-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, TrffIOi5Q+7qQ3CSXTLMiELlmFHTnFr3Hh5wFjlOgDQx8Q9AtvY0cU8Nd4S034Bo YldSGDsZZ46GQTRbvY1qTQ== 0000950144-94-000546.txt : 19940304 0000950144-94-000546.hdr.sgml : 19940304 ACCESSION NUMBER: 0000950144-94-000546 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19940216 ITEM INFORMATION: 7 FILED AS OF DATE: 19940302 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GULF POWER CO CENTRAL INDEX KEY: 0000044545 STANDARD INDUSTRIAL CLASSIFICATION: 4911 IRS NUMBER: 590276810 STATE OF INCORPORATION: ME FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 34 SEC FILE NUMBER: 000-02429 FILM NUMBER: 94514158 BUSINESS ADDRESS: STREET 1: 500 BAYFRONT PKWY CITY: PENSACOLA STATE: FL ZIP: 32501 BUSINESS PHONE: 9044446111 8-K 1 FORM 8-K - GULF POWER COMPANY 1 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 16, 1994 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.) 2 Item 7. Financial Statements, Pro Forma Financial Information and Exhibits. (c) Exhibits. 23 - Consent of Arthur Andersen & Co. 99 - Audited Financial Statements of Gulf Power Company as of December 31, 1993. 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 1, 1994 EX-23 2 CONSENT OF ARTHUR ANDERSEN 1 EXHIBIT 23 ARTHUR ANDERSEN & CO. CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report dated February 16, 1994, included in this Form 8-K, into Gulf Power Company's previously filed Registration Statement File No. 33-50165. /s/ Arthur Andersen & Co. ------------------------- ARTHUR ANDERSEN & CO. Atlanta, Georgia March 1, 1994 EX-99 3 AUDITED FINANCIAL STATEMENTS 1 EXHIBIT 99 MANAGEMENT'S REPORT Gulf Power Company 1993 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 the 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/ D. L. McCrary /s/ A. E. Scarbrough - -------------------------- ------------------------ Douglas L. McCrary Arlan E. Scarbrough Chairman of the Board Vice President - Finance and Chief Executive Officer 2 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 The Southern Company) as of December 31, 1993 and 1992, 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, 1993. 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 through 27) referred to above present fairly, in all material respects, the financial position of Gulf Power Company as of December 31, 1993 and 1992, and the results of its operations and its cash flows for the periods stated, in conformity with generally accepted accounting principles. As explained in Notes 2 and 8 to the financial statements, effective January 1, 1993, Gulf Power Company changed its methods of accounting for postretirement benefits other than pensions and for income taxes. /s/ Arthur Andersen & Co. Atlanta, Georgia February 16, 1994 3 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Gulf Power Company 1993 Annual Report RESULTS OF OPERATIONS EARNINGS Gulf Power Company's net income after preferred stock dividends was $54.3 million for 1993, a $0.2 million increase over 1992 net income. Earnings reflect a $2.3 million gain on the sale of Gulf States Utilities Company (Gulf States) stock and the reversal of a $1.7 million wholesale rate refund as the result of a court order which is further discussed in Note 3 to the financial statements under "Recovery of Contract Buyout Costs". The company also experienced growth in residential and commercial sales and a decrease in interest expense on long-term debt as a result of security refinancings, offset by higher operation and maintenance expense, and decreased industrial sales reflecting the loss of the Company's largest industrial customer, Monsanto, which began cogeneration in August of 1993. The Company's 1992 net income after dividends on preferred stock decreased $3.7 million compared to the prior year. The 1991 earnings included an after-tax gain of $12.7 million representing the settlement of litigation with Gulf States. See Note 7 to the financial statements under "Gulf States Settlement Completed" for further details. Excluding this settlement from 1991, earnings for 1992 increased $8.4 million -- or approximately -- 18.7 percent over 1991. This improvement was due to increased energy sales; lower interest expense and preferred dividends as a result of security refinancings; and continued emphasis on cost controls. The Company's return on average common equity was 13.29 percent for 1993, a slight decrease from the 13.62 percent return earned in 1992, which was up from the 12.03 percent earned in 1991 (excluding the Gulf States settlement). REVENUES Changes in operating revenues over the last three years are the result of the following factors:
Increase (Decrease) From Prior Year 1993 1992 1991 (in thousands) Retail -- Change in base rates $ 1,571 $ 722 $ 3,137 Sales growth 7,671 12,965 2,387 Weather 4,049 (6,448) 1,845 Regulatory cost recovery and other (3,079) (1,839) 13,947 Total retail 10,212 5,400 21,316 Sales for resale-- Non-affiliates 2,131* 442 (4,219) Affiliates (909) (5,268) (9,220) Total Sales for resale 1,222 (4,826) (13,439) Other operating revenues 806 5,121 (10,495) Total operating revenues $12,240 $ 5,695 $ (2,618) Percent change 2.1% 1.0% (0.5)%
* Includes the non-interest portion of the wholesale rate refund reversal discussed in "Earnings." Retail revenues of $471.7 million in 1993 increased $10.2 million or 2.2 percent from last year, compared with an increase of 1.2 percent in 1992 and 4.9 percent in 1991. Revenues increased in the residential and commercial classes primarily due to customer growth, and favorable weather and economic conditions. Revenues in the industrial class declined due to the loss of the Company's largest industrial customer, Monsanto, which began operating its cogeneration facility in August 1993. See "Future Earnings Potential" for further details. The change in base rates for 1993 and 1992 reflects the expiration of a retail rate penalty in September 1992. Sales for resale were $95.4 million in 1993, increasing $1.2 million or 1.3 percent over 1992. Sales to affiliated companies vary from year to year depending on demand and the availability and cost of generating resources at each company. The majority of non-affiliated energy sales arise from long-term contractual agreements. Non-affiliated long-term contracts include capacity and energy components. Capacity revenues reflect the recovery of 3 4 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Gulf Power Company 1993 Annual Report fixed costs and return on investment. Energy is sold at its variable cost. The capacity and energy components under these long-term contracts were as follows:
1993 1992 1991 (in thousands) Capacity $33,805 $34,180 $32,651 Energy 21,202 22,933 23,311 Total $55,007 $57,113 $55,962
Beginning in June 1992, all the capacity from the Company's ownership portion of Plant Scherer Unit No. 3 was sold through unit power sales, resulting in increased capacity revenues. In 1993, changes in other operating revenues are primarily due to the recognition of $2.6 million under the Environmental Cost Recovery (ECR) clause which is fully discussed in Note 3 to the financial statements under "Environmental Cost Recovery", which is offset by true-ups of other regulatory cost recovery clauses. The increase in other operating revenues in 1992 was primarily due to true-ups of regulatory cost recovery clauses and the changes in franchise fee collections and Florida gross receipts taxes (discussed under "Expenses") which had no effect on earnings. Energy sales for 1993 and percent changes in sales since 1991 are reported below.
