-----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, EIhxkoI/owTMPxmC9k2tKbDdEGkJ8Xpbm5VvzmgBlCUwifsuvyrLeJEsf1ZNp3T6 jrw5ONxOCOltukYbzOX+Ng== 0000044545-97-000013.txt : 19970305 0000044545-97-000013.hdr.sgml : 19970305 ACCESSION NUMBER: 0000044545-97-000013 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970212 ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19970304 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: GULF POWER CO CENTRAL INDEX KEY: 0000044545 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 590276810 STATE OF INCORPORATION: ME FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-02429 FILM NUMBER: 97549796 BUSINESS ADDRESS: STREET 1: 500 BAYFRONT PKWY CITY: PENSACOLA STATE: FL ZIP: 32501 BUSINESS PHONE: 9044446111 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 12 , 1997 ------------------------ GULF POWER COMPANY (Exact name of registrant as specified in its charter) Maine 0-2429 59-0276810 (State or other jurisdiction (Commission (IRS Employer of incorporation) File Number) Identification No.) 500 Bayfront Parkway, Pensacola, Florida 32501 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (904) 444-6111 ----------------- 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 Gulf Power Company as of December 31, 1996. 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. GULF POWER COMPANY By /s/ Wayne Boston Wayne Boston Assistant Secretary Date: March 3, 1997 EX-23 2 ARTHUR ANDERSEN CONSENT Exhibit 23 ARTHUR ANDERSEN LLP CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report dated February 12, 1997 on the financial statements of Gulf Power Company, included in this Form 8-K, into Gulf Power Company's previously filed Registration Statement File Nos. 33-50165 and 333-19271. /s/Arthur Andersen LLP Atlanta, Georgia February 27, 1997 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. 044545 GULF POWER COMPANY 1,000 12-MOS DEC-31-1996 DEC-31-1996 PER-BOOK 1,063,730 652 165,042 78,942 0 1,308,366 38,060 218,519 179,179 435,758 0 89,602 321,553 25,000 51,299 0 (40,972) (24,500) 0 0 450,626 1,308,366 634,365 37,821 502,752 540,573 93,792 491 94,283 30,673 63,610 5,765 57,845 58,300 22,751 160,885 0 0
EX-99 4 AUDIT FINANCIAL STATEMENTS MANAGEMENT'S REPORT Gulf Power Company 1996 Annual Report The management of Gulf Power Company has prepared -- and is responsible for -- the financial statements and related information included in this report. 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 books and records reflect only authorized transactions of the Company. Limitations exist in any system of internal controls, however, based on a recognition that the cost of the system should not exceed its benefits. The Company believes 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, composed of directors who are not employees, provides a broad overview of management's financial reporting and control functions. Periodically, 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 controls, and financial reporting matters. The internal auditors and 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 according to 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 Gulf Power Company in conformity with generally accepted accounting principles. /s/ Travis J. Bowden Travis J. Bowden President and Chief Executive Officer /s/ Arlan E. Scarbrough Arlan E. Scarbrough Chief Financial Officer February 12, 1997 1 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors of Gulf Power Company: We have audited the accompanying balance sheets and statements of capitalization of Gulf Power Company (a Maine corporation and a wholly owned subsidiary of Southern Company) as of December 31, 1996 and 1995, 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, 1996. 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 10-26) referred to above present fairly, in all material respects, the financial position of Gulf Power Company as of December 31, 1996 and 1995, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP Atlanta, Georgia February 12, 1997 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Gulf Power Company 1996 Annual Report RESULTS OF OPERATIONS Earnings Gulf Power Company's 1996 net income after dividends on preferred stock was $57.8 million, an increase of $0.6 million over the prior year. This improvement is primarily attributable to higher retail revenues and lower costs related to the work force reduction program implemented last year, offset somewhat by an increase in other operating expenses. In 1995, earnings were $57.2 million, representing an increase of $2 million compared to the prior year. Earnings in 1995 were significantly affected by higher retail revenues due to exceptionally hot summer weather and lower interest charges on long-term debt. The return on average common equity for 1996 and 1995 was 13.27 percent. Revenues Operating revenues increased in 1996 and 1995 as a result of the following factors: Increase (Decrease) From Prior Year ------------------------------------- 1996 1995 1994 ------------------------------------- (in thousands) Retail -- Sales growth $ 7,123 $ 3,647 $ 7,126 Weather (1,057) 9,749 (4,631) Regulatory cost recovery and other 5,649 22,502 8,938 - ----------------------------------------------------------------- Total retail 11,715 35,898 11,433 - ----------------------------------------------------------------- Sales for resale-- Non-affiliates 2,788 (5,698) (6,098) Affiliates (857) 1,266 (5,813) - ----------------------------------------------------------------- Total sales for resale 1,931 (4,432) (11,911) Other operating revenues 1,642 8,798 (3,851) - ----------------------------------------------------------------- Total operating revenues $15,288 $40,264 $(4,329) ================================================================= Percent change 2.5% 7.0% (0.7)% - ----------------------------------------------------------------- Retail revenues of $531 million in 1996 increased $11.7 million or 2.3 percent from last year, compared with an increase of 7.4 percent in 1995 and 2.4 percent in 1994. Residential and commercial revenues increased as a result of customer growth in 1996. This increase was partially offset by milder summer weather in 1996 compared to the hotter-than-normal summer weather of 1995. The increase in regulatory cost recovery and other retail revenues is primarily attributable to the recovery of increased purchased power capacity costs from affiliated companies. Regulatory cost recovery and other includes recovery provisions for fuel expense and the energy component of purchased power costs; energy conservation costs; purchased power capacity costs; and environmental compliance costs. The recovery provisions equal the related expenses and have no material effect on net income. See Notes 1 and 3 to the financial statements under "Revenues and Regulatory Cost Recovery Clauses" and "Environmental Cost Recovery," respectively, for further information. Sales for resale were $81 million in 1996, increasing $1.9 million or 2.4 percent from 1995. Revenues from sales to utilities outside the service area under long-term contracts consist of capacity and energy components. Capacity revenues reflect the recovery of fixed costs and a return on investment under the contracts. Energy is generally sold at variable cost. The capacity and energy components under these long-term contracts were as follows: 1996 1995 1994 ----------------------------------------- (in thousands) Capacity $25,400 $25,870 $30,926 Energy 19,804 18,598 18,456 - ------------------------------------------------------------- Total $45,204 $44,468 $49,382 ============================================================= Capacity revenues decreased in 1996 and 1995, primarily reflecting the decline in net plant investment. Sales to affiliated companies vary from year to year depending on demand and the availability and cost of generating resources at each company. These sales have little impact on earnings. 3 MANAGEMENTS'S DISCUSSION AND ANALYSIS (continued) Gulf Power Company 1996 Annual Report The increase in other operating revenues for 1996 and 1995 is primarily due to increased amounts collected to recover newly-imposed county franchise fees. These fees are included in taxes other than income taxes and thus, there is no impact on earnings. Other changes for 1996 and 1995 are primarily attributable to adjustments in the regulatory cost recovery clauses for differences between recoverable costs and the amounts actually reflected in revenues. See Notes 1 and 3 to the financial statements under "Revenues and Regulatory Cost Recovery Clauses" and "Environmental Cost Recovery," respectively, for further discussion. Kilowatt-hour sales for 1996 and percent changes in sales since 1994 are reported below. KWH Percent Change ------------ --------------------------- 1996 1996 1995 1994 ------------ --------------------------- (millions) Residential 4,160 3.6% 7.0% 1.1% Commercial 2,809 3.7 6.3 4.8 Industrial 1,808 0.7 (2.8) (9.0) Other 17 2.7 (0.1) - ------------ Total retail 8,794 3.0 4.5 (0.3) Sales for resale Non-affiliates 1,534 9.9 (1.6) (2.8) Affiliates 710 (6.5) (13.1) (15.2) ------------ Total 11,038 3.3 2.2 (2.1) ================================================================== Retail sales increased in 1996 due to customer growth of 2.7 percent in the residential class and 4.6 percent in the commercial class. The increase in energy sales to the industrial class is a result of the Real-Time-Pricing program. The price structure of this program has successfully encouraged participating industrial customers to lower their peak demand requirements and increase their purchases of energy during off-peak periods. See "Future Earnings Potential" for information on the Company's initiatives to remain competitive and to meet conservation goals set by the Florida Public Service Commission (FPSC). In 1995, retail sales increased from the prior year due to hot summer weather and an increase in residential and commercial customers. Industrial sales were lower due to the reclassification of a major customer from the industrial to commercial class and temporary production delays of other industrial customers. In 1996, energy sales for resale to non-affiliates increased 9.9 percent and are predominantly related to unit power sales under long-term contracts to other Florida utilities and bulk power sales under short-term contracts to other non-affiliated utilities. Energy sales to affiliated companies vary from year to year as mentioned previously. Expenses Total operating expenses for 1996 increased $12.7 million or 2.4 percent from 1995. The increase is due to higher purchased power expenses, other operation expenses, depreciation expenses, and taxes. In 1995, total operating expenses increased $41.3 million or 8.5 percent from 1994 primarily due to higher fuel and purchased power expenses, maintenance expenses, and taxes other than income taxes, offset by lower depreciation and amortization expenses. Fuel and purchased power expenses for 1996 increased $4 million or 1.8 percent from 1995. The change reflects the increase in purchased power from affiliated companies due to scheduled maintenance outages at Plant Crist and Plant Daniel during the first half of 1996. This increase was partially offset by a slight decrease in fuel expense reflecting a lower cost of fuel. In 1995, fuel and purchased power expenses increased $30.1 million or 15.5 percent from 1994 reflecting the increase in generation due to the extreme weather conditions during the summer of 1995 and slightly higher fuel costs. The amount and sources of generation and the average cost of fuel per net kilowatt-hour generated were as follows: 1996 1995 1994 ----------------------------- Total generation (millions of kilowatt-hours) 10,214 9,828 9,559 Sources of generation (percent) Coal 99.4 99.5 99.8 Oil and gas 0.6 0.5 0.2 Average cost of fuel per net kilowatt-hour generated (cents) Coal 1.99 2.08 2.00 Oil and gas 6.41 3.56 6.93 Total 2.02 2.09 2.01 - ------------------------------------------------------------------ 4 MANAGEMENTS'S DISCUSSION AND ANALYSIS (continued) Gulf Power Company 1996 Annual Report In 1996, other operation expenses increased $1.8 million or 1.5 percent from the 1995 level. The increase is primarily attributable to an increase in administrative and general expenses including costs associated with the approved increase of the Company's annual accrual to the accumulated provision for property damage to amortize deferred storm charges and restore the account balance to a reasonable level. Higher costs related to the buyouts and renegotiation of coal supply contracts and costs associated with the Company's pro rata share of affiliated companies' workforce reduction costs were offset by a decrease in costs related to the Company's work force reduction program implemented