SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) February 11, 1998
----------------------------
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, 1997.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MISSISSIPPI POWER COMPANY
By /s/ Wayne Boston
Wayne Boston
Assistant Secretary
Date: March 4, 1998
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report dated February 11, 1998 on the financial statements of Mississippi
Power Company, included in this Form 8-K, into Mississippi Power Company's
previously filed Registration Statement File Nos. 33-49649, 333-20469 and
333-45069.
/s/ Arthur Andersen LLP
Atlanta, Georgia
February 26, 1998
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the Form
10-Q for December 31, 1997, and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<CIK> 0000066904
<NAME> MISSISSIPPI POWER COMPANY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,000,387
<OTHER-PROPERTY-AND-INVEST> 650
<TOTAL-CURRENT-ASSETS> 104,940
<TOTAL-DEFERRED-CHARGES> 60,852
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 1,166,829
<COMMON> 37,691
<CAPITAL-SURPLUS-PAID-IN> 179,716
<RETAINED-EARNINGS> 170,417
<TOTAL-COMMON-STOCKHOLDERS-EQ> 387,824
35,000
31,896
<LONG-TERM-DEBT-NET> 211,665
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 80,000
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 35,020
0
<CAPITAL-LEASE-OBLIGATIONS> 0
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<OTHER-ITEMS-CAPITAL-AND-LIAB> 385,424
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<GROSS-OPERATING-REVENUE> 543,588
<INCOME-TAX-EXPENSE> 31,968
<OTHER-OPERATING-EXPENSES> 433,664
<TOTAL-OPERATING-EXPENSES> 465,632
<OPERATING-INCOME-LOSS> 77,956
<OTHER-INCOME-NET> 3,813
<INCOME-BEFORE-INTEREST-EXPEN> 81,769
<TOTAL-INTEREST-EXPENSE> 24,472
<NET-INCOME> 57,297
3,287
<EARNINGS-AVAILABLE-FOR-COMM> 54,010
<COMMON-STOCK-DIVIDENDS> 49,400
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</TABLE>
MANAGEMENT'S REPORT
Mississippi Power Company 1997 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 11, 1998
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, 1997 and 1996, and the
related statements of income, retained earnings, paid-in capital, and cash flows
for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements (pages 10 through 25) referred to
above present fairly, in all material respects, the financial position of
Mississippi Power Company as of December 31, 1997 and 1996, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
/s/ Arthur Andersen LLP
Atlanta, Georgia
February 11, 1998
2
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
Mississippi Power Company 1997 Annual Report
RESULTS OF OPERATIONS
Earnings
Mississippi Power Company's net income after dividends on preferred stock for
1997 was $54.0 million, reflecting a 2.4 percent or $1.3 million increase above
1996. The increased earnings is due to lower operating expenses.
In 1996, earnings were $52.7 million, up $0.2 million from the prior year.
Earnings reflected a modest increase in energy sales, an annual retail rate
decrease of $3.0 million under the Environmental Compliance Overview Plan (ECO
Plan) and an annual retail increase of $4.5 million under the Performance
Evaluation Plan (PEP) which became effective in October 1996.
Revenues
The following table summarizes the factors impacting operating revenues for the
past three years:
Increase (Decrease)
from Prior Year
-------------------------------------
1997 1996 1995
-------------------------------------
(in thousands)
Retail --
Change in base
rates (PEP and
ECO Plan) $ 3,177 $ (402) $ 2,694
Sales growth 109 11,187 4,045
Weather (1,118) (5,585) 4,513
Fuel cost
recovery
and other 948 (1,255) 3,806
---------------------------------------------------------------
Total retail 3,116 3,945 15,058
---------------------------------------------------------------
Sales for resale --
Non-affiliates 5,464 7,776 3,698
Affiliates (11,606) 14,139 (1,847)
---------------------------------------------------------------
Total sales for
resale (6,142) 21,915 1,851
Other operating
revenues 2,585 1,616 482
---------------------------------------------------------------
Total operating
revenues $ (441) $27,476 $17,391
===============================================================
Percent change (0.1)% 5.3% 3.5%
---------------------------------------------------------------
Retail revenues in 1997 were $417 million, up 0.8 percent from the corresponding
amount in 1996. The increase in retail revenues was primarily caused by the
October 1996 PEP retail rate increase, as mentioned above, and the January 1997
ECO Plan retail rate increase of $0.9 million. Retail revenues for 1996 when
compared to 1995 reflected a 1.0 percent increase due to modest growth in energy
sales to industrial, commercial and residential customers, as well as changes in
retail revenues due to the ECO Plan and PEP. Changes in base rates reflect any
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.
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 3.6 percent in 1997 and
6.4 percent in 1996, with the related revenues rising 1.6 percent and 7.1
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:
1997 1996 1995
-------------------------------------
(in thousands)
Capacity $ 8 $ - $ 268
Energy 1,896 3,761 3,627
----------------------------------------------------------
Total $1,904 $3,761 $3,895
==========================================================
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.
3
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Mississippi Power Company 1997 Annual Report
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 1997 and the percent change
for the last three years:
Amount Percent Change
(millions of ----------- ------------------------------
kilowatt-hours) 1997 1997 1996 1995
---------- ------------------------------
Residential 2,039 (2.0)% 1.9% 6.2%
Commercial 2,408 4.0 3.3 6.7
Industrial 3,982 0.6 3.8 (0.9)
Other 40 2.6 1.9 1.1
----------
Total retail 8,469 0.9 3.2 2.9
Sales for
resale --
Non-affiliates 2,895 6.2 9.4 (2.4)
Affiliates 479 (31.0) 184.7 39.7
----------
Total 11,843 0.2 8.7 2.2
================================================================
Total retail energy sales for 1997 compared to 1996 and for 1996 compared to
1995 increased primarily due to growth in the number of customers served by the
Company.
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 1997 were $466 million, reflecting a decrease of
$1.3 million or 0.3 percent when compared to the corresponding amount in 1996.
The decrease was due primarily to lower administrative and general expenses. In
1996, total operating expenses increased by 6.6 percent when compared to the
prior year due to higher fuel expenses, higher maintenance and higher
depreciation and amortization.
Fuel costs are the single largest expense for the Company. Fuel expenses
for 1997 when compared to 1996 increased by 0.4 percent due to a 1.1 percent
increase in generation. The increase in generation was due to the higher demand
for energy in the retail sector. In 1997, expenses related to purchased power
from non-affiliates decreased 19.1 percent and expenses related to purchased
power from affiliates increased 13.7 percent due to the increased availability
of energy within the Southern electric system.
A comparison of 1996 to 1995 fuel costs reflects an increase that was due
to a 21.7 percent increase in generation. This increased generation was due to
higher demand for energy across the Southern electric system. Further, the
higher demand for energy resulted in higher purchased power costs from
non-affiliates and lower purchased power from affiliates of the Southern
electric system.
Purchased power consists mainly of energy purchases from affiliates in 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.
4
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Mississippi Power Company 1997 Annual Report
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:
1997 1996 1995
------------------------------
Total generation
(millions of
kilowatt-hours) 10,289 10,180 8,368
Sources of energy
supply (percent) --
Coal 70 70 58
Gas 13 12 15
Oil * * *
Purchased Power 17 18 27
Average cost of fuel per
net kilowatt-hour
generated (cents) --
Coal 1.44 1.43 1.58
Gas 3.54 4.24 2.32
Oil - 5.71 6.21
Total average cost
of energy supply 1.57 1.56 1.53
- --------------------------------------------------------------
* Not meaningful because of minimal generation from the fuel source.
Other operation expense in 1997 decreased 3.5 percent from the amount
recorded in 1996. The decrease was due to lower administrative and general
expenses.
Maintenance expenses in 1996 when compared to 1995 increased due to the
timing of maintenance performed at Plants Daniel and Watson, as well as other
projects.
