<PAGE> 1
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, 1994
SAVANNAH ELECTRIC AND POWER COMPANY
(Exact name of registrant as specified in its charter)
Georgia 1-5072 58-0418070
- --------------------------------------------------------------------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
600 Bay Street, East, Savannah, Georgia 31401
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (912) 232-7171
N/A
(Former name or former address, if changed since last report.)
<PAGE> 2
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(c) Exhibits.
23 - Consent of Arthur Andersen & Co.
99 - Audited Financial Statements of
Savannah Electric and Power Company
as of December 31, 1993.
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.
SAVANNAH ELECTRIC AND POWER COMPANY
By /s/ Wayne Boston
---------------------------
Wayne Boston
Assistant Secretary
Date: March 1, 1994
<PAGE> 1
EXHIBIT 23
ARTHUR ANDERSEN & CO.
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report dated February 16, 1994, included in this Form 8-K, into Savannah
Electric and Power Company's previously filed Registration Statement File No.
33-45757.
/s/ Arthur Andersen & Co.
---------------------------
ARTHUR ANDERSEN & CO.
Atlanta, Georgia
March 1, 1994
<PAGE> 1
EXHIBIT 99
MANAGEMENT'S REPORT
Savannah Electric and Power Company 1993 Annual Report
The management of Savannah Electric and Power Company has prepared -- and is
responsible for -- the financial statements and related information included in
this report. These statements were prepared in accordance with generally
accepted accounting principles appropriate in the circumstances and necessarily
include amounts that are based on the best estimates and judgments of
management. Financial information throughout this annual report is consistent
with the financial statements.
The Company maintains a system of internal accounting controls to
provide reasonable assurance that assets are safeguarded and that books and
records reflect only authorized transactions of the Company. Limitations exist
in any system of internal controls, however, based on a recognition that the
cost of the system should not exceed its benefits. The Company believes its
system of internal accounting controls maintains an appropriate cost/benefit
relationship.
The Company's system of internal accounting controls is evaluated on
an ongoing basis by the Company's internal audit staff. The Company's
independent public accountants also consider certain elements of the internal
control system in order to determine their auditing procedures for the purpose
of expressing an opinion on the financial statements.
The audit committee of the board of directors, composed of 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 the 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 Savannah Electric and Power Company in
conformity with generally accepted accounting principles.
/s/ Arthur M. Gignilliat, Jr. /s/ K. R. Willis
- -------------------------------- -------------------------------------
Arthur M. Gignilliat, Jr. K. R. Willis
President Vice-President
and Chief Executive Officer Treasurer and Chief Financial Officer
1
<PAGE> 2
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
Savannah Electric and Power Company 1993 Annual Report
TO THE BOARD OF DIRECTORS
OF SAVANNAH ELECTRIC AND POWER COMPANY:
We have audited the accompanying balance sheets and statements of
capitalization of Savannah Electric and Power Company (a Georgia corporation)
as of December 31, 1993 and 1992, and the related statements of income,
retained earnings, paid-in capital, and cash flows for each of the three years
in the period ended December 31, 1993. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements (pages 10-23) referred to
above present fairly, in all material respects, the financial position of
Savannah Electric and Power Company as of December 31, 1993 and 1992, and the
results of its operations and its cash flows for the periods stated, in
conformity with generally accepted accounting principles.
As explained in Notes 2 and 7 to the financial statements, effective
January 1, 1993, the Company changed its methods of accounting for
postretirement benefits other than pensions and for income taxes.
/s/ Arthur Andersen & Co.
Atlanta, Georgia,
February 16, 1994
2
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
Savannah Electric and Power Company 1993 Annual Report
RESULTS OF OPERATIONS
Earnings
Savannah Electric and Power Company's net income after dividends on preferred
stock for 1993 totaled $21.5 million, representing a $1.0 million (4.6 percent)
increase from the prior year. The revenue impact of an increase in retail
energy sales due to exceptionally hot summer weather was partially offset by
the implementation of a work force reduction program which resulted in a
one-time charge to operating expenses of approximately $4.5 million.
In 1992, earnings were $20.5 million, representing a $3.5 million
(14.6 percent) decrease from the prior year. This decrease resulted primarily
from increases in maintenance and administrative and general expenses,
partially offset by a 4.6 percent increase in retail operating revenues.
Operating revenues increased despite the negative impact of a $2.8 million
annual reduction in retail base rates effective in June 1992, and mild weather.
REVENUES
Total revenues for 1993 were $218.4 million, reflecting a 10.5 percent increase
over 1992, primarily due to an increase in retail energy sales.
The following table summarizes the factors impacting operating
revenues compared to the prior year for the 1991-1993 period:
<TABLE>
<CAPTION>
Increase (Decrease)
From Prior Years
1993 1992 1991
(in thousands)
<S> <C> <C> <C>
Retail --
Change in base
rates $(1,450) $(1,350) $(5,232)
Sales growth 5,980 5,467 5,057
Weather 4,567 (3,116) (1,014)
Fuel cost
recovery and
other 12,404 7,270 (8,934)
Total retail 21,501 8,271 (10,123)
Sales for resale--
Non-affiliates (1,800) 8 (1,669)
Affiliates 928 75 (4,136)
Total sales for
resale (872) 83 (5,805)
Other operating
revenues 52 (239) (61)
Total operating
revenues $20,681 $8,115 $(15,989)
Percent change 10.5% 4.3% (7.8)%
</TABLE>
Total retail revenues increased 11.5 percent in 1993, compared to a
4.6 percent increase in 1992. The increase in 1993 retail revenues
attributable to growth in both retail customers and average use per customer
was enhanced by exceptionally hot weather during the summer. The substantial
increase in fuel cost recovery and other revenues reflects increases in net
generation and the unit cost of purchased power. The increase in 1992 retail
revenues resulted from growth in both retail customers and average use per
customer, but was substantially offset by mild weather and the June 1992 base
rate reduction.
3
<PAGE> 4
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Savannah Electric and Power Company 1993 Annual Report
Under the Company's fuel cost recovery provisions, fuel revenues equal
fuel expense, including the fuel and capacity components of purchased energy,
and have no effect on earnings. Revenues from sales to non-affiliated
utilities under long-term contracts consist of capacity and energy components.
Capacity revenues reflect the recovery of fixed costs and a return on
investment under the contracts. Energy is generally sold at variable cost.
The capacity and energy components were:
<TABLE>
<CAPTION>
1993 1992 1991
(in thousands)
<S> <C> <C> <C>
Capacity $ 978 $ 537 $ 516
Energy 4,262 7,040 6,729
Total $5,240 $7,577 $7,245
</TABLE>
Sales to affiliated companies within the Southern electric system
vary from year to year depending on demand and the availability and cost of
generating resources at each company. These sales have little impact on
earnings.
Kilowatt-hour sales for 1993 and the percent change by year were
as follows:
<TABLE>
<CAPTION>
(millions of Amount Percent Change
kilowatt-hours) 1993 1993 1992 1991
<S> <C> <C> <C> <C>
Residential 1,329 9.2% 1.8% 1.0%
Commercial 1,016 6.5 3.0 3.7
Industrial 854 (0.8) 4.3 28.1
Other 117 5.2 3.4 3.0
Total retail 3,316 5.5 2.9 8.1
Sales to non-affiliates 247 (32.7) (1.3) (15.6)
Sales to affiliates 75 100.3 15.5 (88.9)
Total 3,638 2.6% 2.6% (2.9)%
</TABLE>
The increases in energy sales in 1993 and 1992 continue to reflect
a growing customer base, an increase in average energy sales per customer, and
improved economic conditions in the Company's service area. Sales were
enhanced in 1993 by temperature extremes in the summer months and in December.
EXPENSES
Total operating expenses for 1993 increased $20.3 million (12.4 percent) over
the prior year. This increase includes a $10.8 million increase in fuel
expense, and an $8.7 million increase in other operation expenses. Fuel
expenses increased primarily because of higher generation due to extremely hot
weather and higher cost fuel sources. In 1992 an increase in purchased power
reflected a 15.4 percent decrease in generation compared to 1991. Despite the
decrease in generation, total 1992 fuel expenses were substantially unchanged
from the prior year reflecting generation from higher cost fuel sources.