Amount Percent Change (millions of kilowatt-hours) 1993 1993 1992 1991 Residential 3,713 3.2% 4.1% 2.8% Commercial 2,433 2.7 4.2 2.5 Industrial 2,030 (6.9) 2.9 (2.8) Other 17 - (2.7) (9.3) Total retail 8,193 0.4 3.8 1.1 Sales for resale Non-affiliates 1,460 2.0 (7.7) (12.7) Affiliates 1,030 (14.8) (2.2) (13.9) Total 10,683 (1.1) 1.4 (3.1)
Overall retail sales remained relatively flat in 1993. Increases in residential and commercial sales -- reflecting customer growth, favorable weather and an improving economy -- were offset by the decreased sales in the industrial class reflecting the loss of Monsanto. Retail sales increased 3.8 percent in 1992 primarily due to an increase in the number of customers served and a moderately improving economy. Energy sales for resale to non-affiliates increased 2.0 percent and are predominantly unit power sales under long-term contracts to Florida utilities which are discussed above. Energy sales to affiliated companies vary from year to year as mentioned above. EXPENSES Total operating expenses for 1993 increased $16.6 million or 3.5 percent over 1992 primarily due to increased operation and maintenance expenses and higher taxes. Other operation expenses increased $10.9 million or 11.1 percent from the 1992 level. The increase is attributable to additional costs of $7.4 million related to increases in the buyout of coal supply contracts and $1.4 million of environmental clean-up costs. Also, higher employee benefit costs and the costs of an automotive fleet reduction program increased expenses by $2.1 million. Operating expenses for 1992 increased by approximately $16 million over 1991. Excluding the Gulf States settlement, an after-tax reduction of $0.6 million in 1992 and $12.7 million in 1991, 1992 total operating expenses increased $4.3 million or 0.9 percent over 1991. Fuel and purchased power expenses decreased $3.8 million or 1.8 percent from 1992 reflecting the lower cost of fuel. Total 1992 fuel and purchased power increased $1.4 million or 0.7 percent from 1991. Maintenance expense increased $4.1 million or 9.7 percent over 1992 due to scheduled maintenance of production facilities. The 1992 maintenance expense was down $3.5 million or 7.7 percent from 1991 due to a decrease in scheduled maintenance. Federal income taxes increased $0.7 million primarily due to a corporate federal income tax rate increase from 34 percent to 35 percent effective January 1993. Taxes other than income taxes increased $2.3 million in 1993, an increase of 6.1 percent over the 1992 expense 4 5 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Gulf Power Company 1993 Annual Report primarily due to increases in property taxes and gross receipt taxes. Taxes other than income taxes decreased $4.5 million, or 10.5 percent in 1992 compared to 1991 due primarily to the Company discontinuing the collection of franchise fees for two Florida counties which was partially offset by an increase in gross receipt taxes. Changes in franchise fee collections and gross receipt taxes had no impact on earnings. Interest expense decreased $3.2 million or 8.1 percent from the 1992 level and 1992 interest expense decreased $5.6 million or 12.5 percent from 1991. The decrease in both years is primarily attributable to refinancing some of the Company's higher cost securities. 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 a number of factors. It is expected that higher operating costs and carrying charges on increased investment in plant, if not offset by proportionate increases in operating revenues (either by periodic rate increases or increases in sales), will adversely affect future earnings. Growth in energy sales will be subject to a number of factors, including the volume of sales to neighboring utilities, energy conservation practiced by customers, the elasticity of demand, customer growth, weather, competition, and the rate of economic growth in the service area. In addition to the traditional factors discussed above, the Energy Policy Act of 1992 (Energy Act) will have a profound effect on the future of the electric utility industry. The Energy Act promotes energy efficiency, alternative fuel use, and increased competition for electric utilities. The Company is preparing to meet the challenges of a major change in the traditional business practices 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, and this may enhance the incentive for IPPs to build cogeneration plants for the Company's large industrial and commercial customers and sell excess energy generation to the Company or other utilities. Although the Energy Act does not require transmission access to retail customers, pressure for legislation to allow retail wheeling will continue. If the Company does not remain a low-cost producer and provide quality service, the Company's retail energy sales growth, its ability to retain large industrial and commercial customers, and obtain new long-term contracts for energy sales outside the Company's service area, could be limited, and this could significantly erode earnings. The future effect of cogeneration and small-power production facilities cannot be fully determined at this time, but may be adverse. One effect of cogeneration which the Company has experienced is the loss of its largest industrial customer, Monsanto, in August of 1993. The loss of the Monsanto load reduced revenues, and will result in a reduction in net income of approximately $3 million in the first twelve months. The Federal Energy Regulatory Commission (FERC) regulates wholesale rate schedules and power sales contracts that the Company has with its sales for resale customers. The FERC is currently reviewing the rate of return on common equity included in these schedules and contracts that have a return on common equity of 13.75 percent or greater, and may require such returns to be lowered, possibly retroactively. See Note 3 to the financial statements under "FERC Reviews Equity Returns" for additional information. Compliance costs related to the Clean Air Act Amendments of 1990 (Clean Air Act) could reduce earnings if such costs are not fully recovered. The Clean Air Act is discussed later under "Environmental Matters". 5 6 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Gulf Power Company 1993 Annual Report Also, recently enacted legislation that provides for recovery of prudent environmental compliance costs is discussed in Note 3 to the financial statements under "Environmental Cost Recovery." The Company filed a notice with the Florida Public Service Commission (FPSC) of its intent to obtain rate relief in February 1993. On May 4, 1993, the FPSC approved a stipulation between the Company, the Office of Public Counsel, and the Florida Industrial Power Users Group to cancel the filing of the rate case. The stipulation also allowed the Company to retain, for the next four years, its existing method for calculating accruals for future power plant dismantlement costs. The existing method provides a more even allocation of expenses over the life of the plants and results in an avoided increase in expenses of about $6 million annually over the next four years when compared to the FPSC method. The stipulation also provided for the reduction of the Company's allowed return on equity midpoint from 12.55 percent to 12.0 percent. After the February 1993 filing date, interest rates continued to remain low, resulting in lower cost of capital. Also, the Florida legislature adopted legislation which allows utilities to petition the FPSC for recovery of environmental costs through an adjustment clause if these costs are not being recovered in base rates. See Note 3 to the financial statements under "Environmental Cost Recovery" for further details. The combination of the circumstances discussed above, placed the Company in a better position to manage its finances without an increase in base rates while still providing a fair return for the Company's investors. Consequently, the Company agreed, as a part of this stipulation, to cancel the filing of the rate case. NEW ACCOUNTING STANDARDS The Financial Accounting Standards Board (FASB) issued Statement No. 112, Employers' Accounting for Postemployment Benefits, which must be effective by 1994. The new standard requires that all types of benefits provided to former or inactive employees and their families prior to retirement be accounted for on an accrual basis. These benefits include salary continuation, severance pay, supplemental benefits, disability-related benefits, job training, and health and life insurance coverage. In 1993, the Company adopted Statement No. 112, which resulted in a decrease in earnings of $0.3 million. The FASB has issued Statement No. 115, Accounting for Certain Investments in Debt and Equity Securities, which is effective in 1994. Statement No. 115 supersedes FASB Statement No. 12, Accounting for Certain Marketable Securities. The Company does not have any investments that qualify for FASB Statement No. 115 treatment. FINANCIAL CONDITION OVERVIEW The principal changes in the Company's financial condition during 1993 were gross property additions of $79 million. Funds for these additions were provided by internal sources. The Company continued to refinance higher cost securities to lower the Company's cost of capital. See "Financing Activities" below and the Statements of Cash Flows for further details. On January 1, 1993, the Company changed its method of calculating the accruals for postretirement benefits other than pensions and its method of accounting for income taxes. See Notes 2 and 8 to the financial statements, regarding the impact of these changes. FINANCING ACTIVITIES As mentioned above, the Company continued to lower its financing costs by issuing new securities and other debt, and retiring higher-cost issues in 1993. The Company sold $75 million of first mortgage bonds and, through public authorities, $53.4 million of pollution control revenue bonds, issued $35 million of preferred stock, and obtained $25 million with a long-term bank note. Retirements, including maturities during 1993, totaled $88.8 million of first mortgage bonds, $40.7 million of pollution control revenue bonds, and $21.1 million of preferred stock. (See the Statements of Cash Flows for further details.) 6 7 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Gulf Power Company 1993 Annual Report Composite financing rates for the years 1991 through 1993 as of year end were as follows:
