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 15, 1995
------------------
THE SOUTHERN COMPANY
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(Exact name of registrant as specified in its charter)
Delaware 1-3526 58-0690070
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
64 Perimeter Center East, Atlanta, Georgia 30346
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (404) 393-0650
----------------
N/A
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(Former name or former address, if changed since last eport.)
<PAGE>
Item 7. Financial Statements and Exhibits.
(c) Exhibits.
23 - Consent of Arthur Andersen LLP.
27 - Financial Data Schedule.
99 - Audited Financial Statements of The Southern Company as
of December 31, 1994.
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.
THE SOUTHERN COMPANY
/s/ W. Dean Hudson
By
W. Dean Hudson
Comptroller
Date: March 1, 1995
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report dated February 15, 1995 on the financial statements of The
Southern Company and its subsidiaries, included in this Form 8-K, into The
Southern Company's previously filed Registration Statement File Nos. 2-78617,
33-3546, 33-23152, 33-30171, 33-23153, 33-51433 and 33-54415.
/s/ ARTHUR ANDERSEN LLP
Atlanta, Georgia
March 1, 1995
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from
the financial statements filed as Exhibit 99 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000092122
<NAME> THE SOUTHERN COMPANY
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 21,117
<OTHER-PROPERTY-AND-INVEST> 795
<TOTAL-CURRENT-ASSETS> 2,368
<TOTAL-DEFERRED-CHARGES> 2,762
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 27,042
<COMMON> 3,283
<CAPITAL-SURPLUS-PAID-IN> 1,712
<RETAINED-EARNINGS> 3,191
<TOTAL-COMMON-STOCKHOLDERS-EQ> 8,186
100
1,332
<LONG-TERM-DEBT-NET> 6,991
<SHORT-TERM-NOTES> 575
<LONG-TERM-NOTES-PAYABLE> 683
<COMMERCIAL-PAPER-OBLIGATIONS> 403
<LONG-TERM-DEBT-CURRENT-PORT> (226)
0
<CAPITAL-LEASE-OBLIGATIONS> 148
<LEASES-CURRENT> (3)
<OTHER-ITEMS-CAPITAL-AND-LIAB> 8,853
<TOT-CAPITALIZATION-AND-LIAB> 27,042
<GROSS-OPERATING-REVENUE> 8,297
<INCOME-TAX-EXPENSE> 711
<OTHER-OPERATING-EXPENSES> 5,871
<TOTAL-OPERATING-EXPENSES> 6,582
<OPERATING-INCOME-LOSS> 1,715
<OTHER-INCOME-NET> 21
<INCOME-BEFORE-INTEREST-EXPEN> 1,736
<TOTAL-INTEREST-EXPENSE> 660
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87
<EARNINGS-AVAILABLE-FOR-COMM> 989
<COMMON-STOCK-DIVIDENDS> 766
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<PAGE>
1
MANAGEMENT'S REPORT
The Southern Company and Subsidiary Companies 1994 Annual Report
The management of The Southern Company has prepared -- and is responsible for --
the consolidated 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 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 consolidated financial statements present
fairly, in all material respects, the financial position, results of operations,
and cash flows of The Southern Company and its subsidiary companies in
conformity with generally accepted accounting principles. As discussed in Note 4
to the financial statements, an uncertainty exists with respect to the actions
of regulators regarding recoverability of the investment in the Rocky Mountain
pumped storage hydroelectric project. The outcome of this uncertainty cannot be
determined until a regulatory review is completed. Accordingly, no provision for
any write-down of the costs associated with the Rocky Mountain project resulting
from the potential actions of the Georgia Public Service Commission has been
made in the accompanying financial statements.
/s/ A. W. Dahlberg
A. W. Dahlberg
Chairman, President, and Chief Executive Officer
/s/ W. L. Westbrook
W. L. Westbrook
Financial Vice President and Chief Financial Officer
<PAGE>
2
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and to the Stockholders of The Southern Company:
We have audited the accompanying consolidated balance sheets and consolidated
statements of capitalization of The Southern Company (a Delaware corporation)
and subsidiary companies as of December 31, 1994 and 1993, and the related
consolidated statements of income, retained earnings, paid-in capital, and cash
flows for each of the three years in the period ended December 31, 1994. 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 11-32) referred to above
present fairly, in all material respects, the financial position of The Southern
Company and subsidiary companies as of December 31, 1994 and 1993, and the
results of their operations and their cash flows for the periods stated, in
conformity with generally accepted accounting principles.
