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 10, 1999
---------------------------
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 East Bay Street, Savannah, Georgia 31401
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (912) 644-7171
--------------------------
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 Savannah
Electric and Power Company as of December
31, 1998.
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 2, 1999
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report dated February 10, 1999 on the financial statements of Savannah
Electric and Power Company, included in this Form 8-K, into Savannah Electric
and Power Company's previously filed Registration Statement File No. 333-46171.
/s/ Arthur Andersen LLP
Atlanta, Georgia
February
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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.
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<NAME> SAVANNAH ELECTRIC AND POWER COMPANY
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<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
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<TOTAL-ASSETS> 555,799
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</TABLE>
MANAGEMENT'S REPORT
Savannah Electric and Power Company 1998 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/ G. Edison Holland, Jr.
G. Edison Holland, Jr.
President
and Chief Executive Officer
/s/ K. R. Willis
K. R. Willis
Vice-President
Treasurer, Chief Financial Officer
and Assistant Secretary
February 10, 1999
1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To 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 and a wholly owned
subsidiary of Southern Company) as of December 31, 1998 and 1997, and the
related statements of income, retained earnings, and cash flows for each of the
three years in the period ended December 31, 1998. 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 11-23) referred to above
present fairly, in all material respects, the financial position of Savannah
Electric and Power Company as of December 31, 1998 and 1997, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Atlanta, Georgia
February 10, 1999
2
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
Savannah Electric and Power Company 1998 Annual Report
RESULTS OF OPERATIONS
Earnings
Savannah Electric and Power Company's net income after dividends on preferred
stock for 1998 totaled $23.6 million, representing a $0.2 million decrease from
the prior year. This 0.9 percent decline in earnings from 1997 is principally
the result of a decrease in other income, net.
In 1997, earnings were $23.8 million, representing a $0.1 million, or 0.4
percent decrease from the prior year. This was principally the result of an
increase in other operation expense, partially offset by an increase in other
income, net.
Revenues
Total revenues for 1998 were $254.5 million, reflecting a 12.5 percent increase
compared to 1997. The following table summarizes the factors affecting operating
revenues for the 1996-1998 period:
Increase (Decrease)
From Prior Year
--------------------------------------
1998 1997 1996
--------------------------------------
Retail -- (in thousands)
Sales growth $ (479) $ 7,664 $ 3,679
Weather 8,336 (6,186) (2,813)
Fuel cost recovery
and other 15,012 (10,002) 12,365
--------------------------------------------------------------------
Total retail 22,869 (8,524) 13,231
--------------------------------------------------------------------
Sales for resale--
Non-affiliates 1,081 1,469 147
Affiliates 964 (1,078) (4,070)
--------------------------------------------------------------------
Total sales for resale 2,045 391 (3,923)
--------------------------------------------------------------------
Other operating revenues 3,264 336 (963)
--------------------------------------------------------------------
Total operating revenues $28,178 $ (7,797) $ 8,345
====================================================================
Percent change 12.5% (3.3)% 3.7%
--------------------------------------------------------------------
Retail revenues increased 10.4 percent in 1998, compared to a decline of
3.7 percent in 1997. The increase in 1998 retail revenues is primarily
attributable to the unusually hot summer weather, which led to the increases in
the residential and commercial classes. The base rate decrease to the small
business customer class, ordered by the Georgia Public Service Commission (GPSC)
effective July 1998, more than offset the sales growth in all classes. See Note
3 to the financial statements for additional information. The number of
customers was also up in both the residential and commercial categories.
The decline in 1997 retail revenues was attributable to the mild summer
weather and a decrease in fuel cost recovery revenues, somewhat offset by
customer growth and increased industrial energy sales. Industrial energy sales
were higher primarily due to an increase in the demand of a major customer.
Under the Company's fuel cost recovery provisions, fuel revenues--including
the fuel component of purchased energy--generally equal fuel expense and have no
effect on earnings.
Revenues from sales to utilities outside the service area 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. Capacity revenues remained unchanged
in 1998. The capacity and energy components were as follows:
1998 1997 1996
--------------------------------------
(in thousands)
Capacity $ 2 $ 2 $ 2
Energy 401 746 1,329
- -----------------------------------------------------------
Total $403 $748 $1,331
===========================================================
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 do not have a significant impact on
earnings.
Energy Sales
Changes in revenues are influenced heavily by the amount of energy sold each
year. Kilowatt-hour (KWH) sales for 1998 and the percent change by year were as
follows:
KWH Percent Change
------------ -----------------------------
1998 1998 1997 1996
------------ -----------------------------
(in millions)
Residential 1,540 7.8% (1.9)% 3.9%
Commercial 1,236 6.9 1.3 3.8
Industrial 900 2.1 5.1 (5.5)
Other 131 5.3 (1.4) 0.1
------------
Total retail 3,807 6.0 0.8 1.4
Sales for resale--
Non-affiliates 53 (43.5) 2.9 4.4
Affiliates 59 7.2 30.4 (34.4)
------------
Total 3,919 4.8% 1.2% 0.8%
=====================================================================
3
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Savannah Electric and Power Company 1998 Annual Report
Total retail energy sales were up 6.0% in 1998, the strongest showing since
1995. Both residential and commercial energy sales reflected the impact of the
hotter-than-normal weather. Industrial energy sales reflected high demand from
one industrial customer.
Expenses
Total operating expenses for 1998 were $216.6 million, reflecting a $27.6
million increase from 1997. Major components of this increase include a $17.5
million increase in fuel, a $7.1 million increase in purchased power from
non-affiliates, and a $5.5 million increase in maintenance expense. These
increases were partially offset by a decrease of $6.4 million in purchased power
from affiliates. The increase in fuel expense was primarily attributable to
higher demand for energy. The increase in purchased power from non-affiliates
primarily resulted from increased power marketing activities. Maintenance
expenses were higher primarily due to scheduled turbine dismantle inspection
costs. The decline in purchased power from affiliates was due primarily to an
increase in internal generation reflecting system load growth.
In 1997, total operating expenses were $189.1 million, reflecting a $6.1
million decrease from 1996. This decrease includes a $16.5 million reduction in
purchased power from affiliates, partially offset by increases of $6.4 million
in fuel and $3.7 million in other operation expenses. The decrease in purchased
power from affiliates was due to an increase in internal generation and to an
adjustment in affiliated billings. The increase in fuel expense was primarily
attributable to higher generation and to fuel mix. The increase in other
operation expense primarily resulted from a one-time charge for work force
reductions of $1.9 million, and expenses associated with the implementation of a
new computer software system.
Fuel and purchased power costs constitute the single largest expense for
the Company. 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 total average cost of
energy supply were as follows:
1998 1997 1996
--------------------------
Total energy supply
(millions of KWHs) 4,182 3,964 3,917
Sources of energy supply
(percent) --
Coal 42 34 28
Oil 1 - -
Gas 12 5 3
Purchased Power 45 61 69
Total average cost of
energy supply (cents) 2.35 2.02 2.30
- -----------------------------------------------------------------
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 utility plant with long economic life. 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 securities. Any
recognition of inflation by regulatory authorities is reflected in the rate of
return allowed.
4
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Savannah Electric and Power Company 1998 Annual Report
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 energy sales growth to a less regulated, more
competitive environment.
Savannah Electric currently operates as a vertically integrated utility
providing electricity to customers within the traditional service area of
southeastern Georgia. Prices for electricity provided by the Company to retail
customers are set by the GPSC. Prices for electricity relating to jointly owned
generating facilities, interconnecting transmission lines, and the exchange of
electric power are set by the Federal Energy Regulatory Commission (FERC).
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 the Company's service area.
The electric utility industry in the United States is currently undergoing
a period of dramatic change as a result of regulatory and competitive factors.
Among the primary agents of change has been the Energy Policy Act of 1992
(Energy Act). The Company is positioning the business to meet the challenge of
this major change in the traditional practice of selling electricity. The Energy
Act allows independent power producers (IPPs) to access the Company's
transmission network in order to sell electricity to other utilities. This
enhances the incentive for IPPs to build cogeneration plants for industrial and
commercial customers and sell energy generation to other utilities. Also,
electricity sales for resale rates are being driven down by wholesale
transmission access and numerous potential new energy suppliers, including power
marketers and brokers.
Although the Energy Act does not permit retail customer access, it was a
major catalyst for the current restructuring and consolidation taking place
within the utility industry. Numerous federal and state initiatives are in
varying 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. Some states have approved initiatives that result in a separation of the
ownership and/or operation of generating facilities from the ownership and/or
operation of transmission and distribution facilities. While various
restructuring and competition initiatives have been or are being discussed in
Georgia, 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 the Company to recover
its investments, including the regulatory assets described in Note 1 to the
financial statements, 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 the Company remains a low-cost
producer and provides quality service, the Company's retail energy sales growth
could be limited, and this could significantly erode earnings.
Compliance costs related to current and future environmental laws and
regulations could affect earnings if such costs are not fully recovered. The
Clean Air Act and other important environmental items are discussed later under
"Environmental Matters."
