SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) February 12 , 1997
------------------------
GULF POWER COMPANY
(Exact name of registrant as specified in its charter)
Maine 0-2429 59-0276810
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
500 Bayfront Parkway, Pensacola, Florida 32501
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (904) 444-6111
-----------------
N/A
(Former name or former address, if changed since last report.)
<PAGE>
Item 7. Financial Statements and Exhibits.
(c) Exhibits.
23 - Consent of Arthur Andersen LLP.
27 - Financial Data Schedule.
99 - Audited Financial Statements of Gulf Power Company
as of December 31, 1996.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GULF POWER COMPANY
By /s/ Wayne Boston
Wayne Boston
Assistant Secretary
Date: March 3, 1997
Exhibit 23
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report dated February 12, 1997 on the financial statements of Gulf Power
Company, included in this Form 8-K, into Gulf Power Company's previously filed
Registration Statement File Nos. 33-50165 and 333-19271.
/s/Arthur Andersen LLP
Atlanta, Georgia
February 27, 1997
<PAGE>
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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.
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<NAME> GULF POWER COMPANY
<MULTIPLIER> 1,000
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
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<TOTAL-CURRENT-ASSETS> 165,042
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</TABLE>
MANAGEMENT'S REPORT
Gulf Power Company 1996 Annual Report
The management of Gulf Power Company has prepared -- and is responsible for --
the financial statements and related information included in this report. These
statements were prepared in accordance with generally accepted accounting
principles appropriate in the circumstances and necessarily include amounts that
are based on the best estimates and judgments of management. Financial
information throughout this annual report is consistent with the financial
statements.
The Company maintains a system of internal accounting controls to provide
reasonable assurance that assets are safeguarded and that books and records
reflect only authorized transactions of the Company. Limitations exist in any
system of internal controls, however, based on a recognition that the cost of
the system should not exceed its benefits. The Company believes its system of
internal accounting controls maintains an appropriate cost/benefit relationship.
The Company's system of internal accounting controls is evaluated on an
ongoing basis by the Company's internal audit staff. The Company's independent
public accountants also consider certain elements of the internal control system
in order to determine their auditing procedures for the purpose of expressing an
opinion on the financial statements.
The audit committee of the board of directors, composed of directors who are
not employees, provides a broad overview of management's financial reporting and
control functions. Periodically, this committee meets with management, the
internal auditors, and the independent public accountants to ensure that these
groups are fulfilling their obligations and to discuss auditing, internal
controls, and financial reporting matters. The internal auditors and independent
public accountants have access to the members of the audit committee at any
time.
Management believes that its policies and procedures provide reasonable
assurance that the Company's operations are conducted according to a high
standard of business ethics.
In management's opinion, the financial statements present fairly, in all
material respects, the financial position, results of operations, and cash flows
of Gulf Power Company in conformity with generally accepted accounting
principles.
/s/ Travis J. Bowden
Travis J. Bowden
President and Chief Executive Officer
/s/ Arlan E. Scarbrough
Arlan E. Scarbrough
Chief Financial Officer
February 12, 1997
1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Gulf Power Company:
We have audited the accompanying balance sheets and statements of capitalization
of Gulf Power Company (a Maine corporation and a wholly owned subsidiary of
Southern Company) as of December 31, 1996 and 1995, and the related statements
of income, retained earnings, paid-in capital, and cash flows for each of the
three years in the period ended December 31, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements (pages 10-26) referred to above
present fairly, in all material respects, the financial position of Gulf Power
Company as of December 31, 1996 and 1995, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1996, in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Atlanta, Georgia
February 12, 1997
2
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
Gulf Power Company 1996 Annual Report
RESULTS OF OPERATIONS
Earnings
Gulf Power Company's 1996 net income after dividends on preferred stock was
$57.8 million, an increase of $0.6 million over the prior year. This improvement
is primarily attributable to higher retail revenues and lower costs related to
the work force reduction program implemented last year, offset somewhat by an
increase in other operating expenses.
In 1995, earnings were $57.2 million, representing an increase of $2 million
compared to the prior year. Earnings in 1995 were significantly affected by
higher retail revenues due to exceptionally hot summer weather and lower
interest charges on long-term debt.
The return on average common equity for 1996 and 1995 was 13.27 percent.
Revenues
Operating revenues increased in 1996 and 1995 as a result of the following
factors:
Increase (Decrease)
From Prior Year
-------------------------------------
1996 1995 1994
-------------------------------------
(in thousands)
Retail --
Sales growth $ 7,123 $ 3,647 $ 7,126
Weather (1,057) 9,749 (4,631)
Regulatory cost
recovery and other 5,649 22,502 8,938
- -----------------------------------------------------------------
Total retail 11,715 35,898 11,433
- -----------------------------------------------------------------
Sales for resale--
Non-affiliates 2,788 (5,698) (6,098)
Affiliates (857) 1,266 (5,813)
- -----------------------------------------------------------------
Total sales for resale 1,931 (4,432) (11,911)
Other operating
revenues 1,642 8,798 (3,851)
- -----------------------------------------------------------------
Total operating
revenues $15,288 $40,264 $(4,329)
=================================================================
Percent change 2.5% 7.0% (0.7)%
- -----------------------------------------------------------------
Retail revenues of $531 million in 1996 increased $11.7 million or 2.3
percent from last year, compared with an increase of 7.4 percent in 1995 and 2.4
percent in 1994. Residential and commercial revenues increased as a result of
customer growth in 1996. This increase was partially offset by milder summer
weather in 1996 compared to the hotter-than-normal summer weather of 1995.
The increase in regulatory cost recovery and other retail revenues is
primarily attributable to the recovery of increased purchased power capacity
costs from affiliated companies. Regulatory cost recovery and other includes
recovery provisions for fuel expense and the energy component of purchased power
costs; energy conservation costs; purchased power capacity costs; and
environmental compliance costs. The recovery provisions equal the related
expenses and have no material effect on net income. See Notes 1 and 3 to the
financial statements under "Revenues and Regulatory Cost Recovery Clauses" and
"Environmental Cost Recovery," respectively, for further information.
Sales for resale were $81 million in 1996, increasing $1.9 million or 2.4
percent from 1995. Revenues from sales to utilities outside the service area
under long-term contracts consist of capacity and energy components. Capacity
revenues reflect the recovery of fixed costs and a return on investment under
the contracts. Energy is generally sold at variable cost. The capacity and
energy components under these long-term contracts were as follows:
1996 1995 1994
-----------------------------------------
(in thousands)
Capacity $25,400 $25,870 $30,926
Energy 19,804 18,598 18,456
- -------------------------------------------------------------
Total $45,204 $44,468 $49,382
=============================================================
Capacity revenues decreased in 1996 and 1995, primarily reflecting the
decline in net plant investment.
Sales to affiliated companies vary from year to year depending on demand and
the availability and cost of generating resources at each company. These sales
have little impact on earnings.
3
<PAGE>
MANAGEMENTS'S DISCUSSION AND ANALYSIS (continued)
Gulf Power Company 1996 Annual Report
The increase in other operating revenues for 1996 and 1995 is primarily due
to increased amounts collected to recover newly-imposed county franchise fees.
These fees are included in taxes other than income taxes and thus, there is no
impact on earnings. Other changes for 1996 and 1995 are primarily attributable
to adjustments in the regulatory cost recovery clauses for differences between
recoverable costs and the amounts actually reflected in revenues. See Notes 1
and 3 to the financial statements under "Revenues and Regulatory Cost Recovery
Clauses" and "Environmental Cost Recovery," respectively, for further
discussion.
Kilowatt-hour sales for 1996 and percent changes in sales since 1994 are
reported below.
KWH Percent Change
------------ ---------------------------
1996 1996 1995 1994
------------ ---------------------------
(millions)
Residential 4,160 3.6% 7.0% 1.1%
Commercial 2,809 3.7 6.3 4.8
Industrial 1,808 0.7 (2.8) (9.0)
Other 17 2.7 (0.1) -
------------
Total retail 8,794 3.0 4.5 (0.3)
Sales for resale
Non-affiliates 1,534 9.9 (1.6) (2.8)
Affiliates 710 (6.5) (13.1) (15.2)
------------
Total 11,038 3.3 2.2 (2.1)
==================================================================
Retail sales increased in 1996 due to customer growth of 2.7 percent in the
residential class and 4.6 percent in the commercial class. The increase in
energy sales to the industrial class is a result of the Real-Time-Pricing
program. The price structure of this program has successfully encouraged
participating industrial customers to lower their peak demand requirements and
increase their purchases of energy during off-peak periods. See "Future Earnings
Potential" for information on the Company's initiatives to remain competitive
and to meet conservation goals set by the Florida Public Service Commission
(FPSC). In 1995, retail sales increased from the prior year due to hot summer
weather and an increase in residential and commercial customers. Industrial
sales were lower due to the reclassification of a major customer from the
industrial to commercial class and temporary production delays of other
industrial customers.
In 1996, energy sales for resale to non-affiliates increased 9.9 percent and
are predominantly related to unit power sales under long-term contracts to other
Florida utilities and bulk power sales under short-term contracts to other
non-affiliated utilities. Energy sales to affiliated companies vary from year
to year as mentioned previously.
Expenses
Total operating expenses for 1996 increased $12.7 million or 2.4 percent from
1995. The increase is due to higher purchased power expenses, other operation
expenses, depreciation expenses, and taxes. In 1995, total operating expenses
increased $41.3 million or 8.5 percent from 1994 primarily due to higher fuel
and purchased power expenses, maintenance expenses, and taxes other than income
taxes, offset by lower depreciation and amortization expenses.
Fuel and purchased power expenses for 1996 increased $4 million or 1.8
percent from 1995. The change reflects the increase in purchased power from
affiliated companies due to scheduled maintenance outages at Plant Crist and
Plant Daniel during the first half of 1996. This increase was partially offset
by a slight decrease in fuel expense reflecting a lower cost of fuel. In 1995,
fuel and purchased power expenses increased $30.1 million or 15.5 percent from
1994 reflecting the increase in generation due to the extreme weather conditions
during the summer of 1995 and slightly higher fuel costs.
The amount and sources of generation and the average cost of fuel per net
kilowatt-hour generated were as follows:
1996 1995 1994
-----------------------------
Total generation
(millions of kilowatt-hours) 10,214 9,828 9,559
Sources of generation
(percent)
Coal 99.4 99.5 99.8
Oil and gas 0.6 0.5 0.2
Average cost of fuel per net
kilowatt-hour generated
(cents)
Coal 1.99 2.08 2.00
Oil and gas 6.41 3.56 6.93
Total 2.02 2.09 2.01
- ------------------------------------------------------------------
4
<PAGE>
MANAGEMENTS'S DISCUSSION AND ANALYSIS (continued)
Gulf Power Company 1996 Annual Report
In 1996, other operation expenses increased $1.8 million or 1.5 percent from
the 1995 level. The increase is primarily attributable to an increase in
administrative and general expenses including costs associated with the approved
increase of the Company's annual accrual to the accumulated provision for
property damage to amortize deferred storm charges and restore the account
balance to a reasonable level. Higher costs related to the buyouts and
renegotiation of coal supply contracts and costs associated with the Company's
pro rata share of affiliated companies' workforce reduction costs were offset by
a decrease in costs related to the Company's work force reduction program
implemented in the prior year. In 1995, other operation expenses decreased $0.5
million due to a $9.4 million reduction in the amortization costs of coal
buyouts and renegotiation of coal supply contracts. This was offset by the $7
million accrual for benefits to be provided by the Company under the work force
reduction program implemented during the fourth quarter of 1995. These costs are
further discussed in Notes 2 and 5 to the financial statements under "Work Force
Reduction Programs" and "Fuel Commitments."