As explained in Notes 2 and 9 to the financial statements, effective January
1, 1993, The Southern Company changed its methods of accounting for
postretirement benefits other than pensions and for income taxes.
As more fully discussed in Note 4 to the financial statements, an
uncertainty exists with respect to the actions of the regulators regarding
recoverability of the investment in the Rocky Mountain pumped storage
hydroelectric project. The outcome of this uncertainty cannot be determined
until a regulatory review is completed. Accordingly, no provision for any
write-down of the costs associated with the Rocky Mountain project resulting
from the potential actions of the Georgia Public Service Commission has been
made in the accompanying financial statements.
/s/ Arthur Andersen LLP
Atlanta, Georgia
February 15, 1995
<PAGE>
3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
The Southern Company and Subsidiary Companies 1994 Annual Report
RESULTS OF OPERATIONS
Earnings and Dividends
The Southern Company's 1994 earnings were $989 million or $1.52 per share, a
decrease of $13 million or 5 cents per share from the year 1993. Earnings were
significantly affected in 1994 by efforts related to the company's strategy to
remain a low-cost producer of electricity and a high-quality investment.
These efforts included work force reduction programs in 1994 and additional
investments in companies related to the core business of electricity. These
investments have put downward pressure on earnings and return on equity, and
that trend will continue in the near term. However, the investments should
support growth and strength in the financial condition of the company as it
emerges into a more competitive and global environment.
Costs related to the work force reduction programs decreased earnings by $61
million or 9 cents per share. These costs should be recovered through future
savings in about two years. Additional non-operating or non-recurring items
affected earnings in 1994 and 1993. After excluding these items in both years,
1994 earnings from operations of the ongoing business of selling electricity
were $1.0 billion -- or $1.58 per share -- an increase of $11 million compared
with 1993. The non-operating items that affected earnings were as follows:
Consolidated Earnings
Net Income Per Share
----------------- -----------------
1994 1993 1994 1993
----------------- -----------------
(in millions)
Earnings as reported $ 989 $1,002 $1.52 $1.57
- -----------------------------------------------------------------
Work force reduction
programs in 1994 61 - .09 -
Sale of facilities (28) (18) (.04) (.03)
Environmental
cleanup 5 25 .01 .04
Transportation fleet
reduction - 13 - .02
Gulf States related - (6) - (.01)
- -----------------------------------------------------------------
Total non-operating 38 14 .06 .02
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Earnings from
operations $1,027 $1,016 $1.58 $1.59
=================================================================
Amount and
percent change $11 1.1% $(0.01) (0.6)%
- -----------------------------------------------------------------
In 1994, non-operating items -- both positive and negative -- had an impact
on earnings, which resulted in a net reduction of $38 million. These items were:
(1) Costs associated with work force reduction programs implemented in 1994
decreased earnings. (2) The third in a series of four separate transactions to
sell Plant Scherer Unit 4 to two Florida utilities and the sale of a 50 percent
interest in a cogeneration facility in Virginia increased earnings. (3)
Environmental cleanup costs decreased earnings.
Items not discussed above that affected 1993 earnings were: (1)
Costs associated with a transportation fleet reduction program decreased
earnings. (2) Transactions related to a 1991 settlement agreement with Gulf
States Utilities Company increased earnings.
In January 1994, The Southern Company board of directors approved a
two-for-one common stock split in the form of a stock distribution. All common
stock data reported reflect the stock distribution. Dividends paid on common
stock during 1994 were $1.18 per share or 29 1/2 cents per quarter. During 1993
and 1992, dividends paid per share were $1.14 and $1.10, respectively. In
January 1995, The Southern Company board of directors raised the quarterly
dividend to 30 1/2 cents per share or an annual rate of $1.22 per share.
