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 21, 1996
-------------------
MISSISSIPPI POWER COMPANY
(Exact name of registrant as specified in its charter)
Mississippi 0-6849 64-0205820
- ---------------------------------------------------------------------------
(State or other jurisdiction (Commission (IRS Employer)
of incorporation) File Number) (Identification No.)
2992 West Beach, Gulfport, Mississippi 39501
- ---------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (601) 864-1211
-----------------------
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 Mississippi Power Company
as of December 31, 1995.
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.
MISSISSIPPI POWER COMPANY
/s/ Wayne Boston
By Wayne Boston
Assistant Secretary
Date: March 1, 1996
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report dated February 21, 1996 on the financial statements of Mississippi
Power Company, included in this Form 8-K, into Mississippi Power Company's
previously filed Registration Statement File Nos. 33-49320 and 33-49649.
/s/ Arthur Andersen LLP
Atlanta, Georgia
February 28, 1996
<PAGE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements filed as Exhibit 99 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CIK> 0000066904
<NAME> MISSISSIPPI POWER COMPANY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 976,229
<OTHER-PROPERTY-AND-INVEST> 4,160
<TOTAL-CURRENT-ASSETS> 113,320
<TOTAL-DEFERRED-CHARGES> 55,244
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 1,148,953
<COMMON> 37,691
<CAPITAL-SURPLUS-PAID-IN> 179,734
<RETAINED-EARNINGS> 157,459
<TOTAL-COMMON-STOCKHOLDERS-EQ> 374,884
0
74,414
<LONG-TERM-DEBT-NET> 291,049
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 55,000
<COMMERCIAL-PAPER-OBLIGATIONS> 0
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0
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<GROSS-OPERATING-REVENUE> 516,553
<INCOME-TAX-EXPENSE> 34,486
<OTHER-OPERATING-EXPENSES> 403,457
<TOTAL-OPERATING-EXPENSES> 437,943
<OPERATING-INCOME-LOSS> 78,610
<OTHER-INCOME-NET> 4,155
<INCOME-BEFORE-INTEREST-EXPEN> 82,765
<TOTAL-INTEREST-EXPENSE> 25,335
<NET-INCOME> 57,430
4,899
<EARNINGS-AVAILABLE-FOR-COMM> 52,531
<COMMON-STOCK-DIVIDENDS> 39,400
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</TABLE>
EXHIBIT 99
MANAGEMENT'S REPORT
Mississippi Power Company 1995 Annual Report
The management of Mississippi 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 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 upon a recognition that the cost of
the system should not exceed its benefits. The Company believes its system of
internal accounting control maintains an appropriate cost/benefit relationship.
The Company's system of internal accounting controls is evaluated on an
ongoing basis by the 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 four 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 Mississippi Power Company in conformity with generally accepted accounting
principles.
/s/ Dwight H. Evans
Dwight H. Evans
President and Chief Executive Officer
/s/ Michael W. Southern
Michael W. Southern
Vice President, Secretary, Treasurer and
Chief Financial Officer
February 21, 1996
1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Mississippi Power Company:
We have audited the accompanying balance sheets and statements of capitalization
of Mississippi Power Company (a Mississippi corporation and a wholly owned
subsidiary of The Southern Company) as of December 31, 1995 and 1994, 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, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements (pages 10 through 25) referred to
above present fairly, in all material respects, the financial position of
Mississippi Power Company as of December 31, 1995 and 1994, and the results of
its operations and its cash flows for the periods stated, in conformity with
generally accepted accounting principles.
/s/ Arthur Andersen LLP
Atlanta, Georgia
February 21, 1996
2
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
Mississippi Power Company 1995 Annual Report
RESULTS OF OPERATIONS
Earnings
Mississippi Power Company's net income after dividends on preferred stock for
1995 totaled $52.5 million, an increase of $3.4 million over the prior year.
This improvement is attributable primarily to increased energy sales and a rate
increase under the Environmental Compliance Overview Plan (ECO Plan) of $3.7
million annually which became effective in May 1995.
A comparison of 1994 to 1993 reflects an increase in 1994 earnings of $6.7
million. Earnings in 1994 increased due to higher energy sales and increases
in retail and wholesale rates.
In July 1993, a retail rate increase of $6.4 million annually became
effective under the Company's Performance Evaluation Plan (PEP). Effective April
1994, retail rates increased by $7.6 million annually under the ECO Plan. Also,
effective in April 1994 was a $3.6 million wholesale rate increase.
Revenues
The following table summarizes the factors impacting operating revenues for the
past three years:
Increase (Decrease)
from Prior Year
-----------------------------------
1995 1994 1993
-----------------------------------
(in thousands)
Retail --
Change in base
rates (PEP and
ECO Plan) $ 2,694 $9,314 $ 5,079
Sales growth 4,045 9,560 5,606
Weather 4,513 1,752 4,735
Fuel cost
recovery
and other 3,806 6,594 15,028
-------------------------------------------------------------
Total retail 15,058 27,220 30,448
-------------------------------------------------------------
Sales for resale --
Non-affiliates 3,698 4,611 3,298
Affiliates (1,847) (5,981) 5,464
-------------------------------------------------------------
Total sales for
resale 1,851 (1,370) 8,762
Other operating
revenues 482 (1,571) 1,226
-------------------------------------------------------------
Total operating
revenues $17,391 $24,279 $40,436
=============================================================
Percent change 3.5% 5.1% 9.3%
-------------------------------------------------------------
Retail revenues of $410 million in 1995 increased 3.8 percent over the prior
year, compared with increases of 7.4 percent and 9.0 percent in 1994 and 1993,
respectively. The increase in retail revenues for 1995 was a result of growth in
energy sales of 6.7% and 6.2% to commercial and residential customers,
respectively, due to above normal summer temperatures. Additionally in 1995, an
increase in the number of customers and a retail rate increase from the ECO Plan
had a positive effect on retail revenues. A comparison of retail revenues of
1994 to 1993 reflects an increase resulting from growth in energy sales and
customers and retail and wholesale rate increases. Changes in base rates reflect
rate changes made under the PEP and ECO Plan.
Under the fuel cost recovery provision, recorded fuel revenues are equal to
recorded fuel expenses, including the fuel component and the operation and
maintenance component of purchased energy. Therefore, changes in recoverable
3
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Mississippi Power Company 1995 Annual Report
fuel expenses are offset with corresponding changes in fuel revenues and have no
effect on net income.
Included in sales for resale to non-affiliates are revenues from rural
electric cooperative associations and municipalities located in southeastern
Mississippi. Energy sales to these customers increased 13.1 percent in 1995 and
7.8 percent in 1994 with the related revenues rising 16.7 percent and 14.0
percent, respectively. The customer demand experienced by these utilities is
determined by factors very similar to Mississippi Power's.
Sales for resale to non-territorial utilities are primarily under long-term
contracts consisting 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. Under these long-term
contracts, the capacity and energy components were:
1995 1994 1993
-------------------------------------
(in thousands)
Capacity $ 268 $ 1,965 $ 4,191
Energy 3,627 8,473 12,120
==========================================================
Total $3,895 $10,438 $16,311
==========================================================
Capacity revenues for Mississippi Power varied due to changes in the
contracts and in the allocation of transmission capacity revenues throughout the
Southern electric system. Most of the Company's capacity revenues are derived
from transmission charges.
Sales to affiliated companies within the Southern electric system will vary
from year to year depending on demand and the availability and cost of
generating resources at each company. These sales have no material impact on
earnings.
Below is a breakdown of kilowatt-hour sales for 1995 and the percent change
for the last three years:
Amount Percent Change
(millions of ----------- ------------------------------
kilowatt-hours) 1995 1995 1994 1993
---------- ------------------------------
Residential 2,041 6.2% (0.4)% 6.9%
Commercial 2,242 6.7 8.6 6.8
Industrial 3,813 (0.9) 6.2 2.5
Other 39 1.1 (0.5) 0.3
----------
Total retail 8,135 2.9 5.1 4.7
Sales for
resale --
Non-affiliates 2,493 (2.4) 0.4 (5.3)
Affiliates 244 39.7 (59.2) 52.2
----------
Total 10,872 2.2% 1.3% 3.3%
================================================================
Total retail energy sales in 1995 increased, compared to the previous year,
due to both weather influences and the continued improving economy within the
Company's service area, related primarily to the casino industry. In 1994, the
most notable factor that increased commercial energy sales above the 1993 level
was the establishment of casinos within the Company's service area. While the
Company expects the number of new casinos to slow appreciably, it anticipates
continued growth in ancillary services such as lodging, food, transportation,
etc. Also, energy demand is expected to grow as a result of a larger and more
fully employed population.
In addition to the previously discussed long-term contracts, energy sales to
non-affiliates include economy sales and amounts sold under short-term
contracts. Sales for resale to non-affiliates are influenced by those utilities'
own customer demand, plant availability, and the cost of their predominant fuels
- -- oil and natural gas.
Expenses
Total operating expenses for 1995 increased from 1994 due to higher fuel
expenses, increased other operation expenses and increased depreciation and
amortization. Expenses in 1994 were higher than 1993 primarily because of higher
taxes and an increase in maintenance expenses and depreciation and amortization.
Fuel costs constitute the single largest expense for Mississippi Power.
These costs increased in 1995 due to a 13.0% increase in generation caused by
higher demand for energy throughout the Southern electric system. Further, this
4
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Mississippi Power Company 1995 Annual Report
increased demand for energy resulted in higher purchased power costs from the
non-affiliates and lower purchased power costs from the affiliates of the
Southern electric system. Fuel expenses in 1994, compared to 1993, were lower
due to decreased generation reflecting lower demand.
Purchased power consists primarily of energy purchases from the affiliates
of the Southern electric system. Purchased power transactions (both sales and
purchases) among Mississippi Power and its affiliates will vary from period to
period depending on demand and the availability and variable production cost at
each generating unit in the Southern electric system.
The amount and sources of energy supply, the average cost of fuel per net
kilowatt-hour generated, and the total average cost of energy supply (including
purchased power) were as follows:
1995 1994 1993
------------------------------
Total generation
(millions of
kilowatt-hours) 8,368 7,408 7,836
Sources of generation
generation (percent) --
Coal 58 56 64
Gas 15 10 7
Oil * * *
Purchased Power 27 34 29
Average cost of fuel per
net kilowatt-hour
generated (cents) --
Coal 1.58 1.67 1.66
Gas 2.32 2.56 2.99
Oil 6.21 4.15 2.85
Total average cost
of energy supply 1.53 1.55 1.58
- --------------------------------------------------------------
* Not meaningful because of minimal generation from the fuel source.
Other operation expenses increased in 1995 due to an increase in generation,
emission allowance expenses of $2.6 million and an increase in costs associated
with work force reduction programs. (See Note 2 to the financial statements for
information on these work force reduction programs.) This increase in expenses
was offset by a decrease in maintenance costs for 1995, when compared to 1994.