Maintenance expense in 1996 decreased $0.9 million or 1.7 percent from the
prior year. This is attributable to a decrease in scheduled maintenance of
production facilities. In 1995, maintenance expense increased $5.2 million or
11.2 percent from the prior year due to higher power production maintenance
related to non-recurring items and higher distribution maintenance.
Depreciation and amortization expenses increased $1.5 million or 2.8 percent
from 1995. This change is primarily due to an increase in depreciation expense
reflecting an increase in the average investment in distribution property as a
result of favorable growth in the Company's service area. In 1995, the decrease
in depreciation and amortization expenses of $1.5 million was attributable to
property which was fully amortized by December 1994.
Federal and state income taxes increased $3.8 million or 11 percent in 1996
primarily due to an increase in taxable income. Taxes other than income taxes
increased $2.4 million or 4.9 percent primarily due to an increase in county
franchise fees as mentioned previously. In 1995, other taxes increased $7.9
million or 18.9 percent primarily due to an increase in county franchise fees.
Franchise fees are billed and collected from customers and have no impact on
earnings.
In 1996, interest expense increased $0.9 million or 3.2 percent over the
prior year. The increase is attributable to the issuance of $30 million of new
first mortgage bonds in January 1996. The increase in interest on long-term debt
was partially offset by a decrease in interest on notes payable as a result of a
lower average amount of short-term notes outstanding. Interest expense in 1995
decreased $2.5 million or 7.8 percent under the prior year. The decrease was
attributable to lower interest on long-term debt reflecting a lower average
principal balance outstanding and the refinancing of $42 million of pollution
control bonds in December 1994.
Effects of Inflation
The Company is subject to rate regulation and income tax laws that are based on
the recovery of historical costs. Therefore, inflation creates an economic loss
because the Company is recovering its cost of investments in dollars that have
less purchasing power. While the inflation rate has been relatively low in
recent years, it continues to have an adverse effect on the Company because of
the large investment in long-lived utility plant. Conventional accounting for
historical cost does not recognize this economic loss nor the partially
offsetting gain that arises through financing facilities with fixed-money
obligations, such as long-term debt and preferred stock. Any recognition of
inflation by regulatory authorities is reflected in the rate of return allowed.
Future Earnings Potential
The results of operations for the past three years are not necessarily
indicative of future earnings potential. The level of future earnings depends on
numerous factors ranging from energy sales growth to a potentially less
regulated more competitive environment.
A work force reduction program was implemented in the fourth quarter of 1995.
The cost of the program reduced earnings by $0.7 million in 1996 and $4.3
million in 1995. The estimated savings from this program in 1996 were $2.7
million and will be approximately $3.9 million annually beginning in 1997.
5
<PAGE>
MANAGEMENTS'S DISCUSSION AND ANALYSIS (continued)
Gulf Power Company 1996 Annual Report
In December 1995, the FPSC approved the Company's request to increase the
amount of its annual accrual to the accumulated provision for property damage
account from $1.2 million to $3.5 million due to significant hurricane-related
charges to the account during 1995. Refer to Note 1 to the financial statements
under "Provision for Property Damage" for further discussion.
Future earnings in the near term will depend upon growth in energy sales,
which is subject to a number of factors. Traditionally, these factors have
included weather, competition, changes in contracts with neighboring utilities,
energy conservation practiced by customers, the elasticity of demand, and the
rate of economic growth in the Company's service area. However, the Energy
Policy Act of 1992 (Energy Act) is having a dramatic effect on the future of the
electric utility industry. The Energy Act promotes energy efficiency,
alternative fuel use, and increased wholesale competition for electric
utilities. The Company is positioning the business to meet the challenge of this
major change in the traditional practice of selling electricity. The Energy Act
allows independent power producers (IPPs) to access the Company's transmission
network in order to sell electricity to other utilities. This enhances the
incentive for IPPs to build cogeneration plants for industrial and commercial
customers and sell energy generation to utilities. Also, electricity sales for
resale rates are being driven down by wholesale transmission access and numerous
potential new energy suppliers, including power marketers and brokers. The
Company is aggressively working to maintain and expand its share of wholesale
sales in the southeastern power markets.
Various federal and state initiatives designed to promote wholesale and
retail competition, among other things, include proposals that would allow
customers to choose their electricity provider. As the initiatives
materialize, the structure of the utility industry could radically change.
Certain initiatives could result in a change in the ownership and/or
operation of generation and transmission facilities. Numerous issues must be
resolved, including significant ones relating to transmission pricing and
recovery of stranded investments. Being a low-cost producer could provide
significant opportunities to increase market share and profitability in
markets that evolve with changing regulation. Unless the Company remains a
low-cost producer and provides quality service, the Company's retail energy
sales growth could be limited, and this could significantly erode earnings.
The FPSC set conservation goals for the Company, beginning in 1995, which
require programs to reduce 154 megawatts of summer peak demand and 65,000 KWH of
sales by the year 2004. In 1995, the FPSC approved the Company's programs to
accomplish these goals. The Company can experience net growth as long as the
filed programs achieve the intended reductions in peak demand and KWH sales. In
response to these goals and seeking to remain competitive with other electric
utilities, the Company has developed initiatives which emphasize price
flexibility and competitive offering of energy efficiency products and services.
These initiatives will enable customers to lower or alter their peak energy
requirements. Besides promoting energy efficiency, another benefit of these
initiatives could be the ability to defer the need to construct additional
generating capacity.
On September 3, 1996, the FPSC approved a new optional Commercial/Industrial
Service Rider (CISR), which is applicable to the rate schedules for the
Company's largest existing and potential customers who are able to show they
have viable alternatives to purchasing the Company's energy services. The CISR,
approved as a pilot program, provides the flexibility needed to enable the
Company to offer its services in a more competitive manner to these customers.
Compliance costs related to the Clean Air Act Amendments of 1990 (Clean Air
Act) could affect earnings if such costs are not fully recovered. The Clean Air
Act and other important environmental items are discussed later under
"Environmental Matters." Also, state of Florida legislation adopted in 1993 that
provides for recovery of prudent environmental compliance costs is discussed in
Note 3 to the financial statements under "Environmental Cost Recovery."
The Company is subject to the provisions of Financial Accounting Standards
Board Statement No. 71, Accounting for the Effects of Certain Types of
Regulation. In the event that a portion of the Company's operations is no longer
subject to these provisions, the Company would be required to write off related
6
<PAGE>
MANAGEMENTS'S DISCUSSION AND ANALYSIS (continued)
Gulf Power Company 1996 Annual Report
regulatory assets and liabilities and determine if any other assets have been
impaired. See Note 1 to the financial statements under "Regulatory Assets and
Liabilities" for additional information.
FINANCIAL CONDITION
Overview
The principal changes in the Company's financial condition during 1996 were
gross property additions of $61.4 million and a decrease of $55.5 million in
notes payable. Funds for the property additions and the net decrease in
short-term notes were provided by internal sources. See the Statements of Cash
Flows for further details.
Financing Activities
The Company continued to lower its financing costs by issuing new bonds and
other debt and retiring higher-cost issues in 1996. The Company sold $55 million
of first mortgage bonds, $33.3 million of pollution control bonds, and obtained
$49.1 million of long-term bank notes. Retirements, including maturities during
1996, totaled $50.9 million of first mortgage bonds, $33.3 million of pollution
control bonds, and $34.9 million of long-term bank notes. The refinancing of
$33.3 million in pollution control bonds and $49.2 million in first mortgage
bonds will result in savings of over $1 million annually. See the Statements of
Cash Flows for further details.
Composite financing rates for the years 1994 through 1996 as of year end were
as follows:
1996 1995 1994
------------------------------
Composite interest rate on
long-term debt 6.1% 6.5% 6.5%
Composite preferred stock
dividend rate 6.4% 6.4% 6.6%
- ----------------------------------------------------------------
The decrease in the composite interest rate on long-term debt from 1995 to
1996 reflects the Company's efforts to refinance higher-cost debt. The decrease
in the composite preferred stock dividend rate in 1995 was primarily due to a
decrease in dividends on the Company's adjustable rate preferred stock,
reflecting lower interest rates.
Capital Requirements for Construction
The Company's gross property additions, including those amounts related to
environmental compliance, are budgeted at $142 million for the three years
beginning in 1997 ($47 million in 1997, $49 million in 1998, and $46 million in
1999). Actual construction costs may vary from this estimate because of changes
in such factors as: business conditions; environmental regulations; load
projections; the cost and efficiency of construction labor, equipment, and
materials; and the cost of capital. In addition, there can be no assurance that
costs related to capital expenditures will be fully recovered. The Company does
not have any such generating plants under construction, and current energy
demand forecasts do not indicate a need for any such facilities until well into
the future. However, significant construction related to maintaining and
upgrading transmission and distribution facilities and generating plants will
continue.
Other Capital Requirements
In addition to the funds needed for the construction program, approximately $121
million will be required by the end of 1999 in connection with maturities of
long-term debt. Also, the Company will continue to retire higher-cost debt and
preferred stock and replace these securities with lower-cost capital as market
conditions and terms of the instruments permit.
Environmental Matters
In November 1990, the Clean Air Act was signed into law. Title IV of the Clean
Air Act -- the acid rain compliance provision of the law -- impacts the Company.
Specific reductions in sulfur dioxide and nitrogen oxide emissions from
fossil-fired generating plants are required in two phases. Phase I compliance
began in 1995 and initially affected 28 generating units of Southern Company. As
a result of Southern Company's compliance strategy, an additional 22 generating
units were brought into compliance with Phase I requirements. Phase II
compliance is required in 2000, and all fossil-fired generating plants will be
affected.
In 1995, the Environmental Protection Agency (EPA) began issuing annual
sulfur dioxide emission allowances through the allowance trading program. An
emission allowance is the authority to emit one ton of sulfur dioxide during a
7
<PAGE>
MANAGEMENTS'S DISCUSSION AND ANALYSIS (continued)
Gulf Power Company 1996 Annual Report
calendar year. The sulfur dioxide emission allowance program is expected to
minimize the cost of compliance. Southern Company's sulfur dioxide compliance
strategy is designed to use allowances as a compliance option.
Southern Company achieved Phase I sulfur dioxide compliance at the affected
plants by switching to low-sulfur coal, which required some equipment upgrades.
This compliance strategy resulted in unused emission allowances being banked for
later use. Construction expenditures for Phase I compliance totaled
approximately $310 million for Southern Company, including approximately $50
million for Gulf Power.