Revenues
Operating revenues decreased in 1994 and increased in 1993 and 1992 as a result
of the following factors:
Increase (Decrease)
From Prior Year
----------------------------
1994 1993 1992
----------------------------
(in millions)
Retail --
Change in base rates $ 3 $ 3 $ 137
Sales growth 153 104 138
Weather (177) 198 (113)
Fuel recovery and other (107) 199 (55)
- ---------------------------------------------------------------
Total retail (128) 504 107
- ---------------------------------------------------------------
Sales for resale --
Within service area (87) 38 (8)
Outside service area (108) (184) (87)
- ---------------------------------------------------------------
Total sales for resale (195) (146) (95)
Other operating revenues 131 58 11
- ---------------------------------------------------------------
Total operating revenues $(192) $416 $ 23
==============================================================
Percent change (2.3)% 5.2% 0.3%
- --------------------------------------------------------------
Retail revenues of $7.1 billion in 1994 decreased 1.8 percent from last
year, compared with an increase of 7.4 percent in 1993. Under fuel cost recovery
<PAGE>
4
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
The Southern Company and Subsidiary Companies 1994 Annual Report
provisions, fuel revenues generally equal fuel expense -- including the fuel
component of purchased energy -- and do not affect net income.
Revenues from sales for resale within the service area were $360 million in
1994, down 19 percent from the prior year. The decrease resulted from certain
municipalities and cooperatives in the service area retaining more of their own
generation at facilities jointly owned with Georgia Power. Sales for resale
revenues within the service area were $447 million in 1993, up 9.2 percent from
the prior year. This increase resulted primarily from the prolonged hot summer
weather, which increased the demand for electricity.
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. The capacity and energy components
were as follows:
1994 1993 1992
--------------------------------
(in millions)
Capacity $276 $350 $457
Energy 176 230 330
-----------------------------------------------------
Total $452 $580 $787
=====================================================
Capacity revenues decreased in 1994 and 1993 because the amount of capacity
under contract declined by some 400 megawatts and 500 megawatts, respectively.
In 1995, the contracted capacity will decline another 100 megawatts. Additional
declines in capacity are not scheduled until after 1999.
Changes in revenues are influenced heavily by the amount of energy sold each
year. Kilowatt-hour sales for 1994 and the percent change by year were as
follows:
(billions of Amount Percent Change
kilowatt-hours) ------ ------------------------
1994 1994 1993 1992
---- ------------------------
Residential 35.8 (2.6)% 9.5% 0.0%
Commercial 34.1 3.8 5.9 2.1
Industrial 50.3 3.2 1.9 3.8
Other 0.9 3.8 4.6 (4.8)
-----
Total retail 121.1 1.6 5.3 2.1
Sales for resale --
Within service area 8.1 (38.5) 9.5 (1.7)
Outside service area 10.8 (13.5) (25.2) (16.2)
-----
Total 140.0 (3.4) 2.1 (0.7)
=================================================================
The rate of increase in 1994 retail energy sales was suppressed by the
impact of weather. Residential energy sales registered the first annual decrease
in more than a decade as a result of milder-than-normal summer weather in 1994,
compared with the extremely hot summer of 1993. Commercial and industrial sales
continue to show moderate gains in excess of the national average. This reflects
the strength of business and economic conditions in The Southern Company's
service area. Energy sales to retail customers are projected to increase at an
average annual rate of 1.9 percent during the period 1995 through 2005.
Energy sales for resale outside the service area are predominantly unit
power sales under long-term contracts to Florida utilities. Economy sales and
amounts sold under short-term contracts are also sold for resale outside the
service area. Sales to customers outside the service area continue to decrease,
primarily as a result of the scheduled decline in megawatts of capacity under
contract.
Expenses
Total operating expenses of $6.6 billion for 1994 declined 2.1 percent compared
with the prior year. The costs to produce and deliver electricity in 1994
declined by $297 million, primarily as a result of less energy being sold and
continued effective cost controls. However, certain other expenses in 1994
increased compared with expenses in 1993. Depreciation expenses and property
taxes increased by $41 million as a result of additional utility plant being
placed into service. The work force reduction programs in 1994 increased
expenses by $100 million. The amortization of deferred expenses related to Plant
Vogtle increased by $39 million in 1994 when compared with the prior year. For
additional information concerning Plant Vogtle, see Note 1 to the financial
statements under "Plant Vogtle Phase-In Plans."