The increase in other operation expenses reflects a $4.5 million
cost associated with a one-time charge related to a work force reduction
program. The Company also recognized higher employee benefits costs under new
accounting rules adopted in 1993. See Note 2 to the financial statements for
additional information on these new rules. In 1992, the increase in other
operation expenses was primarily a result of increases in outside services and
administrative and general expenses, which reflected higher employee training
and benefits expenses. Total interest expense on long-term debt was reduced by
5.4 percent in 1992, as the Company refinanced higher-cost debt.
4
<PAGE> 5
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Savannah Electric and Power Company 1993 Annual Report
The mix of energy supply is determined primarily by system load,
the unit cost of fuel consumed and the availability of units.
The amount and sources of energy supply and the average cost of
fuel per net kilowatt-hour generated and purchased power were as follows:
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
Total energy supply
(millions of kilowatt-hours) 3,863 3,764 3,677
Sources of energy supply
(percent)
Coal 21 12 16
Oil 2 1 -
Gas 3 2 2
Purchased Power 74 85 82
Average cost of fuel per net
kilowatt-hour generated
(cents)
Coal 2.02 2.28 2.05
Oil 4.11 2.40 3.97
Gas 4.87 4.28 3.32
Total average cost of
energy supply 2.12 1.78 1.64
</TABLE>
EFFECTS OF INFLATION
The Company is subject to rate regulation and income tax laws that are based on
the recovery of historical costs. Therefore, inflation creates an economic
loss because the Company is recovering its costs of investments in dollars that
have less purchasing power. While the inflation rate has been relatively low
in recent years, it continues to have an adverse effect on the Company because
of the large investment in long-lived utility plant. Conventional accounting
for historical cost does not recognize this economic loss nor the partially
offsetting gain that arises through financing facilities with fixed-money
obligations such as long-term debt and preferred stock. Any recognition of
inflation by regulatory authorities is reflected in the rate of return allowed.
FUTURE EARNINGS POTENTIAL
The results of operations for the past three years are not necessarily
indicative of future earnings potential. The level of future earnings depends
on numerous factors ranging from growth in energy sales to regulatory matters.
Future earnings in the near term will depend upon growth in energy
sales, which is subject to a number of factors. Traditionally, these factors
included changes in contracts with neighboring utilities, energy conservation
practiced by customers, the elasticity of demand, weather, competition, and the
rate of economic growth in the Company's service area. However, the Energy
Policy Act of 1992 (Energy Act) will have a profound effect on the future of
the electric utility industry. The Energy Act promotes energy efficiency,
alternative fuel use, and increased competition for electric utilities. The
Energy Act allows Independent Power Producers (IPPs) to access a utility's
transmission network to sell electricity to other utilities. This may enhance
the incentives for IPPs to build cogeneration plants for the Company's large
industrial and commercial customers. Although the Energy Act does not require
transmission access to retail customers, pressure for legislation to allow
retail wheeling will continue. The Company is preparing now to meet the
challenge of these major changes in the traditional business practices of
selling electricity. If the Company does not remain a low-cost producer and
provide quality service, the Company's retail energy sales growth, as well as
new long-term contracts for energy sales outside the service area, could be
limited, and this could significantly erode earnings.
Demand-side options -- programs that enable customers to lower or
alter their peak energy requirements -- have been initiated by the Company and
are a significant part of integrated resource planning. Customers can receive
cash incentives for participating in these programs in addition to reducing
their energy requirements. Expansion and increased utilization of these
programs will be contingent upon sharing of cost savings between the customers
and the Company. Besides promoting energy efficiency, another benefit of these
programs could be the ability to defer the need to construct baseload
generating facilities further into the future. The ability to defer major
construction projects, in conjunction with the precertification approval
process for such projects by the Georgia Public Service Commission (GPSC), will
5
<PAGE> 6
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Savannah Electric and Power Company 1993 Annual Report
diminish the possible exposure to prudency disallowances and the resulting
impact on earnings.
Compliance costs related to the Clean Air Act Amendments of 1990
(Clean Air Act) could reduce earnings if such costs are not fully recovered.
The Clean Air Act is discussed later under "Environmental Matters."
Rates to retail customers served by the Company are regulated by
the GPSC. In May 1992, the Company requested, and subsequently received,
approval by the GPSC to reduce annual base revenues by $2.8 million, effective
June 1992. The reduction includes a base rate reduction of approximately $2.5
million spread among all classes of retail customers. An additional $0.3
million reduction resulted from the implementation of an experimental,
time-of-use rate for certain commercial customers. As part of this rate
settlement, it was informally agreed that the Company's earned rate of return
on common equity should be 12.95 percent.
NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board (FASB) issued Statement No. 112,
Employers' Accounting for Postemployment Benefits, which must be implemented by
1994. The new standard requires that all types of benefits provided to former
or inactive employees and their families prior to retirement be accounted for
on an accrual basis. These benefits include salary continuation, severance
pay, supplemental unemployment benefits, disability-related benefits, job
training, and health and life insurance coverage.
The FASB has issued Statement No. 115, Accounting for Certain
Investments in Debt and Equity Securities, which is effective in 1994.
Statement No. 115, supersedes FASB Statement No. 12, Accounting for Certain
Marketable Securities. The Company adopted the new rules January 1, 1994, with
no material effect on the financial statements.
On January 1, 1993, the Company changed its methods of accounting
for postretirement benefits other than pensions and for income taxes. See
notes 2 and 7 to the financial statements regarding the impact of these
changes.
FINANCIAL CONDITION
OVERVIEW
The principal change in the Company's financial condition in 1993 was additions
of $73 million to utility plant. The majority of funds needed for gross
property additions since 1990 have been provided from operating activities,
principally from earnings and non-cash charges to income such as depreciation
and deferred income taxes. See Statements of Cash Flows for additional
information.
CAPITAL STRUCTURE
As of December 31, 1993, the Company's capital structure consisted of 45.3
percent common equity, 10.3 percent preferred stock and 44.4 percent long-term
debt, excluding amounts due within one year. The Company's long-term financial
objective for capitalization ratios is to maintain a capital structure of
common equity at 45 percent, preferred stock at 10 percent and debt at 45
percent.
Maturities and retirements of long-term debt were $4 million in
1993, $53 million in 1992 and $23 million in 1991.
In November 1993, the Company issued 1,400,000 shares of 6.64
percent series preferred stock. In December 1993, the Company redeemed all
800,000 shares outstanding of its 9.5 percent series preferred stock at the
prescribed redemption price of $26.57 plus accrued dividends.
The composite interest rates for the years 1991 through 1993 as of
year-end were as follows:
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
Composite interest rates
on long-term debt 8.0% 8.5% 9.7%
Composite preferred stock
dividend rate 6.6% 9.5% 9.5%
</TABLE>
6
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Savannah Electric and Power Company 1993 Annual Report
The Company's current securities ratings are as follows:
<TABLE>
<CAPTION>
Standard
Moody's & Poor's
<S> <C> <C>
First Mortgage Bonds A1 A
Preferred Stock "a2" A-
</TABLE>
CAPITAL REQUIREMENTS FOR CONSTRUCTION
The Company's projected construction expenditures for the next three years
total $98 million ($33 million in 1994, $32 million in 1995, and $33 million in
1996). Actual construction costs may vary from this estimate because of such
factors as changes in environmental regulations; revised load projections; the
cost and efficiency of construction labor, equipment and materials; and the
cost of capital. The largest project during this period is the addition of two
80 megawatt combustion turbine units, to be placed into service in 1994. The
estimated cost of this project is $61 million. The Company is also
constructing six combustion turbine units for Georgia Power Company.
OTHER CAPITAL REQUIREMENTS
In addition to the funds needed for the construction program, approximately
$5.9 million will be needed by the end of 1996 for present sinking fund
requirements and maturities.
ENVIRONMENTAL MATTERS
In November 1990, the Clean Air Act was signed into law. Title IV of the Clean
Air Act -- the acid rain compliance provision of the new law -- will have a
significant impact on the Company and other subsidiaries of the Southern
electric system. Specific reductions in sulfur dioxide and nitrogen oxide
emissions from fossil-fired generating plants will be required in two phases.
Phase I compliance must be implemented in 1995, and affects eight generating
plants -- some 10,000 megawatts of capacity or 35 percent of total capacity --
in the Southern electric system. Phase II compliance is required in 2000, and
all fossil-fired generating plants in the Southern electric system will be
affected.
