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 10, 1999
-----------------------------
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.)
One Energy Place, Pensacola, Florida 32520
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (850) 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, 1998.
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 2, 1999
ARTHUR ANDERSEN LLP
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report dated February 10, 1999 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 333-42033.
s/ Arthur Andersen LLP
Atlanta, Georgia
February 26, 1999
<PAGE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the Form
10-Q for December 31, 1998, and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<CIK> 0000044545
<NAME> GULF POWER COMPANY
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<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,060,653
<OTHER-PROPERTY-AND-INVEST> 588
<TOTAL-CURRENT-ASSETS> 127,696
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<OTHER-ASSETS> 0
<TOTAL-ASSETS> 1,267,901
<COMMON> 38,060
<CAPITAL-SURPLUS-PAID-IN> 218,972
<RETAINED-EARNINGS> 170,620
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85,000
4,236
<LONG-TERM-DEBT-NET> 220,341
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<TOTAL-OPERATING-EXPENSES> 562,253
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<PAGE>
MANAGEMENT'S REPORT
Gulf Power Company 1998 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 /s/ Arlan E. Scarbrough
Travis J. Bowden Arlan E. Scarbrough
President Chief Financial Officer
and Chief Executive Officer
February 10, 1999
1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To 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, 1998 and 1997, 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, 1998. 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 12-28) referred to above
present fairly, in all material respects, the financial position of Gulf Power
Company as of December 31, 1998 and 1997, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1998, in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Atlanta, Georgia
February 10, 1999
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
Gulf Power Company 1998 Annual Report
RESULTS OF OPERATIONS
Earnings
Gulf Power Company's 1998 net income after dividends on preferred stock was
$56.5 million, a decrease of $1.1 million from the previous year. The decrease
in earnings was primarily a result of higher operating expenses in 1998 when
compared to 1997.
In 1997, earnings were $57.6 million, down $0.2 million when compared to
1996. The change was attributed to lower residential revenues due to
milder-than-normal weather.
Revenues
Operating revenues increased in 1998 when compared to 1997 and decreased in 1997
when compared to 1996. The following table summarizes the factors impacting
operating revenues for the past three years:
Increase (Decrease)
From Prior Year
---------------------------------------
1998 1997 1996
------------ ------------ -------------
(in thousands)
Retail --
Sales growth $15,021 $ 4,005 $ 7,123
Weather 6,656 (5,277) (1,057)
Regulatory cost
recovery and other (34,179) (7,837) 5,649
- ---------------------------- ------------ ------------ -------------
Total retail (12,502) (9,109) 11,715
- ---------------------------- ------------ ------------ -------------
Sales for resale--
Non-affiliates (1,804) 496 2,788
Affiliates 25,882 (1,002) (857)
- ---------------------------- ------------ ------------ -------------
Total sales for resale 24,078 (506) 1,931
Other operating
revenues 13,086 1,106 1,642
- ---------------------------- ------------ ------------ -------------
Total operating
revenues $24,662 $(8,509) $15,288
============================ ============ ============ =============
Percent change 3.9% (1.3)% 2.5%
- ---------------------------- ------------ ------------ -------------
Retail revenues of $509.1 million in 1998 decreased $12.5 million or 2.4
percent from the prior year due primarily to the recovery of lower fuel costs.
The price per ton of coal, which is the Company's primary fuel source, was lower
in 1998 as the costs related to prior year coal contract renegotiations were
fully amortized and a major coal contract price was reduced. See Note 5 to the
financial statements under "Fuel Commitments" for further information. Retail
revenues for 1997 decreased $9.1 million or 1.7 percent when compared to 1996
due primarily to a decrease in residential revenues as a result of mild weather
and recovery of lower purchased power capacity costs.
The decrease in regulatory cost recovery and other retail revenues is
primarily attributable to the recovery of decreased fuel costs as mentioned
previously. 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 generally 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 $104.5 million in 1998, an increase of $24.1 million or
29.9 percent over 1997 due to additional energy sales to affiliated companies,
which is discussed below. 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:
1998 1997 1996
------------- ------------ -------------
(in thousands)
Capacity $22,503 $24,899 $25,400
Energy 14,556 18,160 19,804
==================== ============= ============ =============
Total $37,059 $43,059 $45,204
==================== ============= ============ =============
Declining capacity revenues reflect the decline in net plant investment
related to these sales.
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.
Other operating revenues increased in 1998 due primarily to adjustments to
reflect differences between recoverable costs and the amounts actually reflected
in current rates. See Notes 1 and 3 to the financial statements under "Revenues
and Regulatory Cost Recovery Clauses" and "Environmental Cost Recovery,"
respectively, for further discussion.
3
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Gulf Power Company 1998 Annual Report
Kilowatt-hour sales for 1998 and the percent changes by year were as follows:
KWH Percent Change
------------- ------------------------------
1998 1998 1997 1996
------------- ---------- --------- ---------
(millions)
Residential 4,437 7.7% (1.0)% 3.6%
Commercial 3,112 7.4 3.2 3.7
Industrial 1,834 (3.7) 5.3 0.7
Other 19 4.7 1.6 2.7
-------------
Total retail 9,402 5.2 1.6 3.0
Sales for resale
Non-affiliates 1,342 (12.4) (0.2) 9.9
Affiliates 1,758 107.3 19.5 (6.5)
-------------
Total 12,502 10.5 2.5 3.3
==================== ============= =========== ======== =========
In 1998, total retail energy sales increased due to higher temperatures when
compared to the milder-than-normal temperatures in 1997 and due to increases in
the number of residential and commercial customers. The decrease in industrial
energy sales in 1998 when compared to 1997 primarily reflects the shut down of a
major industrial customer's plant site and temporary production delays of other
industrial customers. In 1997, residential energy sales declined as a result of
the milder weather when compared with more normal weather in 1996. The increase
in industrial energy sales was primarily the result of the Real-Time-Pricing
program. The price structure of this program has 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).
Decreases in energy sales for resale to non-affiliates of 12.4 percent in
1998 when compared to 1997 and 0.2 percent in 1997 when compared to 1996 are
primarily 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 in 1998 increased $25.6 million or 4.8 percent from the
amount recorded in 1997 due primarily to higher fuel, purchased power, and
maintenance expenses, offset by lower other operation expenses. In 1997, total
operating expenses decreased $3.9 million or 0.7 percent from 1996. The decrease
was due to lower fuel, purchased power, and maintenance expenses, offset by
higher other operation expenses and depreciation and amortization expenses.
Fuel expenses in 1998 when compared to 1997 increased $16.6 million or 9.2
percent due to increased generation resulting from a higher demand for energy,
while average fuel costs decreased as noted below. In 1997, fuel expenses
decreased when compared to 1996 due to slightly lower fuel costs.
Purchased power expenses increased in 1998 by $6.9 million or 18.8 percent
above 1997 amounts due to an increased demand for energy. In 1997, purchased
power expenses decreased $6.5 million or 14.9 percent from the amount recorded
in 1996. This change was due primarily to a reduction in the cost of purchased
power from affiliated companies.
The amount and sources of generation and the average cost of fuel per net
kilowatt-hour generated were as follows:
1998 1997 1996
--------- ---------- ----------
Total generation
(millions of kilowatt-hours) 11,986 10,435 10,214
Sources of generation
(percent)
Coal 98.0 99.6 99.5
Oil and gas 2.0 0.4 0.5
Average cost of fuel per net
kilowatt-hour generated
(cents)-- 1.69 1.99 2.02
- ------------------------------------- --------- ---------- ----------
Other operation expenses decreased $7.3 million or 5.7 percent in 1998 due to
a decrease in the amortization costs of prior year payments related to
renegotiations of coal supply contracts. This decrease was partially offset by
higher implementation costs of a new customer accounting system, increased costs
related to the Year 2000 program, and an increase in the accrual to the
accumulated provision for property damage. In 1997, other operation expenses
increased $11.1 million or 9.6 percent from the 1996 level. This change was
attributable to higher amortization costs of prior year payments related to
renegotiations of coal supply contracts, implementation costs related to a new
customer accounting system, and increased production and distribution costs
4
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Gulf Power Company 1998 Annual Report
related to 1997 work force reduction programs. See Note 2 to the financial
statements under "Workforce Reduction Programs" for further discussion.
Maintenance expenses in 1998 rose by $9.3 million or 19.4 percent, as
compared to 1997, due primarily to scheduled maintenance performed at Plant
Crist and Plant Smith and increased transmission and distribution maintenance.
In 1997, maintenance expenses decreased $3.1 million or 6.0 percent when
compared to the prior year due to a decrease in scheduled maintenance of
production facilities.
Interest on long-term debt in 1998 decreased $2.0 million or 9.1 percent from
1997 due primarily to a decrease in interest expense on pollution control bonds
refinanced in 1997 and two long-term bank notes that matured in 1998. This
decrease was partially offset by an increase in interest due to two first
mortgage bonds maturing in 1998 being replaced with senior notes at a slightly
higher interest rate. In 1997, interest on long-term debt decreased $3.0 million
or 12.1 percent from the prior year as a result of retirements and refinancings.
Distributions on preferred securities increased $3.2 million in 1998. This
increase was attributable to the issuance of $45 million of trust preferred
securities in January 1998 to replace preferred stock. In 1997, distributions on
preferred securities increased $2.8 million due to the issuance of $40 million
of trust preferred securities in January 1997.
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 utility plant with a long economic life. 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 securities. 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 and more competitive environment.
Gulf Power currently operates as a vertically integrated utility providing
electricity to customers within its traditional service area located in
northwest Florida. Prices for electricity provided by the Company to retail
customers are set by the FPSC.
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. In the fourth quarter of
1998, the FPSC opened a docketed proceeding to consider whether the rate of
return authorized for another investor-owned electric utility subject to the
FPSC's jurisdiction continues to be reasonable under current market conditions.