In 1996, as compared to 1995, depreciation and amortization increased
primarily due to additional plant investment, higher depreciation rates
beginning in 1996, and increased amortization of regulatory assets.
Comparisons of taxes other than income taxes for 1997 to 1996 and for 1996
to 1995 show increases of 1.1 percent and 2.6 percent, respectively, due to
higher municipal franchise taxes resulting from higher retail revenues.
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. See Note 2 to the financial statements under
"Workforce Reduction Programs" for information regarding the Company's workforce
reduction plan of 1997.
The Company currently operates as a vertically integrated company providing
electricity to customers within its traditional service area located in
southeastern Mississippi. Prices for electricity provided by the Company to
retail customers are set by the MPSC under cost-based regulatory principles.
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 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."
5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Mississippi Power Company 1997 Annual Report
The Federal Energy Regulatory Commission (FERC) regulates the Company's
wholesale rate schedules, power sales contracts and transmission facilities. 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
found in Note 3 to the financial statements herein.
Future earnings in the near term will depend upon growth in energy sales,
which is subject to a number of factors. These factors include 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.
The electric utility industry in the United States is currently undergoing a
period of dramatic change as a result of regulatory and competitive factors.
Among the primary agents of change has been the Energy Policy Act of 1992
(Energy Act). The 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.
Although the Energy Act does not permit retail transmission access, it has
been a catalyst for some emerging restructuring and consolidation within the
utility industry. There are federal and various state initiatives in various
stages which would promote wholesale and retail competition. Certain of these
initiatives would result in some form of separation of generation, transmission
and distribution facilities. As these changes take place the structure of the
utility industry could change. Restructuring initiatives are being discussed in
Mississippi; none have been enacted to date. Enactment would have to encompass
the resolution of numerous complex legislative, jurisdictional, financial and
operational issues.
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 that are not
specifically recoverable, and determine if any other assets have been impaired.
See Note 1 to the financial statements under "Regulatory Assets and Liabilities"
for additional information. The inability of Mississippi Power to recover its
investment, including regulatory assets, could have a material adverse effect on
the financial condition of the Company.
The Company is attempting to minimize or reduce its cost exposure.
Continuing to be a low-cost producer could provide significant opportunities to
increase market share and profitability in markets that evolve with changing
regulation. Conversely, unless Mississippi Power remains a low-cost producer and
provides quality service, the Company's retail energy sales growth could be
limited, and this could significantly erode earnings.
The Company is heavily dependent upon complex computer systems for all
phases of its operations. The year 2000 issue--common to most
corporations--concerns the inability of certain software and databases to
properly recognize date sensitive information related to the year 2000 and
thereafter. This problem could result in a material disruption to the company's
operations, if not corrected. Mississippi Power has assessed and developed a
detailed strategy to prevent or at least minimize problems related to the year
2000 issue. In 1997, resources were committed and implementation began to modify
the affected information systems. Total costs related to the project are
estimated to be approximately $4.8 million, of which $0.5 million was spent in
1997. Most all remaining costs will be expensed in 1998. Implementation is
currently on schedule. Although, the degree of success of this project cannot be
determined at this time, management believes that there will be no significant
effect on the Company's operations.
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Mississippi Power Company 1997 Annual Report
Exposure to Market Risk
Due to cost-based rate regulation, the Company has limited exposure to market
volatility in interest rates and prices of electricity. To mitigate residual
risks relative to movements in electricity prices, the Company enters into fixed
price contracts for the purchase and sale of electricity through the wholesale
electricity market. Realized gains and losses are recognized in the income
statement as incurred. At December 31, 1997, exposure from these activities was
not material to the Company's financial position, results of operations, or cash
flows.
New Accounting Standards
The FASB has issued Statement No. 130, Reporting Comprehensive Income, which
will be effective in 1998. This statement establishes standards for reporting
and display of comprehensive income and its components in a full set of general
purpose financial statements. The objective of the statement is to report a
measure of all changes in equity of an enterprise that result from transactions
and other economic events of the period other than transactions with owners
(comprehensive income). Comprehensive income is the total of net income and all
other non-owner changes in equity. The Company will adopt the new rules in 1998.
The FASB has issued Statement No. 131, Disclosure about Segments of an
Enterprise and Related Information. Southern Company adopted the new rules
effective December 31, 1997. This statement requires that a public business
enterprise report financial and descriptive information about its reportable
operating segments. This statement also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
Mississippi Power adopted the new rules in 1997, and they did not have any
significant impact on the Company's financial reporting. However, this
conclusion may change as industry restructuring and competitive factors
influence the Company's operations.
FINANCIAL CONDITION
Overview
The principal change in Mississippi Power's financial condition during 1997 was
gross property additions to utility plant of $55 million. Funding for gross
property additions and other capital requirements has been provided from
operating activities, principally earnings and the non-cash charges to income of
depreciation and amortization, and the issuance of preferred securities. The
Statements of Cash Flows provide additional details.
Financing Activity
Retirements, including maturities during 1997, primarily related to preferred
stock, totaled some $42 million. 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. (See the Statements of Cash Flows for further details.) Composite
financing rates for the years 1995 through 1997 as of year-end were as follows:
1997 1996 1995
-----------------------------
Composite interest rate on
long-term debt 6.16% 6.03% 6.63%
Composite preferred stock
dividend rate 6.33% 6.58% 6.58%
Composite interest rate on
preferred securities 7.75% - -
-----------------------------------------------------------
The decrease in the composite dividend rate on preferred stock in 1997 is
primarily the result of retirements.
Capital Structure
At year-end 1997, the Company's ratio of common equity to total capitalization,
excluding long-term debt due within one year, was 52.0 percent, compared to 48.9
percent in 1996. The increase in equity ratio in 1997 is attributed to the
reclassification of $35 million of long-term debt to a current liability.
Capital Requirements for Construction
The Company's projected construction expenditures for the next three years total
$450 million ($67 million in 1998, $92 million in 1999, and $291 million in
2000). The major emphasis within the construction program will be on the upgrade
of existing facilities and the addition of combined cycle generation. In 1998,
Mississippi Power received approval from the MPSC to build up to 1,000 megawatts
of natural gas-fired combined cycle generation at Plant Daniel. Construction is
expected to begin in 1999.
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, and alternatives such as leasing.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Mississippi Power Company 1997 Annual Report
Other Capital Requirements
In addition to the funds required for the Company's construction program,
approximately $155.1 million will be required by the end of 2000 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 -- significantly
affected 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.
Southern Company achieved Phase I sulfur dioxide compliance at the affected
plants by switching to low-sulfur coal, which required some equipment upgrades.
Construction expenditures for Phase I compliance totaled approximately $65
million for Mississippi Power.
For Phase II sulfur dioxide compliance, Southern Company could use emission
allowances, increase fuel switching, and/or install flue gas desulfurization
equipment at selected plants. 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.
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.
In July 1997, the Environmental Protection Agency (EPA) revised the national
ambient air quality standards for ozone and particulate matter. This revision
makes the standards significantly more stringent. Also, in October 1997, the EPA
issued a proposed regional ozone rule which-- if implemented-- could require
substantial further reductions in NOx emissions from fossil-fueled generating
facilities. Implementation of the standards and the proposed rule could result
in significant additional compliance costs and capital expenditures that cannot
be determined at this time.
The EPA and state environmental regulatory agencies are reviewing and
evaluating various matters including: emission control strategies for ozone
non-attainment areas; additional controls for hazardous air pollutant emissions;
and hazardous waste disposal requirements. The impact of new standards will
depend on the development and implementation of applicable regulations.
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
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Mississippi Power Company 1997 Annual Report
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 additional legislation related to global climate
change, electromagnetic fields, and other environmental and health concerns
could significantly affect the Company. The impact of new legislation -- if any
- -- will depend on the subsequent development and implementation of applicable
regulations. In addition, the potential exists for lawsuits alleging damages
caused by electromagnetic fields. The likelihood or outcome of such potential
lawsuits cannot be determined at this time.
