SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) February 12, 1997
-------------------------------
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, 1996.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MISSISSIPPI POWER COMPANY
By /s/ Wayne Boston
Wayne Boston
Assistant Secretary
Date: March 3, 1997
Exhibit 23
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report dated February 12, 1997 on the financial statements of Mississippi
Power Company, included in this Form 8-K, into Mississippi Power Company's
previously filed Registration Statement File Nos. 33-49320, 33-49649 and
333-20469.
/s/ Arthur Andersen LLP
Atlanta, Georgia
February 27, 1997
<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
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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 992,199
<OTHER-PROPERTY-AND-INVEST> 3,054
<TOTAL-CURRENT-ASSETS> 103,708
<TOTAL-DEFERRED-CHARGES> 43,366
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 1,142,327
<COMMON> 37,691
<CAPITAL-SURPLUS-PAID-IN> 179,761
<RETAINED-EARNINGS> 166,282
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74,414
<LONG-TERM-DEBT-NET> 326,389
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4,899
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</TABLE>
MANAGEMENT'S REPORT
Mississippi Power Company 1996 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 12, 1997
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 Southern Company) as of December 31, 1996 and 1995,
and the related statements of income, retained earnings, paid-in capital, and
cash flows for each of the three years in the period ended December 31, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements (pages 10 through 25) referred to
above present fairly, in all material respects, the financial position of
Mississippi Power Company as of December 31, 1996 and 1995, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
/s/ Arthur Andersen LLP
Atlanta, Georgia
February 12, 1997
2
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
Mississippi Power Company 1996 Annual Report
RESULTS OF OPERATIONS
Earnings
Mississippi Power Company's net income after dividends on preferred stock for
1996 was $52.7 million, an increase of 0.4 percent or $0.2 million over the
corresponding amount in 1995. Earnings reflect a modest increase in energy
sales, an annual retail rate decrease of $3.0 million under the Environmental
Compliance Overview Plan (ECO Plan), effective in April 1996, and an annual
retail rate increase of $4.5 million under the Performance Evaluation Plan
(PEP), effective October 1996.
A comparison of 1995 earnings to 1994 shows an increase of $3.4 million. The
increase was due to increased energy sales and an annual retail rate increase of
$3.7 million under the ECO Plan, effective in May 1995.
In April 1994, retail rates increased by $7.6 million annually under the ECO
Plan and wholesale rates increased by $3.6 million.
Revenues
The following table summarizes the factors impacting operating revenues for the
past three years:
Increase (Decrease)
from Prior Year
-----------------------------------
1996 1995 1994
-----------------------------------
(in thousands)
Retail --
Change in base
rates (PEP and
ECO Plan) $ (402) $ 2,694 $9,314
Sales growth 11,187 4,045 9,560
Weather (5,585) 4,513 1,752
Fuel cost
recovery
and other (1,255) 3,806 6,594
-------------------------------------------------------------
Total retail 3,945 15,058 27,220
-------------------------------------------------------------
Sales for resale --
Non-affiliates 7,776 3,698 4,611
Affiliates 14,139 (1,847) (5,981)
-------------------------------------------------------------
Total sales for
resale 21,915 1,851 (1,370)
Other operating
revenues 1,616 482 (1,571)
--------------------------------------------------------------
Total operating
revenues $27,476 $17,391 $24,279
=============================================================
Percent change 5.3% 3.5% 5.1%
-------------------------------------------------------------
In 1996, retail revenues were $414 million, a 1.0 percent increase above the
$410 million recorded in the prior year. This change in retail revenues was due
to a number of factors. These factors included modest growth in energy sales of
3.8 percent, 3.3 percent and 1.9 percent to industrial, commercial and
residential customers, respectively, and changes in retail revenues due to the
ECO Plan and PEP, as discussed earlier. Retail revenues in 1995 when compared to
1994 showed an increase of 3.8 percent resulting from an increase in energy
sales to commercial and residential customers, an increase in the number of
customers and a retail rate increase under the ECO Plan. 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
fuel expenses are offset with corresponding changes in fuel revenues and have no
effect on net income.
3
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Mississippi Power Company 1996 Annual Report
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.
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 6.4 percent in 1996 and
13.1 percent in 1995 with the related revenues rising 7.1 percent and 16.7
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:
1996 1995 1994
-------------------------------------
(in thousands)
Capacity $ - $ 268 $ 1,965
Energy 3,761 3,627 8,473
==========================================================
Total $3,761 $3,895 $10,438
==========================================================
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 1996 and the percent change
for the last three years:
Amount Percent Change
(millions of ----------- ------------------------------
kilowatt-hours) 1996 1996 1995 1994
---------- ------------------------------
Residential 2,080 1.9% 6.2% (0.4)%
Commercial 2,316 3.3 6.7 8.6
Industrial 3,960 3.8 (0.9) 6.2
Other 39 1.9 1.1 (0.5)
----------
Total retail 8,395 3.2 2.9 5.1
Sales for
resale --
Non-affiliates 2,727 9.4 (2.4) 0.4
Affiliates 694 184.7 39.7 (59.2)
----------
Total 11,816 8.7% 2.2% 1.3%
================================================================
Total retail energy sales in 1996 increased over 1995 primarily due to
growth in the number of customers served by the Company. Total retail energy
sales in 1995, when compared to the previous year, increased due to weather
influences and the improving economy within the Company's service area.
The Company anticipates continued growth in energy sales as the economy
improves within its service area. The casino industry and ancillary services,
such as lodging, food, transportation, etc., are some of the factors which may
influence the economy of the Company's service area. Also, energy demand is
expected to grow as a result of a larger and more fully employed population.
Expenses
Total operating expenses for 1996 when compared to 1995 increased 6.6 percent
due to higher fuel expenses, higher maintenance expenses and higher depreciation
and amortization. A comparison of 1995 to 1994 operating expenses reflects an
increase that resulted from higher fuel expenses, increased other operation
expenses and increased depreciation and amortization.
Fuel costs are the single largest expense for the Company. In 1996, fuel
costs increased above those recorded in 1995 due to a 21.7 percent increase in
generation. The increase in generation can be attributed to the higher demand
for energy within the Company's service area and across the Southern electric
system. Further, this increased demand for energy resulted in higher purchased
power costs from non-affiliates and lower purchased power costs from the
4
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Mississippi Power Company 1996 Annual Report
affiliates of the Southern electric system. A comparison of 1995 fuel expenses
to 1994 fuel expenses reflects an increase in generation due to higher demand
for energy.
Purchased power consists mainly 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:
1996 1995 1994
------------------------------
Total generation
(millions of
kilowatt-hours) 10,180 8,368 7,408
Sources of energy
supply (percent) --
Coal 70 58 56
Gas 12 15 10
Oil * * *
Purchased Power 18 27 34
Average cost of fuel per
net kilowatt-hour
generated (cents) --
Coal 1.43 1.58 1.67
Gas 4.24 2.32 2.56
Oil 5.71 6.21 4.15
Total average cost
of energy supply 1.56 1.53 1.55
- --------------------------------------------------------------
* Not meaningful because of minimal generation from the fuel source.
Other operation expenses in 1995 when compared to 1994, increased due to
higher generation, a $2.6 million charge for emission allowance expenditures and
work force reduction program costs. (See Note 2 to the financial statements
under "Work Force Reduction Programs" for additional information.)