Although no official action has been taken by the FPSC at this time with regard
to the authorized returns for Gulf Power or any of the other investor-owned
electric utilities subject to the FPSC's jurisdiction, a similar investigation
could be initiated by action of the FPSC or its staff at any time.
The electric utility industry in the United States is currently undergoing a
period of dramatic change as a result of regulatory and competitive factors.
Among the primary agents of change has been the Energy Policy Act of 1992
(Energy Act). 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
5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Gulf Power Company 1998 Annual Report
commercial customers and sell energy generation to other utilities. The Company
has and will continue to evaluate opportunities to partner and participate in
profitable cogeneration projects. In 1998, partnering with one of the Company's
largest industrial customers, construction was completed on 15 megawatts of
Company-owned cogeneration on the customer's plant site. Also, electricity sales
for resale rates are being driven down by wholesale transmission access and
numerous potential new energy suppliers, including power marketers and brokers.
The Company is aggressively working to maintain and expand its share of
wholesale sales in the southeastern power markets.
Although the Energy Act does not permit retail customer access, it was a
major catalyst for the current restructuring and consolidation taking place
within the utility industry. Numerous federal and state initiatives are in
varying stages to promote wholesale and retail competition. Among other things,
these initiatives allow customers to choose their electricity provider. As the
initiatives materialize, the structure of the utility industry could radically
change. Some states have approved initiatives that result in a separation of the
ownership and/or operation of generating facilities from the ownership and/or
operation of transmission and distribution facilities. While various
restructuring and competition initiatives have been or are being discussed in
Florida, none have been enacted to date. Enactment would require numerous issues
to be resolved, including significant ones relating to transmission pricing and
recovery of any stranded investments. The inability of the Company to recover
its investments, including the regulatory assets described in Note 1 to the
financial statements, could have a material adverse effect on the financial
condition of the Company. The Company is attempting to minimize or reduce its
cost exposure.
Continuing to be a low-cost producer could provide opportunities to increase
market share and profitability in markets that evolve with changing regulation.
Conversely, unless the Company remains a low-cost producer and provides quality
service, the Company's retail energy sales growth could be limited, and this
could significantly erode earnings.
In 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. The publicity of
the CISR ruling, increased competitive pressures, and general awareness of
customer choice pilots and proposals across the country have stimulated interest
on the part of customers in custom tailored offerings. The Company has
participated in one-on-one discussions with many of these customers, and has
negotiated and executed two Contract Service Agreements within the CISR pilot
program.
The FPSC will set new conservation goals and approve programs to accomplish
the goals by year-end 1999. Conservation goals are set every five years for a
ten-year period. The last conservation goals proceeding was in 1994 and
established demand-side management programs and conservation goals for 1995 to
2004. In the previous and current goals proceedings, the emphasis remains on
using price flexibility and competitive offerings of energy efficient products
and services. The new goals will be for the 2000 to 2009 period.
Compliance costs related to current and future environmental laws and
regulations could affect earnings if such costs are not fully recovered. The
Clean Air Act and other important environmental items are discussed later under
"Environmental Matters." Also, 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 (FASB) Statement No. 71, Accounting for the Effects of Certain Types of
Regulation. In the event that a portion of the Company's operations is no longer
subject to these provisions, the Company would be required to write off related
regulatory assets and liabilities that are not specifically recoverable, and
determine if any other assets have been impaired. See Note 1 to the financial
statements under "Regulatory Assets and Liabilities" for additional information.
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Gulf Power Company 1998 Annual Report
Exposure to Market Risks
Due to cost-based rate regulation, the Company has limited exposure to market
volatility in interest rates and prices of electricity. To mitigate residual
risks relative to movements in electricity prices, the Company enters into fixed
price contracts for the purchase and sale of electricity through the wholesale
electricity market. Realized gains and losses are recognized in the income
statements as incurred. At December 31, 1998, exposure from these activities was
not material to the Company's financial position, results of operations, or cash
flows. Also, based on the Company's overall interest rate exposure at December
31, 1998, a near-term 100 basis point change in interest rates would not
materially affect the Company's financial statements.
New Accounting Standards
The FASB has issued Statement No. 133, Accounting for Derivative Instruments and
Hedging Activities, which must be adopted by the year 2000. This statement
establishes accounting and reporting standards for derivative instruments -
including certain derivative instruments embedded in other contracts - and for
hedging activities. Adoption of this statement is not expected to have a
material impact on the Company's financial statements.
In March 1998, the American Institute of Certified Public Accountants (AICPA)
issued a new Statement of Position, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use. This statement requires
capitalization of certain costs of internal-use software. The Company adopted
this statement in January 1999, and it is not expected to have a material impact
on the financial statements.
In April 1998, the AICPA issued a new Statement of Position, Reporting on the
Costs of Start-up Activities. This statement requires that the costs of start-up
activities and organizational costs be expensed as incurred. Any of these costs
previously capitalized by a company must be written off in the year of adoption.
The Company adopted this statement in January 1999, and it is not expected to
have a material impact on the financial statements.
In December 1998, the Emerging Issues Task Force (EITF) of the FASB issued
EITF No. 98-10, Accounting for Contracts Involved in Energy Trading and Risk
Management Activities. The EITF requires that energy trading contracts must be
marked to market through the income statement, with gains and losses reflected
rather than revenues and purchased power. Energy trading contracts are defined
as energy contracts entered into with the objective of generating profits on or
from exposure to shifts or changes in market prices. The Company adopted the
required accounting in January 1999, and it is not expected to have a material
impact on the financial statements.
Year 2000
Year 2000 Challenge
In order to save storage space, computer programmers in the 1960s and 1970s
shortened the year portion of date entries to just two digits. Computers
assumed, in effect, that all years began with "19." This practice was widely
adopted and hard-coded into computer chips and processors found in some
equipment. This approach, intended to save processing time and storage space,
was used until the mid-1990s. Unless corrected before the year 2000, affected
software systems and devices containing a chip or microprocessor with date and
time functions could incorrectly process dates or the systems may cease to
function.
The Company depends on complex computer systems for many aspects of its
operations, which include generation, transmission, and distribution of
electricity, as well as other business support activities. The Company's goal is
to have critical devices or software that are required to maintain operations to
be Year 2000 ready by June 1999. Year 2000 ready means that a system or
application is determined suitable for continued use through the Year 2000 and
beyond. Critical systems include, but are not limited to, turbine generator
systems, control center computer systems, customer service systems, energy
management systems, and telephone switches and equipment.
Year 2000 Program and Status
The Company's executive management recognizes the seriousness of the Year 2000
challenge and has dedicated what it believes to be adequate resources to address
the issue. The Millennium Project is a team of employees, IBM consultants, and
other contractors whose progress is reviewed on a monthly basis by a steering
committee of Southern Company executives.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Gulf Power Company 1998 Annual Report
The work was divided into two phases. Phase I began in 1996 and consisted of
identifying and assessing corporate assets related to software systems and
devices that contain a computer chip or clock. The first phase was completed in
June 1997. Phase 2 consists of testing and remediating high priority systems and
devices. Also, contingency planning is included in this phase. Completion of
Phase 2 is targeted for June 1999. The Millennium Project will continue to
monitor the affected computer systems, devices, and applications into the Year
2000.
Southern Company has completed more than 70 percent of the activities
contained in its work plan. The percentage of completion and projected
completion dates by function are as follows:
- ------------------------ -----------------------------------------
Work Plan
-----------------------------------------
Remediation Project
Inventory Assessment Testing Completion
- ------------------------ -------- ----------- ---------- ---------
Generation 100% 100% 70% 6/99
- ------------------------ -------- ----------- ---------- ---------
Energy Management 100 100 90 6/99
- ------------------------ -------- ----------- ---------- ---------
Transmission and
Distribution 100 100 100 1/99
- ------------------------ -------- ----------- ---------- ---------
Telecommunications 100 100 50 6/99
- ------------------------ -------- ----------- ---------- ---------
Corporate Applications 100 100 90 3/99
- ------------------------ -------- ----------- ---------- ---------
Year 2000 Costs
The Company's current projected total costs for Year 2000 readiness are
approximately $4.8 million. These costs include labor necessary to identify,
test, and renovate affected devices and systems. From its inception through
December 31, 1998, the Year 2000 program costs, recognized as expense, amounted
to $3.0 million, of which $2.5 million was recorded in 1998.
Year 2000 Risks
The Company is implementing a detailed process to minimize the possibility of
service interruptions related to the Year 2000. The Company believes, based on
current tests, that the system can provide customers with electricity. These
tests increase confidence, but do not guarantee error-free operation. The
Company is taking what it believes to be prudent steps to prepare for the Year
2000, and it expects any interruptions in service that may occur within the
Company's service territory to be isolated and short in duration.
The Company expects the risks associated with Year 2000 to be no more severe
than the scenarios that its electric system is routinely prepared to handle. The
most likely worst case scenario consists of the service loss of one of the
largest generating units and/or the service loss of any single bulk transmission
element in its service territory. The Company has followed a proven methodology
for identifying and assessing software and devices containing potential Year
2000 challenges. Remediation and testing of those devices are in progress.
Following risk assessment, the Company is preparing contingency plans as
appropriate and is participating in North American Electric Reliability Council
- - coordinated national drills during 1999.
The Company is currently reviewing the Year 2000 readiness of material third
parties that provide goods and services crucial to the Company's operations.
Among such critical third parties are fuel, transportation, telecommunications,
water, chemical, and other suppliers. Contingency plans based on the assessment
of each third party's ability to continue supplying critical goods and services
to the Company are being developed.
There is a potential for some earnings erosion caused by reduced electrical
demand by customers because of their own Year 2000 issues.
