SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) February 11, 1998
----------------------------
ALABAMA POWER COMPANY
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Alabama 1-3164 63-0004250
- ------------------------------------------------------------------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
600 North 18th Street, Birmingham, Alabama 35291
- ------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (205) 250-1000
--------------------
N/A
- ------------------------------------------------------------------------------
(Former name or former address, if changed since last report.)
<PAGE>
Item 7. Financial Statements and Exhibits.
(c) Exhibits.
23 - Consent of Arthur Andersen LLP.
27 - Financial Data Schedule.
99 - Audited Financial Statements of Alabama Power Company
as of December 31, 1997.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ALABAMA POWER COMPANY
/s/Wayne Boston
By Wayne Boston
Assistant Secretary
Date: March 4, 1998
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report dated February 11, 1998 on the financial statements of Alabama
Power Company, included in this Form 8-K, into Alabama Power Company's
previously filed Registration Statement File Nos. 33-49653, 33-61845 and
333-40629.
/s/Arthur Andersen LLP
Birmingham, Alabama
February 26, 1998
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
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.
</LEGEND>
<CIK> 0000003153
<NAME> ALABAMA POWER COMPANY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 7,100,638
<OTHER-PROPERTY-AND-INVEST> 240,213
<TOTAL-CURRENT-ASSETS> 754,237
<TOTAL-DEFERRED-CHARGES> 717,779
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 8,812,867
<COMMON> 224,358
<CAPITAL-SURPLUS-PAID-IN> 1,304,744
<RETAINED-EARNINGS> 1,221,467
<TOTAL-COMMON-STOCKHOLDERS-EQ> 2,750,569
297,000
255,512
<LONG-TERM-DEBT-NET> 2,467,088
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 306,882
<LONG-TERM-DEBT-CURRENT-PORT> 74,345
0
<CAPITAL-LEASE-OBLIGATIONS> 6,114
<LEASES-CURRENT> 991
<OTHER-ITEMS-CAPITAL-AND-LIAB> 2,654,366
<TOT-CAPITALIZATION-AND-LIAB> 8,812,867
<GROSS-OPERATING-REVENUE> 3,149,111
<INCOME-TAX-EXPENSE> 220,228
<OTHER-OPERATING-EXPENSES> 2,301,680
<TOTAL-OPERATING-EXPENSES> 2,521,908
<OPERATING-INCOME-LOSS> 627,203
<OTHER-INCOME-NET> 15,939
<INCOME-BEFORE-INTEREST-EXPEN> 643,142
<TOTAL-INTEREST-EXPENSE> 252,617
<NET-INCOME> 390,525
14,586
<EARNINGS-AVAILABLE-FOR-COMM> 375,939
<COMMON-STOCK-DIVIDENDS> 339,600
<TOTAL-INTEREST-ON-BONDS> 181,726
<CASH-FLOW-OPERATIONS> 755,437
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
MANAGEMENT'S REPORT
Alabama Power Company 1997 Annual Report
The management of Alabama 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 the 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 Alabama Power Company in conformity with generally accepted accounting
principles.
/s/Elmer B. Harris
Elmer B. Harris
President and Chief Executive Officer
/s/William B. Hutchins, III
William B. Hutchins, III
Executive Vice President, Chief Financial Officer,
and Treasurer
February 11, 1998
1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors
of Alabama Power Company:
We have audited the accompanying balance sheets and statements of capitalization
of Alabama Power Company (an Alabama corporation and a wholly owned subsidiary
of Southern Company) as of December 31, 1997 and 1996, and the related
statements of income, retained earnings, and cash flows for each of the three
years in the period ended December 31, 1997. These financial statements are the
responsibility of the company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements (pages 10-27) referred to above
present fairly, in all material respects, the financial position of Alabama
Power Company as of December 31, 1997 and 1996, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
/s/Arthur Andersen LLP
Birmingham, Alabama
February 11, 1998
2
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
Alabama Power Company 1997 Annual Report
RESULTS OF OPERATIONS
Earnings
Alabama Power Company's 1997 net income after dividends on preferred stock was
$376 million, representing a $4.4 million (1.2 percent) increase from the prior
year. This improvement can be attributed primarily to lower non-fuel related
operating expenses. Despite the mild weather experienced during 1997, retail
sales increased approximately 2 percent. However, the expected net income effect
was offset by reductions in certain industrial and commercial prices.
In 1996, earnings were $371 million, representing a 2.9 percent increase
from the prior year. This increase was due to an increase in retail energy
sales of 2.7 percent from 1995 levels and lower net interest charges compared
to the prior year. This improvement was partially offset by a 4.4 percent
increase in operating costs.
The return on average common equity for 1997 was 13.76 percent compared to
13.75 percent in 1996, and 13.61 percent in 1995.
Revenues
Operating revenues for 1997 were $3.1 billion, reflecting a 0.9 percent increase
from 1996. The following table summarizes the principal factors that affected
operating revenues for the past three years:
Increase (Decrease)
From Prior Year
--------------------------------------
1997 1996 1995
--------------------------------------
(in thousands)
Retail --
Growth and price
change $ 33,813 $ 42,385 $ 19,164
Weather (22,973) (29,660) 54,888
Fuel cost recovery
and other 31,353 (30,846) 35,235
-------------------------------------------------------------
Total retail 42,193 (18,121) 109,287
-------------------------------------------------------------
Sales for resale --
Non-affiliates 39,354 21,529 15,380
Affiliates (54,825) 88,890 (37,032)
-------------------------------------------------------------
Total sales for resale (15,471) 110,419 (21,652)
Other operating
revenues 1,614 3,703 1,997
-------------------------------------------------------------
Total operating
revenues $ 28,336 $ 96,001 $ 89,632
-------------------------------------------------------------
Percent change 0.9% 3.2% 3.1%
=============================================================
Retail revenues of $2.5 billion in 1997 increased $42 million (1.7 percent)
from the prior year, compared with a decrease of $18 million (0.7 percent) in
1996. Fuel revenues increased in 1997 due to slightly higher generation and
higher fuel costs. This was the primary reason for the increase in 1997 retail
revenues over 1996. Lower fuel cost recovery was the primary reason for the
decrease in 1996 retail revenues as compared to 1995. Fuel revenues generally
represent the direct recovery of fuel expense, including the fuel component of
purchased energy, and therefore have no effect on net income.
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. These capacity
3
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Alabama Power Company 1997 Annual Report
and energy components were:
1997 1996 1995
-------------------------------------------
(in thousands)
Capacity $136,248 $150,797 $157,119
Energy 134,498 107,996 83,352
----------------------------------------------------------
Total $270,746 $258,793 $240,471
==========================================================
Capacity revenues from non-affiliates in 1997 decreased 9.6% compared to
1996 primarily due to a one-time unit power sales adjustment in 1997. Capacity
revenues from non-affiliates were relatively constant in 1996 and 1995.
Kilowatt-hour (KWH) sales for 1997 and the percent change by year were as
follows:
KWH Percent Change
----------- -------------------------------
1997 1997 1996 1995
-------------------------------- ----------
(millions)
Residential 14,336 (1.8)% 1.5% 9.1%
Commercial* 11,330 3.9 8.6 4.1
Industrial* 20,728 3.6 0.7 2.0
Other 181 (6.3) 3.1 0.5
----------
Total retail 46,575 1.9 2.7 4.7
Sales for resale -
Non-affiliates 11,894 25.3 18.0 18.8
Affiliates 8,993 (12.6) 53.5 (20.5)
----------
Total 67,462 3.0% 10.5% 2.6%
- -----------------------------------------------------------------
*The KWH sales for 1996 reflect a reclassification of approximately 200
customers from industrial to commercial, which resulted in a shift of 473
million KWH. Absent the reclassification, the percentage change in KWH sales for
commercial and industrial would have been 3.9% and 3.1%, respectively.
The increases in 1997 and 1996 retail energy sales were primarily due to the
strength of business and economic conditions in the company's service area.
Residential energy sales experienced a decline as a result of milder than normal
weather in 1997, compared to relatively normal weather in 1996. Assuming normal
weather, sales to retail customers are projected to grow approximately 2.3
percent annually on average during 1998 through 2003.
Expenses
Total operating expenses of $2.5 billion for 1997 were up $18 million or 0.7
percent compared with the prior year. This increase was primarily due to a $19
million increase in fuel costs and a $10 million increase in depreciation and
amortization expense. These increases were somewhat offset by a $16 million
decrease in maintenance expenses.
Total operating expenses of $2.5 billion for 1996 were up $105 million or
4.4 percent compared with 1995. The major components of this increase include
$85 million in fuel costs, $15 million in maintenance expense, and $17 million
in depreciation and amortization offset by a decrease in purchased power of $15
million.
Fuel costs constitute the single largest expense for the company. The mix of
fuel sources for generation of electricity is determined primarily by system
load, the unit cost of fuel consumed, and the availability of hydro and nuclear
generating units. The amount and sources of generation and the average cost of
fuel per net KWH generated were as follows:
--------------------------
1997 1996 1995
--------------------------
Total generation
(billions of KWHs) 65 65 58
Sources of generation
(percent) --
Coal 72 72 73
Nuclear 20 20 19
Hydro 8 8 8
Average cost of fuel per net
KWH generated
(cents) --
Coal 1.73 1.71 1.71
Nuclear 0.54 0.50 0.50
Total 1.49 1.46 1.48
- --------------------------------------------------------------
Note: Oil & Gas comprise less than 1% of generation.
Fuel expense increased in 1997 by $19 million or 2.2 percent. This increase
can be attributed to slightly higher generation and fuel costs. Fuel expense
increased in 1996 by $85 million or 10.8 percent. This increase can be
attributed to higher generation.
Purchased power consists primarily of purchases from the affiliates of the
Southern electric system. Purchased power transactions among the company and its
4
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Alabama Power Company 1997 Annual Report
affiliates will vary from period to period depending on demand, the
availability, and the variable production cost of generating resources at each
company. Total KWH purchases increased 12.4 percent from the prior year.
The 6.1 percent decrease in maintenance expenses in 1997 is attributable
primarily to a decrease in distribution expenses. The increase in maintenance
expenses for 1996 is due to increased nuclear expenses, primarily outage related
accruals.
Depreciation and amortization expense increased 3.2 percent in 1997 and 5.6
percent in 1996. These increases reflect additions to utility plant.
Total net interest and other charges increased $25.4 million (11.2 percent)
in 1997 primarily due to an increase in company obligated mandatorily redeemable
preferred securities outstanding. This increase was offset by a $12 million
(45.2 percent) decrease in dividends on preferred stock. The decline in net
interest and other charges in 1996 by $11 million (4.5 percent) was due
primarily to a charge of $10 million in 1995 to the amortization of debt
discount, premium, and expense net, pursuant to an Alabama Public Service
Commission (APSC) order. See Note 3 to the financial statements under "Retail
Rate Adjustment Procedures" for additional details.
Effects of Inflation
The company is subject to rate regulation and income tax laws that are based on
the recovery of historical costs. Therefore, inflation creates an economic loss
because the company is recovering its costs of investments in dollars that have
less purchasing power. While the inflation rate has been relatively low in
recent years, it continues to have an adverse effect on the company because of
the large investment in long-lived utility plant. Conventional accounting for
historical cost does not recognize this economic loss nor the partially
offsetting gain that arises through financing facilities with fixed-money
obligations, such as long-term debt and preferred stock. Any recognition of
inflation by regulatory authorities is reflected in the rate of return allowed.
Future Earnings Potential
The results of operations for the past three years are not necessarily
indicative of future earnings potential. The level of future earnings depends on
numerous factors ranging from energy sales growth to a less regulated more
competitive environment.
The company currently operates as a vertically integrated utility providing
electricity to customers within its traditional service area located in the
state of Alabama. Prices for electricity provided by the company to retail
customers are set by the APSC under cost-based regulatory principles.