In 1994, work force reduction programs contributed to the increase in other
operation expenses above the recorded 1993 level.
Depreciation and amortization increased in 1995, compared to 1994, due to
additional plant investments. In 1994, depreciation and amortization expenses
rose above 1993 primarily due to the addition in May 1994 of a 75 megawatt
combustion turbine unit.
In 1995, taxes other than income taxes rose above the amount recorded for
1994 due to higher municipal franchise taxes. Taxes other than income taxes
increased in 1994, when compared to 1993, because of higher ad valorem taxes,
which are property based, and municipal franchise taxes, which are revenue
based.
The change in income taxes between 1995 and 1994 reflects the change in
operating income. The increase in income taxes in 1994 when compared to 1993
mirrored the increase in operating income.
Effects of Inflation
Mississippi Power is subject to rate regulation and income tax laws that are
based on the recovery of historical costs. Therefore, inflation creates an
economic loss because the Company is recovering its costs of investments in
dollars that have less purchasing power. While the inflation rate has been
relatively low in recent years, it continues to have an adverse effect on the
Company because of the large investment in long-lived utility plant.
Conventional accounting for historical costs does not recognize this economic
loss nor the partially offsetting gain that arises through financing facilities
with fixed-money obligations, such as long-term debt and preferred stock. Any
recognition of inflation by regulatory authorities is reflected in the rate of
return allowed.
Future Earnings Potential
The results of operations for the past three years are not necessarily
indicative of future earnings potential. The level of future earnings depends on
numerous factors ranging from regulatory matters to energy sales growth to a
less regulated more competitive environment. Expenses are subject to constant
review and cost control programs. Mississippi Power is also maximizing the
utility of invested capital and minimizing the need for capital by refinancing,
decreasing the average fuel stockpile, raising generating plant availability and
5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Mississippi Power Company 1995 Annual Report
efficiency, and aggressively controlling the construction budget. Operating
revenues will be affected by any changes in rates under the PEP, the Company's
performance based ratemaking plan, and the ECO Plan. PEP has proven to be a
stabilizing force on electric rates, with only moderate changes in rates taking
place.
The ECO Plan, provides for recovery of costs associated with environmental
projects approved by the Mississippi Public Service Commission (MPSC), most of
which are required to comply with Clean Air Act Amendments of 1990 (Clean Air
Act) regulations. The ECO Plan is operated independently of PEP. The Clean Air
Act and other important environmental items are discussed later under
"Environmental Matters."
The Federal Energy Regulatory Commission (FERC) regulates wholesale rate
schedules and power sales contracts that Mississippi Power has with its sales
for resale customers. The FERC is currently reviewing the rate of return on
common equity included in these schedules and contracts and may require such
returns to be lowered, possibly retroactively.
Further discussion of PEP, the ECO Plan, and proceedings before the FERC is
made in Note 3 to the financial statements herein.
Future earnings in the near term will depend upon growth in energy sales,
which are subject to a number of factors. Traditionally, these factors have
included weather, competition, changes in contracts with neighboring utilities,
energy conservation practiced by customers, the elasticity of demand, and the
rate of economic growth in Mississippi Power's service area. However, the Energy
Policy Act of 1992 (Energy Act) is beginning to have a dramatic effect on the
future of the electric utility industry. The Energy Act promotes energy
efficiency, alternative fuel use, and increased competition for electric
utilities. The Southern Company is positioning the business to meet the
challenge of this major change in the traditional practice of selling
electricity. The Energy Act allows Independent Power Producers (IPPs) to access
a utility's transmission network in order to sell electricity to other
utilities. This may enhance the incentive of IPPs to build cogeneration plants
for a utility's large industrial and commercial customers and sell excess
generation to other utilities. Although the Energy Act does not require
transmission access to retail customers, retail wheeling initiatives are rapidly
evolving and becoming very prominent issues in several states. In order to
address these initiatives, numerous questions must be resolved with the most
complex ones relating to transmission pricing and recovery of stranded
investments. As the initiatives become a reality, the structure of the utility
industry could radically change. Therefore, unless Mississippi Power 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.
Conversely, being the low-cost producer could provide significant opportunities
to increase market share and profitability.
Mississippi Power is subject to the provisions of Financial Accounting
Standards Board Statement No. 71, Accounting for the Effects of Certain Types of
Regulation. In the event that a portion of the Company's operations is no longer
subject to these provisions, the Company would be required to write off related
regulatory assets and liabilities, and determine if any other assets have been
impaired. See Note 1 to the financial statements under "Regulatory Assets and
Liabilities," for additional information.
New Accounting Standards
The FASB has issued Statement No. 121, Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to Be Disposed Of. This statement
requires that long-lived assets be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount for an asset may not
be recoverable. This statement also imposes stricter criteria for regulatory
assets by requiring that such assets be probable of future recovery at each
balance sheet date. The Company adopted the new rules January 1, 1996, with no
material effect on the financial statements. However, this conclusion may change
in the future as competitive factors influence wholesale and retail pricing in
the utility industry.
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Mississippi Power Company 1995 Annual Report
FINANCIAL CONDITION
Overview
The principal changes in Mississippi Power's financial condition during 1995
were gross property additions to utility plant of $68 million. Funding for gross
property additions and other capital requirements came primarily from earnings
and other operating cash flows and from the sale of first mortgage bonds and
pollution control bonds. The Statements of Cash Flows provide additional
details.
Financing Activity
Mississippi sold $30 million of first mortgage bonds and $10.6 million of
pollution control bonds during 1995. Retirements, including maturities during
1995, primarily related to other long-term debt, totaled some $42 million of
securities. (See the Statements of Cash Flows for further details.) Composite
financing rates for the years 1993 through 1995 as of year-end were as follows:
1995 1994 1993
-----------------------------
Composite interest rate on
long-term debt 6.63% 6.44% 6.57%
Composite preferred stock
dividend rate 6.58% 6.58% 6.58%
-----------------------------------------------------------
Capital Structure
At year-end 1995, the Company's ratio of common equity to total capitalization,
excluding long-term debt due within one year, was 50.8 percent, compared to 48.7
percent in 1994. The increase in equity ratio in 1995 is attributed to a
decrease in long-term debt and additional retained earnings.
Capital Requirements for Construction
The Company's projected construction expenditures for the next three years total
$182 million ($67 million in 1996, $62 million in 1997, and $53 million in
1998). The major emphasis within the construction program will be on upgrading
existing facilities. Also included in the estimates for property additions for
the three-year period is $5.3 million committed to meeting the requirements of
Clean Air Act regulations. Revisions may be necessary because of factors such as
changes in business conditions, revised load projections, the availability and
cost of capital, and changes in environmental regulations.
Other Capital Requirements
In addition to the funds required for the Company's construction program,
approximately $92.3 million will be required by the end of 1998 for present
sinking fund requirements and maturities of long-term debt. Mississippi Power
plans to continue, when economically feasible, to retire higher cost debt and
preferred stock and replace these obligations with lower-cost capital.
Environmental Matters
In November 1990, the Clean Air Act was signed into law. Title IV of the Clean
Air Act -- the acid rain compliance provision of the law -- has significantly
impacted Mississippi Power and the other operating companies of The Southern
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 plants in the Southern
electric system. As a result of The Southern Company's compliance strategy, an
additional 22 generating units were brought into compliance with Phase I
requirements. Phase II compliance is required in 2000, and all fossil-fired
generating plants will be affected.
In 1995, the Environmental Protection Agency (EPA) began issuing annual
sulfur dioxide emission allowances through the allowance trading program. An
emission allowance is the authority to emit one ton of sulfur dioxide during a
calendar year. The method for issuing allowances is based on the fossil fuel
consumed from 1985 through 1987 for each affected generating unit. Emission
allowances are transferable and can be bought, sold, or banked and used in the
future.
The sulfur dioxide emission allowance program is expected to minimize the
cost of compliance. The Southern Company's sulfur dioxide compliance strategy is
designed to take advantage of allowances as a compliance option.
The Southern Company achieved Phase I sulfur dioxide compliance at the
affected plants by switching to low-sulfur coal, which has required some
equipment upgrades. This compliance strategy resulted in unused emission
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Mississippi Power Company 1995 Annual Report
allowances being banked for later use. Compliance with nitrogen oxide emission
limits was achieved by installation of new control equipment at 22 of the
original 28 affected generating units. Construction expenditures for Phase I
compliance totaled approximately $320 million through 1995 for The Southern
Company, of which Mississippi Power's portion was approximately $65 million.
For Phase II sulfur dioxide compliance, The Southern Company could use
emission allowances banked during Phase I, increase fuel switching, install flue
gas desulfurization equipment at selected plants, and/or purchase more
allowances depending on the price and availability of allowances. Also, in Phase
II, equipment to control nitrogen oxide emissions will be installed on
additional system fossil-fired plants as required to meet Phase II limits.
Therefore, during the period 1996 to 2000, current compliance strategy for The
Southern Company could require total estimated construction expenditures of
approximately $150 million, of which Mississippi Power's portion is
approximately $5 million. However, the full impact of Phase II compliance cannot
now be determined with certainty, pending the continuing development of a market
for emission allowances, the completion of EPA regulations, and the possibility
of new emission reduction technologies.
An average increase of up to 2 percent in revenue requirements from
customers could be necessary to fully recover the Company's cost of compliance
for both Phase I and II of Title IV of the Clean Air Act. Compliance costs
include construction expenditures, increased costs for switching to low-sulfur
coal, and costs related to emission allowances.
Mississippi Power's ECO Plan is designed to allow recovery of costs of
compliance with the Clean Air Act, as well as other environmental statutes and
regulations. The MPSC reviews environmental projects and the Company's
environmental policy through the ECO Plan. Under the ECO Plan, any increase in
the annual revenue requirement is limited to 2 percent of retail revenues.
However, the plan also provides for carryover of any amount over the 2 percent
limit into the next year's revenue requirement. Mississippi Power's management
believes that the ECO Plan provides for recovery of the Clean Air Act costs.
Under the ECO Plan, the Company had annual retail rate increases of $2.6
million, $7.6 million and $3.7 million in the years 1993, 1994 and 1995,
respectively. On January 29, 1996, the Company filed the ECO Plan with the MPSC
requesting an annual retail rate decrease of $3.0 million.
Title III of the Clean Air Act requires a multi-year EPA study of power
plant emissions of hazardous air pollutants. The EPA is scheduled to submit a
report to Congress on the results of this study during 1996. The report will
include a decision on whether additional regulatory control of these substances
is warranted. Compliance with any new control standard could result in
significant additional costs. The impact of new standards -- if any -- will
depend on the development and implementation of applicable regulations.
The EPA is evaluating the need to revise the ambient air quality standards
for particulate matter and ozone. The impact of any new standard will depend on
the level chosen for the standard and cannot be determined at this time.
In 1996, the EPA may issue revised rules on air quality control regulations
related to stack height requirements of the Clean Air Act. The full impact of
the final rules cannot be determined at this time, pending their development and
implementation.