in the prior year. In 1995, other operation expenses decreased $0.5 million due to a $9.4 million reduction in the amortization costs of coal buyouts and renegotiation of coal supply contracts. This was offset by the $7 million accrual for benefits to be provided by the Company under the work force reduction program implemented during the fourth quarter of 1995. These costs are further discussed in Notes 2 and 5 to the financial statements under "Work Force Reduction Programs" and "Fuel Commitments." Maintenance expense in 1996 decreased $0.9 million or 1.7 percent from the prior year. This is attributable to a decrease in scheduled maintenance of production facilities. In 1995, maintenance expense increased $5.2 million or 11.2 percent from the prior year due to higher power production maintenance related to non-recurring items and higher distribution maintenance. Depreciation and amortization expenses increased $1.5 million or 2.8 percent from 1995. This change is primarily due to an increase in depreciation expense reflecting an increase in the average investment in distribution property as a result of favorable growth in the Company's service area. In 1995, the decrease in depreciation and amortization expenses of $1.5 million was attributable to property which was fully amortized by December 1994. Federal and state income taxes increased $3.8 million or 11 percent in 1996 primarily due to an increase in taxable income. Taxes other than income taxes increased $2.4 million or 4.9 percent primarily due to an increase in county franchise fees as mentioned previously. In 1995, other taxes increased $7.9 million or 18.9 percent primarily due to an increase in county franchise fees. Franchise fees are billed and collected from customers and have no impact on earnings. In 1996, interest expense increased $0.9 million or 3.2 percent over the prior year. The increase is attributable to the issuance of $30 million of new first mortgage bonds in January 1996. The increase in interest on long-term debt was partially offset by a decrease in interest on notes payable as a result of a lower average amount of short-term notes outstanding. Interest expense in 1995 decreased $2.5 million or 7.8 percent under the prior year. The decrease was attributable to lower interest on long-term debt reflecting a lower average principal balance outstanding and the refinancing of $42 million of pollution control bonds in December 1994. 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 cost 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 potential. The level of future earnings depends on numerous factors ranging from energy sales growth to a potentially less regulated more competitive environment. A work force reduction program was implemented in the fourth quarter of 1995. The cost of the program reduced earnings by $0.7 million in 1996 and $4.3 million in 1995. The estimated savings from this program in 1996 were $2.7 million and will be approximately $3.9 million annually beginning in 1997. 5 MANAGEMENTS'S DISCUSSION AND ANALYSIS (continued) Gulf Power Company 1996 Annual Report In December 1995, the FPSC approved the Company's request to increase the amount of its annual accrual to the accumulated provision for property damage account from $1.2 million to $3.5 million due to significant hurricane-related charges to the account during 1995. Refer to Note 1 to the financial statements under "Provision for Property Damage" for further discussion. Future earnings in the near term will depend upon growth in energy sales, which is subject to a number of factors. Traditionally, these factors have included weather, competition, changes in contracts with neighboring utilities, energy conservation practiced by customers, the elasticity of demand, and the rate of economic growth in the Company's service area. However, the Energy Policy Act of 1992 (Energy Act) is having a dramatic effect on the future of the electric utility industry. The Energy Act promotes energy efficiency, alternative fuel use, and increased wholesale competition for electric utilities. The Company is positioning the business to meet the challenge of this major change in the traditional practice of selling electricity. The Energy Act allows independent power producers (IPPs) to access the Company's transmission network in order to sell electricity to other utilities. This enhances the incentive for IPPs to build cogeneration plants for industrial and commercial customers and sell energy generation to 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. Various federal and state initiatives designed to promote wholesale and retail competition, among other things, include proposals that would allow customers to choose their electricity provider. As the initiatives materialize, the structure of the utility industry could radically change. Certain initiatives could result in a change in the ownership and/or operation of generation and transmission facilities. Numerous issues must be resolved, including significant ones relating to transmission pricing and recovery of stranded investments. Being a low-cost producer could provide significant opportunities to increase market share and profitability in markets that evolve with changing regulation. Unless the Company remains a low-cost producer and provides quality service, the Company's retail energy sales growth could be limited, and this could significantly erode earnings. The FPSC set conservation goals for the Company, beginning in 1995, which require programs to reduce 154 megawatts of summer peak demand and 65,000 KWH of sales by the year 2004. In 1995, the FPSC approved the Company's programs to accomplish these goals. The Company can experience net growth as long as the filed programs achieve the intended reductions in peak demand and KWH sales. In response to these goals and seeking to remain competitive with other electric utilities, the Company has developed initiatives which emphasize price flexibility and competitive offering of energy efficiency products and services. These initiatives will enable customers to lower or alter their peak energy requirements. Besides promoting energy efficiency, another benefit of these initiatives could be the ability to defer the need to construct additional generating capacity. On September 3, 1996, the FPSC approved a new optional Commercial/Industrial Service Rider (CISR), which is applicable to the rate schedules for the Company's largest existing and potential customers who are able to show they have viable alternatives to purchasing the Company's energy services. The CISR, approved as a pilot program, provides the flexibility needed to enable the Company to offer its services in a more competitive manner to these customers. Compliance costs related to the Clean Air Act Amendments of 1990 (Clean Air Act) could affect earnings if such costs are not fully recovered. The Clean Air Act and other important environmental items are discussed later under "Environmental Matters." Also, state of Florida legislation adopted in 1993 that provides for recovery of prudent environmental compliance costs is discussed in Note 3 to the financial statements under "Environmental Cost Recovery." The Company is subject to the provisions of Financial Accounting Standards Board 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 6 MANAGEMENTS'S DISCUSSION AND ANALYSIS (continued) Gulf Power Company 1996 Annual Report regulatory assets and liabilities and determine if any other assets have been impaired. See Note 1 to the financial statements under "Regulatory Assets and Liabilities" for additional information. FINANCIAL CONDITION Overview The principal changes in the Company's financial condition during 1996 were gross property additions of $61.4 million and a decrease of $55.5 million in notes payable. Funds for the property additions and the net decrease in short-term notes were provided by internal sources. See the Statements of Cash Flows for further details. Financing Activities The Company continued to lower its financing costs by issuing new bonds and other debt and retiring higher-cost issues in 1996. The Company sold $55 million of first mortgage bonds, $33.3 million of pollution control bonds, and obtained $49.1 million of long-term bank notes. Retirements, including maturities during 1996, totaled $50.9 million of first mortgage bonds, $33.3 million of pollution control bonds, and $34.9 million of long-term bank notes. The refinancing of $33.3 million in pollution control bonds and $49.2 million in first mortgage bonds will result in savings of over $1 million annually. See the Statements of Cash Flows for further details. Composite financing rates for the years 1994 through 1996 as of year end were as follows: 1996 1995 1994 ------------------------------ Composite interest rate on long-term debt 6.1% 6.5% 6.5% Composite preferred stock dividend rate 6.4% 6.4% 6.6% - ---------------------------------------------------------------- The decrease in the composite interest rate on long-term debt from 1995 to 1996 reflects the Company's efforts to refinance higher-cost debt. The decrease in the composite preferred stock dividend rate in 1995 was primarily due to a decrease in dividends on the Company's adjustable rate preferred stock, reflecting lower interest rates. Capital Requirements for Construction The Company's gross property additions, including those amounts related to environmental compliance, are budgeted at $142 million for the three years beginning in 1997 ($47 million in 1997, $49 million in 1998, and $46 million in 1999). Actual construction costs may vary from this estimate because of changes in such factors as: business conditions; environmental regulations; load projections; the cost and efficiency of construction labor, equipment, and materials; and the cost of capital. In addition, there can be no assurance that costs related to capital expenditures will be fully recovered. The Company does not have any such generating plants under construction, and current energy demand forecasts do not indicate a need for any such facilities until well into the future. However, significant construction related to maintaining and upgrading transmission and distribution facilities and generating plants will continue. Other Capital Requirements In addition to the funds needed for the construction program, approximately $121 million will be required by the end of 1999 in connection with maturities of long-term debt. Also, the Company will continue to retire higher-cost debt and preferred stock and replace these securities with lower-cost capital as market conditions and terms of the instruments permit. Environmental Matters 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 -- impacts the Company. 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 of Southern Company. 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 will be affected. In 1995, the Environmental Protection Agency (EPA) began issuing annual sulfur dioxide emission allowances through the allowance trading program. An emission allowance is the authority to emit one ton of sulfur dioxide during a 7 MANAGEMENTS'S DISCUSSION AND ANALYSIS (continued) Gulf Power Company 1996 Annual Report calendar year. The sulfur dioxide emission allowance program is expected to minimize the cost of compliance. Southern Company's sulfur dioxide compliance strategy is designed to use allowances as a compliance option. Southern Company achieved Phase I sulfur dioxide compliance at the affected plants by switching to low-sulfur coal, which required some equipment upgrades. This compliance strategy resulted in unused emission allowances being banked for later use. Construction expenditures for Phase I compliance totaled approximately $310 million for Southern Company, including approximately $50 million for Gulf Power. 