Sources of Capital
At December 31, 1997, the Company had $76.3 million of unused committed credit
agreements. The Company had no short-term notes payable outstanding at year end
1997.
It is anticipated that the funds required for construction and other
purposes, including compliance with environmental regulations, will be derived
from sources similar to those used in the past. These sources were primarily the
issuances of first mortgage bonds and preferred stock, in addition to pollution
control revenue bonds issued for the Company's benefit by public authorities.
Recently, the Company issued trust preferred securities and plans to issue
unsecured debt in 1998. In this regard, Mississippi Power sought and obtained
stockholder approval in 1997 to amend its corporate charter eliminating
restrictions on the amounts of unsecured indebtedness the Company may incur.
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.
Cautionary Statement Regarding Forward-Looking Information
This annual report, including the foregoing Management's Discussion and
Analysis, contains forward-looking statements in addition to historical
information. The Company cautions that there are various important factors that
could cause actual results to differ materially from those indicated in the
forward-looking statements; accordingly, there can be no assurance that such
indicated results will be realized. These factors include legislative and
regulatory initiatives regarding deregulation and restructuring of the electric
utility industry; the extent and timing of the entry of additional competition
in the Company's markets; potential business strategies -- including
acquisitions or dispositions of assets or internal restructuring -- that may be
pursued by the Company; state and federal rate regulation; changes in or
application of environmental and other laws and regulations to which the Company
is subject; political, legal and economic conditions and developments; financial
market conditions and the results of financing efforts; changes in commodity
prices and interest rates; weather and other natural phenomena; and other
factors discussed in the reports (including Form 10-K) filed from time to time
by the Company with the SEC.
9
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF INCOME
For the Years Ended December 31, 1997, 1996, and 1995
Mississippi Power Company 1997 Annual Report
- ---------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
(in thousands)
Operating Revenues (Notes 1 and 3):
<S> <C> <C> <C>
Revenues $ 533,445 $ 522,199 $ 508,862
Revenues from affiliates 10,143 21,830 7,691
- ---------------------------------------------------------------------------------------------------------------------------
Total operating revenues 543,588 544,029 516,553
- ---------------------------------------------------------------------------------------------------------------------------
Operating Expenses:
Operation--
Fuel 142,059 141,532 111,071
Purchased power from non-affiliates 14,536 17,960 6,019
Purchased power from affiliates 37,794 33,245 57,777
Other 102,365 106,061 107,296
Maintenance 47,302 47,091 39,627
Depreciation and amortization 45,574 44,906 39,224
Taxes other than income taxes 44,034 43,545 42,443
Federal and state income taxes (Note 8) 31,968 32,618 34,486
- ---------------------------------------------------------------------------------------------------------------------------
Total operating expenses 465,632 466,958 437,943
- ---------------------------------------------------------------------------------------------------------------------------
Operating Income 77,956 77,071 78,610
Other Income (Expense):
Interest income 857 239 199
Other, net 2,368 4,145 4,962
Income taxes applicable to other income 588 (932) (1,006)
- ---------------------------------------------------------------------------------------------------------------------------
Income Before Interest Charges 81,769 80,523 82,765
- ---------------------------------------------------------------------------------------------------------------------------
Interest Charges:
Interest on long-term debt 19,856 19,898 21,898
Interest on notes payable 96 1,416 1,141
Amortization of debt discount, premium, and expense, net 1,577 1,547 1,510
Other interest charges 574 40 786
Distributions on preferred securities of subsidiary trust 2,369 - -
- ---------------------------------------------------------------------------------------------------------------------------
Net interest charges 24,472 22,901 25,335
- ---------------------------------------------------------------------------------------------------------------------------
Net Income 57,297 57,622 57,430
Dividends on Preferred Stock 3,287 4,899 4,899
===========================================================================================================================
Net Income After Dividends on Preferred Stock $ 54,010 $ 52,723 $ 52,531
===========================================================================================================================
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, 1997, 1996, and 1995
Mississippi Power Company 1997 Annual Report
- ----------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
(in thousands)
Operating Activities:
<S> <C> <C> <C>
Net income $ 57,297 $ 57,622 $ 57,430
Adjustments to reconcile net income to net
cash provided by operating activities--
Depreciation and amortization 49,661 50,551 51,588
Deferred income taxes (1,809) 74 (480)
Other, net 3,206 9,443 5,338
Changes in certain current assets and liabilities--
Receivables, net (8,583) 5,118 (8,758)
Inventories 3,148 4,973 3,962
Payables 8,357 2,077 17,421
Taxes accrued 2,515 532 -
Other 1,465 (240) 681
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash provided from operating activities 115,257 130,150 127,182
- ----------------------------------------------------------------------------------------------------------------------------------
Investing Activities:
Gross property additions (55,375) (61,314) (67,570)
Other (489) (2,258) (1,697)
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (55,864) (63,572) (69,267)
- ----------------------------------------------------------------------------------------------------------------------------------
Financing Activities:
Proceeds--
Capital contribution - 27 -
First mortgage bonds - - 30,000
Pollution control bonds - - 10,600
Preferred securities 35,000 - -
Other long-term debt - 80,000 -
Retirements--
Preferred stock (42,518) - -
First mortgage bonds - (45,447) (1,625)
Pollution control bonds (10) (10) (10)
Other long-term debt - (55,000) (40,689)
Payment of preferred stock dividends (3,287) (4,899) (4,899)
Payment of common stock dividends (49,400) (43,900) (39,400)
Miscellaneous (1,804) (2,932) (568)
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash used for financing activities (62,019) (72,161) (46,591)
- ----------------------------------------------------------------------------------------------------------------------------------
Net Change in Cash and Cash Equivalents (2,626) (5,583) 11,324
Cash and Cash Equivalents at Beginning of Year 7,058 12,641 1,317
- ----------------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year $ 4,432 $ 7,058 $ 12,641
==================================================================================================================================
Supplemental Cash Flow Information:
Cash paid during the period for--
Interest (net of amount capitalized) $ 22,297 $ 21,467 $ 23,308
Income taxes 33,450 34,072 36,908
- ----------------------------------------------------------------------------------------------------------------------------------
( ) Denotes use of cash.
The accompanying notes are an integral part of these statements.
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
BALANCE SHEETS
At December 31, 1997 and 1996
Mississippi Power Company 1997 Annual Report
- --------------------------------------------------------------------------------------------------------------------------------
ASSETS 1997 1996
- --------------------------------------------------------------------------------------------------------------------------------
(in thousands)
Utility Plant:
<S> <C> <C>
Plant in service, at original cost (Notes 1 and 6) $ 1,518,402 $ 1,483,875
Less accumulated provision for depreciation 559,098 526,776
- --------------------------------------------------------------------------------------------------------------------------------
959,304 957,099
Construction work in progress 41,083 35,100
- --------------------------------------------------------------------------------------------------------------------------------
Total 1,000,387 992,199
- --------------------------------------------------------------------------------------------------------------------------------
Other Property and Investments 650 3,054
- --------------------------------------------------------------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents 4,432 7,058
Receivables--
Customer accounts receivable 32,220 26,364
Regulatory clauses under recovery 7,619 7,300
Other accounts and notes receivable 8,666 7,468
Affiliated companies 7,398 6,329
Accumulated provision for uncollectible accounts (698) (839)
Fossil fuel stock, at average cost 10,651 12,168
Materials and supplies, at average cost 19,452 21,083
Current portion of accumulated deferred income taxes 8,379 7,227
Prepayments 1,791 4,744
Vacation pay deferred 5,030 4,806
- --------------------------------------------------------------------------------------------------------------------------------
Total 104,940 103,708
- --------------------------------------------------------------------------------------------------------------------------------
Deferred Charges:
Debt expense and loss, being amortized 12,234 12,220
Deferred charges related to income taxes (Note 8) 21,906 22,274
Long-term notes receivable 2,837 3,737
Workforce Reduction Plan 18,236 -
Miscellaneous 5,639 5,135
- --------------------------------------------------------------------------------------------------------------------------------
Total 60,852 43,366
- --------------------------------------------------------------------------------------------------------------------------------
Total Assets $ 1,166,829 $ 1,142,327
================================================================================================================================
The accompanying notes are an integral part of these statements.