1993 1992 1991 Composite interest rate on 7.1% 8.0% 8.4% long-term debt Composite preferred stock 6.5% 7.3% 8.0% dividend rate
CAPITAL REQUIREMENTS FOR CONSTRUCTION The Company's gross property additions, including those amounts related to environmental compliance, are budgeted at $200 million for the three years beginning 1994 ($77 million in 1994, $55 million in 1995, and $68 million in 1996). The estimates of property additions for the three-year period include $25 million committed to meeting the requirements of the Clean Air Act, the cost of which is expected to be recovered through the ECR clause which is discussed in Note 3 to the financial statements under "Environmental Cost Recovery". Actual construction costs may vary from this estimate because of factors such as the granting of timely and adequate rate increases; changes in environmental regulations; revised load projections; the cost and efficiency of construction labor, equipment, and materials; and the cost of capital. The Company does not have any baseload generating plants under construction. However, the Company plans to construct two 80 megawatt combustion turbine peaking units. The first is scheduled to be completed in 1998, and the second in 1999. Significant construction of transmission and distribution facilities and upgrading of generating plants will be continuing. OTHER CAPITAL REQUIREMENTS In addition to the funds needed for the construction program, approximately $86 million will be required by the end of 1996 in connection with maturities of long-term debt and preferred stock subject to mandatory redemption. Also, the Company plans to continue a program to retire higher-cost debt and preferred stock and replace these obligations with lower-cost capital. 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 -- will have a significant impact on the Company. Specific reductions in sulfur dioxide and nitrogen oxide emissions from fossil-fired generating plants will be required in two phases. Phase I compliance must be implemented in 1995 and affects eight generating plants -- some 10,000 megawatts of capacity or 35 percent of total capacity -- in the Southern electric system. Phase II compliance is required in 2000, and all fossil-fired generating plants in the Southern electric system will be affected. Beginning in 1995, the Environmental Protection Agency (EPA) will allocate annual sulfur dioxide emission allowances through the newly established allowance trading program. An emission allowance is the authority to emit one ton of sulfur dioxide during a calendar year. The method for allocating allowances is based on the fossil fuel consumed from 1985 through 1987 for each affected generating unit. Emission allowances are transferable and can be bought, sold, or banked and used in the future. The sulfur dioxide emission allowance program is expected to minimize the cost of compliance. The market for emission allowances is developing slower than expected. However, The Southern Company's sulfur dioxide compliance strategy is designed to take advantage of allowances as the market develops. The Southern Company expects to achieve Phase I sulfur dioxide compliance at the eight affected plants by switching to low-sulfur coal, and this has required some equipment upgrades. This compliance strategy is expected to result in unused emission allowances being banked for later use. Additional construction expenditures are required to install equipment for the control of nitrogen oxide emissions at these eight plants. Also, continuous emissions monitoring equipment would be installed on all fossil-fired units. Under this Phase I compliance approach, additional construction expenditures are estimated to total approximately $275 million for The Southern Company including $34 million for Gulf Power Company through 1995. 7 8 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Gulf Power Company 1993 Annual Report Phase II compliance costs are expected to be higher because requirements are stricter and all fossil-fired generating plants are affected. For sulfur dioxide compliance, The Southern Company could use emission allowances banked during Phase I, increase fuel switching, install flue gas desulfurization equipment at selected plants, and/or purchase more allowances depending on the price and availability of allowances. Also, in Phase II, equipment to control nitrogen oxide emissions will be installed on additional system fossil-fired plants as required to meet anticipated Phase II limits. Therefore, during the period 1996 to 2000, compliance could require total construction expenditures ranging from approximately $450 million to $800 million for The Southern Company including approximately $30 million to $40 million for Gulf Power Company. However, the full impact of Phase II compliance cannot now be determined with certainty, pending the 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, the Company filed its petition for approval. The Commission 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 4 percent in annual revenue requirements from Gulf Power Company customers could be necessary to fully recover the cost of compliance for both Phase I and Phase II of the Clean Air Act. Compliance costs include construction expenditures, increased costs for switching to low-sulfur coal, and costs related to emission allowances. The Florida Legislature recently adopted legislation that allows a utility to petition the FPSC for recovery of prudent environmental compliance costs through an ECR clause without lengthy regulatory full revenue requirements rate proceedings. The legislation is discussed in Note 3 to the financial statements under "Environmental Cost Recovery". Title III of the Clean Air Act requires a multi-year EPA study of power plant emissions of hazardous air pollutants. The study will serve as the basis for a decision on whether additional regulatory control of these substances is warranted. Compliance with any new control standards could result in significant additional costs. The impact of new standards -- if any -- will depend on the development and implementation of applicable regulations. The EPA continues to evaluate the need for a new short-term ambient air quality standard for sulfur dioxide. Preliminary results from an EPA study on the impact of a new standard indicate that a number of plants could be required to install sulfur dioxide controls. These controls would be in addition to the controls already required to meet the acid rain provision of the Clean Air Act. The EPA is expected to take some action on this issue in 1994. The impact of any new standard will depend on the level chosen for the standard and cannot be determined at this time. In addition, the EPA is evaluating the need to revise the ambient air quality standards for particulate matter, nitrogen oxides, and ozone. The impact of any new standard will depend on the level chosen for the standard and cannot be determined at this time. In 1994 or 1995, the EPA is expected to issue revised rules on air quality control regulations related to stack height requirements of the Clean Air Act. The full impact of the final rules cannot be determined at this time, pending their development and implementation. In 1993, the EPA issued a ruling confirming the non-hazardous status of coal ash. However, the EPA has until 1998 to classify co-managed utility wastes -- coal ash and other utility wastes -- as either non-hazardous or hazardous. If the EPA classifies the co-managed wastes as hazardous, then substantial additional costs for the management of such wastes may be required. The full impact of any change in the regulatory status will depend on the subsequent development of co-managed waste requirements. Gulf Power Company must comply with other environmental laws and regulations that cover the handling and disposal of hazardous waste. Under these various laws and regulations, the Company could incur costs to clean up properties currently or previously owned. The Company conducts studies to determine the extent of any required clean-up costs and has recognized in the financial statements costs to clean up known sites. 8 9 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Gulf Power Company 1993 Annual Report Several major pieces of environmental legislation are in the process of being reauthorized or amended by Congress. These include: the Clean Water Act; the Comprehensive Environmental Response, Compensation, and Liability Act; and the Resource Conservation and Recovery Act. Changes to these laws could affect many areas of Gulf Power Company's operations. The full impact of these requirements cannot be determined at this time, pending the development and implementation of applicable regulations. Compliance with possible new legislation related to global climate change, electromagnetic fields, and other environmental and health concerns could significantly affect Gulf Power Company. The impact of new legislation - -- if any -- will depend on the subsequent development and implementation of applicable regulations. In addition, the potential for lawsuits alleging damages caused by electromagnetic fields exists. COAL STOCKPILE DECREASES To reduce the working capital invested in the coal stockpile inventory, the Company implemented a coal stockpile reduction program in 1992. The Company's actual year end inventory at December 31, 1993 was $20.7 million which is considerably lower than the desired level of $31.4 million. This situation exists because a limited supply of coal was available at competitive prices primarily due to the United Mine Workers strike from July to December 1993. In addition, barge transportation was stranded due to floods in the Midwest. As a result of these circumstances, management chose to allow the existing coal inventory to decline until coal prices stabilized. Current market conditions indicate that substantial coal supplies at competitive prices are now available. Therefore, the Company plans to increase purchases and return the coal stockpile inventory to the desired level by the end of the third quarter, 1994. SOURCES OF CAPITAL At December 31, 1993, the Company had $5.6 million of cash and cash equivalents to meet its short-term cash needs. 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; and capital contributions from The Southern Company. 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 10 STATEMENTS OF INCOME For the Years Ended December 31, 1993, 1992, and 1991 Gulf Power Company 1993 Annual Report