Future earnings in the near term will depend upon growth in electric sales,
which are 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 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 a utility's transmission network in
order to sell electricity to other utilities. This enhances the incentive for
IPPs to build cogeneration plants for a utility's large industrial and
commercial customers and sell excess energy generation to other utilities. Also,
electricity sales for resale rates are being driven down by wholesale
transmission access and numerous potential new energy suppliers, including power
marketers and brokers. The company is aggressively working to maintain and
expand its share of wholesale business in the Southeastern power markets.
Although the Energy Act does not permit retail customer access, it was a
major catalyst for the current restructuring and consolidation taking place
within the utility industry. Numerous federal and state initiatives are in
varying stages to promote wholesale and retail competition. Among other things,
these initiatives allow customers to choose their electricity provider. As these
initiatives materialize, the structure of the utility industry could radically
5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Alabama Power Company 1997 Annual Report
change. Some states have approved initiatives that result in a separation of the
ownership and/or operation of generating facilities from the ownership and/or
operation of transmission and distribution facilities. While various
restructuring and competition initiatives have been or are being discussed in
Alabama, Florida, Georgia, and Mississippi, none have been enacted to date.
Enactment would require numerous issues to be resolved, including significant
ones relating to transmission pricing and recovery of any stranded investments.
The inability of the company to recover its investments, including the
regulatory assets described in Note 1 to the financial statements, could have a
material adverse effect on the financial condition of the company. The company
is attempting to minimize or reduce stranded cost exposure.
Continuing to be a low-cost producer could provide opportunities to increase
market share and profitability in markets that evolve with changing regulation.
Conversely, 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.
Rates to retail customers served by the company are regulated by the APSC.
Rates for the company can be adjusted periodically within certain limitations
based on earned retail rate of return compared with an allowed return. In June
1995, the APSC issued an order granting the company's request for gradual
adjustments to move toward parity among customer classes. This order also calls
for a moratorium on any periodic retail rate increases (but not decreases) until
2001.
In December 1995, the APSC issued an order authorizing the company to reduce
balance sheet items -- such as plant and deferred charges -- at any time the
company's actual base rate revenues exceed the budgeted revenues. In April 1997,
the APSC issued an additional order authorizing the company to reduce balance
sheet asset items. This order authorizes the reduction of such items up to an
amount equal to five times the total estimated annual revenue reduction
resulting from future rate reductions initiated by the company. See Note 3 to
the financial statements for information about this and other matters.
The staff of the Securities and Exchange Commission has questioned certain
of the current accounting practices of the electric utility industry --including
the company -- regarding the recognition, measurement, and classification of
decommissioning costs for nuclear generating facilities in the financial
statements. In response to these questions, the Financial Accounting Standards
Board (FASB) has decided to review the accounting for liabilities related to
closure and removal of long-lived assets, including nuclear decommissioning. If
the FASB issues new accounting rules, the estimated costs of closing and
removing the company's nuclear and other facilities may be required to be
recorded as liabilities in the Balance Sheets. Also, the annual provisions for
such costs could change. Because of the company's current ability to recover
closure and removal costs through rates, these changes would not have a
significant adverse effect on results of operations. See Note 1 to the financial
statements under "Depreciation and Nuclear Decommissioning" for additional
information.
The company is heavily dependent upon complex computer systems for all
phases of its operations. The year 2000 issue -- common to most corporations
- --concerns the inability of certain software and databases to properly recognize
date sensitive information related to the year 2000 and thereafter. This problem
could result in a material disruption to the company's operations, if not
corrected. The company has assessed and developed a detailed strategy to prevent
or at least minimize problems related to the year 2000 issue. In 1997 resources
were committed and implementation began to modify the affected information
systems. Total costs related to the project are estimated to be approximately
$26 million, of which $2.1 million was spent in 1997. The remaining costs will
be expensed primarily in 1998. Implementation is currently on schedule.
Although, the degree of success of this project cannot be determined at this
time, management believes there will be no significant effect on the company's
operations.
The company is involved in various matters being litigated. See Note 3 to
the financial statements for information regarding material issues that could
possibly affect future earnings.
Compliance costs related to current and future environmental laws and
regulations could affect earnings if such costs are not fully recovered. The
Clean Air Act and other important environmental items are discussed later under
"Environmental Matters."
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Alabama Power Company 1997 Annual Report
The company is subject to the provisions of FASB Statement No. 71,
Accounting for the Effects of Certain Types of Regulation. In the event that a
portion of the company's operations is no longer subject to these provisions,
the company would be required to write off related regulatory assets and
liabilities that are not specifically recoverable, and determine if any other
assets have been impaired. See Note 1 to the financial statements under
"Regulatory Assets and Liabilities" for additional information.
Exposure to Market Risk
Due to cost-based rate regulation, the company has limited exposure to market
volatility in interest rates and prices of electricity. To mitigate residual
risks relative to movements in electricity prices, the company enters into fixed
price contracts for the purchase and sale of electricity through the wholesale
electricity market. Realized gains and losses are recognized in the income
statement as incurred. At December 31, 1997, exposure from these activities was
not material to the company's financial position, results of operations, or cash
flows.
New Accounting Standards
The FASB has issued Statement No. 130, Reporting Comprehensive Income, which
will be effective in 1998. This statement establishes standards for reporting
and display of comprehensive income and its components in a full set of general
purpose financial statements. The objective of the statement is to report a
measure of all changes in equity of an enterprise that result from transactions
and other economic events of the period other than transactions with owners
(comprehensive income). Comprehensive income is the total of net income and all
other nonowner changes in equity. The company will adopt this statement in 1998.
The FASB has issued Statement No. 131, Disclosure about Segments of an
Enterprise and Related Information. This statement requires that a public
business enterprise report financial and descriptive information about its
reportable operating segments. Generally, financial information is required to
be reported on the basis that it is used by the chief operating decision maker
in deciding how to allocate resources and in assessing performance. This
statement also establishes standards for related disclosures about products and
services, geographic areas, and major customers. The company adopted the new
rules in 1997, and they did not have a significant impact on the company's
financial reporting. However, this conclusion may change as industry
restructuring and competitive factors influence the company's operations.
FINANCIAL CONDITION
Overview
The company's financial condition remained stable in 1997. This stability is the
continuation over recent years of growth in energy sales and cost control
measures combined with a significant lowering of the cost of capital, achieved
through the refinancing and/or redemption of higher-cost long-term debt and
preferred stock.
The company had gross property additions of $451 million in 1997. The
majority of funds needed for gross property additions for the last several years
have been provided from operating activities, principally from earnings and
non-cash charges to income such as depreciation and deferred income taxes. The
Statements of Cash Flows provide additional details.
Capital Structure
The company's ratio of common equity to total capitalization -- including
short-term debt -- was 44.7 percent in 1997, compared with 45.3 percent in 1996,
and 45.0 percent in 1995.
In January 1997, Alabama Power Capital Trust II (Trust II), of which the
company owns all of the common securities, issued $200 million of 7.60 percent
mandatorily redeemable preferred securities. Substantially all of the assets of
Trust II are $206 million aggregate principal amount of the company's 7.60
percent junior subordinated notes due December 31, 2036.
During 1997, the company redeemed $162.0 million of preferred stock and
reacquired an additional $22.9 million through tender offer.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Alabama Power Company 1997 Annual Report
The company's current securities ratings are as follows:
Duff & Standard
Phelps Moody's & Poor's
----------------------------------
First Mortgage Bonds AA- A1 A+
Company Obligated
Mandatorily
Redeemable
Preferred Securities A+ a2 A
Preferred Stock A+ a2 A
------------------------------------------------------------
Capital Requirements
Capital expenditures are estimated to be $615 million for 1998, $723 million for
1999, and $524 million for 2000. The total is $1.9 billion for the three years.
Actual capital costs may vary from this estimate because of factors such as
changes in business conditions; revised load growth projections; changes in
environmental regulations; changes in the existing nuclear plant to meet new
regulatory requirements; increasing cost of labor, equipment, and materials; and
cost of capital. In addition, there can be no assurance that costs related to
capital expenditures will be fully recovered.
The company will replace all six steam generators at Plant Farley at a total
cost of approximately $234 million. Additionally, the company plans to construct
and install 800 megawatts of new generating capacity and associated substation
facilities at Plant Barry. The projected capital expenditures for this project
amount to approximately $289 million.
Other Capital Requirements
In addition to the funds needed for the capital budget, approximately $320
million will be required by the end of 2000 for maturities of first mortgage
bonds. Also, the company will continue to retire higher-cost debt and preferred
stock and replace these obligations with lower-cost capital if market conditions
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 - significantly
impacted the operating companies of Southern Company, including Alabama Power.
Specific reductions in sulfur dioxide and nitrogen oxide emissions from
fossil-fired generating plants are required in two phases. Phase I compliance
began in 1995 and initially affected 28 generating units 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.
Southern Company achieved Phase I sulfur dioxide compliance at the affected
plants by switching to low-sulfur coal, which required some equipment upgrades.
Construction expenditures for Phase I compliance totaled approximately $25
million for the company.
For Phase II sulfur dioxide compliance, the 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 necessary to meet
Phase II limits. Current compliance strategy for Phase II could require total
estimated construction expenditures of approximately $33 million, of which $27
million remains to be spent.
A significant portion of costs related to the acid rain provision of the
Clean Air Act is expected to be recovered through existing ratemaking
provisions. However, there can be no assurance that all Clean Air Act costs will
be recovered.
In July 1997, the Environmental Protection Agency (EPA) revised the national
ambient air quality standards for ozone and particulate matter. This revision
makes the standards significantly more stringent. Also, in October 1997, the EPA
issued a proposed regional ozone rule that --if implemented--could require
substantial further reductions in NOx emissions from fossil-fueled generating
facilities. Implementation of the standards and the proposed rule could result
in significant additional compliance costs and capital expenditures that cannot
be determined at this time.
The EPA and state environmental regulatory agencies are reviewing and
evaluating various other matters including: emission control strategies for
ozone nonattainment areas; additional controls for hazardous air pollutant
emissions; and hazardous waste disposal requirements. The impact of new
standards will depend on the development and implementation of applicable
regulations.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Alabama Power Company 1997 Annual Report
The company must comply with other environmental laws and regulations that
cover the handling and disposal of hazardous waste. Under these various laws and
regulations, the company could incur costs to clean up properties. 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.
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 Southern Company's operations. The full impact of any such changes
cannot be determined at this time.
Compliance with possible additional legislation related to global climate
change, electromagnetic fields, and other environmental and health concerns
could significantly affect Southern Company. The impact of new legislation -- if
any -- will depend on the subsequent development and implementation of
applicable regulations. In addition, the potential exists for liability as the
result of lawsuits alleging damages caused by electromagnetic fields.
Sources of Capital
The company historically has relied on issuances of first mortgage bonds and
preferred stock, in addition to pollution control revenue bonds issued for its
benefit by public authorities, to meet its long-term external financing
requirements. Recently, the company's financings have consisted of unsecured
debt and trust preferred securities. In this regard, the company sought and
obtained stockholder approval in 1997 to amend its corporate charter eliminating
restrictions on the amounts of unsecured indebtedness it may incur. To issue
additional debt and equity securities, the company must comply with certain
earnings coverage requirements designated in its mortgage indenture and
corporate charter. The company's coverages are at a level that would permit any
necessary amount of security sales at current interest and dividend rates.
As required by the Nuclear Regulatory Commission and as ordered by the APSC,
the company has established external trust funds for nuclear decommissioning
costs. In 1994, the company also established an external trust fund for
postretirement benefits as ordered by the APSC. The cumulative effect of funding
these items over a long period will diminish internally funded capital and may
require capital from other sources. For additional information concerning
nuclear decommissioning costs, see Note 1 to the financial statements under
"Depreciation and Nuclear Decommissioning."
Cautionary Statement Regarding Forward-Looking Information
The company's 1997 Annual Report contains forward-looking statements in addition
to historical information. The company cautions that there are various important
factors that could cause actual results to differ materially from those
indicated in the forward-looking statements; accordingly, there can be no
assurance that such indicated results will be realized. These factors include
legislative and regulatory initiatives regarding deregulation and restructuring
of the electric utility industry; the extent and timing of the entry of
additional competition in the company's markets; potential business strategies
- -- including acquisitions or dispositions of assets or internal restructuring
- --that may be pursued by Southern Company; state and federal rate regulation;
changes in or application of environmental and other laws and regulations to
which the company is subject; political, legal and economic conditions and
developments; financial market conditions and the results of financing efforts;
changes in commodity prices and interest rates; weather and other natural
phenomena; and other factors discussed in the reports--including Form
10-K--filed from time to time by the company with the Securities and Exchange
Commission.