Rates to retail customers served by the Company are regulated by the GPSC.
As part of the Company's rate settlement in 1992, it was informally agreed that
the Company's earned rate of return on common equity should be 12.95 percent. In
June 1998, the GPSC issued a four-year accounting order which settled its review
of the Company's earnings. See Note 3 to the financial statements for additional
information.
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 operations is no longer
subject to these provisions, the Company would be required to write off related
regulatory assets and liabilities that are not specifically recoverable, and
determine if any other assets have been impaired. See Note 1 to the financial
statements under "Regulatory Assets and Liabilities" for additional information.
5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Savannah Electric and Power Company 1998 Annual Report
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
statement as incurred. At December 31, 1998, exposure from these activities was
not material to the Company's financial statements. Also, based on the Company's
overall interest rate exposure at December 31, 1998, a near-term 100 basis point
change in interest rates would not materially affect the financial statements.
New Accounting Standards
The FASB has issued Statement No. 133, Accounting for Derivative Instruments and
Hedging Activities, which must be adopted by the year 2000. 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.
In March 1998, the American Institute of Certified Public Accountants
(AICPA) issued a new Statement of Position, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use. This statement requires
capitalization of certain costs of internal-use software. The Company adopted
this statement in January 1999, and it is not expected to have a material impact
on the financial statements.
In April 1998, the AICPA issued a new Statement of Position, Reporting on
the Cost of Start-up Activities. This statement requires that the costs of
start-up activities and organizational costs be expensed as incurred. Any of
these costs previously capitalized by a company must be written off in the year
of adoption. The Company adopted this statement in January 1999, and it is not
expected to have a material impact on the financial statements.
In December 1998, the Emerging Issues Task Force (EITF) of the FASB issued
EITF No. 98-10, Accounting for Contracts Involved in Energy Trading and Risk
Management Activities. The EITF requires that energy trading contracts must be
marked to market through the income statement, with gains and losses reflected
rather than revenues and purchased power. Energy trading contracts are defined
as energy contracts entered into with the objective of generating profits on or
from exposure to shifts or changes in market prices. The Company adopted the
required accounting in January 1999, and it is not expected to have a material
impact on the financial statements.
Year 2000
Year 2000 Challenge
In order to save storage space, computer programmers in the 1960s and 1970s
shortened the year portion of date entries to just two digits. Computers
assumed, in effect, that all years began with "19." This practice was widely
adopted and hard-coded into computer chips and processors found in some
equipment. This approach, intended to save processing time and storage space,
was used until the mid-1990s. Unless corrected before the Year 2000, affected
software systems and devices containing a chip or microprocessor with date and
time functions could incorrectly process dates or the systems may cease to
function.
The Company depends on complex computer systems for many aspects of its
operations, which include generation, transmission, and distribution of
electricity, as well as other business support activities. The Company's goal is
to have critical devices or software that are required to maintain operations to
be Year 2000 ready by June 1999. Year 2000 ready means that a system or
application is determined suitable for continued use through the Year 2000 and
beyond. Critical systems include, but are not limited to, safe shutdown systems,
turbine generator systems, control center computer systems, customer service
systems, energy management systems, and telephone switches and equipment.
Year 2000 Program and Status
The Company's executive management recognizes the seriousness of the Year 2000
challenge and has dedicated what it believes to be adequate resources to address
the issue. The Millennium Project is a team of employees, IBM consultants, and
other contractors whose progress is reviewed on a monthly basis by a steering
committee of Southern Company executives.
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Savannah Electric and Power Company 1998 Annual Report
The Company's Year 2000 program was divided into two phases. Phase I began
in 1996 and consisted of identifying and assessing corporate assets related to
software systems and devices that contain a computer chip or clock. The first
phase was completed in June 1997. Phase 2 consists of testing and remediating
high priority systems and devices. Also, contingency planning is included in
this phase. Completion of Phase 2 is targeted for June 1999. The Millennium
Project will continue to monitor the affected computer systems, devices, and
applications into the Year 2000.
Southern Company has completed more than 70 percent of the activities
contained in its work plan. The percentage of completion and projected
completion by function are as follows:
- -------------------------------------------------------------------------
Work Plan
------------------------------------------------
Remediation Project
Inventory Assessment Testing Completion
- -------------------------------------------------------------------------
Generation 100% 100% 70% 6/99
- -------------------------------------------------------------------------
Energy Management 100 100 90 6/99
- -------------------------------------------------------------------------
Transmission and
Distribution 100 100 100 1/99
- -------------------------------------------------------------------------
Telecommunications 100 100 50 6/99
- -------------------------------------------------------------------------
Corporate Applications 100 100 90 3/99
- ------------------------------------------------------------------------
Year 2000 Costs
Current projected total costs for Southern Company for Year 2000 readiness are
approximately $91 million, which includes $6 million of cost billed to
non-affiliated companies. These costs include labor necessary to identify, test,
and remediate affected devices and systems. From its inception through December
31, 1998, the Year 2000 program costs for Southern Company, recognized as
expense, amounted to $56 million. The Company's total estimated costs related to
the project are approximately $1.2 million. Year 2000 costs of $0.5 million and
$0.2 million were expensed in 1998 and 1997, respectively. The Company's
estimated cost of completion is $0.5 million.
Year 2000 Risks
The Company is implementing a detailed process to minimize the possibility of
service interruptions related to the Year 2000. The Company believes, based on
current tests, that the system can provide customers with electricity. These
tests increase confidence, but do not guarantee error-free operations. The
Company is taking what it believes to be prudent steps to prepare for the Year
2000, and it expects any interruptions in service that may occur within the
service territory to be isolated and short in duration.
The Company expects the risks associated with Year 2000 to be no more
severe than the scenarios that its electric system is routinely prepared to
handle. The most likely worst case scenario consists of the service loss of one
of the largest generating units and/or the service loss of any single bulk
transmission element in its service territory. The Company has followed a proven
methodology for identifying and assessing software and devices containing
potential Year 2000 challenges. Remediation and testing of those devices are in
progress. Following risk assessment, the Company is preparing contingency plans
as appropriate and is participating in North American Electric Reliability
Council-coordinated national drills during 1999.
The Company is currently reviewing the Year 2000 readiness of material
third parties that provide goods and services crucial to the Company's
operations. Among such critical third parties are fuel, transportation,
telecommunications, water, chemical, and other suppliers. Contingency plans
based on the assessment of each third party's ability to continue supplying
critical goods and services to the Company are being developed.
There is a potential for some earnings erosion caused by reduced electrical
demand by customers because of their own Year 2000 issues.
Year 2000 Contingency Plans
Because of experience with hurricanes and other storms, the Company is skilled
at developing and using contingency plans in unusual circumstances. As part of
Year 2000 business continuity and contingency planning, the Company is drawing
on that experience to make risk assessments and developing additional plans to
deal specifically with situations that could arise relative to Year 2000
challenges. The Company is identifying critical operational locations, and key
employees will be on duty at those locations during the Year 2000 transition. In
September 1999, drills are scheduled to be conducted to test contingency plans.
Because of the level of detail of the contingency planning process, management
feels that the contingency plans will keep any service interruptions that may
occur within the service territory isolated and short in duration.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Savannah Electric and Power Company 1998 Annual Report
FINANCIAL CONDITION
Overview
The principal change in the Company's financial condition in 1998 was the
addition of $18.1 million to utility plant. The funds needed for gross property
additions are currently provided from operating activities, principally from
earnings and non-cash charges to income such as depreciation and deferred income
taxes and from financing activities. See Statements of Cash Flows for additional
information.
Capital Structure
As of December 31, 1998, the Company's capital structure consisted of 46.4
percent common stock equity, 10.5 percent trust preferred securities, and 43.1
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 48 percent, preferred securities at 10 percent and
debt at 42 percent.
In March 1998, the Company issued $30 million of Series A 6 5/8% senior
retail intermediate bonds maturing in 2015. The Company used these proceeds to
redeem the remaining amount of its 8.30% first mortgage bonds due in 2022.
Maturities and retirements of long-term debt were $30 million in 1998, $14
million in 1997, and $29 million in 1996.
In November 1998, the Company redeemed all of its 1,400,000 shares of 6.64%
Series Preferred Stock at a redemption price of $25 per share, plus accrued
dividends through the date of redemption.
In December 1998, Savannah Electric Capital Trust I, of which the Company
owns all of the common securities, issued $40 million of 6.85% mandatorily
redeemable preferred securities.
The composite interest rates and dividend rates for the years 1996 through
1998 as of year-end were as follows:
1998 1997 1996
-------------------------------
Composite interest rates
on long-term debt 6.5% 6.9% 7.0%
Preferred stock dividend rate -% 6.6% 6.6%
Trust preferred securities
dividend rate 6.9% -% -%
==================================================================
Capital Requirements for Construction
The Company's projected construction expenditures for the next three years total
$92 million ($29 million in 1999, $32 million in 2000, and $31 million in 2001).