1993 1992 1991 (in thousands) OPERATING REVENUES: Revenues $ 559,976 $ 546,827 $ 535,864 Revenues from affiliates 23,166 24,075 29,343 Total operating revenues 583,142 570,902 565,207 OPERATING EXPENSES: Operation- Fuel 170,485 182,754 176,038 Purchased power from non-affiliates 4,386 1,394 896 Purchased power from affiliates 32,273 26,788 32,579 Proceeds from settlement of disputed contracts (Note 7) - (920) (20,385) Other 109,164 98,230 94,411 Maintenance 46,004 41,947 45,468 Depreciation and amortization 55,309 53,758 52,195 Taxes other than income taxes 40,204 37,898 42,359 Federal and state income taxes (Note 8) 32,730 32,078 33,893 Total operating expenses 490,555 473,927 457,454 OPERATING INCOME 92,587 96,975 107,753 OTHER INCOME (EXPENSE): Allowance for equity funds used during construction (Note 1) 512 14 54 Interest income 1,328 2,733 2,427 Other, net (1,238) (1,487) (3,484) Gain on sale of investment securities 3,820 - - Income taxes applicable to other income (921) 187 1,104 INCOME BEFORE INTEREST CHARGES 96,088 98,422 107,854 INTEREST CHARGES: Interest on long-term debt 31,344 35,792 41,665 Allowance for debt funds used during construction (Note 1) (454) (46) (95) Interest on notes payable 870 1,041 280 Amortization of debt discount, premium, and expense, net 1,412 1,032 699 Other interest charges 2,877 1,410 2,272 Net interest charges 36,049 39,229 44,821 NET INCOME 60,039 59,193 63,033 DIVIDENDS ON PREFERRED STOCK 5,728 5,103 5,237 NET INCOME AFTER DIVIDENDS ON PREFERRED STOCK $ 54,311 $ 54,090 $ 57,796
The accompanying notes are an integral part of these statements. 10 11 STATEMENTS OF CASH FLOWS For the Years Ended December 31, 1993, 1992, and 1991 Gulf Power Company 1993 Annual Report
1993 1992 1991 (in thousands) OPERATING ACTIVITIES: Net income $ 60,039 $ 59,193 $ 63,033 Adjustments to reconcile net income to net cash provided by operating activities -- Depreciation and amortization 72,111 68,021 65,584 Deferred income taxes and investment tax credits 5,347 3,322 (3,392) Allowance for equity funds used during construction (512) (14) (54) Non-cash proceeds from settlement of disputed contracts (Note 7) - (920) (19,734) Other, net (864) 185 3,079 Changes in certain current assets and liabilities -- Receivables, net 12,867 (11,041) 12,421 Inventories 5,574 23,560 (2,397) Payables 5,386 1,580 (2,003) Other (9,504) (13,637) 8,012 Net cash provided from operating activities 150,444 130,249 124,549 INVESTING ACTIVITIES: Gross property additions (78,562) (64,671) (64,323) Other (5,328) 3,970 (8,097) Net cash used for investing activities (83,890) (60,701) (72,420) FINANCING ACTIVITIES AND CAPITAL CONTRIBUTIONS: Proceeds: Preferred stock 35,000 29,500 - First mortgage bonds 75,000 25,000 50,000 Pollution control bonds 53,425 8,930 21,200 Capital contributions from parent 11 121 - Other long-term debt 25,000 - - Retirements: Preferred stock (21,060) (15,500) (2,500) First mortgage bonds (88,809) (117,693) (32,807) Pollution control bonds (40,650) (9,205) (21,250) Other long-term debt (7,736) (5,783) (7,981) Notes payable, net (37,947) 44,000 - Payment of preferred stock dividends (5,728) (5,103) (5,237) Payment of common stock dividends (41,800) (39,900) (38,000) Miscellaneous (6,888) (8,760) (3,715) Net cash used for financing activities (62,182) (94,393) (40,290) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,372 (24,845) 11,839 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,204 26,049 14,210 CASH AND CASH EQUIVALENTS AT END OF YEAR $ 5,576 $ 1,204 $ 26,049 SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during the year for -- Interest (net of amount capitalized) $28,470 $38,164 $39,814 Income taxes $27,865 $37,569 $26,915
( ) Denotes use of cash. The accompanying notes are an integral part of these statements. 11 12 BALANCE SHEETS At December 31, 1993 and 1992 Gulf Power Company 1993 Annual Report
ASSETS 1993 1992 (in thousands) UTILITY PLANT: Plant in service (Notes 1 and 6) $ 1,611,704 $ 1,561,491 Less accumulated provision for depreciation 610,542 578,851 1,001,162 982,640 Construction work in progress 34,591 29,564 Total 1,035,753 1,012,204 Less property-related accumulated deferred income taxes (Note 8) - 200,904 Total 1,035,753 811,300 OTHER PROPERTY AND INVESTMENTS 13,242 7,074 CURRENT ASSETS: Cash and cash equivalents 5,576 1,204 Investment securities (Notes 1 and 7) - 22,322 Receivables- Customer accounts receivable 57,226 55,103 Other accounts and notes receivable 5,904 3,237 Affiliated companies 1,241 2,063 Accumulated provision for uncollectible accounts (447) (356) Fossil fuel stock, at average cost 20,652 29,492 Materials and supplies, at average cost 36,390 33,124 Current portion of deferred coal contract costs (Note 5) 12,535 3,071 Regulatory clauses under recovery (Note 1) 3,244 1,680 Prepayments 2,160 1,395 Vacation pay deferred (Note 1) 4,022 3,779 Total 148,503 156,114 DEFERRED CHARGES: Deferred charges related to income taxes (Note 8) 31,334 - Debt expense, being amortized 3,693 3,253 Premium on reacquired debt, being amortized 17,554 15,319 Deferred coal contract costs (Note 5) 52,884 63,723 Miscellaneous 4,846 5,916 Total 110,311 88,211 TOTAL ASSETS $ 1,307,809 $ 1,062,699
The accompanying notes are an integral part of these statements. 12 13 BALANCE SHEETS (continued) At December 31, 1993 and 1992 Gulf Power Company 1993 Annual Report
CAPITALIZATION AND LIABILITIES 1993 1992 (in thousands) CAPITALIZATION (SEE ACCOMPANYING STATEMENTS): Common stock equity (Note 11) $ 414,196 $ 403,190 Preferred stock 89,602 74,662 Preferred stock subject to mandatory redemption 1,000 2,000 Long-term debt 369,259 382,047 Total 874,057 861,899 CURRENT LIABILITIES: Preferred stock due within one year 1,000 1,000 Long-term debt due within one year (Note 10) 41,552 13,820 Notes payable 6,053 44,000 Accounts payable- Affiliated companies 18,560 5,323 Other 20,139 28,138 Customer deposits 15,082 15,532 Taxes accrued- Federal and state income 10,330 3,326 Other 2,685 8,093 Interest accrued 5,420 6,370 Regulatory clauses over recovery (Note 1) 840 - Vacation pay accrued (Note 1) 4,022 3,779 Miscellaneous 8,527 3,950 Total 134,210 133,331 DEFERRED CREDITS AND OTHER LIABILITIES: Accumulated deferred income taxes (Note 8) 151,743 - Deferred credits related to income taxes (Note 8) 76,876 - Accumulated deferred investment tax credits 40,770 43,117 Accumulated provision for property damage (Note 1) 10,509 9,692 Accumulated provision for postretirement benefits (Note 2) 10,749 7,662 Miscellaneous 8,895 6,998 Total 299,542 67,469 COMMITMENTS AND CONTINGENT MATTERS (NOTES 1, 2, 3, 4, 5, AND 7) TOTAL CAPITALIZATION AND LIABILITIES $ 1,307,809 $ 1,062,699
The accompanying notes are an integral part of these statements. 13 14 STATEMENTS OF CAPITALIZATION At December 31, 1993 and 1992 Gulf Power Company 1993 Annual Report
1993 1992 1993 1992 (in thousands) (percent of total) COMMON STOCK EQUITY: Common stock, without par value -- Authorized and outstanding -- 992,717 shares in 1993 and 1992 $ 38,060 $ 38,060 Paid-in capital 218,282 218,271 Premium on preferred stock 81 88 Retained earnings (Note 11) 157,773 146,771 Total common stock equity 414,196 403,190 47.4 % 46.8 % CUMULATIVE PREFERRED STOCK: $10 par value, authorized 10,000,000 shares, Outstanding 2,580,000 shares at December 31, 1993 $25 stated capital -- 7.00% 14,500 14,500 7.30% 15,000 15,000 6.72% 20,000 - Adjustable Rate -- at January 1, 1994: 4.80% 15,000 - $100 par value -- Authorized -- 781,626 shares Outstanding -- 251,026 shares at December 31, 1993 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 8.28% - 15,000 8.52% - 5,060 Total (annual dividend requirement -- $5,711,000) 89,602 74,662 10.3 8.7 CUMULATIVE PREFERRED STOCK SUBJECT TO MANDATORY REDEMPTION: $100 par value -- Authorized -- 20,000 shares Outstanding -- 20,000 shares at December 31, 1993 11.36% Series 2,000 3,000 Total (annual dividend requirement -- $227,000) 2,000 3,000 Less amount due within one year 1,000 1,000 Total excluding amount due within one year 1,000 2,000 0.1 0.2
14 15 STATEMENTS OF CAPITALIZATION (CONTINUED) At December 31, 1993 and 1992 Gulf Power Company 1993 Annual Report
1993 1992 1993 1992 (in thousands) (percent of total) First mortgage bonds -- Maturity Interest Rates October 1, 1994 4 5/8% 12,000 12,000 June 1, 1996 6% 15,000 15,000 August 1, 1997 5 7/8% 25,000 25,000 April 1, 1998 9.20% 19,486 22,845 April 1, 1998 5.55% 15,000 - July 1, 1998 5.00% 30,000 - 1999 through 2003 6.125% to 8.875% 30,000 83,000 September 1, 2008 9% 5,050 7,500 December 1, 2021 8 3/4% 50,000 50,000 Total first mortgage bonds 201,536 215,345 Pollution control obligations (Note 9) 169,855 157,080 Other long-term debt (Note 9) 42,520 25,256 Unamortized debt premium (discount), net (3,100) (1,814) Total long-term debt (annual interest requirement -- $29,378,000) 410,811 395,867 Less amount due within one year (Note 10) 41,552 13,820 Long-term debt excluding amount due within one year 369,259 382,047 42.2 44.3 TOTAL CAPITALIZATION $ 874,057 $ 861,899 100.0 % 100.0 %
The accompanying notes are an integral part of these statements. 15 16 STATEMENTS OF RETAINED EARNINGS For the Years Ended December 31, 1993, 1992, and 1991 Gulf Power Company 1993 Annual Report
1993 1992 1991 (in thousands) BALANCE AT BEGINNING OF YEAR $ 146,771 $ 134,372 $ 114,576 Net income after dividends on preferred stock 54,311 54,090 57,796 Cash dividends on common stock (41,800) (39,900) (38,000) Preferred stock transactions, net (1,509) (1,791) - BALANCE AT END OF YEAR (NOTE 11) $ 157,773 $ 146,771 $ 134,372
STATEMENTS OF PAID-IN CAPITAL For the Years Ended December 31, 1993, 1992, and 1991 Gulf Power Company 1993 Annual Report
1993 1992 1991 (in thousands) BALANCE AT BEGINNING OF YEAR $ 218,271 $ 218,150 $ 218,150 Contributions to capital by parent company 11 121 - BALANCE AT END OF YEAR $ 218,282 $ 218,271 $ 218,150