Beginning in 1995, the Environmental Protection Agency (EPA) will
allocate annual sulfur dioxide emission allowances through the newly
established allowance trading program. An emission allowance is the authority
to emit one ton of sulfur dioxide during a calendar year. The method for
allocating allowances is based on the fossil fuel consumed from 1985 through
1987 for each affected generating unit. Emission allowances are transferable
and can be bought, sold, or banked and used in the future.
The sulfur dioxide emission allowance program is expected to
minimize the cost of compliance. The market for emission allowances is
developing slower than expected. However, The Southern Company's sulfur
dioxide compliance strategy is designed to take advantage of allowances as the
market develops.
The Southern Company expects to achieve Phase I sulfur dioxide
compliance at the eight affected plants by switching to low-sulfur
coal, and this would require some equipment upgrades. This compliance strategy
is expected to result in unused emission allowances being banked for later use.
Additional construction expenditures are required to install equipment for the
control of nitrogen oxide emissions at these eight plants. Also, continuous
emissions monitoring equipment would be installed on all fossil-fired units.
Under this Phase I compliance approach, additional construction expenditures
are estimated to total approximately $275 million through 1995 for The Southern
Company, of which the Company's portion is approximately $2 million.
Phase II compliance costs are expected to be higher because
requirements are stricter and all fossil-fired generating plants are affected.
For sulfur dioxide compliance, The Southern Company could use emission
allowances banked during Phase I and increase fuel switching, install flue gas
desulfurization equipment at selected plants, and/or purchase more allowances
depending on the price and availability of allowances. Also, in Phase II,
equipment to control nitrogen oxide emissions will be installed on additional
system fossil-fired plants as required to meet anticipated Phase II limits.
Therefore, during the period 1996 through 2000, compliance could require total
construction expenditures ranging from approximately $450 million to $800
million of which the Company's portion is expected to be approximately $25
million. However, the full impact of
7
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Savannah Electric and Power Company 1993 Annual Report
Phase II compliance cannot now be determined with certainty, pending the
development of a market for emission allowances, the completion of EPA
regulations, and the possibility of new emission reduction technologies.
An increase of up to 5 percent in annual revenue requirements from
customers could be necessary to fully recover the Company's costs of compliance
for both Phase I and II of the Clean Air Act. Compliance costs include
construction expenditures, increased costs for switching to low-sulfur coal,
and costs related to emission allowances.
There can be no assurance that all Clean Air Act costs will be
recovered.
Title III of the Clean Air Act requires a multi-year EPA study of
power plant emissions of hazardous air pollutants. The study will serve as the
basis for a decision on whether additional regulatory control of these
substances is warranted. Compliance with any new control standards could
result in significant additional costs. The impact of new standards -- if any
- -- will depend on the development and implementation of applicable regulations.
The EPA continues to evaluate the need for a new short-term ambient
air quality standard for sulfur dioxide. Preliminary results from an EPA study
on the impact of a new standard indicate that a number of plants could be
required to install sulfur dioxide controls. These controls would be in
addition to the controls already required to meet the acid rain provision of
the Clean Air Act. The EPA is expected to take some action on this issue in
1994. The impact of any new standard will depend on the level chosen for the
standard and cannot be determined at this time.
In addition, the EPA is evaluating the need to revise the ambient
air quality standards for particulate matters, nitrogen oxides, and ozone. The
impact of any new standard will depend on the level chosen for the standard and
cannot be determined at this time.
In 1994 or 1995, the EPA is expected to issue revised rules on air
quality control regulations related to stack height requirements of the Clean
Air Act. The full impact of the final rules cannot be determined at this time,
pending their development and implementation.
In 1993, the EPA issued a ruling confirming the non-hazardous
status of coal ash. However, the EPA has until 1998 to classify co-managed
utility wastes--coal ash and other utility wastes--as either non-hazardous or
hazardous. If the EPA classifies the co-managed wastes as hazardous, then
substantial additional costs for the management of such wastes may be required.
The full impact of any change in the regulatory status will depend on the
subsequent development of co-managed waste requirements.
Savannah Electric and Power 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. The Company
conducts studies to determine the extent of any required clean-up costs and
will recognize in the financial statements any costs to clean up known sites.
Several major pieces of environmental legislation are in the
process of being reauthorized or amended by Congress. These include: the
Clean Water Act, the Comprehensive Environmental Response, Compensation, and
Liability Act, and the Resource Conservation and Recovery Act. Changes to
these laws could affect many areas of the Company's operations. The full
impact of these requirements cannot be determined at this time, pending the
development and implementation of applicable regulations.
Compliance with possible new legislation related to global climate
change, electromagnetic fields, and other environmental and health concerns
could significantly affect The Southern Company. The impact of new legislation
- -- if any -- will depend on the subsequent development and implementation of
applicable regulations. In addition, the potential for lawsuits alleging
damages caused by electromagnetic fields exists.
SOURCES OF CAPITAL
At December 31, 1993, the Company had $3.9 million of cash and $14.5 million of
unused credit arrangements with banks to meet its short-term cash needs. The
Company had $3 million of short-term bank borrowings at December 31, 1993. In
January 1994, the Company renegotiated a two-year revolving credit arrangement
with four of its
8
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Savannah Electric and Power Company 1993 Annual Report
existing banks for a total credit line of $20 million. The primary purpose of
this additional credit is to provide interim funding for the Company's
combustion turbine construction program.
It is anticipated that the funds required for construction and
other purposes, including compliance with environmental regulations, will be
derived from operations and the sale of additional first mortgage bonds and
preferred stock and capital contributions from The Southern Company. The
Company is required to meet certain coverage requirements specified in its
mortgage indenture and corporate charter to issue new first mortgage bonds and
preferred stock. The Company's coverage ratios are sufficiently high enough to
permit, at present interest levels, any foreseeable security sales. The amount
of securities which the Company will be permitted to issue in the future will
depend upon market conditions and other factors prevailing at that time.
9
<PAGE> 10
STATEMENTS OF INCOME
For the Years Ended December 31, 1993, 1992, and 1991
Savannah Electric and Power Company 1993 Annual Report
<TABLE>
<CAPTION>
1993 1992 1991
(in thousands)
<S> <C> <C> <C>
OPERATING REVENUES (NOTES 1, 3, AND 6):
Revenues $ 216,009 $ 196,256 $ 188,216
Revenues from affiliates 2,433 1,505 1,430
Total operating revenues 218,442 197,761 189,646
OPERATING EXPENSES:
Operation --
Fuel 24,976 14,162 14,415
Purchased power from non-affiliates 793 494 297
Purchased power from affiliates 56,274 56,492 49,007
Other (Notes 2 and 5) 45,610 36,884 32,945
Maintenance 13,516 14,232 12,475
Depreciation and amortization (Notes 1 and 7) 16,467 16,829 16,549
Taxes other than income taxes 11,136 10,231 10,122
Federal and state income taxes (Note 7) 15,436 14,566 16,195
Total operating expenses 184,208 163,890 152,005
OPERATING INCOME 34,234 33,871 37,641
OTHER INCOME (EXPENSE):
Allowance for equity funds used during construction (Note 1) 958 446 170
Interest income 209 276 589
Other, net (Note 2) (1,841) (1,450) (879)
Income taxes applicable to other income 1,117 758 722
INCOME BEFORE INTEREST CHARGES 34,677 33,901 38,243
INTEREST CHARGES:
Interest on long-term debt 10,696 10,870 11,486
Allowance for debt funds used during construction (Note 1) (699) (289) (103)
Interest on notes payable 240 15 25
Amortization of debt discount, premium, and expense, net 535 427 380
Other interest charges 340 466 525
Net interest charges 11,112 11,489 12,313
NET INCOME 23,565 22,412 25,930
DIVIDENDS ON PREFERRED STOCK 2,106 1,900 1,900
NET INCOME AFTER DIVIDENDS ON PREFERRED STOCK $ 21,459 $ 20,512 $ 24,030
</TABLE>
The accompanying notes are an integral part of these statements.