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. Therefore, current compliance strategy could require total Phase II estimated construction expenditures for Southern Company of approximately $80 million, of which $60 million remains to be spent. Phase II compliance is not expected to have a material impact on Gulf Power. However, the full impact of Phase II compliance cannot now be determined with certainty, pending the continuing development of a market for emission allowances, the completion of EPA regulations, and the possibility of new emission reduction technologies. Following adoption of legislation in April of 1992 allowing electric utilities in Florida to seek FPSC approval of their Clean Air Act Compliance Plans, Gulf Power filed its petition for approval. The FPSC approved the Company's plan for Phase I compliance, deferring until a later date approval of its Phase II Plan. An average increase of up to 2 percent in revenue requirements from the Company's customers could be necessary to fully recover the cost of compliance for both Phase I and Phase II of Title IV of the Clean Air Act. Compliance costs include construction expenditures, increased costs for switching to low-sulfur coal, and costs related to emission allowances. In 1993, the Florida Legislature adopted legislation that allows a utility to petition the FPSC for recovery of prudent environmental compliance costs that are not being recovered through base rates or any other recovery mechanism. The legislation is discussed in Note 3 to the financial statements under "Environmental Cost Recovery." Substantially all of the costs for the Clean Air Act and other new environmental legislation discussed below are expected to be recovered through the Environmental Cost Recovery Clause. The EPA and state environmental regulatory agencies are reviewing and evaluating various matters including: revisions to the ambient air quality standards for ozone and particulate matter; 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. Gulf Power must comply with other environmental laws and regulations, under which the Company could incur costs to clean up contaminated properties currently or previously owned. The Company conducts studies to determine the extent of any required cleanup costs and has recognized in the financial statements costs to clean up known sites. For additional information, see Note 3 to the financial statements under "Environmental Cost Recovery." 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, electric and magnetic fields, and other environmental health concerns could significantly affect the Company. The impact of new legislation -- if any - -- will depend on the subsequent development and implementation of applicable 8 MANAGEMENTS'S DISCUSSION AND ANALYSIS (continued) Gulf Power Company 1996 Annual Report regulations. In addition, the potential exists for liability as the result of lawsuits alleging damages caused by electric and magnetic fields. Sources of Capital At December 31, 1996, the Company had $0.8 million of cash and cash equivalents and $34.5 million of unused committed lines of credit with banks to meet its short-term cash needs. See Note 5 to the financial statements under "Bank Credit Arrangements" for additional information. In January 1997, Gulf Power Capital Trust I, of which the Company owns all the common securities, issued $40 million of 7.625 percent mandatorily redeemable preferred securities. Substantially all of the assets of the Trust are $41 million aggregate principal amount of the Company's 7.625 percent Junior Subordinated Notes due December 31, 2036. It is anticipated that the funds required for construction and other purposes, including compliance with environmental regulations, will be derived from operations; the sale of additional first mortgage bonds, pollution control bonds, and preferred stock; bank notes; and capital contributions from Southern Company. If the attractiveness of current short-term interest rates continues, the Company may maintain a higher level of short-term indebtedness than has historically been true. The Company is required to meet certain coverage requirements specified in its mortgage indenture and corporate charter to issue new first mortgage bonds and preferred stock. The Company's coverage ratios are sufficient to permit, at present interest and preferred dividend levels, any foreseeable security sales. The amount of securities which the Company will be permitted to issue in the future will depend upon market conditions and other factors prevailing at that time. 9 STATEMENTS OF INCOME For the Years Ended December 31, 1996, 1995, and 1994 Gulf Power Company 1996 Annual Report
- -------------------------------------------------------------------------------------------------------------------------------- 1996 1995 1994 - -------------------------------------------------------------------------------------------------------------------------------- (in thousands) Operating Revenues: Revenues $616,603 $600,458 $561,460 Revenues from affiliates 17,762 18,619 17,353 -------------------------------------------------------------------------------------------------------------------------------- Total operating revenues 634,365 619,077 578,813 - -------------------------------------------------------------------------------------------------------------------------------- Operating Expenses: Operation- Fuel 184,500 185,274 161,168 Purchased power from non-affiliates 8,300 8,594 6,761 Purchased power from affiliates 35,076 29,966 25,819 Other 115,154 113,397 113,879 Maintenance 51,050 51,917 46,700 Depreciation and amortization 56,645 55,104 56,615 Taxes other than income taxes 52,027 49,598 41,701 Federal and state income taxes (Note 8) 37,821 34,065 33,957 - -------------------------------------------------------------------------------------------------------------------------------- Total operating expenses 540,573 527,915 486,600 - -------------------------------------------------------------------------------------------------------------------------------- Operating Income 93,792 91,162 92,213 Other Income (Expense): Allowance for equity funds used during construction (Note 1) 17 36 450 Interest income 1,921 2,877 1,429 Other, net (1,695) (1,261) (780) Income taxes applicable to other income 248 (121) 95 - -------------------------------------------------------------------------------------------------------------------------------- Income Before Interest Charges 94,283 92,693 93,407 - -------------------------------------------------------------------------------------------------------------------------------- Interest Charges: Interest on long-term debt 24,691 23,294 27,124 Other interest charges 1,882 1,674 2,442 Interest on notes payable 2,071 2,931 1,509 Amortization of debt discount, premium, and expense, net 2,087 2,014 1,834 Allowance for debt funds used during construction (Note 1) (58) (187) (656) - -------------------------------------------------------------------------------------------------------------------------------- Net interest charges 30,673 29,726 32,253 - -------------------------------------------------------------------------------------------------------------------------------- Net Income 63,610 62,967 61,154 Dividends on Preferred Stock 5,765 5,813 5,925 =============================================================================================================================== Net Income After Dividends on Preferred Stock $ 57,845 $ 57,154 $ 55,229 ================================================================================================================================ The accompanying notes are an integral part of these statements.
10 STATEMENTS OF CASH FLOWS For the Years Ended December 31, 1996, 1995, and 1994 Gulf Power Company 1996 Annual Report
- --------------------------------------------------------------------------------------------------------------------------- 1996 1995 1994 - --------------------------------------------------------------------------------------------------------------------------- (in thousands) Operating Activities: Net income $ 63,610 $ 62,967 $ 61,154 Adjustments to reconcile net income to net cash provided by operating activities -- Depreciation and amortization 71,825 75,293 86,098 Deferred income taxes 2,157 390 (6,986) Allowance for equity funds used during construction (17) (36) (450) Accumulated provision for property damage 4,227 (19,024) 1,013 Deferred costs of 1995 coal contract renegotiation 10,931 (12,177) - Other, net 2,134 4,664 3,885 Changes in certain current assets and liabilities -- Receivables, net 736 (12,210) 3,540 Inventories 12,957 (618) (13,901) Payables (7,078) 18,258 (10,159) Taxes accrued (441) (2,803) 2,548 Current costs of 1995 coal contract renegotiation (5,099) (9,859) - Other 4,943 (4,894) (1,938) - --------------------------------------------------------------------------------------------------------------------------- Net cash provided from operating activities 160,885 99,951 124,804 - --------------------------------------------------------------------------------------------------------------------------- Investing Activities: Gross property additions (61,386) (63,113) (78,869) Other (2,786) 4,401 (3,493) - --------------------------------------------------------------------------------------------------------------------------- Net cash used for investing activities (64,172) (58,712) (82,362) - --------------------------------------------------------------------------------------------------------------------------- Financing Activities and Capital Contributions: Proceeds: First mortgage bonds 55,000 - - Pollution control bonds 33,275 - 42,000 Other long-term debt 49,148 - 32,108 Retirements: Preferred stock - (1,000) (1,000) First mortgage bonds (50,930) (1,750) (48,856) Pollution control bonds (33,275) (125) (42,100) Other long-term debt (34,923) (13,314) (24,240) Notes payable, net (55,500) 27,000 47,447 Payment of preferred stock dividends (5,749) (5,813) (5,925) Payment of common stock dividends (48,300) (46,400) (44,000) Miscellaneous (5,332) (59) (2,550) - --------------------------------------------------------------------------------------------------------------------------- Net cash used for financing activities (96,586) (41,461) (47,116) - --------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Cash and Cash Equivalents 127 (222) (4,674) Cash and Cash Equivalents at Beginning of Year 680 902 5,576 - --------------------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Year $ 807 $ 680 $ 902 =========================================================================================================================== Supplemental Cash Flow Information: Cash paid during the year for -- Interest (net of amount capitalized) $26,050 $26,161 $30,139 Income taxes $25,858 $38,537 $43,089 - --------------------------------------------------------------------------------------------------------------------------- ( ) Denotes use of cash. The accompanying notes are an integral part of these statements.
11 BALANCE SHEETS At December 31, 1996 and 1995 Gulf Power Company 1996 Annual Report
- -------------------------------------------------------------------------------------------------------------------------------- ASSETS 1996 1995 - -------------------------------------------------------------------------------------------------------------------------------- (in thousands) Utility Plant: Plant in service (Notes 1 and 6) $1,734,510 $1,695,814 Less accumulated provision for depreciation 694,245 658,806 -------------------------------------------------------------------------------------------------------------------------------- 1,040,265 1,037,008 Construction work in progress 23,465 26,301 - -------------------------------------------------------------------------------------------------------------------------------- Total 1,063,730 1,063,309 - -------------------------------------------------------------------------------------------------------------------------------- Other Property and Investments 652 740 - -------------------------------------------------------------------------------------------------------------------------------- Current Assets: Cash and cash equivalents 807 680 Receivables- Customer accounts receivable 67,727 69,166 Other accounts and notes receivable 3,098 3,393 Affiliated companies 1,821 802 Accumulated provision for uncollectible accounts (789) (768) Fossil fuel stock, at average cost 28,352 37,875 Materials and supplies, at average cost (Note 1) 30,252 33,686 Current portion of deferred coal contract costs (Note 5) 16,389 12,767 Regulatory clauses under recovery (Note 1) 4,144 3,432 Prepaid income taxes 353 4,232 Other prepayments 8,833 8,000 Vacation pay deferred 4,055 4,419 - -------------------------------------------------------------------------------------------------------------------------------- Total 165,042 177,684 - -------------------------------------------------------------------------------------------------------------------------------- Deferred Charges: Deferred charges related to income taxes (Note 8) 28,313 29,093 Debt expense and loss, being amortized 23,308 20,459 Deferred coal contract costs (Note 5) 13,126 33,768 Deferred storm charges (Note 1) 3,275 7,502 Miscellaneous 10,920 9,304 - -------------------------------------------------------------------------------------------------------------------------------- Total 78,942 100,126 - -------------------------------------------------------------------------------------------------------------------------------- Total Assets $1,308,366 $1,341,859 ================================================================================================================================ The accompanying notes are an integral part of these statements.