In 1993, operating expenses of $6.7 billion were up 6.5 percent compared
with 1992. The increase was attributable to higher production expenses of $75
million to meet increased energy demands and an additional $50 million in
depreciation expenses and property taxes. The transportation fleet reduction
program and environmental cleanup costs discussed earlier increased expenses by
some $62 million. Also, a $67 million change in deferred Plant Vogtle expenses
compared with the amount in 1992 contributed to the rise in total operating
expenses.
Fuel costs constitute the single largest expense for The Southern Company.
The mix of fuel sources for generation of electricity is determined primarily by
system load, the unit cost of fuel consumed, and the availability of hydro and
<PAGE>
5
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
The Southern Company and Subsidiary Companies 1994 Annual Report
nuclear generating units. The amount and sources of generation and the average
cost of fuel per net kilowatt-hour generated were as follows:
1994 1993 1992
----------------------
Total generation
(billions of kilowatt-hours) 142 144 140
Sources of generation
(percent) --
Coal 75 78 77
Nuclear 19 17 17
Hydro 5 4 5
Oil and gas 1 1 1
Average cost of fuel per net
kilowatt-hour generated
(cents) --
Coal 1.80 1.90 1.86
Nuclear 0.56 0.54 0.54
Oil and gas 3.99 4.34 4.81
Total 1.56 1.67 1.62
- ------------------------------------------------------------
Fuel and purchased power costs of $2.3 billion in 1994 decreased $266 million
or 10 percent compared with 1993, primarily because 3.1 billion fewer
kilowatt-hours were needed to meet customer requirements. Also, the decrease in
these costs was attributable to a lower average cost of fuel per net
kilowatt-hour generated. Fuel and purchased power expenses of $2.6 billion in
1993 increased 1.3 percent compared with the prior year because of increased
energy demands and a slightly higher average cost of fuel per net kilowatt-hour
generated.
For 1994, income taxes rose $8 million or 1.3 percent above the amount
reported for 1993. The increase resulted primarily from the sale of interests in
generating plant facilities discussed earlier. For 1993, income taxes increased
$69 million compared with the prior year. The increase was primarily
attributable to a 1 percent increase in the corporate federal income tax rate
effective January 1993, and the increase in taxable income from operations.
Total gross interest charges and preferred stock dividends continued to
decline from amounts reported in the previous year. The declines are
attributable to lower interest rates and significant refinancing activities in
1993 and 1992. In 1994, these costs were $765 million -- down $66 million or 8.0
percent. These costs for 1993 decreased $21 million. As a result of favorable
market conditions, $1.0 billion in 1994, $3.0 billion in 1993, and $2.4 billion
in 1992 of senior securities were issued for the primary purpose of retiring
higher-cost securities.
Effects of Inflation
The Southern 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
Southern Company because of the large investment in long-lived utility plant.
Conventional accounting for historical cost does not recognize this economic
loss nor the partially offsetting gain that arises through financing facilities
with fixed-money obligations such as long-term debt and preferred stock. Any
recognition of inflation by regulatory authorities is reflected in the rate of
return allowed.
Future Earnings Potential
The results of operations for the past three years are not necessarily
indicative of future earnings potential. The level of future earnings depends on
numerous factors ranging from growth in energy sales to a less regulated, more
competitive environment.
Georgia Power has completed three of four separate transactions to sell Unit
4 of Plant Scherer to two Florida utilities. The remaining transaction is
scheduled to take place in 1995 with the after-tax gain currently estimated to
total approximately $12 million. See Note 7 to the financial statements for
additional information.
In 1994, work force reduction programs were implemented, reducing earnings by
$61 million. These actions will assist in efforts to control growth in future
operating expenses.
See Note 4 to the financial statements for information on an uncertainty
regarding full recovery of an investment in the Rocky Mountain pumped storage
hydroelectric project scheduled to be in commercial operation in 1995.