9
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF INCOME
For the Years Ended December 31, 1997, 1996, and 1995
Alabama Power Company 1997 Annual Report
<S> <C> <C> <C>
================================================================================================================================
1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------------
(in thousands)
Operating Revenues:
Revenues (Notes 1, 3, and 7): $ 2,987,316 $ 2,904,155 $ 2,897,044
Revenues from affiliates 161,795 216,620 127,730
- --------------------------------------------------------------------------------------------------------------------------------
Total operating revenues 3,149,111 3,120,775 3,024,774
- --------------------------------------------------------------------------------------------------------------------------------
Operating Expenses:
Operation --
Fuel 896,014 877,076 791,819
Purchased power from non-affiliates 41,795 36,813 30,065
Purchased power from affiliates 95,538 91,500 112,826
Other 510,203 505,884 501,876
Maintenance 242,691 258,482 243,218
Depreciation and amortization 330,377 320,102 303,050
Taxes other than income taxes 185,062 186,172 185,620
Federal and state income taxes (Note 8) 220,228 228,108 230,982
--------------------------------------------------------------------------------------------------------------------------------
Total operating expenses 2,521,908 2,504,137 2,399,456
- --------------------------------------------------------------------------------------------------------------------------------
Operating Income 627,203 616,638 625,318
Other Income (Expense):
Allowance for equity funds used during construction (Note 1) - - 1,649
Income from subsidiary (Note 6) 4,266 3,851 4,051
Charitable foundation - (6,800) (11,542)
Interest income 37,844 28,318 13,768
Other, net (38,522) (39,053) (21,536)
Income taxes applicable to other income 12,351 22,400 14,142
- --------------------------------------------------------------------------------------------------------------------------------
Income Before Interest Charges and Other 643,142 625,354 625,850
- --------------------------------------------------------------------------------------------------------------------------------
Interest Charges and Other:
Interest on long-term debt 167,172 169,390 180,714
Allowance for debt funds used during construction (Note 1) (4,787) (6,480) (7,067)
Interest on interim obligations 22,787 20,617 16,917
Amortization of debt discount, premium, and expense, net 9,645 9,508 20,259
Other interest charges 36,037 27,510 27,064
Distributions on preferred securities of
Alabama Power Capital Trust I & II (Note 9) 21,763 6,717 -
- --------------------------------------------------------------------------------------------------------------------------------
Interest charges and other, net 252,617 227,262 237,887
- --------------------------------------------------------------------------------------------------------------------------------
Net Income 390,525 398,092 387,963
Dividends on Preferred Stock 14,586 26,602 27,069
- --------------------------------------------------------------------------------------------------------------------------------
Net Income After Dividends on Preferred Stock $ 375,939 $ 371,490 $ 360,894
================================================================================================================================
The accompanying notes are an integral part of these statements.
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1997, 1996, and 1995
Alabama Power Company 1997 Annual Report
<S> <C> <C> <C>
==============================================================================================================================
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------
(in thousands)
Operating Activities:
Net income $ 390,525 $ 398,092 $ 387,963
Adjustments to reconcile net income to net
cash provided by operating activities --
Depreciation and amortization 394,572 383,438 371,382
Deferred income taxes and investment tax credits, net (12,429) 16,585 32,627
Allowance for equity funds used during construction - - (1,649)
Other, net (11,353) 6,247 459
Changes in certain current assets and liabilities --
Receivables, net (30,268) 3,958 (54,209)
Inventories 13,709 36,234 18,425
Payables (9,745) 1,006 (63,656)
Taxes accrued 6,191 (5,756) 551
Energy cost recovery, retail 7,108 25,771 1,177
Other 7,127 8,205 16,890
- ------------------------------------------------------------------------------------------------------------------------------
Net cash provided from operating activities 755,437 873,780 709,960
- ------------------------------------------------------------------------------------------------------------------------------
Investing Activities:
Gross property additions (451,167) (425,024) (551,781)
Other (51,791) (61,119) (53,321)
- ------------------------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (502,958) (486,143) (605,102)
- ------------------------------------------------------------------------------------------------------------------------------
Financing Activities:
Proceeds:
Company obligated mandatorily redeemable preferred securities 200,000 97,000 -
Other long-term debt 258,800 21,000 131,500
Retirements:
Preferred stock (184,888) - -
First mortgage bonds (74,951) (83,797) -
Other long-term debt (951) (21,907) (132,291)
Interim obligations, net (57,971) (25,163) 210,134
Payment of preferred stock dividends (22,524) (26,665) (27,118)
Payment of common stock dividends (339,600) (347,500) (285,000)
Miscellaneous (16,024) (3,634) (4,143)
- ------------------------------------------------------------------------------------------------------------------------------
Net cash used for financing activities (238,109) (390,666) (106,918)
- ------------------------------------------------------------------------------------------------------------------------------
Net Change in Cash and Cash Equivalents 14,370 (3,029) (2,060)
Cash and Cash Equivalents at Beginning of Year 9,587 12,616 14,676
- ------------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year 23,957 $ 9,587 $ 12,616
==============================================================================================================================
Supplemental Cash Flow Information:
Cash paid during the year for --
Interest (net of amount capitalized) $ 209,919 $ 193,871 $ 189,268
Income taxes 207,653 195,214 172,777
- ------------------------------------------------------------------------------------------------------------------------------
( ) Denotes use of cash.
The accompanying notes are an integral part of these statements.
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
BALANCE SHEETS
At December 31, 1997 and 1996
Alabama Power Company 1997 Annual Report
<S> <C> <C>
================================================================================================================
ASSETS 1997 1996
- ------------------------------------------------------------------------------------------------------------------
(in thousands)
Utility Plant:
Plant in service, at original cost (Note 1) $11,070,323 $10,806,921
Less accumulated provision for depreciation 4,384,180 4,113,622
- ------------------------------------------------------------------------------------------------------------------
6,686,143 6,693,299
Nuclear fuel, at amortized cost 103,272 123,862
Construction work in progress 311,223 256,802
------------------------------------------------------------------------------------------------------------------
Total 7,100,638 7,073,963
- -------------------------------------------------------------------------------------------------------------------
Other Property and Investments:
Southern Electric Generating Company, at equity (Note 6) 24,972 26,032
Nuclear decommissioning trusts (Note 1) 193,008 148,760
Miscellaneous 22,233 20,243
- ------------------------------------------------------------------------------------------------------------------
Total 240,213 195,035
- ------------------------------------------------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents 23,957 9,587
Receivables-
Customer accounts receivable 368,255 334,150
Other accounts and notes receivable 28,921 28,524
Affiliated companies 50,353 47,630
Accumulated provision for uncollectible accounts (2,272) (1,171)
Refundable income taxes - 5,856
Fossil fuel stock, at average cost 74,186 81,704
Materials and supplies, at average cost 161,601 167,792
Prepayments 20,453 17,841
Vacation pay deferred 28,783 28,369
- ------------------------------------------------------------------------------------------------------------------
Total 754,237 720,282
- ------------------------------------------------------------------------------------------------------------------
Deferred Charges and Other Assets:
Deferred charges related to income taxes (Note 8) 384,549 410,010
Debt expense, being amortized 7,276 7,398
Premium on reacquired debt, being amortized 81,417 84,149
Prepaid pension costs 130,733 114,029
Department of Energy assessments (Note 1) 34,416 37,490
Miscellaneous 79,388 91,490
- ------------------------------------------------------------------------------------------------------------------
Total 717,779 744,566
- ------------------------------------------------------------------------------------------------------------------
Total Assets $8,812,867 $8,733,846
==================================================================================================================
The accompanying notes are an integral part of these balance sheets.
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
BALANCE SHEETS
At December 31, 1997 and 1996
Alabama Power Company 1997 Annual Report
<S> <C> <C>
==================================================================================================================
CAPITALIZATION AND LIABILITIES 1997 1996
- ------------------------------------------------------------------------------------------------------------------
(in thousands)
Capitalization (See accompanying statements):
Common stock equity $2,750,569 $2,714,277
Preferred stock 255,512 340,400
Company obligated mandatorily redeemable preferred securities of
subsidiary trusts holding Company Junior Subordinated Notes (Note 9) 297,000 97,000
Long-term debt 2,473,202 2,354,006
- ------------------------------------------------------------------------------------------------------------------
Total 5,776,283 5,505,683
- ------------------------------------------------------------------------------------------------------------------
Current Liabilities:
Preferred stock due within one year (Note 11) - 100,000
Long-term debt due within one year (Note 11) 75,336 20,753
Commercial paper 306,882 364,853
Accounts payable-
Affiliated companies 79,822 64,307
Other 159,146 182,563
Customer deposits 34,968 32,003
Taxes accrued-
Federal and state income 21,177 35,638
Other 15,309 15,271
Interest accrued 50,722 51,941
Vacation pay accrued 28,783 28,369
Miscellaneous 103,602 96,485
- ------------------------------------------------------------------------------------------------------------------
Total 875,747 992,183
- ------------------------------------------------------------------------------------------------------------------
Deferred Credits and Other Liabilities:
Accumulated deferred income taxes (Note 8) 1,192,265 1,177,687
Accumulated deferred investment tax credits 282,873 294,071
Prepaid capacity revenues, net (Note 7) 109,982 122,496
Department of Energy assessments (Note 1) 30,592 33,741
Deferred credits related to income taxes (Note 8) 327,328 364,792
Natural disaster reserve (Note 1) 22,416 20,757
Miscellaneous 195,381 222,436
- ------------------------------------------------------------------------------------------------------------------
Total 2,160,837 2,235,980
- ------------------------------------------------------------------------------------------------------------------
Commitments and Contingent Matters (Notes 1, 3, 4, 5, 6, 7, and 12)
Total Capitalization and Liabilities $8,812,867 $8,733,846
==================================================================================================================
The accompanying notes are an integral part of these balance sheets.
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CAPITALIZATION
At December 31, 1997 and 1996
Alabama Power Company 1997 Annual Report
<S> <C> <C> <C> <C>
===================================================================================================================================
1997 1996 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
(in thousands) (percent of total)
Common Stock Equity:
Common stock, par value $40 per share --
Authorized -- 6,000,000 shares
Outstanding -- 5,608,955 shares in 1997 $ 224,358 $ 224,358
Paid-in capital 1,304,645 1,304,645
Premium on preferred stock 99 146
Retained earnings (Note 13) 1,221,467 1,185,128
- -----------------------------------------------------------------------------------------------------------------------------------
Total common stock equity 2,750,569 2,714,277 47.6% 49.3%
- -----------------------------------------------------------------------------------------------------------------------------------
Cumulative Preferred Stock:
$1 par value --
Authorized -- 27,500,000 shares
Outstanding -- 6,020,200 shares
$25 stated capital --
6.40% 50,000 50,000
6.80% 38,000 38,000
7.60% - 150,000
Adjustable rate
4.82% - at January 1, 1998 50,000 50,000
$100 stated capital --
Auction rate - 4.235% at January 1, 1998 50,000 50,000
$100,000 stated capital --
Auction rate - 4.20% at January 1, 1998 20,000 20,000
$100 par value --
Authorized -- 3,850,000 shares
Outstanding -- 475,117 shares
4.20% to 4.52% 18,512 41,400
4.60% to 4.92% 29,000 29,000
5.96% to 6.88% - 12,000
- -----------------------------------------------------------------------------------------------------------------------------------
Total cumulative preferred stock (annual dividend
requirement -- $13,313,000) 255,512 440,400
Less amount due within one year (Note 11) - 100,000
- -----------------------------------------------------------------------------------------------------------------------------------
Cumulative preferred stock excluding amount due within one year 255,512 340,400 4.4 6.2
- -----------------------------------------------------------------------------------------------------------------------------------
Company Obligated Mandatorily
Redeemable Preferred Securities (Note 9):
$25 liquidation value -- 7.375% 97,000 97,000
$25 liquidation value -- 7.60% 200,000 -
- -----------------------------------------------------------------------------------------------------------------------------------
Total (annual distribution requirement -- $22,354,000) 297,000 97,000 5.2 1.7
- ------------------------------------------------------------------------------------------------------------------------------------
Long-Term Debt:
First mortgage bonds --
Maturity Interest Rates
February 1, 1998 5 1/2% 50,000 50,000
August 1, 1999 6 3/8% 170,000 170,000
March 1, 2000 6% 100,000 100,000
August 1, 2002 6.85% 100,000 100,000
2003 through 2007 6 3/4% to 7 1/4% 475,000 475,000
2021 through 2024 7.30% to 9% 946,108 1,021,059
- -----------------------------------------------------------------------------------------------------------------------------------
Total first mortgage bonds 1,841,108 1,916,059
Pollution control obligations 541,140 476,140
Long-term senior notes 193,800 -
Other long-term debt 7,105 8,056
Unamortized debt premium (discount), net (34,615) (25,496)
- -----------------------------------------------------------------------------------------------------------------------------------
Total long-term debt (annual interest
requirement -- $181,726,000) 2,548,538 2,374,759
Less amount due within one year (Note 11) 75,336 20,753
- -----------------------------------------------------------------------------------------------------------------------------------
Long-term debt excluding amount due within one year 2,473,202 2,354,006 42.8 42.8
- -----------------------------------------------------------------------------------------------------------------------------------
Total Capitalization $ 5,776,283 $ 5,505,683 100.0% 100.0%
===================================================================================================================================
The accompanying notes are an integral part of these statements.