12 BALANCE SHEETS (continued) At December 31, 1996 and 1995 Gulf Power Company 1996 Annual Report
- -------------------------------------------------------------------------------------------------------------------------------- CAPITALIZATION AND LIABILITIES 1996 1995 - -------------------------------------------------------------------------------------------------------------------------------- (in thousands) Capitalization (See accompanying statements): Common stock equity (Note 11) $ 435,758 $ 436,242 Preferred stock 65,102 89,602 Long-term debt 331,880 323,376 - -------------------------------------------------------------------------------------------------------------------------------- Total 832,740 849,220 - -------------------------------------------------------------------------------------------------------------------------------- Current Liabilities: Preferred stock due within one year (Note 10) 24,500 - Long-term debt due within one year (Note 10) 40,972 31,548 Notes payable 25,000 80,500 Accounts payable- Affiliated companies 10,274 14,447 Other 22,496 27,196 Customer deposits 13,464 13,195 Taxes accrued 8,342 9,547 Interest accrued 7,629 5,719 Regulatory clauses over recovery (Note 1) 5,884 2,800 Vacation pay accrued 4,055 4,419 Dividends declared 11,453 1,437 Miscellaneous 5,668 5,919 - -------------------------------------------------------------------------------------------------------------------------------- Total 179,737 196,727 - -------------------------------------------------------------------------------------------------------------------------------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes (Note 8) 163,857 162,345 Deferred credits related to income taxes (Note 8) 64,354 67,481 Accumulated deferred investment tax credits 33,760 36,052 Accumulated provision for postretirement benefits (Note 2) 18,339 16,301 Miscellaneous 15,579 13,733 - -------------------------------------------------------------------------------------------------------------------------------- Total 295,889 295,912 - -------------------------------------------------------------------------------------------------------------------------------- Commitments and Contingent Matters (Notes 1, 2, 3, 4, 5, and 7) Total Capitalization and Liabilities $1,308,366 $1,341,859 ================================================================================================================================ The accompanying notes are an integral part of these statements.
13 STATEMENTS OF CAPITALIZATION At December 31, 1996 and 1995 Gulf Power Company 1996 Annual Report
-------------------------------------------------------------------------------------------------------------------------------- 1996 1995 1996 1995 - --------------------------------------------------------------------------------------------------------------------------------- (in thousands) (percent of total) Common Stock Equity: Common stock, without par value -- Authorized and outstanding -- 992,717 shares in 1996 and 1995 $ 38,060 $ 38,060 Paid-in capital 218,438 218,438 Premium on preferred stock 81 81 Retained earnings (Note 11) 179,179 179,663 - --------------------------------------------------------------------------------------------------------------------------------- Total common stock equity 435,758 436,242 52.3% 51.4% - --------------------------------------------------------------------------------------------------------------------------------- Cumulative Preferred Stock: $10 par value -- Authorized -- 10,000,000 shares, Outstanding -- 2,580,000 shares at December 31, 1996 $25 stated capital -- 6.72% 20,000 20,000 7.00% 14,500 14,500 7.30% 15,000 15,000 Adjustable Rate -- at January 1, 1997: 5.01% 15,000 15,000 $100 par value -- Authorized -- 801,626 shares Outstanding -- 251,026 shares at December 31, 1996 4.64% 5,102 5,102 5.16% 5,000 5,000 5.44% 5,000 5,000 7.52% 5,000 5,000 7.88% 5,000 5,000 - --------------------------------------------------------------------------------------------------------------------------------- Total (annual dividend requirement -- $5,742,000) 89,602 89,602 - --------------------------------------------------------------------------------------------------------------------------------- Less amount due within one year (Note 10) 24,500 - - --------------------------------------------------------------------------------------------------------------------------------- Total excluding amount due within one year 65,102 89,602 7.8 10.5 - ---------------------------------------------------------------------------------------------------------------------------------
14 STATEMENTS OF CAPITALIZATION (continued) At December 31, 1996 and 1995 Gulf Power Company 1996 Annual Report
- --------------------------------------------------------------------------------------------------------------------------------- 1996 1995 1996 1995 - --------------------------------------------------------------------------------------------------------------------------------- (in thousands) (percent of total) Long-term Debt: First mortgage bonds -- Maturity Interest Rates August 1, 1997 5.875% 25,000 25,000 April 1, 1998 5.55% 15,000 15,000 July 1, 1998 5.00% 30,000 30,000 July 1, 2003 6.125% 30,000 30,000 November 1, 2006 6.50% 25,000 - September 1, 2008 9.00% - 930 December 1, 2021 8.75% - 50,000 January 1, 2026 6.875% 30,000 - - --------------------------------------------------------------------------------------------------------------------------------- Total first mortgage bonds 155,000 150,930 Pollution control obligations (Note 9) 169,630 169,630 Other long-term debt (Note 9) 51,299 37,074 Unamortized debt premium (discount), net (3,077) (2,710) - --------------------------------------------------------------------------------------------------------------------------------- Total long-term debt (annual interest requirement -- $22,751,000) 372,852 354,924 Less amount due within one year (Note 10) 40,972 31,548 - --------------------------------------------------------------------------------------------------------------------------------- Long-term debt excluding amount due within one year 331,880 323,376 39.9 38.1 - --------------------------------------------------------------------------------------------------------------------------------- Total Capitalization $832,740 $849,220 100.0% 100.0% ================================================================================================================================= The accompanying notes are an integral part of these statements.
15 STATEMENTS OF RETAINED EARNINGS For the Years Ended December 31, 1996, 1995, and 1994 Gulf Power Company 1996 Annual Report
- --------------------------------------------------------------------------------------------------------------------------- 1996 1995 1994 - --------------------------------------------------------------------------------------------------------------------------- (in thousands) Balance at Beginning of Year $179,663 $168,951 $157,773 Net income after dividends on preferred stock 57,845 57,154 55,229 Dividends on common stock (58,300) (46,400) (44,000) Preferred stock transactions, net (29) (42) (51) =========================================================================================================================== Balance at End of Year (Note 11) $179,179 $179,663 $168,951 =========================================================================================================================== STATEMENTS OF PAID-IN CAPITAL For the Years Ended December 31, 1996, 1995, and 1994 Gulf Power Company 1996 Annual Report - --------------------------------------------------------------------------------------------------------------------------- 1996 1995 1994 - --------------------------------------------------------------------------------------------------------------------------- (in thousands) Balance at Beginning of Year $218,438 $218,380 $218,282 Contributions to capital by parent company - 58 98 =========================================================================================================================== Balance at End of Year $218,438 $218,438 $218,380 =========================================================================================================================== The accompanying notes are an integral part of these statements.
16 NOTES TO FINANCIAL STATEMENTS Gulf Power Company 1996 Annual Report 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES General Gulf Power Company is a wholly owned subsidiary of Southern Company, which is the parent company of five operating companies, a system service company, Southern Communications Services (Southern Communications), Southern Energy, Inc. (Southern Energy), Southern Nuclear Operating Company (Southern Nuclear), The Southern Development and Investment Group (Southern Development), and other direct and indirect subsidiaries. The operating companies (Alabama Power, Georgia Power, Gulf Power, Mississippi Power, and Savannah Electric) provide electric service in four southeastern states. Gulf Power Company provides electric service to the northwest panhandle of Florida. 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. The system service company 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 Development 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 the PUHCA. The Company is also subject to regulation by the FERC and the Florida Public Service Commission (FPSC). The Company follows generally accepted accounting principles and complies with the accounting policies and practices prescribed by the FPSC. The preparation of financial statements in conformity with generally accepted accounting principles requires the use of estimates, and the actual results may differ from those 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 to be credited to customers through the ratemaking process. Regulatory assets and (liabilities) reflected in the Balance Sheets at December 31 relate to the following: 1996 1995 ------------------------- (in thousands) Current & deferred coal contract costs $ 29,515 $ 46,535 Deferred income taxes 28,313 29,093 Deferred loss on reacquired debt 20,386 17,015 Environmental remediation 7,577 5,789 Vacation pay 4,055 4,419 Regulatory clauses (over) under recovery, net (1,740) 632 Deferred income tax credits (64,354) (67,481) Deferred storm charges 3,275 7,502 Other, net (1,202) (1,510) - ----------------------------------------------------------------- Total $ 25,825 $ 41,994 ================================================================= 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 regulatory assets and liabilities. In addition, the Company would be required to determine any impairment to other assets, including plant, and write down the assets, if impaired, to their fair value. 17 NOTES (continued) Gulf Power Company 1996 Annual Report Revenues and Regulatory Cost Recovery Clauses The Company accrues revenues for service rendered but unbilled at the end of each fiscal period. The Company has a diversified base of customers and no single customer or industry comprises 10 percent or more of revenues. In 1996, uncollectible accounts continued to average significantly less than 1 percent of revenues. Fuel costs are expensed as the fuel is used. The Company's electric rates include provisions to periodically adjust billings for fluctuations in fuel and the energy component of purchased power costs. The Company also has similar cost recovery clauses for energy conservation costs, purchased power capacity costs, and environmental compliance costs. Revenues are adjusted monthly for differences between recoverable costs and amounts actually reflected in current rates. Depreciation and Amortization Depreciation of the original cost of depreciable utility plant in service is provided primarily by using composite straight-line rates, which approximated 3.6 percent in 1996 and 1995 and 3.8 percent in 1994. 