Future earnings in the near term will depend upon growth in energy sales,
which are subject to a number of factors. Traditionally, these factors have
included changes in contracts with neighboring utilities, energy conservation
practiced by customers, the elasticity of demand, weather, competition, and the
rate of economic growth in the company's service area. However, the Energy
Policy Act of 1992 (Energy Act) is beginning to have a dramatic effect on the
future of the electric utility industry. The Energy Act promotes energy
efficiency, alternative fuel use, and increased competition for electric
<PAGE>
6
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
The Southern Company and Subsidiary Companies 1994 Annual Report
utilities. The Southern 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
a utility's transmission network in order to sell electricity to other
utilities. This may enhance the incentive for IPPs to build cogeneration plants
for a utility's large industrial and commercial customers and sell excess energy
generation to other utilities. Although the Energy Act does not require
transmission access to retail customers, retail wheeling initiatives are rapidly
evolving and becoming very prominent issues in several states. In order to
address these initiatives, numerous questions must be resolved with the most
complex ones relating to transmission pricing and recovery of stranded
investments. As the initiatives become a reality, the structure of the utility
industry could radically change. Therefore, unless The Southern 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.
Conversely, being the low-cost producer could provide significant opportunities
to increase market share and profitability.
The Energy Act amended the Public Utility Holding Company Act of 1935
(PUHCA). The amendment allows holding companies to form exempt wholesale
generators and foreign utility companies to sell power largely free of
regulation under PUHCA. These entities are able to sell power to affiliates --
under certain restrictions -- and to own and operate power generating facilities
in other domestic and international markets. To take advantage of these
opportunities, Southern Electric International (Southern Electric) -- founded in
1981 -- is focusing on international and domestic cogeneration, the independent
power market, and the privatization of generating facilities in the
international market. During 1994, additional investments were made in entities
that own and operate generating facilities in domestic and various international
markets. At December 31, 1994, Southern Electric's investment in these
facilities amounted to $436 million. In the near term, Southern Electric is
expected to have minimal effect on earnings, but the potential exists that it
could be a prime contributor to future earnings growth.
Southern Communications Services is constructing a wireless communications
system to provide services beginning in 1995 to Southern Company subsidiaries
and to other parties. It is anticipated that the operations of this new
subsidiary, at least in its early years, will negatively affect earnings and
cash flow.
Demand-side options -- programs that enable customers to lower or alter
their peak energy requirements -- have been implemented by some of the system
operating companies and are a significant part of integrated resource planning.
See Note 3 to the financial statements under "Georgia Power Demand-Side
Conservation Programs" for information concerning the recovery of certain costs.
Customers can receive cash incentives for participating in these programs as
well as reduce their energy requirements. Besides promoting energy efficiency,
another benefit of these programs could be the ability to defer the need to
construct costly baseload generating facilities further into the future.
The ability to defer major construction projects in conjunction with
regulatory precertification approval processes for both new plant additions and
purchase power contracts should minimize the possibility of not being able to
fully recover additional costs.
Rates to retail customers served by the system operating companies are
regulated by the respective state public service commissions in Alabama,
Florida, Georgia, and Mississippi. Rates for Alabama Power and Mississippi Power
are adjusted periodically within certain limitations based on earned retail rate
of return compared with an allowed return. See Note 3 to the financial
statements for information about other retail and wholesale regulatory matters.
The Southern 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. See Note 1 to the financial
statements under "Regulatory Assets and Liabilities" for additional information.
The staff of the Securities and Exchange Commission has questioned certain of
the current accounting practices of the electric utility industry -- including
the company -- regarding the recognition, measurement, and classification of
decommissioning costs for nuclear generating facilities in the financial
statements. In response to these questions, the FASB has decided to review the
accounting for nuclear decommissioning. If current electric utility industry
accounting practices for decommissioning are changed: (1) Annual provisions for
decommissioning could increase. (2) The estimated cost for decommissioning may
be required to be recorded as a liability in the Consolidated Balance Sheets. In
<PAGE>
7
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
The Southern Company and Subsidiary Companies 1994 Annual Report
management's opinion -- should these changes be required -- the changes would
not have a significant adverse effect on results of operations because of the
company's current and expected future ability to recover decommissioning costs
through rates. See Note 1 to the financial statements under "Depreciation and
Nuclear Decommissioning" for additional information.
The company is involved in various matters being litigated. See Note 3 to
the financial statements for information regarding material issues that could
possibly affect future earnings.
Compliance costs related to the Clean Air Act Amendments of 1990 (Clean Air
Act) 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."
FINANCIAL CONDITION
Overview
The Southern Company's financial condition continues to remain at the strongest
level since the mid-1980s. Earnings from operations continued to increase in
1994 and exceeded $1 billion. Based on this performance, in January 1995, The
Southern Company board of directors increased the common stock dividend for the
fourth consecutive year.