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF RETAINED EARNINGS
For the Years Ended December 31, 1997, 1996, and 1995
Alabama Power Company 1997 Annual Report
<S> <C> <C> <C>
================================================================================================================================
1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------------
(in thousands)
Balance at Beginning of Year $1,185,128 $1,161,225 $1,085,256
Net income after dividends on preferred stock 375,939 371,490 360,894
Cash dividends on common stock (339,600) (347,500) (285,000)
Preferred stock transactions, net (45) (7) -
Other adjustments to retained earnings 45 (80) 75
- --------------------------------------------------------------------------------------------------------------------------------
Balance at End of Year (Note 13) $1,221,467 $1,185,128 $1,161,225
================================================================================================================================
The accompanying notes are an integral part of these statements.
</TABLE>
15
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Alabama Power Company 1997 Annual Report
1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
General
Alabama Power Company (the 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), Southern Company Energy Solutions, and other direct and
indirect subsidiaries. The operating companies (Alabama Power Company, Georgia
Power Company, Gulf Power Company, Mississippi Power Company, and Savannah
Electric and Power Company) provide electric service in four southeastern
states. Contracts among the companies -- dealing with jointly-owned generating
facilities, interconnecting transmission lines, and the exchange of electric
power -- are regulated by the Federal Energy Regulatory Commission (FERC) or the
Securities and Exchange Commission (SEC). 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 Company Energy Solutions
develops new business opportunities related to energy products and services.
Southern Company is registered as a holding company under the Public Utility
Holding Company Act of 1935 (PUHCA). Both Southern Company and its subsidiaries
are subject to the regulatory provisions of the PUHCA. The company is also
subject to regulation by the FERC and the Alabama Public Service Commission
(APSC). The company follows generally accepted accounting principles and
complies with the accounting policies and practices prescribed by the respective
regulatory commissions. 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.
Regulatory Assets and Liabilities
The company is subject to the provisions of Financial Accounting Standards Board
(FASB) Statement No. 71, Accounting for the Effects of Certain Types of
Regulation. Regulatory assets represent probable future revenues to the company
associated with certain costs that are expected to be recovered from customers
through the ratemaking process. Regulatory liabilities represent probable future
reductions in revenues associated with amounts that are expected to be credited
to customers through the ratemaking process. Regulatory assets and (liabilities)
reflected in the Balance Sheets at December 31 relate to the following:
1997 1996
-----------------------
(in thousands)
Deferred income taxes $ 384,549 $ 410,010
Deferred income tax credits (327,328) (364,792)
Premium on reacquired debt 81,417 84,149
Department of Energy assessments 34,416 37,490
Vacation pay 28,783 28,369
Natural disaster reserve (22,416) (20,757)
Work force reduction costs 19,316 45,969
Other, net 59,726 45,521
- ----------------------------------------------------------------
Total $ 258,463 $265,959
================================================================
In the event that a portion of the company's operations is no longer subject
to the provisions of Statement No. 71, the company would be required to write
off related net regulatory assets and liabilities that are not specifically
recoverable through regulated rates. In addition, the company would be required
to determine if any impairment to other assets exists, including plant, and
write down the assets, if impaired, to their fair value.
Revenues and Fuel Costs
The company accrues revenues for services rendered but unbilled at the end of
each fiscal period. Fuel costs are expensed as the fuel is used. The company's
electric rates include provisions to adjust billings for fluctuations in fuel
and the energy component of purchased power costs. Revenues are adjusted for
differences between recoverable fuel costs and amounts actually recovered in
current rates.
The company has a diversified base of customers. No single customer or
industry comprises 10 percent or more of revenues. In 1997, uncollectible
16
<PAGE>
NOTES (continued)
Alabama Power Company 1997 Annual Report
accounts continued to average less than 1 percent of revenues.
Fuel expense includes the amortization of the cost of nuclear fuel and a
charge, based on nuclear generation, for the permanent disposal of spent nuclear
fuel. Total charges for nuclear fuel included in fuel expense amounted to $68
million in 1997, $64 million in 1996, and $54 million in 1995. The company has a
contract with the U.S. Department of Energy (DOE) that provides for the
permanent disposal of spent nuclear fuel, which was scheduled to begin in 1998.
However, the actual year this service will begin is uncertain. Sufficient
storage capacity currently is available to permit operation into 2010 and 2013
at Plant Farley units 1 and 2, respectively.
Also, the Energy Policy Act of 1992 required the establishment in 1993 of a
Uranium Enrichment Decontamination and Decommissioning Fund, which is to be
funded in part by a special assessment on utilities with nuclear plants. This
assessment will be paid over a 15- year period, which began in 1993. This fund
will be used by the DOE for the decontamination and decommissioning of its
nuclear fuel enrichment facilities. The law provides that utilities will recover
these payments in the same manner as any other fuel expense. The company
estimates its remaining liability at December 31, 1997, under this law to be
approximately $34 million. This obligation is recognized in the accompanying
Balance Sheets.
Depreciation and Nuclear Decommissioning
Depreciation of the original cost of depreciable utility plant in service is
provided primarily by using composite straight-line rates, which approximated
3.3 percent in 1997 and 1996, and 3.2 percent in 1995. When property subject to
depreciation is retired or otherwise disposed of in the normal course of
business, its cost -- together with the cost of removal, less salvage -- is
charged to the accumulated provision for depreciation. Minor items of property
included in the original cost of the plant are retired when the related property
unit is retired. Depreciation expense includes an amount for the expected cost
of decommissioning nuclear facilities and removal of other facilities.
In 1988, the Nuclear Regulatory Commission (NRC) adopted regulations
requiring all licensees operating commercial power reactors to establish a plan
for providing, with reasonable assurance, funds for decommissioning. The company
has established external trust funds to comply with the NRC's regulations.
Amounts previously recorded in internal reserves are being transferred into the
external trust funds over periods approved by the APSC. The NRC's minimum
external funding requirements are based on a generic estimate of the cost to
decommission the radioactive portions of a nuclear unit based on the size and
type of reactor. The company has filed plans with the NRC to ensure that -- over
time -- the deposits and earnings of the external trust funds will provide the
minimum funding amounts prescribed by the NRC.
Site study cost is the estimate to decommission the facility as of the
site study year, and ultimate cost is the estimate to decommission the facility
as of retirement date. The estimated costs of decommissioning -- both site study
costs and ultimate costs -- at December 31, 1997, for Plant Farley were as
follows:
Site study basis (year) 1993
Decommissioning periods:
Beginning year 2017
Completion year 2029
-----------------------------------------------------------
(in millions)
Site study costs:
Radiated structures $ 489
Non-radiated structures 89
-----------------------------------------------------------
Total $ 578
===========================================================
(in millions)
Ultimate costs:
Radiated structures $1,504
Non-radiated structures 274
-----------------------------------------------------------
Total $1,778
===========================================================
(in millions)
Amount expensed in 1997 $ 18
-----------------------------------------------------------
Accumulated provisions:
Balance in external trust funds $ 193
Balance in internal reserves 44
-----------------------------------------------------------
Total $ 237
===========================================================
Significant assumptions:
Inflation rate 4.5%
Trust earning rate 7.0
-----------------------------------------------------------
Annual provisions for nuclear decommissioning are based on an annuity method
as approved by the APSC. All of the company's decommissioning costs are approved
for ratemaking.
17
<PAGE>
NOTES (continued)
Alabama Power Company 1997 Annual Report
The decommissioning cost estimates are based on prompt dismantlement and
removal of the plant from service. The actual decommissioning costs may vary
from the above estimates because of changes in the assumed date of
decommissioning, changes in NRC requirements, or changes in the assumptions used
in making estimates.
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.
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 composite rate used to determine the amount of
allowance was 5.8 percent in 1997 and 1996, and 7.1 percent in 1995. AFUDC, net
of income tax, as a percent of net income after dividends on preferred stock was
0.8 percent in 1997, 1.1 percent in 1996 and 1.7 percent in 1995.
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.
Financial Instruments
The company's only financial instruments for which the carrying amount did not
approximate fair value at December 31 are as follows:
Carrying Fair
Amount Value
-------------------------
(in millions)
Long-term debt:
At December 31, 1997 $2,541 $2,638
At December 31, 1996 $2,367 $2,420
Preferred Securities:
At December 31, 1997 297 300
At December 31, 1996 97 94
------------------------------------------------------------
The fair value for long-term debt and preferred securities was 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.
Natural Disaster Reserve
In September 1994, in response to a request by the company, the APSC issued an
order allowing the company to establish a Natural Disaster Reserve. Regulatory
treatment allows the company to accrue $250 thousand per month, until the
maximum accumulated provision of $32 million is attained. However, in December
1995, the APSC approved higher accruals to restore the reserve to its authorized
level whenever the balance in the reserve declines below $22.4 million.
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
trusts are primarily invested in equity and fixed-income securities. FASB
Statement No. 87, Employers' Accounting for Pensions, requires use of the
18
<PAGE>
NOTES (continued)
Alabama Power Company 1997 Annual Report
"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 these employees may become eligible for
these benefits when they retire. Amounts funded are primarily invested in debt
and equity securities. In December 1993, the APSC issued an accounting policy
statement which requires the company to externally fund net annual
postretirement benefits.
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 funded status of the plans and reconciliation to amounts reflected in the
Balance Sheets at December 31 are as follows:
Pension
-------------------
1997 1996
-------------------
(in millions)
Actuarial present value of
benefit obligations:
Vested benefits $ 626 $ 603
Non-vested benefits 22 30
---------------------------------------------------------
Accumulated benefit obligation 648 633
Additional amounts related to
projected salary increases 165 180
- ----------------------------------------------------------
Projected benefit obligation 813 813
Less:
Fair value of plan assets 1,521 1,334
Unrecognized net gain (585) (413)
Unrecognized prior service cost 43 46
Unrecognized transition asset (35) (40)
- ----------------------------------------------------------
Prepaid asset recognized in the
Balance Sheets $ 131 $ 114
==========================================================
Postretirement
Benefits
----------------------
1997 1996
----------------------
(in millions)
Actuarial present value of
benefit obligation:
Retirees and dependents $135 $116
Employees eligible to retire 24 28
Other employees 93 98
-----------------------------------------------------------
Accumulated benefit obligation 252 242
Less:
Fair value of plan assets 135 108
Unrecognized net loss 3 15
Unrecognized transition
obligation 61 65
-----------------------------------------------------------
Accrued liability recognized
in the Balance Sheets $ 53 $ 54
===========================================================
The weighted average rates assumed in the actuarial calculations were:
1997 1996 1995
-------------------------------
Discount 7.5% 7.8% 7.3%
Annual salary increase 5.0 5.3 4.8
Long-term return on
plan assets 8.5 8.5 8.5
----------------------------------------------------------
An additional assumption used in measuring the accumulated postretirement
benefit obligation was a weighted average medical care cost trend rate of 8.8
percent for 1997, decreasing gradually to 5.5 percent through the year 2005 and
remaining at that level thereafter. An annual increase in the assumed medical
care cost trend rate of 1 percent would increase the accumulated benefit
obligation as of December 31, 1997, by $21 million and the aggregate of the
service and interest cost components of the net retiree cost by $2 million.