For Phase II sulfur dioxide compliance, Southern Company could use emission
allowances, increase fuel switching, and/or install flue gas desulfurization
equipment at selected plants. Also, equipment to control nitrogen oxide
emissions will be installed on additional system fossil-fired units as required
to meet Phase II limits. Therefore, current compliance strategy could require
total Phase II estimated construction expenditures for Southern Company of
approximately $80 million, of which $60 million remains to be spent. Phase II
compliance is not expected to have a material impact on Gulf Power. However, the
full impact of Phase II compliance cannot now be determined with certainty,
pending the continuing development of a market for emission allowances, the
completion of EPA regulations, and the possibility of new emission reduction
technologies.
Following adoption of legislation in April of 1992 allowing electric
utilities in Florida to seek FPSC approval of their Clean Air Act Compliance
Plans, Gulf Power filed its petition for approval. The FPSC approved the
Company's plan for Phase I compliance, deferring until a later date approval of
its Phase II Plan.
An average increase of up to 2 percent in revenue requirements from the
Company's customers could be necessary to fully recover the cost of compliance
for both Phase I and Phase II of Title IV of the Clean Air Act. Compliance costs
include construction expenditures, increased costs for switching to low-sulfur
coal, and costs related to emission allowances.
In 1993, the Florida Legislature adopted legislation that allows a utility to
petition the FPSC for recovery of prudent environmental compliance costs that
are not being recovered through base rates or any other recovery mechanism. The
legislation is discussed in Note 3 to the financial statements under
"Environmental Cost Recovery." Substantially all of the costs for the Clean Air
Act and other new environmental legislation discussed below are expected to be
recovered through the Environmental Cost Recovery Clause.
The EPA and state environmental regulatory agencies are reviewing and
evaluating various matters including: revisions to the ambient air quality
standards for ozone and particulate matter; emission control strategies for
ozone nonattainment areas; additional controls for hazardous air pollutant
emissions; and hazardous waste disposal requirements. The impact of new
standards will depend on the development and implementation of applicable
regulations.
Gulf Power must comply with other environmental laws and regulations, under
which the Company could incur costs to clean up contaminated properties
currently or previously owned. The Company conducts studies to determine the
extent of any required cleanup costs and has recognized in the financial
statements costs to clean up known sites. For additional information, see Note 3
to the financial statements under "Environmental Cost Recovery."
Several major pieces of environmental legislation are being considered for
reauthorization or amendment by Congress. These include: the Clean Air Act; the
Clean Water Act; the Comprehensive Environmental Response, Compensation and
Liability Act; the Resource Conservation and Recovery Act; the Toxic Substances
Control Act; and the Endangered Species Act. Changes to these laws could affect
many areas of the Company's operations. The full impact of any such changes
cannot be determined at this time.
Compliance with possible additional legislation related to global climate
change, electric and magnetic fields, and other environmental health concerns
could significantly affect the Company. The impact of new legislation -- if any
- -- will depend on the subsequent development and implementation of applicable
8
<PAGE>
MANAGEMENTS'S DISCUSSION AND ANALYSIS (continued)
Gulf Power Company 1996 Annual Report
regulations. In addition, the potential exists for liability as the result of
lawsuits alleging damages caused by electric and magnetic fields.
Sources of Capital
At December 31, 1996, the Company had $0.8 million of cash and cash equivalents
and $34.5 million of unused committed lines of credit with banks to meet its
short-term cash needs. See Note 5 to the financial statements under "Bank Credit
Arrangements" for additional information.
In January 1997, Gulf Power Capital Trust I, of which the Company owns all
the common securities, issued $40 million of 7.625 percent mandatorily
redeemable preferred securities. Substantially all of the assets of the Trust
are $41 million aggregate principal amount of the Company's 7.625 percent Junior
Subordinated Notes due December 31, 2036.
It is anticipated that the funds required for construction and other
purposes, including compliance with environmental regulations, will be derived
from operations; the sale of additional first mortgage bonds, pollution control
bonds, and preferred stock; bank notes; and capital contributions from Southern
Company. If the attractiveness of current short-term interest rates continues,
the Company may maintain a higher level of short-term indebtedness than has
historically been true. The Company is required to meet certain coverage
requirements specified in its mortgage indenture and corporate charter to issue
new first mortgage bonds and preferred stock. The Company's coverage ratios are
sufficient to permit, at present interest and preferred dividend levels, any
foreseeable security sales. The amount of securities which the Company will be
permitted to issue in the future will depend upon market conditions and other
factors prevailing at that time.
9
<PAGE>
STATEMENTS OF INCOME
For the Years Ended December 31, 1996, 1995, and 1994
Gulf Power Company 1996 Annual Report
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------------
(in thousands)
Operating Revenues:
Revenues $616,603 $600,458 $561,460
Revenues from affiliates 17,762 18,619 17,353
--------------------------------------------------------------------------------------------------------------------------------
Total operating revenues 634,365 619,077 578,813
- --------------------------------------------------------------------------------------------------------------------------------
Operating Expenses:
Operation-
Fuel 184,500 185,274 161,168
Purchased power from non-affiliates 8,300 8,594 6,761
Purchased power from affiliates 35,076 29,966 25,819
Other 115,154 113,397 113,879
Maintenance 51,050 51,917 46,700
Depreciation and amortization 56,645 55,104 56,615
Taxes other than income taxes 52,027 49,598 41,701
Federal and state income taxes (Note 8) 37,821 34,065 33,957
- --------------------------------------------------------------------------------------------------------------------------------
Total operating expenses 540,573 527,915 486,600
- --------------------------------------------------------------------------------------------------------------------------------
Operating Income 93,792 91,162 92,213
Other Income (Expense):
Allowance for equity funds used during
construction (Note 1) 17 36 450
Interest income 1,921 2,877 1,429
Other, net (1,695) (1,261) (780)
Income taxes applicable to other income 248 (121) 95
- --------------------------------------------------------------------------------------------------------------------------------
Income Before Interest Charges 94,283 92,693 93,407
- --------------------------------------------------------------------------------------------------------------------------------
Interest Charges:
Interest on long-term debt 24,691 23,294 27,124
Other interest charges 1,882 1,674 2,442
Interest on notes payable 2,071 2,931 1,509
Amortization of debt discount, premium, and expense, net 2,087 2,014 1,834
Allowance for debt funds used during
construction (Note 1) (58) (187) (656)
- --------------------------------------------------------------------------------------------------------------------------------
Net interest charges 30,673 29,726 32,253
- --------------------------------------------------------------------------------------------------------------------------------
Net Income 63,610 62,967 61,154
Dividends on Preferred Stock 5,765 5,813 5,925
===============================================================================================================================
Net Income After Dividends on Preferred Stock $ 57,845 $ 57,154 $ 55,229
================================================================================================================================
The accompanying notes are an integral part of these statements.
</TABLE>
10
<PAGE>
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1996, 1995, and 1994
Gulf Power Company 1996 Annual Report
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
(in thousands)
Operating Activities:
Net income $ 63,610 $ 62,967 $ 61,154
Adjustments to reconcile net income to net
cash provided by operating activities --
Depreciation and amortization 71,825 75,293 86,098
Deferred income taxes 2,157 390 (6,986)
Allowance for equity funds used during construction (17) (36) (450)
Accumulated provision for property damage 4,227 (19,024) 1,013
Deferred costs of 1995 coal contract renegotiation 10,931 (12,177) -
Other, net 2,134 4,664 3,885
Changes in certain current assets and liabilities --
Receivables, net 736 (12,210) 3,540
Inventories 12,957 (618) (13,901)
Payables (7,078) 18,258 (10,159)
Taxes accrued (441) (2,803) 2,548
Current costs of 1995 coal contract renegotiation (5,099) (9,859) -
Other 4,943 (4,894) (1,938)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided from operating activities 160,885 99,951 124,804
- ---------------------------------------------------------------------------------------------------------------------------
Investing Activities:
Gross property additions (61,386) (63,113) (78,869)
Other (2,786) 4,401 (3,493)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (64,172) (58,712) (82,362)
- ---------------------------------------------------------------------------------------------------------------------------
Financing Activities and Capital Contributions:
Proceeds:
First mortgage bonds 55,000 - -
Pollution control bonds 33,275 - 42,000
Other long-term debt 49,148 - 32,108
Retirements:
Preferred stock - (1,000) (1,000)
First mortgage bonds (50,930) (1,750) (48,856)
Pollution control bonds (33,275) (125) (42,100)
Other long-term debt (34,923) (13,314) (24,240)
Notes payable, net (55,500) 27,000 47,447
Payment of preferred stock dividends (5,749) (5,813) (5,925)
Payment of common stock dividends (48,300) (46,400) (44,000)
Miscellaneous (5,332) (59) (2,550)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash used for financing activities (96,586) (41,461) (47,116)
- ---------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents 127 (222) (4,674)
Cash and Cash Equivalents at Beginning of Year 680 902 5,576
- ---------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year $ 807 $ 680 $ 902
===========================================================================================================================
Supplemental Cash Flow Information:
Cash paid during the year for --
Interest (net of amount capitalized) $26,050 $26,161 $30,139
Income taxes $25,858 $38,537 $43,089
- ---------------------------------------------------------------------------------------------------------------------------
( ) Denotes use of cash.
The accompanying notes are an integral part of these statements.
</TABLE>
11
<PAGE>
BALANCE SHEETS
At December 31, 1996 and 1995
Gulf Power Company 1996 Annual Report
<TABLE>
<CAPTION>
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
ASSETS 1996 1995
- --------------------------------------------------------------------------------------------------------------------------------
(in thousands)
Utility Plant:
Plant in service (Notes 1 and 6) $1,734,510 $1,695,814
Less accumulated provision for depreciation 694,245 658,806
--------------------------------------------------------------------------------------------------------------------------------
1,040,265 1,037,008
Construction work in progress 23,465 26,301
- --------------------------------------------------------------------------------------------------------------------------------
Total 1,063,730 1,063,309
- --------------------------------------------------------------------------------------------------------------------------------
Other Property and Investments 652 740
- --------------------------------------------------------------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents 807 680
Receivables-
Customer accounts receivable 67,727 69,166
Other accounts and notes receivable 3,098 3,393
Affiliated companies 1,821 802
Accumulated provision for uncollectible accounts (789) (768)
Fossil fuel stock, at average cost 28,352 37,875
Materials and supplies, at average cost (Note 1) 30,252 33,686
Current portion of deferred coal contract costs (Note 5) 16,389 12,767
Regulatory clauses under recovery (Note 1) 4,144 3,432
Prepaid income taxes 353 4,232
Other prepayments 8,833 8,000
Vacation pay deferred 4,055 4,419
- --------------------------------------------------------------------------------------------------------------------------------
Total 165,042 177,684
- --------------------------------------------------------------------------------------------------------------------------------
Deferred Charges:
Deferred charges related to income taxes (Note 8) 28,313 29,093
Debt expense and loss, being amortized 23,308 20,459
Deferred coal contract costs (Note 5) 13,126 33,768
Deferred storm charges (Note 1) 3,275 7,502
Miscellaneous 10,920 9,304
- --------------------------------------------------------------------------------------------------------------------------------
Total 78,942 100,126
- --------------------------------------------------------------------------------------------------------------------------------
Total Assets $1,308,366 $1,341,859
================================================================================================================================
The accompanying notes are an integral part of these statements.
