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 16 , 2000
-----------------------------
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 (228) 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, 1999.
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 2, 2000
Exhibit 23
Arthur Andersen LLP
Suite 2500
133 Peachtree Street, NE
Atlanta, GA 30303-1816
404-658-1776
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report dated February 16, 2000 on the financial statements of Mississippi
Power Company, included in this Form 8-K, into Mississippi Power Company's
previously filed Registration Statement File No. 333-45069.
/s/Arthur Andersen LLP
Atlanta, Georgia
February 28, 2000
<TABLE> <S> <C>
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<LEGEND>
This schedule contains summary financial information extracted from the
financial statements filed as Exhibit 99 and is qualified in its 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-31-1999
<PERIOD-END> Dec-31-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,043,279
<OTHER-PROPERTY-AND-INVEST> 1,389
<TOTAL-CURRENT-ASSETS> 156,785
<TOTAL-DEFERRED-CHARGES> 49,683
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 1,251,136
<COMMON> 37,691
<CAPITAL-SURPLUS-PAID-IN> 181,828
<RETAINED-EARNINGS> 172,449
<TOTAL-COMMON-STOCKHOLDERS-EQ> 391,968
35,000
31,809
<LONG-TERM-DEBT-NET> 182,238
<SHORT-TERM-NOTES> 57,500
<LONG-TERM-NOTES-PAYABLE> 139,564
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 30,020
0
<CAPITAL-LEASE-OBLIGATIONS> 0
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<OTHER-ITEMS-CAPITAL-AND-LIAB> 383,037
<TOT-CAPITALIZATION-AND-LIAB> 1,251,136
<GROSS-OPERATING-REVENUE> 633,004
<INCOME-TAX-EXPENSE> 34,117
<OTHER-OPERATING-EXPENSES> 513,248
<TOTAL-OPERATING-EXPENSES> 513,248
<OPERATING-INCOME-LOSS> 119,756
<OTHER-INCOME-NET> 1,948
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2,013
<EARNINGS-AVAILABLE-FOR-COMM> 54,809
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</TABLE>
MANAGEMENT'S REPORT
Mississippi Power Company 1999 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 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 16, 2000
1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To 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, 1999 and 1998, and the
related statements of income, common stockholder's equity, and cash flows for
each of the three years in the period ended December 31, 1999. 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 auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements (pages 10-26) referred to above
present fairly, in all material respects, the financial position of Mississippi
Power Company as of December 31, 1999 and 1998, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
/s/ Arthur Andersen LLP
Atlanta, Georgia
February 16, 2000
2
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
Mississippi Power Company 1999 Annual Report
RESULTS OF OPERATIONS
Earnings
Mississippi Power Company's 1999 net income after dividends on preferred stock
of $54.8 million remained relatively flat when compared to 1998. In 1998,
earnings were $55.1 million, up $1.1 million from the prior year. This change is
primarily attributable to higher retail and wholesale revenues.
Revenues
The following table summarizes the factors impacting operating revenues for the
past three years:
Increase (Decrease)
From Prior Year
----------------------------------
1999 1998 1997
----------------------------------
(in thousands)
Retail --
Change in base
rates (PEP and
ECO Plan) $ 792 $ 335 $ 3,177
Sales growth 7,876 4,787 109
Weather (1,404) 7,091 (1,118)
Fuel cost
recovery
and other 19,603 13,112 948
--------------------------------------------------------------
Total retail 26,867 25,325 3,116
--------------------------------------------------------------
Sales for resale --
Non-affiliates 9,778 16,084 5,464
Affiliates 1,161 8,142 (11,606)
--------------------------------------------------------------
Total sales for
resale 10,939 24,226 (6,142)
Other operating
revenues 67 1,992 2,585
--------------------------------------------------------------
Total operating
revenues $37,873 $51,543 $ (441)
==============================================================
Percent change 6.4% 9.5% (0.1)%
--------------------------------------------------------------
Retail revenues of $469 million in 1999 increased 6.1 percent from 1998.
This increase resulted primarily from continued growth in the service area and a
true-up of the unbilled revenue estimate. Retail revenues for 1998 reflected a
6.1 percent increase over the prior year due to the continued growth in the
service area and the positive impact of weather on energy sales.
Fuel revenues generally represent the direct recovery of fuel expense
including purchased power. 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.
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 10.2 percent in 1999 and
9.8 percent in 1998, with the related revenues rising 12.1 percent and 11.3
percent, respectively. The customer demand experienced by these utilities is
determined by factors very similar to Mississippi Power's. Revenues from other
sales outside the service area increased in 1999 and 1998 primarily due to power
marketing activities. These increases were offset by increases in purchased
power from non-affiliates and, as a result, had no significant effect on net
income.
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 1999 and the percent change
for the last three years:
1999 Percent Change
----------- ------------------------------
KWH 1999 1998 1997
(in
millions)
Residential 2,248 - 10.3% (2.0)%
Commercial 2,848 8.5 9.0 4.0
Industrial 4,407 18.2 (6.4) 0.6
Other 40 0.8 - 2.6
Total retail 9,543 10.4 2.0 0.9
Sales for
Resale --
Non-affiliates 3,256 3.1 9.1 6.2
Affiliates 540 (2.2) 15.2 (31.0)
----------
Total 13,339 8.0 4.3 0.2
==================================================================
3
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Mississippi Power Company 1999 Annual Report
Total retail sales increased 10.4 percent from 1998 primarily because of
continued growth in the service area, industrial customers' recovery from last
year's hurricane and a true-up of the unbilled revenue estimate. The unbilled
revenue true-up amounted to approximately 3.5 percent of the total increase.
Residential sales decreased slightly in 1999 due to the mild weather in the
spring and winter periods, while commercial and industrial sales increased by
8.5 percent and 18.2 percent, respectively. Increased tourism and strong growth
impacted commercial sales, while industrial sales were impacted by increased
production by several larger industrial customers. Residential and commercial
sales increased in 1998 by 10.3 percent and 9.0 percent, respectively, due to
sales growth and higher than normal temperatures in the summer months. Sales to
industrial customers decreased by 6.4 percent primarily due to a large
industrial customer being shut down because of damages incurred from Hurricane
Georges.
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 that 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 were $513 million in 1999 reflecting an increase of $33
million or 6.9 percent over the prior year. The increase was due primarily to
higher fuel costs. In 1998, total operating expenses increased by 10.6 percent
over the prior year due primarily to higher fuel expenses, higher maintenance
and higher other operation costs.
Fuel costs are the single largest expense for the Company. Fuel expenses in
1999 increased 10.3 percent due to an increase in generation resulting from a
higher demand for energy. In 1999, expenses related to purchased power from
non-affiliates increased 18.3 percent, while expenses related to purchased power
from affiliates decreased 14.0 percent which, in total, resulted in a slight
increase when compared to 1998. Energy purchased for power marketing activities
was resold to non-affiliated third parties and had no significant effect on net
income. 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.
In 1998, fuel costs increased because of a 3.1 percent increase in
generation and a higher average cost of fuel. The increased generation was due
to higher demand for energy across the Southern electric system. Expenses
related to purchased power from non-affiliates increased, and expenses related
to purchased power from affiliates decreased. Further, the higher demand for
energy resulted in higher purchased power costs from non-affiliates.