Year 2000 Contingency Plans
Because of experience with hurricanes and other storms, the Company is skilled
at developing and using contingency plans in unusual circumstances. As part of
Year 2000 business continuity and contingency planning, the Company is drawing
on that experience to make risk assessments and is developing additional plans
to deal specifically with situations that could arise relative to Year 2000
challenges. The Company is identifying critical operational locations, and key
employees will be on duty at those locations during the Year 2000 transition. In
September 1999, drills are scheduled to be conducted to test contingency plans.
Because of the level of detail of the contingency planning process, management
feels that the contingency plans will keep any service interruptions that may
occur within the Company's service territory isolated and short in duration.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Gulf Power Company 1998 Annual Report
FINANCIAL CONDITION
Overview
The Company's financial condition continues to be very solid. During 1998, gross
property additions were $69.7 million. Funds for the property additions were
provided by internal sources. See the Statements of Cash Flows for further
details.
Financing Activities
In 1998, the Company sold $45 million of trust preferred securities and $50
million of senior insured quarterly notes. Retirements, including maturities
during 1998, totaled $45 million of first mortgage bonds, $9.5 million of
preferred stock, and $8.3 million of long-term bank notes. The proceeds from the
issuance of $45 million of trust preferred securities were used to repay
short-term indebtedness that was used to redeem preferred stock tendered at the
end of 1997 and to redeem additional preferred stock during 1998. This
refinancing will result in savings of approximately $0.6 million annually. See
the Statements of Cash Flows for further details.
Composite financing rates for the years 1996 through 1998 as of year end were
as follows:
1998 1997 1996
--------- --------- ---------
Composite interest rate on
long-term debt 6.1% 5.9% 6.1%
Composite rate on
trust preferred securities 7.3% 7.6% -
Composite preferred stock
dividend rate 5.1% 6.1% 6.4%
- ----------------------------------- --------- --------- ---------
The composite interest rate on long-term debt increased in 1998 primarily as
a result of the maturity of two low-cost first mortgage bond issues, which were
replaced with long-term notes with a slightly higher interest rate. The decrease
in the composite preferred stock dividend rate in 1998 was primarily due to the
retirement of higher-cost preferred stock.
Capital Requirements for Construction
The Company's gross property additions, including those amounts related to
environmental compliance, are budgeted at $434 million for the three years
beginning in 1999 ($72 million in 1999, $100 million in 2000, and $262 million
in 2001). 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 has
budgeted $263.6 million for the years 1999 through 2002 for the estimated cost
of a 532 megawatt combined cycle gas unit to be located in the eastern portion
of its service area. The unit is expected to have an in-service date of June
2002, subject to regulatory approval. The Company will continue its program to
maintain and upgrade transmission and distribution facilities and generating
plants.
Other Capital Requirements
In addition to the funds needed for the construction program, approximately $27
million will be required by the end of 2001 in connection with maturities of
long-term debt. Also, the Company will continue to retire higher-cost debt and
preferred securities 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 -- significantly
affected 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.
Southern Company achieved Phase I sulfur dioxide compliance at the affected
plants by switching to low-sulfur coal, which required some equipment upgrades.
Construction expenditures for Phase I compliance totaled approximately $300
million for Southern Company, including approximately $42 million for Gulf
Power.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Gulf Power Company 1998 Annual Report
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. Current compliance strategy for Phase II and ozone
non-attainment could require total estimated construction expenditures for
Southern Company of approximately $70 million, of which $16 million remains to
be spent. Phase II compliance is not expected to have a material impact on Gulf
Power.
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.
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.
In July 1997, the Environmental Protection Agency (EPA) revised the national
ambient air quality standards for ozone and particulate matter. This revision
makes the standards significantly more stringent. In September 1998, the EPA
issued the final regional nitrogen oxide rules to the states for implementation.
The states have one year to adopt and implement the new rules. The final rules
affect 22 states including Alabama and Georgia. See Note 6 to the financial
statements under "Joint Ownership Agreements" related to the Company's ownership
interest in Georgia Power's Plant Scherer Unit No. 3. The EPA rules are being
challenged in the courts by several states and industry groups. Implementation
of the final state rules could require substantial further reductions in
nitrogen oxide emissions from fossil-fired generating facilities and other
industry in these states. Implementation of the standards could result in
significant additional compliance costs and capital expenditures that cannot be
determined until the results of legal challenges are known and the states have
adopted their final rules.
The EPA and state environmental regulatory agencies are reviewing and
evaluating various other matters including: nitrogen oxide emission control
strategies for ozone non-attainment 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 that
cover the handling and disposal of hazardous waste. Under these various laws and
regulations, the Company could incur substantial costs to clean up properties.
The Company conducts studies to determine the extent of any required cleanup
costs and has recognized in the financial statements costs to clean up known
sites. 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
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, 1998, the Company had approximately $1.0 million of cash and
cash equivalents and $35.5 million of unused committed lines of credit with
banks to meet its short-term cash needs. Refer to Statements of Cash Flows for
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Gulf Power Company 1998 Annual Report
details related to the Company's financing activities. See Note 5 to the
financial statements under "Bank Credit Arrangements" for additional
information.
The Company historically has relied on issuances of first mortgage bonds and
preferred stock, in addition to pollution control revenue bonds issued for its
benefit by public authorities, to meet its long-term external financing
requirements. Recently, the Company's financings have consisted of unsecured
debt and trust preferred securities. In this regard, the Company sought and
obtained stockholder approval in 1997 to amend its corporate charter eliminating
restrictions on the amounts of unsecured indebtedness it may incur.
If the Company chooses to issue first mortgage bonds or preferred stock, it
is required to meet certain coverage requirements specified in its mortgage
indenture and corporate charter. The Company's ability to satisfy all coverage
requirements is such that it could issue new first mortgage bonds and preferred
stock to provide sufficient funds for all anticipated requirements.
Cautionary Statement Regarding Forward-Looking Information
Gulf Power Company's 1998 Annual Report contains forward-looking and historical
information. The Company cautions that there are various important factors that
could cause actual results to differ materially from those indicated in the
forward-looking information; accordingly, there can be no assurance that such
indicated results will be realized. These factors include legislative and
regulatory initiatives regarding deregulation and restructuring of the electric
utility industry; the extent and timing of the entry of additional competition
in the Company's markets; potential business strategies--including acquisitions
or dispositions of assets or internal restructuring--that may be pursued by the
company; state and federal rate regulation; Year 2000 issues; changes in or
application of environmental and other laws and regulations to which the Company
is subject; political, legal and economic conditions and developments; financial
market conditions and the results of financing efforts; changes in commodity
prices and interest rates; weather and other natural phenomena; and other
factors discussed in the reports--including Form 10-K--filed from time to time
by the Company with the Securities and Exchange Commission.
11
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF INCOME
For the Years Ended December 31, 1998, 1997, and 1996
Gulf Power Company 1998 Annual Report
- ---------------------------------------------------------------------------------------------------------------------------
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
(in thousands)
Operating Revenues:
<S> <C> <C> <C>
Revenues $ 607,876 $ 609,096 $ 616,603
Revenues from affiliates 42,642 16,760 17,762
- ---------------------------------------------------------------------------------------------------------------------------
Total operating revenues 650,518 625,856 634,365
- ---------------------------------------------------------------------------------------------------------------------------
Operating Expenses:
Operation-
Fuel 197,462 180,843 184,500
Purchased power from non-affiliates 29,369 11,938 8,300
Purchased power from affiliates 14,445 24,955 35,076
Other 119,011 126,266 115,154
Maintenance 57,286 47,988 51,050
Depreciation and amortization 59,129 57,874 56,645
Taxes other than income taxes 51,462 51,775 52,027
Federal and state income taxes (Note 8) 34,089 35,034 37,821
- ---------------------------------------------------------------------------------------------------------------------------
Total operating expenses 562,253 536,673 540,573
- ---------------------------------------------------------------------------------------------------------------------------
Operating Income 88,265 89,183 93,792
Other Income (Expense):
Interest income 931 1,203 1,921
Other, net (2,339) (992) (1,678)
Income taxes applicable to other income 1,890 1,584 248
- ---------------------------------------------------------------------------------------------------------------------------
Income Before Interest Charges and Other 88,747 90,978 94,283
- ---------------------------------------------------------------------------------------------------------------------------
Interest Charges and Other:
Interest on long-term debt 19,718 21,699 24,691
Other interest charges 2,548 2,076 1,824
Interest on notes payable 1,190 891 2,071
Amortization of debt discount, premium, and expense, net 2,100 2,281 2,087
Distributions on preferred securities of subsidiary trust 6,034 2,804 -
- ---------------------------------------------------------------------------------------------------------------------------
Interest charges and other, net 31,590 29,751 30,673
- ---------------------------------------------------------------------------------------------------------------------------
Net Income 57,157 61,227 63,610
Dividends on Preferred Stock 636 3,617 5,765
===========================================================================================================================
Net Income After Dividends on Preferred Stock $ 56,521 $ 57,610 $ 57,845
===========================================================================================================================
The accompanying notes are an integral part of these statements.