Components of the plans' net cost are shown below:
Pension
-------------------------------------------------------------------
1997 1996 1995
-----------------------------
(in millions)
Benefits earned during
the year $ 20.3 $ 21.5 $ 21.2
Interest cost on projected
benefit obligation 58.4 59.5 54.3
Actual (return) loss on plan
assets (227.8) (148.9) (236.3)
Net amortization and deferral 116.8 43.8 136.9
-------------------------------------------------------------------
Net pension cost (income) $ (32.3) $ (24.1) $ (23.9)
=====================================================================
19
<PAGE>
NOTES (continued)
Alabama Power Company 1997 Annual Report
Of the above net pension income, $24.8 million in 1997, $20.3 million
in 1996, and $17.1 million in 1995 were recorded as credits to operating
expenses, and the remainder was recorded as credits to construction and other
accounts.
Postretirement
Benefits
--------------------
1997 1996 1995
------------- ------
(in millions)
Benefits earned during the year $ 4 $ 5 $ 7
Interest cost on accumulated
benefit obligation 18 17 18
Amortization of transition
obligation 4 4 7
Actual (return) loss on plan
assets (14) (7) (10)
Net amortization and deferral 7 2 5
- -------------------------------------------------------------
Net postretirement costs $ 19 $ 21 $ 27
=============================================================
Of the above net postretirement costs recorded, $16.3 million in 1997, $17.8
million in 1996, and $22.7 million in 1995 were charged to operating expenses
and the remainder was charged to construction and other accounts.
Work Force Reduction Programs
The company has incurred additional costs for work force reduction programs. The
costs related to these programs were $33 million, $26.7 million and $14.3
million for the years 1997, 1996 and 1995, respectively. In addition, certain
costs of these programs were deferred and are being amortized in accordance with
regulatory treatment. The unamortized balance of these costs was $19.3 million
at December 31, 1997.
3. LITIGATION AND REGULATORY MATTERS
Retail Rate Adjustment Procedures
In November 1982, the APSC adopted rates that provide for periodic adjustments
based upon the company's earned return on end-of-period retail common equity.
The rates also provide for adjustments to recognize the placing of new
generating facilities in retail service. Both increases and decreases have been
placed into effect since the adoption of these rates. The rate adjustment
procedures allow a return on common equity range of 13.0 percent to 14.5 percent
and limit increases or decreases in rates to 4 percent in any calendar year.
In June 1995, the APSC issued a rate order granting the company's request
for gradual adjustments to move toward parity among customer classes. This order
also calls for a moratorium on any periodic retail rate increases (but not
decreases) until July 2001.
In December 1995, the APSC issued an order authorizing the company to reduce
balance sheet items -- such as plant and deferred charges -- at any time the
company's actual base rate revenues exceed the budgeted revenues. In April 1997,
the APSC issued an additional order authorizing the company to reduce balance
sheet asset items. This order authorizes the reduction of such items up to an
amount equal to five times the total estimated annual revenue reduction
resulting from future rate reductions initiated by the company.
The ratemaking procedures will remain in effect until the APSC votes to
modify or discontinue them.
Appliance Warranty Litigation
In 1996, legal actions against the company were filed in several counties in
Alabama charging the company with fraud and non-compliance with regulatory
statutes relating to the offer, sale, and financing of "extended service
contracts" in connection with the sale of electric appliances. Some of these
suits were filed as class actions, while others were filed on behalf of multiple
individual plaintiffs. The plaintiffs seek damages for an unspecified amount.
The company has offered extended service agreements to its customers since
January 1984, and approximately 175,000 extended service agreements could be
involved in these proceedings. The final outcome of these cases cannot now be
determined.
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
20
<PAGE>
NOTES (continued)
Alabama Power Company 1997 Annual Report
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 is 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 $194 million at December 31, 1997 for Southern
Company, of which the company's portion would be approximately $95 million.
Although management believes that rates are not excessive and that refunds are
not justified, the final outcome of this matter cannot now be determined.
Tax Litigation
In August 1997, Southern Company and the Internal Revenue Service entered into a
settlement agreement related to tax issues for the years 1984 through 1987. The
agreement is subject to the review and approval by the Joint Congressional
Committee on Taxation. If approved by the Joint Committee, the agreement would
resolve all issues in the case for the years before the U. S. Tax Court,
resulting in a refund to the company of approximately $22 million. This amount
includes interest of $14 million. The tax litigation was related to a timing
issue as to when taxes should have been paid; therefore, only the interest
portion will affect future income.
4. CAPITAL BUDGET
The company's capital expenditures are currently estimated to total $615 million
in 1998, $723 million in 1999, and $524 million in 2000. The capital budget is
subject to periodic review and revision, and actual capital cost incurred may
vary from the above estimates because of numerous factors. These factors
include: changes in business conditions; revised load growth projections;
changes in environmental regulations; changes in the existing nuclear plant to
meet new regulatory requirements; increasing costs of labor, equipment, and
materials; and cost of capital.
The company will replace all six steam generators at Plant Farley at a total
cost of approximately $234 million. Additionally, the company plans to construct
and install 800 megawatts of new generating capacity and associated substation
facilities at Plant Barry. The projected capital expenditures for this project
amount to approximately $289 million.
In addition, significant construction will continue related to transmission
and distribution facilities and the upgrading of generating plants.
5. FINANCING, INVESTMENT, AND
COMMITMENTS
General
To the extent possible, the company's construction program is expected to be
financed primarily from internal sources. Short-term debt is often utilized and
the amounts available are discussed below. The company may issue additional
long-term debt and preferred securities for debt maturities, redeeming
higher-cost securities, and meeting additional capital requirements.
Financing
The ability of the company to finance its capital budget depends on the amount
of funds generated internally and the funds it can raise by external financing.
The company historically has relied on issuances of first mortgage bonds and
preferred stock, in addition to pollution control revenue bonds issued for its
benefit by public authorities, to meet its long-term external financing
requirements. Recently, the company's financings have consisted of unsecured
debt and trust preferred securities. In this regard, the company sought and
obtained stockholder approval in 1997 to amend its corporate charter eliminating
restrictions on the amounts of unsecured indebtedness it may incur. In order to
issue additional debt and equity securities, the company must comply with
21
<PAGE>
NOTES (continued)
Alabama Power Company 1997 Annual Report
certain earnings coverage requirements designated in its mortgage indenture and
corporate charter. The most restrictive of these provisions requires, for the
issuance of additional first mortgage bonds, that before-income-tax earnings, as
defined, cover pro forma annual interest charges on outstanding first mortgage
bonds at least twice; and for the issuance of additional preferred stock, that
gross income available for interest cover pro forma annual interest charges and
preferred stock dividends at least one and one-half times. The company's
coverages are at a level that would permit any necessary amount of security
sales at current interest and dividend rates.
Bank Credit Arrangements
The company, along with Georgia Power Company, has entered into agreements with
several banks outside the service area to provide $300 million of revolving
credit to the companies through June 30, 1999. To provide liquidity support for
commercial paper programs, the company and Georgia Power Company have exclusive
right to $135 million and $165 million, respectively, of the available credit.
However, the allocations can be changed among the borrowers by notifying the
respective banks. The companies have the option of converting the short-term
borrowings into term loans, payable in 12 equal quarterly installments, with the
first installment due at the end of the first calendar quarter after the
applicable termination date or at an earlier date at the companies' option. In
addition, these agreements require payment of commitment fees based on the
unused portions of the commitments or the maintenance of compensating balances
with the banks.
Additionally, the company maintains committed lines of credit in the amount
of $679 million (including $208 million of such lines under which borrowings may
be made only to fund purchase obligations relating to variable rate pollution
control bonds) which expire at various times during 1998 and, in certain cases,
provide for average annual compensating balances. Because the arrangements are
based on an average balance, the company does not consider any of its cash
balances to be restricted as of any specific date. Moreover, the company borrows
from time to time pursuant to arrangements with banks for uncommitted lines of
credit.
At December 31, 1997, the company had regulatory approval to have
outstanding up to $750 million of short-term borrowings.
Assets Subject to Lien
The company's mortgage, as amended and supplemented, securing the first mortgage
bonds issued by the company, constitutes a direct lien on substantially all of
the company's fixed property and franchises.
Fuel Commitments
To supply a portion of the fuel requirements of its generating plants, the
company has entered into various long-term commitments for the procurement of
fossil and nuclear fuel. In most cases, these contracts contain provisions for
price escalations, minimum purchase levels and other financial commitments.
Total estimated long-term obligations at December 31, 1997, were as follows:
Year Amounts
- ---- -----------------
(in millions)
1998 $869
1999 632
2000 388
2001 377
2002 317
2003-2013 2,538
- -------------------------------------------------------------
Total commitments $5,121
=============================================================
Operating Leases
The company has entered into coal rail car rental agreements with various terms
and expiration dates. At December 31, 1997, estimated minimum rental commitments
for noncancellable operating leases were as follows:
Year Amounts
- ---- -----------------
(in millions)
1998 $5.6
1999 5.6
2000 5.6
2001 5.6
2002 5.6
2003-2017 55.5
- ------------------------------------------------------------------
Total minimum payments $83.5
==================================================================
6. JOINT OWNERSHIP AGREEMENTS
The company and Georgia Power Company own equally all of the outstanding capital
stock of Southern Electric Generating Company (SEGCO), which owns electric
22
<PAGE>
NOTES (continued)
Alabama Power Company 1997 Annual Report
generating units with a total rated capacity of 1,020 megawatts, together with
associated transmission facilities. The capacity of these units is sold equally
to the company and Georgia Power Company under a contract which, in substance,
requires payments sufficient to provide for the operating expenses, taxes,
interest expense and a return on equity, whether or not SEGCO has any capacity
and energy available. The company's share of expenses totaled $73 million in
1997, $75 million in 1996 and $71 million in 1995, and is included in "Purchased
power from affiliates" in the Statements of Income.
In addition, the company has guaranteed unconditionally the obligation of
SEGCO under an installment sale agreement for the purchase of certain pollution
control facilities at SEGCO's generating units, pursuant to which $24.5 million
principal amount of pollution control revenue bonds are outstanding. Georgia
Power Company has agreed to reimburse the company for the pro rata portion of
such obligation corresponding to its then proportionate ownership of stock of
SEGCO if the company is called upon to make such payment under its guaranty.
At December 31, 1997, the capitalization of SEGCO consisted of $50 million
of equity and $72 million of long-term debt on which the annual interest
requirement is $4.5 million. SEGCO paid dividends totaling $10.6 million in
1997, $10.1 million in 1996, and $7.6 million in 1995, of which one-half of each
was paid to the company. SEGCO's net income was $8.5 million, $7.7 million, and
$8.1 million for 1997, 1996 and 1995, respectively.
The company's percentage ownership and investment in jointly-owned
generating plants at December 31, 1997, follows:
Total
Megawatt Company
Facility (Type) Capacity Ownership
------------------- ------------ -------------
Greene County 500 60.00% (1)
(coal)
Plant Miller
Units 1 and 2 1,320 91.84% (2)
(coal)
=========================================================
(1) Jointly owned with an affiliate, Mississippi Power Company.
(2) Jointly owned with Alabama Electric Cooperative, Inc.