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. Also, the provision for depreciation expense includes an amount for the expected cost of removal of facilities. 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. The Company is included in the consolidated federal income tax return of Southern Company. See Note 8 for further information related to income taxes. 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. The FPSC-approved composite rate used to calculate AFUDC was 7.27 percent for 1996, 1995, and 1994. AFUDC amounts for 1996, 1995, and 1994 were $75 thousand, $223 thousand, and $1.1 million, respectively. The decrease in 1996 and 1995 is primarily due to no long-term construction projects being implemented in 1996 and due to the completion of major construction projects at Plant Daniel at the end of 1994, respectively. Utility Plant Utility plant is stated at original cost. Original cost includes: materials; labor; minor items of property; appropriate administrative and general costs; payroll-related costs such as taxes, pensions, and other benefits; and the estimated 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. 18 NOTES (continued) Gulf Power Company 1996 Annual Report Financial Instruments The carrying amounts and fair values of the Company's long-term debt are shown in the table below: Carrying Fair Amount Value ---------------------------- (in thousands) Long-term debt At December 31, 1996 $372,852 $373,394 At December 31, 1995 $354,924 $365,305 - ------------------------------------------------------------- The fair values for long-term debt 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. Provision for Injuries and Damages The Company is subject to claims and suits arising in the ordinary course of business. As permitted by regulatory authorities, the Company provides for the uninsured costs of injuries and damages by charges to income amounting to $1.2 million annually. The expense of settling claims is charged to the provision to the extent available. The accumulated provision of $1.8 million and $1.7 million at December 31, 1996 and 1995, respectively, is included in miscellaneous current liabilities in the accompanying Balance Sheets. Provision for Property Damage The Company is self-insured for the full cost of storm and other damages to its transmission and distribution property. At December 31, 1996, the accumulated provision for property damage had a negative balance of $3.3 million, reflecting the remaining deferred charges for expenses relating to Hurricanes Erin and Opal during 1995. The negative balance was reclassified to deferred storm charges in the accompanying Balance Sheets. In December 1995, the FPSC approved the Company's request to increase the amount of its annual accrual to the accumulated provision for property damage account from $1.2 million to $3.5 million. The FPSC approved this amount pending the results of a study it ordered the Company to file addressing the appropriate reserve level and annual accrual amount. The required study was filed with the FPSC, and in November 1996, the FPSC reaffirmed an annual accrual of $3.5 million and approved a target level for the accumulated provision account between $25.1 and $36 million. The FPSC has also given the Company the flexibility to increase its annual accrual amount above $3.5 million, when the Company believes it is in a position to do so, until the account balance reaches $12 million. Therefore, during 1996, the Company accrued $4.5 million to the accumulated provision for property damage. The expense of repairing damages from major storms and other uninsured property damages is charged to the provision account. 2. RETIREMENT BENEFITS Pension Plan The Company has a defined benefit, trusteed, non-contributory pension plan that covers 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 trust fund 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. 19 NOTES (continued) Gulf Power Company 1996 Annual Report Postretirement Benefits The Company provides certain medical care and life insurance benefits for retired employees. Substantially all employees may become eligible for these benefits when they retire. Trusts are funded to the extent deductible under federal income tax regulations or to the extent required by the Company's regulatory commissions. Amounts funded are primarily invested in equity and fixed-income 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." Funded Status and Cost of Benefits The following tables show actuarial results and assumptions for pension and postretirement insurance benefits as computed under the requirements of FASB Statement Nos. 87 and 106, respectively. The funded status of the plans at December 31 was as follows: Pension -------------------------- 1996 1995 --------------------------- (in thousands) Actuarial present value of benefit obligation: Vested benefits $ 87,245 $ 87,652 Non-vested benefits 5,101 4,284 - -------------------------------------------------------------------- Accumulated benefit obligation 92,346 91,936 Additional amounts related to projected salary increases 31,121 29,073 - -------------------------------------------------------------------- Projected benefit obligation 123,467 121,009 Less: Fair value of plan assets 191,152 180,980 Unrecognized net gain (58,900) (48,438) Unrecognized prior service cost 5,618 2,578 Unrecognized transition asset (6,485) (7,187) - -------------------------------------------------------------------- Prepaid asset recognized in the Balance Sheets $ 7,918 $ 6,924 ==================================================================== Postretirement Benefits --------------------------- 1996 1995 --------------------------- (in thousands) Actuarial present value of benefit obligation: Retirees and dependents $10,478 $ 9,759 Employees eligible to retire 5,484 4,921 Other employees 17,694 17,646 - ---------------------------------------------------------------- Accumulated benefit obligation 33,656 32,326 Less: Fair value of plan assets 7,996 7,050 Unrecognized net loss 1,531 1,538 Unrecognized transition obligation 5,790 7,437 - ----------------------------------------------------------------- Accrued liability recognized in the Balance Sheets $18,339 $16,301 ================================================================ In 1995, the Company announced a cost sharing program for postretirement benefits. The program establishes limits on amounts the Company will pay to provide future retiree postretirement benefits. This change reduced the 1995 accumulated postretirement benefit obligation by approximately $7.1 million. The weighted average rates assumed in the actuarial calculations were: 1996 1995 1994 -------------------------------- Discount 7.8% 7.3% 8.0% Annual salary increase 5.3% 4.8% 5.5% Long-term return on plan assets 8.5% 8.5% 8.5% - ---------------------------------------------------------------- An additional assumption used in measuring the accumulated postretirement benefit obligation was a weighted average medical care cost trend rate of 9.3 percent for 1996, decreasing gradually to 5.8 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 at December 31, 1996, by $2.6 million and the aggregate of the service and interest cost components of the net retiree cost by $254 thousand. 20 NOTES (continued) Gulf Power Company 1996 Annual Report Components of the plans' net costs are shown below: Pension ------------------------------------- 1996 1995 1994 ------------------------------------- (in thousands) Benefits earned during the year $ 3,880 $ 3,867 $ 3,775 Interest cost on projected benefit obligation 9,129 8,042 7,484 Actual (return) loss on plan assets (21,021) (33,853) 3,721 Net amortization and deferral 5,920 19,619 (17,054) - ------------------------------------------------------------------- Net pension income $ (2,092) $ (2,325) $ (2,074) =================================================================== Of the above net pension amounts, pension income of $1.5 million in 1996, $1.8 million in 1995, and $1.5 million in 1994 were recorded in operating expenses, and the remainder was recorded in construction and other accounts. Postretirement Benefits ---------------------------------- 1996 1995 1994 --------------------------------- (in thousands) Benefits earned during the year $ 939 $1,259 $1,362 Interest cost on accumulated benefit obligation 2,330 2,520 2,535 Amortization of transition obligation 356 853 854 Actual (return) loss on plan assets (797) (1,268) 129 Net amortization and deferral 318 742 (591) - --------------------------------------------------------------------- Net postretirement cost $3,146 $4,106 $4,289 ===================================================================== Of the above net postretirement costs recorded, $2.3 million in 1996 and $3.1 million in 1995 and 1994 were charged to operating expenses, and the remainder was recorded in construction and other accounts. Work Force Reduction Programs The Company implemented a voluntary work force reduction program in the fourth quarter of 1995 and recorded $1.2 million in 1996 and $7 million in 1995 for the total pre-tax cost related to the program. The Company has also incurred its pro rata share for the costs of affiliated companies' programs. The costs related to these programs were $2.1 million for 1996, $1 million for 1995, and $1.3 million for 1994. 3. LITIGATION AND REGULATORY MATTERS FERC Reviews Equity Returns In May 1991, the FERC ordered that hearings be conducted concerning the reasonableness of the operating companies' 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 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 of 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 $160 million for Southern Company, including approximately $10 million for the Company at December 31, 1996. However, management believes that rates are not excessive and that refunds are not justified. 21 NOTES (continued) Gulf Power Company 1996 Annual Report Environmental Cost Recovery In April 1993, the Florida Legislature adopted legislation for an Environmental Cost Recovery Clause (ECRC), which allows a utility to petition the FPSC for recovery of all prudent environmental compliance costs that are not being recovered through base rates or any other recovery mechanism. Such environmental costs include operation and maintenance expense, emission allowance expense, depreciation, and a return on invested capital. In January 1994, the FPSC approved the Company's initial petition under the ECRC for recovery of environmental costs. Beginning with this initial period through September 1996, recovery under the ECRC was determined semi-annually. In August 1996, the FPSC approved annual recovery periods beginning with the October 1996 through September 1997 period. Recovery includes a true-up of the prior period and a projection of the ensuing period. During 1996 and 1995, the Company recorded ECRC revenues of $11.0 million and $11.8 million, respectively. At December 31, 1996, the Company's liability for the estimated costs of environmental remediation projects for known sites was $7.6 million. These estimated costs are expected to be expended during the period 1997 to 2001. These projects have been approved by the FPSC for recovery through the ECRC discussed above. Therefore, the Company recorded $1.9 million in current assets and $5.7 million in deferred charges representing the future recoverability of these costs. 4. CONSTRUCTION PROGRAM The Company is engaged in a continuous construction program, the cost of which is currently estimated to total $47 million in 1997, $49 million in 1998, and $46 million in 1999. The construction program is subject to periodic review and revision, and actual construction costs may vary from the above estimates because of numerous factors. These factors include changes in business conditions; revised load growth estimates; changes in environmental regulations; increasing costs of labor, equipment and materials; and cost of capital. At December 31, 1996, significant purchase commitments were outstanding in connection with the construction program. The Company does not have any generating plants under construction. However, significant construction will continue related to transmission and distribution facilities and the upgrading and extension of the useful lives of generating plants. See Management's Discussion and Analysis under "Environmental Matters" for information on the impact of the Clean Air Act Amendments of 1990 and other environmental matters. 