In 1993, the EPA issued a ruling confirming the non-hazardous status of coal
ash. However, the EPA has until 1998 to classify co-managed utility wastes --
coal ash and other utility wastes -- as either non-hazardous or hazardous. If
the EPA classifies the co-managed wastes as hazardous, then substantial
additional costs for the management of such wastes may be required. The full
impact of any change in the regulatory status will depend on the subsequent
development of co-managed waste requirements.
The Company must comply with other environmental laws and regulations that
cover the handling and disposal of hazardous waste. Under these various laws and
regulations, the Company could incur costs to clean up properties currently or
previously owned. Upon identifying potential sites, the Company conducts
studies, when possible, to determine the extent of any required cleanup costs.
Should remediation be determined to be probable, reasonable estimates of costs
to clean up such sites are developed and recognized in the financial statements.
A currently owned site where manufactured gas plant operations were located
prior to the Company's ownership was investigated for potential remediation. The
remedial investigation has been concluded and is pending approval by the
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Mississippi Power Company 1995 Annual Report
Mississippi Department of Environmental Quality. In recognition of probable
further study and remediation, the Company in 1995 recorded a liability and a
deferred debit (regulatory asset) of $1.8 million, including feasibility study
costs. The Company recognizes such costs as they are incurred and recovers them
under the ECO Plan as provided in the Company's 1995 ECO order. If this site
were required to be remediated, industry studies show the Company could incur
cleanup costs ranging from $1.5 million to $10 million before giving
consideration to possible recovery of clean-up costs from other parties.
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; and the Endangered
Species Act. Changes to these laws could affect many areas of the Company's
operations. The full impact of these requirements cannot be determined at this
time, pending the development and implementation of applicable regulations.
Compliance with possible new legislation related to global climate change,
electromagnetic fields, and other environmental and health concerns could
significantly affect the Company. The impact of new legislation -- if any --
will depend on the subsequent development and implementation of applicable
regulations. In addition, the potential exists for liability as the result of
lawsuits alleging damages caused by electromagnetic fields.
Sources of Capital
At December 31, 1995, the Company had $70 million of committed credit in
revolving credit agreements and also had $27 million of committed short-term
credit lines. The Company had no short-term notes payable outstanding at year
end 1995.
It is anticipated that the funds required for construction and other
purposes, including compliance with environmental regulations, will be derived
from operations, the sale of additional first mortgage bonds, pollution control
obligations, and preferred stock, and the receipt of additional capital
contributions from The Southern Company. Mississippi Power is required to meet
certain coverage requirements specified in its mortgage indenture and corporate
charter to issue new first mortgage bonds and preferred stock. The Company's
coverage ratios are sufficiently high enough to permit, at present interest rate
levels, any foreseeable security sales. The amount of securities which the
Company will be permitted to issue in the future will depend upon market
conditions and other factors prevailing at that time.
9
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF INCOME
For the Years Ended December 31, 1995, 1994, and 1993
Mississippi Power Company 1995 Annual Report
- -------------------------------------------------------------------------------------------------------------------
1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Operating Revenues (Notes 1 and 3):
Revenues $ 508,862 $ 489,624 $ 459,364
Revenues from affiliates 7,691 9,538 15,519
- -------------------------------------------------------------------------------------------------------------------
Total operating revenues 516,553 499,162 474,883
- -------------------------------------------------------------------------------------------------------------------
Operating Expenses:
Operation --
Fuel 111,071 102,216 113,986
Purchased power from non-affiliates 6,019 2,711 2,198
Purchased power from affiliates 57,777 68,543 58,019
Other 107,296 97,988 100,381
Maintenance 39,627 45,785 44,001
Depreciation and amortization 39,224 35,716 33,099
Taxes other than income taxes 42,443 41,742 37,145
Federal and state income taxes (Note 8) 34,486 31,386 22,668
- -------------------------------------------------------------------------------------------------------------------
Total operating expenses 437,943 426,087 411,497
- -------------------------------------------------------------------------------------------------------------------
Operating Income 78,610 73,075 63,386
Other Income (Expense):
Allowance for equity funds used during construction 366 1,099 1,010
Interest income 199 87 517
Other, net 4,596 2,033 3,971
Income taxes applicable to other income (1,006) (227) (1,158)
- -------------------------------------------------------------------------------------------------------------------
Income Before Interest Charges 82,765 76,067 67,726
- -------------------------------------------------------------------------------------------------------------------
Interest Charges:
Interest on long-term debt 21,898 19,725 17,688
Allowance for debt funds used during construction (399) (1,039) (788)
Interest on notes payable 1,141 1,442 1,000
Amortization of debt discount, premium, and expense, net 1,510 1,479 1,262
Other interest charges 1,185 404 728
- -------------------------------------------------------------------------------------------------------------------
Net interest charges 25,335 22,011 19,890
- -------------------------------------------------------------------------------------------------------------------
Net Income 57,430 54,056 47,836
Dividends on Preferred Stock 4,899 4,899 5,400
- -------------------------------------------------------------------------------------------------------------------
Net Income After Dividends on Preferred Stock $ 52,531 $ 49,157 $ 42,436
===================================================================================================================
The accompanying notes are an integral part of these statements.
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
For the Years ended December 31, 1995, 1994, and 1993
Mississippi Power Company 1995 Annual Report
- ----------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Operating Activities:
Net income $ 57,430 $ 54,056 $ 47,836
Adjustments to reconcile net income to net
cash provided by operating activities --
Depreciation and amortization 51,588 47,827 45,660
Deferred income taxes (480) 1,563 5,039
Allowance for equity funds used during construction (366) (1,099) (1,010)
Other, net 5,704 5,230 3,005
Changes in certain current assets and liabilities --
Receivables, net (8,758) 3,066 (4,347)
Inventories 3,962 (9,856) 11,119
Payables 17,421 (8,754) 4,133
Other 681 3,334 (8,033)
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash provided from operating activities 127,182 95,367 103,402
- ----------------------------------------------------------------------------------------------------------------------------------
Investing Activities:
Gross property additions (67,570) (104,014) (139,976)
Other (1,697) (14,087) 7,562
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (69,267) (118,101) (132,414)
- ----------------------------------------------------------------------------------------------------------------------------------
Financing Activities:
Proceeds:
Capital contributions - 25,000 30,036
Preferred stock - - 23,404
First mortgage bonds 30,000 35,000 70,000
Pollution control bonds 10,600 - 38,875
Other long-term debt - 85,310 -
Retirements:
Preferred stock - - (23,404)
First mortgage bonds (1,625) (32,628) (51,300)
Pollution control bonds (10) (10) (25,885)
Other long-term debt (40,689) (9,299) (8,170)
Notes payable, net - (40,000) 9,000
Payment of preferred stock dividends (4,899) (4,899) (5,400)
Payment of common stock dividends (39,400) (34,100) (29,000)
Miscellaneous (568) (1,201) (5,683)
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash provided from (used for) financing activities (46,591) 23,173 22,473
- ----------------------------------------------------------------------------------------------------------------------------------
Net Change in Cash and Cash Equivalents 11,324 439 (6,539)
Cash and Cash Equivalents at Beginning of Year 1,317 878 7,417
- -----------------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year $ 12,641 $ 1,317 $ 878
==================================================================================================================================
Supplemental Cash Flow Information:
Cash paid during the year for --
Interest (net of amount capitalized) $23,308 $19,196 $15,697
Income taxes 36,908 31,115 29,009
- ----------------------------------------------------------------------------------------------------------------------------------
( ) Denotes use of cash.
The accompanying notes are an integral part of these statements.
11
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BALANCE SHEETS
At December 31, 1995 and 1994
Mississippi Power Company 1995 Annual Report
- --------------------------------------------------------------------------------------------------------------------------------
ASSETS 1995 1994
- --------------------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Utility Plant:
Plant in service, at original cost (Notes 1 and 6) $ 1,434,327 $ 1,385,032
Less accumulated provision for depreciation 499,308 477,098
- --------------------------------------------------------------------------------------------------------------------------------
935,019 907,934
Construction work in progress 41,210 44,838
- --------------------------------------------------------------------------------------------------------------------------------
Total 976,229 952,772
- --------------------------------------------------------------------------------------------------------------------------------
Other Property and Investments 4,160 3,353
- --------------------------------------------------------------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents 12,641 1,317
Receivables-
Customer accounts receivable 30,761 27,865
Other accounts and notes receivable 9,438 6,599
Affiliated companies 9,213 6,058
Accumulated provision for uncollectible accounts (802) (670)
Fossil fuel stock, at average cost 15,666 16,885
Materials and supplies, at average cost 22,558 25,301
Current portion of deferred fuel charges (Note 5) 1,546 1,068
Current portion of accumulated deferred income taxes (Note 8) 5,180 5,410
Prepaid federal income taxes - 5,019
Prepayments 2,404 760
Vacation pay deferred 4,715 4,588
- --------------------------------------------------------------------------------------------------------------------------------
Total 113,320 100,200
- --------------------------------------------------------------------------------------------------------------------------------
Deferred Charges:
Debt expense and loss, being amortized 10,039 10,929
Deferred fuel charges (Note 5) - 9,000
Deferred charges related to income taxes (Note 8) 23,384 25,036
Deferred early retirement program costs (Note 2) 7,286 11,286
Miscellaneous 14,535 11,135
- --------------------------------------------------------------------------------------------------------------------------------
Total 55,244 67,386
- --------------------------------------------------------------------------------------------------------------------------------
Total Assets $ 1,148,953 $ 1,123,711
================================================================================================================================
The accompanying notes are an integral part of these statements.
12
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BALANCE SHEETS
At December 31, 1995 and 1994
Mississippi Power Company 1995 Annual Report
- --------------------------------------------------------------------------------------------------------------------------------
CAPITALIZATION AND LIABILITIES 1995 1994
- --------------------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Capitalization (See accompanying statements):
Common stock equity $ 374,884 $ 361,753
Preferred stock 74,414 74,414
Long-term debt 288,820 306,522
- --------------------------------------------------------------------------------------------------------------------------------
Total 738,118 742,689
- --------------------------------------------------------------------------------------------------------------------------------
Current Liabilities:
Long-term debt due within one year (Note 10) 57,229 41,199
Accounts payable-
Affiliated companies 13,646 3,337
Other 37,129 31,144
Customer deposits 2,716 2,712
Taxes accrued-
Federal and state income 97 433
Other 31,816 31,224
Interest accrued 4,701 4,427
Miscellaneous 13,453 14,613
- --------------------------------------------------------------------------------------------------------------------------------
Total 160,787 129,089
- --------------------------------------------------------------------------------------------------------------------------------
Deferred Credits and Other Liabilities:
Accumulated deferred income taxes (Note 8) 129,711 129,505
Accumulated deferred investment tax credits 29,773 31,228
Deferred credits related to income taxes (Note 8) 43,266 45,832
Accumulated provision for property damage (Note 1) 12,018 10,905
Miscellaneous 35,280 34,463
- --------------------------------------------------------------------------------------------------------------------------------
Total 250,048 251,933
- --------------------------------------------------------------------------------------------------------------------------------
Commitments and Contingent Matters (Notes 2, 3, 4, and 5)
Total Capitalization and Liabilities $ 1,148,953 $ 1,123,711
================================================================================================================================
The accompanying notes are an integral part of these statements.