10
<PAGE> 11
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1993, 1992, and 1991
Savannah Electric and Power Company 1993 Annual Report
<TABLE>
<CAPTION>
1993 1992 1991
(in thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 23,565 $ 22,412 $ 25,930
Adjustments to reconcile net income to net
cash provided by operating activities --
Depreciation and amortization 17,482 17,757 17,501
Deferred income taxes and investment tax credits 607 5,947 1,601
Allowance for equity funds used during construction (958) (446) (170)
Other, net 2,853 (1,312) (1,876)
Changes in certain current assets and liabilities --
Receivables, net (16,839) (4,107) 5,291
Special deposits - 350 1,348
Inventories (3,947) 4,435 (1,082)
Payables 18,742 351 568
Other 3,282 2,083 3,710
Net cash provided from operating activities 44,787 47,470 52,821
INVESTING ACTIVITIES:
Gross property additions (72,858) (30,132) (19,478)
Other 1,676 (1,073) 407
Net cash provided (used) for investing activities (71,182) (31,205) (19,071)
FINANCING ACTIVITIES AND CAPITAL CONTRIBUTIONS:
Proceeds:
First mortgage bonds 45,000 30,000 30,000
Preferred stock 35,000 - -
Pollution control bonds 4,085 13,870 -
Other long-term debt 10,000 - -
Retirements:
Preferred stock (20,000) - -
First mortgage bonds - (38,750) (22,500)
Pollution control bonds (4,085) (14,550) (515)
Other long-term debt (10,356) (217) (275)
Notes payable, net (4,500) 7,500 (1,500)
Payment of preferred stock dividends (2,222) (1,900) (1,900)
Payment of common stock dividends (21,000) (22,000) (22,000)
Miscellaneous (3,400) (3,985) (477)
Net cash provided (used) for financing activities 28,522 (30,032) (19,167)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,127 (13,767) 14,583
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,788 15,555 972
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 3,915 $ 1,788 $ 15,555
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for-
Interest (net of amount capitalized) $ 10,712 $ 9,932 $ 10,506
Income taxes 13,947 6,646 15,095
</TABLE>
( ) Denotes use of cash.
The accompanying notes are an integral part of these statements.
11
<PAGE> 12
BALANCE SHEETS
At December 31, 1993 and 1992
Savannah Electric and Power Company 1993 Annual Report
<TABLE>
<CAPTION>
ASSETS 1993 1992
(in thousands)
<S> <C> <C>
UTILITY PLANT:
Plant in service, at original cost (Notes 1, 4, 5, 7, and 9) $ 622,521 $ 599,596
Less accumulated provision for depreciation 251,565 240,094
370,956 359,502
Construction work in progress 49,797 5,966
Total 420,753 365,468
Less property-related accumulated deferred income taxes - 65,725
Total 420,753 299,743
OTHER PROPERTY AND INVESTMENTS 1,793 1,795
CURRENT ASSETS:
Cash and cash equivalents 3,915 1,788
Receivables-
Customer accounts receivable 18,551 16,795
Other accounts and notes receivable 790 1,359
Affiliated companies 12,924 263
Accumulated provision for uncollectible accounts (762) (536)
Fuel cost under recovery 7,112 3,895
Fossil fuel stock, at average cost 8,419 4,895
Materials and supplies, at average cost (Note 1) 9,358 8,935
Prepayments 4,849 1,599
Total 65,156 38,993
DEFERRED CHARGES:
Deferred charges related to income taxes (Note 7) 24,890 -
Premium on reacquired debt, being amortized 3,792 4,236
Miscellaneous 10,803 7,408
Total 39,485 11,644
TOTAL ASSETS $ 527,187 $ 352,175
</TABLE>
The accompanying notes are an integral part of these statements.
12
<PAGE> 13
BALANCE SHEETS
At December 31, 1993 and 1992
Savannah Electric and Power Company 1993 Annual Report
<TABLE>
<CAPTION>
CAPITALIZATION AND LIABILITIES 1993 1992
(in thousands)
<S> <C> <C>
CAPITALIZATION (SEE ACCOMPANYING STATEMENTS):
Common stock equity $ 154,269 $ 158,376
Preferred stock 35,000 20,000
Long-term debt 151,338 110,767
Total 340,607 289,143
CURRENT LIABILITIES:
Long-term debt due within one year (Note 10) 4,499 1,319
Notes payable (Note 5) 3,000 7,500
Accounts payable-
Affiliated companies 6,041 5,136
Other 24,401 6,043
Customer deposits 4,714 4,541
Taxes accrued-
Federal and state income 342 567
Other 1,187 2,449
Interest accrued 6,730 5,733
Vacation pay accrued 1,638 1,790
Pensions accrued 1,792 1,643
Work Force Reduction Costs Accrued (Note 2) 3,926 -
Miscellaneous 2,985 3,382
Total 61,255 40,103
DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income taxes (Note 7) 66,947 -
Accumulated deferred investment tax credits 15,301 15,964
Deferred credits related to income taxes (Note 7) 26,173 -
Deferred compensation plans 6,117 4,671
Deferred under-funded accrued benefit obligation (Note 2) 5,855 -
Miscellaneous 4,932 2,294
Total 125,325 22,929
COMMITMENTS AND CONTINGENT MATTERS (NOTES 2, 4, 5, AND 9)
TOTAL CAPITALIZATION AND LIABILITIES $ 527,187 $ 352,175
</TABLE>
The accompanying notes are an integral part of these statements.
13
<PAGE> 14
STATEMENTS OF CAPITALIZATION
At December 31, 1993 and 1992
Savannah Electric and Power Company 1993 Annual Report
<TABLE>
<CAPTION>
1993 1992 1993 1992
(in thousands) (percent of total)
<S> <C> <C> <C> <C>
COMMON STOCK EQUITY (NOTES 2 AND 11):
Common stock, par value $5 per share --
Authorized -- 16,000,000 shares
Outstanding -- 10,844,635 shares in
1993 and 1992 $ 54,223 $ 54,223
Paid-in capital 23 23
Paid-in for common stock in excess of par value 8,665 8,665
Additional minimum liability
for under-funded pension obligations (2,121) -
Retained Earnings 93,479 95,465
Total common stock equity 154,269 158,376 45.3 % 54.8 %
CUMULATIVE PREFERRED STOCK (NOTE 8):
$25 par value --
Authorized -- 2,200,000 shares
6.64% Series -- Outstanding -- 1,400,000 shares 35,000 -
9.50% Series -- Outstanding -- 800,000 shares - 20,000
Total (annual dividend requirement -- $2,324,000) 35,000 20,000 10.3 6.9
LONG-TERM DEBT (NOTE 9):
First mortgage bonds --
Maturity Interest Rates
April 1, 1994 4 5/8% 3,715 3,715
July 1, 2003 6 3/8% 20,000 -
October 1, 2019 9 1/4% 30,000 30,000
July 1, 2021 9 3/8% 30,000 30,000
July 1, 2022 8.30% 30,000 30,000
July 1, 2023 7.40% 25,000 -
Total first mortgage bonds 138,715 93,715
Pollution control obligations 17,955 17,955
Other long-term debt (Note 9) 2,311 2,667
Unamortized debt premium (discount), net (3,144) (2,251)
Total long-term debt (annual interest
requirement -- $12,700,800) 155,837 112,086
Less amount due within one year (Note 10) 4,499 1,319
Long-term debt excluding amount due within one year 151,338 110,767 44.4 38.3
TOTAL CAPITALIZATION $ 340,607 $ 289,143 100.0 % 100.0 %
</TABLE>
The accompanying notes are an integral part of these statements.
14
<PAGE> 15
STATEMENTS OF RETAINED EARNINGS
For the Years Ended December 31, 1993, 1992, and 1991
Savannah Electric and Power Company 1993 Annual Report
<TABLE>
<CAPTION>
1993 1992 1991
(in thousands)
<S> <C> <C> <C>
BALANCE AT BEGINNING OF PERIOD $ 95,155 $ 96,643 $ 94,613
Net income after dividends on preferred stock 21,459 20,512 24,030
Cash dividends on common stock (21,000) (22,000) (22,000)
Preferred stock transactions, net (2,135) - -
BALANCE AT END OF PERIOD (NOTE 11) $ 93,479 $ 95,155 $ 96,643
STATEMENTS OF PAID-IN CAPITAL
For the Years Ended December 31, 1993, 1992, and 1991
1993 1992 1991
(in thousands)
BALANCE AT BEGINNING OF PERIOD $ 23 $ - $ -
Contributions to capital by parent company - 23 -
BALANCE AT END OF PERIOD $ 23 $ 23 $ -
</TABLE>
The accompanying notes are an integral part of these statements.