In 1996, maintenance expenses rose above the amount recorded for 1995 due to
the timing of maintenance performed at Plants Daniel and Watson, as well as
other projects. A comparison of 1995 maintenance expenses to 1994 reflects a
decrease due to the timing of scheduled maintenance.
Depreciation and amortization in 1996, as compared to 1995, increased
primarily due to additional plant investment, higher depreciation rates
beginning in 1996, and increased amortization of regulatory assets. In 1995, as
compared to 1994, depreciation and amortization increased primarily due to
additional plant investments.
Taxes other than income taxes for 1996 increased from 1995 much like 1995
when compared to 1994, due to higher municipal franchise taxes resulting from
higher retail revenues.
The decrease in 1996 income taxes when compared to 1995, is a result of
lower operating income. The change in income taxes between 1995 and 1994 also
reflects the change 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
efficiency, and aggressively controlling the construction budget. Operating
5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Mississippi Power Company 1996 Annual Report
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 (including costs of capital)
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 Company is positioning its business to meet the challenge of this
major change in the traditional practice of selling electricity. The Energy Act
allows Independent Power Producers (IPPs) to access a utility's transmission
network in order to sell electricity to other utilities. This enhances the
incentive for IPPs to build cogeneration plants for a utility's large industrial
and commercial customers and sell energy generation to other utilities. Also,
electricity sales for resale rates are being driven down by wholesale
transmission access and numerous potential new energy suppliers, including power
marketers and brokers. The Company is aggressively working to maintain and
expand its share of wholesale sales in the Southeastern power markets.
Various federal and state initiatives designed to promote wholesale and
retail competition, among other things, include proposals that would allow
customers to choose their electricity provider. As the initiatives
materialize, the structure of the utility industry could radically change.
Certain initiatives could result in a change in the ownership and/or
operation of generation and transmission facilities. Numerous issues must be
resolved, including significant ones relating to transmission pricing and
recovery of stranded investments. Being a low-cost producer could provide
significant opportunities to increase market share and profitability in
markets that evolve with changing regulation. Unless the Company remains a
low-cost producer and provides quality service, the Company's retail energy
sales growth could be limited, and this could significantly erode earnings.
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.
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Mississippi Power Company 1996 Annual Report
FINANCIAL CONDITION
Overview
The principal changes in Mississippi Power's financial condition during 1996
were gross property additions to utility plant of $61 million. Funding for gross
property additions and other capital requirements have been provided from
operating activities, principally earnings and the non-cash charges to income of
depreciation and amortization, and other long-term debt. The Statements of Cash
Flows provide additional details.
Financing Activity
Retirements, including maturities during 1996, primarily related to other
long-term debt and first mortgage bonds, totaled some $100 million. In 1996, the
Company obtained $80 million of long-term bank notes. (See the Statements of
Cash Flows for further details.) Composite financing rates for the years 1994
through 1996 as of year-end were as follows:
1996 1995 1994
-----------------------------
Composite interest rate on
long-term debt 6.03% 6.63% 6.44%
Composite preferred stock
dividend rate 6.58% 6.58% 6.58%
-----------------------------------------------------------
The decrease in composite interest rate on long-term debt in 1996 is
primarily the result of the retirement of higher cost first mortgage bonds.
Capital Structure
At year-end 1996, the Company's ratio of common equity to total capitalization,
excluding long-term debt due within one year, was 48.9 percent, compared to 50.8
percent in 1995. The decrease in equity ratio in 1996 is attributed primarily to
a 13.0 percent increase in long-term debt, excluding amounts due in one year.
Capital Requirements for Construction
The Company's projected construction expenditures for the next three years total
$231 million ($57 million in 1997, $58 million in 1998, and $116 million in
1999). The major emphasis within the construction program will be on upgrading
existing facilities and the possible addition of a combined cycle unit.
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 $85.1 million will be required by the end of 1999 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 if market
conditions permit.
Environmental Matters
In November 1990, the Clean Air Act was signed into law. Title IV of the Clean
Air Act -- the acid rain compliance provision of the law -- has significantly
impacted Mississippi Power and the other operating companies of 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 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 sulfur dioxide emission allowance program is expected to
minimize the cost of compliance. Southern Company's sulfur dioxide compliance
strategy is designed to take advantage of allowances as a compliance option.
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 allowances being
banked for later use. Construction expenditures for Phase I compliance totaled
approximately $65 million for Mississippi Power.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Mississippi Power Company 1996 Annual Report
For Phase II sulfur dioxide compliance, Southern Company could use emission
allowances, increase fuel switching, and/or install flue gas desulfurization
equipment at selected plants. Also, equipment to control nitrogen oxide
emissions will be installed on additional system fossil-fired plants as required
to meet Phase II limits. Therefore, current compliance strategy for Mississippi
Power could require total Phase II estimated construction expenditures of
approximately $4 million, all of which remains to be spent. 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 Phase II of Title IV of the Clean Air Act. Compliance costs
include construction expenditures, increased costs for switching to low-sulfur
coal, and costs related to emission allowances.
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.
Mississippi Power's management believes that the ECO Plan provides for recovery
of the Clean Air Act costs. See Note 3 to the financial statements under
"Environmental Compliance Overview Plan" for additional information.
A significant portion of costs related to the acid rain provision of the
Clean Air Act is expected to be recovered through existing ratemaking
provisions. However, there can be no assurance that all Clean Air Act costs will
be recovered.
The EPA and state environmental regulatory agencies are reviewing and
evaluating various matters including: revisions to the ambient air quality
standards for ozone and particulate matter; emission control strategies for
ozone nonattainment areas; additional controls for hazardous air pollutant
emissions; and hazardous waste disposal requirements. The impact of new
standards will depend on the development and implementation of applicable
regulations.
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 is being investigated for potential
remediation. See Note 3 to the financial statements under "Environmental
Compliance Overview Plan" for additional information.
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 any such changes cannot be determined at this
time.
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.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Mississippi Power Company 1996 Annual Report
Sources of Capital
At December 31, 1996, the Company had $76.3 million of unused committed credit
agreements. The Company had no short-term notes payable outstanding at year end
1996.
In February 1997, Mississippi Power Capital Trust I (Trust I), of which the
Company owns all the common securities, issued $35 million of 7.75 percent
mandatorily redeemable preferred securities. Substantially all of the assets of
Trust I are $36 million aggregate principal amount of the Company's 7.75 percent
junior subordinated notes due February 15, 2037.