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1998, 1997, and 1996
Gulf Power Company 1998 Annual Report
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
(in thousands)
Operating Activities:
<S> <C> <C> <C>
Net income $ 57,157 $ 61,227 $ 63,610
Adjustments to reconcile net income to net
cash provided by operating activities --
Depreciation and amortization 69,633 72,860 71,825
Deferred income taxes (4,684) (7,047) 2,157
Accumulated provision for property damage 2,308 2,572 4,227
Deferred costs of 1995 coal contract renegotiation - 1,246 10,931
Other, net 1,155 1,012 1,468
Changes in certain current assets and liabilities --
Receivables, net 11,308 (692) 391
Inventories (4,308) 10,674 12,957
Payables 823 1,398 (7,078)
Taxes accrued (7,960) 6,123 (441)
Current costs of 1995 coal contract renegotiation 812 14,146 (5,099)
Other (11,323) 2,028 5,937
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided from operating activities 114,921 165,547 160,885
- ------------------------------------------------------------------------------------------------------------------------------------
Investing Activities:
Gross property additions (69,731) (54,289) (61,386)
Other 5,990 509 (2,786)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (63,741) (53,780) (64,172)
- ------------------------------------------------------------------------------------------------------------------------------------
Financing Activities and Capital Contributions:
Proceeds:
Preferred securities 45,000 40,000 -
First mortgage bonds - - 55,000
Pollution control bonds - 40,930 33,275
Capital contributions from parent 522 - -
Other long-term debt 50,000 20,000 49,148
Retirements:
Preferred stock (9,455) (75,911) -
First mortgage bonds (45,000) (25,000) (50,930)
Pollution control bonds - (40,930) (33,275)
Other long-term debt (8,326) (15,972) (34,923)
Notes payable, net (15,500) 22,000 (55,500)
Payment of preferred stock dividends (792) (5,370) (5,749)
Payment of common stock dividends (67,200) (64,600) (48,300)
Miscellaneous (4,167) (3,014) (5,332)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash used for financing activities (54,918) (107,867) (96,586)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents (3,738) 3,900 127
Cash and Cash Equivalents at Beginning of Year 4,707 807 680
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year $ 969 $ 4,707 $ 807
====================================================================================================================================
Supplemental Cash Flow Information:
Cash paid during the year for --
Interest (net of amount capitalized) $28,044 $26,558 $26,050
Income taxes $38,782 $36,010 $25,858
- ------------------------------------------------------------------------------------------------------------------------------------
( ) Denotes use of cash.
The accompanying notes are an integral part of these statements.
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
BALANCE SHEETS
At December 31, 1998 and 1997
Gulf Power Company 1998 Annual Report
- --------------------------------------------------------------------------------------------------------------------------------
ASSETS 1998 1997
- --------------------------------------------------------------------------------------------------------------------------------
(in thousands)
Utility Plant:
<S> <C> <C> <C> <C>
Plant in service (Notes 1 and 6) $ 1,809,901 $ 1,762,244
Less accumulated provision for depreciation 784,111 737,767
--------------------------------------------------------------------------------------------------------------------------------
1,025,790 1,024,477
Construction work in progress 34,863 31,030
- --------------------------------------------------------------------------------------------------------------------------------
Total 1,060,653 1,055,507
- --------------------------------------------------------------------------------------------------------------------------------
Other Property and Investments 588 622
- --------------------------------------------------------------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents 969 4,707
Receivables-
Customer accounts receivable 49,067 57,057
Other accounts and notes receivable 3,514 2,744
Affiliated companies 3,442 7,329
Accumulated provision for uncollectible accounts (996) (796)
Fossil fuel stock, at average cost 24,213 19,296
Materials and supplies, at average cost (Note 1) 28,025 28,634
Deferred coal contract costs (Note 5) - 4,456
Regulatory clauses under recovery (Note 1) 9,737 1,675
Prepayments 5,690 2,171
Vacation pay deferred 4,035 4,057
- --------------------------------------------------------------------------------------------------------------------------------
Total 127,696 131,330
- --------------------------------------------------------------------------------------------------------------------------------
Deferred Charges and Other Assets:
Deferred charges related to income taxes (Note 8) 25,308 26,586
Debt expense and loss, being amortized 21,448 22,941
Prepaid pension costs (Note 2) 13,770 10,385
Deferred storm charges (Note 1) - 703
Miscellaneous 18,438 17,538
- --------------------------------------------------------------------------------------------------------------------------------
Total 78,964 78,153
- --------------------------------------------------------------------------------------------------------------------------------
Total Assets $ 1,267,901 $ 1,265,612
================================================================================================================================
The accompanying notes are an integral part of these statements.
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
BALANCE SHEETS
At December 31, 1998 and 1997
Gulf Power Company 1998 Annual Report
- --------------------------------------------------------------------------------------------------------------------------------
CAPITALIZATION AND LIABILITIES 1998 1997
- --------------------------------------------------------------------------------------------------------------------------------
(in thousands)
Capitalization (See accompanying statements):
<S> <C> <C>
Common stock equity (Note 11) $ 427,652 $ 428,718
Preferred stock 4,236 13,691
Company obligated mandatorily redeemable preferred securities of
subsidiary trusts holding Company Junior Subordinated Notes (Note 9) 85,000 40,000
Long-term debt 317,341 296,993
- --------------------------------------------------------------------------------------------------------------------------------
Total 834,229 779,402
- --------------------------------------------------------------------------------------------------------------------------------
Current Liabilities:
Long-term debt due within one year (Note 10) 27,000 53,327
Notes payable 31,500 47,000
Accounts payable-
Affiliated companies 19,756 14,334
Other 23,697 20,205
Customer deposits 12,560 13,778
Taxes accrued 7,432 8,258
Interest accrued 5,184 7,227
Regulatory clauses over recovery (Note 1) 6,037 5,062
Vacation pay accrued 4,035 4,057
Dividends declared 54 10,210
Miscellaneous 3,960 8,739
- --------------------------------------------------------------------------------------------------------------------------------
Total 141,215 192,197
- --------------------------------------------------------------------------------------------------------------------------------
Deferred Credits and Other Liabilities:
Accumulated deferred income taxes (Note 8) 166,118 166,302
Deferred credits related to income taxes (Note 8) 52,465 56,935
Accumulated deferred investment tax credits 29,632 31,552
Accumulated provision for postretirement benefits (Note 2) 23,534 20,491
Accumulated provision for property damage (Note 1) 1,605 -
Miscellaneous 19,103 18,733
- --------------------------------------------------------------------------------------------------------------------------------
Total 292,457 294,013
- --------------------------------------------------------------------------------------------------------------------------------
Commitments and Contingent Matters (Notes 1, 2, 3, 4, 5, and 7)
Total Capitalization and Liabilities $ 1,267,901 $ 1,265,612
================================================================================================================================
The accompanying notes are an integral part of these statements.
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CAPITALIZATION
At December 31, 1998 and 1997
Gulf Power Company 1998 Annual Report
-----------------------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------
(in thousands) (percent of total)
Common Stock Equity:
Common stock, without par value --
Authorized and outstanding --
<S> <C> <C> <C> <C>
992,717 shares in 1998 and 1997 $ 38,060 $ 38,060
Paid-in capital 218,960 218,438
Premium on preferred stock 12 12
Retained earnings (Note 11) 170,620 172,208
- -----------------------------------------------------------------------------------------------------------------------------
Total common stock equity 427,652 428,718 51.3 % 55.0 %
- -----------------------------------------------------------------------------------------------------------------------------
Cumulative Preferred Stock:
$10 par value --
Authorized -- 10,000,000 shares
Outstanding -- 0 shares in 1998 and 377,989 shares in 1997
$25 stated capital --
6.72% - 8,661
Adjustable Rate - 789
$100 par value --
Authorized -- 801,626 shares
Outstanding -- 42,361 shares in 1998 and 42,411 shares in 1997
4.64% 1,250 1,255
5.16% 1,357 1,357
5.44% 1,629 1,629
- -----------------------------------------------------------------------------------------------------------------------------
Total (annual dividend requirement -- $217,000) 4,236 13,691 0.5 1.8
- -----------------------------------------------------------------------------------------------------------------------------
Company Obligated Mandatorily
Redeemable Preferred Securities (Note 9):
$25 Liquidation Value --
7.00% 45,000 -
7.625% 40,000 40,000
- -----------------------------------------------------------------------------------------------------------------------------
Total (annual distribution requirement--$6,200,000) 85,000 40,000 10.2 5.1
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CAPITALIZATION (continued)
At December 31, 1998 and 1997
Gulf Power Company 1998 Annual Report
-----------------------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------
(in thousands) (percent of total)
Long-term Debt:
First mortgage bonds --
<S> <C> <C> <C> <C>
Maturity Interest Rates
April 1, 1998 5.55% - 15,000
July 1, 1998 5.00% - 30,000
July 1, 2003 6.125% 30,000 30,000
November 1, 2006 6.50% 25,000 25,000
January 1, 2026 6.875% 30,000 30,000
- -----------------------------------------------------------------------------------------------------------------------------
Total first mortgage bonds 85,000 130,000
Pollution control revenue bonds--
Collateralized:
Maturity Interest Rates
April 1, 2006 5.25% 12,075 12,075
July 1, 2022 Variable - 5.10% at 1/1/99 40,930 40,930
April 1, 2023 6.20% 13,000 13,000
June 1, 2023 5.80% 32,550 32,550
November 1, 2023 5.70% 7,875 7,875
September 1, 2024 6.30% 22,000 22,000
September 1, 2024 Variable - 5.15% at 1/1/99 20,000 20,000
February 1, 2026 5.50% 21,200 21,200
- -----------------------------------------------------------------------------------------------------------------------------
Total pollution control revenue bonds 169,630 169,630
Other long-term debt--
Maturity Interest Rates
Bank notes--
February 1, 1998 5.2125% - 5,754
April 1, 1998 6.44% - 2,573
November 20, 1999 Variable - 5.7163% at 1/1/99 13,500 13,500
November 20, 1999 Variable - 5.7163% at 1/1/99 13,500 13,500
Junior subordinated notes--
June 30, 2037 7.50% 20,000 20,000
Senior insured quarterly notes--
June 30, 2038 6.70% 50,000 -
- -----------------------------------------------------------------------------------------------------------------------------
Total other long-term debt 97,000 55,327
Unamortized debt discount (7,289) (4,637)
- -----------------------------------------------------------------------------------------------------------------------------
Total long-term debt (annual interest
requirement -- $21,365,000) 344,341 350,320
Less amount due within one year (Note 10) 27,000 53,327
- -----------------------------------------------------------------------------------------------------------------------------
Long-term debt excluding amount due within one year 317,341 296,993 38.0 38.1
- -----------------------------------------------------------------------------------------------------------------------------
Total Capitalization $ 834,229 $ 779,402 100.0 % 100.0 %
=============================================================================================================================
The accompanying notes are an integral part of these statements.