13
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CAPITALIZATION
At December 31, 1995 and 1994
Mississippi Power Company 1995 Annual Report
- ---------------------------------------------------------------------------------------------------------------------------
1995 1994 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
(in thousands) (percent of total)
<S> <C> <C> <C> <C>
Common Stock Equity:
Common stock, without par value --
Authorized -- 1,130,000 shares
Outstanding -- 1,121,000 shares in
1995 and 1994 $ 37,691 $ 37,691
Paid-in capital 179,362 179,362
Premium on preferred stock 372 372
Retained earnings (Note 11) 157,459 144,328
- ---------------------------------------------------------------------------------------------------------------------------
Total common stock equity 374,884 361,753 50.8% 48.7%
- ---------------------------------------------------------------------------------------------------------------------------
Cumulative Preferred Stock:
$100 par value --
Authorized -- 1,244,139 shares
Outstanding -- 744,139 shares in 1995
and 1994
4.40% 4,000 4,000
4.60% 2,010 2,010
4.72% 5,000 5,000
6.32% 15,000 15,000
6.65% 8,404 8,404
7.00% 5,000 5,000
7.25% 35,000 35,000
- ---------------------------------------------------------------------------------------------------------------------------
Total (annual dividend requirement -- $4,899,000) 74,414 74,414 10.1 10.0
- ---------------------------------------------------------------------------------------------------------------------------
Long-Term Debt:
First mortgage bonds --
Maturity Interest Rates
March 1, 1998 5 3/8% 35,000 35,000
August 1, 2000 6 5/8% 40,000 40,000
March 1, 2004 6.60% 35,000 35,000
May 1, 2021 9 1/4% 45,447 47,072
June 1, 2023 7.45% 35,000 35,000
December 1, 2025 6 7/8% 30,000 -
- ---------------------------------------------------------------------------------------------------------------------------
Total first mortgage bonds 220,447 192,072
Pollution control obligations (Note 9) 73,745 63,155
Other long-term debt (Note 9) 55,000 95,689
Unamortized debt premium (discount), net (3,143) (3,195)
- ---------------------------------------------------------------------------------------------------------------------------
Total long-term debt (annual interest
requirement--$23,135,000) 346,049 347,721
Less amount due within one year (Note 10) 57,229 41,199
- ---------------------------------------------------------------------------------------------------------------------------
Long-term debt excluding amount due within one year 288,820 306,522 39.1 41.3
- ---------------------------------------------------------------------------------------------------------------------------
Total Capitalization $ 738,118 $ 742,689 100.0% 100.0%
===========================================================================================================================
The accompanying notes are an integral part of these statements.
14
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF RETAINED EARNINGS
For the Years Ended December 31, 1995, 1994, and 1993
Mississippi Power Company 1995 Annual Report
- ----------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Balance at Beginning of Period $ 144,328 $ 129,343 $ 118,429
Net income after dividends on preferred stock 52,531 49,157 42,436
Cash dividends on common stock (39,400) (34,100) (29,000)
Preferred stock transactions and other, net - (72) (2,522)
==================================================================================================================================
Balance at End of Period (Note 11) $ 157,459 $ 144,328 $ 129,343
==================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF PAID-IN CAPITAL
For the Years Ended December 31, 1995, 1994, and 1993
- ----------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Balance at Beginning of Period $ 179,362 $ 154,362 $ 124,326
Contributions to capital by parent company - 25,000 30,036
==================================================================================================================================
Balance at End of Period $ 179,362 $ 179,362 $ 154,362
==================================================================================================================================
The accompanying notes are an integral part of these statements.
</TABLE>
15
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Mississippi Power Company 1995 Annual Report
1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
General
Mississippi Power Company is a wholly owned subsidiary of The Southern Company,
which is the parent company of five operating companies, Southern Company
Services (SCS), Southern Communications Services (Southern Communications),
Southern Electric International (Southern Electric), Southern Nuclear Operating
Company (Southern Nuclear), and The Southern Development and Investment Group
(Southern Development), and other direct and indirect subsidiaries. The
operating companies (Alabama Power Company, Georgia Power Company, Gulf Power
Company, Mississippi Power Company, and Savannah Electric and Power Company)
provide electric service in four southeastern states. Contracts among the
companies--dealing with jointly owned generating facilities, interconnecting
transmission lines, and the exchange of electric power--are regulated by the
Federal Energy Regulatory Commission (FERC) or the Securities and Exchange
Commission. SCS provides, at cost, specialized services to The Southern Company
and to the subsidiary companies. Southern Communications provides digital
wireless communications services to the operating companies and also markets
these services to the public within the Southeast. Southern Electric designs,
builds, owns, and operates power production and delivery facilities and provides
a broad range of technical services to industrial companies and utilities in the
United States and a number of international markets. Southern Nuclear provides
services to The Southern Company's nuclear power plants. Southern Development
develops new business opportunities related to energy products and services.
The Southern Company is registered as a holding company under the Public
Utility Holding Company Act of 1935 (PUHCA). Both The Southern Company and its
subsidiaries are subject to the regulatory provisions of the PUHCA. Mississippi
Power is also subject to regulation by the FERC and the Mississippi Public
Service Commission (MPSC). The Company follows generally accepted accounting
principles and complies with the accounting policies and practices prescribed by
the respective commissions. The preparation of financial statements in
conformity with generally accepted accounting principles requires the use of
estimates and the actual results may differ from those estimates.
Certain prior years' data presented in the financial statements have been
reclassified to conform with current year presentation.
Regulatory Assets and Liabilities
Mississippi Power is subject to the provisions of Financial Accounting Standards
Board (FASB) Statement No. 71, Accounting for the Effects of Certain Types of
Regulation. Regulatory assets represent probable future revenues to the Company
associated with certain costs that are expected to be recovered from customers
through the ratemaking process. Regulatory liabilities represent probable future
reductions in revenues associated with amounts that are to be credited to
customers through the ratemaking process. Regulatory assets and (liabilities)
reflected in the Balance Sheets as of December 31 relate to: (in thousands)
1995 1994
-------------------------
Deferred income taxes $23,384 $25,036
Vacation pay 4,715 4,588
Work force reduction costs 7,286 11,286
Deferred fuel charges 1,546 10,068
Premium on reacquired debt 8,509 9,571
Deferred environmental costs 1,713 -
Property damage reserve (12,018) (10,905)
Deferred income tax credits (43,266) (45,832)
Other, net (2,658) (3,383)
================================================================
Total $(10,789) $ 429
================================================================
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 the related regulatory assets and liabilities. In addition, the Company
would be required to determine any impairment to other assets, including plant,
and, if impaired, to write down the assets to their fair value.
Revenues
Mississippi Power accrues revenues for service rendered but unbilled at the end
of each fiscal period. The Company's retail and wholesale rates include
provisions to adjust billings for fluctuations in fuel and the energy component
of purchased power. Retail rates also include provisions to adjust billings for
16
<PAGE>
NOTES (continued)
Mississippi Power Company 1995 Annual Report
fluctuations in costs for ad valorem taxes and certain qualifying environmental
costs. Revenues are adjusted for differences between actual allowable amounts
and the amounts included in rates.
The Company has a diversified base of customers. No single customer or
industry comprises 10 percent or more of revenues. In 1995, uncollectible
accounts continued to average less than 1 percent of revenues.
Depreciation
Depreciation of the original cost of depreciable utility plant in service is
provided by using composite straight-line rates which approximated 3.2 percent
in 1995 and 1994, and 3.1 percent in 1993. When property subject to depreciation
is retired or otherwise disposed of in the normal course of business, its cost
- -- together with the cost of removal, less salvage -- is charged to the
accumulated provision for depreciation. Minor items of property included in the
original cost of the plant are retired when the related property unit is
retired. Depreciation expense includes an amount for the expected cost of
removal of other facilities.
Income Taxes
Mississippi Power uses the liability method of accounting for deferred income
taxes and provides deferred income taxes for all significant income tax
temporary differences. Investment tax credits utilized are deferred and
amortized to income over the average lives of the related property.
Allowance for Funds Used During Construction (AFUDC)
AFUDC represents the estimated debt and equity costs of capital funds that are
necessary to finance the construction of new facilities. While cash is not
realized currently from such allowance, it increases the revenue requirement
over the service life of the plant through a higher rate base and higher
depreciation expense. The composite rates used to capitalize the cost of funds
devoted to construction were 8.0 percent in 1995, 6.9 percent in 1994, and 6.8
percent in 1993. AFUDC (net of income taxes), as a percent of net income after
dividends on preferred stock, was 1.2 percent in 1995, and 3.5 percent in 1994
and 1993.
Utility Plant
Utility plant is stated at original cost. This 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 except for the maintenance of coal cars and a portion of the railway
track maintenance, which are charged to fuel stock. The cost of replacements of
property (exclusive of minor items of property) is charged to utility plant.
Cash and Cash Equivalents
For purposes of the Statements of Cash Flows, temporary cash investments are
considered cash equivalents. Temporary cash investments are securities with
original maturities of 90 days or less.
Financial Instruments
In accordance with FASB Statement No. 107, Disclosure About Fair Value of
Financial Instruments, all financial instruments of the Company for which the
carrying amount does not approximate fair value, must be disclosed. At December
31, 1995, the fair value of long-term debt was $355 million and the carrying
amount was $346 million. At December 31, 1994, the fair value of long-term debt
was $331 million and the carrying amount was $348 million. The fair value for
long-term debt was based on either closing market price or closing price of
comparable instruments.
Materials and Supplies
Generally, materials and supplies include the cost of transmission, distribution
and generating plant materials. Materials are charged to inventory when
purchased and then expensed or capitalized to plant, as appropriate, when used
or installed.
17
<PAGE>
NOTES (continued)
Mississippi Power Company 1995 Annual Report
Provision for Property Damage
Mississippi Power is self-insured for the cost of storm, fire and other
uninsured casualty damage to its property, including transmission and
distribution facilities. As permitted by regulatory authorities, the Company
provided for such costs by charges to income of $1.5 million in 1995, $1.1
million in 1994 and $1.5 million in 1993. The cost of repairing damage resulting
from such events that individually exceed $50 thousand is charged to the
accumulated provision to the extent it is available. Effective January 1995,
regulatory treatment by the MPSC allowed a maximum accumulated provision of $18
million. As of December 31, 1995, the accumulated provision amounted to $12.0
million.