</TABLE>
12
<PAGE>
BALANCE SHEETS (continued)
At December 31, 1996 and 1995
Gulf Power Company 1996 Annual Report
<TABLE>
<CAPTION>
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
CAPITALIZATION AND LIABILITIES 1996 1995
- --------------------------------------------------------------------------------------------------------------------------------
(in thousands)
Capitalization (See accompanying statements):
Common stock equity (Note 11) $ 435,758 $ 436,242
Preferred stock 65,102 89,602
Long-term debt 331,880 323,376
- --------------------------------------------------------------------------------------------------------------------------------
Total 832,740 849,220
- --------------------------------------------------------------------------------------------------------------------------------
Current Liabilities:
Preferred stock due within one year (Note 10) 24,500 -
Long-term debt due within one year (Note 10) 40,972 31,548
Notes payable 25,000 80,500
Accounts payable-
Affiliated companies 10,274 14,447
Other 22,496 27,196
Customer deposits 13,464 13,195
Taxes accrued 8,342 9,547
Interest accrued 7,629 5,719
Regulatory clauses over recovery (Note 1) 5,884 2,800
Vacation pay accrued 4,055 4,419
Dividends declared 11,453 1,437
Miscellaneous 5,668 5,919
- --------------------------------------------------------------------------------------------------------------------------------
Total 179,737 196,727
- --------------------------------------------------------------------------------------------------------------------------------
Deferred Credits and Other Liabilities:
Accumulated deferred income taxes (Note 8) 163,857 162,345
Deferred credits related to income taxes (Note 8) 64,354 67,481
Accumulated deferred investment tax credits 33,760 36,052
Accumulated provision for postretirement benefits (Note 2) 18,339 16,301
Miscellaneous 15,579 13,733
- --------------------------------------------------------------------------------------------------------------------------------
Total 295,889 295,912
- --------------------------------------------------------------------------------------------------------------------------------
Commitments and Contingent Matters (Notes 1, 2, 3, 4, 5, and 7)
Total Capitalization and Liabilities $1,308,366 $1,341,859
================================================================================================================================
The accompanying notes are an integral part of these statements.
</TABLE>
13
<PAGE>
STATEMENTS OF CAPITALIZATION
At December 31, 1996 and 1995
Gulf Power Company 1996 Annual Report
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
--------------------------------------------------------------------------------------------------------------------------------
1996 1995 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
(in thousands) (percent of total)
Common Stock Equity:
Common stock, without par value --
Authorized and outstanding --
992,717 shares in 1996 and 1995 $ 38,060 $ 38,060
Paid-in capital 218,438 218,438
Premium on preferred stock 81 81
Retained earnings (Note 11) 179,179 179,663
- ---------------------------------------------------------------------------------------------------------------------------------
Total common stock equity 435,758 436,242 52.3% 51.4%
- ---------------------------------------------------------------------------------------------------------------------------------
Cumulative Preferred Stock:
$10 par value --
Authorized -- 10,000,000 shares,
Outstanding -- 2,580,000 shares at December 31, 1996
$25 stated capital --
6.72% 20,000 20,000
7.00% 14,500 14,500
7.30% 15,000 15,000
Adjustable Rate -- at January 1, 1997: 5.01% 15,000 15,000
$100 par value --
Authorized -- 801,626 shares
Outstanding -- 251,026 shares at December 31, 1996
4.64% 5,102 5,102
5.16% 5,000 5,000
5.44% 5,000 5,000
7.52% 5,000 5,000
7.88% 5,000 5,000
- ---------------------------------------------------------------------------------------------------------------------------------
Total (annual dividend requirement -- $5,742,000) 89,602 89,602
- ---------------------------------------------------------------------------------------------------------------------------------
Less amount due within one year (Note 10) 24,500 -
- ---------------------------------------------------------------------------------------------------------------------------------
Total excluding amount due within one year 65,102 89,602 7.8 10.5
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
STATEMENTS OF CAPITALIZATION (continued)
At December 31, 1996 and 1995
Gulf Power Company 1996 Annual Report
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
1996 1995 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
(in thousands) (percent of total)
Long-term Debt:
First mortgage bonds --
Maturity Interest Rates
August 1, 1997 5.875% 25,000 25,000
April 1, 1998 5.55% 15,000 15,000
July 1, 1998 5.00% 30,000 30,000
July 1, 2003 6.125% 30,000 30,000
November 1, 2006 6.50% 25,000 -
September 1, 2008 9.00% - 930
December 1, 2021 8.75% - 50,000
January 1, 2026 6.875% 30,000 -
- ---------------------------------------------------------------------------------------------------------------------------------
Total first mortgage bonds 155,000 150,930
Pollution control obligations (Note 9) 169,630 169,630
Other long-term debt (Note 9) 51,299 37,074
Unamortized debt premium (discount), net (3,077) (2,710)
- ---------------------------------------------------------------------------------------------------------------------------------
Total long-term debt (annual interest
requirement -- $22,751,000) 372,852 354,924
Less amount due within one year (Note 10) 40,972 31,548
- ---------------------------------------------------------------------------------------------------------------------------------
Long-term debt excluding amount due within one year 331,880 323,376 39.9 38.1
- ---------------------------------------------------------------------------------------------------------------------------------
Total Capitalization $832,740 $849,220 100.0% 100.0%
=================================================================================================================================
The accompanying notes are an integral part of these statements.
</TABLE>
15
<PAGE>
STATEMENTS OF RETAINED EARNINGS
For the Years Ended December 31, 1996, 1995, and 1994
Gulf Power Company 1996 Annual Report
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
(in thousands)
Balance at Beginning of Year $179,663 $168,951 $157,773
Net income after dividends on preferred stock 57,845 57,154 55,229
Dividends on common stock (58,300) (46,400) (44,000)
Preferred stock transactions, net (29) (42) (51)
===========================================================================================================================
Balance at End of Year (Note 11) $179,179 $179,663 $168,951
===========================================================================================================================
STATEMENTS OF PAID-IN CAPITAL
For the Years Ended December 31, 1996, 1995, and 1994
Gulf Power Company 1996 Annual Report
- ---------------------------------------------------------------------------------------------------------------------------
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
(in thousands)
Balance at Beginning of Year $218,438 $218,380 $218,282
Contributions to capital by parent company - 58 98
===========================================================================================================================
Balance at End of Year $218,438 $218,438 $218,380
===========================================================================================================================
The accompanying notes are an integral part of these statements.
</TABLE>
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Gulf Power Company 1996 Annual Report
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
Gulf Power Company is a wholly owned subsidiary of Southern Company, which is
the parent company of five operating companies, a system service company,
Southern Communications Services (Southern Communications), Southern Energy,
Inc. (Southern Energy), Southern Nuclear Operating Company (Southern Nuclear),
The Southern Development and Investment Group (Southern Development), and other
direct and indirect subsidiaries. The operating companies (Alabama Power,
Georgia Power, Gulf Power, Mississippi Power, and Savannah Electric) provide
electric service in four southeastern states. Gulf Power Company provides
electric service to the northwest panhandle of Florida. Contracts among the
operating companies -- dealing with jointly owned generating facilities,
interconnecting transmission lines, and the exchange of electric power -- are
regulated by the Federal Energy Regulatory Commission (FERC) or the Securities
and Exchange Commission. The system service company provides, at cost,
specialized services to Southern Company and subsidiary companies. Southern
Communications provides digital wireless communications services to the
operating companies and also markets these services to the public within the
Southeast. Southern Energy designs, builds, owns and operates power production
and delivery facilities and provides a broad range of energy related services in
the United States and international markets. Southern Nuclear provides services
to Southern Company's nuclear power plants. Southern Development develops new
business opportunities related to energy products and services.
Southern Company is registered as a holding company under the Public Utility
Holding Company Act of 1935 (PUHCA). Both Southern Company and its subsidiaries
are subject to the regulatory provisions of the PUHCA. The Company is also
subject to regulation by the FERC and the Florida Public Service Commission
(FPSC). The Company follows generally accepted accounting principles and
complies with the accounting policies and practices prescribed by the FPSC. The
preparation of financial statements in conformity with generally accepted
accounting principles requires the use of estimates, and the actual results may
differ from those estimates.
Certain prior years' data presented in the financial statements have been
reclassified to conform with current year presentation.
Regulatory Assets and Liabilities
The Company is subject to the provisions of Financial Accounting Standards Board
(FASB) Statement No. 71, Accounting for the Effects of Certain Types of
Regulation. Regulatory assets represent probable future revenues to the Company
associated with certain costs that are expected to be recovered from customers
through the ratemaking process. Regulatory liabilities represent probable future
reductions in revenues associated with amounts that are to be credited to
customers through the ratemaking process. Regulatory assets and (liabilities)
reflected in the Balance Sheets at December 31 relate to the following:
1996 1995
-------------------------
(in thousands)
Current & deferred
coal contract costs $ 29,515 $ 46,535
Deferred income taxes 28,313 29,093
Deferred loss on reacquired debt 20,386 17,015
Environmental remediation 7,577 5,789
Vacation pay 4,055 4,419
Regulatory clauses (over) under
recovery, net (1,740) 632
Deferred income tax credits (64,354) (67,481)
Deferred storm charges 3,275 7,502
Other, net (1,202) (1,510)
- -----------------------------------------------------------------
Total $ 25,825 $ 41,994
=================================================================
In the event that a portion of the Company's operations is no longer subject
to the provisions of Statement No. 71, the Company would be required to write
off related regulatory assets and liabilities. In addition, the Company would be
required to determine any impairment to other assets, including plant, and write
down the assets, if impaired, to their fair value.
17
<PAGE>
NOTES (continued)
Gulf Power Company 1996 Annual Report
Revenues and Regulatory Cost Recovery Clauses
The Company accrues revenues for service rendered but unbilled at the end of
each fiscal period. The Company has a diversified base of customers and no
single customer or industry comprises 10 percent or more of revenues. In 1996,
uncollectible accounts continued to average significantly less than 1 percent of
revenues.
Fuel costs are expensed as the fuel is used. The Company's electric rates
include provisions to periodically adjust billings for fluctuations in fuel and
the energy component of purchased power costs. The Company also has similar cost
recovery clauses for energy conservation costs, purchased power capacity costs,
and environmental compliance costs. Revenues are adjusted monthly for
differences between recoverable costs and amounts actually reflected in current
rates.
Depreciation and Amortization
Depreciation of the original cost of depreciable utility plant in service is
provided primarily by using composite straight-line rates, which approximated
3.6 percent in 1996 and 1995 and 3.8 percent in 1994. When property subject to
depreciation is retired or otherwise disposed of in the normal course of
business, its cost -- together with the cost of removal, less salvage -- is
charged to the accumulated provision for depreciation. Minor items of property
included in the original cost of the plant are retired when the related property
unit is retired. Also, the provision for depreciation expense includes an amount
for the expected cost of removal of facilities.
Income Taxes
The Company uses the liability method of accounting for deferred income taxes
and provides deferred income taxes for all significant income tax temporary
differences. Investment tax credits utilized are deferred and amortized to
income over the average lives of the related property. The Company is included
in the consolidated federal income tax return of Southern Company. See Note 8
for further information related to income taxes.