The amount and sources of generation and the average cost of fuel per net
kilowatt-hour generated were as follows:
1999 1998 1997
-------------------------
Total generation
(millions of kilowatt
hours) 11,599 10,610 10,289
Sources of generation
(percent) --
Coal 81 80 85
Gas 19 20 15
Average cost of fuel per net
kilowatt-hour generated
(cents) -- 1.65 1.62 1.54
- --------------------------------------------------------------
Other operation expenses increased 13.9 percent in 1999 primarily due to the
amortization of costs associated with the workforce reduction plan and higher
distribution expenses. In 1998, other operation expense increased 7.5 percent
due to continuing expenses related to a new customer service system,
modification of certain information systems for year 2000 readiness, and costs
related to workforce reduction programs. Maintenance expenses decreased 6.6
percent in 1999 due to reduced scheduled maintenance. In 1999, depreciation and
amortization expenses increased 3.7 percent primarily due to growth in plant
investment. Comparisons of taxes other than income taxes for 1999 and 1998 show
increases of 4.2 percent and 4.4 percent, respectively, due to higher municipal
franchise taxes resulting from higher retail revenues. Interest expense
increased due to additional interest related to notes payable and interest
accrued on tax audit issues.
4
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Mississippi Power Company 1999 Annual Report
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 utility plant with long economic
lives. Conventional accounting for historical costs does not recognize this
economic loss or the partially offsetting gain that arises through financing
facilities with fixed-money obligations, such as long-term debt and preferred
securities. Any recognition of inflation by regulatory authorities is reflected
in the rate of return allowed.
Future Earnings Potential
The results of operations for the past three years are not necessarily
indicative of future earnings potential. The level of future earnings depends on
numerous factors ranging from weather to energy sales growth to a less regulated
and 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 is also maximizing the utility of invested capital and
minimizing the need for additional capital by refinancing, managing the size of
its fuel stockpile, raising generating plant availability and efficiency, and
aggressively controlling the construction budget.
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 Mississippi Public Service Commission (MPSC)
under cost-based regulatory principles. The Federal Energy Regulatory Commission
(FERC) regulates the Company's wholesale rate schedules, power sales contracts
and transmission facilities.
Operating revenues will be affected by any changes in rates under the
Performance Evaluation Plan (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 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. Compliance costs related to the Clean Air Act could affect
earnings if such costs cannot be recovered. The Company's 1999 ECO Plan was
approved, as filed, in 1999 and resulted in a slight decrease in customer
prices. The Company filed its 2000 ECO Plan in January, 2000 and, if approved as
filed, will result in a slight decrease in customer prices. Refer to Note 3 to
the financial statements under "Litigation and Regulatory Matters" for
additional information. The Clean Air Act and other important environmental
items are discussed later under "Environmental Matters".
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. Currently, the Company is
negotiating with certain of its wholesale customers a change in rates and has
committed to them that any agreement reached would be effective January 1, 2000.
At this time, no agreement has been reached and the ultimate amount of any rate
change cannot now be determined.
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, wholesale transmission access and numerous potential
new energy suppliers, including power marketers and brokers, are driving down
electricity sales for resale rates. 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 was a
major catalyst for the current restructuring and consolidation taking place
5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Mississippi Power Company 1999 Annual Report
within the utility industry. Numerous federal and state initiatives are in
various stages to promote wholesale and retail competition. Among other things,
these initiatives allow customers to choose their electricity provider. As these
initiatives materialize, the structure of the utility industry could radically
change. While restructuring initiatives are being discussed in Mississippi, none
have been enacted to date. Enactment would require numerous issues to be
resolved, including significant ones relating to transmission pricing and
recovery of any stranded investments. The inability of 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 subject to
the provisions of Financial Accounting Standards Board (FASB) Statement No. 71,
Accounting for the Effects of Certain Types of Regulation. In the event that a
portion of the Company's operation 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.
On December 20, 1999, the FERC issued its final ruling on Regional
Transmission Organizations (RTOs). The order encourages utilities owning
transmission systems to form RTOs on a voluntary basis. To facilitate the
development of RTOs, the FERC will convene regional conferences for utilities,
customers, and other members of the public to discuss the formation of RTOs. In
addition to participating in the regional conferences, utilities owning
transmission systems, including the Company, are required to make a filing by
October 15, 2000. The filing must contain either a proposal for RTO
participation or a description of the efforts made to participate in an RTO, the
reasons for non-participation, any obstacles to participation, and any plans for
further work toward participation. The RTOs that are proposed in the filings
should be operational by December 15, 2001. The Company is evaluating the issue
and formulating its response. The outcome of this matter cannot now be
determined.
Exposure to Market Risks
Due to cost-based rate regulation, the Company has limited exposure to market
volatility in interest rates and prices of electricity. To mitigate residual
risks relative to movements in electricity prices, the Company enters into fixed
price contracts for the purchase and sale of electricity through the wholesale
electricity market. Realized gains and losses are recognized in the income
statements as incurred. At December 31, 1999, exposure from these activities was
not material to the Company's financial position, results of operation, or cash
flow. Also, based on the Company's overall interest rate exposure at December
31, 1999, a near-term 100 basis point change in interest rates would not
materially affect the financial statements.
New Accounting Standard
The FASB has issued Statement No. 133, Accounting for Derivative Instruments and
Hedging Activities, which must be adopted by January 1, 2001. This statement
establishes accounting and reporting standards for derivative instruments -
including certain derivative instruments embedded in other contracts - and for
hedging activities. The Company has not yet quantified the impact of adopting
this statement on its financial statements; however, the adoption could increase
volatility in earnings and other comprehensive income.
Year 2000
Year 2000 Challenge
The work undertaken by the Company to prepare critical computer systems and
other date sensitive devices to function correctly in the Year 2000 was
successful. There were no material incidents reported and no disruption of
electric service within the service area of the Company. There were no reports
of significant events regarding third parties that impacted revenues or
expenses.
For the Company, original projected total costs for Year 2000 readiness were
approximately $5 million. These costs include labor necessary to identify, test,
and renovate affected devices and systems, and costs for reporting requirements
to state and federal agencies. From its inception through December 31, 1999, the
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Mississippi Power Company 1999 Annual Report
Year 2000 program costs, recognized primarily as expense, amounted to
approximately $5 million.
FINANCIAL CONDITION
Overview
The principal change in Mississippi Power's financial condition during 1999 was
the addition of approximately $76 million to utility plant. Funding for these
additions and other capital requirements were derived primarily from operations.
The Statements of Cash Flows provide additional details.
Financing Activity
In 1999, the Company sold $9.4 million of pollution control bonds. Additionally,
the Company retired and reissued unsecured debt of $50 million. See the
Statements of Cash Flows for further details.
Composite financing rates have remained relatively flat for the years 1997
through 1999. As of year-end for each year respectively, the composite rates
were as follows:
1999 1998 1997
----------------------------
Composite interest rate on
long-term debt 6.19% 6.14% 6.16%
Composite preferred stock
dividend rate 6.33% 6.33% 6.33%
Composite interest rate on
preferred securities 7.75% 7.75% 7.75%
------------------------------------------------------------
In 1999, the Company signed an Agreement for Lease and a Lease Agreement
with Escatawpa Funding ("Escatawpa"), a limited partnership, that calls for the
Company to design and construct, as agent for Escatawpa, a 1,064 megawatt
natural gas combined cycle facility. It is anticipated that the total project
will cost approximately $406 million, and upon project completion in mid 2001,
the Company intends to lease the facility for an initial term of approximately
10 years. It is anticipated that the annual lease payments will approximate $32
million during the initial term.
Capital Structure
At year-end 1999, the Company's ratio of common equity to total capitalization,
excluding long-term debt due within one year, decreased from 52.1 percent in
1998, to 50.2 percent.
Capital Requirements for Construction
The Company's projected construction expenditures for the next three years total
$199 million ($84 million in 2000, $54 million in 2001, and $61 million in
2002). The major emphasis within the construction program will be on the upgrade
of existing facilities.
Revisions to projected construction expenditures may be necessary because of
factors such as changes in business conditions, revised load projections, the
availability and cost of capital, changes in environmental regulations, and
alternatives such as leasing.