The accompanying notes are an integral part of these statements. 16 17 NOTES TO FINANCIAL STATEMENTS At December 31, 1993, 1992 and 1991 Gulf Power Company 1993 Annual Report 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: GENERAL Gulf Power Company is a wholly owned subsidiary of The Southern Company, which is the parent company of five operating companies, Southern Company Services, Inc. (SCS), Southern Electric International (Southern Electric), Southern Nuclear Operating Company (Southern Nuclear) and various other subsidiaries related to foreign utility operations and domestic non-utility operations. At this time, the operations of the other subsidiaries are not material. The operating companies (Alabama Power Company, Georgia Power Company, Gulf Power Company, Mississippi Power Company, and Savannah Electric and Power Company) provide electric service in four Southeastern states. Contracts among the 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. SCS provides, at cost, specialized services to The Southern Company and to the subsidiary companies. Southern Electric designs, builds, owns and operates power production facilities and provides a broad range of technical services to industrial companies and utilities in the United States and a number of international markets. Southern Nuclear provides services to The Southern Company's nuclear power plants. The Southern Company is registered as a holding company under the Public Utility Holding Company Act of 1935 (PUHCA). Both The 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 these commissions. Certain prior years' data presented in the financial statements have been reclassified to conform with current year presentation. REVENUES AND FUEL COSTS The Company accrues revenues for service rendered but unbilled at the end of each fiscal period. Fuel costs are expensed as 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. Revenues are adjusted for differences between recoverable fuel costs and amounts actually recovered in current rates. The FPSC has also approved the recovery of purchased power capacity costs, energy conservation costs, and environmental compliance costs in cost recovery clauses that are similar to the method used to recover fuel costs. DEPRECIATION AND AMORTIZATION Depreciation of the original cost of depreciable utility plant in service is provided primarily using composite straight-line rates which approximated 3.8 percent in 1993, 1992, and 1991. 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. INCOME TAXES The Company 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. In years prior to 1993, income taxes were accounted for and reported under Accounting Principles Board Opinion No. 11. Effective January 1, 1993, the Company adopted FASB Statement No. 109, Accounting for Income Taxes. Statement No. 109 required, among other things, conversion to the liability method of accounting for accumulated deferred income taxes. See Note 8 for additional information about Statement No. 109. The Company is included in the consolidated federal income tax return of The Southern Company. 17 18 NOTES (CONTINUED) Gulf Power Company 1993 Annual Report 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 certain new facilities. While cash is not realized currently from such allowance, it increases the revenue requirement over the service life of plant through a higher rate base and higher depreciation expense. The FPSC-approved composite rate used to calculate AFUDC was 7.27 percent effective on July 1, 1993 and 8.03 percent for the first half of 1993, and for 1992, and 1991. AFUDC amounts for 1993, 1992, and 1991 were $966 thousand, $60 thousand, and $149 thousand, respectively. The increase in 1993 is due to an increase in construction projects at Plant Daniel. 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. FINANCIAL INSTRUMENTS In accordance with FASB Statement No. 107, Disclosure About Fair Value of Financial Instruments, all financial instruments of the Company -- for which the carrying amount does not approximate fair value -- are shown in the table below as of December 31:
1993 Carrying Fair Amount Value (in thousands) Long-term debt $410,811 $431,251 Preferred stock subject to mandatory redemption 2,000 2,040
1992 Carrying Fair Amount Value (in thousands) Investment securities $ 22,322 $ 26,387 Long-term debt 395,867 410,724 Preferred stock subject to mandatory redemption 3,000 3,060
The fair values of investment securities were based on listed closing market prices. The fair values for long-term debt and preferred stock subject to mandatory redemption 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. VACATION PAY The Company's employees earn their vacation in one year and take it in the subsequent year. However, for ratemaking purposes, vacation pay is recognized as an allowable expense only when paid. Consistent with this ratemaking treatment, the Company accrues a current liability for earned vacation pay and records a current asset representing the future recoverability of this cost. The amount was $4.0 million and $3.8 million at December 31, 1993 and 1992, respectively. In 1994, an estimated 84 percent of the 1993 deferred vacation cost 18 19 NOTES (CONTINUED) Gulf Power Company 1993 Annual Report will be expensed and the balance will be charged to construction. 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 is providing 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 $2.2 million and $2.5 million at December 31, 1993 and 1992, respectively, is included in miscellaneous current liabilities in the accompanying Balance Sheets. PROVISION FOR PROPERTY DAMAGE Due to a significant increase in the cost of traditional insurance, effective in 1993, the Company became self-insured for the full cost of storm and other damage to its transmission and distribution property. As permitted by regulatory authorities, the Company provides for the estimated cost of uninsured property damage by charges to income amounting to $1.2 million annually. At December 31, 1993 and 1992, the accumulated provision for property damage amounted to $10.5 million and $9.7 million, respectively. The expense of repairing such damage as occurs from time to time is charged to the provision to the extent it is available. 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 the greater of amounts resulting from two different 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. POSTRETIREMENT BENEFITS The Company also provides certain medical care and life insurance benefits for retired employees. Substantially all employees may become eligible for these benefits when they retire. A qualified trust for medical benefits has been established for funding amounts to the extent deductible under federal income tax regulations. Amounts funded are primarily invested in debt and equity securities. Accrued costs of life insurance benefits, other than current cash payments for retirees, currently are not being funded. Effective January 1, 1993, the Company adopted FASB Statement No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions, on a prospective basis. Statement No. 106 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." Prior to the adoption of Statement No. 106, Gulf Power Company recognized these benefit costs on an accrual basis using the "aggregate cost" actuarial method, which spreads the expected cost of such benefits over the remaining periods of employees' service as a level percentage of payroll costs. The costs of such benefits recognized by the Company in 1993, 1992, and 1991 were $3.9 million, $3.1 million, and $2.7 million, respectively. STATUS AND COST OF BENEFITS Shown in the following tables are actuarial results and assumptions for pension and postretirement medical and life insurance benefits as computed under the requirements of Statement Nos. 87 and 106, respectively. Retiree medical and life insurance information is shown only for 1993 because Statement No. 106 was adopted as of January 1, 1993, on a prospective basis. 19 20 NOTES (CONTINUED) Gulf Power Company 1993 Annual Report The funded status of the plans at December 31 was as follows:
Pension 1993 1992 (in thousands) Actuarial present value of benefit obligation: Vested benefits $ 73,925 $ 63,459 Non-vested benefits 3,217 2,900 Accumulated benefit obligation 77,142 66,359 Additional amounts related to projected salary increases 25,648 28,719 Projected benefit obligation 102,790 95,078 Less: Fair value of plan assets 159,192 142,614 Unrecognized net gain (49,376) (40,764) Unrecognized prior service cost 3,152 3,346 Unrecognized transition asset (8,765) (9,495) Prepaid asset recognized in the Balance Sheets $ 1,413 $ 623
Postretirement Medical Life 1993 1993 (in thousands) Actuarial present value of benefit obligation: Retirees and dependents $ 7,857 $ 2,929 Employees eligible to retire 4,054 - Other employees 14,927 5,058 Accumulated benefit obligation 26,838 7,987 Less: Fair value of plan assets 5,638 52 Unrecognized net loss (gain) 2,653 (641) Unrecognized transition obligation 13,420 2,954 Accrued liability recognized in the Balance Sheets $ 5,127 $ 5,622
The weighted average rates assumed in the actuarial calculations were:
1993 1992 1991 Discount 7.5% 8.0% 8.0% Annual salary increase 5.0% 6.0% 6.0% Long-term return on plan assets 8.5% 8.5% 8.5%
An additional assumption used in measuring the accumulated postretirement medical benefit obligation was a weighted average medical care cost trend rate of 11.3 percent for 1993, decreasing to 6.0 percent through the year 2000 and remaining at that level thereafter. An annual increase in the assumed medical care cost trend rate by 1.0 percent would increase the accumulated medical benefit obligation as of December 31, 1993, by $4.8 million and the aggregate of the service and interest cost components of the net retiree medical cost by $543 thousand. Components of the plans' net cost are shown below:
Pension 1993 1992 1991 (in thousands) Benefits earned during the year $ 3,710 $ 3,550 $ 3,396 Interest cost on projected benefit obligation 7,319 6,939 6,516 Actual return on plan assets (20,672) (6,431) (35,560) Net amortization and deferral 8,853 (4,054) 26,322 Net pension cost (income) $ (790) $ 4 $ 674
Of the above net pension amounts, $(601) thousand in 1993, $3 thousand in 1992, and $518 thousand in 1991, were recorded in operating expenses, and the remainder was recorded in construction and other accounts.