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 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, 1996, 1995, and 1994
Mississippi Power Company 1996 Annual Report
=====================================================================================================================
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------
(in thousands)
Operating Revenues (Notes 1 and 3):
<S> <C> <C> <C>
Revenues $ 522,199 $ 508,862 $ 489,624
Revenues from affiliates 21,830 7,691 9,538
- ---------------------------------------------------------------------------------------------------------------------
Total operating revenues 544,029 516,553 499,162
- ---------------------------------------------------------------------------------------------------------------------
Operating Expenses:
Operation --
Fuel 141,532 111,071 102,216
Purchased power from non-affiliates 17,960 6,019 2,711
Purchased power from affiliates 33,245 57,777 68,543
Other 106,061 107,296 97,988
Maintenance 47,091 39,627 45,785
Depreciation and amortization 44,906 39,224 35,716
Taxes other than income taxes 43,545 42,443 41,742
Federal and state income taxes (Note 8) 32,618 34,486 31,386
- ---------------------------------------------------------------------------------------------------------------------
Total operating expenses 466,958 437,943 426,087
- ---------------------------------------------------------------------------------------------------------------------
Operating Income 77,071 78,610 73,075
Other Income (Expense):
Allowance for equity funds used during construction 344 366 1,099
Interest income 239 199 87
Other, net 3,801 4,596 2,033
Income taxes applicable to other income (932) (1,006) (227)
- ---------------------------------------------------------------------------------------------------------------------
Income Before Interest Charges 80,523 82,765 76,067
- ---------------------------------------------------------------------------------------------------------------------
Interest Charges:
Interest on long-term debt 19,898 21,898 19,725
Allowance for debt funds used during construction (713) (399) (1,039)
Interest on notes payable 1,416 1,141 1,442
Amortization of debt discount, premium, and expense, net 1,547 1,510 1,479
Other interest charges 753 1,185 404
- ---------------------------------------------------------------------------------------------------------------------
Net interest charges 22,901 25,335 22,011
- ---------------------------------------------------------------------------------------------------------------------
Net Income 57,622 57,430 54,056
Dividends on Preferred Stock 4,899 4,899 4,899
- ---------------------------------------------------------------------------------------------------------------------
Net Income After Dividends on Preferred Stock $ 52,723 $ 52,531 $ 49,157
=====================================================================================================================
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, 1996, 1995, and 1994
Mississippi Power Company 1996 Annual Report
- ------------------------------------------------------------------------------------------------------------------------
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------
(in thousands)
Operating Activities:
<S> <C> <C> <C>
Net income $ 57,622 $ 57,430 $ 54,056
Adjustments to reconcile net income to net
cash provided by operating activities --
Depreciation and amortization 50,551 51,588 47,827
Deferred income taxes 74 (480) 1,563
Allowance for equity funds used during construction (344) (366) (1,099)
Other, net 9,787 5,704 5,230
Changes in certain current assets and liabilities --
Receivables, net 5,118 (8,758) 3,066
Inventories 4,973 3,962 (9,856)
Payables 2,077 17,421 (8,754)
Other 292 681 3,334
- ------------------------------------------------------------------------------------------------------------------------
Net cash provided from operating activities 130,150 127,182 95,367
- ------------------------------------------------------------------------------------------------------------------------
Investing Activities:
Gross property additions (61,314) (67,570) (104,014)
Other (2,258) (1,697) (14,087)
- ------------------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (63,572) (69,267) (118,101)
- ------------------------------------------------------------------------------------------------------------------------
Financing Activities:
Proceeds:
Capital contributions 27 - 25,000
First mortgage bonds - 30,000 35,000
Pollution control bonds - 10,600 -
Other long-term debt 80,000 - 85,310
Retirements:
First mortgage bonds (45,447) (1,625) (32,628)
Pollution control bonds (10) (10) (10)
Other long-term debt (55,000) (40,689) (9,299)
Notes payable, net - - (40,000)
Payment of preferred stock dividends (4,899) (4,899) (4,899)
Payment of common stock dividends (43,900) (39,400) (34,100)
Miscellaneous (2,932) (568) (1,201)
- ------------------------------------------------------------------------------------------------------------------------
Net cash provided from (used for) financing activities (72,161) (46,591) 23,173
- ------------------------------------------------------------------------------------------------------------------------
Net Change in Cash and Cash Equivalents (5,583) 11,324 439
Cash and Cash Equivalents at Beginning of Year 12,641 1,317 878
- ------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year $ 7,058 $ 12,641 $ 1,317
========================================================================================================================
Supplemental Cash Flow Information:
Cash paid during the year for --
Interest (net of amount capitalized) $21,467 $23,308 $19,196
Income taxes 34,072 36,908 31,115
- ------------------------------------------------------------------------------------------------------------------------
( ) Denotes use of cash.
The accompanying notes are an integral part of these statements.
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
BALANCE SHEETS
At December 31, 1996 and 1995
Mississippi Power Company 1996 Annual Report
- ------------------------------------------------------------------------------------------------------
ASSETS 1996 1995
- ------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Utility Plant:
Plant in service, at original cost (Notes 1 and 6) $ 1,483,875 $ 1,434,327
Less accumulated provision for depreciation 526,776 499,308
- ------------------------------------------------------------------------------------------------------
957,099 935,019
Construction work in progress 35,100 41,210
- ------------------------------------------------------------------------------------------------------
Total 992,199 976,229
- ------------------------------------------------------------------------------------------------------
Other Property and Investments 3,054 4,160
- ------------------------------------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents 7,058 12,641
Receivables-
Customer accounts receivable 26,364 29,738
Regulatory clauses under recovery 7,300 7,975
Other accounts and notes receivable 7,468 5,616
Affiliated companies 6,329 9,213
Accumulated provision for uncollectible accounts (839) (802)
Fossil fuel stock, at average cost 12,168 15,666
Materials and supplies, at average cost 21,083 22,558
Current portion of deferred fuel charges (Note 5) - 1,546
Current portion of accumulated deferred income taxes (Note 8) 7,227 5,180
Prepayments 4,744 2,404
Vacation pay deferred 4,806 4,715
- ------------------------------------------------------------------------------------------------------
Total 103,708 116,450
- ------------------------------------------------------------------------------------------------------
Deferred Charges:
Debt expense and loss, being amortized 12,220 10,039
Deferred charges related to income taxes (Note 8) 22,274 23,384
Deferred early retirement program costs (Note 2) - 7,286
Long-term notes receivable 3,737 3,821
Miscellaneous 5,135 7,584
- ------------------------------------------------------------------------------------------------------
Total 43,366 52,114
- ------------------------------------------------------------------------------------------------------
Total Assets $ 1,142,327 $ 1,148,953
======================================================================================================
The accompanying notes are an integral part of these statements.
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
BALANCE SHEETS
At December 31, 1996 and 1995
Mississippi Power Company 1996 Annual Report
- ----------------------------------------------------------------------------------------------
CAPITALIZATION AND LIABILITIES 1996 1995
- ----------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Capitalization (See accompanying statements):
Common stock equity $ 383,734 $ 374,884
Preferred stock 74,414 74,414
Long-term debt 326,379 288,820
- ----------------------------------------------------------------------------------------------
Total 784,527 738,118
- ----------------------------------------------------------------------------------------------
Current Liabilities:
Long-term debt due within one year (Note 10) 10 57,229
Accounts payable-
Affiliated companies 4,136 13,646
Regulatory clauses over recovery 8,788 5,381
Other 38,720 31,748
Customer deposits 3,154 2,716
Taxes accrued-
Federal and state income - 97
Other 32,445 31,816
Interest accrued 4,384 4,701
Miscellaneous 13,942 13,453
- ----------------------------------------------------------------------------------------------
Total 105,579 160,787
- ----------------------------------------------------------------------------------------------
Deferred Credits and Other Liabilities:
Accumulated deferred income taxes (Note 8) 133,437 129,711
Accumulated deferred investment tax credits 28,333 29,773
Deferred credits related to income taxes (Note 8) 40,568 43,266
Postretirement benefits 21,850 20,800
Accumulated provision for property damage (Note 1) 12,955 12,018
Miscellaneous 15,078 14,480
- ----------------------------------------------------------------------------------------------
Total 252,221 250,048
- ----------------------------------------------------------------------------------------------
Commitments and Contingent Matters (Notes 2, 3, 4, and 5)
Total Capitalization and Liabilities $ 1,142,327 $ 1,148,953
==============================================================================================
The accompanying notes are an integral part of these statements.