Other Capital Requirements
In addition to the funds required for the Company's construction program,
approximately $80.1 million will be required by the end of 2002 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
On November 3, 1999, the Environmental Protection Agency (EPA), brought a civil
action in the U.S. District Court against Alabama Power Company, Georgia Power
Company and the system service company. The complaint alleges violations of the
prevention of significant deterioration and new source review provisions of the
Clean Air Act with respect to five coal-fired generating facilities in Alabama
and Georgia. The civil action requests penalties and injunctive relief,
including an order requiring the installation of the best available control
technology at the affected units. The EPA concurrently issued to the integrated
Southeast utilities a notice of violation related to 10 generating facilities,
which includes the five facilities mentioned previously, and the Company's
plants Watson and Greene County. In early 2000, the EPA filed a motion to amend
its complaint to add the violations alleged in its notice of violation, and to
add Gulf Power, Mississippi Power, and Savannah Electric as defendants.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Mississippi Power Company 1999 Annual Report
The complaint and notice of violation are similar to those brought against and
issued to several other electric utilities. These complaints and notices of
violation allege that the utilities had failed to secure necessary permits or
install additional pollution equipment when performing maintenance and
construction at coal burning plants constructed or under construction prior to
1978. Southern Company believes that its integrated utilities complied with
applicable laws and the EPA's regulations and interpretations in effect at the
time the work in question took place. The Clean Air Act authorizes civil
penalties of up to $27,500 per day per violation at each generating unit. Prior
to January 30, 1997, the penalty was $25,000 per day. An adverse outcome of this
matter could require substantial capital expenditures that cannot be determined
at this time and possibly require payment of substantial penalties. This could
affect future results of operations, cash flows, and possibly the Company's
financial condition unless such costs can be recovered through regulated rates.
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 other subsidiaries of Southern Company. Specific
reductions in sulfur dioxide and nitrogen oxide emissions from fossil-fired
generating plants were 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 started in 2000, and all fossil-fired generating plants are now
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 currently uses
emission allowances and increased fuel switching. Also, equipment to control
nitrogen oxide emissions was installed on additional system fossil-fired units
as necessary to meet Phase II limits and ozone non-attainment requirements.
Compliance for Phase II and initial ozone non-attainment requirements increased
total estimated construction expenditures by approximately $105 million. Phase
II compliance is not expected to have a material impact on Mississippi Power.
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 EPA revised the national ambient air quality standards for
ozone and particulate matter. This revision made the standards significantly
more stringent. In September 1998, the EPA issued the final regional nitrogen
oxide rules to the states for implementation. The final rules affect 22 states
that at present does not include Mississippi. The EPA is presently evaluating
whether or not to bring an additional 15 states under this regional haze rule.
Mississippi is one of those new 15 states. The EPA's July 1997 standards and the
September 1998 rule are being challenged in the courts by several states and
industry groups. Implementation of the final state rules could require
substantial further reductions in nitrogen oxide emissions from fossil-fired
generating facilities and other industry in these states. Implementation of the
standards could result in significant additional compliance costs and capital
expenditures that cannot be determined until the results of legal challenges are
known, and the states have adopted their final rules.
The EPA and state environmental regulatory agencies are reviewing and
evaluating various 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 any new standards will
depend on the development and implementation of applicable regulations.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Mississippi Power Company 1999 Annual Report
The Company must comply with other environmental laws and regulations that
cover the handling and disposal of hazardous waste. Under these various laws and
regulations, the Company could incur costs to clean up properties currently or
previously owned. Upon identifying potential sites, the Company conducts
studies, when possible, to determine the extent of any required cleanup costs.
Should remediation be determined to be probable, reasonable estimates of costs
to clean up such sites are developed and recognized in the financial statements.
A currently owned site where manufactured gas plant operations were located
prior to the Company's ownership was substantially remediated in 1999. See Note
3 to the financial statements under "Environmental Compliance Overview Plan" for
additional information.
Several major pieces of environmental legislation are being considered for
reauthorization or amendment by Congress. These include: the Clean Air Act; the
Clean Water Act; the Comprehensive Environmental Response, Compensation, and
Liability Act; the Resource Conservation and Recovery Act; and the Endangered
Species Act. Changes to these laws could affect many areas of the Company's
operations. The full impact of any such changes cannot be determined at this
time.
Compliance with possible 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 or other environmental concerns. The likelihood
or outcome of such potential lawsuits cannot be determined at this time.
Sources of Capital
To meet short-term cash needs and contingencies, the Company had at December 31,
1999 approximately $173 thousand of cash and cash equivalents and approximately
$104.3 million of unused committed credit agreements. The Company had $57.5
million of short term notes payable outstanding at year end 1999.
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 securities, in addition to
pollution control revenue bonds issued for the Company's benefit by public
authorities. The Company issued unsecured debt in 1998. In this regard,
Mississippi Power sought and obtained stockholder approval in 1998 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 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 and historical information. The Company
cautions that there are various important factors that could cause actual
results to differ materially from those indicated in the forward-looking
information; accordingly, there can be no assurance that such indicated results
will be realized. These factors include legislative and regulatory initiatives
regarding deregulation and restructuring of the electric utility industry; the
extent and timing of the entry of additional competition in the Company's
markets; potential business strategies -- including acquisitions or dispositions
of assets or internal restructuring -- that may be pursued by the Company; state
and federal rate regulation; 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, 1999, 1998, and 1997
Mississippi Power Company 1999 Annual Report
- ----------------------------------------------------------------------------------------------------------------------
1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Operating Revenues:
Retail sales $469,434 $442,567 $417,242
Sales for resale --
Non-affiliates 131,004 121,225 105,141
Affiliates 19,446 18,285 10,143
Other revenues 13,120 13,054 11,062
- ----------------------------------------------------------------------------------------------------------------------
Total operating revenues 633,004 595,131 543,588
- ----------------------------------------------------------------------------------------------------------------------
Operating Expenses:
Operation --
Fuel 172,686 156,539 142,059
Purchased power --
Non-affiliates 40,080 33,872 14,536
Affiliates 31,007 36,037 37,794
Other 125,291 109,993 102,365
Maintenance 47,085 50,404 47,302
Depreciation and amortization 49,206 47,450 45,574
Taxes other than income taxes 47,893 45,965 44,034
- ----------------------------------------------------------------------------------------------------------------------
Total operating expenses 513,248 480,260 433,664
- ----------------------------------------------------------------------------------------------------------------------
Operating Income 119,756 114,871 109,924
Other Income:
Interest income 273 947 857
Other, net 1,675 2,498 2,368
- ----------------------------------------------------------------------------------------------------------------------
