696 Sales for resale - affiliates 86,751 159,998 - ----------------------------------------------------------------------------------------------------------- Total revenues from sales of electricity 3,843,434 3,743,735 Other revenues 54,045 42,750 - ----------------------------------------------------------------------------------------------------------- Total $3,897,479 $3,786,485 =========================================================================================================== Kilowatt-Hour Sales (in thousands): Residential 13,800,038 13,675,730 Commercial 14,790,561 13,799,379 Industrial 21,412,845 20,884,454 Other 397,669 385,514 - ----------------------------------------------------------------------------------------------------------- Total retail 50,401,113 48,745,077 Sales for resale - non-affiliates 18,544,705 20,910,185 Sales for resale - affiliates 3,327,814 6,032,889 - ----------------------------------------------------------------------------------------------------------- Total 72,273,632 75,688,151 =========================================================================================================== Average Revenue Per Kilowatt-Hour (cents): Residential 7.09 6.61 Commercial 7.13 6.63 Industrial 4.59 4.37 Total retail 6.05 5.66 Sales for resale 3.63 3.65 Total sales 5.32 4.95 Residential Average Annual Kilowatt-Hour Use Per Customer 10,484 10,623 Residential Average Annual Revenue Per Customer $743.82 $702.36 Plant Nameplate Capacity Ratings (year-end) (megawatts) 13,018 13,018 Maximum Peak-Hour Demand (megawatts): Winter 9,866 9,446 Summer 12,295 12,390 Annual Load Factor (percent) 59.1 56.1 Plant Availability (percent): Fossil-steam 94.5 92.7 Nuclear 69.4 85.4 - ----------------------------------------------------------------------------------------------------------- Source of Energy Supply (percent): Coal 72.0 70.9 Nuclear 9.6 9.1 Hydro 1.2 1.7 Oil and gas 0.1 0.1 Purchased power - From non-affiliates 8.2 8.5 From affiliates 8.9 9.7 - ----------------------------------------------------------------------------------------------------------- Total 100.0 100.0 =========================================================================================================== Total Fuel Economy Data: BTU per net kilowatt-hour generated 9,969 9,932 Cost of fuel per million BTU (cents) 166.28 168.81 Average cost of fuel per net kilowatt-hour generated (cents) 1.66 1.68 =========================================================================================================== * Less than one-tenth of one percent.
35C -----END PRIVACY-ENHANCED MESSAGE-----