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CAPITALIZATION
At December 31, 1996 and 1995
Mississippi Power Company 1996 Annual Report
- ---------------------------------------------------------------------------------------------------------------------------
1996 1995 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
(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
1996 and 1995 $ 37,691 $ 37,691
Paid-in capital 179,389 179,362
Premium on preferred stock 372 372
Retained earnings (Note 11) 166,282 157,459
- ---------------------------------------------------------------------------------------------------------------------------
Total common stock equity 383,734 374,884 48.9% 50.8%
- ---------------------------------------------------------------------------------------------------------------------------
Cumulative Preferred Stock:
$100 par value --
Authorized -- 1,244,139 shares
Outstanding -- 744,139 shares in 1996
and 1995
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 9.5 10.1
- ---------------------------------------------------------------------------------------------------------------------------
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
June 1, 2023 7.45% 35,000 35,000
December 1, 2025 6 7/8% 30,000 30,000
- ---------------------------------------------------------------------------------------------------------------------------
Total first mortgage bonds 175,000 220,447
Pollution control obligations (Note 9) 73,735 73,745
Other long-term debt (Note 9) 80,000 55,000
Unamortized debt premium (discount), net (2,346) (3,143)
- ---------------------------------------------------------------------------------------------------------------------------
Total long-term debt (annual interest
requirement--$19,837,000) 326,389 346,049
Less amount due within one year (Note 10) 10 57,229
- ---------------------------------------------------------------------------------------------------------------------------
Long-term debt excluding amount due within one year 326,379 288,820 41.6 39.1
- ---------------------------------------------------------------------------------------------------------------------------
Total Capitalization $ 784,527 $ 738,118 100.0% 100.0%
===========================================================================================================================
The accompanying notes are an integral part of these statements.
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF RETAINED EARNINGS
For the Years Ended December 31, 1996, 1995, and 1994
Mississippi Power Company 1996 Annual Report
- --------------------------------------------------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Balance at Beginning of Period $ 157,459 $ 144,328 $ 129,343
Net income after dividends on preferred stock 52,723 52,531 49,157
Cash dividends on common stock (43,900) (39,400) (34,100)
Preferred stock transactions and other, net - - (72)
==========================================================================================================================
Balance at End of Period (Note 11) $ 166,282 $ 157,459 $ 144,328
==========================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF PAID-IN CAPITAL
For the Years Ended December 31, 1996, 1995, and 1994
- --------------------------------------------------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Balance at Beginning of Period $ 179,362 $ 179,362 $ 154,362
Contributions to capital by parent company 27 - 25,000
==========================================================================================================================
Balance at End of Period $ 179,389 $ 179,362 $ 179,362
==========================================================================================================================
The accompanying notes are an integral part of these statements.
</TABLE>
15
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Mississippi Power Company 1996 Annual Report
1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
General
Mississippi Power Company is a wholly owned subsidiary of Southern Company,
which is the parent company of five operating companies, Southern Company
Services (SCS), Southern Communications Services (Southern Communications),
Southern Energy, Inc. (Southern Energy), 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 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 Energy designs, builds,
owns, and operates power production and delivery facilities and provides a broad
range of energy related services in the United States and international markets.
Southern Nuclear provides services to Southern Company's nuclear power plants.
Southern Development develops new business opportunities related to energy
products and services.
Southern Company is registered as a holding company under the Public Utility
Holding Company Act of 1935 (PUHCA). Both Southern Company and its subsidiaries
are subject to the regulatory provisions of the PUHCA. 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:
1996 1995
-------------------------
(in thousands)
Deferred income taxes $22,274 $23,384
Vacation pay 4,806 4,715
Work force reduction costs 1,991 7,286
Deferred fuel charges - 1,546
Premium on reacquired debt 10,672 8,509
Deferred environmental costs 1,679 1,713
Property damage reserve (12,955) (12,018)
Deferred income tax credits (40,568) (43,266)
Other, net (2,882) (2,658)
- ----------------------------------------------------------------
Total $(14,983) $ (10,789)
================================================================
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
fluctuations in costs for ad valorem taxes and certain qualifying environmental
costs.
16
<PAGE>
NOTES (continued)
Mississippi Power Company 1996 Annual Report
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 1996, 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 3.3 percent
in 1996, and 3.2 percent in both 1995 and 1994. When property subject to
depreciation is retired or otherwise disposed of in the normal course of
business, its cost -- together with the cost of removal, less salvage -- is
charged to the accumulated provision for depreciation. Minor items of property
included in the original cost of the plant are retired when the related property
unit is retired. Depreciation expense includes an amount for the expected cost
of removal of 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 7.5 percent in 1996, 8.0 percent in 1995, and 6.9
percent in 1994. AFUDC (net of income taxes), as a percent of net income after
dividends on preferred stock, was 1.5 percent in 1996, 1.2 percent in 1995, and
3.5 percent in 1994.
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, 1996, the fair value of long-term debt was $324 million and the carrying
amount was $326 million. At December 31, 1995, the fair value of long-term debt
was $355 million and the carrying amount was $346 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 1996 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 both 1996 and
1995 and $1.1 million in 1994. 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, 1996, the accumulated provision amounted to $13.0 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
------------------------
1996 1995
------------------------
(in thousands)
Actuarial present value
of benefit obligation:
Vested benefits $92,091 $91,322
Non-vested benefits 5,191 4,264
--------------------------------------------------------------
Accumulated benefit obligation 97,282 95,586
Additional amounts related to
projected salary increases 30,552 28,545
--------------------------------------------------------------
Projected benefit obligation 127,834 124,131
Less:
Fair value of plan assets 179,658 170,481
Unrecognized net gain (56,674) (47,034)
Unrecognized prior service cost 6,422 2,868
Unrecognized transition asset (5,449) (6,001)
--------------------------------------------------------------
Accrued liability recognized
in the Balance Sheets $3,877 $3,817
==============================================================
Postretirement Benefits
------------------------
1996 1995
------------------------
(in thousands)
Actuarial present value of
benefit obligation:
Retirees and dependents $20,841 $22,575
Employees eligible to retire 2,703 1,709
Other employees 17,564 17,908
------------------------------------------------------------
Accumulated benefit obligation 41,108 42,192
Less:
Fair value of plan assets 10,210 8,700
Unrecognized net loss 1,136 4,160
Unrecognized transition
obligation 5,911 7,044
--------------------------------------------------------------
Accrued liability recognized in
the Balance Sheets $23,851 $22,288
==============================================================
18
<PAGE>
NOTES (continued)
Mississippi Power Company 1996 Annual Report
In 1995, Southern Company's subsidiaries announced a cost sharing program
for postretirement benefits. The program established 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:
1996 1995 1994
---------------------------------
Discount 7.8% 7.3% 8.0%
Annual salary increase 5.3 4.8 5.5
Long-term return on
plan assets 8.5 8.5 8.5
------------------------------------------------------------
An additional assumption used in measuring the accumulated postretirement
benefit obligation was a weighted average medical care cost trend rate of 9.3
percent for 1996, decreasing gradually to 5.8 percent through the year 2005 and
remaining at that level thereafter. An annual increase in the assumed medical
care cost trend rate of 1 percent would increase the accumulated benefit
obligation as of December 31, 1996, by $3.2 million and the aggregate of the
service and interest cost components of the net retiree cost by $0.3 million.