Allowance for Funds Used During Construction
(AFUDC)
AFUDC represents the estimated debt and equity costs of capital funds that are
necessary to finance the construction of new facilities. While cash is not
realized currently from such allowance, it increases the revenue requirement
over the service life of the plant through a higher rate base and higher
depreciation expense. The FPSC-approved composite rate used to calculate AFUDC
was 7.27 percent for 1996, 1995, and 1994. AFUDC amounts for 1996, 1995, and
1994 were $75 thousand, $223 thousand, and $1.1 million, respectively. The
decrease in 1996 and 1995 is primarily due to no long-term construction projects
being implemented in 1996 and due to the completion of major construction
projects at Plant Daniel at the end of 1994, respectively.
Utility Plant
Utility plant is stated at original cost. Original cost includes: materials;
labor; minor items of property; appropriate administrative and general costs;
payroll-related costs such as taxes, pensions, and other benefits; and the
estimated cost of funds used during construction. The cost of maintenance,
repairs, and replacement of minor items of property is charged to maintenance
expense. The cost of replacements of property (exclusive of minor items of
property) is charged to utility plant.
Cash and Cash Equivalents
For purposes of the Statements of Cash Flows, temporary cash investments are
considered cash equivalents. Temporary cash investments are securities with
original maturities of 90 days or less.
18
<PAGE>
NOTES (continued)
Gulf Power Company 1996 Annual Report
Financial Instruments
The carrying amounts and fair values of the Company's long-term debt are shown
in the table below:
Carrying Fair
Amount Value
----------------------------
(in thousands)
Long-term debt
At December 31, 1996 $372,852 $373,394
At December 31, 1995 $354,924 $365,305
- -------------------------------------------------------------
The fair values for long-term debt were based on either closing market prices
or closing prices of comparable instruments.
Materials and Supplies
Generally, materials and supplies include the cost of transmission,
distribution, and generating plant materials. Materials are charged to inventory
when purchased and then expensed or capitalized to plant, as appropriate, when
installed.
Provision for Injuries and Damages
The Company is subject to claims and suits arising in the ordinary course of
business. As permitted by regulatory authorities, the Company provides for the
uninsured costs of injuries and damages by charges to income amounting to $1.2
million annually. The expense of settling claims is charged to the provision to
the extent available. The accumulated provision of $1.8 million and $1.7 million
at December 31, 1996 and 1995, respectively, is included in miscellaneous
current liabilities in the accompanying Balance Sheets.
Provision for Property Damage
The Company is self-insured for the full cost of storm and other damages to its
transmission and distribution property. At December 31, 1996, the accumulated
provision for property damage had a negative balance of $3.3 million, reflecting
the remaining deferred charges for expenses relating to Hurricanes Erin and Opal
during 1995. The negative balance was reclassified to deferred storm charges in
the accompanying Balance Sheets. In December 1995, the FPSC approved the
Company's request to increase the amount of its annual accrual to the
accumulated provision for property damage account from $1.2 million to $3.5
million. The FPSC approved this amount pending the results of a study it ordered
the Company to file addressing the appropriate reserve level and annual accrual
amount. The required study was filed with the FPSC, and in November 1996, the
FPSC reaffirmed an annual accrual of $3.5 million and approved a target level
for the accumulated provision account between $25.1 and $36 million. The FPSC
has also given the Company the flexibility to increase its annual accrual amount
above $3.5 million, when the Company believes it is in a position to do so,
until the account balance reaches $12 million. Therefore, during 1996, the
Company accrued $4.5 million to the accumulated provision for property damage.
The expense of repairing damages from major storms and other uninsured property
damages is charged to the provision account.
2. RETIREMENT BENEFITS
Pension Plan
The Company has a defined benefit, trusteed, non-contributory pension plan that
covers substantially all regular employees. Benefits are based on one of the
following formulas: years of service and final average pay or years of service
and a flat-dollar benefit. The Company uses the "entry age normal method with a
frozen initial liability" actuarial method for funding purposes, subject to
limitations under federal income tax regulations. Amounts funded to the pension
trust fund are primarily invested in equity and fixed-income securities. FASB
Statement No. 87, Employers' Accounting for Pensions, requires use of the
"projected unit credit" actuarial method for financial reporting purposes.
19
<PAGE>
NOTES (continued)
Gulf Power Company 1996 Annual Report
Postretirement Benefits
The Company provides certain medical care and life insurance benefits for
retired employees. Substantially all employees may become eligible for these
benefits when they retire. Trusts are funded to the extent deductible under
federal income tax regulations or to the extent required by the Company's
regulatory commissions. Amounts funded are primarily invested in equity and
fixed-income securities. FASB Statement No. 106, Employers' Accounting for
Postretirement Benefits Other Than Pensions, requires that medical care and life
insurance benefits for retired employees be accounted for on an accrual basis
using a specified actuarial method, "benefit/years-of-service."
Funded Status and Cost of Benefits
The following tables show actuarial results and assumptions for pension and
postretirement insurance benefits as computed under the requirements of FASB
Statement Nos. 87 and 106, respectively. The funded status of the plans at
December 31 was as follows:
Pension
--------------------------
1996 1995
---------------------------
(in thousands)
Actuarial present value of
benefit obligation:
Vested benefits $ 87,245 $ 87,652
Non-vested benefits 5,101 4,284
- --------------------------------------------------------------------
Accumulated benefit obligation 92,346 91,936
Additional amounts related to
projected salary increases 31,121 29,073
- --------------------------------------------------------------------
Projected benefit obligation 123,467 121,009
Less:
Fair value of plan assets 191,152 180,980
Unrecognized net gain (58,900) (48,438)
Unrecognized prior service cost 5,618 2,578
Unrecognized transition asset (6,485) (7,187)
- --------------------------------------------------------------------
Prepaid asset recognized in
the Balance Sheets $ 7,918 $ 6,924
====================================================================
Postretirement Benefits
---------------------------
1996 1995
---------------------------
(in thousands)
Actuarial present value of
benefit obligation:
Retirees and dependents $10,478 $ 9,759
Employees eligible to retire 5,484 4,921
Other employees 17,694 17,646
- ----------------------------------------------------------------
Accumulated benefit obligation 33,656 32,326
Less:
Fair value of plan assets 7,996 7,050
Unrecognized net loss 1,531 1,538
Unrecognized transition
obligation 5,790 7,437
- -----------------------------------------------------------------
Accrued liability recognized in
the Balance Sheets $18,339 $16,301
================================================================
In 1995, the Company announced a cost sharing program for postretirement
benefits. The program establishes limits on amounts the Company will pay to
provide future retiree postretirement benefits. This change reduced the 1995
accumulated postretirement benefit obligation by approximately $7.1 million.
The weighted average rates assumed in the actuarial calculations were:
1996 1995 1994
--------------------------------
Discount 7.8% 7.3% 8.0%
Annual salary increase 5.3% 4.8% 5.5%
Long-term return on plan
assets 8.5% 8.5% 8.5%
- ----------------------------------------------------------------
An additional assumption used in measuring the accumulated postretirement
benefit obligation was a weighted average medical care cost trend rate of 9.3
percent for 1996, decreasing gradually to 5.8 percent through the year 2005 and
remaining at that level thereafter. An annual increase in the assumed medical
care cost trend rate of 1 percent would increase the accumulated benefit
obligation at December 31, 1996, by $2.6 million and the aggregate of the
service and interest cost components of the net retiree cost by $254 thousand.
20
<PAGE>
NOTES (continued)
Gulf Power Company 1996 Annual Report
Components of the plans' net costs are shown below:
Pension
-------------------------------------
1996 1995 1994
-------------------------------------
(in thousands)
Benefits earned during
the year $ 3,880 $ 3,867 $ 3,775
Interest cost on projected
benefit obligation 9,129 8,042 7,484
Actual (return) loss on
plan assets (21,021) (33,853) 3,721
Net amortization
and deferral 5,920 19,619 (17,054)
- -------------------------------------------------------------------
Net pension income $ (2,092) $ (2,325) $ (2,074)
===================================================================
Of the above net pension amounts, pension income of $1.5 million in 1996,
$1.8 million in 1995, and $1.5 million in 1994 were recorded in operating
expenses, and the remainder was recorded in construction and other accounts.
Postretirement Benefits
----------------------------------
1996 1995 1994
---------------------------------
(in thousands)
Benefits earned during the year $ 939 $1,259 $1,362
Interest cost on accumulated
benefit obligation 2,330 2,520 2,535
Amortization of transition
obligation 356 853 854
Actual (return) loss on plan assets (797) (1,268) 129
Net amortization and deferral 318 742 (591)
- ---------------------------------------------------------------------
Net postretirement cost $3,146 $4,106 $4,289
=====================================================================
Of the above net postretirement costs recorded, $2.3 million in 1996 and $3.1
million in 1995 and 1994 were charged to operating expenses, and the remainder
was recorded in construction and other accounts.
Work Force Reduction Programs
The Company implemented a voluntary work force reduction program in the fourth
quarter of 1995 and recorded $1.2 million in 1996 and $7 million in 1995 for the
total pre-tax cost related to the program. The Company has also incurred its pro
rata share for the costs of affiliated companies' programs. The costs related to
these programs were $2.1 million for 1996, $1 million for 1995, and $1.3 million
for 1994.
3. LITIGATION AND REGULATORY MATTERS
FERC Reviews Equity Returns
In May 1991, the FERC ordered that hearings be conducted concerning the
reasonableness of the operating companies' wholesale rate schedules and
contracts that have a return on common equity of 13.75 percent or greater. The
contracts that could be affected by the hearings include substantially all of
the transmission, unit power, long-term power and other similar contracts.
In August 1992, a FERC administrative law judge issued an opinion that
changes in rate schedules and contracts were not necessary and that the FERC
staff failed to show how any changes were in the public interest. The FERC staff
has filed exceptions to the administrative law judge's opinion, and the matter
remains pending before the FERC.
In August 1994, the FERC instituted another proceeding based on substantially
the same issues as in the 1991 proceeding. In November 1995, a FERC
administrative law judge issued an opinion that the FERC staff failed to meet
its burden of proof, and therefore, no change in the equity return was
necessary. The FERC staff has filed exceptions to the administrative law judge's
opinion, and the matter remains pending before the FERC.
If the rates of return on common equity recommended by the FERC staff were
applied to all of the schedules and contracts involved in both proceedings, as
well as certain other contracts that reference these proceedings in determining
return on common equity, and if refunds were ordered, the amount of refunds
could range up to approximately $160 million for Southern Company, including
approximately $10 million for the Company at December 31, 1996. However,
management believes that rates are not excessive and that refunds are not
justified.
21
<PAGE>
NOTES (continued)
Gulf Power Company 1996 Annual Report
Environmental Cost Recovery
In April 1993, the Florida Legislature adopted legislation for an Environmental
Cost Recovery Clause (ECRC), which allows a utility to petition the FPSC for
recovery of all prudent environmental compliance costs that are not being
recovered through base rates or any other recovery mechanism. Such environmental
costs include operation and maintenance expense, emission allowance expense,
depreciation, and a return on invested capital.
In January 1994, the FPSC approved the Company's initial petition under the
ECRC for recovery of environmental costs. Beginning with this initial period
through September 1996, recovery under the ECRC was determined semi-annually. In
August 1996, the FPSC approved annual recovery periods beginning with the
October 1996 through September 1997 period. Recovery includes a true-up of the
prior period and a projection of the ensuing period. During 1996 and 1995, the
Company recorded ECRC revenues of $11.0 million and $11.8 million, respectively.