Actual construction costs may vary from this estimate because of factors such as
changes in: business conditions; environmental regulations; load projections;
the cost and efficiency of construction labor, equipment and materials; and the
cost of capital. In addition, there can be no assurance that costs related to
capital expenditures will be fully recovered. In early 1999, the Company will
issue a Request for Proposal for bids to provide its capacity requirements for
2002. These bids will be compared to self-build options to identify the least
cost supply option. The supply decision should be made by late summer.
Construction of transmission and distribution facilities and upgrading of
generating plants will be continuing.
Other Capital Requirements
In addition to the funds needed for the construction program, approximately
$31.9 million will be needed by the end of 2001 for maturities of long-term debt
and present sinking fund requirements.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Savannah Electric and Power Company 1998 Annual Report
Environmental Matters
In November 1990, the Clean Air Act was signed into law. Title IV of the Clean
Air Act--the acid rain compliance provision of the law--significantly affected
the Company and other subsidiaries of Southern Company. Specific reductions in
sulfur dioxide and nitrogen oxide emissions from fossil-fired generating plants
are required in two phases. Phase I compliance began in 1995 and initially
affected 28 generating units of Southern Company. As a result of Southern
Company's compliance strategy, an additional 22 generating units, which included
four of the Company's units, were brought into compliance with Phase I
requirements. Phase II compliance is required in 2000, and all fossil-fired
generating plants will be affected.
Southern Company achieved Phase I sulfur dioxide compliance at the affected
plants by switching to low-sulfur coal, which required some equipment upgrades.
This compliance strategy resulted in unused emission allowances being banked for
later use. Construction expenditures for Phase I compliance totaled
approximately $2 million for Savannah Electric.
For Phase II sulfur dioxide compliance, Southern Company could use emission
allowances, increase fuel switching, and/or install flue gas desulfurization
equipment at selected plants. Also, equipment to control nitrogen oxide
emissions will be installed on additional system fossil-fired plants as
necessary to meet Phase II limits. Current compliance strategy for Phase II and
ozone non-attainment could require total estimated construction expenditures for
Southern Company of approximately $70 million, of which $16 million remains to
be spent. Phase II compliance is not expected to have a material impact on
Savannah Electric.
A significant portion of costs related to the acid rain provision of the
Clean Air Act is expected to be recovered through existing ratemaking
provisions. However, there can be no assurance that all Clean Air Act costs will
be recovered.
In July 1997, the Environmental Protection Agency (EPA) revised the
national ambient air quality standards for ozone and particulate matter. This
revision makes the standards significantly more stringent. In September 1998,
the EPA issued the final regional nitrogen oxide rules to the states for
implementation. The states have one year to adopt and implement the rules. The
final rules affect 22 states including Georgia. The EPA rules 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 other matters including: nitrogen oxide emission control
strategies for ozone non-attainment areas; additional controls for hazardous air
pollutant emissions; control strategies to reduce regional haze; and hazardous
waste disposal requirements. The impact of new standards will depend on the
development and implementation of applicable regulations.
The Company must comply with other environmental laws and regulations that
cover the handling and disposal of hazardous waste. Under these various laws and
regulations, the Company could incur substantial costs to clean up properties
currently or previously owned. The Company conducts studies to determine the
extent of any required cleanup costs and will recognize in the financial
statements any costs to clean up known sites.
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; the Toxic Substances
Control Act; and the Endangered Species Act. Changes to these laws could affect
many areas of Southern 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 Southern Company. The impact of new legislation--if
any--will depend on the subsequent development and implementation of applicable
regulations. In addition, the potential exists for liability as the result of
lawsuits alleging damages caused by electromagnetic fields.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Savannah Electric and Power Company 1998 Annual Report
Sources of Capital
At December 31, 1998, the Company had $6.0 million of cash and $40.5 million of
unused short-term credit arrangements with banks to meet its short-term cash
needs. Revolving credit arrangements of $20 million, which expire December 31,
2001, are also used to meet short-term cash needs and to provide additional
interim funding for the Company's construction program. Of the revolving credit
arrangements, $20 million remained unused at December 31, 1998.
It is anticipated that the funds required for construction and other
purposes, including compliance with environmental regulation, will be derived
from sources similar to those used in the past. These sources were primarily
from the issuances of first mortgage bonds, other long-term debt, and preferred
stock, in addition to pollution control revenue bonds issued for the Company's
benefit by public authorities, to meet long-term external financing
requirements. Recently, the Company's financings have consisted of unsecured
debt and trust preferred securities. The Company is required to meet certain
earnings 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 to permit, at present interest rate
levels, any foreseeable security sales. In December 1998, the Company obtained
stockholder approval to amend the corporate charter including the elimination of
the restrictions on the amount of unsecured indebtedness allowed. 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
Savannah Electric and Power Company's 1998 Annual Report 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; Year 2000 issues; 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
Securities and Exchange Commission.
10
<PAGE>
STATEMENTS OF INCOME
For the Years Ended December 31, 1998, 1997, and 1996
Savannah Electric and Power Company 1998 Annual Report
<TABLE>
<CAPTION>
<S> <C> <C> <C>
================================================================================================================================
1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------------------
(in thousands)
Operating Revenues (Note 1):
Revenues $ 251,439 $ 224,225 $ 230,944
Revenues from affiliates 3,016 2,052 3,130
- --------------------------------------------------------------------------------------------------------------------------------
Total operating revenues 254,455 226,277 234,074
- --------------------------------------------------------------------------------------------------------------------------------
Operating Expenses:
Operation --
Fuel 53,021 35,563 29,139
Purchased power from non-affiliates 9,460 2,347 2,350
Purchased power from affiliates 35,687 42,107 58,591
Other 49,055 47,735 44,007
Maintenance 18,711 13,236 14,140
Depreciation and amortization (Notes 1 and 3) 22,032 20,152 19,113
Taxes other than income taxes 12,342 11,494 11,675
Federal and state income taxes (Notes 1 and 6) 16,335 16,419 16,175
- --------------------------------------------------------------------------------------------------------------------------------
Total operating expenses 216,643 189,053 195,190
- --------------------------------------------------------------------------------------------------------------------------------
Operating Income 37,812 37,224 38,884
Other Income (Expense):
Allowance for equity funds used during construction 83 239 317
Interest income 384 279 201
Other, net (1,781) (781) (1,756)
Income taxes applicable to other income (Notes 1 and 6) 1,234 1,233 1,034
- --------------------------------------------------------------------------------------------------------------------------------
Income Before Interest Charges 37,732 38,194 38,680
- --------------------------------------------------------------------------------------------------------------------------------
Interest and Other Charges:
Interest on long-term debt 10,383 10,907 11,563
Allowance for debt funds used during construction (133) (164) (333)
Interest on notes payable 278 172 229
Amortization of debt discount, premium, and expense, net 853 739 579
Distributions on preferred securities of subsidiary trust 167 - -
Other interest charges 474 369 378
- --------------------------------------------------------------------------------------------------------------------------------
Interest and other charges, net 12,022 12,023 12,416
- --------------------------------------------------------------------------------------------------------------------------------
Net Income 25,710 26,171 26,264
Dividends on Preferred Stock 2,066 2,324 2,324
- --------------------------------------------------------------------------------------------------------------------------------
Net Income After Dividends on Preferred Stock $ 23,644 $ 23,847 $ 23,940
================================================================================================================================
STATEMENTS OF RETAINED EARNINGS
For the Years Ended December 31, 1998, 1997, and 1996
================================================================================================================================
1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------------------
(in thousands)
Balance at Beginning of Year $ 112,720 $ 109,373 $ 105,033
Net income after dividends on preferred stock 23,644 23,847 23,940
Cash dividends on common stock (23,500) (20,500) (19,600)
Preferred stock transactions, net and other adjustments 90 - -
- --------------------------------------------------------------------------------------------------------------------------------
Balance at End of Year (Note 9) $ 112,954 $ 112,720 $ 109,373
================================================================================================================================
The accompanying notes are an integral part of these statements.