Components of the plans' net cost are shown below:
Pension
--------------------------------
1996 1995 1994
--------------------------------
(in thousands)
Benefits earned during
the year $ 3,842 $ 3,636 $ 3,780
Interest cost on
projected benefit
obligation 9,310 8,434 7,503
Actual (return) loss on
plan assets (20,438) (32,232) 3,244
Net amortization and
deferral 6,442 18,650 (16,048)
==============================================================
Net pension income $ (844) $ (1,512) $ (1,521)
==============================================================
Of the above net pension income, $(0.6) million in 1996,
and $(1.1) million in both 1995 and 1994 were recorded in operating expenses,
and the remainder was recorded in construction and other accounts.
Postretirement Benefits
------------------------------
1996 1995 1994
------------------------------
(in thousands)
Benefits earned during the year $ 958 $1,525 $1,760
Interest cost on accumulated
benefit obligation 2,830 3,442 3,251
Amortization of transition
obligation over 20 years 362 1,027 1,043
Actual (return) loss on
plan assets (990) (1,436) 132
Net amortization and deferral 312 851 (575)
================================================================
Net postretirement costs $3,472 $5,409 $5,611
================================================================
Of the above net postretirement costs recorded, $2.8 million in 1996, $3.9
million in 1995, and $4.4 million in 1994 were recorded in operating expenses,
and the remainder was recorded in construction and other accounts.
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 $5.3 million, $4.0 million and $3.0 million of the cost of
these programs in 1996, 1995 and 1994, respectively. In 1996, Mississippi Power
expensed its pro-rata share of the costs for affiliated companies' programs of
$1.9 million.
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
19
<PAGE>
NOTES (continued)
Mississippi Power Company 1996 Annual Report
performance as measured by three indicators that emphasize price and service to
the customer. PEP-2 provides for semiannual evaluations of Mississippi's
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 changes under PEP-2. In September 1996, the MPSC under PEP-2 approved a
retail revenue increase of $4.5 million (1.06 percent of annual retail revenue)
which became effective in October 1996.
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 discussed in Note 5
under "Lease Agreements."
In August 1992, a FERC administrative law judge issued an opinion that
changes in rate schedules and contracts were not necessary and that the FERC
staff failed to show how any changes were in the public interest. The FERC staff
has filed exceptions to the administrative law judge's opinion, and the matter
remains pending before the FERC.
In August 1994, the FERC instituted another proceeding based on
substantially the same issues as in the 1991 proceeding. In November 1995, a
FERC administrative law judge issued an opinion that the FERC staff failed to
meet its burden of proof, and therefore, no change in the equity return was
necessary. The FERC staff has filed exceptions to the administrative law judge's
opinion, and the matter is pending before the FERC.
If the rates of return on common equity recommended by the FERC staff were
applied to all of the schedules and contracts involved in both proceedings -- as
well as certain other contracts that reference these proceedings in determining
return on common equity -- and if refunds were ordered, the amount of refunds
could range up to approximately $3.4 million for Mississippi Power at December
31, 1996. 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 (including costs of capital)
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 had previously resulted in an annual
retail rate increase of $3.7 million, effective in May 1995 which included $1.6
million of 1994 carryover and an annual retail rate increase of $7.6 million,
effective in April 1994. The Company's 1996 annual filing under the ECO Plan
resulted in a $3.0 million decrease in retail rates, effective in April 1996. On
January 31, 1997, the Company filed with the MPSC under the ECO Plan a request
for an annual retail rate increase of $0.9 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
is being investigated for potential remediation. The remedial investigation is
near completion and is being conducted in conjunction with 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. As of December 31, 1996,
the balance in the liability and regulatory asset accounts was $1.7 million,
including additional feasibility study costs. 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.
20
<PAGE>
NOTES (continued)
Mississippi Power Company 1996 Annual Report
4. CONSTRUCTION PROGRAM
Mississippi Power is engaged in continuous construction programs, the costs of
which are currently estimated to total $57 million in 1997, $58 million in 1998,
and $116 million in 1999.
The construction program is subject to periodic review and revision, and
actual construction costs may vary from
the above estimates because of numerous factors. These factors include changes
in business conditions; revised load growth estimates; changes in environmental
regulations; increasing costs of labor, equipment and materials; and cost of
capital. The Company does not currently have any new generating plants under
construction. However, significant construction will continue related to
transmission and distribution facilities, the upgrading of generating plants,
and the possible addition of a combined cycle unit.
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 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, 1996, Mississippi Power had total committed credit
agreements with banks for $96.3 million. At year-end 1996, the unused portion of
these committed credit agreements was $76.3 million. These credit agreements
expire at various dates in 1997 and in 1999. Some of these agreements 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. At December 31, 1996, the
Company had no short-term borrowings outstanding.
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 1996 use fees
collected under this agreement, net of related expenses, amounted to $3.7
million each year, and are included within Other Income, in the Statements of
Income.
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 both
1996 and 1995, and $1.2 million in 1994. The Company's annual lease payments for
1997 through 2001 will be approximately $1.7 million and after 2001, lease
payments total in aggregate approximately $20.7 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 and Purchased Power 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.
21
<PAGE>
NOTES (continued)
Mississippi Power Company 1996 Annual Report
Total estimated obligations at December 31, 1996 were as follows:
Year Fuel
- -------------- --------------
(in millions)
1997 $129
1998 127
1999 91
- ------------------------------------------------------
Total commitments $347
- ------------------------------------------------------
Additional commitments for fuel will be required in the future to supply the
Company's fuel needs.
Mississippi Power entered into agreements to purchase summer peaking power
and options for power for the years 1996 through 2000. For June through
September of 1996, the Company entered into an agreement to buy 242 megawatts of
capacity and energy from another electric utility. For each June through
September period of 1997 through 2000, the Company has purchased options from
power marketers for up to 250 megawatts of peaking power in 1997; 300 megawatts
in 1998; 350 megawatts in 1999; and 400 megawatts in 2000. In June 1996, the
MPSC approved Mississippi Power's request that it be allowed to earn a return on
the capacity portion of these agreements.
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, 1996, 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% $ 59,102 $ 33,010
Daniel 1,000 50% 221,211 97,910
----------------------------------------------------------------
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 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. 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. Because the energy is
generally sold at cost under these agreements, profitability is primarily
affected by revenues from capacity sales. The capacity revenues have been as
follows:
Other
Year Unit Power Long-Term Total
------------------------------------------------------------
(in thousands)
1996 $ - $ - $ -
1995 268 - 268
1994 660 1,305 1,965
8. INCOME TAXES
At December 31, 1996, the tax-related regulatory assets and liabilities were $22
million and $41 million, respectively. These assets are attributable to tax
benefits flowed through to customers in prior years and to taxes applicable to
capitalized AFUDC. These liabilities are attributable to deferred taxes
previously recognized at rates higher than current enacted tax law and to
unamortized investment tax credits.