5. FINANCING AND COMMITMENTS General Current projections indicate that funds required for construction and other purposes, including compliance with environmental regulations, will be derived primarily from internal sources. Requirements not met from internal sources will be derived from the sale of additional first mortgage bonds, pollution control bonds, and preferred stock; bank notes; and capital contributions from Southern Company. In addition, the Company may issue additional long-term debt and preferred stock primarily for the purposes of debt maturities and redemptions of higher-cost securities. Bank Credit Arrangements At December 31, 1996, the Company had $5 million in revolving credit lines that expire May 31, 1997, and $41.5 million of lines of credit with banks subject to renewal June 1 of each year, of which $34.5 million remained unused. In addition, the Company has a $20.3 million unused committed line of credit established for liquidity support of its variable rate pollution control bonds. In connection with these credit lines, the Company has agreed to pay commitment fees and/or to maintain compensating balances with the banks. The compensating balances, which represent substantially all of the cash of the Company except for daily working funds and like items, are not legally restricted from withdrawal. In addition, the Company has bid-loan facilities with twelve major money center banks that total $230 million, of which $13 million was committed at December 31, 1996. 22 NOTES (continued) Gulf Power Company 1996 Annual Report Assets Subject to Lien The Company's mortgage, which secures the first mortgage bonds issued by the Company, constitutes a direct first lien on substantially all of the Company's fixed property and franchises. Fuel Commitments To supply a portion of the fuel requirements of its generating plants, the Company has entered into long-term commitments for the procurement of fuel. In most cases, these contracts contain provisions for price escalations, minimum purchase levels, and other financial commitments. Total estimated long-term obligations at December 31, 1996, were as follows: Year Fuel ------- ---------------- (in millions) 1997 $125 1998 98 1999 79 2000 71 2001 73 2002 - 2007 481 -------------------------------------------------------- Total commitments $927 ======================================================== In 1988, the Company made an advance payment of $60 million to a coal supplier under an arrangement to lower the cost of future coal purchased under an existing contract. This amount is being amortized to expense on a per ton basis over a ten-year period. The remaining unamortized amount was $13.3 million at December 31, 1996. In December 1995, the Company made another payment of $22 million to the same coal supplier under an arrangement to lower the cost of future coal and/or to suspend the purchase of coal under an existing contract for 25 months. This amount is being amortized to expense on a per ton basis through the first quarter of 1998. The remaining unamortized amount was $16.2 million at December 31, 1996. The amortization expense of these contract buyouts and renegotiations is being recovered through the fuel cost recovery clause discussed under "Revenues and Regulatory Cost Recovery Clauses" in Note 1. Lease Agreements In 1989, the Company and Mississippi Power jointly entered into a twenty-two year operating lease agreement for the use of 495 aluminum railcars. In 1994, a second lease agreement for the use of 250 additional aluminum railcars was entered into for twenty-two years. Both of these leases are for the transportation of coal to Plant Daniel. The Company, as a joint owner of Plant Daniel, is responsible for one half of the lease costs. The lease costs are charged to fuel inventory and are allocated to fuel expense as the fuel is used. The Company's share of the lease costs charged to fuel inventory was $1.7 million in 1996 and 1995 and $1.2 million in 1994. The Company's annual lease payments for 1997 through 2001 will be approximately $1.7 million and after 2001, lease payments total approximately $20.7 million. The Company has the option after three years from the date of the original contract on the second lease agreement to purchase the railcars at the greater of the termination value or the fair market value. Additionally, at the end of each lease term, the Company has the option to renew the lease. 6. JOINT OWNERSHIP AGREEMENTS The Company and Mississippi Power jointly own Plant Daniel, a steam-electric generating plant located in Jackson County, Mississippi. In accordance with an operating agreement, Mississippi Power acts as the Company's agent with respect to the construction, operation, and maintenance of the plant. The Company and Georgia Power jointly own Plant Scherer Unit No. 3. Plant Scherer is a steam-electric generating plant located near Forsyth, Georgia. In accordance with an operating agreement, Georgia Power acts as the Company's agent with respect to the construction, operation, and maintenance of the unit. The Company's pro rata share of expenses related to both plants is included in the corresponding operating expense accounts in the Statements of Income. 23 NOTES (continued) Gulf Power Company 1996 Annual Report At December 31, 1996, the Company's percentage ownership and its investment in these jointly owned facilities were as follows: Plant Scherer Plant Unit No. 3 Daniel (coal-fired) (coal-fired) -------------------------------- (in thousands) Plant In Service $185,742(1) $222,463 Accumulated Depreciation $54,079 $102,027 Construction Work in Progress $314 $33 Nameplate Capacity (2) (megawatts) 205 500 Ownership 25% 50% - ------------------------------------------------------------------- (1) Includes net plant acquisition adjustment. (2) Total megawatt nameplate capacity: Plant Scherer Unit No. 3: 818 Plant Daniel: 1,000 7. LONG-TERM POWER SALES AGREEMENTS The Company and the other operating affiliates have long-term contractual agreements for the sale of capacity and energy to certain non-affiliated utilities located outside the system's service area. The agreements for non-firm capacity expired in 1994. The unit power sales agreements, expiring at various dates discussed below, are firm and pertain to capacity related to specific generating units. Because the energy is generally sold at cost under these agreements, revenues from capacity sales primarily affect profitability. The Company's capacity revenues have been as follows: Other Unit Long- Year Power Term Total - ---------- ------------------------------------- (in thousands) 1996 $25,400 $ - $25,400 1995 25,870 - 25,870 1994 29,653 1,273 30,926 - ----------------------------------------------------------- Unit power from specific generating plants of Southern Company is currently being sold to Florida Power Corporation (FPC), Florida Power & Light Company (FP&L), Jacksonville Electric Authority (JEA), and the city of Tallahassee, Florida. Under these agreements, 211 megawatts of net dependable capacity were sold by the Company during 1996, and sales will remain at that level until the expiration of the contracts in 2010, unless reduced by FPC, FP&L and JEA after 1999. Capacity and energy sales to FP&L, the Company's largest single customer, provided revenues of $27.2 million in 1996, $25.4 million in 1995, and $29.3 million in 1994, or 4.3 percent, 4.1 percent, and 5.1 percent of operating revenues, respectively. 8. INCOME TAXES At December 31, 1996, the tax-related regulatory assets to be recovered from customers were $28.3 million. These assets are attributable to tax benefits flowed through to customers in prior years and to taxes applicable to capitalized AFUDC. At December 31, 1996, the tax-related regulatory liabilities to be credited to customers were $64.4 million. These 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: 1996 1995 1994 ---------------------------------- (in thousands) Total provision for income taxes: Federal-- Currently payable $31,022 $29,018 $34,941 Deferred--current year 26,072 23,172 18,556 --reversal of prior years (24,780) (23,116) (24,787) - ------------------------------------------------------------------ 32,314 29,074 28,710 - ------------------------------------------------------------------ State-- Currently payable 4,394 4,778 5,907 Deferred--current year 3,904 3,313 2,549 --reversal of prior years (3,039) (2,979) (3,304) - ------------------------------------------------------------------ 5,259 5,112 5,152 - ------------------------------------------------------------------ Total 37,573 34,186 33,862 Less income taxes charged (credited) to other income (248) 121 (95) - ------------------------------------------------------------------ Total income taxes charged to operations $37,821 $34,065 $33,957 ================================================================== 24 NOTES (continued) Gulf Power Company 1996 Annual Report 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: 1996 1995 ----------------------- (in thousands) Deferred tax liabilities: Accelerated depreciation $151,664 $146,926 Property basis differences 21,028 19,976 Coal contract buyouts 3,700 3,838 Property insurance 1,248 3,039 Other 12,674 10,573 - ------------------------------------------------------------------- Total 190,314 184,352 - ------------------------------------------------------------------- Deferred tax assets: Federal effect of state deferred taxes 9,773 10,212 Postretirement benefits 5,767 5,494 Other 7,814 6,313 - ------------------------------------------------------------------- Total 23,354 22,019 - ------------------------------------------------------------------- Net deferred tax liabilities 166,960 162,333 Less current portion, net 3,103 (12) - ------------------------------------------------------------------- Accumulated deferred income taxes in the Balance Sheets $163,857 $162,345 =================================================================== Deferred investment tax credits are amortized over the life of the related property with such amortization normally applied as a credit to reduce depreciation in the Statements of Income. Credits amortized in this manner amounted to $2.3 million in 1996, 1995 and 1994. At December 31, 1996, all investment tax credits available to reduce federal income taxes payable had been utilized. A reconciliation of the federal statutory income tax rate to the effective income tax rate is as follows: 1996 1995 1994 ------------------- --------- Federal statutory rate 35% 35% 35% State income tax, net of federal deduction 4 4 4 Non-deductible book depreciation 1 1 1 Difference in prior years' deferred and current tax rate (1) (3) (2) Other (2) (2) (2) - --------------------------------------------------------------- Effective income tax rate 37% 35% 36% =============================================================== The Company and the other subsidiaries of Southern Company file a consolidated federal 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. POLLUTION CONTROL OBLIGATIONS AND OTHER LONG-TERM DEBT Details of pollution control obligations and other long-term debt at December 31 are as follows: 1996 1995 -------------------------- (in thousands) Obligations incurred in connection with the sale by public authorities of tax-exempt pollution control revenue bonds: Collateralized 5.25% due 2006 $12,075 $ - 6% due 2006 - 12,075 8.25% due 2017 32,000 32,000 7.125% due 2021 - 21,200 6.75% due 2022 8,930 8,930 5.70% due 2023 7,875 7,875 5.80% due 2023 32,550 32,550 6.20% due 2023 13,000 13,000 6.30% due 2024 22,000 22,000 Variable Rate due 2024 Remarketable daily 20,000 20,000 5.50% due 2026 21,200 - - --------------------------------------------------------------- $169,630 $169,630 - --------------------------------------------------------------- Other long-term debt: 4.69% due 1996 - 25,000 5.2125% due 1996-1998 16,823 - 6.44% due 1994-1998 7,476 12,074 Variable Rate due 1999 13,500 - Variable Rate due 1999 13,500 - - --------------------------------------------------------------- 51,299 37,074 - --------------------------------------------------------------- Total $220,929 $206,704 =============================================================== Pollution control obligations represent installment purchases of pollution control facilities financed by funds derived from sales by public authorities of revenue bonds. With respect to the collateralized pollution control revenue bonds, the Company has authenticated and delivered to trustees a like principal amount of first mortgage bonds as security for obligations under collateralized installment agreements. The principal and interest on the first mortgage bonds will be payable only in the event of default under the agreements. 