Company Accumulated
Facility Investment Depreciation
------------------- -------------- ---------------
(in millions)
Greene County $ 93 $ 40
Plant Miller
Units 1 and 2 717 311
- ------------------------------------------------------------
7. LONG-TERM POWER SALES AGREEMENTS
General
The company and the operating affiliates of Southern Company have entered into
long-term contractual agreements for the sale of capacity and energy to certain
non-affiliated utilities located outside the system's service area. These
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, profitability is primarily
affected by revenues from capacity sales. The company's capacity revenues
amounted to $136 million in 1997, $151 million in 1996, and $157 million in
1995.
Unit power from Plant Miller is 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,
approximately 1,200 megawatts of capacity is scheduled to be sold through 1999.
Thereafter, these sales will remain at that approximate level -- unless reduced
by FP&L, FPC, and JEA for the periods after 1999 with a minimum of three years
notice -- until the expiration of the contracts in 2010.
Alabama Municipal Electric Authority (AMEA) Capacity Contracts
In August 1986, the company entered into a firm power purchase contract with
AMEA entitling AMEA to scheduled amounts of capacity (to a maximum 100
megawatts) for a period of 15 years commencing September 1, 1986 (1986
Contract). In October 1991, the company entered into a second firm power
purchase contract with AMEA entitling AMEA to scheduled amounts of additional
capacity (to a maximum 80 megawatts) for a period of 15 years commencing October
1, 1991 (1991 Contract). In both contracts the power will be sold to AMEA for
its member municipalities that previously were served directly by the company as
wholesale customers. Under the terms of the contracts, the company received
23
<PAGE>
NOTES (continued)
Alabama Power Company 1997 Annual Report
payments from AMEA representing the net present value of the revenues associated
with the respective capacity entitlements, discounted at effective annual rates
of 9.96 percent and 11.19 percent for the 1986 and 1991 contracts, respectively.
These payments are being recognized as operating revenues and the discounts are
being amortized to other interest expense as scheduled capacity is made
available over the terms of the contracts.
In order to secure AMEA's advance payments and the company's performance
obligation under the contracts, the company issued and delivered to an escrow
agent first mortgage bonds representing the maximum amount of liquidated damages
payable by the company in the event of a default under the contracts. No
principal or interest is payable on such bonds unless and until a default by the
company occurs. As the liquidated damages decline under the contracts, a portion
of the bonds equal to the decreases are returned to the company. At December 31,
1997, $113.8 million of such bonds was held by the escrow agent under the
contracts.
8. INCOME TAXES
At December 31, 1997, the tax-related regulatory assets and liabilities were
$385 million and $327 million, respectively. These assets are attributable to
tax benefits flowed through to customers in prior years and to taxes applicable
to capitalized AFUDC. 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:
1997 1996 1995
------------------------------------
(in thousands)
Total provision for income
taxes:
Federal--
Currently payable $197,159 $172,911 $166,105
Deferred--
current year 32,884 (6,309) 43,493
reversal of prior years (44,300) 18,948 (15,817)
Deferred investment tax
credits - - (75)
- ------------------------------------------------------------------------
185,743 185,550 193,706
- -----------------------------------------------------------------------
State--
Currently payable 23,147 16,212 18,108
Deferred--
current year 1,409 697 5,117
reversal of prior years (2,422) 3,249 (91)
- ------------------------------------------------------------------------
22,134 20,158 23,134
Total 207,877 205,708 216,840
Less income taxes credited
to other income (12,351) (22,400) (14,142)
- -------------------------------------------------------------------------
Total income taxes
charged operations $220,228 $228,108 $230,982
=========================================================================
The tax effects of temporary differences between the carrying amounts of
assets and liabilities in the financial statements and their respective tax
bases, which give rise to deferred tax assets and liabilities, are as follows:
1997 1996
-------------------
(in millions)
Deferred tax liabilities:
Accelerated depreciation $ 847 $ 816
Property basis differences 463 466
Premium on reacquired debt 30 31
Other 31 51
- ------------------------------------------------------------------
Total 1,371 1,364
- ------------------------------------------------------------------
Deferred tax assets:
Capacity prepayments 31 34
Other deferred costs 33 27
Postretirement benefits 18 21
Unbilled revenue 16 15
Other 66 54
- ------------------------------------------------------------------
Total 164 151
- ------------------------------------------------------------------
Net deferred tax liabilities 1,207 1,213
Portion included in current assets
(liabilities), net (15) (35)
- ------------------------------------------------------------------
Accumulated deferred income taxes
in the Balance Sheets $1,192 $1,178
===================================================================
24
<PAGE>
NOTES (continued)
Alabama Power Company 1997 Annual Report
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 $11 million in 1997 and 1996, and $12 million in 1995. At December
31, 1997, all investment tax credits available to reduce federal income taxes
payable had been utilized.
A reconciliation of the federal statutory income tax rate to the effective
income tax rate is as follows:
1997 1996 1995
--------------------------
Federal statutory rate 35.0% 35.0% 35.0%
State income tax,
net of federal deduction 2.4 2.2 2.5
Non-deductible book
depreciation 1.5 1.5 1.6
Differences in prior years'
deferred and current tax rates (2.3) (1.6) (1.8)
Other (1.9) (3.0) (1.4)
--------------------------------------------------------------
Effective income tax rate 34.7% 34.1% 35.9%
==============================================================
Southern Company files a consolidated federal income tax return. Under a
joint consolidated income tax agreement, each subsidiary's current and deferred
tax expense is computed on a stand-alone basis. Tax benefits from losses of the
parent company are allocated to each subsidiary based on the ratio of taxable
income to total consolidated taxable income.
9. COMPANY OBLIGATED MANDATORILY
REDEEMABLE PREFERRED SECURITIES
In January 1996, Alabama Power Capital Trust I (Trust I), of which the company
owns all of the common securities, issued $97 million of 7.375 percent
mandatorily redeemable preferred securities. Substantially all of the assets of
Trust I are $100 million aggregate principal amount of the company's 7.375
percent junior subordinated notes due March 31, 2026.
In January 1997, Alabama Power Capital Trust II (Trust II), of which the
company also owns all of the common securities, issued $200 million of 7.60
percent mandatorily redeemable preferred securities. Substantially all of the
assets of Trust II are $206 million aggregate principal amount of the company's
7.60 percent junior subordinated notes due December 31, 2036.
10. OTHER LONG-TERM DEBT
Details of other long-term debt at December 31 are as follows:
1997 1996
--------------------------
(in thousands)
Obligations incurred in
connection with the
sale of pollution control
revenue bonds by public
authorities-
Collateralized -
5.5% to 6.5 % due
2023-2024 $223,040 $223,040
Variable rates (4.1%
to 4.8% at 1/1/98)
due 2015-2017 89,800 89,800
Non-collateralized -
7.25% due 2003 1,000 1,000
5.8% due 2022 9,800 9,800
Variable rates (4.50%
to 5.9% at 1/1/98)
due 2021 - 2022 217,500 152,500
- -------------------------------------------------------------
541,140 476,140
Capitalized lease obligations 7,105 8,056
Long-term senior notes -
7.125% due 2047 193,800 -
- -------------------------------------------------------------
Total $742,045 $484,196
=============================================================
Pollution control obligations represent installment purchases of pollution
control facilities financed by funds derived from sales by public authorities of
revenue bonds. The company is required to make payments sufficient for the
authorities to meet principal and interest requirements of such bonds. With
respect to $312.8 million of such pollution control obligations, the company has
authenticated and delivered to the trustees a like principal amount of first
mortgage bonds as security for its obligations under the installment purchase
agreements. No principal or interest on these first mortgage bonds is payable
unless and until a default occurs on the installment purchase agreements.
The estimated aggregate annual maturities of other long-term debt through
2001 are as follows: $1.0 million in 1998, $1.2 million in 1999, $1.1 million in
2000, $1.0 million in 2001 and $1.1 million in 2002.
25
<PAGE>
NOTES (continued)
Alabama Power Company 1997 Annual Report
11. SECURITIES DUE WITHIN ONE YEAR
A summary of the improvement fund requirements and scheduled maturities and
redemptions of long-term debt and preferred stock due within one year at
December 31 is as follows:
1997 1996
------------------------
(in thousands)
Bond improvement fund
requirements $18,450 $ 19,410
First mortgage bond maturities
and redemptions 55,895 391
Other long-term debt maturities
(Note 10) 991 952
------------------------------------------------------------
Total long-term debt due within
one year 75,336 20,753
------------------------------------------------------------
Preferred stock to be reacquired - 100,000
------------------------------------------------------------
Total $75,336 $120,753
============================================================
The annual first mortgage bond improvement fund requirement is 1 percent
of the aggregate principal amount of bonds of each series authenticated, so long
as a portion of that series is outstanding, and may be satisfied by the deposit
of cash and/or reacquired bonds, the certification of unfunded property
additions or a combination thereof. The 1998 requirement of $18.5 million was
satisfied by the deposit of cash in 1998, all of which was used for the
redemption of outstanding first mortgage bonds. Also in early 1998, the company
redeemed $5.9 million first mortgage bonds and retired $50 million first
mortgage bonds. Scheduled maturities amount to $991 thousand in connection with
capitalized office building leases and a street light lease.
12. NUCLEAR INSURANCE
Under the Price-Anderson Amendments Act of 1988 (Act), the company maintains
agreements of indemnity with the NRC that, together with private insurance,
cover third-party liability arising from any nuclear incident occurring at Plant
Farley. The Act provides funds up to $8.9 billion for public liability claims
that could arise from a single nuclear incident. Plant Farley is insured against
this liability to a maximum of $200 million by private insurance, with the
remaining coverage provided by a mandatory program of deferred premiums which
could be assessed, after a nuclear incident, against all owners of nuclear
reactors. The company could be assessed up to $79 million per incident for each
licensed reactor it operates but not more than an aggregate of $10 million per
incident to be paid in a calendar year for each reactor. Such maximum
assessment, excluding any applicable state premium taxes, for the company is
$159 million per incident but not more than an aggregate of $20 million to be
paid for each incident in any one year.
The company is a member of Nuclear Electric Insurance Limited (NEIL), a
mutual insurer established to provide property damage insurance in an amount up
to $500 million for members' nuclear generating facilities. The members are
subject to a retrospective premium assessment in the event that losses exceed
accumulated reserve funds. The company's maximum annual assessment per incident
is limited to $8 million under the current policy.
Additionally, the company has policies that currently provide
decontamination, excess property insurance, and premature decommissioning
coverage up to $2.25 billion for losses in excess of the $500 million primary
coverage. This excess insurance is also provided by NEIL.
NEIL also covers the additional cost that would be incurred in obtaining
replacement power during a prolonged accidental outage at a member's nuclear
plant. Members can be insured against increased cost of replacement power in an
amount up to $3.5 million per week (starting 17 weeks after the outage) for one
year and up to $2.8 million per week for the second and third years.
Under each of the NEIL policies, members are subject to assessments if
losses each year exceed the accumulated funds available to the insurer under
that policy. The maximum annual assessments per incident under current policies
for the company would be $10 million for excess property damage and $8 million
for replacement power.
For all on-site property damage insurance policies for commercial nuclear
power plants, the NRC requires that the proceeds of such policies issued or
renewed on or after April 2, 1991, shall be dedicated first for the sole purpose
of placing the reactor in a safe and stable condition after an accident. Any
remaining proceeds are to be applied next toward the costs of decontamination
and debris removal operations ordered by the NRC, and any further remaining
proceeds are to be paid either to the company or to its bond trustees as may be
appropriate under the policies and applicable trust indentures.
26
<PAGE>
NOTES (continued)
Alabama Power Company 1997 Annual Report
All retrospective assessments, whether generated for liability, property
or replacement power may be subject to applicable state premium taxes.
13. COMMON STOCK DIVIDEND
RESTRICTIONS
The company's first mortgage bond indenture contains various common stock
dividend restrictions that remain in effect as long as the bonds are
outstanding. At December 31, 1997, retained earnings of $796 million were
restricted against the payment of cash dividends on common stock under terms of
the mortgage indenture.