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF RETAINED EARNINGS
For the Years Ended December 31, 1998, 1997, and 1996
Gulf Power Company 1998 Annual Report
- ---------------------------------------------------------------------------------------------------------------------------
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Balance at Beginning of Year $ 172,208 $ 179,179 $ 179,663
Net income after dividends on preferred stock 56,521 57,610 57,845
Dividends on common stock (57,200) (64,600) (58,300)
Preferred stock transactions, net (909) 19 (29)
============================================================================================================================
Balance at End of Year (Note 11) $ 170,620 $ 172,208 $ 179,179
===========================================================================================================================
STATEMENTS OF PAID-IN CAPITAL
For the Years Ended December 31, 1998, 1997, and 1996
Gulf Power Company 1998 Annual Report
- ---------------------------------------------------------------------------------------------------------------------------
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
(in thousands)
Balance at Beginning of Year $ 218,438 $ 218,438 $ 218,438
Capital contributions from parent 522 - -
===========================================================================================================================
Balance at End of Year $ 218,960 $ 218,438 $ 218,438
===========================================================================================================================
The accompanying notes are an integral part of these statements.
</TABLE>
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Gulf Power Company 1998 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 LINC), Southern Company Energy
Solutions, Southern Energy, Inc. (Southern Energy), Southern Nuclear Operating
Company (Southern Nuclear), 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) and/or the Securities and Exchange Commission. The system
service company provides, at cost, specialized services to Southern Company and
subsidiary companies. Southern LINC provides digital wireless communications
services to the operating companies and also markets these services to the
public within the Southeast. Southern Company Energy Solutions develops new
business opportunities related to energy products and services. Worldwide,
Southern Energy develops and manages electricity and other energy related
projects, including domestic energy trading and marketing. Southern Nuclear
provides services to Southern Company's nuclear power plants.
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 expected to be credited
to customers through the ratemaking process. Regulatory assets and (liabilities)
reflected in the Balance Sheets at December 31 relate to the following:
1998 1997
------------- ------------
(in thousands)
Deferred income tax debits $25,308 $ 26,586
Deferred loss on reacquired debt 18,883 20,494
Environmental remediation 7,076 7,338
Current & deferred
coal contract costs - 4,456
Vacation pay 4,035 4,057
Accumulated provision for
property damage (1,605) -
Deferred storm charges - 703
Regulatory clauses under (over)
recovery, net 3,700 (3,387)
Deferred income tax credits (52,465) (56,935)
Other, net (480) (629)
- --------------------------------------- ------------- ------------
Total $ 4,452 $ 2,683
======================================= ============= ============
In the event that a portion of the Company's operations is no longer subject
to the provisions of Statement No. 71, the Company would be required to write
off related net regulatory assets and liabilities that are not specifically
recoverable through regulated rates. In addition, the Company would be required
to determine any impairment to other assets, including plant, and write down the
assets, if impaired, to their fair value.
19
<PAGE>
NOTES (continued)
Gulf Power Company 1998 Annual Report
Revenues and Regulatory Cost Recovery Clauses
The Company currently operates as a vertically integrated utility providing
electricity to retail customers within its service area located in northwest
Florida and to wholesale customers in the Southeast. Revenues, less affiliated
transactions, by type of service were as follows:
1998 1997 1996
----------- ----------- -------------
(in thousands)
Retail $509,118 $521,620 $530,729
Wholesale 61,893 63,697 63,201
Other operating 36,865 23,779 22,673
- ------------------------- ----------- ----------- -------------
Total $607,876 $609,096 $616,603
========================= =========== =========== =============
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. For all
periods presented, uncollectible accounts averaged 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
costs, the energy component of purchased power costs, and certain other 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
3.8 percent in 1998 and 3.6 percent in 1997 and 1996. The increase in 1998 is
attributable to new depreciation rates, which were approved by the FPSC in 1998.
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 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.
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
Temporary cash investments are considered cash equivalents. Temporary cash
investments are securities with original maturities of 90 days or less.
Financial Instruments
The Company's financial instruments for which the carrying amount did not equal
fair value at December 31 were as follows:
Carrying Fair
Amount Value
---------------------------
(in thousands)
Long-term debt:
At December 31, 1998 $344,341 $357,100
At December 31, 1997 $350,320 $356,766
Capital trust preferred
securities:
At December 31, 1998 $85,000 $89,400
At December 31, 1997 $40,000 $40,800
- ---------------------------------- ------------- -------------
The fair values for long-term debt and preferred securities were based on
either closing market prices or closing prices of comparable instruments.
20
<PAGE>
NOTES (continued)
Gulf Power Company 1998 Annual Report
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 $1.3 million and $1.4 million
at December 31, 1998 and 1997, respectively, is included in miscellaneous
current liabilities in the accompanying Balance Sheets.
Provision for Property Damage
The Company provides for the cost of repairing damages from major storms and
other uninsured property damages. This includes the full cost of storm and other
damages to its transmission and distribution lines and the cost of uninsured
damages to its generation and other property. The expense of such damages is
charged to the provision account. At December 31, 1998, the accumulated
provision for property damage was $1.6 million. In 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 and approved a target level for the accumulated provision account
between $25.1 and $36.0 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. The Company accrued $6.5 million in 1998 and $3.9 million in 1997
to the accumulated provision for property damage. Charges to the provision
account during 1998 totaled $4.2 million, which included $3.4 million related to
Hurricane Georges.
2. RETIREMENT BENEFITS
The Company has a defined benefit, trusteed, non-contributory pension plan that
covers substantially all regular employees. 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. In 1998, the Company
adopted FASB Statement No. 132, Employers' Disclosure about Pensions and Other
Postretirement Benefits. The measurement date is September 30 for each year.
Pension Plan
Changes during the year in the projected benefit obligations and in the fair
value of plan assets were as follows:
Projected
Benefit Obligations
---------------------------
1998 1997
- ----------------------------------- ------------- -------------
(in thousands)
Balance at beginning of year $130,794 $123,467
Service cost 4,107 3,897
Interest cost 9,572 9,301
Benefits paid (6,663) (4,852)
Actuarial loss (gain) and
employee transfers 5,202 (1,019)
- ----------------------------------- ------------- -------------
Balance at end of year $143,012 $130,794
=================================== ============= =============
Plan Assets
---------------------------
1998 1997
- ----------------------------------- ------------- -------------
(in thousands)
Balance at beginning of year $222,196 $191,152
Actual return on plan assets 1,310 35,886
Benefits paid (6,663) (4,852)
Employee transfers (3,909) 10
- ----------------------------------- ------------- -------------
Balance at end of year $212,934 $222,196
=================================== ============= =============
21
<PAGE>
NOTES (continued)
Gulf Power Company 1998 Annual Report
The accrued pension costs recognized in the Balance Sheet were as follows:
1998 1997
- ------------------------------------ ------------- ------------
(in thousands)
Funded status $69,922 $ 91,402
Unrecognized transition
obligation (5,043) (5,764)
Unrecognized prior
service cost 4,869 5,244
Unrecognized net gain (55,978) (80,497)
- ------------------------------------ ------------ -------------
Prepaid asset recognized
in the Balance Sheets $13,770 $10,385
==================================== ============ =============
Components of the plan's net periodic cost were as follows:
1998 1997 1996
- -------------------------- ------------ ------------- -----------
Service cost $4,107 $ 3,897 $ 3,880
Interest cost 9,572 9,301 9,129
Expected return on
plan assets (14,827) (13,675) (13,410)
Recognized net gain (1,891) (1,656) (1,248)
Net amortization (347) (347) (443)
- -------------------------- ------------ ------------- -----------
Net pension income $(3,386) $(2,480) $ (2,092)
========================== ============ ============= ===========
The weighted average rates assumed in the actuarial calculations for both the
pension plan and postretirement benefits were:
1998 1997
- -------------------------------- ------------ ------------
Discount 6.75% 7.50%
Annual salary increase 4.25% 5.00%
Long-term return on plan
assets 8.50% 8.50%
- -------------------------------- ------------ ------------
Postretirement Benefits
Changes during the year in the projected benefit obligations and in the fair
value of plan assets were as follows:
Projected
Benefit Obligations
---------------------------
1998 1997
- ----------------------------------- ------------- -------------
(in thousands)
Balance at beginning of year $39,669 $33,656
Service cost 946 896
Interest cost 3,123 2,845
Benefits paid (1,068) (1,077)
Actuarial loss and employee
transfers 3,614 3,349
Amendments 3,019 -
- ----------------------------------- ------------- -------------
Balance at end of year $49,303 $39,669
=================================== ============= =============
Plan Assets
---------------------------
1998 1997
- ----------------------------------- ------------- -------------
(in thousands)
Balance at beginning of year $9,455 $7,996
Actual return on plan assets 54 1,407
Employer contributions 1,162 1,129
Benefits paid (1,068) (1,077)
- ----------------------------------- ------------- -------------
Balance at end of year $9,603 $9,455
=================================== ============= =============
The accrued postretirement costs recognized in the Balance Sheet were as
follows:
1998 1997
- ---------------------------------- -------------- -------------
(in thousands)
Funded status $ (39,700) $(30,214)
Unrecognized transition
obligation 5,079 5,435
Unrecognized prior
service cost 2,900 -
Unrecognized net loss 8,187 4,288
- ---------------------------------- -------------- -------------
Accrued liability recognized
in the Balance Sheets $(23,534) $(20,491)
================================== ============== =============
22
<PAGE>
NOTES (continued)
Gulf Power Company 1998 Annual Report
Components of the plan's net periodic cost were as follows:
1998 1997 1996
- ------------------------------- ----------- --------- ---------
Service cost $ 946 $ 896 $ 939
Interest cost 3,123 2,845 2,330
Expected return on
plan assets (717) (641) (565)
Transition obligation 356 356 356
Prior service cost 119 - -
Recognized net loss 128 184 86
- ------------------------------- ----------- --------- ---------
Net postretirement cost $ 3,955 $3,640 $3,146
=============================== =========== ========= =========
An additional assumption used in measuring the accumulated postretirement
benefit obligations was a weighted average medical care cost trend rate of 8.30
percent for 1998, decreasing gradually to 4.75 percent through the year 2005,
and remaining at that level thereafter. An annual increase or decrease in the
assumed medical care cost trend rate of 1 percent would affect the accumulated
benefit obligation and the service and interest cost components at December 31,
1998 as follows (in thousands):
1 Percent 1 Percent
Increase Decrease
- ----------------------------------- ------------- -------------
Benefit obligation $3,808 $(3,218)
Service and interest costs $319 $(261)
=================================== ============= =============
Work Force Reduction Programs
The Company recorded costs related to work force reduction programs of $2.8
million in 1998, $1.4 million in 1997, and $1.2 million in 1996. The Company has
also incurred its pro rata share for the costs of affiliated companies'
programs. The costs related to these programs were $0.2 million for 1998, $1.3
million for 1997, and $2.1 million for 1996. The Company has expensed all costs
related to these work force reduction programs.