22
<PAGE>
NOTES (continued)
Mississippi Power Company 1996 Annual Report
Details of the federal and state income tax provisions are shown below:
1996 1995 1994
---------------------------------
(in thousands)
Total provision for
income taxes
Federal --
Currently payable $29,888 $32,546 $26,072
Deferred --current year 13,816 5,122 6,313
--reversal of
prior years (14,913) (7,039) (5,161)
---------------------------------------------------------------
28,791 30,629 27,224
---------------------------------------------------------------
State --
Currently payable 3,588 3,426 3,978
Deferred --current 4,727 2,270 1,669
--reversal of
prior years (3,556) (833) (1,258)
---------------------------------------------------------------
4,759 4,863 4,389
---------------------------------------------------------------
Total 33,550 35,492 31,613
Less income taxes charged
to other income 932 1,006 227
---------------------------------------------------------------
Federal and state
income taxes charged
to operations $32,618 $34,486 $31,386
===============================================================
The tax effects of temporary differences between the carrying amounts of
assets and liabilities in the financial statements and their respective tax
bases, which give rise to deferred tax assets and liabilities are as follows:
1996 1995
-----------------------------
(in thousands)
Deferred tax liabilities:
Accelerated depreciation $148,667 $145,093
Basis differences 10,507 10,815
Coal contract buyouts - 145
Other 19,285 16,478
-------------------------------------------------------------
Total 178,459 172,531
-------------------------------------------------------------
Deferred tax assets:
Other property
basis differences 24,434 25,951
Pension and
other benefits 8,750 7,356
Property insurance 4,955 4,551
Unbilled fuel 2,808 3,039
Other 11,302 7,103
-------------------------------------------------------------
Total 52,249 48,000
-------------------------------------------------------------
Net deferred tax
liabilities 126,210 124,531
Portion included in
current assets, net 7,227 5,180
-------------------------------------------------------------
Accumulated deferred
income taxes in the
Balance Sheets $133,437 $129,711
=============================================================
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 $1.4 million in 1996, and $1.5 million in 1995 and 1994. At December
31, 1996, all investment tax credits available to reduce federal income taxes
payable had been utilized.
A reconciliation of the federal statutory income tax rate to the effective
income tax rate is as follows:
1996 1995 1994
-----------------------------
Total effective tax rate 37% 38% 37%
State income tax, net of
federal income tax benefit (3) (3) (3)%
Tax rate differential 1 - 1
-------------------------------------------------------------
Statutory federal tax rate 35% 35% 35%
=============================================================
Mississippi Power and the subsidiaries of Southern Company file a
consolidated federal income tax return. Under a joint consolidated income tax
23
<PAGE>
NOTES (continued)
Mississippi Power Company 1996 Annual Report
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 pollution control obligations and other long-term debt are as
follows:
December 31,
1996 1995
---------------------
(in thousands)
Obligations incurred in
connection with the sale by
public authorities of
tax-exempt pollution control
revenue bonds:
5.80% due 2007 $ 960 $ 970
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 10,600
- ---------------------------------------------------------------
73,735 73,745
- ---------------------------------------------------------------
Other long-term debt:
Variable rates due 1996 - 55,000
Variable rates (5.80797% to
5.88906% at 1/1/97) due 1999 50,000 -
Variable rate due 2000 30,000 -
- ---------------------------------------------------------------
80,000 55,000
- ---------------------------------------------------------------
Total $153,735 $128,745
===============================================================
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 5.80% series of pollution control obligations has a cash sinking
fund requirement of $10 thousand for 1997 and $20 thousand annually in 1998,
1999, 2000 and 2001.
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:
1996 1995
--------------------
(in thousands)
Bond improvement
fund requirements $1,750 $ 2,219
Less:
Portion to be satisfied by
certifying property additions 1,750 -
-------------------------------------------------------------
Cash improvement fund
requirements - 2,219
Pollution control bond cash
sinking fund requirements (Note 9) 10 10
Current portion of notes
payable (Note 9) - 55,000
=============================================================
Total $ 10 $57,229
=============================================================
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, 1996,
approximately $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 1996 Annual Report
12. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 1996 and 1995 are as follows:
Net Income
After Dividends
Quarter Operating Operating On
Ended Revenues Income Preferred Stock
-------------------------------------------------------------------
March 1996 $126,954 $18,074 $11,695
June 1996 136,749 17,691 11,400
September 1996 156,603 27,670 21,784
December 1996 123,723 13,636 7,844
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
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 1996 Annual Report
=================================================================================================
<S> <C> <C> <C>
1996 1995 1994
- -------------------------------------------------------------------------------------------------
Operating Revenues (in thousands) $544,029 $516,553 $499,162
Net Income after Dividends
on Preferred Stock (in thousands) $52,723 $52,531 $49,157
Cash Dividends on Common Stock (in thousands) $43,900 $39,400 $34,100
Return on Average Common Equity (percent) 13.9 14.26 14.38
Total Assets (in thousands) $1,142,327 $1,148,953 $1,123,711
Gross Property Additions (in thousands) $61,314 $67,570 $104,014
- -------------------------------------------------------------------------------------------------
Capitalization (in thousands):
Common stock equity $383,734 $374,884 $361,753
Preferred stock 74,414 74,414 74,414
Preferred stock subject to mandatory redemption - - -
Long-term debt 326,379 288,820 306,522
- -------------------------------------------------------------------------------------------------
Total (excluding amounts due within one year) $784,527 $738,118 $742,689
=================================================================================================
Capitalization Ratios (percent):
Common stock equity 48.9 50.8 48.7
Preferred stock 9.5 10.1 10.0
Long-term debt 41.6 39.1 41.3
- -------------------------------------------------------------------------------------------------
Total (excluding amounts due within one year) 100.0 100.0 100.0
=================================================================================================
First Mortgage Bonds (in thousands):
Issued - 30,000 35,000
Retired 45,447 1,625 32,628
Preferred Stock (in thousands):
Issued - - -
Retired - - -
- -------------------------------------------------------------------------------------------------
Security Ratings:
First Mortgage Bonds -
Moody's Aa3 Aa3 Aa3
Standard and Poor's A+ A+ A+
Duff & Phelps AA- AA- A+
Preferred Stock -
Moody's a1 a1 a1
Standard and Poor's A A A
Duff & Phelps A+ A+ A
- -------------------------------------------------------------------------------------------------
Customers (year-end):
Residential 154,630 154,014 152,891
Commercial 30,366 29,903 29,276
Industrial 639 642 650
Other 200 194 189
- -------------------------------------------------------------------------------------------------
Total 185,835 184,753 183,006
=================================================================================================
Employees (year-end) 1,363 1,421 1,535
- -------------------------------------------------------------------------------------------------
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL AND OPERATING DATA