Postretirement Medical Life 1993 1993 (in thousands) Benefits earned during the year $ 874 $ 292 Interest cost on accumulated benefit obligation 1,714 625 Amortization of transition obligation over 20 years 706 148 Actual return on plan assets (726) (5) Net amortization and deferral 309 1 Net postretirement cost $2,877 $1,061
Of the above net postretirement medical and life insurance amounts recorded in 1993, $3.0 million was recorded in operating expenses, and the remainder was recorded in construction and other accounts. 20 21 NOTES (CONTINUED) Gulf Power Company 1993 Annual Report 3. LITIGATION AND REGULATORY MATTERS: COAL BARGE TRANSPORTATION SUIT On August 19, 1993, a complaint against the Company and Southern Company Services, an affiliate, was filed in federal district court in Ohio by two companies with which the Company had contracted for the transportation by barge for certain of the Company's coal supplies. The complaint alleges breach of the contract by the Company and seeks damages estimated by the plaintiffs to be in excess of $85 million. The final outcome of this matter cannot now be determined; however, in management's opinion the final outcome will not have a material adverse effect on the Company's financial statements. FPSC APPROVES STIPULATION In February 1993, the Company filed a notice with the FPSC of its intent to obtain rate relief. On May 4, 1993, the FPSC approved a stipulation between the Company, the Office of Public Counsel, and the Florida Industrial Power Users Group to cancel the filing of the rate case and to allow the Company to retain for the next four years its existing method for calculating accruals for future power plant dismantlement costs. The stipulation also required the reduction of the Company's allowed return on equity midpoint from 12.55 percent to 12.0 percent. See Management's Discussion and Analysis under "Future Earnings Potential" for further details of circumstances that contributed to the company canceling the rate case. FERC REVIEWS EQUITY RETURNS In May 1991, the FERC ordered that hearings be conducted concerning the reasonableness of the Southern electric system's wholesale rate schedules and contracts that have a return on common equity of 13.75 percent or greater. The contracts that could be affected by the hearings include substantially all of the transmission, unit power, long-term power and other similar contracts. Any changes in the rate of return on common equity that may occur as a result of this proceeding would be effective 60 days after a proper notice of the proceeding is published. A notice was published on May 10, 1991. 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. The final outcome of this matter cannot now be determined; however, in management's opinion, the final outcome will not have a material adverse effect on the Company's financial statements. RECOVERY OF CONTRACT BUYOUT COSTS In July 1990, the Company filed a request for waiver of FERC's fuel adjustment charge regulation to permit recovery of coal contract buyout costs from wholesale customers. On April 4, 1991, the FERC issued an order granting recovery of the buyout costs from wholesale customers from July 19, 1990, forward, but denying retroactive recovery of the buyout costs from January 1, 1987 through July 18, 1990. The Company's request for rehearing was denied by the FERC. The Company refunded $2.7 million (including interest) in June 1991 to its wholesale customers. On July 31, 1991, the Company filed a petition for review of the FERC's decision to the U.S. Court of Appeals for the District of Columbia Circuit. On January 22, 1993, the Court vacated the Commission's order, finding FERC's denial of the Company's request for a retroactive waiver to be arbitrary and capricious. The Court remanded the matter to FERC for consideration consistent with its opinion. Management expects that the commission will ultimately allow the Company to recover the amount refunded plus interest. Accordingly, the Company recorded the reversal of the $2.7 million refund to income in 1993. ENVIRONMENTAL COST RECOVERY In April 1993, the Florida Legislature adopted legislation for an Environmental Cost Recovery (ECR) clause, 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 rate-adjustment clause. Such environmental costs include operation and maintenance expense, depreciation, and a return on invested capital. 21 22 NOTES (CONTINUED) Gulf Power Company 1993 Annual Report On January 12, 1994, the FPSC approved the Company's petition under the ECR clause for recovery of environmental costs that were projected to be incurred from July 1993 through September 1994. The order allows the recovery from customers of such costs amounting to $7.8 million during the period, February through September 1994. Thereafter, recovery under ECR will be determined semi-annually and will include a true-up of the prior period and a projection of the ensuing six-month period. In December 1993, the Company recorded $2.6 million as additional revenue for the portion of costs incurred during 1993. 4. CONSTRUCTION PROGRAM: The Company is engaged in a continuous construction program, the cost of which is currently estimated to total $77 million in 1994, $55 million in 1995, and $68 million in 1996. These estimates include AFUDC of approximately $0.7 million, $0.3 million, and $0.2 million, in 1994, 1995, and 1996, respectively. 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. The Company does not have any new baseload generating plants under construction. However, the Company plans to construct two 80 megawatt combustion turbine peaking units. The first is scheduled to be completed in 1998, and the second in 1999. In addition, 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 financed from the sale of additional first mortgage bonds, preferred stock, and capital contributions from The 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. Because of the attractiveness of current short term interest rates, the Company may maintain a higher level of short term indebtedness than has historically been true. At December 31, 1993, the Company had $49 million of lines of credit with banks of which $6.1 million was committed to cover checks presented for payment. These credit arrangements are subject to renewal June 1 of each year. In connection with these committed lines of credit, the Company has agreed to pay certain fees and/or maintain compensating balances with the banks. The compensating balances, which represent substantially all 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 eight major money center banks that total $180 million, of which, none was committed at December 31, 1993. 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 were approximately $1.4 billion at December 31, 1993. Additional commitments will be required in the future to supply the Company's fuel needs. To take advantage of lower-cost coal supplies, agreements were reached in 1986 to terminate two long-term contracts for the supply of coal to Plant Daniel, which is jointly owned by the Company and Mississippi Power, an operating affiliate. The Company's portion of 22 23 NOTES (CONTINUED) Gulf Power Company 1993 Annual Report this payment was some $60 million. This amount is being amortized to expense on a per ton basis over a nine-year period. The remaining unamortized amount included in deferred charges, including the current portion, was $18 million at December 31, 1993. In 1988, the Company made an advance payment of $60 million to another 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 included in deferred charges, including the current portion, was $36 million at December 31, 1993. Also, in 1993 the Company made a payment of $16.4 million to a coal supplier under an arrangement to suspend the purchase of coal under an existing contract for one year. This amount is being amortized to expense on a per ton basis over a one year period. The remaining unamortized amount, which is included in current assets, was $11 million at December 31, 1993. The amortization of these payments is being recovered through the fuel cost recovery clause discussed under "Revenues and Fuel Costs" in Note 1. LEASE AGREEMENT In 1989, the Company entered into a twenty-two year operating lease agreement for the use of 495 aluminum railcars to transport coal to Plant Daniel. Mississippi Power, as joint owner of Plant Daniel, is responsible for one half of the lease costs. The Company's share of the lease is charged to fuel inventory and allocated to fuel expense as the fuel is used. The lease costs charged to inventory were $1.2 million in 1993, $1.2 million in 1992 and $1.3 million in 1991. For the year 1994, the Company's annual lease payment will be $1.2 million. The Company's annual lease payment for 1995 will be $2.4 million and for 1996, 1997, and 1998 the payment will be $1.2 million. Lease payments after 1998 total approximately $17.4 million. The Company has the option, after three years from the date of the original contract, to purchase the railcars at the greater of termination value or fair market value. Additionally, at the end of the 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, 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. At December 31, 1993, the Company's percentage ownership and its amount of investment in these jointly owned facilities were as follows:
Plant Plant Scherer Unit Daniel No. 3 (coal- (coal-fired) fired) (in thousands) Plant-In-Service $185,725(1) $208,956 Accumulated Depreciation $ 41,970 $ 91,730 Construction Work in Progress $ 643 $ 10,356 Nameplate Capacity (2) (in 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 23 24 NOTES (CONTINUED) Gulf Power Company 1993 Annual Report 7. LONG-TERM POWER SALES AGREEMENTS: GENERAL The Company and the other operating affiliates of The Southern Company have contractual agreements for the sale of capacity and energy to certain non-affiliated utilities located outside of the system's service area. Certain of these agreements are non-firm and are based on the capacity of the system in general. Other agreements are firm and pertain to capacity related to specific generating units. Because the energy is generally sold at cost under these agreements, the capacity revenues from these sales primarily affect profitability. The Company's capacity revenues have been as follows:
Unit Other Year Power Long-Term Total (in thousands) 1993 $31,162 $2,643 $33,805 1992 32,679 1,501 34,180 1991 31,288 1,363 32,651
Long-term non-firm power of 400 megawatts was sold in 1993 to Florida Power Corporation (FPC) by the Southern electric system. In 1994, this amount decreased to 200 megawatts, and the contract will expire at year-end 1994. Capacity and energy sales under these long-term non-firm power sales agreements are made from available power pool capacity, and the revenues from the sales are shared by the operating affiliates. Unit power from specific generating plants is currently being sold to FPC, Florida Power & Light Company (FP&L), Jacksonville Electric Authority (JEA), and the City of Tallahassee, Florida. Under these agreements, 209 megawatts of net dependable capacity were sold by the Company during 1993, and sales will remain at that approximate 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 $39.5 million in 1993, $46.2 million in 1992, and $42.1 million in 1991, or 6.8 percent, 8.1 percent, and 7.5 percent of operating revenues, respectively. GULF STATES SETTLEMENT COMPLETED On November 7, 1991, the subsidiaries of The Southern Company entered into a settlement agreement with Gulf States Utilities Company (Gulf States) that resolved litigation between the companies that had been pending since 1986 and arose out of a dispute over certain unit power and other long-term power sales contracts. In 1993, all remaining terms and obligations of the settlement agreement were satisfied. Based on the value of the settlement proceeds received - less the amounts previously included in income - the Company recorded increases in net income of approximately $0.6 million in 1992 and $12.7 million in 1991. In 1993, the Company sold all of its remaining Gulf States common stock received in the settlement, resulting in a gain of $2.3 million after tax. 8. INCOME TAXES: Effective January 1, 1993, Gulf Power Company adopted FASB Statement No. 109, Accounting for Income Taxes. The adoption of Statement No. 109 resulted in cumulative adjustments that had no effect on net income. The adoption also resulted in the recording of additional deferred income taxes and related assets and liabilities. The related assets of $31.3 million are revenues to be received from customers. These assets are attributable to tax benefits flowed through to customers in prior years and to taxes applicable to capitalized AFUDC. The related liabilities of $76.9 million are revenues to be refunded to customers. These liabilities are attributable to deferred taxes previously recognized at rates higher than current enacted tax law and to unamortized investment tax credits. Additionally, deferred income taxes related to accelerated tax depreciation previously shown as a reduction to utility plant were reclassified. 24 25 NOTES (CONTINUED) Gulf Power Company 1993 Annual Report Details of the federal and state income tax provisions are as follows:
1993 1992 1991 (in thousands) Total provision for income taxes: Federal -- Currently payable $24,354 $24,287 $30,721 Deferred: Current year 26,396 18,173 18,141 Reversal of prior years (22,102) (15,506) (21,404) 28,648 26,954 27,458 State Currently payable 3,950 4,282 5,460 Deferred: Current year 3,838 2,662 2,688 Reversal of prior years (2,785) (2,007) (2,817) 5,003 4,937 5,331 Total 33,651 31,891 32,789 Less income taxes charged (credited) to other income 921 (187) (1,104) Federal and state income taxes charged to operations $32,730 $32,078 $33,893
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:
1993 (in thousands) Deferred tax liabilities: Accelerated depreciation $146,657 Property basis differences 15,140 Coal contract buyout 15,427 Other 6,724 Total 183,948 Deferred tax assets: Federal effect of state deferred taxes 10,136 Pension and other benefits 3,406 Property insurance 4,730 Other 6,500 Total 24,772 Net deferred tax liabilities 159,176 Portion included in current liabilities, net 7,433 Accumulated deferred income taxes in the Balance Sheets $151,743
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 1993, 1992 and 1991. At December 31, 1993, 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:
1993 1992 1991 Federal statutory rate 35% 34% 34% State income tax, net of federal deduction 3 4 4 Non-deductible book depreciation 1 1 1 Differences in prior years' deferred and current tax rate (2) (2) (3) Other (1) (2) (2) Effective income tax rate 36% 35% 34%
Gulf Power Company and the other subsidiaries of The Southern Company file a consolidated federal tax return. Under a joint consolidated income tax agreement, each company's current and deferred tax expense is computed on a stand-alone basis, and consolidated tax savings are allocated to each company based on its ratio of taxable income to total consolidated taxable income. 25 26 NOTES (CONTINUED) Gulf Power Company 1993 Annual Report 9. LONG-TERM DEBT: POLLUTION CONTROL OBLIGATIONS Obligations incurred in connection with the sale by public authorities of tax-exempt pollution control revenue bonds are as follows:
December 31 1993 1992 (in thousands) Collateralized - 6 3/4% due 2006 $ - $ 12,675 6% due 2006* 12,300 12,400 10% due 2013 - 20,000 8 1/4% due 2017 32,000 32,000 7 1/8% due 2021 21,200 21,200 6 3/4% due 2022 8,930 8,930 5.70% due 2023 7,875 - 5.80% due 2023 32,550 - 6.20% due 2023 13,000 - Non-collateralized 5.9% due 1992-2003 - 7,875 10 1/2% due 2014 42,000 42,000 Total $169,855 $157,080
* Sinking fund requirement applicable to the 6 percent pollution control bonds is $100 thousand for 1994 with increasing increments thereafter through 2005, with the remaining balance due in 2006. 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. OTHER LONG-TERM DEBT Long-term debt also includes $17.5 million for the Company's portion of notes payable issued in connection with the termination of Plant Daniel coal contracts (see Note 5 for information on fuel commitments). The notes bear interest at 8.25 percent with the principal being amortized through 1995. Also included in long-term debt is a 30-month note payable for $25 million which was obtained to refinance higher cost securities. The principal is due in June 1996 and bears interest at 4.69 percent which is payable quarterly beginning March 1994. The estimated annual maturities of the notes payable through 1996 are as follows: $8.4 million in 1994, $9.1 million in 1995, and $25 million in 1996. 10. LONG-TERM DEBT DUE WITHIN ONE YEAR: A summary of the improvement fund requirement and scheduled maturities and redemptions of long-term debt due within one year is as follows:
December 31 1993 1992 (in thousands) Bond improvement fund requirement $ 2,370 $ 2,450 Less: Portion to be satisfied by bonding property additions - - Cash improvement fund requirement 2,370 2,450 Maturities of first mortgage bonds 3,676 3,359 Redemptions of first mortgage bonds 27,000 - Current portion of notes payable 8,406 7,736 (Note 9) Pollution control bond maturity 100 275 (Note 9) Total $41,552 $13,820