At December 31, 1996, the Company's liability for the estimated costs of
environmental remediation projects for known sites was $7.6 million. These
estimated costs are expected to be expended during the period 1997 to 2001.
These projects have been approved by the FPSC for recovery through the ECRC
discussed above. Therefore, the Company recorded $1.9 million in current assets
and $5.7 million in deferred charges representing the future recoverability of
these costs.
4. CONSTRUCTION PROGRAM
The Company is engaged in a continuous construction program, the cost of which
is currently estimated to total $47 million in 1997, $49 million in 1998, and
$46 million in 1999. The construction program is subject to periodic review and
revision, and actual construction costs may vary from the above estimates
because of numerous factors. These factors include changes in business
conditions; revised load growth estimates; changes in environmental regulations;
increasing costs of labor, equipment and materials; and cost of capital. At
December 31, 1996, significant purchase commitments were outstanding in
connection with the construction program. The Company does not have any
generating plants under construction. However, significant construction will
continue related to transmission and distribution facilities and the upgrading
and extension of the useful lives of generating plants.
See Management's Discussion and Analysis under "Environmental Matters" for
information on the impact of the Clean Air Act Amendments of 1990 and other
environmental matters.
5. FINANCING AND COMMITMENTS
General
Current projections indicate that funds required for construction and other
purposes, including compliance with environmental regulations, will be derived
primarily from internal sources. Requirements not met from internal sources will
be derived from the sale of additional first mortgage bonds, pollution control
bonds, and preferred stock; bank notes; and capital contributions from Southern
Company. In addition, the Company may issue additional long-term debt and
preferred stock primarily for the purposes of debt maturities and redemptions of
higher-cost securities.
Bank Credit Arrangements
At December 31, 1996, the Company had $5 million in revolving credit lines that
expire May 31, 1997, and $41.5 million of lines of credit with banks subject to
renewal June 1 of each year, of which $34.5 million remained unused. In
addition, the Company has a $20.3 million unused committed line of credit
established for liquidity support of its variable rate pollution control bonds.
In connection with these credit lines, the Company has agreed to pay commitment
fees and/or to maintain compensating balances with the banks. The compensating
balances, which represent substantially all of the cash of the Company except
for daily working funds and like items, are not legally restricted from
withdrawal. In addition, the Company has bid-loan facilities with twelve major
money center banks that total $230 million, of which $13 million was committed
at December 31, 1996.
22
<PAGE>
NOTES (continued)
Gulf Power Company 1996 Annual Report
Assets Subject to Lien
The Company's mortgage, which secures the first mortgage bonds issued by the
Company, constitutes a direct first lien on substantially all of the Company's
fixed property and franchises.
Fuel Commitments
To supply a portion of the fuel requirements of its generating plants, the
Company has entered into long-term commitments for the procurement of fuel. In
most cases, these contracts contain provisions for price escalations, minimum
purchase levels, and other financial commitments. Total estimated long-term
obligations at December 31, 1996, were as follows:
Year Fuel
------- ----------------
(in millions)
1997 $125
1998 98
1999 79
2000 71
2001 73
2002 - 2007 481
--------------------------------------------------------
Total commitments $927
========================================================
In 1988, the Company made an advance payment of $60 million to a coal
supplier under an arrangement to lower the cost of future coal purchased under
an existing contract. This amount is being amortized to expense on a per ton
basis over a ten-year period. The remaining unamortized amount was $13.3
million at December 31, 1996.
In December 1995, the Company made another payment of $22 million to the same
coal supplier under an arrangement to lower the cost of future coal and/or to
suspend the purchase of coal under an existing contract for 25 months. This
amount is being amortized to expense on a per ton basis through the first
quarter of 1998. The remaining unamortized amount was $16.2 million at December
31, 1996.
The amortization expense of these contract buyouts and renegotiations is
being recovered through the fuel cost recovery clause discussed under "Revenues
and Regulatory Cost Recovery Clauses" in Note 1.
Lease Agreements
In 1989, the Company and Mississippi Power jointly entered into a twenty-two
year operating lease agreement for the use of 495 aluminum railcars. In 1994, a
second lease agreement for the use of 250 additional aluminum railcars was
entered into for twenty-two years. Both of these leases are for the
transportation of coal to Plant Daniel. The Company, as a joint owner of Plant
Daniel, is responsible for one half of the lease costs. The lease costs are
charged to fuel inventory and are allocated to fuel expense as the fuel is used.
The Company's share of the lease costs charged to fuel inventory was $1.7
million in 1996 and 1995 and $1.2 million in 1994. The Company's annual lease
payments for 1997 through 2001 will be approximately $1.7 million and after
2001, lease payments total approximately $20.7 million. The Company has the
option after three years from the date of the original contract on the second
lease agreement to purchase the railcars at the greater of the termination value
or the fair market value. Additionally, at the end of each lease term, the
Company has the option to renew the lease.
6. JOINT OWNERSHIP AGREEMENTS
The Company and Mississippi Power jointly own Plant Daniel, a steam-electric
generating plant located in Jackson County, Mississippi. In accordance with an
operating agreement, Mississippi Power acts as the Company's agent with respect
to the construction, operation, and maintenance of the plant.
The Company and Georgia Power jointly own Plant Scherer Unit No. 3. Plant
Scherer is a steam-electric generating plant located near Forsyth, Georgia. In
accordance with an operating agreement, Georgia Power acts as the Company's
agent with respect to the construction, operation, and maintenance of the unit.
The Company's pro rata share of expenses related to both plants is included
in the corresponding operating expense accounts in the Statements of Income.
23
<PAGE>
NOTES (continued)
Gulf Power Company 1996 Annual Report
At December 31, 1996, the Company's percentage ownership and its investment
in these jointly owned facilities were as follows:
Plant Scherer Plant
Unit No. 3 Daniel
(coal-fired) (coal-fired)
--------------------------------
(in thousands)
Plant In Service $185,742(1) $222,463
Accumulated Depreciation $54,079 $102,027
Construction Work in Progress $314 $33
Nameplate Capacity (2)
(megawatts) 205 500
Ownership 25% 50%
- -------------------------------------------------------------------
(1) Includes net plant acquisition adjustment.
(2) Total megawatt nameplate capacity:
Plant Scherer Unit No. 3: 818
Plant Daniel: 1,000
7. LONG-TERM POWER SALES AGREEMENTS
The Company and the other operating affiliates have long-term contractual
agreements for the sale of capacity and energy to certain non-affiliated
utilities located outside the system's service area. The agreements for non-firm
capacity expired in 1994. The unit power sales agreements, expiring at various
dates discussed below, are firm and pertain to capacity related to specific
generating units. Because the energy is generally sold at cost under these
agreements, revenues from capacity sales primarily affect profitability. The
Company's capacity revenues have been as follows:
Other
Unit Long-
Year Power Term Total
- ---------- -------------------------------------
(in thousands)
1996 $25,400 $ - $25,400
1995 25,870 - 25,870
1994 29,653 1,273 30,926
- -----------------------------------------------------------
Unit power from specific generating plants of Southern Company is currently
being sold to Florida Power Corporation (FPC), Florida Power & Light Company
(FP&L), Jacksonville Electric Authority (JEA), and the city of Tallahassee,
Florida. Under these agreements, 211 megawatts of net dependable capacity were
sold by the Company during 1996, and sales will remain at that level until the
expiration of the contracts in 2010, unless reduced by FPC, FP&L and JEA after
1999.
Capacity and energy sales to FP&L, the Company's largest single customer,
provided revenues of $27.2 million in 1996, $25.4 million in 1995, and $29.3
million in 1994, or 4.3 percent, 4.1 percent, and 5.1 percent of operating
revenues, respectively.
8. INCOME TAXES
At December 31, 1996, the tax-related regulatory assets to be recovered from
customers were $28.3 million. These assets are attributable to tax benefits
flowed through to customers in prior years and to taxes applicable to
capitalized AFUDC. At December 31, 1996, the tax-related regulatory liabilities
to be credited to customers were $64.4 million. These liabilities are
attributable to deferred taxes previously recognized at rates higher than
current enacted tax law and to unamortized investment tax credits.
Details of the federal and state income tax provisions are as follows:
1996 1995 1994
----------------------------------
(in thousands)
Total provision for
income taxes:
Federal--
Currently payable $31,022 $29,018 $34,941
Deferred--current year 26,072 23,172 18,556
--reversal of
prior years (24,780) (23,116) (24,787)
- ------------------------------------------------------------------
32,314 29,074 28,710
- ------------------------------------------------------------------
State--
Currently payable 4,394 4,778 5,907
Deferred--current year 3,904 3,313 2,549
--reversal of
prior years (3,039) (2,979) (3,304)
- ------------------------------------------------------------------
5,259 5,112 5,152
- ------------------------------------------------------------------
Total 37,573 34,186 33,862
Less income taxes charged
(credited) to other income (248) 121 (95)
- ------------------------------------------------------------------
Total income taxes charged
to operations $37,821 $34,065 $33,957
==================================================================
24
<PAGE>
NOTES (continued)
Gulf Power Company 1996 Annual Report
The tax effects of temporary differences between the carrying amounts of
assets and liabilities in the financial statements and their respective tax
bases, which give rise to deferred tax assets and liabilities, are as follows:
1996 1995
-----------------------
(in thousands)
Deferred tax liabilities:
Accelerated depreciation $151,664 $146,926
Property basis differences 21,028 19,976
Coal contract buyouts 3,700 3,838
Property insurance 1,248 3,039
Other 12,674 10,573
- -------------------------------------------------------------------
Total 190,314 184,352
- -------------------------------------------------------------------
Deferred tax assets:
Federal effect of state deferred taxes 9,773 10,212
Postretirement benefits 5,767 5,494
Other 7,814 6,313
- -------------------------------------------------------------------
Total 23,354 22,019
- -------------------------------------------------------------------
Net deferred tax liabilities 166,960 162,333
Less current portion, net 3,103 (12)
- -------------------------------------------------------------------
Accumulated deferred income
taxes in the Balance Sheets $163,857 $162,345
===================================================================
Deferred investment tax credits are amortized over the life of the related
property with such amortization normally applied as a credit to reduce
depreciation in the Statements of Income. Credits amortized in this manner
amounted to $2.3 million in 1996, 1995 and 1994. At December 31, 1996, all
investment tax credits available to reduce federal income taxes payable had been
utilized.
A reconciliation of the federal statutory income tax rate to the effective
income tax rate is as follows:
1996 1995 1994
------------------- ---------
Federal statutory rate 35% 35% 35%
State income tax,
net of federal deduction 4 4 4
Non-deductible book
depreciation 1 1 1
Difference in prior years'
deferred and current tax rate (1) (3) (2)
Other (2) (2) (2)
- ---------------------------------------------------------------
Effective income tax rate 37% 35% 36%
===============================================================
The Company and the other subsidiaries of Southern Company file a
consolidated federal tax return. Under a joint consolidated income tax
agreement, each subsidiary's current and deferred tax expense is computed on a
stand-alone basis. Tax benefits from losses of the parent company are allocated
to each subsidiary based on the ratio of taxable income to total consolidated
taxable income.