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
BALANCE SHEETS (continued)
At December 31, 1997 and 1996
Mississippi Power Company 1997 Annual Report
- --------------------------------------------------------------------------------------------------------------------------------
CAPITALIZATION AND LIABILITIES 1997 1996
- --------------------------------------------------------------------------------------------------------------------------------
(in thousands)
Capitalization (See accompanying statements):
<S> <C> <C>
Common stock equity $ 387,824 $ 383,734
Preferred stock 31,896 74,414
Company obligated mandatorily redeemable preferred securities of
subsidiary trust holding Company Junior Subordinated Notes (Note 9) 35,000 -
Long-term debt 291,665 326,379
- --------------------------------------------------------------------------------------------------------------------------------
Total 746,385 784,527
- --------------------------------------------------------------------------------------------------------------------------------
Current Liabilities:
Long-term debt due within one year (Note 11) 35,020 10
Accounts payable--
Affiliated companies 8,548 4,136
Regulatory clauses over recovery 15,476 8,788
Other 34,065 38,720
Customer deposits 3,225 3,154
Taxes accrued--
Federal and state income 1,101 -
Other 33,859 32,445
Interest accrued 4,098 4,384
Miscellaneous 12,797 13,942
- --------------------------------------------------------------------------------------------------------------------------------
Total 148,189 105,579
- --------------------------------------------------------------------------------------------------------------------------------
Deferred Credits and Other Liabilities:
Accumulated deferred income taxes (Note 8) 134,645 133,437
Accumulated deferred investment tax credits 27,121 28,333
Deferred credits related to income taxes (Note 8) 38,203 40,568
Postretirement benefits other than pension 25,145 21,850
Accumulated provision for property damage (Note 1) 13,991 12,955
Workforce Reduction Plan 15,700 -
Miscellaneous 17,450 15,078
- --------------------------------------------------------------------------------------------------------------------------------
Total 272,255 252,221
- --------------------------------------------------------------------------------------------------------------------------------
Commitments and Contingent Matters (Notes 2, 3, 4, and 5)
Total Capitalization and Liabilities $ 1,166,829 $ 1,142,327
================================================================================================================================
The accompanying notes are an integral part of these statements.
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CAPITALIZATION
At December 31, 1997 and 1996
Mississippi Power Company 1997 Annual Report
- ---------------------------------------------------------------------------------------------------------------------------
1997 1996 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
(in thousands) (percent of total)
Common Stock Equity:
<S> <C> <C> <C> <C>
Common stock, without par value --
Authorized -- 1,130,000 shares
Outstanding -- 1,121,000 shares in
1997 and 1996 $ 37,691 $ 37,691
Paid-in capital 179,389 179,389
Premium on preferred stock 327 372
Retained earnings (Note 12) 170,417 166,282
- ---------------------------------------------------------------------------------------------------------------------------
Total common stock equity 387,824 383,734 52.0% 48.9%
- ---------------------------------------------------------------------------------------------------------------------------
Cumulative Preferred Stock:
$100 par value --
Authorized -- 1,244,139 shares
Outstanding --318,955 shares in 1997 and
744,139 shares in 1996
4.40% 948 4,000
4.60% 874 2,010
4.72% 1,670 5,000
6.32% 15,000 15,000
6.65% 8,404 8,404
7.00% 5,000 5,000
7.25% - 35,000
- ---------------------------------------------------------------------------------------------------------------------------
Total (annual dividend requirement -- $2,018,000) 31,896 74,414 4.3 9.5
- ---------------------------------------------------------------------------------------------------------------------------
Company Obligated Mandatorily
Redeemable Preferred Securities (Note 9):
$25 liquidation value -- 7.75% 35,000 -
- ---------------------------------------------------------------------------------------------------------------------------
Total (annual dividend requirement -- $2,713,000) 35,000 - 4.7 -
- ---------------------------------------------------------------------------------------------------------------------------
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
June 1, 2023 7.45% 35,000 35,000
December 1, 2025 6 7/8% 30,000 30,000
- ---------------------------------------------------------------------------------------------------------------------------
Total first mortgage bonds 175,000 175,000
Pollution control obligations (Note 10) 73,725 73,735
Other long-term debt (Note 10) 80,000 80,000
Unamortized debt premium (discount), net (2,040) (2,346)
- ---------------------------------------------------------------------------------------------------------------------------
Total long-term debt (annual interest
requirement--$20,246,000) 326,685 326,389
Less amount due within one year (Note 11) 35,020 10
- ---------------------------------------------------------------------------------------------------------------------------
Long-term debt excluding amount due within one year 291,665 326,379 39.0 41.6
- ---------------------------------------------------------------------------------------------------------------------------
Total Capitalization $ 746,385 $ 784,527 100.0% 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, 1997, 1996, and 1995
Mississippi Power Company 1997 Annual Report
- ---------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Balance at Beginning of Period $ 166,282 $ 157,459 $ 144,328
Net income after dividends on preferred stock 54,010 52,723 52,531
Cash dividends on common stock (49,400) (43,900) (39,400)
Preferred stock transactions and other, net (475) - -
=====================================================================================================================
Balance at End of Period (Note 12) $ 170,417 $ 166,282 $ 157,459
=====================================================================================================================
STATEMENTS OF PAID-IN CAPITAL
For the Years Ended December 31, 1997, 1996, and 1995
- ---------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
(in thousands)
Balance at Beginning of Period $ 179,389 $ 179,362 $ 179,362
Contributions to capital by parent company - 27 -
=====================================================================================================================
Balance at End of Period $ 179,389 $ 179,389 $ 179,362
=====================================================================================================================
The accompanying notes are an integral part of these statements.
15
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Mississippi Power Company 1997 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 Southern Energy Solutions, and other direct and indirect
subsidiaries. The operating companies (Alabama Power Company, Georgia Power
Company, Gulf Power Company, Mississippi Power Company, and Savannah Electric
and Power Company) provide electric service in four southeastern states.
Contracts among the companies--dealing with jointly owned generating facilities,
interconnecting transmission lines, and the exchange of electric power--are
regulated by the Federal Energy Regulatory Commission (FERC) and/or the
Securities and Exchange Commission. 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. Worldwide,
Southern Energy develops and manages electricity and other energy related
projects, including domestic energy trading and marketing. Southern Nuclear
provides services to Southern Company's nuclear power plants. Southern Energy
Solutions develops new business opportunities related to energy products and
services.
Southern Company is registered as a holding company under the Public Utility
Holding Company Act of 1935 (PUHCA). Both Southern Company and its subsidiaries
are subject to the regulatory provisions of 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 expected to be credited
to customers through the ratemaking process. Regulatory assets and (liabilities)
reflected in the Balance Sheets as of December 31 relate to:
1997 1996
-------------------------
(in thousands)
Deferred income taxes $21,906 $22,274
Vacation pay 5,030 4,806
Workforce reduction costs - 1,991
Workforce reduction plan of
1997 18,236 -
Premium on reacquired debt 9,508 10,672
Deferred environmental costs 1,583 1,679
Property damage reserve (13,991) (12,955)
Deferred income tax credits (38,203) (40,568)
Other, net (2,982) (2,882)
- ----------------------------------------------------------------
Total $ 1,087 $(14,983)
================================================================
In the event that a portion of the Company's operations is no longer subject
to the provisions of FASB Statement No. 71, the Company would be required to
write off the net regulatory assets and liabilities related to that portion of
operations that are not specifically recoverable through regulated rates. In
addition, the Company would be required to determine any impairment to other
assets, including plant, and, write down the assets, if impaired, to their fair
value.