Another major change in The Southern Company's financial condition was gross
property additions of $1.5 billion to utility plant. The majority of funds
needed for gross property additions since 1991 have been provided from operating
activities, principally from earnings and non-cash charges to income such as
depreciation and deferred income taxes. The Consolidated Statements of Cash
Flows provide additional details.
The Southern Company has a policy that financial derivatives are to be used
only to mitigate business risks and not for speculative purposes. Derivatives
have been used by the company on a very limited basis. At December 31, 1994, the
credit risk for derivatives outstanding was not material.
Capital Structure
The company achieved a ratio of common equity to total capitalization --
including short-term debt -- of 44.4 percent in 1994, compared with 43.8 percent
in 1993 and 42.8 percent in 1992. The company's goal is to maintain the common
equity ratio generally within a range of 40 percent to 45 percent.
During 1994, the operating companies sold $185 million of first mortgage
bonds and, through public authorities, $749 million of pollution control revenue
bonds. Preferred securities of $100 million were issued in 1994. The operating
companies continued to reduce financing costs by retiring higher-cost bonds.
Retirements, including maturities, of bonds totaled $973 million during 1994,
$2.5 billion during 1993, and $2.8 billion during 1992. Retirements of preferred
stock totaled $1 million during 1994, $516 million during 1993, and $326 million
during 1992. As a result, the composite interest rate on long-term debt
decreased from 8.8 percent at December 31, 1991, to 7.2 percent at December 31,
1994. During this same period, the composite dividend rate on preferred stock
declined from 7.7 percent to 6.7 percent.
In 1994, The Southern Company raised $159 million from the issuance of new
common stock under the company's various stock plans. An additional $120 million
of new common stock was issued through a public offering in early 1994. At the
close of 1994, the company's common stock had a market value of $20.00 per
share, compared with a book value of $12.47 per share. The market-to-book value
ratio was 160 percent at the end of 1994, compared with 184 percent at year-end
1993 and 168 percent at year-end 1992.
Capital Requirements for Construction
The construction program of the operating companies is budgeted at $1.4 billion
for 1995, $1.3 billion for 1996, and $1.3 billion for 1997. The total is $4.0
billion for the three years. Actual construction costs may vary from this
estimate because of factors such as changes in environmental regulations;
changes in existing nuclear plants to meet new regulations; revised 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.
<PAGE>
8
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
The Southern Company and Subsidiary Companies 1994 Annual Report
The operating companies do not have any baseload generating plants under
construction, and current energy demand forecasts do not require any additional
baseload facilities until well into the future. However, within the service
area, the construction of combustion turbine peaking units of approximately
1,100 megawatts of capacity is planned to be completed by 1997 to meet increased
peak-hour demands. In addition, significant 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 $718
million will be required by the end of 1997 for present sinking fund
requirements and maturities of long-term debt. Also, the operating subsidiaries
will continue to retire higher-cost debt and preferred stock and replace these
obligations with lower-cost capital if market conditions permit.
Environmental Matters
In November 1990, the Clean Air Act was signed into law. Title IV of the Clean
Air Act -- the acid rain compliance provision of the law -- will have a
significant impact on The Southern Company. Specific reductions in sulfur
dioxide and nitrogen oxide emissions from fossil-fired generating plants will be
required in two phases. Phase I compliance began in 1995 and affected eight
generating plants -- some 10,000 megawatts of capacity or 35 percent of total
capacity -- in the Southern electric system. Phase II compliance is required in
2000, and all fossil-fired generating plants in the Southern electric system
will be affected.
In 1995, the Environmental Protection Agency (EPA) began issuing annual
sulfur dioxide emission allowances through the allowance trading program. An
emission allowance is the authority to emit one ton of sulfur dioxide during a
calendar year. The method for issuing allowances is based on the fossil fuel
consumed from 1985 through 1987 for each affected generating unit. Emission
allowances are transferable and can be bought, sold, or banked and used in the
future.
The sulfur dioxide emission allowance program is expected to minimize the
cost of compliance. The Southern Company's sulfur dioxide compliance strategy is
designed to use allowances as a compliance option.