2. RETIREMENT BENEFITS
Pension Plan
Mississippi Power has a defined benefit, trusteed, non-contributory pension plan
that covers substantially all regular employees. Benefits are based on one of
the following formulas: years of service and final average pay or years of
service and a flat-dollar benefit. The Company uses the "entry age normal method
with a frozen initial liability" actuarial method for funding purposes, subject
to limitations under federal income tax regulations. Amounts funded to the
pension trust are primarily invested in equity and fixed-income securities. FASB
Statement No. 87, Employers' Accounting for Pensions, requires use of the
"projected unit credit" actuarial method for financial reporting purposes.
Postretirement Benefits
Mississippi Power also 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 required by the
Company's regulatory commissions. Amounts funded are primarily invested in debt
and equity securities.
FASB Statement No. 106, Employers' Accounting for Postretirement Benefits
Other Than Pensions, requires that medical care and life insurance benefits for
retired employees be accounted for on an accrual basis using a specified
actuarial method, "benefit/years-of-service." The cost of postretirement
benefits is reflected in rates on a current basis.
Funded Status and Cost of Benefits
The following tables show actuarial results and assumptions for pension and
postretirement benefits as computed under the requirements of FASB Statement
Nos. 87 and 106, respectively. The funded status of the plans at December 31 was
as follows:
Pension
------------------------
1995 1994
------------------------
(in thousands)
Actuarial present value of benefit
obligation:
Vested benefits $91,322 $80,603
Non-vested benefits 4,264 2,966
--------------------------------------------------------------
Accumulated benefit obligation 95,586 83,569
Additional amounts related to
projected salary increases 28,545 27,292
--------------------------------------------------------------
Projected benefit obligation 124,131 110,861
Less:
Fair value of plan assets 170,481 145,598
Unrecognized net gain (47,034) (37,485)
Unrecognized prior service cost 2,868 3,109
Unrecognized transition asset (6,001) (6,635)
--------------------------------------------------------------
Prepaid asset (accrued liability)
recognized in the
Balance Sheets $(3,817) $(6,274)
==============================================================
Postretirement Benefits
------------------------
1995 1994
------------------------
(in thousands)
Actuarial present value of benefit
obligation:
Retirees and dependents $22,575 $22,833
Employees eligible to retire 1,709 774
Other employees 17,908 22,851
------------------------------------------------------------
Accumulated benefit obligation 42,192 46,458
Less:
Fair value of plan assets 8,700 6,608
Unrecognized net loss (gain) 4,160 1,751
Unrecognized transition
obligation 7,044 18,668
------------------------------------------------------------
Accrued liability recognized in
the Balance Sheets $22,288 $19,431
============================================================
18
<PAGE>
NOTES (continued)
Mississippi Power Company 1995 Annual Report
In 1995, The Southern Company's subsidiaries announced a cost sharing
program for postretirement benefits. The program establishes limits on amounts
the companies will pay to provide future retiree postretirement benefits. This
change reduced the Company's 1995 accumulated postretirement benefit obligation
by approximately $10.5 million.
The weighted average rates assumed in the above actuarial calculations were:
1995 1994 1993
---------------------------------
Discount 7.3% 8.0% 7.5%
Annual salary increase 4.8 5.5 5.0
Long-term return on
plan assets 8.5 8.5 8.5
------------------------------------------------------------
An additional assumption used in measuring the accumulated postretirement
benefit obligation was a weighted average medical care cost trend rate of 9.8
percent for 1995, decreasing gradually to 5.3 percent through the year 2005 and
remaining at that level thereafter. An annual increase in the assumed medical
care cost trend rate of 1 percent would increase the accumulated benefit
obligation as of December 31, 1995, by $3.3 million and the aggregate of the
service and interest cost components of the net retiree cost by $0.8 million.
Components of the plans' net cost are shown below:
Pension
--------------------------------
1995 1994 1993
--------------------------------
(in thousands)
Benefits earned during
the year $ 3,636 $ 3,780 $ 3,792
Interest cost on
projected benefit
obligation 8,434 7,503 7,296
Actual (return) loss on
plan assets (32,232) 3,244 (20,017)
Net amortization and
deferral 18,650 (16,048) 8,741
==============================================================
Net pension income $ (1,512) $ (1,521) $ (188)
==============================================================
Of the above net pension income, $(1.1) million in both 1995 and 1994, and
$(170) thousand in 1993 were recorded in operating expenses, and the remainder
was recorded in construction and other accounts.
Postretirement Benefits
---------------------------------
1995 1994 1993
---------------------------------
(in thousands)
Benefits earned during the year $1,525 $1,760 $1,448
Interest cost on accumulated
benefit obligation 3,442 3,251 2,811
Amortization of transition
obligation over 20 years 1,027 1,043 1,051
Actual (return) loss on
plan assets (1,436) 132 (814)
Net amortization and deferral 851 (575) 343
==================================================================
Net postretirement costs $5,409 $5,611 $4,839
==================================================================
Of the above net postretirement costs recorded, $3.9 million in 1995, $4.4
million in 1994, and $3.9 million in 1993 were charged to operating expense.
Work Force Reduction Programs
During 1994, Mississippi Power and SCS instituted work force reduction programs.
The costs of the SCS work force reduction program were apportioned among the
various entities that form the Southern electric system, with the Company's
portion amounting to $1.4 million. The Company instituted an early retirement
incentive program in April 1994 and deferred the related costs of approximately
$12.9 million. The Company received authority from the MPSC to defer these
costs, as well as its portion of the costs of the SCS program, and to amortize
over a period not to exceed 60 months, beginning no later than January 1995. The
Company expensed $4.0 million and $3.0 million of the cost of these programs in
1995 and 1994, respectively.
3. LITIGATION AND REGULATORY MATTERS
Retail Rate Adjustment Plans
Mississippi Power's retail base rates are set under a Performance Evaluation
Plan (PEP). In January 1994, the MPSC approved PEP-2. PEP-2 was designed with
the MPSC objectives that the plan would reduce the impact of rate changes on the
customer and provide incentives for Mississippi Power to keep customer prices
low. PEP-2 includes a mechanism for sharing rate adjustments based on the
Company's ability to maintain low rates for customers and on the Company's
performance as measured by three indicators that emphasize price and service to
the customer. PEP-2 provides for semiannual evaluations of Mississippi's
19
<PAGE>
performance-based return on investment. Any change in rates is limited to 2
percent of retail revenues per evaluation period. PEP-2 will remain in effect
until the MPSC modifies or terminates the plan. During 1995 and 1994, there were
no increases under PEP-2.
FERC Reviews Equity Returns
In May 1991, the FERC ordered that hearings be conducted concerning the
reasonableness of the operating companies' wholesale rate schedules and
contracts that have a return on equity of 13.75 percent or greater. The
contracts that could be affected by the hearings include substantially all of
the transmission, unit power, long-term power and other similar contracts,
including the Company's Transmission Facilities Agreement (TFA) discussed in
Note 5 under "Lease Agreements." Any change in the rate of return on common
equity that may require refunds as a result of this proceeding would be
substantially for the period beginning in July 1991 and ending in October 1992.
In August 1992, a FERC administrative law judge issued an opinion that
changes in rate schedules and contracts were not necessary and that the FERC
staff failed to show how any changes were in the public interest. The FERC staff
has filed exceptions to the administrative law judge's opinion, and the matter
remains pending before the FERC.
In August 1994, the FERC instituted another proceeding based on
substantially the same issues as in the 1991 proceeding. The second period under
review for possible refunds was from October 1994 through December 1995. In
November 1995, a FERC administrative law judge issued an opinion that the FERC
staff failed to meet its burden of proof, and therefore, no change in the equity
return was necessary. The FERC staff has filed exceptions to the administrative
law judge's opinion, and the matter remains pending before the FERC.
If the rates of return on common equity recommended by the FERC staff were
applied to all of the schedules and contracts involved in both proceedings and
refunds were ordered, the amount of refunds could range up to approximately $2.0
million at December 31, 1995. However, management believes that rates are not
excessive, and that refunds are not justified.
Environmental Compliance Overview Plan
The MPSC approved Mississippi Power's ECO Plan in 1992. The plan establishes
procedures to facilitate the MPSC's overview of the Company's environmental
strategy and provides for recovery of costs associated with environmental
projects approved by the MPSC. In November 1995, the MPSC ordered a change in
accounting treatment allowing emission allowance expenses to be recovered
through the Company's fuel adjustment clause, and emission allowance inventory
costs to be recovered through PEP-2 rather than through the ECO Plan. Under the
ECO Plan any increase in the annual revenue requirement is limited to 2 percent
of retail revenues. However, the plan also provides for carryover of any amount
over the 2 percent limit into the next year's revenue requirement. The ECO Plan
has resulted in annual retail rate increases, the latest being an increase of
$3.7 million, effective in May 1995 which included $1.6 million of 1994
carryover. On January 29, 1996, the Company filed the ECO Plan with the MPSC
requesting an annual retail rate decrease of $3.0 million.
Mississippi Power conducts studies, when possible, to determine the extent
of any required clean-up costs. Should remediation be determined to be probable,
reasonable estimates of costs to clean up such sites are developed and
recognized in the financial statements. A currently owned site where
manufactured gas plant operations were located prior to the Company's ownership
was investigated for potential remediation. The remedial investigation has been
concluded and is pending approval by the Mississippi Department of Environmental
Quality. In recognition of probable further study and remediation, the Company
in 1995 recorded a liability and a deferred debit (regulatory asset) of $1.8
million, including feasibility study costs. The Company recognizes such costs as
they are incurred and recovers them under the ECO Plan as provided in the
Company's 1995 ECO order. If this site were required to be remediated, industry
studies show the Company could incur cleanup costs ranging from $1.5 million to
$10 million before giving consideration to possible recovery of clean-up costs
from other parties.
4. CONSTRUCTION PROGRAM
Mississippi Power is engaged in continuous construction programs, the costs of
which are currently estimated to total some $67 million in 1996, $62 million in
1997, and $53 million in 1998. These estimates include AFUDC of $1.3 million in
20
<PAGE>
NOTES (continued)
Mississippi Power Company 1995 Annual Report
1996, and $0.3 million in both 1997 and 1998.
The construction program is subject to periodic review and revision, and
actual construction costs may vary from the above estimates because of numerous
factors. These factors include changes in business conditions; revised load
growth estimates; changes in environmental regulations; increasing costs of
labor, equipment and materials; and cost of capital. The Company does not have
any new generating plants under construction. However, significant construction
will continue related to transmission and distribution facilities and the
upgrading and extension of the useful lives of generating plants.
5. FINANCING AND COMMITMENTS
Financing
Mississippi Power's construction program is expected to be financed from
internal and other sources, such as the issuance of additional long-term debt
and preferred stock and the receipt of capital contributions from The Southern
Company.
The amounts of first mortgage bonds and preferred stock which can be issued
in the future will be contingent upon market conditions, adequate earnings
levels, regulatory authorizations and other factors.