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, the energy component of
purchased power costs and certain other costs. Retail rates also include
16
<PAGE>
NOTES (continued)
Mississippi Power Company 1997 Annual Report
provisions to adjust billings for fluctuations in costs for ad valorem taxes and
certain qualifying environmental costs. Revenues are adjusted for differences
between actual allowable amounts and the amounts included in rates.
The Company has a diversified base of customers. No single customer or
industry comprises 10 percent or more of revenues. In 1997, 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 1997 and 1996, and 3.2 percent in 1995. 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.
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. If applicable, the cost of
maintenance, repairs, and replacement of minor items of property are 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, at December 31 are as follows:
Carrying Fair
Amount Value
--------------------
(in millions)
Long-term debt:
At December 31, 1997 $327 $330
At December 31, 1996 326 324
Preferred securities:
At December 31, 1997 35 36
At December 31, 1996 - -
- --------------------------------------------------------
The fair value for long-term debt and preferred securities 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.
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 each of the
years 1997, 1996 and 1995. 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, 1997, the accumulated provision amounted to $14.0 million.
17
<PAGE>
NOTES (continued)
Mississippi Power Company 1997 Annual Report
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. The Company funds trusts to the extent deductible
under federal income tax regulations or to the extent required by the Company's
regulatory commissions. Amounts funded are primarily invested in 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 funded status of the plans and reconciliation to amounts reflected in the
Balance Sheets at December 31 are as follows:
Pension
------------------------
1997 1996
------------------------
(in thousands)
Actuarial present value of
benefit obligation:
Vested benefits $102,764 $92,091
Non-vested benefits 3,120 5,191
--------------------------------------------------------------
Accumulated benefit obligation 105,884 97,282
Additional amounts related to
projected salary increases 26,247 30,552
--------------------------------------------------------------
Projected benefit obligation 132,131 127,834
Less:
Fair value of plan assets 207,457 179,658
Unrecognized net gain (78,936) (56,674)
Unrecognized prior service cost 5,819 6,422
Unrecognized transition asset (4,904) (5,449)
--------------------------------------------------------------
Accrued liability recognized
in the Balance Sheets $ 2,695 $3,877
==============================================================
Postretirement Benefits
------------------------
1997 1996
------------------------
(in thousands)
Actuarial present value of
benefit obligation:
Retirees and dependents $19,816 $20,841
Employees eligible to retire 3,691 2,703
Other employees 19,910 17,564
------------------------------------------------------------
Accumulated benefit obligation 43,417 41,108
Less:
Fair value of plan assets 12,916 10,210
Unrecognized net (gain)/ loss (1,980) 1,136
Unrecognized transition
obligation 5,314 5,911
------------------------------------------------------------
Accrued liability recognized in
the Balance Sheets $27,167 $23,851
============================================================
18
<PAGE>
NOTES (continued)
Mississippi Power Company 1997 Annual Report
The weighted average rates assumed in the above actuarial calculations were:
1997 1996 1995
---------------------------------
Discount 7.5% 7.8% 7.3%
Annual salary increase 5.0 5.3 4.8
Long-term return on
plan assets 8.5 8.5 8.5
------------------------------------------------------------
An additional assumption used in measuring the accumulated postretirement
benefit obligation was a weighted average medical care cost trend rate of 8.8
percent for 1997, decreasing gradually to 5.5 percent through the year 2005 and
remaining at that level thereafter. An annual increase in the assumed medical
care cost trend rate of 1 percent would increase the accumulated benefit
obligation as of December 31, 1997, by $3.3 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
--------------------------------
1997 1996 1995
--------------------------------
(in thousands)
Benefits earned during
the year $4,015 $ 3,842 $ 3,636
Interest cost on
projected benefit
obligation 9,408 9,310 8,434
Actual (return) loss on
plan assets (30,680) (20,438) (32,232)
Net amortization and
deferral 16,026 6,442 18,650
--------------------------------------------------------------
Net pension income $(1,231) $ (844) $ (1,512)
==============================================================
Of the above net pension income, $(0.9) million in 1997, $(0.6) million in
1996, and $(1.1) million in 1995 were recorded in operating expenses, and the
remainder was recorded in construction and other accounts.
Postretirement Benefits
------------------------------
1997 1996 1995
------------------------------
(in thousands)
Benefits earned during the year $ 867 $ 958 $1,525
Interest cost on accumulated
benefit obligation 2,922 2,830 3,442
Amortization of transition
obligation over 20 years 362 362 1,027
Actual (return) loss on
plan assets (1,388) (990) (1,436)
Net amortization and deferral 566 312 851
================================================================
Net postretirement costs $3,329 $3,472 $5,409
================================================================
Of the above net postretirement costs recorded, $2.6 million in 1997, $2.8
million in 1996, and $3.9 million in 1995 were recorded in operating expenses,
and the remainder was recorded in construction and other accounts.
Workforce Reduction Programs
During 1994, Mississippi Power and SCS instituted workforce reduction programs.
The costs of the SCS workforce 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 $2.0 million, $5.3 million, and $4.0 million of the cost of
these programs in 1997, 1996 and 1995, respectively. In 1997, Mississippi Power
expensed its pro-rata share of the costs for affiliated companies' programs of
$0.5 million.
In 1997, approximately one hundred employees of Mississippi Power, in
certain areas, including finance, environmental quality and external affairs,
accepted the terms under a workforce reduction plan. The total cost to be
incurred in connection with this voluntary plan is expected to be $18.2 million.
The MPSC approved the deferral and amortization of these program costs over a
period not to exceed 60 months beginning no later than July 1998. The
unamortized balance of this program was $18.2 million at December 31, 1997.
19
<PAGE>
NOTES (continued)
Mississippi Power Company 1997 Annual Report
3. LITIGATION AND REGULATORY MATTERS
Retail Rate Adjustment Plans
Mississippi Power's retail base rates are set under a Performance Evaluation
Plan (PEP) approved by the MPSC in 1994. PEP was designed with the objective
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
includes a mechanism for sharing rate adjustments based on the Company's ability
to maintain low rates for customers and on the Company's performance as measured
by three indicators that emphasize price and service to the customer. PEP
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 will remain in effect until the MPSC modifies or
terminates the plan. In September 1996, the MPSC under PEP approved a retail
revenue increase of $4.5 million (1.06 percent of annual retail revenue) which
became effective in October 1996. There were no PEP retail revenue changes for
1997.
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 $4.1 million for Mississippi Power at December
31, 1997. Although management believes that rates are not excessive and that
refunds are not justified, the final outcome of this matter cannot now be
determined.
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. 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. In 1997, the Company's filing with the MPSC
under the ECO Plan resulted in an annual retail rate increase of $0.9 million.
The 1998 ECO filing, if approved by the MPSC, will result in a small decrease in
customer prices.
Mississippi Power conducts studies, when possible, to determine the extent
of any required environmental remediation. 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
20
<PAGE>
NOTES (continued)
Mississippi Power Company 1997 Annual Report
ECO Plan as provided in the Company's 1995 ECO order. As of December 31, 1997,
the balance in the liability and regulatory asset accounts was $1.6 million. If
this site were required to be remediated, industry studies show the Company
could incur cleanup costs ranging from $1.5 million to $10 million before giving
consideration to possible recovery of clean-up costs from other parties.
4. CONSTRUCTION PROGRAM
Mississippi Power is engaged in continuous construction programs, the costs of
which are currently estimated to total $67 million in 1998, $92 million in 1999,
and $291 million in 2000.
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. Significant construction
will continue related to transmission and distribution facilities, the
upgrading of generating plants, and the addition of combined cycle generation.
