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