3. LITIGATION AND REGULATORY MATTERS
FERC Review of Equity Returns
On September 21, 1998, the FERC entered separate orders affirming the outcome of
the administrative law judge's opinions in two proceedings in which the return
on common equity component of formula rates contained in substantially all of
the Company's wholesale power contracts was being challenged as unreasonably
high. These orders resulted in no change in the wholesale power contracts that
were the subject of such proceedings. The FERC also dismissed a complaint filed
by three customers under long-term power sales agreements seeking to lower the
equity return component in such agreements. These customers have filed
applications for rehearing regarding each FERC order. In response to a
requirement of the September 1998 FERC order, Southern Company filed a new
equity return component on the long-term power sales contracts, to be effective
January 5, 1999. The proposed equity return was lowered from 13.75 percent to
12.50 percent. The estimated impact on the Company's revenues at a 12.50% equity
return would be approximately $0.8 million annually. The FERC placed the new
rates into effect subject to refund. Also, this filing was consolidated with the
new proceeding discussed below.
On December 28, 1998, the FERC staff filed a motion asking the FERC to
initiate a new proceeding regarding the equity return and other issues involving
the Company's formula rate contracts. The motion was submitted pursuant to
review procedures applicable to these contracts, and would be applicable to
billings under such contracts on and after January 1, 1999.
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. Initially, recovery under the ECRC was
determined semi-annually. The FPSC approved annual recovery periods beginning
with the October 1996 through September 1997 period. As of January 1999, the
annual recovery period will be on a calendar-year basis as approved by the FPSC
in May 1998. Recovery includes a true-up of the prior period and a projection of
the ensuing period. During 1998 and 1997, the Company recorded ECRC revenues of
$15.1 million and $10.2 million, respectively.
23
<PAGE>
NOTES (continued)
Gulf Power Company 1998 Annual Report
At December 31, 1998, the Company's liability for the estimated costs of
environmental remediation projects for known sites was $7.1 million. These
estimated costs are expected to be expended from 1999 through 2005. These
projects have been approved by the FPSC for recovery through the ECRC discussed
above. Therefore, the Company recorded $1.7 million in current assets and
current liabilities and $5.4 million in deferred assets and liabilities
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 $72 million in 1999, $100 million in 2000, and
$262 million in 2001. 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, 1998, significant purchase commitments were outstanding in
connection with the construction program. The Company has budgeted $263.6
million for the years 1999 through 2002 for the estimated cost of a 532 megawatt
combined cycle gas unit to be located in the eastern portion of its service
area. The unit is expected to have an in-service date of June 2002, subject to
regulatory approval. The Company will continue its construction program 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
from operations; the sale of additional first mortgage bonds, long-term
unsecured debt, pollution control bonds, and preferred securities; bank notes;
and capital contributions from Southern Company. In addition, the Company may
issue additional long-term debt and preferred securities primarily for debt
maturities and redemptions of higher-cost securities.
Bank Credit Arrangements
At December 31, 1998, the Company had $41.5 million of lines of credit with
banks subject to renewal June 1 of each year, of which $35.5 million remained
unused. In addition, the Company has two unused committed lines of credit
totaling $61.9 million that were 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 thirteen major money center banks that total $205
million, of which $25.5 million was committed at December 31, 1998.
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.
24
<PAGE>
NOTES (continued)
Gulf Power Company 1998 Annual Report
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, 1998, including the Company's portion relating to
jointly owned facilities, were as follows:
Year Fuel
--------- ----------------
(in millions)
1999 $132
2000 88
2001 79
2002 78
2003 83
2004 - 2008 359
----------------------------------------------------------
Total commitments $819
==========================================================
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 payment was fully amortized to expense on a per ton
basis as of March 1998.
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
payment was fully amortized to expense on a per ton basis as of March 1998.
The amortization expense of these contract renegotiations was 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. At the end of each lease term, the
Company has the option to renew the lease. In 1997, three additional lease
agreements for 120 cars each were entered into for three years, with a monthly
renewal option for up to an additional nine months.
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 inventories was $2.8 million in 1998, and $2.3 million in 1997.
The annual amounts for 1999 through 2003 are expected to be $2.8 million, $2.1
million, $1.7 million, $1.7 million, and $1.7 million respectively, and after
2003 are expected to total $16.1 million.
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.
25
<PAGE>
NOTES (continued)
Gulf Power Company 1998 Annual Report
At December 31, 1998, 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 $185,497(1) $224,907
Accumulated Depreciation $62,255 $113,327
Construction Work in Progress $615 $8,686
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 unit power sales
agreements are firm and pertain to capacity related to specific generating
units. Because the energy is generally sold at cost under these agreements,
profitability is primarily affected by revenues from capacity sales. The
capacity revenues from these sales were $22.5 million in 1998, $24.9 million in
1997, and $25.4 million in 1996. See Note 3 to the financial statements under
"FERC Review of Equity Returns."
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, 214 megawatts of net dependable capacity were
sold by the Company during 1998, and sales will remain at that level until the
expiration of the contracts in 2010, unless reduced by FPC, FP&L, and JEA after
2002.
Capacity and energy sales to FP&L, the Company's largest single customer,
provided revenues of $22.3 million in 1998, $25.4 million in 1997, and $27.2
million in 1996, or 3.4 percent, 4.1 percent, and 4.3 percent of operating
revenues, respectively.
8. INCOME TAXES
At December 31, 1998, the tax-related regulatory assets to be recovered from
customers were $25.3 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, 1998, the tax-related regulatory liabilities
to be credited to customers were $52.5 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:
1998 1997 1996
------------- ---------- -----------
(in thousands)
Total provision for income taxes:
Federal--
Currently payable $31,746 $34,522 $31,022
Deferred--current year 18,485 19,297 26,072
--reversal of
prior years (22,952) (25,778) (24,780)
- ------------------------------- ----------- ------------ -----------
27,279 28,041 32,314
- ------------------------------- ----------- ------------ -----------
State--
Currently payable 5,137 5,975 4,394
Deferred--current year 2,745 2,868 3,904
--reversal of
prior years (2,962) (3,434) (3,039)
- ------------------------------- ----------- ------------ -----------
4,920 5,409 5,259
- ------------------------------- ----------- ------------ -----------
Total 32,199 33,450 37,573
Less income taxes
credited to other income (1,890) (1,584) (248)
- ------------------------------- ----------- ------------ -----------
Total income taxes charged
to operations $34,089 $35,034 $37,821
=============================== =========== ============ ===========
26
<PAGE>
NOTES (continued)
Gulf Power Company 1998 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:
1998 1997
-------------- -----------
(in thousands)
Deferred tax liabilities:
Accelerated depreciation $155,833 $156,328
Property basis differences 20,330 19,220
Other 17,645 14,242
- ------------------------------------------ -------------- -----------
Total 193,808 189,790
- ------------------------------------------ -------------- -----------
Deferred tax assets:
Federal effect of state deferred taxes 9,509 9,268
Postretirement benefits 7,644 6,976
Other 10,702 10,861
- ------------------------------------------ -------------- -----------
Total 27,855 27,105
- ------------------------------------------ -------------- -----------
Net deferred tax liabilities 165,953 162,685
Less current portion, net (165) (3,617)
========================================== ============== ===========
Accumulated deferred income
taxes in the Balance Sheets $166,118 $166,302
========================================== ============== ===========
Deferred investment tax credits are amortized over the life of the related
property with such amortization normally applied as a credit to reduce
depreciation and amortization in the Statements of Income. Credits amortized in
this manner amounted to $1.9 million in 1998, $2.2 million in 1997, and $2.3
million in 1996. At December 31, 1998, 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:
1998 1997 1996
--------- -------- ---------
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 (2) (1) (1)
Other, net (2) (4) (2)
=================================== ========= ======== =========
Effective income tax rate 36% 35% 37%
=================================== ========= ======== =========
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. COMPANY OBLIGATED MANDATORILY
REDEEMABLE PREFERRED SECURITIES
In January 1997, Gulf Power Capital Trust I (Trust I), of which the Company owns
all of the common securities, issued $40 million of 7.625 percent mandatorily
redeemable preferred securities. Substantially all of the assets of Trust I are
$41 million aggregate principal amount of the Company's 7.625 percent junior
subordinated notes due December 31, 2036.
In January 1998, Gulf Power Capital Trust II (Trust II), of which the Company
owns all of the common securities, issued $45 million of 7.0 percent mandatorily
redeemable preferred securities. Substantially all of the assets of Trust II are
$46 million aggregate principal amount of the Company's 7.0 percent junior
subordinated notes due December 31, 2037.