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, 1997, Mississippi Power had total committed credit
agreements with banks for $96.3 million. At year-end 1997, the unused portion of
these committed credit agreements was $76.3 million. These credit agreements
expire at various dates in 1998 and in 2000. 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, 1997, 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 1997 use fees
collected under this agreement, net of related expenses, amounted to $3.5
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. The Company has the option to purchase the 745
railcars at the greater of lease termination value or fair market value, or to
renew the leases at the end of the lease term. In 1997, a third lease agreement
for the use of 360 railcars was also entered into for three years, with a
monthly renewal option for up to an additional nine months. All of these leases,
totaling 1,105 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, charged to fuel
inventory, was $2.0 million in 1997, and $1.7 million in both 1996 and 1995. The
Company's annual lease payments for 1998 through 2002 will average approximately
$2.2 million and after 2002, lease payments total in aggregate approximately $18
million.
21
<PAGE>
NOTES (continued)
Mississippi Power Company 1997 Annual Report
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.
Total estimated obligations at December 31, 1997 were as follows:
Year Fuel
(in millions)
1998 $137
1999 88
- ---------------------------------------------------
Total commitments $225
===================================================
Additional commitments for fuel will be required in the future to supply the
Company's fuel needs.
In 1996, Mississippi Power entered into agreements to purchase options for
summer peaking power for the years 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
1997, Mississippi Power exercised its option to purchase 250 megawatts of
peaking capacity. In June 1997, the MPSC approved Mississippi Power's request
that it be allowed to earn a return on the capacity portion of this agreement.
Mississippi Power expects to exercise its options to purchase 300 megawatts of
summer peaking capacity in 1998.
6. JOINT OWNERSHIP AGREEMENTS
Mississippi Power and Alabama Power own as tenants in common Units 1 and 2 at
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, 1997,
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
Units 1 and 2 500 40% $ 63,206 $30,168
Daniel 1,000 50% 220,984 92,484
----------------------------------------------------------------
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
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. 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 $8,000 in 1997; $0 in 1996; and $268,000 in 1995.
8. INCOME TAXES
At December 31, 1997, the tax-related regulatory assets and liabilities were $22
million and $38 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 1997 Annual Report
Details of the federal and state income tax provisions are shown below:
1997 1996 1995
---------------------------------
(in thousands)
Total provision for
income taxes
Federal --
Currently payable $27,651 $29,888 $32,546
Deferred --current year 8,171 13,816 5,122
--reversal of
prior years (9,236) (14,913) (7,039)
---------------------------------------------------------------
26,586 28,791 30,629
---------------------------------------------------------------
State --
Currently payable 5,537 3,588 3,426
Deferred --current year 1,756 4,727 2,270
--reversal of
prior years (2,499) (3,556) (833)
---------------------------------------------------------------
4,794 4,759 4,863
---------------------------------------------------------------
Total 31,380 33,550 35,492
Less income taxes charged
to other income (588) 932 1,006
---------------------------------------------------------------
Federal and state
income taxes charged
to operations $31,968 $32,618 $34,486
===============================================================
The tax effects of temporary differences between the carrying amounts of
assets and liabilities in the financial statements and their respective tax
bases, which give rise to deferred tax assets and liabilities are as follows:
1997 1996
-----------------------------
(in thousands)
Deferred tax liabilities:
Accelerated depreciation $149,941 $148,667
Basis differences 10,037 10,507
Other 25,097 19,285
-------------------------------------------------------------
Total 185,075 178,459
-------------------------------------------------------------
Deferred tax assets:
Other property
basis differences 23,139 24,434
Pension and
other benefits 9,803 8,750
Property insurance 5,351 4,955
Unbilled fuel 802 2,808
Other 19,714 11,302
-------------------------------------------------------------
Total 58,809 52,249
-------------------------------------------------------------
Net deferred tax
liabilities 126,266 126,210
Portion included in
current assets, net 8,379 7,227
-------------------------------------------------------------
Accumulated deferred
income taxes in the
Balance Sheets $134,645 $133,437
=============================================================
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 $1.2 million in 1997, $1.4 million in 1996, and $1.5 million in
1995. At December 31, 1997, all investment tax credits available to reduce
federal income taxes payable had been utilized.
A reconciliation of the federal statutory income tax rate to the effective
income tax rate is as follows:
1997 1996 1995
-----------------------------
Total effective tax rate 37% 37% 38%
State income tax, net of
federal income tax benefit (3) (3) (3)
Tax rate differential 1 1 -
-------------------------------------------------------------
Statutory federal tax rate 35% 35% 35%
=============================================================
23
<PAGE>
NOTES (continued)
Mississippi Power Company 1997 Annual Report
Mississippi Power and the subsidiaries of Southern Company file a
consolidated federal income tax return. Under a joint consolidated income tax
agreement, each subsidiary's current and deferred tax expense is computed on a
stand-alone basis. Tax benefits from losses of the parent company are allocated
to each subsidiary based on the ratio of taxable income to total consolidated
taxable income.
9. COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES
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 $36 million aggregate principal amount of the Company's 7.75 percent
junior subordinated notes due February 15, 2037.
10. OTHER LONG-TERM DEBT
Details of pollution control obligations and other long-term debt are as
follows:
December 31,
1997 1996
---------------------
(in thousands)
Obligations incurred in
connection with the sale by
public authorities of
tax-exempt pollution control
revenue bonds:
5.8$% due 2007 $ 950 $ 960
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
------------------------------------------------------------
73,725 73,735
------------------------------------------------------------
Other long-term debt:
Variable rates (6.10875% to
6.18984% at 1/1/98) due 1999 50,000 50,000
Variable rate due 2000 30,000 30,000
------------------------------------------------------------
80,000 80,000
------------------------------------------------------------
Total $153,725 $153,735
============================================================
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 $20 thousand annually in 1998, 1999, 2000 and 2001.
11. 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:
1997 1996
-------------------
(in thousands)
Bond improvement
fund requirements $ 1,750 $1,750
Less:
Portion to be satisfied by
certifying property additions 1,750 1,750
-------------------------------------------------------------
Redemptions of first mortgage bonds 35,000 -
Pollution control bond cash
sinking fund requirements (Note 10) 20 10
-------------------------------------------------------------
Total $35,020 $ 10
=============================================================
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.