</TABLE>
11
<PAGE>
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1998, 1997, and 1996
Savannah Electric and Power Company 1998 Annual Report
<TABLE>
<CAPTION>
<S> <C> <C> <C>
================================================================================================================================
1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------------------
(in thousands)
Operating Activities:
Net income $ 25,710 $ 26,171 $ 26,264
Adjustments to reconcile net income to net
cash provided from operating activities --
Depreciation and amortization 23,531 21,083 20,246
Deferred income taxes and investment tax credits, net 7,011 3,841 7,482
Allowance for equity funds used during construction (83) (239) (317)
Other, net (6) (2,577) (641)
Changes in certain current assets and liabilities --
Receivables, net (9,969) (3,239) (641)
Inventories 705 1,720 410
Payables 470 (1,608) 4,242
Taxes accrued (434) 2,310 (569)
Other (4,331) 2,357 (4,038)
- --------------------------------------------------------------------------------------------------------------------------------
Net cash provided from operating activities 42,604 49,819 52,438
- --------------------------------------------------------------------------------------------------------------------------------
Investing Activities:
Gross property additions (18,071) (18,846) (28,950)
Other 1,617 (1,418) (3,173)
- --------------------------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (16,454) (20,264) (32,123)
- --------------------------------------------------------------------------------------------------------------------------------
Financing Activities and Capital Contributions:
Proceeds:
Preferred securities 40,000 - -
First mortgage bonds - - 20,000
Pollution control notes - 13,870 -
Other long-term debt 30,000 - 17,000
Retirements:
Preferred stock (35,000) - -
First mortgage bonds (30,000) - (29,400)
Pollution control bonds - (13,870) -
Other long-term debt (478) (433) (397)
Notes payable, net - (5,000) 1,000
Payment of preferred stock dividends (2,556) (2,324) (2,324)
Payment of common stock dividends (23,500) (20,500) (19,600)
Miscellaneous (4,798) (368) (2,257)
- --------------------------------------------------------------------------------------------------------------------------------
Net cash used for financing activities (26,332) (28,625) (15,978)
- --------------------------------------------------------------------------------------------------------------------------------
Net Change in Cash and Cash Equivalents (182) 930 4,337
Cash and Cash Equivalents at Beginning of Year 6,144 5,214 877
- --------------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year $ 5,962 $ 6,144 $ 5,214
================================================================================================================================
Supplemental Cash Flow Information:
Cash paid during the year for-
Interest (net of amount capitalized) $12,198 $11,619 $12,960
Income taxes 9,666 11,150 10,926
- --------------------------------------------------------------------------------------------------------------------------------
( ) Denotes use of cash.
The accompanying notes are an integral part of these statements.
</TABLE>
12
<PAGE>
BALANCE SHEETS
At December 31, 1998 and 1997
Savannah Electric and Power Company 1998 Annual Report
<TABLE>
<CAPTION>
<S> <C> <C>
============================================================================================================================
Assets 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
(in thousands)
Utility Plant:
Plant in service, at original cost (Notes 1, 4, 5, and 8) $ 781,964 $ 760,694
Less accumulated provision for depreciation 341,930 321,509
- ----------------------------------------------------------------------------------------------------------------------------
440,034 439,185
Construction work in progress 2,908 7,709
- ----------------------------------------------------------------------------------------------------------------------------
Total 442,942 446,894
- ----------------------------------------------------------------------------------------------------------------------------
Other Property and Investments 1,420 1,783
- ----------------------------------------------------------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents 5,962 6,144
Special deposits - 94
Receivables-
Customer accounts receivable 18,030 21,148
Other accounts and notes receivable 3,543 720
Affiliated companies 1,388 1,128
Accumulated provision for uncollectible accounts (284) (354)
Fuel cost under recovery 17,628 7,694
Fossil fuel stock, at average cost 4,984 5,205
Materials and supplies, at average cost (Note 1) 6,496 6,980
Prepayments 4,772 5,922
- ----------------------------------------------------------------------------------------------------------------------------
Total 62,519 54,681
- ----------------------------------------------------------------------------------------------------------------------------
Deferred Charges and Other Assets:
Deferred charges related to income taxes (Note 6) 17,130 17,267
Debt issue expense, being amortized 3,554 2,255
Premium on reacquired debt, being amortized 8,570 7,121
Prepaid pension costs (Note 2) 3,281 3,424
Cash surrender value of life insurance for deferred compensation plans 14,179 12,130
Miscellaneous 2,204 1,797
- ----------------------------------------------------------------------------------------------------------------------------
Total 48,918 43,994
- ----------------------------------------------------------------------------------------------------------------------------
Total Assets $ 555,799 $ 547,352
============================================================================================================================
The accompanying notes are an integral part of these statements.
</TABLE>
13
<PAGE>
BALANCE SHEETS
At December 31, 1998 and 1997
Savannah Electric and Power Company 1998 Annual Report
<TABLE>
<CAPTION>
<S> <C> <C>
============================================================================================================================
Capitalization and Liabilities 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
(in thousands)
Capitalization (See accompanying statements):
Common stock equity $ 175,865 $ 175,631
Preferred stock - 35,000
Company obligated mandatorily redeemable preferred securities of
subsidiary trust holding company junior subordinated notes (Note 7) 40,000 -
Long-term debt 163,443 142,846
- ----------------------------------------------------------------------------------------------------------------------------
Total 379,308 353,477
- ----------------------------------------------------------------------------------------------------------------------------
Current Liabilities:
Amount of securities due within one year (Note 8) 689 21,764
Accounts payable-
Affiliated companies 5,014 6,025
Other 10,833 7,862
Customer deposits 5,224 5,541
Taxes accrued-
Federal and state income 2,467 534
Other 2,891 2,791
Interest accrued 3,815 4,963
Vacation pay accrued 1,978 1,893
Miscellaneous 6,700 9,031
- ----------------------------------------------------------------------------------------------------------------------------
Total 39,611 60,404
- ----------------------------------------------------------------------------------------------------------------------------
Deferred Credits and Other Liabilities:
Accumulated deferred income taxes (Note 6) 82,778 80,697
Accumulated deferred investment tax credits (Note 6) 11,943 12,607
Deferred credits related to income taxes (Note 6) 21,349 21,469
Deferred compensation plans 9,788 9,272
Postretirement benefits (Note 2) 6,434 6,011
Miscellaneous 4,588 3,415
- ----------------------------------------------------------------------------------------------------------------------------
Total 136,880 133,471
- ----------------------------------------------------------------------------------------------------------------------------
Commitments and Contingent Matters (Notes 1, 2, 3, 4, 5, and 8)
Total Capitalization and Liabilities $ 555,799 $ 547,352
============================================================================================================================
The accompanying notes are an integral part of these statements.
</TABLE>
14
<PAGE>
STATEMENTS OF CAPITALIZATION
At December 31, 1998 and 1997
Savannah Electric and Power Company 1998 Annual Report
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
================================================================================================================================
1998 1997 1998 1997
- --------------------------------------------------------------------------------------------------------------------------------
(in thousands) (percent of total)
Common Stock Equity (Note 9):
Common stock, par value $5 per share --
Authorized -- 16,000,000 shares
Outstanding -- 10,844,635 shares in
1998 and 1997 $ 54,223 $ 54,223
Paid-in capital 8,688 8,688
Retained earnings 112,954 112,720
- --------------------------------------------------------------------------------------------------------------------------------
Total common stock equity 175,865 175,631 46.4 % 49.7 %
- --------------------------------------------------------------------------------------------------------------------------------
Cumulative Preferred Stock (Note 7):
$25 par value --
Authorized -- 2,200,000 shares
6.64% Series -- Outstanding -- 1,400,000 shares
in 1997 - 35,000
- --------------------------------------------------------------------------------------------------------------------------------
Total (annual dividend requirement -- $2,324,000) - 35,000 - 9.9
- --------------------------------------------------------------------------------------------------------------------------------
Company Obligated Mandatorily Redeemable
Preferred Securities (Note 7):
$25 Liquidation Value -- 6.85% 40,000 -
- --------------------------------------------------------------------------------------------------------------------------------
Total (annual distribution requirement -- $2,740,000) 40,000 - 10.5 -
- --------------------------------------------------------------------------------------------------------------------------------
Long-Term Debt (Note 8):
First mortgage bonds --
Maturity Interest Rates
-------- --------------
July 1, 2003 6 3/8% 20,000 20,000
May 1, 2006 6.90% 20,000 20,000
July 1, 2022 8.30% - 30,000
July 1, 2023 7.40% 25,000 25,000
May 1, 2025 7 7/8% 15,000 15,000
Other long-term debt --
Pollution control revenue bonds --
Collateralized:
Variable rate (4.00% at 1/1/99) due 2016 4,085 4,085
Variable rate bank note (5.10% at 1/1/99) due 2037 13,870 13,870
Long-term notes payable --
6.88% due 2001 10,000 10,000
Variable rate (5.38% at 1/1/99) due 2001 10,000 15,000
Variable rate (5.77% at 1/1/99) due 2001 10,000 5,000
6 5/8% Retail Intermediate Bond due 2015 30,000 -
Capitalized lease obligations --
Coal unloading facility variable rate (5.80% at 1/1/99) 5,467 5,867
Transportation fleet 710 788
- --------------------------------------------------------------------------------------------------------------------------------
Total long-term debt (annual interest
requirement -- $10,717,000) 164,132 164,610
Less amount due within one year (Note 8) 689 21,764
- --------------------------------------------------------------------------------------------------------------------------------
Long-term debt excluding amount due within one year 163,443 142,846 43.1 40.4
- --------------------------------------------------------------------------------------------------------------------------------
Total Capitalization $ 379,308 $ 353,477 100.0 % 100.0 %
================================================================================================================================
The accompanying notes are an integral part of these statements.