The Southern Company expects to achieve Phase I sulfur dioxide compliance at
the eight affected plants by switching to low-sulfur coal, which has required
some equipment upgrades. This compliance strategy is expected to result in
unused emission allowances being banked for later use. Additional construction
expenditures were required to install equipment for the control of nitrogen
oxide emissions at these eight plants. Also, continuous emissions monitoring
equipment will be installed on all fossil-fired units. Construction expenditures
for Phase I compliance are estimated to total approximately $300 million through
1995.
For Phase II sulfur dioxide compliance, The Southern Company could use
emission allowances banked during Phase I, increase fuel switching, install flue
gas desulfurization equipment at selected plants, and/or purchase more
allowances, depending on the price and availability of allowances. Also, in
Phase II, equipment to control nitrogen oxide emissions will be installed on
additional system fossil-fired plants as required to meet anticipated Phase II
limits. Therefore, during the period 1996 to 2000, current compliance strategy
could require total estimated construction expenditures of approximately $150
million. However, the full impact of Phase II compliance cannot now be
determined with certainty, pending the continuing development of a market for
emission allowances, the completion of EPA regulations, and the possibility of
new emission reduction technologies.
An average increase of up to 2 percent in revenue requirements from
customers could be necessary to fully recover the cost of compliance for both
Phase I and Phase II of Title IV of the Clean Air Act. Compliance costs include
construction expenditures, increased costs for switching to low-sulfur coal, and
costs related to emission allowances.
Metropolitan Atlanta is classified as a non-attainment area with regard to
the ozone ambient air quality standards. Title I of the Clean Air Act requires
the state of Georgia to conduct specific studies and establish new control rules
- -- affecting sources of nitrogen oxides and volatile organic compounds -- to
achieve attainment by 1999. As the required first step, the state has issued
<PAGE>
9
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
The Southern Company and Subsidiary Companies 1994 Annual Report
rules for the application of reasonably available control technology to reduce
nitrogen oxide emissions by May 31, 1995. The results of these new rules require
nitrogen oxide controls, above Title IV requirements, on some Georgia Power
plants. Final attainment rules, based on modeling studies, could require
installation of additional controls for nitrogen oxide emissions to meet the
1999 deadline. A decision on new requirements is expected in 1996. Compliance
with any new rules could result in significant additional costs. The actual
impact of new rules will depend on the development and implementation of such
rules.
Title III of the Clean Air Act requires a multi-year EPA study of power
plant emissions of hazardous air pollutants. The EPA is scheduled to submit a
report to Congress on the results of this study by November 1995. The report
will include a decision on whether additional regulatory control of these
substances is warranted. Compliance with any new control standards could result
in significant additional costs. The impact of new standards -- if any -- will
depend on the development and implementation of applicable regulations.
A significant portion of costs related to the acid rain provision of the
Clean Air Act is expected to be recovered through existing ratemaking
provisions. However, there can be no assurance that all Clean Air Act costs will
be recovered.
The EPA continues to evaluate the need for a new short-term ambient air
quality standard for sulfur dioxide. Preliminary results from an EPA study on
the impact of a new standard indicate that a number of plants could be required
to install sulfur dioxide controls. These controls would be in addition to the
controls already required to meet the acid rain provision of the Clean Air Act.
The EPA issued proposed rules in November 1994 and is required to take final
action on this issue in 1996. The impact of any new standard will depend on the
level chosen for the standard and cannot be determined at this time.
In addition, the EPA is evaluating the need to revise the ambient air
quality standards for particulate matter, nitrogen oxides, and ozone. The impact
of any new standard will depend on the level chosen for the standard and cannot
be determined at this time.
In 1995, the EPA may issue revised rules on air quality control regulations
related to stack height requirements of the Clean Air Act. The full impact of
the final rules cannot be determined at this time, pending their development and
implementation.
In 1993, the EPA issued a ruling confirming the non-hazardous status of coal
ash. However, the EPA has until 1998 to classify co-managed utility wastes --
coal ash and other utility wastes -- as either non-hazardous or hazardous. If
the EPA classifies the co-managed wastes as hazardous, then substantial
additional costs for the management of such wastes may be required. The full
impact of any change in the regulatory status will depend on the subsequent
development of co-managed waste requirements.