At December 31, 1995, Mississippi Power had unused committed credit
agreements with banks for $27 million. Additionally, Mississippi Power had $70
million of unused committed credit agreements in the form of revolving credit
agreements expiring at various dates during 1996 and in 1998. The agreements
expiring December 1, 1998, for $40 million allow short-term borrowings to be
converted into term loans, payable in 12 equal quarterly installments, with the
first installment due at the end of the first calendar quarter after the
applicable termination date or at an earlier date at the Company's option. In
connection with these credit arrangements, the Company agrees to pay commitment
fees based on the unused portions of the commitments or to maintain compensating
balances with the banks. The Company had no short-term borrowings outstanding at
year-end 1995.
Assets Subject to Lien
Mississippi Power's mortgage indenture dated as of September 1, 1941, as amended
and supplemented, which secures the first mortgage bonds issued by the Company,
constitutes a direct first lien on substantially all the Company's fixed
property and franchises.
Lease Agreements
In 1984, Mississippi Power and Gulf States Utilities Company (Gulf States)
entered into a forty-year transmission facilities agreement whereby Gulf States
began paying a use fee to the Company covering all expenses relative to
ownership and operation and maintenance of a 500 kV line, including amortization
of its original $57 million cost. For the three years ended 1995 use fees
collected under this agreement, net of related expenses, amounted to $3.8
million each year, and are included with other income, net, in the Statements of
Income. For more information see Note 3 under "FERC Reviews Equity Returns."
In 1989, Mississippi Power entered into a twenty-two
year lease agreement for the use of 495 aluminum railcars. In 1994, a second
lease agreement for the use of 250 additional aluminum railcars was also entered
into for twenty-two years. Both of these leases, totaling 745 railcars, were for
the transport of coal at Plant Daniel. Gulf Power, as joint owner of Plant
Daniel, is responsible for one half of the lease cost. The Company's share (50%)
of the leases is charged to fuel inventory and allocated to fuel expense as the
fuel is consumed. The lease cost charged to inventory was $1.7 million in 1995
and $1.2 million in both 1994 and 1993. The Company's annual lease payments for
1996 through 2000 will be approximately $1.7 million and after 2000, lease
payments total approximately $22.4 million. The Company has the option to
purchase the 745 railcars at the greater of the termination value or the fair
market value, or to renew the leases at the end of the lease term.
Fuel Commitments
To supply a portion of the fuel requirements of its generating plants,
Mississippi Power has entered into various long-term commitments for the
procurement of fuel. In most cases, these contracts contain provisions for price
escalations, minimum production levels, and other financial commitments. Total
estimated obligations were approximately $227 million at December 31, 1995.
21
<PAGE>
Additional commitments for fuel will be required in the future to supply the
Company's fuel needs.
In order to take advantage of lower cost coal supplies, agreements were
reached in 1986 to terminate two contracts for the supply of coal to Plant
Daniel, which is jointly owned by Mississippi Power and Gulf Power, an operating
affiliate. The Company's portion of this payment was about $60 million. In
accordance with the ratemaking treatment, the cost to terminate the contracts is
being amortized to match costs with the savings achieved. The remaining
unamortized amount of Mississippi Power's share of payments to the suppliers
totaled $1.5 million at December 31, 1995.
6. JOINT OWNERSHIP AGREEMENTS
Mississippi Power and Alabama Power own as tenants in common Greene County
Electric Generating Plant (coal) located in Alabama; and Mississippi Power and
Gulf Power own as tenants in common Daniel Electric Generating Plant (coal)
located in Mississippi. At December 31, 1995, Mississippi Power's percentage
ownership and investment in these jointly owned facilities were as follows:
Company's
Generating Total Percent Gross Accumulated
Plant Capacity Ownership Investment Depreciation
---------------------------------------------------------------
(Megawatts) (in thousands)
Greene
County 500 40% $ 57,957 $ 31,201
Daniel 1,000 50% 222,367 94,172
---------------------------------------------------------------
Mississippi Power's share of plant operating expenses is included in the
corresponding operating expenses in the Statements of Income.
7. LONG-TERM POWER SALES AGREEMENTS
General
Mississippi Power and the other operating affiliates of The Southern Company
have long-term contractual agreements for the sale of capacity and energy to
certain non-affiliated utilities located outside the system's service area. The
agreements for non-firm capacity expired in 1994. Some of these agreements (unit
power sales) are firm commitments and pertain to capacity related to specific
generating units. Mississippi Power's participation in firm production capacity
unit power sales ended in 1989. However, the Company continues to participate in
transmission and energy sales under the unit power sales agreements. Because the
energy is generally sold at variable costs under these agreements, only revenues
from capacity sales affect profitability. Off-system capacity revenues for the
Company have been as follows:
Other
Year Unit Power Long-Term Total
------------------------------------------------------------
(in thousands)
1995 $ 268 $ - $ 268
1994 660 1,305 1,965
1993 1,571 2,620 4,191
In 1994, long-term non-firm power of 200 megawatts
was sold by the Southern electric system to Florida Power Corporation (FPC)
until the contract expired at year-end.
8. INCOME TAXES
Effective January 1, 1993, Mississippi Power adopted FASB Statement No. 109,
Accounting for Income Taxes. The adoption resulted in the recording of
additional deferred income taxes and related regulatory assets and liabilities.
At December 31, 1995, the tax-related regulatory assets to be recovered from
customers were $23 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, 1995, the tax-related regulatory liabilities to be
refunded to customers were $43 million. These liabilities are attributable to
deferred taxes previously recognized at rates higher than current enacted tax
law and unamortized investment tax credits.
22
<PAGE>
NOTES (continued)
Mississippi Power Company 1995 Annual Report
Details of the federal and state income tax provisions are shown below:
1995 1994 1993
---------------------------------
(in thousands)
Total provision for
income taxes
Federal --
Currently payable $32,546 $26,072 $15,842
Deferred --current year 5,122 6,313 5,158
--reversal of
prior years (7,039) (5,161) (820)
---------------------------------------------------------------
30,629 27,224 20,180
---------------------------------------------------------------
State --
Currently payable 3,426 3,978 2,945
Deferred --current 2,270 1,669 1,339
--reversal of
prior years (833) (1,258) (638)
--------------------------------------------------------------
4,863 4,389 3,646
---------------------------------------------------------------
Total 35,492 31,613 23,826
Less income taxes charged
to other income 1,006 227 1,158
---------------------------------------------------------------
Federal and state
income taxes charged
to operations $34,486 $31,386 $22,668
===============================================================
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:
1995 1994
-----------------------------
(in thousands)
Deferred tax liabilities:
Accelerated depreciation $145,093 $138,281
Basis differences 10,815 11,645
Coal contract buyouts 145 3,851
Other 16,478 17,908
-------------------------------------------------------------
Total 172,531 171,685
-------------------------------------------------------------
Deferred tax assets:
Other property
basis differences 25,951 27,375
Pension and
other benefits 7,356 5,386
Property insurance 4,551 4,171
Unbilled fuel 3,039 3,649
Other 7,103 7,009
-------------------------------------------------------------
Total 48,000 47,590
-------------------------------------------------------------
Net deferred tax
liabilities 124,531 124,095
Portion included in
current assets, net 5,180 5,410
-------------------------------------------------------------
Accumulated deferred
income taxes in the
Balance Sheets $129,711 $129,505
=============================================================
In 1989, under order of the MPSC, Mississippi Power began amortizing
deferred income taxes not covered by the Internal Revenue Service normalization
requirements, that had been recorded at rates higher than those specified by the
current statutory income tax rules. This amortization occurred over a 60-month
period, the effect of which was a reduction of income tax expense of
approximately $2.7 million per year. This tax rate differential has been fully
amortized.
Deferred investment tax credits are amortized over the life of the related
property with such amortization normally applied as a credit to reduce
depreciation in the Statements of Income. Credits amortized in this manner
amounted to $1.5 million in 1995, 1994 and 1993. At December 31, 1995, all
investment tax credits available to reduce federal income taxes payable had been
utilized.
23
<PAGE>
NOTES (continued)
Mississippi Power Company 1995 Annual Report
A reconciliation of the federal statutory income tax rate to the effective
income tax rate is as follows:
1995 1994 1993
-----------------------------
Total effective tax rate 38% 37% 33%
State income tax, net of
federal income tax benefit (3) (3)% (3)
Tax rate differential - 1 4
Other - - 1
-------------------------------------------------------------
Statutory federal tax rate 35% 35% 35%
=============================================================
Mississippi Power and the subsidiaries of The Southern Company file a
consolidated federal income tax return. Under a joint consolidated income tax
agreement, each subsidiary's current and deferred tax expense is computed on a
stand-alone basis. Tax benefits from losses of the parent company are allocated
to each subsidiary based on the ratio of taxable income to total consolidated
taxable income.
9. OTHER LONG-TERM DEBT
Details of other long-term debt are as follows:
December 31,
1995 1994
---------------------
(in thousands)
Obligations incurred in
connection with the sale by
public authorities of
tax-exempt pollution control
revenue bonds:
5.8$% due 2007 $ 970 $ 980
Variable rate due 2020 6,550 6,550
Variable rate due 2022 16,750 16,750
6.20% due 2023 13,000 13,000
5.65% due 2023 25,875 25,875
Variable due 2025 10,600 -
------------------------------------------------------------
73,745 63,155
------------------------------------------------------------
Notes payable:
4.15% to 7.50% due 1995 - 40,689
Variable rates (5.88% to 5.89%
at 1/1/95) due 1995 - 20,000
Variable rates (5.85% to
6.015% at 1/1/96) due 1996 55,000 35,000
------------------------------------------------------------
55,000 95,689
------------------------------------------------------------
Total $128,745 $158,844
============================================================
Pollution control obligations represent installment or
lease purchases of pollution control facilities financed by application of funds
derived from sales by public authorities of tax-exempt revenue bonds.
Mississippi Power has authenticated and delivered to the Trustee a like
principal amount of first mortgage bonds as security for obligations under
collateralized installment agreements. The principal and interest on the first
mortgage bonds will be payable only in the event of default under these
agreements. The 5.8% Series of pollution control obligations has a cash sinking
fund requirement of $10 thousand annually through 1997 and $20 thousand annually
in 1998, 1999 and 2000. The $55 million in notes payable is all due in 1996.
10. LONG-TERM DEBT DUE WITHIN ONE YEAR
A summary of the improvement fund requirements and scheduled maturities and
redemptions of long-term debt due within one year is as follows:
1995 1994
--------------------
(in thousands)
Bond improvement
fund requirements $ 2,219 $ 1,931
Less:
Portion to be satisfied by
certifying property additions - 1,431
-------------------------------------------------------------
Cash improvement fund
requirements 2,219 500
Pollution control bond cash
sinking fund requirements (Note 9) 10 10
Current portion of notes
payable (Note 9) 55,000 40,689
=============================================================
Total $57,229 $41,199
=============================================================
The first mortgage bond improvement fund requirement is one percent of each
outstanding series authenticated under the indenture of Mississippi Power prior
to January 1 of each year, other than first mortgage bonds issued as collateral
security for certain pollution control obligations. The requirement must be
satisfied by June 1 of each year by depositing cash or reacquiring bonds, or by
pledging additional property equal to 166-2/3 percent of such requirement.