</TABLE>
15
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Savannah Electric and Power Company 1998 Annual Report
1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
General
Savannah Electric and Power Company (the Company), is a wholly owned subsidiary
of Southern Company, which is the parent company of five operating companies, a
system service company, Southern Communications Services (Southern LINC),
Southern Energy, Inc. (Southern Energy), Southern Nuclear Operating Company
(Southern Nuclear), Southern Company Energy Solutions, and other direct and
indirect subsidiaries. The operating companies provide electric service in four
southeastern states. Contracts among the companies--dealing with jointly owned
generating facilities, interconnecting transmission lines, and the exchange of
electric power--are regulated by the Federal Energy Regulatory Commission (FERC)
and/or the Securities and Exchange Commission. The system service company
provides, at cost, specialized services to Southern Company and subsidiary
companies. Southern LINC provides digital wireless communications services to
the operating companies and also markets these services to the public within the
Southeast. Worldwide, Southern Energy develops and manages electricity and other
energy related projects, including domestic energy trading and marketing.
Southern Nuclear provides services to Southern Company's nuclear power plants.
Southern Company Energy Solutions develops new business opportunities related to
energy products and services.
Southern Company is registered as a holding company under the Public
Utility Holding Company Act of 1935 (PUHCA). Both Southern Company and its
subsidiaries are subject to the regulatory provisions of the PUHCA. 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.
The preparation of financial statements in conformity with generally accepted
accounting principles requires the use of estimates, and the actual results may
differ from those estimates.
Certain prior years' data presented in the financial statements has been
reclassified to conform with the current year presentation.
Regulatory Assets and Liabilities
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. 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:
1998 1997
---------------------------
(in thousands)
Deferred income taxes $ 17,130 $ 17,267
Premium on reacquired debt 8,570 7,121
Deferred income tax credits (21,349) (21,469)
Storm damage reserves (1,580) (1,500)
Accelerated depreciation (1,000) -
- ---------------------------------------------------------------
Total $ 1,771 $ 1,419
===============================================================
In the event that a portion of the Company's operations is no longer
subject to the provisions of Statement No. 71, the Company would be required to
write off related net regulatory assets and liabilities that are not
specifically recoverable through regulated rates. In addition, the Company would
be required to determine if any impairment to other assets exists, 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 of
southeastern Georgia, and to non-affiliated customers in the Southeast.
Revenues, less affiliated transactions, by type of service were as follows:
1998 1997 1996
--------------------------------------
(in thousands)
Retail $242,327 $219,458 $227,982
Sales for resale--
Non-affiliates 4,548 3,467 1,998
Other 4,564 1,300 964
- ------------------------------------------------------------
Total $251,439 $224,225 $230,944
============================================================
Other revenues include rents and revenues from non-utility services.
16
<PAGE>
NOTES (continued)
Savannah Electric and Power Company 1998 Annual Report
The Company accrues revenues for service 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 fuel
costs, the energy component of purchased power costs, and certain other costs.
Revenues are adjusted for differences between recoverable fuel costs and amounts
actually recovered in current rates.
The Company has a diversified base of customers. No single customer or
industry comprises 10 percent or more of revenues. In 1998, uncollectible
accounts continued to average less than 1 percent of revenues.
In January 1999, the GPSC approved an increase of slightly over one-tenth of
a cent per kilowatt-hour in the Company's fuel allowance, effective in February
1999.
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 1998 and 1997 and 2.8 percent in 1996. 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 certain facilities. See Note 3 to the financial statements for more
information.
Income Taxes
The Company, which is included in the consolidated federal income tax return
filed by Southern Company, uses the liability method of accounting for deferred
income taxes and provides deferred income taxes for all significant income tax
temporary differences. Investment tax credits utilized are deferred and
amortized to income over the average lives of the related property.
Allowance for Funds Used During Construction
(AFUDC)
AFUDC represents the estimated debt and equity costs of capital funds that are
necessary to finance the construction of new facilities. While cash is not
realized currently from such allowance, it increases the revenue requirement
over the service life of the plant through a higher rate base and higher
depreciation expense. The composite rates used by the Company to calculate AFUDC
were 8.00 percent in 1998, 9.24 percent in 1997 and 8.69 percent in 1996.
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 AFUDC.
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 financial statements, 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 amounts did not equal
fair value at December 31 were as follows:
Carrying Fair
Amount Value
--------------------------
(in millions)
Long-term debt:
At December 31, 1998 $158 $162
At December 31, 1997 158 161
Trust preferred securities:
At December 31, 1998 $40 $40
At December 31, 1997 - -
The fair values for long-term debt and preferred securities were based on
either closing market prices or closing prices of comparable instruments.
17
<PAGE>
NOTES (continued)
Savannah Electric and Power Company 1998 Annual Report
Materials and Supplies
Generally, materials and supplies include the costs 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
The Company has defined benefit, trusteed, non-contributory pension plans that
cover 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 deductible under federal income tax regulations or to the extent
required by the GPSC. In 1998, the Company adopted FASB Statement No. 132,
Employers' Disclosure about Pensions and Other Postretirement Benefits. The
measurement date is September 30 of each year.
The weighted average rates assumed in the actuarial calculations for both
the pension plans and postretirement benefit plans were:
1998 1997
- ---------------------------------------------------------------
Discount 6.75% 7.50%
Annual salary increase 4.25 5.00
Long-term return on plan assets 8.50 8.50
- ---------------------------------------------------------------
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
---------------------------
1998 1997
- ---------------------------------------------------------------
(in thousands)
Balance at beginning of year $51,720 $49,914
Service cost 1,495 1,393
Interest cost 3,806 3,556
Benefits paid (3,392) (2,403)
Actuarial (gain) loss and
employee transfers 4,343 (740)
Amendments 1,235 -
- ---------------------------------------------------------------
Balance at end of year $59,207 $51,720
===============================================================
Plan Assets
---------------------------
1998 1997
- ---------------------------------------------------------------
(in thousands)
Balance at beginning of year $50,630 $42,430
Actual return on plan assets 171 7,603
Employer contributions 2,464 3,000
Benefits paid (3,392) (2,403)
Employee transfers (243) -
- ---------------------------------------------------------------
Balance at end of year $49,630 $50,630
===============================================================
The accrued pension costs recognized in the Balance Sheets were as
follows:
1998 1997
- -----------------------------------------------------------------
(in thousands)
Funded status $(9,577) $(1,090)
Unrecognized transition
obligation 266 355
Unrecognized prior service cost 2,874 1,884
Unrecognized net loss 9,718 1,275
Fourth quarter contributions - 1,000
- -----------------------------------------------------------------
Prepaid asset recognized in
the Balance Sheets $ 3,281 $ 3,424
=================================================================
Components of the plans' net periodic cost were as follows:
1998 1997 1996
- -----------------------------------------------------------------
(in thousands)
Service cost $1,495 $1,393 $1,352
Interest cost 3,806 3,556 3,389
Expected return on plan
assets (3,992) (3,782) (3,263)
Recognized net loss 2 475 626
Net amortization 334 280 224
- -----------------------------------------------------------------
Net pension cost $1,645 $1,922 $2,328
=================================================================
18
<PAGE>
NOTES (continued)
Savannah Electric and Power Company 1998 Annual Report
Postretirement Benefits
Changes during the year in the projected benefit obligations and in the fair
value of plan assets were as follows:
Projected
Benefit Obligations
---------------------------
1998 1997
- ---------------------------------------------------------------
(in thousands)
Balance at beginning of year $20,899 $20,520
Service cost 348 319
Interest cost 1,527 1,499
Benefits paid (839) (526)
Actuarial (gain) loss and
employee transfers 1,621 (913)
- ---------------------------------------------------------------
Balance at end of year $23,556 $20,899
===============================================================
Plan Assets
---------------------------
1998 1997
- ---------------------------------------------------------------
(in thousands)
Balance at beginning of year $3,110 $2,473
Actual return on plan assets 85 365
Employer contributions 1,447 798
Benefits paid (839) (526)
- ---------------------------------------------------------------
Balance at end of year $3,803 $3,110
===============================================================
The accrued postretirement costs recognized in the Balance Sheets were
as follows:
1998 1997
- -----------------------------------------------------------------
(in thousands)
Funded status $(19,753) $(17,789)
Unrecognized transition
obligation 6,913 7,407
Unrecognized net loss 5,444 3,737
Fourth quarter contributions 1,152 749
- -----------------------------------------------------------------
Accrued liability recognized in
the Balance Sheets $ (6,244) $(5,896)
=================================================================
Components of the plans' net periodic cost were as follows:
1998 1997 1996
- ----------------------------------------------------------------
(in thousands)
Service cost $ 348 $ 319 $ 360
Interest cost 1,528 1,499 1,422
Expected return on plan assets (276) (211) (129)
Recognized net loss 104 125 171
Net amortization 494 494 494
- -----------------------------------------------------------------
Net postretirement cost $2,198 $2,226 $2,318
================================================================
An additional assumption used in measuring the accumulated postretirement
benefit obligations was a weighted average medical care cost trend rate of 8.30
percent for 1998, decreasing gradually to 4.75 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 affect the accumulated
benefit obligation and the service and interest cost components at December 31,
1998 as follows:
1 Percent 1 Percent
Increase Decrease
- ---------------------------------------------------------------
(in thousands)
Benefit obligation $1,301 $(1,227)
Service and interest costs 107 (101)
===============================================================
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 were $0.4 million for 1998, 1997 and 1996.