9. POLLUTION CONTROL OBLIGATIONS AND OTHER LONG-TERM DEBT
Details of pollution control obligations and other long-term debt at December 31
are as follows:
1996 1995
--------------------------
(in thousands)
Obligations incurred in
connection with the sale by
public authorities of
tax-exempt pollution control
revenue bonds:
Collateralized
5.25% due 2006 $12,075 $ -
6% due 2006 - 12,075
8.25% due 2017 32,000 32,000
7.125% due 2021 - 21,200
6.75% due 2022 8,930 8,930
5.70% due 2023 7,875 7,875
5.80% due 2023 32,550 32,550
6.20% due 2023 13,000 13,000
6.30% due 2024 22,000 22,000
Variable Rate due 2024
Remarketable daily 20,000 20,000
5.50% due 2026 21,200 -
- ---------------------------------------------------------------
$169,630 $169,630
- ---------------------------------------------------------------
Other long-term debt:
4.69% due 1996 - 25,000
5.2125% due 1996-1998 16,823 -
6.44% due 1994-1998 7,476 12,074
Variable Rate due 1999 13,500 -
Variable Rate due 1999 13,500 -
- ---------------------------------------------------------------
51,299 37,074
- ---------------------------------------------------------------
Total $220,929 $206,704
===============================================================
Pollution control obligations represent installment purchases of pollution
control facilities financed by funds derived from sales by public authorities of
revenue bonds. With respect to the collateralized pollution control revenue
bonds, the Company has authenticated and delivered to trustees a like principal
amount of first mortgage bonds as security for obligations under collateralized
installment agreements. The principal and interest on the first mortgage bonds
will be payable only in the event of default under the agreements.
25
<PAGE>
NOTES (continued)
Gulf Power Company 1996 Annual Report
The estimated annual maturities of other long-term debt are as follows:
$16 million in 1997, $8.3 million in 1998, and $27 million in 1999.
10. CAPITALIZATION DUE WITHIN ONE YEAR
A summary of the improvement fund requirement and scheduled maturities and
redemptions of long-term debt and preferred stock due within one year at
December 31 is as follows:
1996 1995
----------------------
(in thousands)
Bond improvement fund requirement $ 1,550 $ 1,750
Less: Portion to be satisfied by
certifying property additions 1,550 -
- ---------------------------------------------------------------
Cash sinking fund requirement - 1,750
Maturities of first mortgage bonds 25,000 -
Current portion of other long-term
debt (Note 9) 15,972 29,598
Pollution control bond maturity - 200
Redemption of preferred stock 24,500 -
- ---------------------------------------------------------------
Total $65,472 $31,548
===============================================================
The first mortgage bond improvement (sinking) fund requirement amounts to 1
percent of each outstanding series of bonds authenticated under the indenture
prior to January 1 of each year, other than those issued to collateralize
pollution control obligations. The requirement may be satisfied by depositing
cash, reacquiring bonds, or by pledging additional property equal to 1 and 2/3
times the requirement.
11. COMMON STOCK DIVIDEND RESTRICTIONS
The Company's first mortgage bond indenture contains various common stock
dividend restrictions which remain in effect as long as the bonds are
outstanding. At December 31, 1996, retained earnings of $127 million were
restricted against the payment of cash dividends on common stock under the terms
of the mortgage indenture.
The Company's charter limits cash dividends on common stock to 50 percent of
net income available for such stock during a prior period of 12 months if the
capitalization ratio is below 20 percent and to 75 percent of such net income if
such ratio is 20 percent or more but less than 25 percent. The capitalization
ratio is defined as the ratio of common stock equity to total capitalization,
including retained earnings, adjusted to reflect the payment of the proposed
dividend. At December 31, 1996, the ratio was 47.6 percent.
12. QUARTERLY FINANCIAL DATA (Unaudited)
Summarized quarterly financial data for 1996 and 1995 are as follows:
Net Income
After Dividends
Operating Operating on Preferred
Quarter Ended Revenues Income Stock
- ------------------------------------------------------------------
(in thousands)
March 31, 1996 $154,921 $20,201 $11,258
June 30, 1996 153,821 21,565 12,581
Sept. 30, 1996 179,619 32,568 23,721
Dec. 31, 1996 146,004 19,458 10,285
March 31, 1995 $140,918 $19,503 $10,880
June 30, 1995 153,057 23,390 14,096
Sept. 30, 1995 184,251 35,187 26,588
Dec. 31, 1995 140,851 13,082 5,590
- ------------------------------------------------------------------
The Company's business is influenced by seasonal weather conditions and the
timing of rate changes, among other factors.
26
<PAGE>
SELECTED FINANCIAL AND OPERATING DATA
Gulf Power Company 1996 Annual Report
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------
Operating Revenues (in thousands) $634,365 $619,077 $578,813
Net Income after Dividends
on Preferred Stock (in thousands) $57,845 $57,154 $55,229
Dividends on Common Stock (in thousands) $58,300 $46,400 $44,000
Return on Average Common Equity (percent) 13.27 13.27 13.15
Total Assets (in thousands) $1,308,366 $1,341,859 $1,315,542
Gross Property Additions (in thousands) $61,386 $63,113 $78,869
- ---------------------------------------------------------------------------------------------------------------------
Capitalization (in thousands):
Common stock equity $435,758 $436,242 $425,472
Preferred stock 65,102 89,602 89,602
Preferred stock subject to mandatory redemption - - -
Long-term debt 331,880 323,376 356,393
- ---------------------------------------------------------------------------------------------------------------------
Total (excluding amounts due within one year) $832,740 $849,220 $871,467
- ---------------------------------------------------------------------------------------------------------------------
Capitalization Ratios (percent):
Common stock equity 52.3 51.4 48.8
Preferred stock 7.8 10.5 10.3
Long-term debt 39.9 38.1 40.9
- ---------------------------------------------------------------------------------------------------------------------
Total (excluding amounts due within one year) 100.0 100.0 100.0
=====================================================================================================================
First Mortgage Bonds (in thousands):
Issued 55,000 - -
Retired 50,930 1,750 48,856
Preferred Stock (in thousands):
Issued - - -
Retired - 1,000 1,000
- ---------------------------------------------------------------------------------------------------------------------
Security Ratings:
First Mortgage Bonds -
Moody's A1 A1 A2
Standard and Poor's A+ A+ A
Duff & Phelps AA- A+ A+
Preferred Stock -
Moody's a2 a2 a2
Standard and Poor's A A A-
Duff & Phelps A+ A A
- ---------------------------------------------------------------------------------------------------------------------
Customers (year-end):
Residential 291,196 283,421 280,859
Commercial 43,196 41,281 40,398
Industrial 278 278 283
Other 162 134 106
- ---------------------------------------------------------------------------------------------------------------------
Total 334,832 325,114 321,646
=====================================================================================================================
Employees (year-end) 1,384 1,501 1,540
</TABLE>
27
<PAGE>
SELECTED FINANCIAL AND OPERATING DATA (continued)
Gulf Power Company 1996 Annual Report
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
1993 1992 1991 1990
- --------------------------------------------------------------------------------------------------------------------------
Operating Revenues (in thousands) $583,142 $570,902 $565,207 $567,825
Net Income after Dividends
on Preferred Stock (in thousands) $54,311 $54,090 $57,796 $38,714
Dividends on Common Stock (in thousands) $41,800 $39,900 $38,000 $37,000
Return on Average Common Equity (percent) 13.29 13.62 15.17 10.51
Total Assets (in thousands) $1,307,809 $1,062,699 $1,095,736 $1,084,579
Gross Property Additions (in thousands) $78,562 $64,671 $64,323 $62,462
- --------------------------------------------------------------------------------------------------------------------------
Capitalization (in thousands):
Common stock equity $414,196 $403,190 $390,981 $371,185
Preferred stock 89,602 74,662 55,162 55,162
Preferred stock subject to mandatory redemption 1,000 2,000 7,500 9,250
Long-term debt 369,259 382,047 434,648 475,284
- --------------------------------------------------------------------------------------------------------------------------
Total (excluding amounts due within one year) $874,057 $861,899 $888,291 $910,881
- --------------------------------------------------------------------------------------------------------------------------
Capitalization Ratios (percent):
Common stock equity 47.4 46.8 44.0 40.8
Preferred stock 10.4 8.9 7.1 7.1
Long-term debt 42.2 44.3 48.9 52.1
- --------------------------------------------------------------------------------------------------------------------------
Total (excluding amounts due within one year) 100.0 100.0 100.0 100.0
==========================================================================================================================
First Mortgage Bonds (in thousands):
Issued 75,000 25,000 50,000 -
Retired 88,809 117,693 32,807 6,455
Preferred Stock (in thousands):
Issued 35,000 29,500 - -
Retired 21,060 15,500 2,500 1,750
- --------------------------------------------------------------------------------------------------------------------------
Security Ratings:
First Mortgage Bonds -
Moody's A2 A2 A2 A2
Standard and Poor's A A A A
Duff & Phelps A+ A A A
Preferred Stock -
Moody's a2 a2 a2 a2
Standard and Poor's A- A- A- A-
Duff & Phelps A A- A- A-
- --------------------------------------------------------------------------------------------------------------------------
Customers (year-end):
Residential 274,194 267,591 261,210 256,111
Commercial 39,253 37,105 34,685 34,019
Industrial 274 270 264 252
Other 86 74 72 67
- --------------------------------------------------------------------------------------------------------------------------
Total 313,807 305,040 296,231 290,449
==========================================================================================================================
Employees (year-end) 1,565 1,613 1,598 1,615
</TABLE>
28A
<PAGE>
SELECTED FINANCIAL AND OPERATING DATA (continued)
Gulf Power Company 1996 Annual Report
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
1989 1988 1987 1986
- -------------------------------------------------------------------------------------------------------------------------
Operating Revenues (in thousands) $527,821 $550,827 $587,860 $542,919
Net Income after Dividends
on Preferred Stock (in thousands) $37,361 $45,698 $42,217 $46,421
Dividends on Common Stock (in thousands) $37,200 $35,400 $34,200 $33,100
Return on Average Common Equity (percent) 10.32 13.41 13.23 15.06
Total Assets (in thousands) $1,093,430 $1,097,225 $1,051,182 $1,028,864
Gross Property Additions (in thousands) $70,726 $67,042 $97,511 $90,160
- -------------------------------------------------------------------------------------------------------------------------
Capitalization (in thousands):
Common stock equity $365,471 $358,310 $323,012 $314,995
Preferred stock 55,162 55,162 55,162 55,162
Preferred stock subject to mandatory redemption 11,000 12,750 14,000 16,500
Long-term debt 484,608 497,069 474,640 482,869
- -------------------------------------------------------------------------------------------------------------------------
Total (excluding amounts due within one year) $916,241 $923,291 $866,814 $869,526
- -------------------------------------------------------------------------------------------------------------------------
Capitalization Ratios (percent):
Common stock equity 39.9 38.8 37.2 36.2
Preferred stock 7.2 7.4 8.0 8.3
Long-term debt 52.9 53.8 54.8 55.5
- -------------------------------------------------------------------------------------------------------------------------
Total (excluding amounts due within one year) 100.0 100.0 100.0 100.0