25 NOTES (continued) Gulf Power Company 1996 Annual Report The estimated annual maturities of other long-term debt are as follows: $16 million in 1997, $8.3 million in 1998, and $27 million in 1999. 10. CAPITALIZATION DUE WITHIN ONE YEAR A summary of the improvement fund requirement and scheduled maturities and redemptions of long-term debt and preferred stock due within one year at December 31 is as follows: 1996 1995 ---------------------- (in thousands) Bond improvement fund requirement $ 1,550 $ 1,750 Less: Portion to be satisfied by certifying property additions 1,550 - - --------------------------------------------------------------- Cash sinking fund requirement - 1,750 Maturities of first mortgage bonds 25,000 - Current portion of other long-term debt (Note 9) 15,972 29,598 Pollution control bond maturity - 200 Redemption of preferred stock 24,500 - - --------------------------------------------------------------- Total $65,472 $31,548 =============================================================== The first mortgage bond improvement (sinking) fund requirement 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 depositing cash, reacquiring bonds, or by pledging additional property equal to 1 and 2/3 times the requirement. 11. COMMON STOCK DIVIDEND RESTRICTIONS The Company's first mortgage bond indenture contains various common stock dividend restrictions which remain in effect as long as the bonds are outstanding. At December 31, 1996, retained earnings of $127 million were restricted against the payment of cash dividends on common stock under the terms of the mortgage indenture. The Company's charter limits cash dividends on common stock to 50 percent of net income available for such stock during a prior period of 12 months if the capitalization ratio is below 20 percent and to 75 percent of such net income if such ratio is 20 percent or more but less than 25 percent. The capitalization ratio is defined as the ratio of common stock equity to total capitalization, including retained earnings, adjusted to reflect the payment of the proposed dividend. At December 31, 1996, the ratio was 47.6 percent. 12. QUARTERLY FINANCIAL DATA (Unaudited) Summarized quarterly financial data for 1996 and 1995 are as follows: Net Income After Dividends Operating Operating on Preferred Quarter Ended Revenues Income Stock - ------------------------------------------------------------------ (in thousands) March 31, 1996 $154,921 $20,201 $11,258 June 30, 1996 153,821 21,565 12,581 Sept. 30, 1996 179,619 32,568 23,721 Dec. 31, 1996 146,004 19,458 10,285 March 31, 1995 $140,918 $19,503 $10,880 June 30, 1995 153,057 23,390 14,096 Sept. 30, 1995 184,251 35,187 26,588 Dec. 31, 1995 140,851 13,082 5,590 - ------------------------------------------------------------------ The Company's business is influenced by seasonal weather conditions and the timing of rate changes, among other factors. 26 SELECTED FINANCIAL AND OPERATING DATA Gulf Power Company 1996 Annual Report
- --------------------------------------------------------------------------------------------------------------------- 1996 1995 1994 - --------------------------------------------------------------------------------------------------------------------- Operating Revenues (in thousands) $634,365 $619,077 $578,813 Net Income after Dividends on Preferred Stock (in thousands) $57,845 $57,154 $55,229 Dividends on Common Stock (in thousands) $58,300 $46,400 $44,000 Return on Average Common Equity (percent) 13.27 13.27 13.15 Total Assets (in thousands) $1,308,366 $1,341,859 $1,315,542 Gross Property Additions (in thousands) $61,386 $63,113 $78,869 - --------------------------------------------------------------------------------------------------------------------- Capitalization (in thousands): Common stock equity $435,758 $436,242 $425,472 Preferred stock 65,102 89,602 89,602 Preferred stock subject to mandatory redemption - - - Long-term debt 331,880 323,376 356,393 - --------------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) $832,740 $849,220 $871,467 - --------------------------------------------------------------------------------------------------------------------- Capitalization Ratios (percent): Common stock equity 52.3 51.4 48.8 Preferred stock 7.8 10.5 10.3 Long-term debt 39.9 38.1 40.9 - --------------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) 100.0 100.0 100.0 ===================================================================================================================== First Mortgage Bonds (in thousands): Issued 55,000 - - Retired 50,930 1,750 48,856 Preferred Stock (in thousands): Issued - - - Retired - 1,000 1,000 - --------------------------------------------------------------------------------------------------------------------- Security Ratings: First Mortgage Bonds - Moody's A1 A1 A2 Standard and Poor's A+ A+ A Duff & Phelps AA- A+ A+ Preferred Stock - Moody's a2 a2 a2 Standard and Poor's A A A- Duff & Phelps A+ A A - --------------------------------------------------------------------------------------------------------------------- Customers (year-end): Residential 291,196 283,421 280,859 Commercial 43,196 41,281 40,398 Industrial 278 278 283 Other 162 134 106 - --------------------------------------------------------------------------------------------------------------------- Total 334,832 325,114 321,646 ===================================================================================================================== Employees (year-end) 1,384 1,501 1,540
27 SELECTED FINANCIAL AND OPERATING DATA (continued) Gulf Power Company 1996 Annual Report
- -------------------------------------------------------------------------------------------------------------------------- 1993 1992 1991 1990 - -------------------------------------------------------------------------------------------------------------------------- Operating Revenues (in thousands) $583,142 $570,902 $565,207 $567,825 Net Income after Dividends on Preferred Stock (in thousands) $54,311 $54,090 $57,796 $38,714 Dividends on Common Stock (in thousands) $41,800 $39,900 $38,000 $37,000 Return on Average Common Equity (percent) 13.29 13.62 15.17 10.51 Total Assets (in thousands) $1,307,809 $1,062,699 $1,095,736 $1,084,579 Gross Property Additions (in thousands) $78,562 $64,671 $64,323 $62,462 - -------------------------------------------------------------------------------------------------------------------------- Capitalization (in thousands): Common stock equity $414,196 $403,190 $390,981 $371,185 Preferred stock 89,602 74,662 55,162 55,162 Preferred stock subject to mandatory redemption 1,000 2,000 7,500 9,250 Long-term debt 369,259 382,047 434,648 475,284 - -------------------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) $874,057 $861,899 $888,291 $910,881 - -------------------------------------------------------------------------------------------------------------------------- Capitalization Ratios (percent): Common stock equity 47.4 46.8 44.0 40.8 Preferred stock 10.4 8.9 7.1 7.1 Long-term debt 42.2 44.3 48.9 52.1 - -------------------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) 100.0 100.0 100.0 100.0 ========================================================================================================================== First Mortgage Bonds (in thousands): Issued 75,000 25,000 50,000 - Retired 88,809 117,693 32,807 6,455 Preferred Stock (in thousands): Issued 35,000 29,500 - - Retired 21,060 15,500 2,500 1,750 - -------------------------------------------------------------------------------------------------------------------------- Security Ratings: First Mortgage Bonds - Moody's A2 A2 A2 A2 Standard and Poor's A A A A Duff & Phelps A+ A A A Preferred Stock - Moody's a2 a2 a2 a2 Standard and Poor's A- A- A- A- Duff & Phelps A A- A- A- - -------------------------------------------------------------------------------------------------------------------------- Customers (year-end): Residential 274,194 267,591 261,210 256,111 Commercial 39,253 37,105 34,685 34,019 Industrial 274 270 264 252 Other 86 74 72 67 - -------------------------------------------------------------------------------------------------------------------------- Total 313,807 305,040 296,231 290,449 ========================================================================================================================== Employees (year-end) 1,565 1,613 1,598 1,615
28A SELECTED FINANCIAL AND OPERATING DATA (continued) Gulf Power Company 1996 Annual Report
- ------------------------------------------------------------------------------------------------------------------------- 1989 1988 1987 1986 - ------------------------------------------------------------------------------------------------------------------------- Operating Revenues (in thousands) $527,821 $550,827 $587,860 $542,919 Net Income after Dividends on Preferred Stock (in thousands) $37,361 $45,698 $42,217 $46,421 Dividends on Common Stock (in thousands) $37,200 $35,400 $34,200 $33,100 Return on Average Common Equity (percent) 10.32 13.41 13.23 15.06 Total Assets (in thousands) $1,093,430 $1,097,225 $1,051,182 $1,028,864 Gross Property Additions (in thousands) $70,726 $67,042 $97,511 $90,160 - ------------------------------------------------------------------------------------------------------------------------- Capitalization (in thousands): Common stock equity $365,471 $358,310 $323,012 $314,995 Preferred stock 55,162 55,162 55,162 55,162 Preferred stock subject to mandatory redemption 11,000 12,750 14,000 16,500 Long-term debt 484,608 497,069 474,640 482,869 - ------------------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) $916,241 $923,291 $866,814 $869,526 - ------------------------------------------------------------------------------------------------------------------------- Capitalization Ratios (percent): Common stock equity 39.9 38.8 37.2 36.2 Preferred stock 7.2 7.4 8.0 8.3 Long-term debt 52.9 53.8 54.8 55.5 - ------------------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) 100.0 100.0 100.0 100.0 ========================================================================================================================= First Mortgage Bonds (in thousands): Issued - 35,000 - 50,000 Retired 9,344 9,369 - 46,640 Preferred Stock (in thousands): Issued - - - - Retired 1,250 1,750 2,500 750 - ------------------------------------------------------------------------------------------------------------------------- Security Ratings: First Mortgage Bonds - Moody's A1 A1 A1 A1 Standard and Poor's A A A A+ Duff & Phelps AA- 4 4 4 Preferred Stock - Moody's a1 a1 a1 a1 Standard and Poor's A- A- A- A Duff & Phelps A+ 5 5 5 - ------------------------------------------------------------------------------------------------------------------------- Customers (year-end): Residential 251,341 246,450 241,138 235,329 Commercial 33,678 33,030 32,139 31,142 Industrial 240 206 206 197 Other 67 61 61 62 - ------------------------------------------------------------------------------------------------------------------------- Total 285,326 279,747 273,544 266,730 ========================================================================================================================= Employees (year-end) 1,614 1,601 1,603 1,544