Earnings Before Interest and Income Taxes 121,704 118,316 113,149
- ----------------------------------------------------------------------------------------------------------------------
Interest Charges and Other:
Interest on long-term debt 20,455 20,567 19,856
Interest on notes payable 2,750 943 96
Amortization of debt discount, premium and expense, net 1,432 1,446 1,577
Other interest charges 3,332 790 574
Distributions on preferred securities of subsidiary 2,796 2,796 2,369
- ----------------------------------------------------------------------------------------------------------------------
Total interest charges and other, net 30,765 26,542 24,472
- ----------------------------------------------------------------------------------------------------------------------
Earnings Before Income Taxes 90,939 91,774 88,677
Income taxes 34,117 34,664 31,380
- ----------------------------------------------------------------------------------------------------------------------
Net Income 56,822 57,110 57,297
Dividends on Preferred Stock 2,013 2,005 3,287
- ----------------------------------------------------------------------------------------------------------------------
Net Income After Dividends on Preferred Stock $ 54,809 $ 55,105 $ 54,010
======================================================================================================================
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, 1999, 1998, and 1997
Mississippi Power Company 1999 Annual Report
- -------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Operating Activities:
Net income $ 56,822 $ 57,110 $ 57,297
Adjustments to reconcile net income
to net cash provided from operating activities --
Depreciation and amortization 53,427 51,517 49,661
Deferred income taxes and investment tax credits, net (4,143) 11,620 (1,809)
Other, net 5,531 (12,175) 3,206
Changes in certain current assets and liabilities --
Receivables, net (39,304) (5,486) (8,583)
Fossil fuel stock (9,379) (5,767) 1,517
Materials and supplies (1,903) 717 1,631
Accounts payable 1,391 (389) 8,357
Other 14,206 (4,061) 3,980
- -------------------------------------------------------------------------------------------------------------------------------
Net cash provided from operating activities 76,648 93,086 115,257
- -------------------------------------------------------------------------------------------------------------------------------
Investing Activities:
Gross property additions (75,888) (68,231) (55,375)
Other 1,009 (324) (489)
- -------------------------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (74,879) (68,555) (55,864)
- -------------------------------------------------------------------------------------------------------------------------------
Financing Activities:
Increase (decrease) in notes payable, net 44,500 13,000 -
Proceeds --
Other long-term debt 59,400 103,520 -
Preferred securities - - 35,000
Preferred stock - - -
Capital contributions from parent company 2,028 85 -
Retirements --
First mortgage bonds - (75,000) -
Other long-term debt (50,456) (13,020) (10)
Preferred stock - (87) (42,518)
Payment of preferred stock dividends (2,013) (2,005) (3,287)
Payment of common stock dividends (56,100) (51,700) (49,400)
Other (282) (2,429) (1,804)
- -------------------------------------------------------------------------------------------------------------------------------
Net cash used for financing activities (2,923) (27,636) (62,019)
- -------------------------------------------------------------------------------------------------------------------------------
Net Change in Cash and Cash Equivalents (1,154) (3,105) (2,626)
Cash and Cash Equivalents at Beginning of Period 1,327 4,432 7,058
- -------------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $ 173 $ 1,327 $ 4,432
===============================================================================================================================
Supplemental Cash Flow Information:
Cash paid during the period for --
Interest (net of amount capitalized) $25,486 $26,133 $22,297
Income taxes (net of refunds) 39,729 26,847 33,450
- -------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
BALANCE SHEETS
At December 31, 1999 and 1998
Mississippi Power Company 1999 Annual Report
- ---------------------------------------------------------------------------------------------------------------------
Assets 1999 1998
- ---------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 173 $ 1,327
Receivables --
Customer accounts receivable 61,274 37,871
Other accounts and notes receivable 23,490 12,495
Affiliated companies 16,097 10,946
Accumulated provision for uncollectible accounts (697) (621)
Fossil fuel stock, at average cost 25,797 16,418
Materials and supplies, at average cost 20,638 18,735
Other 10,013 10,616
- ---------------------------------------------------------------------------------------------------------------------
Total current assets 156,785 107,787
- ---------------------------------------------------------------------------------------------------------------------
Property, Plant, and Equipment:
In service 1,601,399 1,553,112
Less accumulated provision for depreciation 626,841 583,957
- ---------------------------------------------------------------------------------------------------------------------
974,558 969,155
Construction work in progress 68,721 51,517
- ---------------------------------------------------------------------------------------------------------------------
Total property, plant, and equipment 1,043,279 1,020,672
- ---------------------------------------------------------------------------------------------------------------------
Other Property and Investments 1,389 979
- ---------------------------------------------------------------------------------------------------------------------
Deferred Charges and Other Assets:
Deferred charges related to income taxes 21,557 22,697
Prepaid pension costs 2,488 -
Debt expense, being amortized 4,355 4,409
Premium on reacquired debt, being amortized 8,154 9,304
Workforce reduction plan - 12,748
Other 13,129 11,009
- ---------------------------------------------------------------------------------------------------------------------
Total deferred charges and other assets 49,683 60,167
- ---------------------------------------------------------------------------------------------------------------------
Total Assets $1,251,136 $1,189,605
=====================================================================================================================
The accompanying notes are an integral part of these balance sheets.
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
BALANCE SHEETS
At December 31, 1999 and 1998
Mississippi Power Company 1999 Annual Report
- --------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholder's Equity 1999 1998
- --------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Current Liabilities:
Securities due within one year $ 30,020 $ 50,020
Notes payable 57,500 13,000
Accounts payable --
Affiliated 17,002 8,788
Other 43,105 47,113
Customer deposits 3,749 3,272
Taxes accrued --
Income taxes 6,865 1,124
Other 35,534 31,379
Interest accrued 6,733 2,955
Vacation pay accrued 5,218 4,717
Other 7,497 11,448
- --------------------------------------------------------------------------------------------------------------------
Total current liabilities 213,223 173,816
- --------------------------------------------------------------------------------------------------------------------
Long-term debt (See accompanying statements) 321,802 292,744
- --------------------------------------------------------------------------------------------------------------------
Deferred Credits and Other Liabilities:
Accumulated deferred income taxes 139,564 143,852
Deferred credits related to income taxes 34,765 37,277
Accumulated deferred investment tax credits 24,695 25,913
Employee benefits provisions 34,268 34,148
Workforce reduction plan 11,272 13,051
Other 12,770 10,764
- --------------------------------------------------------------------------------------------------------------------
Total deferred credits and other liabilities 257,334 265,005
- --------------------------------------------------------------------------------------------------------------------
Company obligated mandatorily redeemable preferred
securities of subsidiary trust holding company junior
subordinated notes (See accompanying statements) 35,000 35,000
- --------------------------------------------------------------------------------------------------------------------
Preferred stock (See accompanying statements) 31,809 31,809
- --------------------------------------------------------------------------------------------------------------------
Common stockholder's equity (See accompanying statements) 391,968 391,231
- --------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholder's Equity $1,251,136 $1,189,605
====================================================================================================================
The accompanying notes are an integral part of these balance sheets.