14. QUARTERLY FINANCIAL INFORMATION
(Unaudited)
Summarized quarterly financial data for 1997 and 1996 are as follows:
Net Income
After
Dividends
Quarter Operating Operating on Preferred
Ended Revenues Income Stock
------------------- -----------------------------------------
(in thousands)
March 1997 $704,768 $123,455 $ 57,807
June 1997 728,089 125,750 63,137
September 1997 962,446 249,487 191,800
December 1997 753,808 128,511 63,195
March 1996 $732,809 $142,052 $ 73,159
June 1996 779,587 151,673 95,778
September 1996 913,308 222,523 152,589
December 1996 695,071 100,390 49,964
----------------------------------------------------------------
The company's business is influenced by seasonal weather conditions.
27
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL AND OPERATING DATA
Alabama Power Company 1997 Annual Report
<S> <C> <C> <C>
===================================================================================================================================
1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
Operating Revenues (in thousands) $3,149,111 $3,120,775 $3,024,774
Net Income after Dividends
on Preferred Stock (in thousands) $375,939 $371,490 $360,894
Cash Dividends on Common Stock (in thousands) $339,600 $347,500 $285,000
Return on Average Common Equity (percent) 13.76 13.75 13.61
Total Assets (in thousands) $8,812,867 $8,733,846 $8,744,360
Gross Property Additions (in thousands) $451,167 $425,024 $551,781
- -----------------------------------------------------------------------------------------------------------------------------------
Capitalization (in thousands):
Common stock equity $2,750,569 $2,714,277 $2,690,374
Preferred stock 255,512 340,400 440,400
Preferred stock subject to mandatory redemption - - -
Subsidiary obligated mandatorily redeemable preferred securities 297,000 97,000 -
Long-term debt 2,473,202 2,354,006 2,374,948
- -----------------------------------------------------------------------------------------------------------------------------------
Total (excluding amounts due within one year) $5,776,283 $5,505,683 $5,505,722
===================================================================================================================================
Capitalization Ratios (percent):
Common stock equity 47.6 49.3 48.9
Preferred stock 4.4 6.2 8.0
Company obligated mandatorily redeemable preferred securities 5.2 1.7 -
Long-term debt 42.8 42.8 43.1
- -----------------------------------------------------------------------------------------------------------------------------------
Total (excluding amounts due within one year) 100.0 100.0 100.0
===================================================================================================================================
First Mortgage Bonds (in thousands):
Issued - - -
Retired 74,951 83,797 -
Company Obligated Mandatorily Redeemable Preferred
Securities (in thousands):
Issued 200,000 97,000 -
Preferred Stock (in thousands):
Issued - - -
Retired 184,888 - -
- -----------------------------------------------------------------------------------------------------------------------------------
Security Ratings:
First Mortgage Bonds -
Moody's A1 A1 A1
Standard and Poor's A+ A+ A+
Duff & Phelps AA- AA- A+
Preferred Stock -
Moody's a2 a2 a2
Standard and Poor's A A A
Duff & Phelps A+ A+ A
- -----------------------------------------------------------------------------------------------------------------------------------
Customers (year-end):
Residential 1,092,161 1,073,559 1,058,197
Commercial 177,362 171,827 166,480
Industrial 5,076 5,100 5,338
Other 728 732 725
- -----------------------------------------------------------------------------------------------------------------------------------
Total 1,275,327 1,251,218 1,230,740
===================================================================================================================================
Employees (year-end) 6,531 6,865 7,261
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL AND OPERATING DATA
Alabama Power Company 1997 Annual Report
<S> <C> <C> <C>
===================================================================================================================================
1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------------
Operating Revenues (in thousands) $2,935,142 $3,007,609 $2,846,840
Net Income after Dividends
on Preferred Stock (in thousands) $356,338 $346,494 $338,555
Cash Dividends on Common Stock (in thousands) $268,000 $252,900 $273,300
Return on Average Common Equity (percent) 13.86 13.94 14.02
Total Assets (in thousands) $8,459,217 $8,248,683 $6,593,618
Gross Property Additions (in thousands) $536,785 $435,843 $367,463
- -----------------------------------------------------------------------------------------------------------------------------------
Capitalization (in thousands):
Common stock equity $2,614,405 $2,526,348 $2,443,493
Preferred stock 440,400 440,400 489,400
Preferred stock subject to mandatory redemption - - -
Subsidiary obligated mandatorily redeemable preferred securities - - -
Long-term debt 2,455,013 2,362,852 2,202,473
- -----------------------------------------------------------------------------------------------------------------------------------
Total (excluding amounts due within one year) $5,509,818 $5,329,600 $5,135,366
===================================================================================================================================
Capitalization Ratios (percent):
Common stock equity 47.4 47.4 47.6
Preferred stock 8.0 8.3 9.5
Company obligated mandatorily redeemable preferred securities - - -
Long-term debt 44.6 44.3 42.9
- -----------------------------------------------------------------------------------------------------------------------------------
Total (excluding amounts due within one year) 100.0 100.0 100.0
===================================================================================================================================
First Mortgage Bonds (in thousands):
Issued 150,000 860,000 745,000
Retired 20,387 699,788 931,797
Company Obligated Mandatorily Redeemable Preferred
Securities (in thousands):
Issued - - -
Preferred Stock (in thousands):
Issued - 158,000 150,000
Retired - 207,000 145,000
- -----------------------------------------------------------------------------------------------------------------------------------
Security Ratings:
First Mortgage Bonds -
Moody's A1 A1 A1
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 1,042,974 1,027,130 1,012,294
Commercial 162,239 157,337 152,530
Industrial 5,341 5,391 5,434
Other 716 713 704
- -----------------------------------------------------------------------------------------------------------------------------------
Total 1,211,270 1,190,571 1,170,962
===================================================================================================================================
Employees (year-end) 7,996 8,009 8,116
</TABLE>
29A
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL AND OPERATING DATA
Alabama Power Company 1997 Annual Report
<S> <C> <C> <C>
===================================================================================================================================
1991 1990 1989
- -----------------------------------------------------------------------------------------------------------------------------------
Operating Revenues (in thousands) $2,846,794 $2,722,424 $2,629,354
Net Income after Dividends
on Preferred Stock (in thousands) $339,666 $312,803 $311,146
Cash Dividends on Common Stock (in thousands) $232,900 $220,800 $217,300
Return on Average Common Equity (percent) 14.55 14.00 14.53
Total Assets (in thousands) $6,549,462 $6,362,293 $6,279,431
Gross Property Additions (in thousands) $397,011 $444,680 $459,199
- -----------------------------------------------------------------------------------------------------------------------------------
Capitalization (in thousands):
Common stock equity $2,387,198 $2,280,590 $2,188,811
Preferred stock 484,400 484,400 484,400
Preferred stock subject to mandatory redemption - 12,500 17,500
Subsidiary obligated mandatorily redeemable preferred securities - - -
Long-term debt 2,382,635 2,397,931 2,435,129
- -----------------------------------------------------------------------------------------------------------------------------------
Total (excluding amounts due within one year) $5,254,233 $5,175,421 $5,125,840
===================================================================================================================================
Capitalization Ratios (percent):
Common stock equity 45.4 44.1 42.7
Preferred stock 9.2 9.6 9.8
Company obligated mandatorily redeemable preferred securities - - -
Long-term debt 45.4 46.3 47.5
- -----------------------------------------------------------------------------------------------------------------------------------
Total (excluding amounts due within one year) 100.0 100.0 100.0
===================================================================================================================================
First Mortgage Bonds (in thousands):
Issued 250,000 - -
Retired 227,695 33,122 75,650
Company Obligated Mandatorily Redeemable Preferred
Securities (in thousands):
Issued - - -
Preferred Stock (in thousands):
Issued - - -
Retired 17,500 5,000 5,000
- -----------------------------------------------------------------------------------------------------------------------------------
Security Ratings:
First Mortgage Bonds -
Moody's A1 A1 A1
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 997,585 985,566 974,622
Commercial 148,228 144,340 141,265
Industrial 5,496 5,322 5,200
Other 697 690 684
- -----------------------------------------------------------------------------------------------------------------------------------
Total 1,152,006 1,135,918 1,121,771
===================================================================================================================================
Employees (year-end) 8,513 9,473 9,698
</TABLE>
29B
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL AND OPERATING DATA
Alabama Power Company 1997 Annual Report
<S> <C> <C>
=====================================================================================================================
1988 1987
- ---------------------------------------------------------------------------------------------------------------------
Operating Revenues (in thousands) $2,476,626 $2,574,634
Net Income after Dividends
on Preferred Stock (in thousands) $283,475 $257,239
Cash Dividends on Common Stock (in thousands) $212,700 $201,100
Return on Average Common Equity (percent) 14.03 13.56
Total Assets (in thousands) $6,180,945 $5,912,000
Gross Property Additions (in thousands) $643,892 $600,589
- ---------------------------------------------------------------------------------------------------------------------
Capitalization (in thousands):
Common stock equity $2,094,815 $1,946,747
Preferred stock 484,400 384,400
Preferred stock subject to mandatory redemption 22,500 27,500
Subsidiary obligated mandatorily redeemable preferred securities - -
Long-term debt 2,496,492 2,386,258
- ---------------------------------------------------------------------------------------------------------------------
Total (excluding amounts due within one year) $5,098,207 $4,744,905
=====================================================================================================================
Capitalization Ratios (percent):
Common stock equity 41.1 41.0
Preferred stock 9.9 8.7
Company obligated mandatorily redeemable preferred securities - -
Long-term debt 49.0 50.3
- ---------------------------------------------------------------------------------------------------------------------
Total (excluding amounts due within one year) 100.0 100.0
=====================================================================================================================
First Mortgage Bonds (in thousands):
Issued 150,000 200,000
Retired 42,445 108,082
Company Obligated Mandatorily Redeemable Preferred
Securities (in thousands):
Issued - -
Preferred Stock (in thousands):
Issued 100,000 -
Retired 2,500 5,000
- ---------------------------------------------------------------------------------------------------------------------
Security Ratings:
First Mortgage Bonds -
Moody's A1 A1
Standard and Poor's A A
Duff & Phelps 6 6
Preferred Stock -
Moody's a2 a2
Standard and Poor's A- A-
Duff & Phelps 7 7
- ---------------------------------------------------------------------------------------------------------------------
Customers (year-end):
Residential 964,581 950,101
Commercial 137,955 134,533
Industrial 5,120 4,955
Other 678 713
- ---------------------------------------------------------------------------------------------------------------------
Total 1,108,334 1,090,302
=====================================================================================================================
Employees (year-end) 10,302 10,457
</TABLE>
29C
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL AND OPERATING DATA (continued)
Alabama Power Company 1997 Annual Report
<S> <C> <C> <C>
===================================================================================================================================
1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
Operating Revenues (in thousands):
Residential $997,507 $998,806 $997,069
Commercial 724,148 696,453 670,453
Industrial 775,591 759,628 805,596
Other 13,563 13,729 13,619
- -----------------------------------------------------------------------------------------------------------------------------------
Total retail 2,510,809 2,468,616 2,486,737
Sales for resale - non-affiliates 431,023 391,669 370,140
Sales for resale - affiliates 161,795 216,620 127,730
- -----------------------------------------------------------------------------------------------------------------------------------
Total revenues from sales of electricity 3,103,627 3,076,905 2,984,607
Other revenues 45,484 43,870 40,167
- -----------------------------------------------------------------------------------------------------------------------------------
Total $3,149,111 $3,120,775 $3,024,774
===================================================================================================================================
Kilowatt-Hour Sales (in thousands):
Residential 14,336,408 14,593,761 14,383,231
Commercial 11,330,312 10,904,476 10,043,220
Industrial 20,727,912 19,999,258 19,862,577
Other 180,389 192,573 186,848
- -----------------------------------------------------------------------------------------------------------------------------------
Total retail 46,575,021 45,690,068 44,475,876
Sales for resale - non-affiliates 11,893,905 9,491,237 8,046,189
Sales for resale - affiliates 8,993,326 10,292,066 6,705,174
- -----------------------------------------------------------------------------------------------------------------------------------
Total 67,462,252 65,473,371 59,227,239
===================================================================================================================================
Average Revenue Per Kilowatt-Hour (cents):
Residential 6.96 6.84 6.93
Commercial 6.39 6.39 6.68
Industrial 3.74 3.80 4.06
Total retail 5.39 5.40 5.59
Sales for resale 2.84 3.07 3.38
Total sales 4.60 4.70 5.04
Residential Average Annual Kilowatt-Hour
Use Per Customer 13,254 13,705 13,686
Residential Average Annual Revenue
Per Customer $922.21 $937.95 $948.71
Plant Nameplate Capacity Ratings (Note 1)
(year-end) (megawatts) 11,151 11,151 10,831
Territorial Peak-Hour Demand (megawatts) (Note 2):
Winter 8,478 8,413 7,958
Summer 9,778 9,912 10,090
Annual Load Factor (percent) (Note 2) 62.7 61.3 59.2
Plant Availability (percent):
Fossil-steam 86.3 86.6 88.3
Nuclear 88.8 90.5 81.1
- -----------------------------------------------------------------------------------------------------------------------------------
Source of Energy Supply (percent):
Coal 66.0 67.0 67.1
Nuclear 18.0 18.5 17.1
Hydro 7.6 7.1 7.0
Oil and gas 0.7 0.4 0.4
Purchased power -
From non-affiliates 2.3 2.4 2.7
From affiliates 5.4 4.6 5.7
- -----------------------------------------------------------------------------------------------------------------------------------
Total 100.0 100.0 100.0
===================================================================================================================================
Total Fuel Economy Data (Note 1):
BTU per net kilowatt-hour generated 9,984 10,035 10,025
Cost of fuel per million BTU (cents) 148.61 147.09 148.68
Average cost of fuel per net kilowatt-hour generated (cents) 1.48 1.48 1.49
===================================================================================================================================
Notes:
(1) Generating capacity and fuel data includes Alabama Power Company's 50% portion of SEGCO.