The Company considers that the mechanisms and obligations relating to the
preferred securities, taken together, constitute a full and unconditional
guarantee by the Company of payment obligations with respect to the preferred
securities of Trust I and Trust II. Trust I and Trust II are subsidiaries of the
Company, and accordingly are consolidated in the Company's financial statements.
10. SECURITIES DUE WITHIN ONE YEAR
A summary of the improvement fund requirement and scheduled maturities and
redemptions of long-term debt due within one year at December 31 is as follows:
1998 1997
---------- -----------
(in thousands)
Bond improvement fund requirement $ 850 $ 1,300
Less portion to be satisfied by
certifying property additions 850 1,300
- ------------------------------------------ ---------- -----------
Cash requirement - -
Maturities of first mortgage bonds - 45,000
Current portion of other long-term
debt 27,000 8,327
- ------------------------------------------ ---------- -----------
Total $27,000 $53,327
========================================== ========== ===========
The first mortgage bond improvement fund requirement amounts to 1 percent of
each outstanding series of bonds authenticated under the indenture prior to
27
<PAGE>
NOTES (continued)
Gulf Power Company 1998 Annual Report
January 1 of each year, other than those issued to collateralize pollution
control revenue bond 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, 1998, retained earnings of $127 million were
restricted against the payment of cash dividends on common stock under the terms
of the mortgage indenture.
12. QUARTERLY FINANCIAL DATA (Unaudited)
Summarized quarterly financial data for 1998 and 1997 are as follows:
Net Income
After Dividends
Operating Operating on Preferred
Quarter Ended Revenues Income Stock
- --------------------- ------------- ------------- ------------------
(in thousands)
March 1998 $140,950 $15,237 $ 6,853
June 1998 177,130 23,742 13,364
September 1998 199,377 34,070 26,989
December 1998 133,061 15,216 9,315
March 1997 $141,374 $20,212 $10,740
June 1997 145,292 19,153 10,386
September 1997 193,710 34,750 27,484
December 1997 145,480 15,068 9,000
- --------------------- ------------- ------------- ------------------
The Company's business is influenced by seasonal weather conditions and the
timing of rate changes, among other factors.
28
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL AND OPERATING DATA
Gulf Power Company 1998 Annual Report
- --------------------------------------------------------------------------------------------------------------
1998 1997 1996
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Revenues (in thousands) $650,518 $625,856 $634,365
Net Income after Dividends
on Preferred Stock (in thousands) $56,521 $57,610 $57,845
Dividends on Common Stock (in thousands) $57,200 $64,600 $58,300
Return on Average Common Equity (percent) 13.20 13.33 13.27
Total Assets (in thousands) $1,267,901 $1,265,612 $1,308,366
Gross Property Additions (in thousands) $69,731 $54,289 $61,386
- --------------------------------------------------------------------------------------------------------------
Capitalization (in thousands):
Common stock equity $427,652 $428,718 $435,758
Preferred stock 4,236 13,691 65,102
Preferred stock subject to mandatory redemption - - -
Trust preferred securities 85,000 40,000 -
Long-term debt 317,341 296,993 331,880
- --------------------------------------------------------------------------------------------------------------
Total (excluding amounts due within one year) $834,229 $779,402 $832,740
- --------------------------------------------------------------------------------------------------------------
Capitalization Ratios (percent):
Common stock equity 51.3 55.0 52.3
Preferred stock 0.5 1.8 7.8
Trust preferred securities 10.2 5.1 -
Long-term debt 38.0 38.1 39.9
- --------------------------------------------------------------------------------------------------------------
Total (excluding amounts due within one year) 100.0 100.0 100.0
==============================================================================================================
First Mortgage Bonds (in thousands):
Issued - - 55,000
Retired 45,000 25,000 50,930
Preferred Stock (in thousands):
Issued - - -
Retired 9,455 75,911 -
- --------------------------------------------------------------------------------------------------------------
Security Ratings:
First Mortgage Bonds -
Moody's A1 A1 A1
Standard and Poor's AA- AA- A+
Duff & Phelps AA- AA- AA-
Preferred Stock -
Moody's a2 a2 a2
Standard and Poor's A A A
Duff & Phelps A+ A+ A+
- --------------------------------------------------------------------------------------------------------------
Customers (year-end):
Residential 307,077 300,257 291,196
Commercial 46,370 44,589 43,196
Industrial 257 267 278
Other 268 264 162
- --------------------------------------------------------------------------------------------------------------
Total 353,972 345,377 334,832
==============================================================================================================
Employees (year-end) 1,328 1,328 1,384
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL AND OPERATING DATA
Gulf Power Company 1998 Annual Report
- ----------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating Revenues (in thousands) $619,077 $578,813 $583,142 $570,902
Net Income after Dividends
on Preferred Stock (in thousands) $57,154 $55,229 $54,311 $54,090
Dividends on Common Stock (in thousands) $46,400 $44,000 $41,800 $39,900
Return on Average Common Equity (percent) 13.27 13.15 13.29 13.62
Total Assets (in thousands) $1,341,859 $1,315,542 $1,307,809 $1,062,699
Gross Property Additions (in thousands) $63,113 $78,869 $78,562 $64,671
- ----------------------------------------------------------------------------------------------------------------------------
Capitalization (in thousands):
Common stock equity $436,242 $425,472 $414,196 $403,190
Preferred stock 89,602 89,602 89,602 74,662
Preferred stock subject to mandatory redemption - - 1,000 2,000
Trust preferred securities - - - -
Long-term debt 323,376 356,393 369,259 382,047
- ----------------------------------------------------------------------------------------------------------------------------
Total (excluding amounts due within one year) $849,220 $871,467 $874,057 $861,899
- ----------------------------------------------------------------------------------------------------------------------------
Capitalization Ratios (percent):
Common stock equity 51.4 48.8 47.4 46.8
Preferred stock 10.5 10.3 10.4 8.9
Trust preferred securities - - - -
Long-term debt 38.1 40.9 42.2 44.3
- ----------------------------------------------------------------------------------------------------------------------------
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
Retired 1,750 48,856 88,809 117,693
Preferred Stock (in thousands):
Issued - - 35,000 29,500
Retired 1,000 1,000 21,060 15,500
- ----------------------------------------------------------------------------------------------------------------------------
Security Ratings:
First Mortgage Bonds -
Moody's A1 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 283,421 280,859 274,194 267,591
Commercial 41,281 40,398 39,253 37,105
Industrial 278 283 274 270
Other 134 106 86 74
- ----------------------------------------------------------------------------------------------------------------------------
Total 325,114 321,646 313,807 305,040
============================================================================================================================
Employees (year-end) 1,501 1,540 1,565 1,613
</TABLE>
30A
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL AND OPERATING DATA
Gulf Power Company 1998 Annual Report
- ---------------------------------------------------------------------------------------------------------------------------
1991 1990 1989 1988
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating Revenues (in thousands) $565,207 $567,825 $527,821 $550,827
Net Income after Dividends
on Preferred Stock (in thousands) $57,796 $38,714 $37,361 $45,698
Dividends on Common Stock (in thousands) $38,000 $37,000 $37,200 $35,400
Return on Average Common Equity (percent) 15.17 10.51 10.32 13.41
Total Assets (in thousands) $1,095,736 $1,084,579 $1,093,430 $1,097,225
Gross Property Additions (in thousands) $64,323 $62,462 $70,726 $67,042
- ---------------------------------------------------------------------------------------------------------------------------
Capitalization (in thousands):
Common stock equity $390,981 $371,185 $365,471 $358,310
Preferred stock 55,162 55,162 55,162 55,162
Preferred stock subject to mandatory redemption 7,500 9,250 11,000 12,750
Trust preferred securities - - - -
Long-term debt 434,648 475,284 484,608 497,069
- ---------------------------------------------------------------------------------------------------------------------------
Total (excluding amounts due within one year) $888,291 $910,881 $916,241 $923,291
- ---------------------------------------------------------------------------------------------------------------------------
Capitalization Ratios (percent):
Common stock equity 44.0 40.8 39.9 38.8
Preferred stock 7.1 7.1 7.2 7.4
Trust preferred securities - - - -
Long-term debt 48.9 52.1 52.9 53.8
- ---------------------------------------------------------------------------------------------------------------------------
Total (excluding amounts due within one year) 100.0 100.0 100.0 100.0
===========================================================================================================================
First Mortgage Bonds (in thousands):
Issued 50,000 - - 35,000
Retired 32,807 6,455 9,344 9,369
Preferred Stock (in thousands):
Issued - - - -
Retired 2,500 1,750 1,250 1,750
- ---------------------------------------------------------------------------------------------------------------------------
Security Ratings:
First Mortgage Bonds -
Moody's A2 A2 A1 A1
Standard and Poor's A A A A
Duff & Phelps A A AA- 4
Preferred Stock -
Moody's a2 a2 a1 a1
Standard and Poor's A- A- A- A-
Duff & Phelps A- A- A+ 5
- ---------------------------------------------------------------------------------------------------------------------------
Customers (year-end):
Residential 261,210 256,111 251,341 246,450
Commercial 34,685 34,019 33,678 33,030
Industrial 264 252 240 206
Other 72 67 67 61
- ---------------------------------------------------------------------------------------------------------------------------
Total 296,231 290,449 285,326 279,747
===========================================================================================================================
Employees (year-end) 1,598 1,615 1,614 1,601
</TABLE>
30B
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL AND OPERATING DATA (continued)
Gulf Power Company 1998 Annual Report
- ----------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------------