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CAPITALIZATION
At December 31, 1999 and 1998
Mississippi Power Company 1999 Annual Report
- -----------------------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------
(in thousands) (percent of total)
Long-Term Debt:
First mortgage bonds --
Maturity Interest Rates
-------- --------------
<S> <C> <C> <C> <C> <C>
June 1, 2023 7.45% $ 35,000 $ 35,000
March 1, 2004 6.60% 35,000 35,000
December 1, 2025 6.875% 30,000 30,000
- -----------------------------------------------------------------------------------------------------------------------------
Total first mortgage bonds 100,000 100,000
- -----------------------------------------------------------------------------------------------------------------------------
Long-term notes payable --
6.05% due May 1, 2003 35,000 35,000
6.75% due June 30, 2038 54,564 55,000
Adjustable rates (6.61% to 6.78% at 1/1/00)
due 1999-2002 80,000 80,000
- -----------------------------------------------------------------------------------------------------------------------------
Total long-term notes payable 169,564 170,000
- -----------------------------------------------------------------------------------------------------------------------------
Other long-term debt --
Pollution control revenue bonds --
Collateralized:
5.65% to 5.80% due 2007-2023 26,785 26,805
Variable rates (3.90% at 1/1/00)
due 2020-2025 10,600 33,900
Non-collateralized:
Variable rates (3.90% to 4.00% at 1/1/00)
due 2020-2028 46,220 13,520
- -----------------------------------------------------------------------------------------------------------------------------
Total other long-term debt 83,605 74,225
- -----------------------------------------------------------------------------------------------------------------------------
Unamortized debt premium (discount), net (1,347) (1,461)
- -----------------------------------------------------------------------------------------------------------------------------
Total long-term debt (annual interest
requirement -- $21.9 million) 351,822 342,764
Less amount due within one year 30,020 50,020
- -----------------------------------------------------------------------------------------------------------------------------
Long-term debt excluding amount due within one year $321,802 $292,744 41.2% 39.0%
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CAPITALIZATION (continued)
At December 31, 1999 and 1998
Mississippi Power Company 1999 Annual Report
- -----------------------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------
(in thousands) (percent of total)
<S> <C> <C> <C> <C>
Company Obligated Mandatorily
Redeemable Preferred Securities:
$25 liquidation value --
7.75% $ 35,000 $ 35,000
- -----------------------------------------------------------------------------------------------------------------------------
Total (annual distribution requirement -- $2.7 million) 35,000 35,000 4.5 4.7
- -----------------------------------------------------------------------------------------------------------------------------
Cumulative Preferred Stock:
$100 par value
4.40% to 7.00% 31,809 31,809
- -----------------------------------------------------------------------------------------------------------------------------
Total (annual dividend requirement -- $2.0 million) 31,809 31,809
Less amount due within one year - -
- -----------------------------------------------------------------------------------------------------------------------------
Total excluding amount due within one year 31,809 31,809 4.1 4.2
- -----------------------------------------------------------------------------------------------------------------------------
Common Stockholder's Equity:
Common stock, without par value --
Authorized - 1,130,000 shares
Outstanding - 1,121,000 shares in 1999 and 1998 37,691 37,691
Paid-in capital 181,502 179,474
Premium on preferred stock 326 326
Retained earnings 172,449 173,740
- -----------------------------------------------------------------------------------------------------------------------------
Total common stockholder's equity 391,968 391,231 50.2 52.1
- -----------------------------------------------------------------------------------------------------------------------------
Total Capitalization $780,579 $750,784 100.0% 100.0%
=============================================================================================================================
The accompanying notes are an integral part of these statements.
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF COMMON STOCKHOLDER'S EQUITY
For the Years Ended December 31, 1999, 1998, and 1997
Mississippi Power Company 1999 Annual Report
- ----------------------------------------------------------------------------------------------------------------------------
Premium on
Common Paid-In Preferred Retained
Stock Capital Stock Earnings Total
- ----------------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1997 $37,691 $179,389 $372 $166,282 $383,734
Net income after dividends on preferred stock - - - 54,010 54,010
Cash dividends on common stock - - - (49,400) (49,400)
Other - - (45) (475) (520)
- ----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 37,691 179,389 327 170,417 387,824
Net income after dividends on preferred stock - - - 55,105 55,105
Capital contributions from parent company - 85 - - 85
Cash dividends on common stock - - - (51,700) (51,700)
Other - - (1) (82) (83)
- ----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 37,691 179,474 326 173,740 391,231
Net income after dividends on preferred stock - - - 54,809 54,809
Capital contributions from parent company - 2,028 - - 2,028
Cash dividends on common stock - - - (56,100) (56,100)
- ----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 $37,691 $181,502 $326 $172,449 $391,968
============================================================================================================================
The accompanying notes are an integral part of these statements.
</TABLE>
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Mississippi Power Company 1999 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 integrated Southeast utilities, Southern
Company Services (SCS), Southern Communications Services (Southern LINC),
Southern Energy, Inc. (Southern Energy), Southern Nuclear Operating Company
(Southern Nuclear), Southern Energy Solutions, and other direct and indirect
subsidiaries. The integrated Southeast utilities -- 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 integrated Southeast utilitis related
to 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 (SEC). The
system service company provides, at cost, specialized services to Southern
Company and the subsidiary companies. Southern LINC provides digital wireless
communications services to the integrated Southeast utilities and also markets
these services to the public within the Southeast. Southern Company Energy
Solutions develops new business opportunities related to energy products and
services. Southern Nuclear provides services to Southern Company's nuclear power
plants. Southern Energy acquires, develops, builds, owns, and operates power
production and delivery facilities and provides a broad range of energy-related
servies to utilities and industrial companies in selected countries around the
world. Southern Energy businesses include independent power projects, integrated
utilities, a distribution company, and energy trading and marketing businesses
outside the southeastern United States.
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.
Prior years' data presented in the financial statements have been
reclassified to conform with the current year presentation.
Related-Party Transactions
The Company has an agreement with SCS under which the following services are
rendered to the Company at cost: general and design engineering, purchasing,
accounting and statistical, finance and treasury, tax, information resources,
marketing, auditing, insurance and pension, human resources, systems and
procedures, and other services with respect to business and operations and power
pool operations. Costs for these services amounted to $45.5 million, $43.9
million, and $34.5 million during 1999, 1998, and 1997, respectively.
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 at December 31 relate to:
1999 1998
-------------------------
(in thousands)
Deferred income tax charges $ 21,557 $ 22,697
Vacation pay 5,218 4,717
Workforce reduction plan of
1997 - 12,748
Premium on reacquired debt 8,154 9,304
Deferred environmental costs 323 1,500
Property damage reserve (3,082) (910)
Deferred income tax credits (34,765) (37,277)
Other, net (672) (2,538)
- ----------------------------------------------------------------
Total $ (3,267) $ 10,241
================================================================
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
17
<PAGE>
NOTES (continued)
Mississippi Power Company 1999 Annual Report
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 and Fuel Costs
The Company currently operates as a vertically integrated utility providing
electricity to retail customers within its traditional service area located
within the state of Mississippi, and to wholesale customers in the Southeast.
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 costs, the energy
component of purchased power costs and certain other costs. Retail rates also
include 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. For all periods presented,
uncollectible accounts continued to average less than 1 percent of revenues.
Depreciation
Depreciation of the original cost of plant in service is provided primarily by
using composite straight-line rates which approximated 3.3 percent in 1999.
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.
Property, Plant and Equipment
Property, plant, and equipment is stated at original cost. Original cost
includes: materials; labor; minor items of property; appropriate administrative
and general costs; payroll-related costs such as taxes, pensions, and other
benefits; and the estimated cost of funds used during construction, if
applicable. The cost of maintenance, repairs, and replacement of minor items of
property is charged to maintenance expense except for the maintenance of coal
cars and a portion of the railway track maintenance, which are charged to fuel
stock. The cost of replacements of property (exclusive of minor items of
property) is capitalized.
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
The Company's financial instruments for which the carrying amount did not equal
fair value at December 31 were as follows:
Carrying Fair
Amount Value
---------------------------
(in millions)
Long-term debt
At December 31, 1999 $353 $334
At December 31, 1998 $343 $348
Capital trust preferred
securities:
At December 31, 1999 $35 $30
At December 31, 1998 35 36
- --------------------------------------------------------------
The fair value for long-term debt and preferred securities was based on
either closing market price or closing price of comparable instruments.
18
<PAGE>
NOTES (continued)
Mississippi Power Company 1999 Annual Report
Materials and Supplies
Generally, materials and supplies include the cost of transmission, distribution
and generating plant materials. Materials are charged to inventory when
purchased and then expensed or capitalized to plant, as appropriate, when 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
accrues for the cost of such damage by charging expense and crediting an
accumulated provision. The cost of repairing damage resulting from such events
that individually exceed $50 thousand is charged to the accumulated provision.
Effective November 1999, an order from the MPSC increased the maximum Property
Damage Reserve from $18 million to $23 million and allows an annual accrual of
up to $4.6 million. In 1999, the Company provided for such costs by charges to
income of $4.4 million, which is an increase of $2.9 million when compared to
the $1.5 million allowed in both 1998 and 1997. As of December 31, 1999, the
accumulated provision amounted to $3.1 million.