Work Force Reduction Program
In 1997, the Company incurred a $1.9 million, one-time charge to other operation
expense for costs related to the implementation of a work force reduction
program.
19
<PAGE>
NOTES (continued)
Savannah Electric and Power Company 1998 Annual Report
3. REGULATORY MATTERS
Rates to retail customers served by the Company are regulated by the GPSC. As
part of the Company's rate settlement in 1992, it was informally agreed that the
Company's earned rate of return on common equity should be 12.95 percent.
In June 1998, the GPSC approved a four-year accounting order for the
Company. Under this order, the Company will reduce the electric rates of its
small business customers by approximately $11 million over the next four years.
The Company will also expense an additional $1.95 million in storm damage
accruals and accrue an additional $8 million in depreciation on generating
assets over the term of the order. The additional depreciation will be
accumulated in a regulatory liability account to be available to mitigate any
potential stranded costs. In addition, the Company has discretionary authority
to provide up to an additional $0.3 million per year in storm damage accruals
and up to an additional $4.0 million in depreciation expense over the four
years. The Company is also precluded from asking for a rate increase except upon
significant changes in economic conditions, new laws, or regulations. There will
be a quarterly monitoring of the Company's earnings performance.
4. CONSTRUCTION PROGRAM
The Company is engaged in a continuous construction program, currently estimated
to total $29 million in 1999, $32 million in 2000, and $31 million in 2001. 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 changes in cost of capital. The Company
does not have any traditional baseload generating plants under construction.
However, construction related to transmission and distribution facilities and
the upgrading of generating plants will continue.
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, preferred securities, and 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.
Bank Credit Arrangements
At the end of 1998, unused credit arrangements with six banks totaled $40.5
million and expire at various times during 1999 and 2000.
The Company's revolving credit arrangements of $20 million, all of which
remained unused as of December 31, 1998, expire December 31, 2001. 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.
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. A second
lien for $10 million of bank debt is secured by a portion of the Plant Kraft
property and a second lien for $34 million in bank notes is secured by a portion
of the Plant McIntosh property.
20
<PAGE>
NOTES (continued)
Savannah Electric and Power Company 1998 Annual Report
Fuel Commitments
To supply a portion of the fuel requirements of its generating plants, the
Company has entered into long-term commitments for the procurement of fuel. In
most cases, these contracts contain provisions for price escalations, minimum
purchase levels, and other financial commitments. The Company has fuel
commitments of $12.0 million and $9.0 million for 1999 and 2000, respectively.
Operating Leases
The Company has rental agreements with various terms and expiration dates.
Rental expenses totaled $1.1 million for 1998, $1.2 million for 1997, and $1.6
million for 1996. The Company entered into a 22.5 year lease agreement effective
December 1, 1995 for 100 new aluminum rail cars at an annual cost of
approximately $0.5 million. The rail cars are used to transport coal to one of
the Company's generating plants.
At December 31, 1998, estimated future minimum lease payments for
noncancelable operating leases were as follows:
Rental Commitments
--------------------
(in thousands)
1999 $ 483
2000 483
2001 483
2002 483
2003 483
2004 and thereafter 6,969
- -------------------------------------------------------------
6. INCOME TAXES
At December 31, 1998, tax-related regulatory assets and liabilities were $17
million and $21 million, respectively. The assets are attributable to tax
benefits flowed through to customers in prior years and to taxes applicable to
capitalized AFUDC. The liabilities are attributable to deferred taxes previously
recognized at rates higher than current enacted tax law and to unamortized
investment tax credits.
Details of income tax provisions are as follows:
1998 1997 1996
--------------------------------
(in thousands)
Total provision for income taxes
Federal --
Currently payable $ 6,763 $ 9,743 $ 7,084
Deferred -- current year 8,377 4,522 8,216
-- reversal of
prior years (2,565) (1,381) (1,989)
- ------------------------------------------------------------------
12,575 12,884 13,311
- ------------------------------------------------------------------
State --
Currently payable 1,327 1,603 575
Deferred -- current year 1,174 569 1,216
-- reversal of
prior years 25 130 39
- ------------------------------------------------------------------
2,526 2,302 1,830
- ------------------------------------------------------------------
Total 15,101 15,186 15,141
Less income taxes credited
to other income (1,234) (1,233) (1,034)
- ------------------------------------------------------------------
Total income taxes
charged to operations $16,335 $16,419 $16,175
==================================================================
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:
1998 1997
--------------------
Deferred tax liabilities: (in thousands)
Accelerated depreciation $75,187 $72,663
Property basis differences 7,591 8,034
Other 10,187 5,850
- ----------------------------------------------------------------
Total 92,965 86,547
- ----------------------------------------------------------------
Deferred tax assets:
Pension and other benefits 4,892 5,338
Other 2,828 2,957
- ----------------------------------------------------------------
Total 7,720 8,295
- ----------------------------------------------------------------
Net deferred tax liabilities 85,245 78,252
Portions included in current assets, net (2,467) 2,445
- ----------------------------------------------------------------
Accumulated deferred income taxes
in the Balance Sheets $82,778 $80,697
================================================================
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 1998, 1997, and 1996. At December 31, 1998, all
investment tax credits available to reduce federal income taxes payable had been
utilized.
21
<PAGE>
NOTES (continued)
Savannah Electric and Power Company 1998 Annual Report
A reconciliation of the federal statutory income tax rate to the effective
income tax rate is as follows:
1998 1997 1996
---------------------------
Federal statutory tax rate 35% 35% 35%
State income tax, net of
federal income tax benefit 4 4 3
Other (2) (2) (1)
--------------------------------------------------------------
Effective income tax rate 37% 37% 37%
==============================================================
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. Tax benefits from losses of the
parent company are allocated to each subsidiary based on the ratio of taxable
income to total consolidated taxable income.
7. CUMULATIVE PREFERRED STOCK AND
TRUST PREFERRED SECURITIES
In November 1998, the Company redeemed all of its 1,400,000 shares of 6.64%
Series Preferred Stock at a redemption price of $25 per share, plus accrued
dividends through the date of redemption.
In December 1998, Savannah Electric Capital Trust I, of which the Company
owns all of the common securities, issued $40 million of 6.85% mandatorily
redeemable preferred securities. Substantially all of the assets of Trust I are
$40 million aggregate principal amount of the Company's 6.85% junior
subordinated notes due December 31, 2028.
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 payment obligations with respect to the preferred
securities of Savannah Electric Capital Trust I.
Savannah Electric Capital Trust I is a subsidiary of the Company, and
accordingly is consolidated in the Company's financial statements.
8. LONG-TERM DEBT AND LONG-TERM DEBT
DUE WITHIN ONE YEAR
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.
In March 1998, the Company issued $30 million of Series A 6 5/8% senior
retail intermediate bonds maturing in 2015. The Company used these proceeds to
redeem the remaining amount of its 8.30% first mortgage bonds due in 2022.
Maturities and retirements of long-term debt were $30 million in 1998, $14
million in 1997 and $29 million in 1996.
In April 1997, the Company issued $14 million in variable rate pollution
control obligations (bank note) maturing in 2037. The Company redeemed all of
its remaining outstanding 6 3/4% Pollution Control Bonds due 2022.
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.
A summary of the sinking fund requirements and scheduled maturities and
redemptions of long-term debt due within one year at December 31 is as follows:
1998 1997
---------------------
(in thousands)
Bond sinking fund requirement $800 $ 1,100
Less:
Portion to be satisfied by
certifying property additions 800 -
- -------------------------------------------------------------------
Cash sinking fund requirement - 1,100
Other long-term debt maturities 689 20,664
- -------------------------------------------------------------------
Total $689 $21,764
===================================================================
22
<PAGE>
NOTES (continued)
Savannah Electric and Power Company 1998 Annual Report
The first mortgage bond improvement (sinking) fund requirements amount to 1
percent of each outstanding series of bonds authenticated under the Indenture
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.
The sinking fund requirements of first mortgage bonds were satisfied by
cash redemption in 1998 and by certifying property additions in 1997. It is
anticipated that the 1999 requirement will be satisfied by certifying property
additions. Sinking fund requirements and/or maturities through 2003 applicable
to long-term debt are as follows: $0.7 million in 1999; $0.6 million in 2000;
$30.5 million in 2001; $0.5 million in 2002; and $20.4 million in 2003.
9. COMMON STOCK DIVIDEND RESTRICTIONS
The Company's Indenture contains certain limitations on the payment of cash
dividends on common stock. At December 31, 1998, approximately $68 million of
retained earnings was restricted against the payment of cash dividends on common
stock under the terms of the Indenture.