Operating Revenues (in thousands):
<S> <C> <C> <C>
Residential $276,208 $277,609 $285,498
Commercial 160,960 164,435 164,181
Industrial 69,850 77,492 78,994
Other 2,100 2,084 2,056
- ----------------------------------------------------------------------------------------------------------------------------------
Total retail 509,118 521,620 530,729
Sales for resale - non-affiliates 61,893 63,697 63,201
Sales for resale - affiliates 42,642 16,760 17,762
- ----------------------------------------------------------------------------------------------------------------------------------
Total revenues from sales of electricity 613,653 602,077 611,692
Other revenues 36,865 23,779 22,673
- ----------------------------------------------------------------------------------------------------------------------------------
Total $650,518 $625,856 $634,365
==================================================================================================================================
Kilowatt-Hour Sales (in thousands):
Residential 4,437,558 4,119,492 4,159,924
Commercial 3,111,933 2,897,887 2,808,634
Industrial 1,833,575 1,903,050 1,808,086
Other 18,952 18,101 17,815
- ----------------------------------------------------------------------------------------------------------------------------------
Total retail 9,402,018 8,938,530 8,794,459
Sales for resale - non-affiliates 1,341,990 1,531,179 1,534,097
Sales for resale - affiliates 1,758,150 848,135 709,647
- ----------------------------------------------------------------------------------------------------------------------------------
Total 12,502,158 11,317,844 11,038,203
==================================================================================================================================
Average Revenue Per Kilowatt-Hour (cents):
Residential 6.22 6.74 6.86
Commercial 5.17 5.67 5.85
Industrial 3.81 4.07 4.37
Total retail 5.41 5.84 6.03
Sales for resale 3.37 3.38 3.61
Total sales 4.91 5.32 5.54
Average Annual Kilowatt-Hour Use Per Residential Customer 14,577 13,894 14,457
Average Annual Revenue Per Residential Customer $907.35 $936.30 $992.17
Plant Nameplate Capacity Ratings (year-end) (megawatts) 2,188 2,174 2,174
Maximum Peak-Hour Demand - Net of SEPA (megawatts):
Winter 2,040 1,844 2,136
Summer 2,146 2,032 1,961
Annual Load Factor (percent) 55.3 55.5 51.4
Plant Availability - Fossil-Steam (percent) 87.6 91.0 91.8
- ----------------------------------------------------------------------------------------------------------------------------------
Source of Energy Supply (percent):
Coal 89.2 87.1 87.8
Oil and gas 2.0 0.4 0.5
Purchased power -
From non-affiliates 5.5 3.5 2.7
From affiliates 3.3 9.0 9.0
- ----------------------------------------------------------------------------------------------------------------------------------
Total 100.0 100.0 100.0
==================================================================================================================================
Total Fuel Economy Data:
BTU per net kilowatt-hour generated 10,523 10,436 10,484
Cost of fuel per million BTU (cents) 160.22 190.75 192.22
Average cost of fuel per net kilowatt-hour generated (cents) 1.69 1.99 2.02
==================================================================================================================================
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL AND OPERATING DATA (continued)
Gulf Power Company 1998 Annual Report
- ------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------
Operating Revenues (in thousands):
<S> <C> <C> <C> <C>
Residential $276,155 $252,598 $244,967 $235,296
Commercial 159,260 146,394 137,308 133,071
Industrial 81,606 82,169 87,526 91,320
Other 1,993 1,955 1,882 1,784
- ------------------------------------------------------------------------------------------------------------------------------
Total retail 519,014 483,116 471,683 461,471
Sales for resale - non-affiliates 60,413 66,111 72,209 70,078
Sales for resale - affiliates 18,619 17,353 23,166 24,075
- ------------------------------------------------------------------------------------------------------------------------------
Total revenues from sales of electricity 598,046 566,580 567,058 555,624
Other revenues 21,031 12,233 16,084 15,278
- ------------------------------------------------------------------------------------------------------------------------------
Total $619,077 $578,813 $583,142 $570,902
==============================================================================================================================
Kilowatt-Hour Sales (in thousands):
Residential 4,014,142 3,751,932 3,712,980 3,596,515
Commercial 2,708,243 2,548,846 2,433,382 2,369,236
Industrial 1,794,754 1,847,114 2,029,936 2,179,435
Other 17,345 17,354 16,944 16,649
- ------------------------------------------------------------------------------------------------------------------------------
Total retail 8,534,484 8,165,246 8,193,242 8,161,835
Sales for resale - non-affiliates 1,396,474 1,418,977 1,460,105 1,430,908
Sales for resale - affiliates 759,341 874,050 1,029,787 1,208,771
- ------------------------------------------------------------------------------------------------------------------------------
Total 10,690,299 10,458,273 10,683,134 10,801,514
==============================================================================================================================
Average Revenue Per Kilowatt-Hour (cents):
Residential 6.88 6.73 6.60 6.54
Commercial 5.88 5.74 5.64 5.62
Industrial 4.55 4.45 4.31 4.19
Total retail 6.08 5.92 5.76 5.65
Sales for resale 3.67 3.64 3.83 3.57
Total sales 5.59 5.42 5.31 5.14
Average Annual Kilowatt-Hour Use Per Residential Customer 14,148 13,486 13,671 13,553
Average Annual Revenue Per Residential Customer $973.35 $907.92 $901.96 $886.66
Plant Nameplate Capacity Ratings (year-end) (megawatts) 2,174 2,174 2,174 2,174
Maximum Peak-Hour Demand - Net of SEPA (megawatts):
Winter 1,732 1,801 1,571 1,533
Summer 2,040 1,795 1,898 1,828
Annual Load Factor (percent) 53.0 56.7 54.5 55.0
Plant Availability - Fossil-Steam (percent) 84.0 92.2 88.9 91.2
- ------------------------------------------------------------------------------------------------------------------------------
Source of Energy Supply (percent):
Coal 86.8 87.2 84.5 87.7
Oil and gas 0.4 0.2 0.5 0.1
Purchased power -
From non-affiliates 4.0 2.8 1.5 0.8
From affiliates 8.8 9.8 13.5 11.4
- ------------------------------------------------------------------------------------------------------------------------------
Total 100.0 100.0 100.0 100.0
==============================================================================================================================
Total Fuel Economy Data:
BTU per net kilowatt-hour generated 10,609 10,614 10,390 10,347
Cost of fuel per million BTU (cents) 196.62 189.55 197.37 200.30
Average cost of fuel per net kilowatt-hour generated (cents) 2.09 2.01 2.05 2.07
==============================================================================================================================
</TABLE>
32A
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL AND OPERATING DATA (continued)
Gulf Power Company 1998 Annual Report
- ---------------------------------------------------------------------------------------------------------------------------
1991 1990 1989 1988
- ---------------------------------------------------------------------------------------------------------------------------
Operating Revenues (in thousands):
<S> <C> <C> <C> <C>
Residential $231,220 $217,843 $203,781 $184,036
Commercial 130,691 124,066 118,897 107,615
Industrial 92,300 91,041 84,671 72,634
Other 1,860 1,805 1,586 1,402
- ---------------------------------------------------------------------------------------------------------------------------
Total retail 456,071 434,755 408,935 365,687
Sales for resale - non-affiliates 69,636 73,855 67,554 117,466
Sales for resale - affiliates 29,343 38,563 39,244 48,277
- ---------------------------------------------------------------------------------------------------------------------------
Total revenues from sales of electricity 555,050 547,173 515,733 531,430
Other revenues 10,157 20,652 12,088 19,397
- ---------------------------------------------------------------------------------------------------------------------------
Total $565,207 $567,825 $527,821 $550,827
===========================================================================================================================
Kilowatt-Hour Sales (in thousands):
Residential 3,455,100 3,360,838 3,293,750 3,154,541
Commercial 2,272,690 2,217,568 2,169,497 2,088,598
Industrial 2,117,408 2,177,872 2,094,670 1,968,091
Other 17,118 18,866 17,209 16,257
- ---------------------------------------------------------------------------------------------------------------------------
Total retail 7,862,316 7,775,144 7,575,126 7,227,487
Sales for resale - non-affiliates 1,550,018 1,775,703 1,640,355 1,911,759
Sales for resale - affiliates 1,236,223 1,435,558 1,461,036 2,326,238
- ---------------------------------------------------------------------------------------------------------------------------
Total 10,648,557 10,986,405 10,676,517 11,465,484
===========================================================================================================================
Average Revenue Per Kilowatt-Hour (cents):
Residential 6.69 6.48 6.19 5.83
Commercial 5.75 5.59 5.48 5.15
Industrial 4.36 4.18 4.04 3.69
Total retail 5.80 5.59 5.40 5.06
Sales for resale 3.55 3.50 3.44 3.91
Total sales 5.21 4.98 4.83 4.64
Average Annual Kilowatt-Hour Use Per Residential Customer 13,320 13,173 13,173 12,883
Average Annual Revenue Per Residential Customer $891.38 $853.86 $815.00 $751.60
Plant Nameplate Capacity Ratings (year-end) (megawatts) 2,174 2,174 2,174 2,174
Maximum Peak-Hour Demand - Net of SEPA (megawatts):
Winter 1,418 1,310 1,814 1,395
Summer 1,740 1,778 1,691 1,613
Annual Load Factor (percent) 57.0 55.2 52.6 56.5
Plant Availability - Fossil-Steam (percent) 92.2 89.2 89.1 88.2
- ---------------------------------------------------------------------------------------------------------------------------
Source of Energy Supply (percent):
Coal 82.0 69.8 78.3 93.2
Oil and gas 0.1 0.5 0.2 0.4
Purchased power -
From non-affiliates 0.5 0.6 0.4 0.4
From affiliates 17.4 29.1 21.1 6.0
- ---------------------------------------------------------------------------------------------------------------------------
Total 100.0 100.0 100.0 100.0
===========================================================================================================================
Total Fuel Economy Data:
BTU per net kilowatt-hour generated 10,636 10,765 10,621 10,461
Cost of fuel per million BTU (cents) 203.60 206.06 193.70 178.00
Average cost of fuel per net kilowatt-hour generated (cents) 2.17 2.22 2.06 1.86
===========================================================================================================================
</TABLE>
32B