15
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS
Savannah Electric and Power Company 1993 Annual Report
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
Savannah Electric and Power Company is a wholly owned subsidiary of The
Southern Company, which is the parent company of five operating companies, a
system service company, Southern Electric International (Southern Electric),
Southern Nuclear Operating Company (Southern Nuclear), and various other
subsidiaries related to foreign utility operations and domestic non-utility
operations. At this time, the operations of the other subsidiaries are not
material. The operating companies (Alabama Power Company, Georgia Power
Company, Gulf Power Company, Mississippi Power Company, and Savannah Electric
and Power Company) provide electric service in four Southeastern states.
Contracts among the companies -- dealing with jointly owned generating
facilities, interconnecting transmission lines and the exchange of electric
power -- are regulated by the Federal Energy Regulatory Commission (FERC) or
the Securities and Exchange Commission (SEC). The system service company
provides, at cost, specialized services to The Southern Company and to the
subsidiary companies. Southern Electric designs, builds, owns and operates
power production facilities and provides a broad range of technical services to
industrial companies and utilities in the United States and a number of
international markets. Southern Nuclear provides services to The Southern
Company's nuclear power plants.
The Southern Company is registered as a holding company under the
Public Utility Holding Company Act of 1935 (PUHCA). Both The Southern Company
and its subsidiaries are subject to the regulatory provisions of the PUHCA.
The Company also is subject to regulation by the FERC and the Georgia Public
Service Commission (GPSC). The Company follows generally accepted accounting
principles and complies with the accounting policies and practices prescribed
by the GPSC.
Certain prior years' data presented in the financial statements
have been reclassified to conform with current year presentation.
REVENUES AND FUEL COSTS
The Company accrues revenues for services rendered but unbilled at the end of
each fiscal period. Fuel costs are expensed as the fuel is used. The
Company's electric rates include provisions to adjust billings for fluctuations
in capacity and the energy components of purchased power costs. Revenues
include the actual cost of fuel and purchased power incurred.
DEPRECIATION AND AMORTIZATION
Depreciation of the original cost of depreciable utility plant in service is
provided primarily by using composite straight-line rates, which approximated
2.9 percent in 1993 and 3.2 percent in 1992, and 1991. The decrease in 1993
reflects the Company's implementation of new depreciation rates approved by the
GPSC. These new rates provide for a timely recovery of the investments in the
Company's depreciable properties.
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.
INCOME TAXES
The Company, which is included in the consolidated federal income tax return
filed by The Southern Company, 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.
In years prior to 1993, income taxes were accounted for and
reported under Accounting Principles Board Opinion No. 11. Effective January
1, 1993, the Company adopted FASB Statement No. 109, Accounting for Income
Taxes. Statement No. 109 required, among other things, conversion to the
liability method of accounting for accumulated deferred income taxes. See Note
7 for additional information about Statement No. 109.
16
<PAGE> 17
NOTES (continued)
Savannah Electric and Power Company 1993 Annual Report
ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION
(AFUDC)
AFUDC represents the estimated debt and equity costs of capital funds that are
necessary to finance the construction of new facilities. While cash is not
realized currently from such allowance, it increases the revenue requirement
over the service life of the plant through a higher rate base and higher
depreciation expense. The composite rates used by the Company to calculate
AFUDC were 8.77 percent in 1993, 11.27 percent in 1992, and 11.38 percent in
1991.
UTILITY PLANT
Utility plant is stated at original cost, which includes materials, labor,
minor items of property, appropriate administrative and general costs,
payroll-related costs such as taxes, pensions and other benefits and the
estimated cost of funds used during construction. The cost of maintenance,
repairs, and replacement of minor items of property is charged to maintenance
expense. The cost of replacements of property (exclusive of minor items of
property) is charged to utility plant.
CASH AND CASH EQUIVALENTS
For purposes of the Statements of Cash Flows, temporary cash investments are
considered cash equivalents. Temporary cash investments are securities with
original maturities of 90 days or less.
FINANCIAL INSTRUMENTS
In accordance with FASB Statement No. 107, Disclosure About Fair Value
of Financial Instruments, items for which the carrying amount does not
approximate fair value must be disclosed. At December 31, 1993, the fair value
of long-term debt was $164 million and the carrying amount was $154 million.
The fair value of long-term debt was $117 million and the carrying amount was
$109 million at December 31, 1992. The fair value for long-term debt was based
on either closing market prices or closing prices of comparable instruments.
MATERIALS AND SUPPLIES
Generally, materials and supplies include the cost of transmission,
distribution, and generating plant materials. Materials are charged to
inventory when purchased and then expensed or capitalized to plant, as
appropriate, when installed.
2. RETIREMENT BENEFITS
PENSION PLANS
The Company has a defined benefit, trusteed, non-contributory pension plan that
covers substantially all regular employees. Benefits under this plan reflect
the employee's years of service, age at retirement and average compensation for
the three years immediately preceding retirement. The Company uses the
projected unit credit actuarial method for funding purposes, subject to
limitations under federal income tax regulations. Amounts funded to the
pension fund are primarily invested in equity and debt securities. FASB
Statement No. 87, Employers' Accounting for Pensions, requires use of the
"projected unit credit" actuarial method for financial reporting purposes.
POSTRETIREMENT BENEFITS
The Company also provides certain medical care and life insurance benefits for
retired employees. Substantially all employees may become eligible for these
benefits when they retire. A qualified trust for medical benefits has been
established for funding amounts to the extent deductible under federal income
tax regulations. Accrued costs of life insurance benefits, other than current
cash payments for retirees, currently are not being funded.
Effective January 1, 1993, the Company adopted FASB Statement No.
106, Employers' Accounting for Postretirement Benefits Other Than Pensions, on
a prospective basis. Statement No. 106 requires that medical care and life
insurance benefits for retired employees be accounted for on an accrual basis
using a specified actuarial method, "benefit/years-of-service."
17
<PAGE> 18
NOTES (continued)
Savannah Electric and Power Company 1993 Annual Report
Consistent with regulatory treatment, the Company recognized these
costs on a cash basis as payments were made in 1992 and 1991. The total costs
of such benefits recognized by the Company amounted to $375 thousand in 1992
and $487 thousand in 1991.
STATUS AND COST OF BENEFITS
Shown in the following tables are actuarial results and assumptions for pension
and postretirement medical and life insurance benefits as computed under the
requirements of FASB Statements Nos. 87 and 106, respectively. Retiree medical
and life insurance information is shown for 1993 only because Statement No. 106
was adopted as of January 1, 1993, on a prospective basis. The funded status
of the plans at December 31 was as follows:
<TABLE>
<CAPTION>
Pension
1993 1992
(in thousands)
<S> <C> <C>
Actuarial present value of
benefit obligations:
Vested benefits $35,818 $24,902
Non-vested benefits 1,992 1,772
Accumulated benefit obligation 37,810 26,674
Additional amounts related to
projected salary increases 5,974 6,495
Projected benefit obligation 43,784 33,169
Less:
Fair value of plan assets 26,446 23,494
Unrecognized net loss 9,449 5,546
Unrecognized prior service cost 1,685 1,823
Unrecognized net transition asset 710 799
Adjustment required to
recognize additional
minimum liability 5,871 -
Accrued pension cost recognized
in the Balance Sheets $11,365 $1,507
</TABLE>
The weighted average rates assumed in the actuarial calculations
were:
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
Discount 7.50% 8.00% 8.00%
Annual salary increase 4.75 5.00 5.00
Long-term return on plan
assets 9.25 9.25 9.50
</TABLE>
In accordance with Statement No. 87, an additional liability
related to under-funded accumulated benefit obligations was recognized at
December 31, 1993. A corresponding net-of-tax charge of $2.1 million was
recognized as a separate component of Common Stock Equity in the Statements of
Capitalization.
<TABLE>
<CAPTION>
Postretirement
Medical Life
1993 1993
(in thousands)
<S> <C> <C>
Actuarial present value of
benefit obligation:
Retirees and dependents $8,632 $2,536
Employees eligible to retire 898 -
Other employees 6,489 1,577
Accumulated benefit
obligation 16,019 4,113
Less
Fair value of plan assets - -
Unrecognized net loss 4,124 262
Unrecognized transition obligation 10,362 3,382
Accrued liability recognized in the
Balance Sheets $1,533 $469
</TABLE>
The assumption used in measuring the accumulated postretirement
medical benefit obligation was a weighted average medical care cost trend rate
of 11.3 percent for 1993, decreasing gradually to 6.0 percent through the year
2000 and remaining at that level thereafter. An annual increase in the assumed
medical care cost trend rate by 1.0 percent would increase the accumulated
medical benefit obligation as of December 31, 1993, by $1.7 million and the
aggregate of the service and interest cost components of the net retiree
medical cost by $0.2 million.