11. COMMON STOCK DIVIDEND RESTRICTIONS
Mississippi Power's first mortgage bond indenture and the corporate charter
contain various common stock dividend restrictions. At December 31, 1995, some
$118 million of retained earnings was restricted against the payment of cash
dividends on common stock under the most restrictive terms of the mortgage
indenture or corporate charter.
24
<PAGE>
NOTES (continued)
Mississippi Power Company 1995 Annual Report
12. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 1995 and 1994 are as follows:
Net Income
After Dividends
Quarter Operating Operating On
Ended Revenues Income Preferred Stock
-------------------------------------------------------------------
March 1995 $109,572 $15,729 $ 9,269
June 1995 128,504 22,193 14,737
September 1995 157,119 28,517 22,161
December 1995 121,358 12,171 6,364
March 1994 $114,134 $12,910 $ 8,266
June 1994 131,792 19,891 13,744
September 1994 142,340 26,212 21,357
December 1994 110,896 14,062 5,790
Mississippi Power's business is influenced by seasonal weather conditions
and the timing of rate changes.
25
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL AND OPERATING DATA
Mississippi Power Company 1995 Annual Report
- -------------------------------------------------------------------------------------------------------------------------
1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Revenues (in thousands) $516,553 $499,162 $474,883
Net Income after Dividends
on Preferred Stock (in thousands) $52,531 $49,157 $42,436
Cash Dividends on Common Stock (in thousands) $39,400 $34,100 $29,000
Return on Average Common Equity (percent) 14.26 14.38 14.09
Total Assets (in thousands) $1,148,953 $1,123,711 $1,050,334
Gross Property Additions (in thousands) $67,570 $104,014 $139,976
- -------------------------------------------------------------------------------------------------------------------------
Capitalization (in thousands):
Common stock equity $374,884 $361,753 $321,768
Preferred stock 74,414 74,414 74,414
Preferred stock subject to mandatory redemption - - -
Long-term debt 288,820 306,522 250,391
- -------------------------------------------------------------------------------------------------------------------------
Total (excluding amounts due within one year) $738,118 $742,689 $646,573
=========================================================================================================================
Capitalization Ratios (percent):
Common stock equity 50.8 48.7 49.8
Preferred stock 10.1 10.0 11.5
Long-term debt 39.1 41.3 38.7
- -------------------------------------------------------------------------------------------------------------------------
Total (excluding amounts due within one year) 100.0 100.0 100.0
=========================================================================================================================
First Mortgage Bonds (in thousands):
Issued 30,000 35,000 70,000
Retired 1,625 32,628 51,300
Preferred Stock (in thousands):
Issued - - 23,404
Retired - - 23,404
- -------------------------------------------------------------------------------------------------------------------------
Security Ratings:
First Mortgage Bonds -
Moody's Aa3 Aa3 A1
Standard and Poor's A+ A+ A+
Duff & Phelps AA- A+ A+
Preferred Stock -
Moody's a1 a1 a1
Standard and Poor's A A A
Duff & Phelps A+ A A
- -------------------------------------------------------------------------------------------------------------------------
Customers (year-end):
Residential 154,014 152,891 151,692
Commercial 29,903 29,276 28,648
Industrial 642 650 570
Other 194 189 190
- -------------------------------------------------------------------------------------------------------------------------
Total 184,753 183,006 181,100
=========================================================================================================================
Employees (year-end) 1,421 1,535 1,586
- -------------------------------------------------------------------------------------------------------------------------
26
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL AND OPERATING DATA
Mississippi Power Company 1995 Annual Report
- -------------------------------------------------------------------------------------------------------------------------
1992 1991 1990
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Revenues (in thousands) $434,447 $432,386 $446,871
Net Income after Dividends
on Preferred Stock (in thousands) $36,790 $22,627 $34,176
Cash Dividends on Common Stock (in thousands) $28,000 $28,500 $27,500
Return on Average Common Equity (percent) 13.27 8.17 12.36
Total Assets (in thousands) $791,283 $790,641 $800,026
Gross Property Additions (in thousands) $68,189 $53,675 $49,009
- -------------------------------------------------------------------------------------------------------------------------
Capitalization (in thousands):
Common stock equity $280,640 $273,855 $279,833
Preferred stock 74,414 39,414 39,414
Preferred stock subject to mandatory redemption - - 3,750
Long-term debt 238,650 304,150 270,724
- -------------------------------------------------------------------------------------------------------------------------
Total (excluding amounts due within one year) $593,704 $617,419 $593,721
=========================================================================================================================
Capitalization Ratios (percent):
Common stock equity 47.3 44.4 47.1
Preferred stock 12.5 6.4 7.3
Long-term debt 40.2 49.2 45.6
- -------------------------------------------------------------------------------------------------------------------------
Total (excluding amounts due within one year) 100.0 100.0 100.0
=========================================================================================================================
First Mortgage Bonds (in thousands):
Issued 40,000 50,000 -
Retired 104,703 - 4,000
Preferred Stock (in thousands):
Issued 35,000 - -
Retired - 4,118 750
- -------------------------------------------------------------------------------------------------------------------------
Security Ratings:
First Mortgage Bonds -
Moody's A1 A1 A1
Standard and Poor's A+ A+ A+
Duff & Phelps A+ A+ A+
Preferred Stock -
Moody's a1 a1 a1
Standard and Poor's A A A
Duff & Phelps A A A
- -------------------------------------------------------------------------------------------------------------------------
Customers (year-end):
Residential 150,248 148,978 147,738
Commercial 28,056 27,441 27,134
Industrial 573 562 574
Other 189 400 411
- -------------------------------------------------------------------------------------------------------------------------
Total 179,066 177,381 175,857
=========================================================================================================================
Employees (year-end) 1,619 1,630 1,842
- -------------------------------------------------------------------------------------------------------------------------
27A
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL AND OPERATING DATA
Mississippi Power Company 1995 Annual Report
- -------------------------------------------------------------------------------------------------------------------------
1989 1988 1987
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Revenues (in thousands) $442,650 $437,939 $455,843
Net Income after Dividends
on Preferred Stock (in thousands) $38,576 $36,081 $35,200
Cash Dividends on Common Stock (in thousands) $27,000 $27,600 $24,700
Return on Average Common Equity (percent) 14.43 14.03 14.68
Total Assets (in thousands) $786,570 $779,319 $764,068
Gross Property Additions (in thousands) $43,916 $54,550 $53,288
- -------------------------------------------------------------------------------------------------------------------------
Capitalization (in thousands):
Common stock equity $273,157 $261,473 $252,992
Preferred stock 39,414 39,414 39,414
Preferred stock subject to mandatory redemption 4,500 5,250 6,750
Long-term debt 277,693 287,525 294,811
- -------------------------------------------------------------------------------------------------------------------------
Total (excluding amounts due within one year) $594,764 $593,662 $593,967
=========================================================================================================================
Capitalization Ratios (percent):
Common stock equity 45.9 44.1 42.6
Preferred stock 7.4 7.5 7.8
Long-term debt 46.7 48.4 49.6
- -------------------------------------------------------------------------------------------------------------------------
Total (excluding amounts due within one year) 100.0 100.0 100.0
=========================================================================================================================
First Mortgage Bonds (in thousands):
Issued - - -
Retired 3,823 - 29,701
Preferred Stock (in thousands):
Issued - - -
Retired 750 1,500 1,500
- -------------------------------------------------------------------------------------------------------------------------
Security Ratings:
First Mortgage Bonds -
Moody's A1 A1 A1
Standard and Poor's A+ A+ A+
Duff & Phelps A+ 5 5
Preferred Stock -
Moody's a1 a1 a1
Standard and Poor's A A A
Duff & Phelps A 6 6
- -------------------------------------------------------------------------------------------------------------------------
Customers (year-end):
Residential 147,308 146,750 146,273
Commercial 26,867 26,751 26,342
Industrial 525 478 438
Other 404 399 389
- -------------------------------------------------------------------------------------------------------------------------
Total 175,104 174,378 173,442
=========================================================================================================================
Employees (year-end) 1,750 1,831 1,898
- -------------------------------------------------------------------------------------------------------------------------
27B
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL AND OPERATING DATA
Mississippi Power Company 1995 Annual Report
- ---------------------------------------------------------------------------------------------------------
1986 1985
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating Revenues (in thousands) $476,265 $475,610
Net Income after Dividends
on Preferred Stock (in thousands) $33,814 $33,330
Cash Dividends on Common Stock (in thousands) $23,700 $22,600
Return on Average Common Equity (percent) 15.28 15.83
Total Assets (in thousands) $767,110 $679,577
Gross Property Additions (in thousands) $62,488 $57,791
- ---------------------------------------------------------------------------------------------------------
Capitalization (in thousands):
Common stock equity $226,601 $216,087
Preferred stock 39,414 39,414
Preferred stock subject to mandatory redemption 8,250 9,750
Long-term debt 299,684 261,594
- ---------------------------------------------------------------------------------------------------------
Total (excluding amounts due within one year) $573,949 $526,845
=========================================================================================================
Capitalization Ratios (percent):
Common stock equity 39.5 41.0
Preferred stock 8.3 9.3
Long-term debt 52.2 49.7
- ---------------------------------------------------------------------------------------------------------
Total (excluding amounts due within one year) 100.0 100.0
=========================================================================================================
First Mortgage Bonds (in thousands):
Issued 35,000 -
Retired 29,250 250
Preferred Stock (in thousands):
Issued - -
Retired 1,500 1,111
- ---------------------------------------------------------------------------------------------------------
Security Ratings:
First Mortgage Bonds -
Moody's A1 A1
Standard and Poor's A+ A
Duff & Phelps 5 5
Preferred Stock -
Moody's a1 a1
Standard and Poor's A A
Duff & Phelps 6 6
- ---------------------------------------------------------------------------------------------------------
Customers (year-end):
Residential 145,809 145,071
Commercial 26,217 25,629
Industrial 393 371
Other 363 356
- ---------------------------------------------------------------------------------------------------------
Total 172,782 171,427
=========================================================================================================
Employees (year-end) 1,882 1,801
- ---------------------------------------------------------------------------------------------------------
27C
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL AND OPERATING DATA (continued)
Mississippi Power Company 1995 Annual Report
- -------------------------------------------------------------------------------------------------------------------------
1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Revenues (in thousands):
Residential $134,286 $124,257 $118,793
Commercial 131,034 124,716 115,152
Industrial 140,947 142,268 130,198
Other 3,914 3,882 3,760