12. COMMON STOCK DIVIDEND RESTRICTIONS
Mississippi Power's first mortgage bond indenture and the corporate charter
contain various common stock dividend restrictions. At December 31, 1997,
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 1997 Annual Report
13. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 1997 and 1996 are as follows:
Net Income
After Dividends
Quarter Operating Operating On
Ended Revenues Income Preferred Stock
-------------------------------------------------------------------
March 1997 $116,903 $17,132 $ 10,645
June 1997 128,915 19,340 12,618
September 1997 171,874 30,441 25,163
December 1997 125,896 11,043 5,584
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
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 1997 Annual Report
- -------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Revenues (in thousands) $543,588 $544,029 $516,553
Net Income after Dividends
on Preferred Stock (in thousands) $54,010 $52,723 $52,531
Cash Dividends on Common Stock (in thousands) $49,400 $43,900 $39,400
Return on Average Common Equity (percent) 14.0 13.9 14.26
Total Assets (in thousands) $1,166,829 $1,142,327 $1,148,953
Gross Property Additions (in thousands) $55,375 $61,314 $67,570
- -------------------------------------------------------------------------------------------------------------------------
Capitalization (in thousands):
Common stock equity $387,824 $383,734 $374,884
Preferred stock 31,896 74,414 74,414
Preferred stock subject to mandatory redemption - - -
Company obligated mandatorily redeemable preferred securities 35,000 - -
Long-term debt 291,665 326,379 288,820
- ------------------------------------------------------------------------------------------------------------------------
Total (excluding amounts due within one year) $746,385 $784,527 $738,118
=========================================================================================================================
Capitalization Ratios (percent):
Common stock equity 52.0 48.9 50.8
Preferred stock 4.3 9.5 10.1
Company obligated mandatorily redeemable preferred securities 4.7 - -
Long-term debt 39.0 41.6 39.1
- -------------------------------------------------------------------------------------------------------------------------
Total (excluding amounts due within one year) 100.0 100.0 100.0
=========================================================================================================================
First Mortgage Bonds (in thousands):
Issued - - 30,000
Retired - 45,447 1,625
Preferred Stock (in thousands):
Issued - - -
Retired 42,518 - -
Company Obligated Mandatorily Redeemable
Preferred Securities (in thousands):
Issued 35,000 - -
- -------------------------------------------------------------------------------------------------------------------------
Security Ratings:
First Mortgage Bonds -
Moody's Aa3 Aa3 Aa3
Standard and Poor's AA- A+ A+
Duff & Phelps AA- AA- AA-
Preferred Stock -
Moody's a1 a1 a1
Standard and Poor's A A A
Duff & Phelps A+ A+ A+
- -------------------------------------------------------------------------------------------------------------------------
Customers (year-end):
Residential 156,650 154,630 154,014
Commercial 31,667 30,366 29,903
Industrial 642 639 642
Other 200 200 194
- -------------------------------------------------------------------------------------------------------------------------
Total 189,159 185,835 184,753
=========================================================================================================================
Employees (year-end) 1,245 1,363 1,421
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL AND OPERATING DATA
Mississippi Power Company 1997 Annual Report
- ----------------------------------------------------------------------------------------------------------------------------------
1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating Revenues (in thousands) $499,162 $474,883 $434,447 $432,386
Net Income after Dividends
on Preferred Stock (in thousands) $49,157 $42,436 $36,790 $22,627
Cash Dividends on Common Stock (in thousands) $34,100 $29,000 $28,000 $28,500
Return on Average Common Equity (percent) 14.38 14.09 13.27 8.17
Total Assets (in thousands) $1,123,711 $1,050,334 $791,283 $790,641
Gross Property Additions (in thousands) $104,014 $139,976 $68,189 $53,675
- ----------------------------------------------------------------------------------------------------------------------------------
Capitalization (in thousands):
Common stock equity $361,753 $321,768 $280,640 $273,855
Preferred stock 74,414 74,414 74,414 39,414
Preferred stock subject to mandatory redemption - - - -
Company obligated mandatorily redeemable preferred securities - - - -
Long-term debt 306,522 250,391 238,650 304,150
- ----------------------------------------------------------------------------------------------------------------------------------
Total (excluding amounts due within one year) $742,689 $646,573 $593,704 $617,419
==================================================================================================================================
Capitalization Ratios (percent):
Common stock equity 48.7 49.8 47.3 44.4
Preferred stock 10.0 11.5 12.5 6.4
Company obligated mandatorily redeemable preferred securities - - - -
Long-term debt 41.3 38.7 40.2 49.2
- ----------------------------------------------------------------------------------------------------------------------------------
Total (excluding amounts due within one year) 100.0 100.0 100.0 100.0
==================================================================================================================================
First Mortgage Bonds (in thousands):
Issued 35,000 70,000 40,000 50,000
Retired 32,628 51,300 104,703 -
Preferred Stock (in thousands):
Issued - 23,404 35,000 -
Retired - 23,404 - 4,118
Company Obligated Mandatorily Redeemable
Preferred Securities (in thousands):
Issued - - - -
- ----------------------------------------------------------------------------------------------------------------------------------
Security Ratings:
First Mortgage Bonds -
Moody's Aa3 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 152,891 151,692 150,248 148,978
Commercial 29,276 28,648 28,056 27,441
Industrial 650 570 573 562
Other 189 190 189 400
- ----------------------------------------------------------------------------------------------------------------------------------
Total 183,006 181,100 179,066 177,381
==================================================================================================================================
Employees (year-end) 1,535 1,586 1,619 1,630
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
27A
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL AND OPERATING DATA
Mississippi Power Company 1997 Annual Report
- ----------------------------------------------------------------------------------------------------------------------------------
1990 1989 1988 1987
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating Revenues (in thousands) $446,871 $442,650 $437,939 $455,843
Net Income after Dividends
on Preferred Stock (in thousands) $34,176 $38,576 $36,081 $35,200
Cash Dividends on Common Stock (in thousands) $27,500 $27,000 $27,600 $24,700
Return on Average Common Equity (percent) 12.36 14.43 14.03 14.68
Total Assets (in thousands) $800,026 $786,570 $779,319 $764,068
Gross Property Additions (in thousands) $49,009 $43,916 $54,550 $53,288
- ----------------------------------------------------------------------------------------------------------------------------------
Capitalization (in thousands):
Common stock equity $279,833 $273,157 $261,473 $252,992
Preferred stock 39,414 39,414 39,414 39,414
Preferred stock subject to mandatory redemption 3,750 4,500 5,250 6,750
Company obligated mandatorily redeemable preferred securities - - - -
Long-term debt 270,724 277,693 287,525 294,811
- ----------------------------------------------------------------------------------------------------------------------------------
Total (excluding amounts due within one year) $593,721 $594,764 $593,662 $593,967
==================================================================================================================================
Capitalization Ratios (percent):
Common stock equity 47.1 45.9 44.1 42.6
Preferred stock 7.3 7.4 7.5 7.8
Company obligated mandatorily redeemable preferred securities - - - -
Long-term debt 45.6 46.7 48.4 49.6
- ----------------------------------------------------------------------------------------------------------------------------------
Total (excluding amounts due within one year) 100.0 100.0 100.0 100.0
==================================================================================================================================
First Mortgage Bonds (in thousands):
Issued - - - -
Retired 4,000 3,823 - 29,701
Preferred Stock (in thousands):
Issued - - - -
Retired 750 750 1,500 1,500
Company Obligated Mandatorily Redeemable
Preferred Securities (in thousands):
Issued - - - -
- ----------------------------------------------------------------------------------------------------------------------------------
Security Ratings:
First Mortgage Bonds -
Moody's A1 A1 A1 A1
Standard and Poor's A+ A+ A+ A+
Duff & Phelps A+ A+ 5 5
Preferred Stock -
Moody's a1 a1 a1 a1
Standard and Poor's A A A A
Duff & Phelps A A 6 6
- ----------------------------------------------------------------------------------------------------------------------------------
Customers (year-end):
Residential 147,738 147,308 146,750 146,273
Commercial 27,134 26,867 26,751 26,342
Industrial 574 525 478 438
Other 411 404 399 389
- ----------------------------------------------------------------------------------------------------------------------------------
Total 175,857 175,104 174,378 173,442
==================================================================================================================================
Employees (year-end) 1,842 1,750 1,831 1,898
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
27B