2. RETIREMENT BENEFITS
Mississippi Power has a defined benefit, trusteed, pension plan that covers
substantially all employees. The Company provides certain medical care and
life insurance benefits for retired employees. Substantially all these
employees may become eligible for such benefits when they retire. The Company
funds trusts to the extent required by the MPSC. The measurement date for plan
assets and obligations is September 30 for each year.
Pension Plan
Changes during the year in the projected benefit obligations and in the fair
value of plan assets were as follows:
Projected
Benefit Obligations
----------------------------
1999 1998
- -----------------------------------------------------------------
(in thousands)
Balance at beginning of year $142,807 $132,131
Service cost 4,415 3,848
Interest cost 9,377 9,613
Benefits paid (8,050) (7,845)
Actuarial (gain) loss and
employee transfers (8,619) 5,060
- -----------------------------------------------------------------
Balance at end of year $139,930 $142,807
=================================================================
Plan Assets
----------------------------
1999 1998
- -----------------------------------------------------------------
(in thousands)
Balance at beginning of year $198,100 $207,457
Actual return on plan assets 33,216 1,252
Benefits paid (8,050) (7,845)
Employee transfers (1,779) (2,764)
- -----------------------------------------------------------------
Balance at end of year $221,487 $198,100
=================================================================
The accrued pension costs recognized in the Balance Sheets were as follows:
1999 1998
- --------------------------------------------------------------------
(in thousands)
Funded status $ 81,557 $ 55,293
Unrecognized transition obligation (3,814) (4,359)
Unrecognized prior service cost 4,991 5,405
Unrecognized net gain (80,246) (56,590)
- --------------------------------------------------------------------
Prepaid asset (liability) recognized
in the Balance Sheets $2,488 $ (251)
====================================================================
19
<PAGE>
NOTES (continued)
Mississippi Power Company 1999 Annual Report
Components of the plans' net periodic cost were as follows:
1999 1998 1997
- ------------------------------------------------------------------
(in thousands)
Service cost $ 4,415 $ 3,848 $ 4,015
Interest cost 9,377 9,613 9,407
Expected return on
plan assets (14,681) (13,817) (12,805)
Recognized net gain (1,721) (1,956) (1,729)
Net amortization (131) (131) (119)
- ------------------------------------------------------------------
Net pension income $(2,741) $ (2,443) $ (1,231)
==================================================================
Postretirement Benefits
Changes during the year in the accumulated benefit obligations and in the fair
value of plan assets were as follows:
Accumulated
Benefit Obligations
----------------------------
1999 1998
- -----------------------------------------------------------------
(in thousands)
Balance at beginning of year $47,260 $43,417
Service cost 982 806
Interest cost 3,105 3,162
Benefits paid (2,256) (2,302)
Actuarial loss and
employee transfers (3,701) 2,177
- -----------------------------------------------------------------
Balance at end of year $45,390 $47,260
=================================================================
Plan Assets
----------------------------
1999 1998
- -----------------------------------------------------------------
(in thousands)
Balance at beginning of year $12,779 $12,189
Actual return on plan assets 1,818 176
Employer contributions 2,657 2,716
Benefits paid (2,256) (2,302)
- -----------------------------------------------------------------
Balance at end of year $14,998 $12,779
=================================================================
The accrued postretirement costs recognized in the Balance Sheets were as
follows:
1999 1998
- --------------------------------------------------------------------
(in thousands)
Funded status $(30,392) $(34,481)
Unrecognized transition obligation 4,621 4,967
Unrecognized net loss (gain) (3,406) 1,010
Fourth quarter contributions 931 577
- --------------------------------------------------------------------
Accrued liability recognized in the
Balance Sheets $(28,246) $(27,927)
====================================================================
Components of the plans' net periodic cost were as follows:
1999 1998 1997
- ------------------------------------------------------------------
(in thousands)
Service cost $ 981 $ 806 $ 867
Interest cost 3,105 3,162 2,922
Expected return on
plan assets (1,100) (989) (815)
Recognized net (gain) loss - - (7)
Net amortization 346 346 362
- ------------------------------------------------------------------
Net postretirement cost $3,332 $3,325 $3,329
==================================================================
The weighted average rates assumed in the actuarial calculations for both
the pension plans and postretirement benefits were:
1999 1998
---------------------------------------------------------------
Discount 7.50% 6.75%
Annual salary increase 5.00 4.25
Long-term return on plan assets 8.50 8.50
---------------------------------------------------------------
20
<PAGE>
NOTES (continued)
Mississippi Power Company 1999 Annual Report
An additional assumption used in measuring the accumulated postretirement
benefit obligation was a weighted average medical care cost trend rate of 7.74
percent for 1999, decreasing gradually to 5.50 percent through the year 2005 and
remaining at that level thereafter. An annual increase or decrease in the
assumed medical care cost trend rate of 1 percent would increase the accumulated
benefit obligation and the service and interest cost components at December 31,
1999 as follows:
1 Percent 1 Percent
Increase Decrease
- -----------------------------------------------------------------
(in thousands)
Benefit obligation $2,983 $(2,551)
Service and interest costs 258 (219)
- -----------------------------------------------------------------
Workforce Reduction Programs
In 1997, approximately one hundred employees of Mississippi Power accepted
the terms of a workforce reduction plan. The total cost to be incurred in
connection with this voluntary plan was expected to be $18.2 million, including
a $2.5 million pension and postretirement benefits curtailment loss. 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. At December 31, 1999, the
Company has completely amortized the $18.2 million.
3. LITIGATION AND REGULATORY MATTERS
Environmental Litigation
On November 3, 1999, the Environmental Protection Agency (EPA), brought a civil
action in the U.S. District Court against Alabama Power Company, Georgia Power
Company and the system service company. The complaint alleges violations of the
prevention of significant deterioration and new source review provisions of the
Clean Air Act with respect to five coal-fired generating facilities in Alabama
and Georgia. The civil action requests penalties and injunctive relief,
including an order requiring the installation of the best available control
technology at the affected units. The EPA concurrently issued to the integrated
Southeast utilities a notice of violation related to 10 generating facilities,
which includes the five facilities mentioned previously, and the Company's
plants Watson and Greene County. In early 2000, the EPA filed a motion to amend
its complaint to add the violations alleged in its notice of violation, and to
add Gulf Power, Mississippi Power, and Savannah Electric as defendants. The
complaint and notice of violation are similar to those brought against and
issued to several other electric utilities. These complaints and notices of
violation allege that the utilities had failed to secure necessary permits or
install additional pollution equipment when performing maintenance and
construction at coal burning plants constructed or under construction prior to
1978. Southern Company believes that its integrated utilities complied with
applicable laws and the EPA's regulations and interpretations in effect at the
time the work in question took place. The Clean Air Act authorizes civil
penalties of up to $27,500 per day per violation at each generating unit. Prior
to January 30, 1997, the penalty was $25,000 per day. An adverse outcome of this
matter could require substantial capital expenditures that cannot be determined
at this time and possibly require payment of substantial penalties. This could
affect future results of operations, cash flows, and possibly the Company's
financial condition unless such costs can be recovered through regulated rates.
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 Power'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 1999, 1998 or 1997.
Environmental Compliance Overview Plan
The MPSC approved Mississippi Power's Environmental Compliance Overview Plan
(ECO) 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
21
<PAGE>
NOTES (continued)
Mississippi Power Company 1999 Annual Report
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. In 1997, the Company's filing with the MPSC under the ECO Plan
resulted in an annual retail rate increase of $0.9 million. In 1998 and 1999,
the Company's ECO filing resulted in a small decrease in customer prices in each
year. The Company filed its 2000 ECO Plan in January, and if approved as filed,
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 such 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 has been investigated and substantially remediated. The remedial plan
was approved by the Mississippi Department of Environmental Quality. Remediation
of this site began in 1999 and is scheduled to be completed in early 2000. The
Company expects the total remediation costs to be approximately $2.0 million,
with approximately $1.5 million recovered from other parties and the balance
through the ECO Plan. The Company recovers such costs under the ECO Plan as they
are incurred, as provided for in the Company's 1995 ECO Order. As of December
31, 1999, the balance in the liability and regulatory asset accounts was $0.3
million.