(2) Includes Southeastern Power Administration allotment.
* Less than one-tenth of one percent.
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL AND OPERATING DATA (continued)
Alabama Power Company 1997 Annual Report
<S> <C> <C> <C>
===================================================================================================================================
1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------------
Operating Revenues (in thousands):
Residential $913,146 $947,277 $845,660
Commercial 647,202 634,895 589,816
Industrial 803,587 832,938 800,311
Other 13,515 13,344 12,734
- -----------------------------------------------------------------------------------------------------------------------------------
Total retail 2,377,450 2,428,454 2,248,521
Sales for resale - non-affiliates 354,760 364,105 407,791
Sales for resale - affiliates 164,762 181,975 158,088
- -----------------------------------------------------------------------------------------------------------------------------------
Total revenues from sales of electricity 2,896,972 2,974,534 2,814,400
Other revenues 38,170 33,075 32,440
- -----------------------------------------------------------------------------------------------------------------------------------
Total $2,935,142 $3,007,609 $2,846,840
===================================================================================================================================
Kilowatt-Hour Sales (in thousands):
Residential 13,183,147 13,185,062 12,069,268
Commercial 9,645,798 9,185,462 8,629,869
Industrial 19,479,364 18,595,237 18,260,274
Other 185,876 181,673 176,798
- -----------------------------------------------------------------------------------------------------------------------------------
Total retail 42,494,185 41,147,434 39,136,209
Sales for resale - non-affiliates 6,775,176 7,143,672 8,382,571
Sales for resale - affiliates 8,432,533 8,081,324 7,210,697
- -----------------------------------------------------------------------------------------------------------------------------------
Total 57,701,894 56,372,430 54,729,477
===================================================================================================================================
Average Revenue Per Kilowatt-Hour (cents):
Residential 6.93 7.18 7.01
Commercial 6.71 6.91 6.83
Industrial 4.13 4.48 4.38
Total retail 5.59 5.90 5.75
Sales for resale 3.42 3.59 3.63
Total sales 5.02 5.28 5.14
Residential Average Annual Kilowatt-Hour
Use Per Customer 12,746 12,936 12,017
Residential Average Annual Revenue
Per Customer $882.88 $929.36 $842.00
Plant Nameplate Capacity Ratings (Note 1)
(year-end) (megawatts) 10,431 10,431 10,431
Territorial Peak-Hour Demand (megawatts) (Note 2):
Winter 8,217 7,152 7,077
Summer 9,028 9,457 8,801
Annual Load Factor (percent) (Note 2) 62.2 58.6 59.6
Plant Availability (percent):
Fossil-steam 86.9 89.7 88.9
Nuclear 92.5 86.6 80.2
- -----------------------------------------------------------------------------------------------------------------------------------
Source of Energy Supply (percent):
Coal 62.9 63.9 64.3
Nuclear 21.7 20.1 19.0
Hydro 8.4 6.9 8.5
Oil and gas * * *
Purchased power -
From non-affiliates 1.3 1.1 1.2
From affiliates 5.7 8.0 7.0
- -----------------------------------------------------------------------------------------------------------------------------------
Total 100.0 100.0 100.0
===================================================================================================================================
Total Fuel Economy Data (Note 1):
BTU per net kilowatt-hour generated 9,961 10,003 10,000
Cost of fuel per million BTU (cents) 157.62 173.66 164.57
Average cost of fuel per net kilowatt-hour generated (cents) 1.57 1.74 1.65
===================================================================================================================================
Notes:
(1) Generating capacity and fuel data includes Alabama Power Company's 50% portion of SEGCO.
(2) Includes Southeastern Power Administration allotment.
* Less than one-tenth of one percent.
</TABLE>
31A
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL AND OPERATING DATA (continued)
Alabama Power Company 1997 Annual Report
<S> <C> <C> <C>
===================================================================================================================================
1991 1990 1989
- -----------------------------------------------------------------------------------------------------------------------------------
Operating Revenues (in thousands):
Residential $864,347 $825,645 $781,982
Commercial 582,730 551,634 533,487
Industrial 790,224 777,580 762,274
Other 12,662 12,103 11,743
- -----------------------------------------------------------------------------------------------------------------------------------
Total retail 2,249,963 2,166,962 2,089,486
Sales for resale - non-affiliates 407,912 434,996 409,202
Sales for resale - affiliates 159,375 93,473 104,488
- -----------------------------------------------------------------------------------------------------------------------------------
Total revenues from sales of electricity 2,817,250 2,695,431 2,603,176
Other revenues 29,544 26,993 26,178
- -----------------------------------------------------------------------------------------------------------------------------------
Total $2,846,794 $2,722,424 $2,629,354
===================================================================================================================================
Kilowatt-Hour Sales (in thousands):
Residential 12,324,898 11,996,794 11,346,736
Commercial 8,526,131 8,201,534 7,915,685
Industrial 17,511,579 17,713,153 17,360,791
Other 174,760 170,420 166,485
- -----------------------------------------------------------------------------------------------------------------------------------
Total retail 38,537,368 38,081,901 36,789,697
Sales for resale - non-affiliates 8,810,442 10,277,060 10,292,329
Sales for resale - affiliates 7,784,285 4,519,275 5,048,743
- -----------------------------------------------------------------------------------------------------------------------------------
Total 55,132,095 52,878,236 52,130,769
===================================================================================================================================
Average Revenue Per Kilowatt-Hour (cents):
Residential 7.01 6.88 6.89
Commercial 6.83 6.73 6.74
Industrial 4.51 4.39 4.39
Total retail 5.84 5.69 5.68
Sales for resale 3.42 3.57 3.35
Total sales 5.11 5.10 4.99
Residential Average Annual Kilowatt-Hour
Use Per Customer 12,435 12,256 11,717
Residential Average Annual Revenue
Per Customer $872.04 $843.50 $807.50
Plant Nameplate Capacity Ratings (Note 1)
(year-end) (megawatts) 10,539 9,879 9,879
Territorial Peak-Hour Demand (megawatts) (Note 2):
Winter 6,586 6,293 7,264
Summer 8,627 8,878 8,256
Annual Load Factor (percent) (Note 2) 59.9 57.4 59.5
Plant Availability (percent):
Fossil-steam 93.1 92.2 90.7
Nuclear 87.0 86.5 83.1
- -----------------------------------------------------------------------------------------------------------------------------------
Source of Energy Supply (percent):
Coal 61.5 57.0 54.1
Nuclear 20.8 21.6 21.0
Hydro 8.2 8.7 11.0
Oil and gas * 0.1 0.1
Purchased power -
From non-affiliates 1.6 0.9 1.8
From affiliates 7.9 11.7 12.0
- -----------------------------------------------------------------------------------------------------------------------------------
Total 100.0 100.0 100.0
===================================================================================================================================
Total Fuel Economy Data (Note 1):
BTU per net kilowatt-hour generated 9,985 10,072 10,061
Cost of fuel per million BTU (cents) 170.49 171.55 172.20
Average cost of fuel per net kilowatt-hour generated (cents) 1.70 1.73 1.73
===================================================================================================================================
Notes:
(1) Generating capacity and fuel data includes Alabama Power Company's 50% portion of SEGCO.
(2) Includes Southeastern Power Administration allotment.
* Less than one-tenth of one percent.
</TABLE>
31B
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL AND OPERATING DATA (continued)
Alabama Power Company 1997 Annual Report
<S> <C> <C>
====================================================================================================================
1988 1987
- --------------------------------------------------------------------------------------------------------------------
Operating Revenues (in thousands):
Residential $761,805 $759,957
Commercial 510,910 501,088
Industrial 738,755 721,298
Other 11,255 10,968
- --------------------------------------------------------------------------------------------------------------------
Total retail 2,022,725 1,993,311
Sales for resale - non-affiliates 355,362 443,880
Sales for resale - affiliates 76,691 118,746
- --------------------------------------------------------------------------------------------------------------------
Total revenues from sales of electricity 2,454,778 2,555,937
Other revenues 21,848 18,697
- --------------------------------------------------------------------------------------------------------------------
Total $2,476,626 $2,574,634
====================================================================================================================
Kilowatt-Hour Sales (in thousands):
Residential 11,332,285 11,149,225
Commercial 7,711,092 7,476,924
Industrial 16,881,342 15,969,075
Other 165,122 159,422
- --------------------------------------------------------------------------------------------------------------------
Total retail 36,089,841 34,754,646
Sales for resale - non-affiliates 7,905,750 10,523,554
Sales for resale - affiliates 3,551,142 4,963,997
- --------------------------------------------------------------------------------------------------------------------
Total 47,546,733 50,242,197
====================================================================================================================
Average Revenue Per Kilowatt-Hour (cents):
Residential 6.72 6.82
Commercial 6.63 6.70
Industrial 4.38 4.52
Total retail 5.60 5.74
Sales for resale 3.77 3.63
Total sales 5.16 5.09
Residential Average Annual Kilowatt-Hour
Use Per Customer 11,839 11,848
Residential Average Annual Revenue
Per Customer $795.84 $807.61
Plant Nameplate Capacity Ratings (Note 1)
(year-end) (megawatts) 9,279 9,337
Territorial Peak-Hour Demand (megawatts) (Note 2):
Winter 6,377 6,138
Summer 7,991 7,886
Annual Load Factor (percent) (Note 2) 59.6 58.3
Plant Availability (percent):
Fossil-steam 91.3 90.2
Nuclear 91.9 83.3
- --------------------------------------------------------------------------------------------------------------------
Source of Energy Supply (percent):
Coal 53.9 52.5
Nuclear 26.1 21.7
Hydro 4.8 6.3
Oil and gas 0.1 0.2
Purchased power -
From non-affiliates 0.5 0.2
From affiliates 14.6 19.1
- --------------------------------------------------------------------------------------------------------------------
Total 100.0 100.0
====================================================================================================================
Total Fuel Economy Data (Note 1):
BTU per net kilowatt-hour generated 10,137 10,214
Cost of fuel per million BTU (cents) 168.21 176.72
Average cost of fuel per net kilowatt-hour generated (cents) 1.71 1.80
====================================================================================================================
Notes:
(1) Generating capacity and fuel data includes Alabama Power Company's 50% portion of SEGCO.
(2) Includes Southeastern Power Administration allotment.
* Less than one-tenth of one percent.
</TABLE>
31C
<PAGE>