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. In 1994, $12 million of 4 5/8 percent First Mortgage Bonds due October 1, 1994 and $15 million of 6 percent First Mortgage Bonds due June 1, 1996 are scheduled to be redeemed. 26 27 NOTES (CONTINUED) Gulf Power Company 1993 Annual Report 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, 1993, $101 million of retained earnings was 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 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, 1993, the ratio was 44.4 percent. 12. QUARTERLY FINANCIAL DATA (UNAUDITED): Summarized quarterly financial data for 1993 and 1992 are as follows:
Net Income After Dividends Operating Operating on Preferred Quarter Ended Revenues Income Stock (in thousands) MARCH 31, 1993 $127,036 $17,646 $10,426 JUNE 30, 1993 138,863 19,562 7,312 SEPT. 30, 1993 175,964 32,783 22,366 DEC. 31, 1993 141,279 22,596 14,207 March 31, 1992 $126,536 $20,684 $ 9,576 June 30, 1992 137,123 22,914 12,120 Sept. 30, 1992 162,785 32,446 21,442 Dec. 31, 1992 144,458 20,931 10,952
The Company's business is influenced by seasonal weather conditions and the timing of rate changes, among other factors. 27 28 SELECTED FINANCIAL AND OPERATING DATA Gulf Power Company 1993 Annual Report
1993 1992 1991 OPERATING REVENUES (IN THOUSANDS) $ 583,142 $ 570,902 $ 565,207 NET INCOME AFTER DIVIDENDS ON PREFERRED STOCK (IN THOUSANDS) $ 54,311 $ 54,090 $ 57,796 CASH DIVIDENDS ON COMMON STOCK (IN THOUSANDS) $ 41,800 $ 39,900 $ 38,000 RETURN ON AVERAGE COMMON EQUITY (PERCENT) 13.29 13.62 15.17 TOTAL ASSETS (IN THOUSANDS) $1,307,809 $1,062,699 $1,095,736 GROSS PROPERTY ADDITIONS (IN THOUSANDS) $ 78,562 $ 64,671 $ 64,323 CAPITALIZATION (IN THOUSANDS): Common stock equity $ 414,196 $ 403,190 $ 390,981 Preferred stock 89,602 74,662 55,162 Preferred stock subject to mandatory redemption 1,000 2,000 7,500 Long-term debt 369,259 382,047 434,648 Total (excluding amounts due within one year) $ 874,057 $ 861,899 $ 888,291 CAPITALIZATION RATIOS (PERCENT): Common stock equity 47.4 46.8 44.0 Preferred stock 10.4 8.9 7.1 Long-term debt 42.2 44.3 48.9 Total (excluding amounts due within one year) 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 PREFERRED STOCK (IN THOUSANDS): Issued 35,000 29,500 - Retired 21,060 15,500 2,500 SECURITY RATINGS: First Mortgage Bonds - Moody's A2 A2 A2 Standard and Poor's A A A Duff & Phelps A+ 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 274,194 267,591 261,210 Commercial 39,253 37,105 34,685 Industrial 274 270 264 Other 86 74 72 Total 313,807 305,040 296,231 EMPLOYEES (YEAR-END) 1,565 1,613 1,598
28 29 SELECTED FINANCIAL AND OPERATING DATA (CONTINUED) Gulf Power Company 1993 Annual Report
1990 1989 1988 1987 1986 1985 1984 1983 $ 567,825 $ 527,821 $ 550,827 $ 587,860 $ 542,919 $ 562,068 $ 505,812 $ 469,696 $ 38,714 $ 37,361 $ 45,698 $ 42,217 $ 46,421 $ 45,484 $ 40,336 $ 35,511 $ 37,000 $ 37,200 $ 35,400 $ 34,200 $ 33,100 $ 30,800 $ 27,200 $ 24,900 10.51 10.32 13.41 13.23 15.06 15.61 15.11 14.70 $ 1,084,579 $1,093,430 $1,097,225 $1,051,182 $1,028,864 $ 921,635 $ 892,924 $ 841,628 $ 62,462 $ 70,726 $ 67,042 $ 97,511 $ 90,160 $ 92,541 $ 156,443 $ 51,131 $ 371,185 $ 365,471 $ 358,310 $ 323,012 $ 314,995 $ 301,674 $ 280,990 $ 252,831 55,162 55,162 55,162 55,162 55,162 55,162 55,162 55,162 9,250 11,000 12,750 14,000 16,500 18,250 19,000 21,250 475,284 484,608 497,069 474,640 482,869 410,917 394,859 382,293 $ 910,881 $ 916,241 $ 923,291 $ 866,814 $ 869,526 $ 786,003 $ 750,011 $ 711,536 40.8 39.9 38.8 37.2 36.2 38.4 37.5 35.5 7.1 7.2 7.4 8.0 8.3 9.3 9.9 10.8 52.1 52.9 53.8 54.8 55.5 52.3 52.6 53.7 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 - - 35,000 - 50,000 - - - 6,455 9,344 9,369 - 46,640 2,860 10,415 - - - - - - - - - 1,750 1,250 1,750 2,500 750 750 1,500 858 A2 A1 A1 A1 A1 A1 A1 A2 A A A A A+ A+ A+ A+ A AA- 4 4 4 4 4 4 a2 a1 a1 a1 a1 a1 a1 a2 A- A- A- A- A A A A- A- A+ 5 5 5 5 5 5 256,111 251,341 246,450 241,138 235,329 227,845 217,138 205,292 34,019 33,678 33,030 32,139 31,142 29,603 27,939 26,217 252 240 206 206 197 183 177 179 67 67 61 61 62 62 63 62 290,449 285,326 279,747 273,544 266,730 257,693 245,317 231,750 1,615 1,614 1,601 1,603 1,544 1,509 1,460 1,463
29 30 SELECTED FINANCIAL AND OPERATING DATA (CONTINUED) Gulf Power Company 1993 Annual Report
1993 1992 1991 OPERATING REVENUES (IN THOUSANDS): Residential $ 244,967 $ 235,296 $ 231,220 Commercial 137,308 133,071 130,691 Industrial 87,526 91,320 92,300 Other 1,882 1,784 1,860 Total retail 471,683 461,471 456,071 Sales for resale - non-affiliates 72,209 70,078 69,636 Sales for resale - affiliates 23,166 24,075 29,343 Total revenues from sales of electricity 567,058 555,624 555,050 Other revenues 16,084 15,278 10,157 Total $ 583,142 $ 570,902 $ 565,207 KILOWATT-HOUR SALES (IN THOUSANDS): Residential 3,712,980 3,596,515 3,455,100 Commercial 2,433,382 2,369,236 2,272,690 Industrial 2,029,936 2,179,435 2,117,408 Other 16,944 16,649 17,118 Total retail 8,193,242 8,161,835 7,862,316 Sales for resale - non-affiliates 1,460,105 1,430,908 1,550,018 Sales for resale - affiliates 1,029,787 1,208,771 1,236,223 Total 10,683,134 10,801,514 10,648,557 AVERAGE REVENUE PER KILOWATT-HOUR (CENTS): Residential 6.60 6.54 6.69 Commercial 5.64 5.62 5.75 Industrial 4.31 4.19 4.36 Total retail 5.76 5.65 5.80 Sales for resale 3.83 3.57 3.55 Total sales 5.31 5.14 5.21 AVERAGE ANNUAL KILOWATT-HOUR USE PER RESIDENTIAL CUSTOMER 13,671 13,553 13,320 AVERAGE ANNUAL REVENUE PER RESIDENTIAL CUSTOMER $ 901.96 $ 886.66 $ 891.38 PLANT NAMEPLATE CAPACITY RATINGS (YEAR-END) (MEGAWATTS) 2,174 2,174 2,174 MAXIMUM PEAK-HOUR DEMAND (MEGAWATTS): Winter 1,571 1,533 1,418 Summer 1,898 1,828 1,740 ANNUAL LOAD FACTOR (PERCENT) 54.5 55.0 57.0 PLANT AVAILABILITY - FOSSIL-STEAM (PERCENT) 88.9 91.2 92.2 SOURCE OF ENERGY SUPPLY (PERCENT): Coal 84.5 87.7 82.0 Oil and gas 0.5 0.1 0.1 Purchased power - From non-affiliates 1.5 0.8 0.5 From affiliates 13.5 11.4 17.4 Total 100.0 100.0 100.0 TOTAL FUEL ECONOMY DATA: BTU per net kilowatt-hour generated 10,390 10,347 10,636 Cost of fuel per million BTU (cents) 197.37 200.30 203.60 Average cost of fuel per net kilowatt-hour generated (cents) 2.05 2.07 2.17
30 31 SELECTED FINANCIAL AND OPERATING DATA (CONTINUED) Gulf Power Company 1993 Annual Report
1990 1989 1988 1987 1986 1985 1984 1983 $ 217,843 $ 203,781 $ 184,036 $ 199,701 $ 200,725 $ 186,415 $ 174,302 $ 169,127 124,066 118,897 107,615 116,057 116,253 109,631 98,408 95,426 91,041 84,671 72,634 80,295 79,873 81,621 83,538 77,035 1,805 1,586 1,402 1,357 1,343 1,346 1,334 1,334 434,755 408,935 365,687 397,410 398,194 379,013 357,582 342,922 73,855 67,554 117,466 134,456 106,892 126,789 106,802 84,334 38,563 39,244 48,277 55,955 27,113 43,844 35,712 36,286 547,173 515,733 531,430 587,821 532,199 549,646 500,096 463,542 20,652 12,088 19,397 39 10,720 12,422 5,716 6,154 $ 567,825 $ 527,821 $ 550,827 $ 587,860 $ 542,919 $ 562,068 $ 505,812 $ 469,696 3,360,838 3,293,750 3,154,541 3,055,041 2,963,502 2,736,432 2,560,648 2,471,714 2,217,568 2,169,497 2,088,598 1,986,332 1,913,139 1,777,418 1,559,344 1,498,762 2,177,872 2,094,670 1,968,091 1,839,931 1,745,074 1,770,587 1,771,100 1,612,393 18,866 17,209 16,257 15,241 14,903 14,702 14,555 14,637 7,775,144 7,575,126 7,227,487 6,896,545 6,636,618 6,299,139 5,905,647 5,597,506 1,775,703 1,640,355 1,911,759 2,138,390 1,609,146 2,388,591 2,183,631 1,570,598 1,435,558 1,461,036 2,326,238 2,689,487 1,078,500 1,562,452 1,308,410 1,272,906 10,986,405 10,676,517 11,465,484 11,724,422 9,324,264 10,250,182 9,397,688 8,441,010 6.48 6.19 5.83 6.54 6.77 6.81 6.81 6.84 5.59 5.48 5.15 5.84 6.08 6.17 6.31 6.37 4.18 4.04 3.69 4.36 4.58 4.61 4.72 4.78 5.59 5.40 5.06 5.76 6.00 6.02 6.05 6.13 3.50 3.44 3.91 3.94 4.99 4.32 4.08 4.24 4.98 4.83 4.64 5.01 5.71 5.36 5.32 5.49 13,173 13,173 12,883 12,763 12,729 12,221 12,057 12,254 $ 853.86 $ 815.00 $ 751.60 $ 834.31 $ 862.16 $ 832.55 $ 820.71 $ 838.45 2,174 2,174 2,174 2,174 1,969 1,969 1,969 1,969 1,310 1,814 1,395 1,354 1,406 1,517 1,209 1,292 1,778 1,691 1,613 1,617 1,678 1,448 1,381 1,341 55.2 52.6 56.5 54.4 50.5 53.4 54.9 53.2 89.2 89.1 88.2 92.8 90.5 84.8 87.7 85.8 69.8 78.3 93.2 93.5 85.8 79.7 83.9 87.1 0.5 0.2 0.4 0.4 0.5 0.2 0.2 0.6 0.6 0.4 0.4 0.4 1.9 0.4 (1.4) (2.2) 29.1 21.1 6.0 5.7 11.8 19.7 17.3 14.5 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 10,765 10,621 10,461 10,512 10,639 10,609 10,639 10,721 206.06 193.70 178.00 197.53 239.26 254.53 240.40 240.14 2.22 2.06 1.86 2.08 2.55 2.70 2.60 2.57
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