Approval for New Capacity
In January 1998, the Company was granted a Certificate of Public Convenience
and Necessity by the MPSC to build approximately 1,000 megawatts of combined
cycle generation at the Company's Plant Daniel site, to be placed in service by
June 2001. In December 1998, the Company requested approval to transfer the
ownership rights under the certificate to Escatawpa Funding, Limited
Partnership, which will lease the facility to the Company (see Note 5, Financing
and Commitments). The Company also requested approval from the MPSC to exclude
the costs of the new facility from retail rate base and to assign the Company's
existing generating capacity to its retail business, beginning in 2001. In
January 1999, the Company and Mississippi Public Utility Staff entered a
stipulation covering the details of cost allocation and ratemaking to effect
this change. In February 1999, the Commission held hearings on this matter and
subsequently granted the Company's request, as modified by the stipulation.
4. CONSTRUCTION PROGRAM
Mississippi Power is engaged in continuous construction programs, the costs of
which are currently estimated to total $84 million in 2000, $54 million in 2001,
and $61 million in 2002. 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, and the upgrading of generating plants.
5. FINANCING AND COMMITMENTS
Financing
Mississippi Power's construction program is expected to be financed from
internal and other sources, such as the issuance of additional long-term debt
and preferred securities and the receipt of capital contributions from Southern
Company.
The amounts of long-term debt and preferred securities that can be issued in
the future will be contingent on market conditions, the maintenance of adequate
earnings levels, regulatory authorizations, and other factors.
In 1999, the Company signed an Agreement for Lease and a Lease Agreement
with Escatawpa Funding ("Escatawpa"), a limited partnership, that calls for the
Company to design and construct, as agent for Escatawpa, a 1,064 megawatt
natural gas combined cycle facility. It is anticipated that the total project
will cost approximately $406 million, and upon project completion in mid 2001,
the Company intends to lease the facility for an initial term of approximately
10 years. It is anticipated that the annual lease payments will approximate $32
million during the initial term.
22
<PAGE>
NOTES (continued)
Mississippi Power Company 1999 Annual Report
Bank Credit Arrangements
At December 31, 1999, Mississippi Power had total committed credit agreements
with banks for $104.3 million. At year-end 1999, the unused portion of these
committed credit agreements was $104.3 million. These credit agreements expire
at various dates 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, 1999, the Company had
$57.5 million of 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 of the Company's fixed
property and franchises.
Lease Agreements
In 1984, Mississippi Power and Gulf States Utilities (now Entergy Corp.) entered
into a forty-year transmission facilities agreement whereby Entergy 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 1999 use fees collected
under this agreement, net of related expenses, amounted to approximately $3
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
stock, was $2.8 million in 1999, $2.8 million in 1998, and $2.0 million in
1997. The Company's annual lease payments for 2000 through 2004 will average
approximately $1.8 million and after 2004, lease payments total in aggregate
approximately $14.4 million.
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, 1999, were as follows:
Year Fuel
- ----------- ----------
(in millions)
2000 $147
2001 121
2002 124
2003 125
2004 9
2005 - 2026 115
- ---------------------------------------------------
Total commitments $641
- ---------------------------------------------------
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; 250 megawatts in 1999; and 400 megawatts in 2000. For the
years ended 1999, 1998 and 1997 Mississippi Power exercised its options to
purchase 250 megawatts, 300 megawatts and 250 megawatts of peaking capacity,
respectively. 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. In
1999, Mississippi Power exercised its option to purchase 400 megawatts of summer
peaking capacity for the year 2000.
23
<PAGE>
NOTES (continued)
Mississippi Power Company 1999 Annual Report
6. JOINT OWNERSHIP AGREEMENTS
Mississippi Power and Alabama Power own as tenants in common Units 1 and 2 at
Plant Greene County located in Alabama; and Mississippi Power and Gulf Power
own as tenants in common Units 1 and 2 at Plant Daniel located in Mississippi.
At December 31, 1999, 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% $61,050 $29,636
Daniel
Units 1 and 2 1,000 50% $225,761 $103,213
------------------------------------------------------------------
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 utility 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 Company's capacity
revenues under these agreements were not material during the periods reported.
8. INCOME TAXES
At December 31, 1999, the tax-related regulatory assets and liabilities were $22
million and $35 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.
Details of the federal and state income tax provisions are shown below:
1999 1998 1997
----------------------------------
(in thousands)
Total provision for
income taxes
Federal --
Current $33,379 $20,500 $27,651
Deferred --current year 3,747 7,007 8,171
--reversal of
prior years (7,720) 2,435 (9,236)
-----------------------------------------------------------------
29,406 29,942 26,586
-----------------------------------------------------------------
State --
Current 4,881 2,544 5,537
Deferred --current year 738 1,568 1,756
--reversal of
prior years (908) 610 (2,499)
-----------------------------------------------------------------
4,711 4,722 4,794
-----------------------------------------------------------------
Total 34,117 34,664 31,380
=================================================================
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:
1999 1998
-----------------------------
(in thousands)
Deferred tax liabilities:
Accelerated depreciation $154,698 $153,768
Basis differences 8,967 9,642
Other 23,108 26,038
---------------------------------------------------------------
Total 186,773 189,448
---------------------------------------------------------------
Deferred tax assets:
Other property
basis differences 21,003 22,391
Pension and
other benefits 9,608 9,441
Property insurance 3,419 1,526
Unbilled fuel 4,846 2,080
Other 11,071 14,406
---------------------------------------------------------------
Total 49,947 49,844
---------------------------------------------------------------
Net deferred tax
liabilities 136,826 139,604
Portion included in
current assets, net 2,738 4,248
---------------------------------------------------------------
Accumulated deferred
income taxes in the
Balance Sheets $139,564 $143,852
===============================================================
24
<PAGE>
NOTES (continued)
Mississippi Power Company 1999 Annual Report
Deferred investment tax credits are amortized over the lives 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 1999, 1998, and 1997. At December 31, 1999, 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:
1999 1998 1997
----------------------------------
Federal statutory rate 35.00% 35.00% 35.00%
State income tax, net of
federal deduction 3.37 3.34 3.51
Non-deductible book
depreciation .77 .47 .47
Other (1.62) (1.04) (3.60)
------------------------------------------------------------------
Effective income tax rate 37.52% 37.77% 35.38%
==================================================================
Southern Company files 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.
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.
The Company considers that the mechanisms and obligations relating to the
preferred securities, taken together, constitute a full and unconditional
guarantee by the Company of the Trusts' payment obligations with respect to the
preferred securities.
The Trust is a subsidiary of the Company, and accordingly is consolidated in
the Company's financial statements.
10. LONG-TERM DEBT DUE WITHIN ONE YEAR
A summary of the improvement fund requirements and scheduled maturities and
redemptions of long-term debt due within one year is as follows:
1999 1998
-------------------
(in thousands)
Bond improvement fund requirement $1,000 $1,000
Less: Portion to be satisfied by
certifying property additions 1,000 1,000
---------------------------------------------------------------
Cash sinking fund requirement - -
Redemptions of first mortgage bonds - -
Current portion of other long-term debt 30,000 50,000
Pollution control bond cash
sinking fund requirements 20 20
---------------------------------------------------------------
Total $30,020 $50,020
===============================================================
The first mortgage bond improvement fund requirement is one percent of each
outstanding series authenticated under the indenture of Mississippi Power prior
to January 1 of each year, other than first mortgage bonds issued as collateral
security for certain pollution control obligations. The requirement must be
satisfied by June 1 of each year by depositing cash or reacquiring bonds, or by
pledging additional property equal to 166-2/3 percent of such requirement.