10. QUARTERLY FINANCIAL INFORMATION
(Unaudited)
Summarized quarterly financial data for 1998 and 1997 are as follows (in
thousands):
Net Income After
Operating Operating Dividends on
Quarter Ended Revenues Income Preferred Stock
- ------------------------------------------------------------------
March 1998 $48,381 $ 6,214 $ 2,426
June 1998 69,616 11,606 7,807
September 1998 84,224 16,056 12,518
December 1998 52,234 3,936 893
March 1997 $42,945 $ 6,117 $ 2,545
June 1997 52,516 8,626 5,136
September 1997 79,900 17,531 14,276
December 1997 50,916 4,950 1,890
- ------------------------------------------------------------------
The Company's business is influenced by seasonal weather conditions and a
seasonal rate structure, among other factors.
23
<PAGE>
SELECTED FINANCIAL AND OPERATING DATA
Savannah Electric and Power Company 1998 Annual Report
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
=========================================================================================================================
1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------
Operating Revenues (in thousands) $254,455 $226,277 $234,074 $225,729
Net Income after Dividends
on Preferred and Preference Stocks (in thousands) $23,644 $23,847 $23,940 $23,395
Cash Dividends on Common Stock (in thousands) $23,500 $20,500 $19,600 $17,600
Return on Average Common Equity (percent) 13.45 13.71 14.08 14.20
Total Assets (in thousands) $555,799 $547,352 $544,900 $524,662
Gross Property Additions (in thousands) $18,071 $18,846 $28,950 $26,503
- -------------------------------------------------------------------------------------------------------------------------
Capitalization (in thousands):
Common stock equity $175,865 $175,631 $172,284 $167,812
Preferred stock - 35,000 35,000 35,000
Preferred and preference stock subject
to mandatory redemption - - - -
Trust preferred securities 40,000 - - -
Long-term debt 163,443 142,846 164,406 153,679
- -------------------------------------------------------------------------------------------------------------------------
Total (excluding amounts due within one year) $379,308 $353,477 $371,690 $356,491
=========================================================================================================================
Capitalization Ratios (percent):
Common stock equity 46.4 49.7 46.4 47.1
Preferred and preference stock - 9.9 9.4 9.8
Trust preferred securities 10.5 - - -
Long-term debt 43.1 40.4 44.2 43.1
- -------------------------------------------------------------------------------------------------------------------------
Total (excluding amounts due within one year) 100.0 100.0 100.0 100.0
=========================================================================================================================
First Mortgage Bonds (in thousands):
Issued - - 20,000 15,000
Retired 30,000 - 29,400 29,250
Preferred Stock and Preferred Securities (in thousands):
Issued 40,000 - - -
Retired 35,000 - - -
- -------------------------------------------------------------------------------------------------------------------------
Security Ratings:
First Mortgage Bonds -
Moody's A1 A1 A1 A1
Standard and Poor's AA- AA- A+ A+
Preferred Stock -
Moody's "a2" "a2" "a2" "a2"
Standard and Poor's A A A A
- -------------------------------------------------------------------------------------------------------------------------
Customers (year-end):
Residential 110,437 109,092 106,657 104,624
Commercial 15,328 14,233 13,877 13,339
Industrial 63 64 65 65
Other 377 1,129 1,097 1,048
- -------------------------------------------------------------------------------------------------------------------------
Total 126,205 124,518 121,696 119,076
=========================================================================================================================
Employees (year-end) 542 535 571 584
</TABLE>
24
<PAGE>
SELECTED FINANCIAL AND OPERATING DATA (continued)
Savannah Electric and Power Company 1998 Annual Report
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
=============================================================================================================================
1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------------------
Operating Revenues (in thousands) $211,785 $218,442 $197,761 $189,646
Net Income after Dividends
on Preferred and Preference Stocks (in thousands) $22,110 $21,459 $20,512 $24,030
Cash Dividends on Common Stock (in thousands) $16,300 $21,000 $22,000 $22,000
Return on Average Common Equity (percent) 14.00 13.73 12.89 15.13
Total Assets (in thousands) $518,305 $527,187 $352,175 $352,505
Gross Property Additions (in thousands) $30,078 $72,858 $30,132 $19,478
- -----------------------------------------------------------------------------------------------------------------------------
Capitalization (in thousands):
Common stock equity $161,581 $154,269 $158,376 $159,841
Preferred stock 35,000 35,000 20,000 20,000
Preferred and preference stock subject
to mandatory redemption - - - -
Trust preferred securities - - - -
Long-term debt 155,922 151,338 110,767 119,280
- -----------------------------------------------------------------------------------------------------------------------------
Total (excluding amounts due within one year) $352,503 $340,607 $289,143 $299,121
=============================================================================================================================
Capitalization Ratios (percent):
Common stock equity 45.8 45.3 54.8 53.4
Preferred and preference stock 9.9 10.3 6.9 6.7
Trust preferred securities - - - -
Long-term debt 44.3 44.4 38.3 39.9
- -----------------------------------------------------------------------------------------------------------------------------
Total (excluding amounts due within one year) 100.0 100.0 100.0 100.0
=============================================================================================================================
First Mortgage Bonds (in thousands):
Issued - 45,000 30,000 30,000
Retired 5,065 - 38,750 22,500
Preferred Stock and Preferred Securities (in thousands):
Issued - 35,000 - -
Retired - 20,000 - -
- -----------------------------------------------------------------------------------------------------------------------------
Security Ratings:
First Mortgage Bonds -
Moody's A1 A1 A1 A1
Standard and Poor's A A A A
Preferred Stock -
Moody's "a2" "a2" "a2" "a2"
Standard and Poor's A- A- A- A-
- -----------------------------------------------------------------------------------------------------------------------------
Customers (year-end):
Residential 103,199 101,032 99,164 97,446
Commercial 13,015 12,702 12,416 12,153
Industrial 65 69 73 73
Other 1,007 957 940 897
- -----------------------------------------------------------------------------------------------------------------------------
Total 117,286 114,760 112,593 110,569
=============================================================================================================================
Employees (year-end) 616 665 688 672
</TABLE>
25A
<PAGE>
SELECTED FINANCIAL AND OPERATING DATA (continued)
Savannah Electric and Power Company 1998 Annual Report
<TABLE>
<CAPTION>
<S> <C> <C> <C>
===============================================================================================================================
1990 1989 1988
- -------------------------------------------------------------------------------------------------------------------------------
Operating Revenues (in thousands) $205,635 $201,799 $182,440
Net Income after Dividends
on Preferred and Preference Stocks (in thousands) $26,254 $25,535 $24,272
Cash Dividends on Common Stock (in thousands) $22,000 $20,000 $11,700
Return on Average Common Equity (percent) 16.85 16.88 17.03
Total Assets (in thousands) $340,050 $349,887 $347,051
Gross Property Additions (in thousands) $20,086 $18,831 $23,254
- -------------------------------------------------------------------------------------------------------------------------------
Capitalization (in thousands):
Common stock equity $157,811 $153,737 $148,883
Preferred stock 20,000 22,300 22,300
Preferred and preference stock subject
to mandatory redemption - 2,884 3,075
Trust preferred securities - - -
Long-term debt 112,377 117,522 98,285
- -------------------------------------------------------------------------------------------------------------------------------
Total (excluding amounts due within one year) $290,188 $296,443 $272,543
===============================================================================================================================
Capitalization Ratios (percent):
Common stock equity 54.4 51.9 54.6
Preferred and preference stock 6.9 8.5 9.3
Trust preferred securities - - -
Long-term debt 38.7 39.6 36.1
- -------------------------------------------------------------------------------------------------------------------------------
Total (excluding amounts due within one year) 100.0 100.0 100.0
===============================================================================================================================
First Mortgage Bonds (in thousands):
Issued - 30,000 -
Retired 9,135 18,275 12,231
Preferred Stock and Preferred Securities (in thousands):
Issued - - 20,000
Retired 5,374 6,591 553
- -------------------------------------------------------------------------------------------------------------------------------
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- BBB+
- -------------------------------------------------------------------------------------------------------------------------------
Customers (year-end):
Residential 96,452 94,766 93,486
Commercial 12,045 12,298 12,135
Industrial 76 69 69
Other 867 856 828
- -------------------------------------------------------------------------------------------------------------------------------
Total 109,440 107,989 106,518
===============================================================================================================================
Employees (year-end) 648 643 655
</TABLE>
25B
<PAGE>
SELECTED FINANCIAL AND OPERATING DATA (continued)
Savannah Electric and Power Company 1998 Annual Report
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
=================================================================================================================================
1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
Operating Revenues (in thousands):
Residential $109,393 $96,587 $101,607 $95,208
Commercial 86,231 78,949 80,494 75,117
Industrial 37,865 35,301 37,077 36,040
Other 8,838 8,621 8,804 8,386