Mississippi Power Company 1996 Annual Report
==============================================================================================================
<S> <C> <C> <C> <C>
1993 1992 1991 1990
- --------------------------------------------------------------------------------------------------------------
Operating Revenues (in thousands) $474,883 $434,447 $432,386 $446,871
Net Income after Dividends
on Preferred Stock (in thousands) $42,436 $36,790 $22,627 $34,176
Cash Dividends on Common Stock (in thousands) $29,000 $28,000 $28,500 $27,500
Return on Average Common Equity (percent) 14.09 13.27 8.17 12.36
Total Assets (in thousands) $1,050,334 $791,283 $790,641 $800,026
Gross Property Additions (in thousands) $139,976 $68,189 $53,675 $49,009
- --------------------------------------------------------------------------------------------------------------
Capitalization (in thousands):
Common stock equity $321,768 $280,640 $273,855 $279,833
Preferred stock 74,414 74,414 39,414 39,414
Preferred stock subject to mandatory redemption - - - 3,750
Long-term debt 250,391 238,650 304,150 270,724
- --------------------------------------------------------------------------------------------------------------
Total (excluding amounts due within one year) $646,573 $593,704 $617,419 $593,721
==============================================================================================================
Capitalization Ratios (percent):
Common stock equity 49.8 47.3 44.4 47.1
Preferred stock 11.5 12.5 6.4 7.3
Long-term debt 38.7 40.2 49.2 45.6
- --------------------------------------------------------------------------------------------------------------
Total (excluding amounts due within one year) 100.0 100.0 100.0 100.0
==============================================================================================================
First Mortgage Bonds (in thousands):
Issued 70,000 40,000 50,000 -
Retired 51,300 104,703 - 4,000
Preferred Stock (in thousands):
Issued 23,404 35,000 - -
Retired 23,404 - 4,118 750
- --------------------------------------------------------------------------------------------------------------
Security Ratings:
First Mortgage Bonds -
Moody's A1 A1 A1 A1
Standard and Poor's A+ A+ A+ A+
Duff & Phelps A+ A+ A+ A+
Preferred Stock -
Moody's a1 a1 a1 a1
Standard and Poor's A A A A
Duff & Phelps A A A A
- --------------------------------------------------------------------------------------------------------------
Customers (year-end):
Residential 151,692 150,248 148,978 147,738
Commercial 28,648 28,056 27,441 27,134
Industrial 570 573 562 574
Other 190 189 400 411
- --------------------------------------------------------------------------------------------------------------
Total 181,100 179,066 177,381 175,857
==============================================================================================================
Employees (year-end) 1,586 1,619 1,630 1,842
- --------------------------------------------------------------------------------------------------------------
</TABLE>
27A
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL AND OPERATING DATA
Mississippi Power Company 1996 Annual Report
==============================================================================================================
<S> <C> <C> <C> <C>
1989 1988 1987 1986
- --------------------------------------------------------------------------------------------------------------
Operating Revenues (in thousands) $442,650 $437,939 $455,843 $476,265
Net Income after Dividends
on Preferred Stock (in thousands) $38,576 $36,081 $35,200 $33,814
Cash Dividends on Common Stock (in thousands) $27,000 $27,600 $24,700 $23,700
Return on Average Common Equity (percent) 14.43 14.03 14.68 15.28
Total Assets (in thousands) $786,570 $779,319 $764,068 $767,110
Gross Property Additions (in thousands) $43,916 $54,550 $53,288 $62,488
- --------------------------------------------------------------------------------------------------------------
Capitalization (in thousands):
Common stock equity $273,157 $261,473 $252,992 $226,601
Preferred stock 39,414 39,414 39,414 39,414
Preferred stock subject to mandatory redemption 4,500 5,250 6,750 8,250
Long-term debt 277,693 287,525 294,811 299,684
- --------------------------------------------------------------------------------------------------------------
Total (excluding amounts due within one year) $594,764 $593,662 $593,967 $573,949
==============================================================================================================
Capitalization Ratios (percent):
Common stock equity 45.9 44.1 42.6 39.5
Preferred stock 7.4 7.5 7.8 8.3
Long-term debt 46.7 48.4 49.6 52.2
- --------------------------------------------------------------------------------------------------------------
Total (excluding amounts due within one year) 100.0 100.0 100.0 100.0
==============================================================================================================
First Mortgage Bonds (in thousands):
Issued - - - 35,000
Retired 3,823 - 29,701 29,250
Preferred Stock (in thousands):
Issued - - - -
Retired 750 1,500 1,500 1,500
- --------------------------------------------------------------------------------------------------------------
Security Ratings:
First Mortgage Bonds -
Moody's A1 A1 A1 A1
Standard and Poor's A+ A+ A+ A+
Duff & Phelps A+ 5 5 5
Preferred Stock -
Moody's a1 a1 a1 a1
Standard and Poor's A A A A
Duff & Phelps A 6 6 6
- --------------------------------------------------------------------------------------------------------------
Customers (year-end):
Residential 147,308 146,750 146,273 145,809
Commercial 26,867 26,751 26,342 26,217
Industrial 525 478 438 393
Other 404 399 389 363
- --------------------------------------------------------------------------------------------------------------
Total 175,104 174,378 173,442 172,782
==============================================================================================================
Employees (year-end) 1,750 1,831 1,898 1,882
- --------------------------------------------------------------------------------------------------------------
</TABLE>
27B
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL AND OPERATING DATA (continued)
Mississippi Power Company 1996 Annual Report
=================================================================================================
<S> <C> <C> <C>
1996 1995 1994
- -------------------------------------------------------------------------------------------------
Operating Revenues (in thousands):
Residential $137,055 $134,286 $124,257
Commercial 131,734 131,034 124,716
Industrial 141,324 140,947 142,268
Other 4,013 3,914 3,882
- -------------------------------------------------------------------------------------------------
Total retail 414,126 410,181 395,123
Sales for resale - non-affiliates 99,596 91,820 88,122
Sales for resale - affiliates 21,830 7,691 9,538
- -------------------------------------------------------------------------------------------------
Total revenues from sales of electricity 535,552 509,692 492,783
Other revenues 8,477 6,861 6,379
- -------------------------------------------------------------------------------------------------
Total $544,029 $516,553 $499,162
=================================================================================================
Kilowatt-Hour Sales (in thousands):
Residential 2,079,611 2,040,608 1,922,217
Commercial 2,315,860 2,242,163 2,100,625
Industrial 3,960,243 3,813,456 3,847,011
Other 39,297 38,559 38,147
- -------------------------------------------------------------------------------------------------
Total retail 8,395,011 8,134,786 7,908,000
Sales for resale - non-affiliates 2,726,993 2,493,519 2,555,914
Sales for resale - affiliates 693,510 243,554 174,342
- -------------------------------------------------------------------------------------------------
Total 11,815,514 10,871,859 10,638,256
=================================================================================================
Average Revenue Per Kilowatt-Hour (cents):
Residential 6.59 6.58 6.46
Commercial 5.69 5.84 5.94
Industrial 3.57 3.70 3.70
Total retail 4.93 5.04 5.00
Total sales 4.53 4.69 4.63
Residential Average Annual Kilowatt-Hour Use Per Customer 13,469 13,307 12,611