18
<PAGE> 19
NOTES (continued)
Savannah Electric and Power Company 1993 Annual Report
Components of the plans' net costs are shown below:
<TABLE>
<CAPTION>
Pension
1993 1992 1991
(in thousands)
<S> <C> <C> <C>
Benefits earned
during the year $1,188 $1,053 $ 941
Interest cost on projected
benefit obligation 2,741 2,429 2,149
Actual return on
plan assets (2,199) (1,266) (3,027)
Net amortization
and deferral 716 (227) 1,736
Net pension cost $2,446 $1,989 $1,799
</TABLE>
Of the above net pension amounts, $2.0 million in 1993, $1.7
million in 1992 and $1.5 million in 1991 were recorded in operating expenses,
and the remainder was recorded in construction and other accounts.
<TABLE>
<CAPTION>
Postretirement
Medical Life
1993 1993
(in thousands)
<S> <C> <C>
Benefits earned during the year $ 346 $ 97
Interest cost on accumulated
benefit obligation 855 279
Amortization of transition
obligation over 20 years 545 178
Net postretirement cost $1,746 $554
</TABLE>
Net postretirement medical and life insurance costs of $1.8
million in 1993 were charged to operating expenses.
The Company has a supplemental retirement plan for certain
executive employees. The plan is unfunded and payable from the general funds
of the Company. The Company has purchased life insurance on participating
executives, and plans to use these policies to satisfy this obligation.
Benefit costs associated with this plan for 1993, 1992 and 1991 were $980
thousand, $316 thousand and $338 thousand, respectively. The 1993 benefit
costs reflect a one-time expense related to employees who were part of the work
force reduction program.
WORK FORCE REDUCTION PROGRAM
The Company has incurred additional costs for a one-time charge related to the
implementation of a work force reduction program. In 1993, $4.5 million was
charged to operating expenses and $0.6 million was charged to other income
(expense).
3. REGULATORY MATTERS
RATE MATTERS
In May 1992, the Company filed for, and subsequently received, GPSC approval to
implement new base rates designed to decrease base operating revenues by $2.8
million annually. The reduction included a base rate reduction of
approximately $2.5 million spread among all classes of customers, effective
June 1992. An additional $0.3 million reduction resulted from the
implementation of an experimental, time-of-use rate for certain commercial
customers in August 1992.
4. CONSTRUCTION PROGRAM
The Company is engaged in a continuous construction program, currently
estimated to total $33 million in 1994, $32 million in 1995 and $33 million in
1996. The estimates include AFUDC of $1.6 million in 1994, $0.6 million in
1995 and $0.7 million in 1996. 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 cost of labor, equipment and materials; and cost of
capital. The construction of two combustion turbine peaking units totaling 160
megawatts is planned to be completed in mid 1994. The Company is also
constructing six combustion turbine peaking units owned by Georgia Power
Company. The construction is to be completed in 1996.
See Management's Discussion and Analysis under
"Environmental Matters" for information on the impact of the Clean Air Act
Amendments of 1990 and other environmental matters.
19
<PAGE> 20
NOTES (continued)
Savannah Electric and Power Company 1993 Annual Report
5. FINANCING AND COMMITMENTS
GENERAL
To the extent possible, the Company's construction program is expected to be
financed from internal sources and from the issuance of additional long-term
debt and preferred stock and capital contributions from The Southern Company.
Should the Company be unable to obtain funds from these sources, the Company
would have to use short-term indebtedness or other alternative, and possibly
costlier, means of financing.
The amounts of long-term debt and preferred stock that can
be issued in the future will be contingent on market conditions, the
maintenance of adequate earnings levels, regulatory authorizations and other
factors. See Management's Discussion and Analysis for information regarding
the Company's earnings coverage requirements.
BANK CREDIT ARRANGEMENTS
At the beginning of 1994, unused credit arrangements with four banks totaled
$14.5 million, and expire at various times during 1994.
The Company has $20 million of revolving credit arrangements
expiring December 31, 1995. 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
commitments fees based on the unused portions of the commitments.
In connection with all other lines of credit, the Company
has the option of paying fees or maintaining compensating balances, which are
substantially all the cash of the Company except for daily working funds and
similar items. These balances are not legally restricted from withdrawal.
ASSETS SUBJECT TO LIEN
As amended and supplemented, the Company's Indenture of Mortgage, which
secures the first mortgage bonds issued by the Company, constitutes a direct
first lien on substantially all of the Company's fixed property and franchises.
OPERATING LEASES
The Company has rental agreements with various terms and expiration dates.
Rental expenses totaled $1.5 million, $1.5 million, and $1.4 million for 1993,
1992, and 1991, respectively. At December 31, 1993, estimated future minimum
lease payments for non-cancelable operating leases were as follows:
<TABLE>
<CAPTION>
Amounts
(in millions)
<S> <C>
1994 $1.3
1995 0.3
1996 0.1
1997 and thereafter -
</TABLE>
6. LONG-TERM POWER SALES AGREEMENTS
The operating subsidiaries of The Southern Company, including the Company, have
entered into long-term contractual agreements for the sale of capacity and
energy to certain non-affiliated utilities located outside the system's service
area. Certain of these agreements are non-firm and are based on capacity of
the system in general. Other agreements are firm and pertain to the capacity
related to specific generating units. Because the energy is generally sold at
cost under these agreements, revenues from capacity sales primarily affect
profitability. The Company's portion of capacity revenues has been as follows:
<TABLE>
<CAPTION>
Unit Other
Year Power Long-Term Total
(in thousands)
<S> <C> <C> <C>
1993 $ 2 $976 $978
1992 3 534 537
1991 25 491 516
</TABLE>
Long-term non-firm power of 400 megawatts was sold by the
Southern electric system in 1993 to Florida Power Corporation (FPC). In
January 1994, this amount decreased to 200 megawatts, and the contract will
expire at year-end.
20
<PAGE> 21
NOTES (continued)
Savannah Electric and Power Company 1993 Annual Report
7. INCOME TAXES
Effective January 1, 1993, the Company adopted FASB Statement No. 109,
Accounting for Income Taxes. The adoption of Statement No. 109 resulted in
cumulative adjustments that had no material effect on net income. The adoption
also resulted in the recording of additional deferred income taxes and related
assets and liabilities. The related assets of $25 million are revenues to be
received from customers. These assets are attributable to tax benefits flowed
through to customers in prior years and to taxes applicable to capitalized
AFUDC. The related liabilities of $26 million are revenues to be refunded to
customers. These liabilities are attributable to deferred taxes previously
recognized at rates higher than current enacted tax law and unamortized
investment tax credits. Additionally, deferred income taxes related to
accelerated tax depreciation previously shown as a reduction to utility plant
were reclassified.
Details of the federal and state income tax provisions are
as follows:
<TABLE>
<CAPTION>
1993 1992 1991
(in thousands)
<S> <C> <C> <C>
Total provision for
income taxes
Federal --
Current payable $11,663 $6,630 $11,739
Deferred - current year 1,906 7,407 4,595
- reversal of
prior years (1,383) (2,347) (3,155)
12,186 11,690 13,179
State --
Current payable 2,049 1,231 2,133
Deferred - current year 119 1,079 662
- reversal of
prior years (35) (192) (501)
2,133 2,118 2,294
Total 14,319 13,808 15,473
Less income taxes charged
(credited) to
other income (1,117) (758) (722)
Federal and state
income taxes
charged to operations $15,436 $14,566 $16,195
</TABLE>
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:
<TABLE>
<CAPTION>
1993
(IN THOUSANDS)
<S> <C>
Deferred tax liabilities:
Accelerated depreciation $53,585
Property basis differences 13,871
Other 3,922
Total 71,378
Deferred tax assets:
Pension and other benefits 4,237
Other 4,616
Total 8,853
Net deferred tax liabilities 62,525
Portions included in current assets, net 4,422
Accumulated deferred income taxes
in the Balance Sheets $66,947
</TABLE>
Deferred investment tax credits are amortized over the life
of the related property with such amortization normally applied as a credit to
reduce depreciation in the Statements of Income. Credits amortized in this
manner amounted to $0.7 million in 1993, 1992 and 1991. At December 31, 1993,
all investment tax credits available to reduce federal income taxes payable had
been utilized.