- -------------------------------------------------------------------------------------------------------------------------
Total retail 410,181 395,123 367,903
Sales for resale - non-affiliates 91,820 88,122 83,511
Sales for resale - affiliates 7,691 9,538 15,519
- -------------------------------------------------------------------------------------------------------------------------
Total revenues from sales of electricity 509,692 492,783 466,933
Other revenues 6,861 6,379 7,950
- -------------------------------------------------------------------------------------------------------------------------
Total $516,553 $499,162 $474,883
=========================================================================================================================
Kilowatt-Hour Sales (in thousands):
Residential 2,040,608 1,922,217 1,929,835
Commercial 2,242,163 2,100,625 1,933,685
Industrial 3,813,456 3,847,011 3,623,543
Other 38,559 38,147 38,357
- -------------------------------------------------------------------------------------------------------------------------
Total retail 8,134,786 7,908,000 7,525,420
Sales for resale - non-affiliates 2,493,519 2,555,914 2,544,982
Sales for resale - affiliates 243,554 174,342 426,919
- -------------------------------------------------------------------------------------------------------------------------
Total 10,871,859 10,638,256 10,497,321
=========================================================================================================================
Average Revenue Per Kilowatt-Hour (cents):
Residential 6.58 6.46 6.16
Commercial 5.84 5.94 5.96
Industrial 3.70 3.70 3.59
Total retail 5.04 5.00 4.89
Total sales 4.69 4.63 4.45
Residential Average Annual Kilowatt-Hour Use Per Customer 13,307 12,611 12,780
Residential Average Annual Revenue Per Customer $875.69 $815.21 $786.71
Plant Nameplate Capacity Ratings (year-end) (megawatts) 2,086 2,086 2,011
Maximum Peak-Hour Demand (megawatts):
Winter 1,637 1,636 1,401
Summer 2,095 1,874 1,872
Annual Load Factor (percent) 60.0 63.4 60.0
Plant Availability - Fossil-Steam (percent) 92.1 85.4 88.0
- -------------------------------------------------------------------------------------------------------------------------
Source of Energy Supply (percent):
Coal 58.0 56.0 63.5
Oil and gas 15.2 10.2 7.6
Purchased power -
From non-affiliates 2.4 1.2 1.3
From affiliates 24.4 32.6 27.6
- -------------------------------------------------------------------------------------------------------------------------
Total 100.0 100.0 100.0
=========================================================================================================================
Total Fuel Economy Data:
BTU per net kilowatt-hour generated 10,249 10,295 10,075
Cost of fuel per million BTU (cents) 160.48 165.96 170.13
Average cost of fuel per net kilowatt-hour generated (cents) 1.64 1.71 1.71
- -------------------------------------------------------------------------------------------------------------------------
28
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL AND OPERATING DATA (continued)
Mississippi Power Company 1995 Annual Report
- -------------------------------------------------------------------------------------------------------------------------
1992 1991 1990
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Revenues (in thousands):
Residential $109,781 $103,820 $102,243
Commercial 107,131 103,666 103,352
Industrial 117,010 116,972 123,754
Other 3,533 5,869 6,078
- -------------------------------------------------------------------------------------------------------------------------
Total retail 337,455 330,327 335,427
Sales for resale - non-affiliates 80,213 78,826 86,194
Sales for resale - affiliates 10,055 18,044 20,157
- -------------------------------------------------------------------------------------------------------------------------
Total revenues from sales of electricity 427,723 427,197 441,778
Other revenues 6,724 5,189 5,093
- -------------------------------------------------------------------------------------------------------------------------
Total $434,447 $432,386 $446,871
=========================================================================================================================
Kilowatt-Hour Sales (in thousands):
Residential 1,804,858 1,832,266 1,804,838
Commercial 1,811,042 1,768,441 1,718,074
Industrial 3,536,634 3,297,247 3,311,460
Other 38,261 89,375 85,938
- -------------------------------------------------------------------------------------------------------------------------
Total retail 7,190,795 6,987,329 6,920,310
Sales for resale - non-affiliates 2,687,917 2,706,320 2,883,581
Sales for resale - affiliates 280,443 617,696 714,365
- -------------------------------------------------------------------------------------------------------------------------
Total 10,159,155 10,311,345 10,518,256
=========================================================================================================================
Average Revenue Per Kilowatt-Hour (cents):
Residential 6.08 5.67 5.66
Commercial 5.92 5.86 6.02
Industrial 3.31 3.55 3.74
Total retail 4.69 4.73 4.85
Total sales 4.21 4.14 4.20
Residential Average Annual Kilowatt-Hour Use Per Customer 12,066 12,338 12,228
Residential Average Annual Revenue Per Customer $733.90 $699.11 $692.70
Plant Nameplate Capacity Ratings (year-end) (megawatts) 2,011 2,011 1,998
Maximum Peak-Hour Demand (megawatts):
Winter 1,386 1,267 1,201
Summer 1,755 1,682 1,724
Annual Load Factor (percent) 60.8 61.5 59.0
Plant Availability - Fossil-Steam (percent) 92.0 89.8 93.3
- -------------------------------------------------------------------------------------------------------------------------
Source of Energy Supply (percent):
Coal 60.4 64.1 62.6
Oil and gas 5.8 8.1 14.0
Purchased power -
From non-affiliates 1.2 0.7 0.8
From affiliates 32.6 27.1 22.6
- -------------------------------------------------------------------------------------------------------------------------
Total 100.0 100.0 100.0
=========================================================================================================================
Total Fuel Economy Data:
BTU per net kilowatt-hour generated 9,888 10,142 10,319
Cost of fuel per million BTU (cents) 162.27 177.52 183.27
Average cost of fuel per net kilowatt-hour generated (cents) 1.60 1.80 1.89
- -------------------------------------------------------------------------------------------------------------------------
29A
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL AND OPERATING DATA (continued)
Mississippi Power Company 1995 Annual Report
- -------------------------------------------------------------------------------------------------------------------------
1989 1988 1987
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Revenues (in thousands):
Residential $100,068 $96,711 $98,338
Commercial 103,403 98,772 98,669
Industrial 128,983 123,038 129,004
Other 5,992 5,874 5,723
- -------------------------------------------------------------------------------------------------------------------------
Total retail 338,446 324,395 331,734
Sales for resale - non-affiliates 82,111 75,525 88,060
Sales for resale - affiliates 16,938 33,747 31,278
- -------------------------------------------------------------------------------------------------------------------------
Total revenues from sales of electricity 437,495 433,667 451,072
Other revenues 5,155 4,272 4,771
- -------------------------------------------------------------------------------------------------------------------------
Total $442,650 $437,939 $455,843
=========================================================================================================================
Kilowatt-Hour Sales (in thousands):
Residential 1,741,855 1,686,722 1,658,327
Commercial 1,686,302 1,607,988 1,555,044
Industrial 3,204,208 2,879,457 2,862,632
Other 87,611 86,049 81,153
- -------------------------------------------------------------------------------------------------------------------------
Total retail 6,719,976 6,260,216 6,157,156
Sales for resale - non-affiliates 2,798,086 2,280,341 2,615,058
Sales for resale - affiliates 527,970 1,100,808 955,303
- -------------------------------------------------------------------------------------------------------------------------
Total 10,046,032 9,641,365 9,727,517
=========================================================================================================================
Average Revenue Per Kilowatt-Hour (cents):
Residential 5.74 5.73 5.93
Commercial 6.13 6.14 6.35
Industrial 4.03 4.27 4.51
Total retail 5.04 5.18 5.39
Total sales 4.35 4.50 4.64
Residential Average Annual Kilowatt-Hour Use Per Customer 11,842 11,499 11,356
Residential Average Annual Revenue Per Customer $680.32 $659.30 $673.41
Plant Nameplate Capacity Ratings (year-end) (megawatts) 1,998 1,966 1,966
Maximum Peak-Hour Demand (megawatts):
Winter 1,556 1,284 1,224
Summer 1,682 1,621 1,548
Annual Load Factor (percent) 58.8 57.6 59.0
Plant Availability - Fossil-Steam (percent) 94.0 93.0 93.5
- -------------------------------------------------------------------------------------------------------------------------
Source of Energy Supply (percent):
Coal 63.4 86.3 79.4
Oil and gas 13.5 4.8 5.3
Purchased power -
From non-affiliates 0.5 0.4 0.3
From affiliates 22.6 8.5 15.0
- -------------------------------------------------------------------------------------------------------------------------
Total 100.0 100.0 100.0
=========================================================================================================================
Total Fuel Economy Data:
BTU per net kilowatt-hour generated 10,159 10,220 10,525
Cost of fuel per million BTU (cents) 178.38 185.13 194.46
Average cost of fuel per net kilowatt-hour generated (cents) 1.81 1.89 2.05
- -------------------------------------------------------------------------------------------------------------------------
29B
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL AND OPERATING DATA (continued)
Mississippi Power Company 1995 Annual Report
- ---------------------------------------------------------------------------------------------------------
1986 1985
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating Revenues (in thousands):
Residential $101,984 $96,878
Commercial 100,521 96,883
Industrial 134,501 129,495
Other 5,882 5,884
- ---------------------------------------------------------------------------------------------------------
Total retail 342,888 329,140
Sales for resale - non-affiliates 107,270 115,757
Sales for resale - affiliates 21,669 27,277
- ---------------------------------------------------------------------------------------------------------
Total revenues from sales of electricity 471,827 472,174
Other revenues 4,438 3,436
- ---------------------------------------------------------------------------------------------------------
Total $476,265 $475,610
=========================================================================================================
Kilowatt-Hour Sales (in thousands):
Residential 1,674,407 1,603,539
Commercial 1,544,899 1,500,972
Industrial 2,877,026 2,786,883
Other 81,352 83,142
- ---------------------------------------------------------------------------------------------------------
Total retail 6,177,684 5,974,536
Sales for resale - non-affiliates 2,382,443 2,819,439
Sales for resale - affiliates 704,461 733,142
- ---------------------------------------------------------------------------------------------------------
Total 9,264,588 9,527,117
=========================================================================================================
Average Revenue Per Kilowatt-Hour (cents):
Residential 6.09 6.04
Commercial 6.51 6.45
Industrial 4.68 4.65
Total retail 5.55 5.51
Total sales 5.09 4.96
Residential Average Annual Kilowatt-Hour Use Per Customer 11,498 11,135
Residential Average Annual Revenue Per Customer $700.32 $672.71
Plant Nameplate Capacity Ratings (year-end) (megawatts) 1,966 1,966
Maximum Peak-Hour Demand (megawatts):
Winter 1,208 1,310
Summer 1,612 1,444
Annual Load Factor (percent) 56.8 61.0
Plant Availability - Fossil-Steam (percent) 93.2 92.4
- ---------------------------------------------------------------------------------------------------------
Source of Energy Supply (percent):
Coal 74.1 74.1
Oil and gas 5.1 2.8
Purchased power -
From non-affiliates 2.0 0.4
From affiliates 18.8 22.7
- ---------------------------------------------------------------------------------------------------------
Total 100.0 100.0
=========================================================================================================
Total Fuel Economy Data:
BTU per net kilowatt-hour generated 10,569 10,396
Cost of fuel per million BTU (cents) 224.63 235.24
Average cost of fuel per net kilowatt-hour generated (cents) 2.37 2.45
- ---------------------------------------------------------------------------------------------------------
29C
</TABLE>