=========================================================================================================================
First Mortgage Bonds (in thousands):
Issued - 35,000 - 50,000
Retired 9,344 9,369 - 46,640
Preferred Stock (in thousands):
Issued - - - -
Retired 1,250 1,750 2,500 750
- -------------------------------------------------------------------------------------------------------------------------
Security Ratings:
First Mortgage Bonds -
Moody's A1 A1 A1 A1
Standard and Poor's A A A A+
Duff & Phelps AA- 4 4 4
Preferred Stock -
Moody's a1 a1 a1 a1
Standard and Poor's A- A- A- A
Duff & Phelps A+ 5 5 5
- -------------------------------------------------------------------------------------------------------------------------
Customers (year-end):
Residential 251,341 246,450 241,138 235,329
Commercial 33,678 33,030 32,139 31,142
Industrial 240 206 206 197
Other 67 61 61 62
- -------------------------------------------------------------------------------------------------------------------------
Total 285,326 279,747 273,544 266,730
=========================================================================================================================
Employees (year-end) 1,614 1,601 1,603 1,544
</TABLE>
28B
<PAGE>
SELECTED FINANCIAL AND OPERATING DATA (continued)
Gulf Power Company 1996 Annual Report
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------
Operating Revenues (in thousands):
Residential $285,498 $276,155 $252,598
Commercial 164,181 159,260 146,394
Industrial 78,994 81,606 82,169
Other 2,056 1,993 1,955
- ----------------------------------------------------------------------------------------------------------------------------
Total retail 530,729 519,014 483,116
Sales for resale - non-affiliates 63,201 60,413 66,111
Sales for resale - affiliates 17,762 18,619 17,353
- ----------------------------------------------------------------------------------------------------------------------------
Total revenues from sales of electricity 611,692 598,046 566,580
Other revenues 22,673 21,031 12,233
- ----------------------------------------------------------------------------------------------------------------------------
Total $634,365 $619,077 $578,813
============================================================================================================================
Kilowatt-Hour Sales (in thousands):
Residential 4,159,924 4,014,142 3,751,932
Commercial 2,808,634 2,708,243 2,548,846
Industrial 1,808,086 1,794,754 1,847,114
Other 17,815 17,345 17,354
- ----------------------------------------------------------------------------------------------------------------------------
Total retail 8,794,459 8,534,484 8,165,246
Sales for resale - non-affiliates 1,534,097 1,396,474 1,418,977
Sales for resale - affiliates 709,647 759,341 874,050
- ----------------------------------------------------------------------------------------------------------------------------
Total 11,038,203 10,690,299 10,458,273
============================================================================================================================
Average Revenue Per Kilowatt-Hour (cents):
Residential 6.86 6.88 6.73
Commercial 5.85 5.88 5.74
Industrial 4.37 4.55 4.45
Total retail 6.03 6.08 5.92
Sales for resale 3.61 3.67 3.64
Total sales 5.54 5.59 5.42
Average Annual Kilowatt-Hour Use Per Residential Customer 14,457 14,148 13,486
Average Annual Revenue Per Residential Customer $992.17 $973.35 $907.92
Plant Nameplate Capacity Ratings (year-end) (megawatts) 2,174 2,174 2,174
Maximum Peak-Hour Demand - Net of SEPA (megawatts):
Winter 2,136 1,732 1,801
Summer 1,961 2,040 1,795
Annual Load Factor (percent) 51.4 53.0 56.7
Plant Availability - Fossil-Steam (percent) 91.8 84.0 92.2
- ----------------------------------------------------------------------------------------------------------------------------
Source of Energy Supply (percent):
Coal 87.8 86.8 87.2
Oil and gas 0.5 0.4 0.2
Purchased power -
From non-affiliates 2.7 4.0 2.8
From affiliates 9.0 8.8 9.8
- ----------------------------------------------------------------------------------------------------------------------------
Total 100.0 100.0 100.0
============================================================================================================================
Total Fuel Economy Data:
BTU per net kilowatt-hour generated 10,484 10,609 10,614
Cost of fuel per million BTU (cents) 192.22 196.62 189.55
Average cost of fuel per net kilowatt-hour generated (cents) 2.02 2.09 2.01
============================================================================================================================
</TABLE>
<PAGE>
29
SELECTED FINANCIAL AND OPERATING DATA (continued)
Gulf Power Company 1996 Annual Report
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
1993 1992 1991 1990
- ----------------------------------------------------------------------------------------------------------------------------
Operating Revenues (in thousands):
Residential $244,967 $235,296 $231,220 $217,843
Commercial 137,308 133,071 130,691 124,066
Industrial 87,526 91,320 92,300 91,041
Other 1,882 1,784 1,860 1,805
- ----------------------------------------------------------------------------------------------------------------------------
Total retail 471,683 461,471 456,071 434,755
Sales for resale - non-affiliates 72,209 70,078 69,636 73,855
Sales for resale - affiliates 23,166 24,075 29,343 38,563
- ----------------------------------------------------------------------------------------------------------------------------
Total revenues from sales of electricity 567,058 555,624 555,050 547,173
Other revenues 16,084 15,278 10,157 20,652
- ----------------------------------------------------------------------------------------------------------------------------
Total $583,142 $570,902 $565,207 $567,825
============================================================================================================================
Kilowatt-Hour Sales (in thousands):
Residential 3,712,980 3,596,515 3,455,100 3,360,838
Commercial 2,433,382 2,369,236 2,272,690 2,217,568
Industrial 2,029,936 2,179,435 2,117,408 2,177,872
Other 16,944 16,649 17,118 18,866
- ----------------------------------------------------------------------------------------------------------------------------
Total retail 8,193,242 8,161,835 7,862,316 7,775,144
Sales for resale - non-affiliates 1,460,105 1,430,908 1,550,018 1,775,703
Sales for resale - affiliates 1,029,787 1,208,771 1,236,223 1,435,558
- ----------------------------------------------------------------------------------------------------------------------------
Total 10,683,134 10,801,514 10,648,557 10,986,405
============================================================================================================================
Average Revenue Per Kilowatt-Hour (cents):
Residential 6.60 6.54 6.69 6.48
Commercial 5.64 5.62 5.75 5.59
Industrial 4.31 4.19 4.36 4.18
Total retail 5.76 5.65 5.80 5.59
Sales for resale 3.83 3.57 3.55 3.50
Total sales 5.31 5.14 5.21 4.98
Average Annual Kilowatt-Hour Use Per Residential Customer 13,671 13,553 13,320 13,173
Average Annual Revenue Per Residential Customer $901.96 $886.66 $891.38 $853.86
Plant Nameplate Capacity Ratings (year-end) (megawatts) 2,174 2,174 2,174 2,174
Maximum Peak-Hour Demand - Net of SEPA (megawatts):
Winter 1,571 1,533 1,418 1,310
Summer 1,898 1,828 1,740 1,778
Annual Load Factor (percent) 54.5 55.0 57.0 55.2
Plant Availability - Fossil-Steam (percent) 88.9 91.2 92.2 89.2
- ----------------------------------------------------------------------------------------------------------------------------
Source of Energy Supply (percent):
Coal 84.5 87.7 82.0 69.8
Oil and gas 0.5 0.1 0.1 0.5
Purchased power -
From non-affiliates 1.5 0.8 0.5 0.6
From affiliates 13.5 11.4 17.4 29.1
- ----------------------------------------------------------------------------------------------------------------------------
Total 100.0 100.0 100.0 100.0
============================================================================================================================
Total Fuel Economy Data:
BTU per net kilowatt-hour generated 10,390 10,347 10,636 10,765
Cost of fuel per million BTU (cents) 197.37 200.30 203.60 206.06
Average cost of fuel per net kilowatt-hour generated (cents) 2.05 2.07 2.17 2.22
============================================================================================================================
</TABLE>
30A
<PAGE>
SELECTED FINANCIAL AND OPERATING DATA (continued)
Gulf Power Company 1996 Annual Report
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
1989 1988 1987 1986
- -----------------------------------------------------------------------------------------------------------------------------------
Operating Revenues (in thousands):
Residential $203,781 $184,036 $199,701 $200,725
Commercial 118,897 107,615 116,057 116,253
Industrial 84,671 72,634 80,295 79,873
Other 1,586 1,402 1,357 1,343
- -----------------------------------------------------------------------------------------------------------------------------------
Total retail 408,935 365,687 397,410 398,194
Sales for resale - non-affiliates 67,554 117,466 134,456 106,892
Sales for resale - affiliates 39,244 48,277 55,955 27,113
- -----------------------------------------------------------------------------------------------------------------------------------
Total revenues from sales of electricity 515,733 531,430 587,821 532,199
Other revenues 12,088 19,397 39 10,720
- -----------------------------------------------------------------------------------------------------------------------------------
Total $527,821 $550,827 $587,860 $542,919
===================================================================================================================================
Kilowatt-Hour Sales (in thousands):
Residential 3,293,750 3,154,541 3,055,041 2,963,502
Commercial 2,169,497 2,088,598 1,986,332 1,913,139
Industrial 2,094,670 1,968,091 1,839,931 1,745,074
Other 17,209 16,257 15,241 14,903
- -----------------------------------------------------------------------------------------------------------------------------------
Total retail 7,575,126 7,227,487 6,896,545 6,636,618
Sales for resale - non-affiliates 1,640,355 1,911,759 2,138,390 1,609,146
Sales for resale - affiliates 1,461,036 2,326,238 2,689,487 1,078,500
- -----------------------------------------------------------------------------------------------------------------------------------
Total 10,676,517 11,465,484 11,724,422 9,324,264
===================================================================================================================================
Average Revenue Per Kilowatt-Hour (cents):
Residential 6.19 5.83 6.54 6.77
Commercial 5.48 5.15 5.84 6.08
Industrial 4.04 3.69 4.36 4.58
Total retail 5.40 5.06 5.76 6.00
Sales for resale 3.44 3.91 3.94 4.99
Total sales 4.83 4.64 5.01 5.71
Average Annual Kilowatt-Hour Use Per Residential Customer 13,173 12,883 12,763 12,729
Average Annual Revenue Per Residential Customer $815.00 $751.60 $834.31 $862.16
Plant Nameplate Capacity Ratings (year-end) (megawatts) 2,174 2,174 2,174 1,969
Maximum Peak-Hour Demand - Net of SEPA (megawatts):
Winter 1,814 1,395 1,354 1,406
Summer 1,691 1,613 1,617 1,678
Annual Load Factor (percent) 52.6 56.5 54.4 50.5
Plant Availability - Fossil-Steam (percent) 89.1 88.2 92.8 90.5
- -----------------------------------------------------------------------------------------------------------------------------------
Source of Energy Supply (percent):
Coal 78.3 93.2 93.5 85.8
Oil and gas 0.2 0.4 0.4 0.5
Purchased power -
From non-affiliates 0.4 0.4 0.4 1.9
From affiliates 21.1 6.0 5.7 11.8
- -----------------------------------------------------------------------------------------------------------------------------------
Total 100.0 100.0 100.0 100.0
===================================================================================================================================
Total Fuel Economy Data:
BTU per net kilowatt-hour generated 10,621 10,461 10,512 10,639
Cost of fuel per million BTU (cents) 193.70 178.00 197.53 239.26
Average cost of fuel per net kilowatt-hour generated (cents) 2.06 1.86 2.08 2.55
===================================================================================================================================
</TABLE>
30B
<PAGE>