A reconciliation of the effective income tax rate to the
statutory tax rate is as follows:
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
Total effective tax rate 38% 38% 37%
State income tax, net of federal
income tax benefit (4%) (4%) (4%)
Other 1% - 1%
Statutory federal tax rate 35% 34% 34%
</TABLE>
The Southern Company and its subsidiaries file a
consolidated federal income tax return. Under a joint consolidated income tax
agreement, each company's current and deferred tax expense is computed on a
stand-alone basis, and consolidated tax savings are allocated to each company
based on its ratio of taxable income to total consolidated taxable income.
21
<PAGE> 22
NOTES (continued)
Savannah Electric and Power Company 1993 Annual Report
8. CUMULATIVE PREFERRED STOCK
In November 1993, the Company issued 1,400,000 shares of 6.64 percent Series
Preferred stock which has redemption provisions of $26.66 per share plus
accrued dividends if on or prior to November 1, 1998, and at $25 per share plus
accrued dividends thereafter.
In December 1993, the Company redeemed all 800,000 shares outstanding
of its 9.5 percent Series Preferred stock at the prescribed redemption price of
$26.57 plus accrued dividends. Cumulative preferred stock dividends are
preferential to the payment of dividends on common stock.
9. LONG-TERM DEBT
The Company's Indenture related to its First Mortgage Bonds is
unlimited as to the authorized amount of bonds which may be issued, provided
that required property additions, earnings and other provisions of such
Indenture are met.
On February 19, 1993, the Company refunded its $4.1 million,
6.25 percent Series Pollution Control Bonds, due 1998 with $4.1 million of
variable rate Series Pollution Control Bonds due 2016.
In 1994, there is a first mortgage bond maturity of $3.7
million. The sinking fund requirements of first mortgage bonds are being
satisfied by certification of property additions. See Note 10 "Long-Term Debt
Due Within One Year" for details.
Details of other long-term debt are as follows:
<TABLE>
<CAPTION>
December 31,
1993 1992
(in thousands)
<S> <C> <C>
Collateralized obligations incurred
in connection with the sale by public
authorities of tax-exempt pollution
control revenue bonds --
6 1/4% due 1998 $ - $ 4,085
Variable rate (3.2% at 1/1/94)
due 2016 4,085 -
6 3/4% due 2022 13,870 13,870
Total pollution control obligations $17,955 $17,955
Capital lease obligations --
Combustion turbine equipment $ 1,403 $ 1,786
Transportation fleet 908 881
Total other long-term debt $ 2,311 $ 2,667
</TABLE>
Sinking fund requirements and /or maturities through 1998
applicable to long-term debt are as follows: $4.5 million in 1994; $0.7
million in 1995; $0.7 million in 1996; $0.1 million in 1997 and no requirement
is needed for 1998.
Assets acquired under capital leases are recorded as utility plant
in service and the related obligation is classified as other long-term debt.
Leases are capitalized at the net present value of the future lease payments.
However, for ratemaking purposes, these obligations are treated as operating
leases, and as such, lease payments are charged to expense as incurred.
The Company leases combustion turbine generating equipment under a
non-cancelable lease expiring in 1995, with renewal options extending until
2010. The Company also leases a portion of its transportation fleet. Under
the terms of these leases, the Company is responsible for taxes, insurance and
other expenses.
22
<PAGE> 23
NOTES (continued)
Savannah Electric and Power Company 1993 Annual Report
10. LONG-TERM DEBT DUE WITHIN ONE YEAR
A summary of the improvement fund/sinking fund requirements and scheduled
maturities and redemptions of long-term debt due within one year is as follows:
<TABLE>
<CAPTION>
1993 1992
(in thousands)
<S> <C> <C>
Bond sinking fund requirements $1,350 $980
Less:
Portion to be satisfied by
certifying property additions 1,350 980
Cash sinking fund requirements - -
Other long-term debt maturities 4,499 1,319
Total $4,499 $1,319
</TABLE>
The first mortgage bond improvement (sinking) fund requirements
amount to 1 percent of each outstanding series of bonds authenticated under the
indentures prior to January 1 of each year, other than those issued to
collateralize pollution control and other obligations. The requirements may be
satisfied by depositing cash or reacquiring bonds, or by pledging additional
property equal to 1 2/3 times the requirements.
11. COMMON STOCK DIVIDEND RESTRICTIONS
The Company's Charter and Indentures contain certain limitations on the payment
of cash dividends on the preferred and common stocks. At December 31, 1993,
approximately $55 million of retained earnings was restricted against the
payment of cash dividends on common stock under the terms of the Mortgage
Indenture.
12. QUARTERLY FINANCIAL INFORMATION
(UNAUDITED)
Summarized quarterly financial data for 1993 and 1992 are as follows (in
thousands):
<TABLE>
<CAPTION>
Net Income After
Operating Operating Dividends on
Quarter Ended Revenue Income Preferred Stock
<S> <C> <C> <C>
March 1993 $42,873 $6,123 $3,019
June 1993 52,875 9,301 6,211
September 1993 74,420 13,326 10,214
December 1993 48,274 5,484 2,015
March 1992 $41,965 $6,738 $3,200
June 1992 49,918 8,133 4,837
September 1992 63,814 14,794 11,378
December 1992 42,064 4,206 1,097
</TABLE>
The Company's business is influenced by seasonal weather
conditions, a seasonal rate structure and the timing of rate changes, among
other factors.
23
<PAGE> 24
SELECTED FINANCIAL AND OPERATING DATA
Savannah Electric and Power Company 1993 Annual Report
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
OPERATING REVENUES (IN THOUSANDS) $218,442 $197,761 $189,646
NET INCOME AFTER DIVIDENDS
ON PREFERRED AND PREFERENCE STOCKS (IN THOUSANDS) $ 21,459 $ 20,512 $ 24,030
CASH DIVIDENDS ON COMMON STOCK (IN THOUSANDS) $ 21,000 $ 22,000 $ 22,000
RETURN ON AVERAGE COMMON EQUITY (PERCENT) 13.73 12.89 15.13
TOTAL ASSETS (IN THOUSANDS) $527,187 $352,175 $352,505
GROSS PROPERTY ADDITIONS (IN THOUSANDS) $ 72,858 $ 30,132 $ 19,478
CAPITALIZATION (IN THOUSANDS):
Common stock equity $154,269 $158,376 $159,841
Preferred stock 35,000 20,000 20,000
Preferred and preference stock subject
to mandatory redemption - - -
Long-term debt 151,338 110,767 119,280
Total (excluding amounts due within one year) $340,607 $289,143 $299,121
CAPITALIZATION RATIOS (PERCENT):