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL AND OPERATING DATA (continued)
Mississippi Power Company 1997 Annual Report
- -------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------
Operating Revenues (in thousands):
<S> <C> <C> <C>
Residential $138,608 $137,055 $134,286
Commercial 134,208 131,734 131,034
Industrial 140,233 141,324 140,947
Other 4,193 4,013 3,914
- -------------------------------------------------------------------------------------------------------------------------
Total retail 417,242 414,126 410,181
Sales for resale - non-affiliates 105,141 99,596 91,820
Sales for resale - affiliates 10,143 21,830 7,691
- -------------------------------------------------------------------------------------------------------------------------
Total revenues from sales of electricity 532,526 535,552 509,692
Other revenues 11,062 8,477 6,861
- -------------------------------------------------------------------------------------------------------------------------
Total $543,588 $544,029 $516,553
=========================================================================================================================
Kilowatt-Hour Sales (in thousands):
Residential 2,039,042 2,079,611 2,040,608
Commercial 2,407,520 2,315,860 2,242,163
Industrial 3,981,875 3,960,243 3,813,456
Other 40,508 39,297 38,559
- -------------------------------------------------------------------------------------------------------------------------
Total retail 8,468,945 8,395,011 8,134,786
Sales for resale - non-affiliates 2,895,182 2,726,993 2,493,519
Sales for resale - affiliates 478,884 693,510 243,554
- ---------------------------------------------------------------------------------------------------------------------------
Total 11,843,011 11,815,514 10,871,859
=========================================================================================================================
Average Revenue Per Kilowatt-Hour (cents):
Residential 6.80 6.59 6.58
Commercial 5.57 5.69 5.84
Industrial 3.52 3.57 3.70
Total retail 4.93 4.93 5.04
Total sales 4.50 4.53 4.69
Residential Average Annual Kilowatt-Hour Use Per Customer 13,132 13,469 13,307
Residential Average Annual Revenue Per Customer $892.68 $887.66 $875.69
Plant Nameplate Capacity Ratings (year-end) (megawatts) 2,086 2,086 2,086
Maximum Peak-Hour Demand (megawatts):
Winter 1,922 2,030 1,637
Summer 2,209 2,117 2,095
Annual Load Factor (percent) 59.1 60.7 60.0
Plant Availability - Fossil-Steam (percent) 92.4 91.8 92.1
- -------------------------------------------------------------------------------------------------------------------------
Source of Energy Supply (percent):
Coal 70.0 70.4 58.0
Oil and gas 13.0 12.0 15.2
Purchased power -
From non-affiliates 3.0 6.5 2.4
From affiliates 14.0 11.1 24.4
- -------------------------------------------------------------------------------------------------------------------------
Total 100.0 100.0 100.0
=========================================================================================================================
Total Fuel Economy Data:
BTU per net kilowatt-hour generated 10,078 10,038 10,249
Cost of fuel per million BTU (cents) 153.32 156.08 160.48
Average cost of fuel per net kilowatt-hour generated (cents) 1.54 1.57 1.64
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL AND OPERATING DATA (continued)
Mississippi Power Company 1997 Annual Report
- ----------------------------------------------------------------------------------------------------------------------------------
1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------------------------
Operating Revenues (in thousands):
<S> <C> <C> <C> <C>
Residential $124,257 $118,793 $109,781 $103,820
Commercial 124,716 115,152 107,131 103,666
Industrial 142,268 130,198 117,010 116,972
Other 3,882 3,760 3,533 5,869
- ----------------------------------------------------------------------------------------------------------------------------------
Total retail 395,123 367,903 337,455 330,327
Sales for resale - non-affiliates 88,122 83,511 80,213 78,826
Sales for resale - affiliates 9,538 15,519 10,055 18,044
- ----------------------------------------------------------------------------------------------------------------------------------
Total revenues from sales of electricity 492,783 466,933 427,723 427,197
Other revenues 6,379 7,950 6,724 5,189
- ----------------------------------------------------------------------------------------------------------------------------------
Total $499,162 $474,883 $434,447 $432,386
==================================================================================================================================
Kilowatt-Hour Sales (in thousands):
Residential 1,922,217 1,929,835 1,804,858 1,832,266
Commercial 2,100,625 1,933,685 1,811,042 1,768,441
Industrial 3,847,011 3,623,543 3,536,634 3,297,247
Other 38,147 38,357 38,261 89,375
- ----------------------------------------------------------------------------------------------------------------------------------
Total retail 7,908,000 7,525,420 7,190,795 6,987,329
Sales for resale - non-affiliates 2,555,914 2,544,982 2,687,917 2,706,320
Sales for resale - affiliates 174,342 426,919 280,443 617,696
- ----------------------------------------------------------------------------------------------------------------------------------
Total 10,638,256 10,497,321 10,159,155 10,311,345
==================================================================================================================================
Average Revenue Per Kilowatt-Hour (cents):
Residential 6.46 6.16 6.08 5.67
Commercial 5.94 5.96 5.92 5.86
Industrial 3.70 3.59 3.31 3.55
Total retail 5.00 4.89 4.69 4.73
Total sales 4.63 4.45 4.21 4.14
Residential Average Annual Kilowatt-Hour Use Per Customer 12,611 12,780 12,066 12,338
Residential Average Annual Revenue Per Customer $815.21 $786.71 $733.90 $699.11
Plant Nameplate Capacity Ratings (year-end) (megawatts) 2,086 2,011 2,011 2,011
Maximum Peak-Hour Demand (megawatts):
Winter 1,636 1,401 1,386 1,267
Summer 1,874 1,872 1,755 1,682
Annual Load Factor (percent) 63.4 60.0 60.8 61.5
Plant Availability - Fossil-Steam (percent) 85.4 88.0 92.0 89.8
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Source of Energy Supply (percent):
Coal 56.0 63.5 60.4 64.1
Oil and gas 10.2 7.6 5.8 8.1
Purchased power -
From non-affiliates 1.2 1.3 1.2 0.7
From affiliates 32.6 27.6 32.6 27.1
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Total 100.0 100.0 100.0 100.0
==================================================================================================================================
Total Fuel Economy Data:
BTU per net kilowatt-hour generated 10,295 10,075 9,888 10,142
Cost of fuel per million BTU (cents) 165.96 170.13 162.27 177.52
Average cost of fuel per net kilowatt-hour generated (cents) 1.71 1.71 1.60 1.80
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</TABLE>
29A
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL AND OPERATING DATA (continued)
Mississippi Power Company 1997 Annual Report
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1990 1989 1988 1987
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Operating Revenues (in thousands):
<S> <C> <C> <C> <C>
Residential $102,243 $100,068 $96,711 $98,338
Commercial 103,352 103,403 98,772 98,669
Industrial 123,754 128,983 123,038 129,004
Other 6,078 5,992 5,874 5,723
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Total retail 335,427 338,446 324,395 331,734
Sales for resale - non-affiliates 86,194 82,111 75,525 88,060
Sales for resale - affiliates 20,157 16,938 33,747 31,278
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Total revenues from sales of electricity 441,778 437,495 433,667 451,072
Other revenues 5,093 5,155 4,272 4,771
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Total $446,871 $442,650 $437,939 $455,843
==================================================================================================================================
Kilowatt-Hour Sales (in thousands):
Residential 1,804,838 1,741,855 1,686,722 1,658,327
Commercial 1,718,074 1,686,302 1,607,988 1,555,044
Industrial 3,311,460 3,204,208 2,879,457 2,862,632
Other 85,938 87,611 86,049 81,153
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Total retail 6,920,310 6,719,976 6,260,216 6,157,156
Sales for resale - non-affiliates 2,883,581 2,798,086 2,280,341 2,615,058
Sales for resale - affiliates 714,365 527,970 1,100,808 955,303
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Total 10,518,256 10,046,032 9,641,365 9,727,517
==================================================================================================================================
Average Revenue Per Kilowatt-Hour (cents):
Residential 5.66 5.74 5.73 5.93
Commercial 6.02 6.13 6.14 6.35
Industrial 3.74 4.03 4.27 4.51
Total retail 4.85 5.04 5.18 5.39
Total sales 4.20 4.35 4.50 4.64
Residential Average Annual Kilowatt-Hour Use Per Customer 12,228 11,842 11,499 11,356
Residential Average Annual Revenue Per Customer $692.70 $680.32 $659.30 $673.41
Plant Nameplate Capacity Ratings (year-end) (megawatts) 1,998 1,998 1,966 1,966
Maximum Peak-Hour Demand (megawatts):
Winter 1,201 1,556 1,284 1,224
Summer 1,724 1,682 1,621 1,548
Annual Load Factor (percent) 59.0 58.8 57.6 59.0
Plant Availability - Fossil-Steam (percent) 93.3 94.0 93.0 93.5
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Source of Energy Supply (percent):
Coal 62.6 63.4 86.3 79.4
Oil and gas 14.0 13.5 4.8 5.3
Purchased power -
From non-affiliates 0.8 0.5 0.4 0.3
From affiliates 22.6 22.6 8.5 15.0
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Total 100.0 100.0 100.0 100.0
==================================================================================================================================
Total Fuel Economy Data:
BTU per net kilowatt-hour generated 10,319 10,159 10,220 10,525
Cost of fuel per million BTU (cents) 183.27 178.38 185.13 194.46
Average cost of fuel per net kilowatt-hour generated (cents) 1.89 1.81 1.89 2.05
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</TABLE>
29B