- ---------------------------------------------------------------------------------------------------------------------------------
Total retail 242,327 219,458 227,982 214,751
Sales for resale - non-affiliates 4,548 3,467 1,998 1,851
Sales for resale - affiliates 3,016 2,052 3,130 7,200
- ---------------------------------------------------------------------------------------------------------------------------------
Total revenues from sales of electricity 249,891 224,977 233,110 223,802
Other revenues 4,564 1,300 964 1,927
- ---------------------------------------------------------------------------------------------------------------------------------
Total $254,455 $226,277 $234,074 $225,729
=================================================================================================================================
Kilowatt-Hour Sales (in thousands):
Residential 1,539,792 1,428,337 1,456,651 1,402,148
Commercial 1,236,337 1,156,078 1,141,218 1,099,570
Industrial 900,012 881,261 838,753 887,141
Other 131,142 124,490 126,215 126,057
- ---------------------------------------------------------------------------------------------------------------------------------
Total retail 3,807,283 3,590,166 3,562,837 3,514,916
Sales for resale - non-affiliates 53,294 94,280 91,610 87,747
Sales for resale - affiliates 58,415 54,509 41,808 63,731
- ---------------------------------------------------------------------------------------------------------------------------------
Total 3,918,992 3,738,955 3,696,255 3,666,394
=================================================================================================================================
Average Revenue Per Kilowatt-Hour (cents):
Residential 7.10 6.76 6.98 6.79
Commercial 6.97 6.83 7.05 6.83
Industrial 4.21 4.01 4.42 4.06
Total retail 6.36 6.11 6.40 6.11
Sale for resale 6.77 3.71 3.84 5.98
Total sales 6.38 6.02 6.31 6.10
Residential Average Annual Kilowatt-Hour Use Per Customer 14,061 13,231 13,771 13,478
Residential Average Annual Revenue Per Customer $998.95 $894.73 $960.58 $915.15
Plant Nameplate Capacity Ratings (year-end) (megawatts) 788 788 788 788
Maximum Peak-Hour Demand (megawatts):
Winter 582 625 666 630
Summer 846 802 811 811
Annual Load Factor (percent) 54.9 54.3 53.1 52.9
Plant Availability - Fossil-Steam (percent) 72.9 93.7 77.6 83.3
- ---------------------------------------------------------------------------------------------------------------------------------
Source of Energy Supply (percent):
Coal 41.6 34.4 27.7 23.9
Oil and gas 12.9 5.2 3.1 5.9
Purchased power -
From non-affiliates 3.4 1.4 2.1 2.3
From affiliates 42.1 59.0 67.1 67.9
- ---------------------------------------------------------------------------------------------------------------------------------
Total 100.0 100.0 100.0 100.0
=================================================================================================================================
Total Fuel Economy Data:
BTU per net kilowatt-hour generated 11,730 11,495 11,888 12,146
Cost of fuel per million BTU (cents) 198.75 197.19 203.36 179.25
Average cost of fuel per net kilowatt-hour generated (cents) 2.33 2.27 2.42 2.18
=================================================================================================================================
</TABLE>
26
<PAGE>
SELECTED FINANCIAL AND OPERATING DATA (continued)
Savannah Electric and Power Company 1998 Annual Report
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
===================================================================================================================================
1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------------------------
Operating Revenues (in thousands):
Residential $89,195 $93,883 $82,670 $80,541
Commercial 71,227 71,320 64,756 61,827
Industrial 32,906 36,180 33,171 30,492
Other 7,946 7,810 7,095 6,561
- -----------------------------------------------------------------------------------------------------------------------------------
Total retail 201,274 209,193 187,692 179,421
Sales for resale - non-affiliates 4,786 6,021 7,821 7,813
Sales for resale - affiliates 6,446 2,433 1,505 1,430
- -----------------------------------------------------------------------------------------------------------------------------------
Total revenues from sales of electricity 212,506 217,647 197,018 188,664
Other revenues (721) 795 743 982
- -----------------------------------------------------------------------------------------------------------------------------------
Total $211,785 $218,442 $197,761 $189,646
===================================================================================================================================
Kilowatt-Hour Sales (in thousands):
Residential 1,298,122 1,329,362 1,216,993 1,195,005
Commercial 1,045,831 1,015,935 953,840 925,757
Industrial 799,543 854,324 861,121 825,862
Other 119,593 115,969 110,270 106,683
- -----------------------------------------------------------------------------------------------------------------------------------
Total retail 3,263,089 3,315,590 3,142,224 3,053,307
Sales for resale - non-affiliates 201,716 247,203 367,066 372,085
Sales for resale - affiliates 93,001 75,384 37,632 32,581
- -----------------------------------------------------------------------------------------------------------------------------------
Total 3,557,806 3,638,177 3,546,922 3,457,973
===================================================================================================================================
Average Revenue Per Kilowatt-Hour (cents):
Residential 6.87 7.06 6.79 6.74
Commercial 6.81 7.02 6.79 6.68
Industrial 4.12 4.23 3.85 3.69
Total retail 6.17 6.31 5.97 5.88
Sale for resale 3.81 2.62 2.30 2.28
Total sales 5.97 5.98 5.55 5.46
Residential Average Annual Kilowatt-Hour Use Per Customer 12,686 13,269 12,369 12,323
Residential Average Annual Revenue Per Customer $871.68 $937.07 $840.23 $830.54
Plant Nameplate Capacity Ratings (year-end) (megawatts) 788 628 628 605
Maximum Peak-Hour Demand (megawatts):
Winter 617 524 533 526
Summer 729 747 695 691
Annual Load Factor (percent) 54.3 54.1 55.0 54.1
Plant Availability - Fossil-Steam (percent) 81.0 90.2 89.1 76.9
- -----------------------------------------------------------------------------------------------------------------------------------
Source of Energy Supply (percent):
Coal 18.6 21.5 12.0 16.3
Oil and gas 1.8 4.5 2.9 1.7
Purchased power -
From non-affiliates 1.5 0.9 1.0 0.4
From affiliates 78.1 73.1 84.1 81.6
- -----------------------------------------------------------------------------------------------------------------------------------
Total 100.0 100.0 100.0 100.0
===================================================================================================================================
Total Fuel Economy Data:
BTU per net kilowatt-hour generated 11,786 11,515 12,547 10,917
Cost of fuel per million BTU (cents) 205.03 215.97 201.50 199.42
Average cost of fuel per net kilowatt-hour generated (cents) 2.42 2.49 2.53 2.18
===================================================================================================================================
</TABLE>
27A
<PAGE>
SELECTED FINANCIAL AND OPERATING DATA (continued)
Savannah Electric and Power Company 1998 Annual Report
<TABLE>
<CAPTION>
<S> <C> <C> <C>
==================================================================================================================
1990 1989 1988
- -------------------------------------------------------------------------------------------------------------------
Operating Revenues (in thousands):
Residential $87,063 $85,113 $81,098
Commercial 65,462 65,474 62,640
Industrial 30,237 28,304 26,865
Other 6,782 6,892 6,557
- -------------------------------------------------------------------------------------------------------------------
Total retail 189,544 185,783 177,160
Sales for resale - non-affiliates 9,482 8,814 808
Sales for resale - affiliates 5,566 6,025 3,567
- -------------------------------------------------------------------------------------------------------------------
Total revenues from sales of electricity 204,592 200,622 181,535
Other revenues 1,043 1,177 905
- -------------------------------------------------------------------------------------------------------------------
Total $205,635 $201,799 $182,440
===================================================================================================================
Kilowatt-Hour Sales (in thousands):
Residential 1,183,486 1,109,976 1,067,411
Commercial 892,931 839,756 806,687
Industrial 644,704 561,063 533,604
Other 103,539 101,164 97,072
- -------------------------------------------------------------------------------------------------------------------
Total retail 2,824,660 2,611,959 2,504,774
Sales for resale - non-affiliates 441,090 437,943 24,168
Sales for resale - affiliates 294,042 303,142 156,106
- -------------------------------------------------------------------------------------------------------------------
Total 3,559,792 3,353,044 2,685,048
===================================================================================================================
Average Revenue Per Kilowatt-Hour (cents):
Residential 7.36 7.67 7.60
Commercial 7.33 7.80 7.77
Industrial 4.69 5.04 5.03
Total retail 6.71 7.11 7.07
Sale for resale 2.05 2.00 2.43
Total sales 5.75 5.98 6.76
Residential Average Annual Kilowatt-Hour Use Per Customer 12,339 11,781 11,489
Residential Average Annual Revenue Per Customer $907.68 $903.37 $872.87
Plant Nameplate Capacity Ratings (year-end) (megawatts) 605 605 605
Maximum Peak-Hour Demand (megawatts):
Winter 428 548 471
Summer 648 613 574
Annual Load Factor (percent) 53.2 52.4 53.4
Plant Availability - Fossil-Steam (percent) 89.6 94.7 77.1
- -------------------------------------------------------------------------------------------------------------------
Source of Energy Supply (percent):
Coal 52.8 63.5 79.8
Oil and gas 3.4 1.4 5.4
Purchased power -
From non-affiliates 0.8 1.5 5.9
From affiliates 43.0 33.6 8.9
- -------------------------------------------------------------------------------------------------------------------
Total 100.0 100.0 100.0
===================================================================================================================
Total Fuel Economy Data:
BTU per net kilowatt-hour generated 10,741 10,611 10,683
Cost of fuel per million BTU (cents) 188.18 180.48 178.31
Average cost of fuel per net kilowatt-hour generated (cents) 2.02 1.92 1.90
===================================================================================================================
</TABLE>
27B