Common stock equity 45.3 54.8 53.4
Preferred and preference stock 10.3 6.9 6.7
Long-term debt 44.4 38.3 39.9
Total (excluding amounts due within one year) 100.0 100.0 100.0
FIRST MORTGAGE BONDS (IN THOUSANDS):
Issued 45,000 30,000 30,000
Retired - 38,750 22,500
PREFERRED AND PREFERENCE STOCK (IN THOUSANDS):
Issued 35,000 - -
Retired 20,000 - -
SECURITY RATINGS:
First Mortgage Bonds -
Moody's A1 A1 A1
Standard and Poor's A A A
Preferred Stock -
Moody's "a2" "a2" "a2"
Standard and Poor's A- A- A-
CUSTOMERS (YEAR-END):
Residential 101,032 99,164 97,446
Commercial 12,702 12,416 12,153
Industrial 69 73 73
Other 957 940 897
Total 114,760 112,593 110,569
EMPLOYEES (YEAR-END) 655 670 672
</TABLE>
Note:
NR = Not Rated
24
<PAGE> 25
SELECTED FINANCIAL AND OPERATING DATA
Savannah Electric and Power Company 1993 Annual Report
<TABLE>
<CAPTION>
1990 1989 1988 1987 1986 1985 1984 1983
<S> <C> <C> <C> <C> <C> <C> <C>
$205,635 $201,799 $182,440 $174,707 $174,847 $158,643 $148,721 $143,562
$ 26,254 $ 25,535 $ 24,272 $ 22,086 $ 20,452 $ 15,279 $ 14,907 $ 13,967
$ 22,000 $ 20,000 $ 11,700 $ 10,741 $ 9,353 $ 8,387 $ 8,010 $ 6,607
16.85 16.88 17.03 17.03 17.52 14.41 15.31 16.80
$340,050 $349,887 $347,051 $340,109 $341,826 $323,686 $323,318 $314,773
$ 20,086 $ 18,831 $ 23,254 $ 32,276 $ 26,800 $ 30,700 $ 29,724 $ 15,786
$157,811 $153,737 $148,883 $136,207 $123,133 $110,385 $101,664 $ 93,076
20,000 22,300 22,300 2,300 2,300 2,300 2,300 2,300
- 2,884 3,075 9,665 10,256 10,848 11,446 12,043
112,377 117,522 98,285 129,329 137,821 128,850 136,709 145,900
$290,188 $296,443 $272,543 $277,501 $273,510 $252,383 $252,119 $253,319
54.4 51.9 54.6 49.1 45.0 43.7 40.3 36.7
6.9 8.5 9.3 4.3 4.6 5.2 5.5 5.7
38.7 39.6 36.1 46.6 50.4 51.1 54.2 57.6
100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
- 30,000 - - 25,000 20,000 - 4,000
9,135 18,275 12,231 10,239 10,160 5,592 10,532 12,071
- - 20,000 - - - - -
5,374 6,591 553 588 610 588 525 558
A1 A1 A1 A3 A3 A3 A3 Baa2
A A A- A- A- A- BBB+ BBB-
"a2" "a2" "a2" NR NR NR NR NR
A- A- BBB+ BBB+ BBB+ BBB+ BBB+ BB+
96,452 94,766 93,486 92,094 89,951 88,101 86,366 83,456
12,045 12,298 12,135 11,812 11,405 10,985 10,659 10,293
76 69 69 67 67 66 76 72
867 856 828 762 731 699 637 620
109,440 107,989 106,518 104,735 102,154 99,851 97,738 94,441
648 643 655 655 658 653 632 624
</TABLE>
25
<PAGE> 26
SELECTED FINANCIAL AND OPERATING DATA (continued)
Savannah Electric and Power Company 1993 Annual Report
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
OPERATING REVENUES (IN THOUSANDS):
Residential $ 93,883 $ 82,670 $ 80,541
Commercial 71,320 64,756 61,827
Industrial 36,180 33,171 30,492
Other 7,810 7,095 6,561
Total retail 209,193 187,692 179,421
Sales for resale - non-affiliates 6,021 7,821 7,813
Sales for resale - affiliates 2,433 1,505 1,430
Total revenues from sales of electricity 217,647 197,018 188,664
Other revenues 795 743 982
Total $ 218,442 $ 197,761 $ 189,646
KILOWATT-HOUR SALES (IN THOUSANDS):
Residential 1,329,362 1,216,993 1,195,005
Commercial 1,015,935 953,840 925,757
Industrial 854,324 861,121 825,862
Other 115,969 110,270 106,683
Total retail 3,315,590 3,142,224 3,053,307
Sales for resale - non-affiliates 247,203 367,066 372,085
Sales for resale - affiliates 75,384 37,632 32,581
Total 3,638,177 3,546,922 3,457,973
AVERAGE REVENUE PER KILOWATT-HOUR (CENTS):
Residential 7.06 6.79 6.74
Commercial 7.02 6.79 6.68
Industrial 4.23 3.85 3.69
Total retail 6.31 5.97 5.88
Sale for resale 2.62 2.30 2.28
Total sales 5.98 5.55 5.46
RESIDENTIAL AVERAGE ANNUAL KILOWATT-HOUR USE PER
CUSTOMER 13,269 12,369 12,323
RESIDENTIAL AVERAGE ANNUAL REVENUE PER CUSTOMER $ 937.07 $ 840.23 $ 830.54
PLANT NAMEPLATE CAPACITY RATINGS (YEAR-END) (MEGAWATTS) 628 628 605
MAXIMUM PEAK-HOUR DEMAND (MEGAWATTS):
Winter 524 533 526
Summer 747 695 691
ANNUAL LOAD FACTOR (PERCENT) 54.1 55.0 54.1
PLANT AVAILABILITY - FOSSIL-STEAM (PERCENT) 90.2 89.1 78.9
SOURCE OF ENERGY SUPPLY (PERCENT):
Coal 21.5 12.0 16.3
Oil and gas 4.5 2.9 1.7
Purchased power -
From non-affiliates 0.9 1.0 0.4
From affiliates 73.1 84.1 81.6
Total 100.0 100.0 100.0
TOTAL FUEL ECONOMY DATA:
BTU per net kilowatt-hour generated 11,515 12,547 10,917
Cost of fuel per million BTU (cents) 215.97 201.50 199.42
Average cost of fuel per net kilowatt-hour generated
(cents) 2.49 2.53 2.18
</TABLE>
26
<PAGE> 27
SELECTED FINANCIAL AND OPERATING DATA (continued)
Savannah Electric and Power Company 1993 Annual Report
<TABLE>
<CAPTION>
1990 1989 1988 1987 1986 1985 1984 1983
<S> <C> <C> <C> <C> <C> <C> <C>
$ 87,063 $ 85,113 $ 81,098 $ 79,785 $ 80,348 $ 70,377 $ 65,059 $ 62,815
65,462 65,474 62,640 60,285 59,547 53,696 50,538 47,861
30,237 28,304 26,865 27,422 27,694 28,335 27,233 27,111
6,782 6,892 6,557 6,315 6,300 5,823 5,505 5,297
189,544 185,783 177,160 173,807 173,889 158,231 148,335 143,084
9,482 8,814 808 - - - - -
5,566 6,025 3,567 - - - - -
204,592 200,622 181,535 173,807 173,889 158,231 148,335 143,084
1,043 1,177 905 900 958 412 386 478
$ 205,635 $ 201,799 $ 182,440 $ 174,707 $ 174,847 $ 158,643 148,721 143,562
1,183,486 1,109,976 1,067,411 1,044,554 1,021,905 926,988 883,498 844,353
892,931 839,756 806,687 775,643 746,133 694,168 668,309 630,160
644,704 561,063 533,604 557,281 515,544 513,270 518,118 495,914
103,539 101,164 97,072 94,949 92,471 87,238 84,798 80,454
2,824,660 2,611,959 2,504,774 2,472,427 2,376,053 2,221,664 2,154,723 2,050,881
441,090 437,943 24,168 - - - - -
294,042 303,142 156,106 - - - - -
3,559,792 3,353,044 2,685,048 2,472,427 2,376,053 2,221,664 2,154,723 2,050,881
7.36 7.67 7.60 7.64 7.86 7.59 7.36 7.44
7.33 7.80 7.77 7.77 7.98 7.74 7.56 7.60
4.69 5.04 5.03 4.92 5.37 5.52 5.26 5.47
6.71 7.11 7.07 7.03 7.32 7.12 6.88 6.98
2.05 2.00 2.43 - - - - -
5.75 5.98 6.76 7.03 7.32 7.12 6.88 6.98
12,339 11,781 11,489 11,481 11,514 10,536 10,357 10,148
$ 907.68 $ 903.37 $ 872.87 $ 876.95 $ 905.27 $ 799.90 $ 762.67 $ 754.97
605 605 605 605 605 605 605 605
428 548 471 414 464 440 360 374
648 613 574 562 565 498 481 496
53.2 52.4 53.4 53.6 51.1 54.7 54.1 50.7
89.6 94.7 77.1 81.2 86.9 92.0 86.1 86.6
52.8 63.5 79.8 74.3 81.9 87.5 91.8 87.6
3.4 1.4 5.4 4.4 6.8 2.6 2.2 5.6
0.8 1.5 5.9 19.9 11.3 9.9 6.0 6.8
43.0 33.6 8.9 1.4 - - - -
100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
10,741 10,611 10,683 10,551 10,607 10,581 10,498 10,642
188.18 180.48 178.31 176.10 186.30 198.80 196.20 201.01
2.02 1.92 1.90 1.86 1.98 2.10 2.06 2.14
</TABLE>
27