11. COMMON STOCK DIVIDEND RESTRICTIONS
Mississippi Power's first mortgage bond indenture and the corporate charter
contain various common stock dividend restrictions. At December 31, 1999,
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.
25
<PAGE>
NOTES (continued)
Mississippi Power Company 1999 Annual Report
12. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 1999 and 1998 are as follows:
Net Income
After Dividends
Operating Operating On Preferred
Quarter Ended Revenues Income Stock
- --------------------------------------------------------------------
(in thousands)
March 1999 $122,435 $18,122 $7,193
June 1999 158,590 31,289 14,953
September 1999 201,594 51,609 27,313
December 1999 150,385 18,736 5,350
March 1998 $122,156 $20,299 $8,388
June 1998 156,612 30,126 13,713
September 1998 191,699 50,948 28,309
December 1998 124,664 13,498 4,696
- --------------------------------------------------------------------
Mississippi Power's business is influenced by seasonal weather conditions
and the timing of rate changes.
26
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL AND OPERATING DATA 1995-1999
Mississippi Power Company 1999 Annual Report
- ---------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating Revenues (in thousands)* $633,004 $595,131 $543,588 $544,029 $516,553
Net Income after Dividends
on Preferred Stock (in thousands) $54,809 $55,105 $54,010 $52,723 $52,531
Cash Dividends
on Common Stock (in thousands) $56,100 $51,700 $49,400 $43,900 $39,400
Return on Average Common Equity (percent) 14.00 14.15 14.00 13.90 14.26
Total Assets (in thousands) $1,251,136 $1,189,605 $1,166,829 $1,142,327 $1,148,953
Gross Property Additions (in thousands) $75,888 $68,231 $55,375 $61,314 $67,570
- ---------------------------------------------------------------------------------------------------------------------------------
Capitalization (in thousands):
Common stock equity $391,968 $391,231 $387,824 $383,734 $374,884
Preferred stock 31,809 31,809 31,896 74,414 74,414
Company obligated mandatorily
redeemable preferred securities 35,000 35,000 35,000 - -
Long-term debt 321,802 292,744 291,665 326,379 288,820
- ---------------------------------------------------------------------------------------------------------------------------------
Total (excluding amounts due within one year) $780,579 $750,784 $746,385 $784,527 $738,118
=================================================================================================================================
Capitalization Ratios (percent):
Common stock equity 50.2 52.1 52.0 48.9 50.8
Preferred stock 4.1 4.2 4.3 9.5 10.1
Company obligated mandatorily
redeemable preferred securities 4.5 4.7 4.7 - -
Long-term debt 41.2 39.0 39.0 41.6 39.1
- ---------------------------------------------------------------------------------------------------------------------------------
Total (excluding amounts due within one year) 100.0 100.0 100.0 100.0 100.0
=================================================================================================================================
Security Ratings:
First Mortgage Bonds -
Moody's Aa3 Aa3 Aa3 Aa3 Aa3
Standard and Poor's AA- AA- AA- A+ A+
Duff & Phelps AA- AA- AA- AA- AA-
Preferred Stock -
Moody's a1 a1 a1 a1 a1
Standard and Poor's A- A A A A
Duff & Phelps A+ A+ A+ A+ A+
=================================================================================================================================
Customers (year-end):
Residential 157,592 156,530 156,650 154,630 154,014
Commercial 31,837 31,319 31,667 30,366 29,903
Industrial 546 587 642 639 642
Other 202 200 200 200 194
- ---------------------------------------------------------------------------------------------------------------------------------
Total 190,177 188,636 189,159 185,835 184,753
=================================================================================================================================
Employees (year-end): 1,328 1,230 1,245 1,363 1,421
- ---------------------------------------------------------------------------------------------------------------------------------
* 1999 data includes the true-up of the unbilled revenue estimates.
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL AND OPERATING DATA 1995-1999 (continued)
Mississippi Power Company 1999 Annual Report
- --------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating Revenues (in thousands)*:
Residential $ 159,945 $157,642 $ 138,608 $ 137,055 $ 134,286
Commercial 153,936 145,677 134,208 131,734 131,034
Industrial 151,244 135,039 140,233 141,324 140,947
Other 4,309 4,209 4,193 4,013 3,914
- --------------------------------------------------------------------------------------------------------------------------------
Total retail 469,434 442,567 417,242 414,126 410,181
Sales for resale - non-affiliates 131,004 121,225 105,141 99,596 91,820
Sales for resale - affiliates 19,446 18,285 10,143 21,830 7,691
- --------------------------------------------------------------------------------------------------------------------------------
Total revenues from sales of electricity 619,884 582,077 532,526 535,552 509,692
Other revenues 13,120 13,054 11,062 8,477 6,861
- --------------------------------------------------------------------------------------------------------------------------------
Total $633,004 $595,131 $543,588 $544,029 $516,553
================================================================================================================================
Kilowatt-Hour Sales (in thousands)*:
Residential 2,248,255 2,248,915 2,039,042 2,079,611 2,040,608
Commercial 2,847,342 2,623,276 2,407,520 2,315,860 2,242,163
Industrial 4,407,445 3,729,166 3,981,875 3,960,243 3,813,456
Other 40,091 39,772 40,508 39,297 38,559
- --------------------------------------------------------------------------------------------------------------------------------
Total retail 9,543,133 8,641,129 8,468,945 8,395,011 8,134,786
Sales for resale - non-affiliates 3,256,175 3,157,837 2,895,182 2,726,993 2,493,519
Sales for resale - affiliates 539,939 552,142 478,884 693,510 243,554
- --------------------------------------------------------------------------------------------------------------------------------
Total 13,339,247 12,351,108 11,843,011 11,815,514 10,871,859
================================================================================================================================
Average Revenue Per Kilowatt-Hour (cents)*:
Residential 7.11 7.01 6.80 6.59 6.58
Commercial 5.41 5.55 5.57 5.69 5.84
Industrial 3.43 3.62 3.52 3.57 3.70
Total retail 4.92 5.12 4.93 4.93 5.04
Sales for resale 3.96 3.76 3.42 3.55 3.84
Total sales 4.65 4.71 4.50 4.53 4.69
Residential Average Annual
Kilowatt-Hour Use Per Customer * 14,301 14,376 13,132 13,469 13,307
Residential Average Annual
Revenue Per Customer * $1,017.42 $1,007.68 $892.68 $887.66 $875.69
Plant Nameplate Capacity
Ratings (year-end) (megawatts) 2,086 2,086 2,086 2,086 2,086
Maximum Peak-Hour Demand (megawatts):
Winter 2,125 1,740 1,922 2,030 1,637
Summer 2,439 2,339 2,209 2,117 2,095
Annual Load Factor (percent) 59.6 58.0 59.1 60.7 60.0
Plant Availability Fossil-Steam (percent): 91.0 90.0 92.4 91.8 92.1
- --------------------------------------------------------------------------------------------------------------------------------
Source of Energy Supply (percent):
Coal 69.4 66.5 70.5 70.4 58.0
Oil and gas 15.9 14.5 12.5 12.0 15.2
Purchased power -
From non-affiliates 6.2 8.0 3.0 6.5 2.4
From affiliates 8.5 11.0 14.0 11.1 24.4
- --------------------------------------------------------------------------------------------------------------------------------
Total 100.0 100.0 100.0 100.0 100.0
================================================================================================================================
* 1999 data includes the true-up of the unbilled revenue estimates.
</TABLE>
28