28B SELECTED FINANCIAL AND OPERATING DATA (continued) Gulf Power Company 1996 Annual Report
- ---------------------------------------------------------------------------------------------------------------------------- 1996 1995 1994 - ---------------------------------------------------------------------------------------------------------------------------- Operating Revenues (in thousands): Residential $285,498 $276,155 $252,598 Commercial 164,181 159,260 146,394 Industrial 78,994 81,606 82,169 Other 2,056 1,993 1,955 - ---------------------------------------------------------------------------------------------------------------------------- Total retail 530,729 519,014 483,116 Sales for resale - non-affiliates 63,201 60,413 66,111 Sales for resale - affiliates 17,762 18,619 17,353 - ---------------------------------------------------------------------------------------------------------------------------- Total revenues from sales of electricity 611,692 598,046 566,580 Other revenues 22,673 21,031 12,233 - ---------------------------------------------------------------------------------------------------------------------------- Total $634,365 $619,077 $578,813 ============================================================================================================================ Kilowatt-Hour Sales (in thousands): Residential 4,159,924 4,014,142 3,751,932 Commercial 2,808,634 2,708,243 2,548,846 Industrial 1,808,086 1,794,754 1,847,114 Other 17,815 17,345 17,354 - ---------------------------------------------------------------------------------------------------------------------------- Total retail 8,794,459 8,534,484 8,165,246 Sales for resale - non-affiliates 1,534,097 1,396,474 1,418,977 Sales for resale - affiliates 709,647 759,341 874,050 - ---------------------------------------------------------------------------------------------------------------------------- Total 11,038,203 10,690,299 10,458,273 ============================================================================================================================ Average Revenue Per Kilowatt-Hour (cents): Residential 6.86 6.88 6.73 Commercial 5.85 5.88 5.74 Industrial 4.37 4.55 4.45 Total retail 6.03 6.08 5.92 Sales for resale 3.61 3.67 3.64 Total sales 5.54 5.59 5.42 Average Annual Kilowatt-Hour Use Per Residential Customer 14,457 14,148 13,486 Average Annual Revenue Per Residential Customer $992.17 $973.35 $907.92 Plant Nameplate Capacity Ratings (year-end) (megawatts) 2,174 2,174 2,174 Maximum Peak-Hour Demand - Net of SEPA (megawatts): Winter 2,136 1,732 1,801 Summer 1,961 2,040 1,795 Annual Load Factor (percent) 51.4 53.0 56.7 Plant Availability - Fossil-Steam (percent) 91.8 84.0 92.2 - ---------------------------------------------------------------------------------------------------------------------------- Source of Energy Supply (percent): Coal 87.8 86.8 87.2 Oil and gas 0.5 0.4 0.2 Purchased power - From non-affiliates 2.7 4.0 2.8 From affiliates 9.0 8.8 9.8 - ---------------------------------------------------------------------------------------------------------------------------- Total 100.0 100.0 100.0 ============================================================================================================================ Total Fuel Economy Data: BTU per net kilowatt-hour generated 10,484 10,609 10,614 Cost of fuel per million BTU (cents) 192.22 196.62 189.55 Average cost of fuel per net kilowatt-hour generated (cents) 2.02 2.09 2.01 ============================================================================================================================
29 SELECTED FINANCIAL AND OPERATING DATA (continued) Gulf Power Company 1996 Annual Report
- ---------------------------------------------------------------------------------------------------------------------------- 1993 1992 1991 1990 - ---------------------------------------------------------------------------------------------------------------------------- Operating Revenues (in thousands): Residential $244,967 $235,296 $231,220 $217,843 Commercial 137,308 133,071 130,691 124,066 Industrial 87,526 91,320 92,300 91,041 Other 1,882 1,784 1,860 1,805 - ---------------------------------------------------------------------------------------------------------------------------- Total retail 471,683 461,471 456,071 434,755 Sales for resale - non-affiliates 72,209 70,078 69,636 73,855 Sales for resale - affiliates 23,166 24,075 29,343 38,563 - ---------------------------------------------------------------------------------------------------------------------------- Total revenues from sales of electricity 567,058 555,624 555,050 547,173 Other revenues 16,084 15,278 10,157 20,652 - ---------------------------------------------------------------------------------------------------------------------------- Total $583,142 $570,902 $565,207 $567,825 ============================================================================================================================ Kilowatt-Hour Sales (in thousands): Residential 3,712,980 3,596,515 3,455,100 3,360,838 Commercial 2,433,382 2,369,236 2,272,690 2,217,568 Industrial 2,029,936 2,179,435 2,117,408 2,177,872 Other 16,944 16,649 17,118 18,866 - ---------------------------------------------------------------------------------------------------------------------------- Total retail 8,193,242 8,161,835 7,862,316 7,775,144 Sales for resale - non-affiliates 1,460,105 1,430,908 1,550,018 1,775,703 Sales for resale - affiliates 1,029,787 1,208,771 1,236,223 1,435,558 - ---------------------------------------------------------------------------------------------------------------------------- Total 10,683,134 10,801,514 10,648,557 10,986,405 ============================================================================================================================ Average Revenue Per Kilowatt-Hour (cents): Residential 6.60 6.54 6.69 6.48 Commercial 5.64 5.62 5.75 5.59 Industrial 4.31 4.19 4.36 4.18 Total retail 5.76 5.65 5.80 5.59 Sales for resale 3.83 3.57 3.55 3.50 Total sales 5.31 5.14 5.21 4.98 Average Annual Kilowatt-Hour Use Per Residential Customer 13,671 13,553 13,320 13,173 Average Annual Revenue Per Residential Customer $901.96 $886.66 $891.38 $853.86 Plant Nameplate Capacity Ratings (year-end) (megawatts) 2,174 2,174 2,174 2,174 Maximum Peak-Hour Demand - Net of SEPA (megawatts): Winter 1,571 1,533 1,418 1,310 Summer 1,898 1,828 1,740 1,778 Annual Load Factor (percent) 54.5 55.0 57.0 55.2 Plant Availability - Fossil-Steam (percent) 88.9 91.2 92.2 89.2 - ---------------------------------------------------------------------------------------------------------------------------- Source of Energy Supply (percent): Coal 84.5 87.7 82.0 69.8 Oil and gas 0.5 0.1 0.1 0.5 Purchased power - From non-affiliates 1.5 0.8 0.5 0.6 From affiliates 13.5 11.4 17.4 29.1 - ---------------------------------------------------------------------------------------------------------------------------- Total 100.0 100.0 100.0 100.0 ============================================================================================================================ Total Fuel Economy Data: BTU per net kilowatt-hour generated 10,390 10,347 10,636 10,765 Cost of fuel per million BTU (cents) 197.37 200.30 203.60 206.06 Average cost of fuel per net kilowatt-hour generated (cents) 2.05 2.07 2.17 2.22 ============================================================================================================================
30A SELECTED FINANCIAL AND OPERATING DATA (continued) Gulf Power Company 1996 Annual Report
- ----------------------------------------------------------------------------------------------------------------------------------- 1989 1988 1987 1986 - ----------------------------------------------------------------------------------------------------------------------------------- Operating Revenues (in thousands): Residential $203,781 $184,036 $199,701 $200,725 Commercial 118,897 107,615 116,057 116,253 Industrial 84,671 72,634 80,295 79,873 Other 1,586 1,402 1,357 1,343 - ----------------------------------------------------------------------------------------------------------------------------------- Total retail 408,935 365,687 397,410 398,194 Sales for resale - non-affiliates 67,554 117,466 134,456 106,892 Sales for resale - affiliates 39,244 48,277 55,955 27,113 - ----------------------------------------------------------------------------------------------------------------------------------- Total revenues from sales of electricity 515,733 531,430 587,821 532,199 Other revenues 12,088 19,397 39 10,720 - ----------------------------------------------------------------------------------------------------------------------------------- Total $527,821 $550,827 $587,860 $542,919 =================================================================================================================================== Kilowatt-Hour Sales (in thousands): Residential 3,293,750 3,154,541 3,055,041 2,963,502 Commercial 2,169,497 2,088,598 1,986,332 1,913,139 Industrial 2,094,670 1,968,091 1,839,931 1,745,074 Other 17,209 16,257 15,241 14,903 - ----------------------------------------------------------------------------------------------------------------------------------- Total retail 7,575,126 7,227,487 6,896,545 6,636,618 Sales for resale - non-affiliates 1,640,355 1,911,759 2,138,390 1,609,146 Sales for resale - affiliates 1,461,036 2,326,238 2,689,487 1,078,500 - ----------------------------------------------------------------------------------------------------------------------------------- Total 10,676,517 11,465,484 11,724,422 9,324,264 =================================================================================================================================== Average Revenue Per Kilowatt-Hour (cents): Residential 6.19 5.83 6.54 6.77 Commercial 5.48 5.15 5.84 6.08 Industrial 4.04 3.69 4.36 4.58 Total retail 5.40 5.06 5.76 6.00 Sales for resale 3.44 3.91 3.94 4.99 Total sales 4.83 4.64 5.01 5.71 Average Annual Kilowatt-Hour Use Per Residential Customer 13,173 12,883 12,763 12,729 Average Annual Revenue Per Residential Customer $815.00 $751.60 $834.31 $862.16 Plant Nameplate Capacity Ratings (year-end) (megawatts) 2,174 2,174 2,174 1,969 Maximum Peak-Hour Demand - Net of SEPA (megawatts): Winter 1,814 1,395 1,354 1,406 Summer 1,691 1,613 1,617 1,678 Annual Load Factor (percent) 52.6 56.5 54.4 50.5 Plant Availability - Fossil-Steam (percent) 89.1 88.2 92.8 90.5 - ----------------------------------------------------------------------------------------------------------------------------------- Source of Energy Supply (percent): Coal 78.3 93.2 93.5 85.8 Oil and gas 0.2 0.4 0.4 0.5 Purchased power - From non-affiliates 0.4 0.4 0.4 1.9 From affiliates 21.1 6.0 5.7 11.8 - ----------------------------------------------------------------------------------------------------------------------------------- Total 100.0 100.0 100.0 100.0 =================================================================================================================================== Total Fuel Economy Data: BTU per net kilowatt-hour generated 10,621 10,461 10,512 10,639 Cost of fuel per million BTU (cents) 193.70 178.00 197.53 239.26 Average cost of fuel per net kilowatt-hour generated (cents) 2.06 1.86 2.08 2.55 ===================================================================================================================================
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