Residential Average Annual Revenue Per Customer $887.66 $875.69 $815.21
Plant Nameplate Capacity Ratings (year-end) (megawatts) 2,086 2,086 2,086
Maximum Peak-Hour Demand (megawatts):
Winter 2,030 1,637 1,636
Summer 2,117 2,095 1,874
Annual Load Factor (percent) 80.3 60.0 63.4
Plant Availability - Fossil-Steam (percent) 91.8 92.1 85.4
- -------------------------------------------------------------------------------------------------
Source of Energy Supply (percent):
Coal 70.4 58.0 56.0
Oil and gas 12.0 15.2 10.2
Purchased power -
From non-affiliates 6.5 2.4 1.2
From affiliates 11.1 24.4 32.6
- -------------------------------------------------------------------------------------------------
Total 100.0 100.0 100.0
=================================================================================================
Total Fuel Economy Data:
BTU per net kilowatt-hour generated 10,038 10,249 10,295
Cost of fuel per million BTU (cents) 156.08 160.48 165.96
Average cost of fuel per net kilowatt-hour generated (cents) 1.57 1.64 1.71
- -------------------------------------------------------------------------------------------------
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL AND OPERATING DATA (continued)
Mississippi Power Company 1996 Annual Report
==============================================================================================================
<S> <C> <C> <C> <C>
1993 1992 1991 1990
- --------------------------------------------------------------------------------------------------------------
Operating Revenues (in thousands):
Residential $118,793 $109,781 $103,820 $102,243
Commercial 115,152 107,131 103,666 103,352
Industrial 130,198 117,010 116,972 123,754
Other 3,760 3,533 5,869 6,078
- --------------------------------------------------------------------------------------------------------------
Total retail 367,903 337,455 330,327 335,427
Sales for resale - non-affiliates 83,511 80,213 78,826 86,194
Sales for resale - affiliates 15,519 10,055 18,044 20,157
- --------------------------------------------------------------------------------------------------------------
Total revenues from sales of electricity 466,933 427,723 427,197 441,778
Other revenues 7,950 6,724 5,189 5,093
- --------------------------------------------------------------------------------------------------------------
Total $474,883 $434,447 $432,386 $446,871
==============================================================================================================
Kilowatt-Hour Sales (in thousands):
Residential 1,929,835 1,804,858 1,832,266 1,804,838
Commercial 1,933,685 1,811,042 1,768,441 1,718,074
Industrial 3,623,543 3,536,634 3,297,247 3,311,460
Other 38,357 38,261 89,375 85,938
- --------------------------------------------------------------------------------------------------------------
Total retail 7,525,420 7,190,795 6,987,329 6,920,310
Sales for resale - non-affiliates 2,544,982 2,687,917 2,706,320 2,883,581
Sales for resale - affiliates 426,919 280,443 617,696 714,365
- --------------------------------------------------------------------------------------------------------------
Total 10,497,321 10,159,155 10,311,345 10,518,256
==============================================================================================================
Average Revenue Per Kilowatt-Hour (cents):
Residential 6.16 6.08 5.67 5.66
Commercial 5.96 5.92 5.86 6.02
Industrial 3.59 3.31 3.55 3.74
Total retail 4.89 4.69 4.73 4.85
Total sales 4.45 4.21 4.14 4.20
Residential Average Annual Kilowatt-Hour Use Per Customer 12,780 12,066 12,338 12,228
Residential Average Annual Revenue Per Customer $786.71 $733.90 $699.11 $692.70
Plant Nameplate Capacity Ratings (year-end) (megawatts) 2,011 2,011 2,011 1,998
Maximum Peak-Hour Demand (megawatts):
Winter 1,401 1,386 1,267 1,201
Summer 1,872 1,755 1,682 1,724
Annual Load Factor (percent) 60.0 60.8 61.5 59.0
Plant Availability - Fossil-Steam (percent) 88.0 92.0 89.8 93.3
- --------------------------------------------------------------------------------------------------------------
Source of Energy Supply (percent):
Coal 63.5 60.4 64.1 62.6
Oil and gas 7.6 5.8 8.1 14.0
Purchased power -
From non-affiliates 1.3 1.2 0.7 0.8
From affiliates 27.6 32.6 27.1 22.6
- --------------------------------------------------------------------------------------------------------------
Total 100.0 100.0 100.0 100.0
==============================================================================================================
Total Fuel Economy Data:
BTU per net kilowatt-hour generated 10,075 9,888 10,142 10,319
Cost of fuel per million BTU (cents) 170.13 162.27 177.52 183.27
Average cost of fuel per net kilowatt-hour generated (cents) 1.71 1.60 1.80 1.89
- --------------------------------------------------------------------------------------------------------------
</TABLE>
29A
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL AND OPERATING DATA (continued)
Mississippi Power Company 1996 Annual Report
==============================================================================================================
<S> <C> <C> <C> <C>
1989 1988 1987 1986
- --------------------------------------------------------------------------------------------------------------
Operating Revenues (in thousands):
Residential $100,068 $96,711 $98,338 $101,984
Commercial 103,403 98,772 98,669 100,521
Industrial 128,983 123,038 129,004 134,501
Other 5,992 5,874 5,723 5,882
- --------------------------------------------------------------------------------------------------------------
Total retail 338,446 324,395 331,734 342,888
Sales for resale - non-affiliates 82,111 75,525 88,060 107,270
Sales for resale - affiliates 16,938 33,747 31,278 21,669
- --------------------------------------------------------------------------------------------------------------
Total revenues from sales of electricity 437,495 433,667 451,072 471,827
Other revenues 5,155 4,272 4,771 4,438
- --------------------------------------------------------------------------------------------------------------
Total $442,650 $437,939 $455,843 $476,265
==============================================================================================================
Kilowatt-Hour Sales (in thousands):
Residential 1,741,855 1,686,722 1,658,327 1,674,407
Commercial 1,686,302 1,607,988 1,555,044 1,544,899
Industrial 3,204,208 2,879,457 2,862,632 2,877,026
Other 87,611 86,049 81,153 81,352
- --------------------------------------------------------------------------------------------------------------
Total retail 6,719,976 6,260,216 6,157,156 6,177,684
Sales for resale - non-affiliates 2,798,086 2,280,341 2,615,058 2,382,443
Sales for resale - affiliates 527,970 1,100,808 955,303 704,461
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Total 10,046,032 9,641,365 9,727,517 9,264,588
==============================================================================================================
Average Revenue Per Kilowatt-Hour (cents):
Residential 5.74 5.73 5.93 6.09
Commercial 6.13 6.14 6.35 6.51
Industrial 4.03 4.27 4.51 4.68
Total retail 5.04 5.18 5.39 5.55
Total sales 4.35 4.50 4.64 5.09
Residential Average Annual Kilowatt-Hour Use Per Customer 11,842 11,499 11,356 11,498
Residential Average Annual Revenue Per Customer $680.32 $659.30 $673.41 $700.32
Plant Nameplate Capacity Ratings (year-end) (megawatts) 1,998 1,966 1,966 1,966
Maximum Peak-Hour Demand (megawatts):
Winter 1,556 1,284 1,224 1,208
Summer 1,682 1,621 1,548 1,612
Annual Load Factor (percent) 58.8 57.6 59.0 56.8
Plant Availability - Fossil-Steam (percent) 94.0 93.0 93.5 93.2
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Source of Energy Supply (percent):
Coal 63.4 86.3 79.4 74.1
Oil and gas 13.5 4.8 5.3 5.1
Purchased power -
From non-affiliates 0.5 0.4 0.3 2.0
From affiliates 22.6 8.5 15.0 18.8
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Total 100.0 100.0 100.0 100.0
==============================================================================================================
Total Fuel Economy Data:
BTU per net kilowatt-hour generated 10,159 10,220 10,525 10,569
Cost of fuel per million BTU (cents) 178.38 185.13 194.46 224.63
Average cost of fuel per net kilowatt-hour generated (cents) 1.81 1.89 2.05 2.37
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</TABLE>
29B