The Southern Company subsidiaries must comply with other environmental laws
and regulations that cover the handling and disposal of hazardous waste. Under
these various laws and regulations, the subsidiaries could incur substantial
costs to clean up properties. The subsidiaries conduct studies to determine the
extent of any required cleanup costs and have recognized in their respective
financial statements costs to clean up known sites. These costs for The Southern
Company amounted to $8 million, $41 million, and $3 million in 1994, 1993, and
1992, respectively. Additional sites may require environmental remediation for
which the subsidiaries may be liable for a portion or all required cleanup
costs. See Note 3 to the financial statements for information regarding Georgia
Power's potentially responsible party status at a site in Brunswick, Georgia.
Several major pieces of environmental legislation are being considered for
reauthorization or amendment by Congress. These include: 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 The
Southern Company's operations. The full impact of these requirements cannot be
determined at this time, pending the development and implementation of
applicable regulations.
<PAGE>
10
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
The Southern Company and Subsidiary Companies 1994 Annual Report
Compliance with possible additional legislation related to global climate
change, electromagnetic fields, and other environmental and health concerns
could significantly affect The Southern Company. The impact of new legislation
- -- if any -- will depend on the subsequent development and implementation of
applicable regulations. In addition, the potential exists for liability as the
result of lawsuits alleging damages caused by electromagnetic fields.
Sources of Capital
In early 1995, The Southern Company sold -- through a public offering -- common
stock with proceeds totaling $103 million. The company may require additional
equity capital during the remainder of 1995. The amount and timing of additional
equity capital to be raised in 1995 -- as well as in subsequent years -- will be
contingent on The Southern Company's investment opportunities. Equity capital
can be provided from any combination of public offerings, private placements, or
the company's stock plans. Any portion of the common stock required during 1995
for the company's stock plans that is not provided from the issuance of new
stock will be acquired on the open market in accordance with the terms of such
plans.
The operating subsidiaries plan to obtain the funds required for
construction and other purposes from sources similar to those used in the past,
which was primarily from internal sources. However, the type and timing of any
financings -- if needed -- will depend on market conditions and regulatory
approval.
Completing the sale of Unit 4 of Plant Scherer in 1995 will provide some
$130 million of cash.
To meet short-term cash needs and contingencies, the system companies had
approximately $139 million of cash and cash equivalents and $1.4 billion of
unused credit arrangements with banks at the beginning of 1995.
To issue additional first mortgage bonds and preferred stock, the operating
companies must comply with certain earnings coverage requirements designated in
their mortgage indentures and corporate charters. The ability to issue
securities in the future will depend on coverages at that time. Currently, each
of the operating companies expects to have adequate coverage ratios for
anticipated requirements through at least 1997.
<PAGE>
11
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31, 1994, 1993, and 1992
The Southern Company and Subsidiary Companies 1994 Annual Report
<TABLE>
<CAPTION>
==========================================================================================================================
1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------------
(in millions)
<S> <C> <C> <C>
Operating Revenues $8,297 $8,489 $8,073
- --------------------------------------------------------------------------------------------------------------------------
Operating Expenses:
Operation --
Fuel 2,058 2,265 2,114
Purchased power 277 336 454
Other 1,505 1,445 1,310
Maintenance 660 653 613
Depreciation and amortization 821 793 768
Amortization of deferred Plant Vogtle expenses, net (Note 1) 75 36 (31)
Taxes other than income taxes 475 462 436
Federal and state income taxes 711 734 647
- --------------------------------------------------------------------------------------------------------------------------
Total operating expenses 6,582 6,724 6,311
- --------------------------------------------------------------------------------------------------------------------------
Operating Income 1,715 1,765 1,762
Other Income (Expense):
Allowance for equity funds used during construction 11 9 10
Interest income 32 30 32
Other, net (48) (41) (50)
Income taxes applicable to other income 26 57 39
- --------------------------------------------------------------------------------------------------------------------------
Income Before Interest Charges 1,736 1,820 1,793
- --------------------------------------------------------------------------------------------------------------------------
Interest Charges and Preferred Dividends:
Interest on long-term debt 568 595 684
Allowance for debt funds used during construction (18) (13) (12)
Interest on notes payable 33 30 16
Amortization of debt discount, premium, and expense, net 30 26 14
Other interest charges 47 87 34
Preferred dividends of subsidiary companies 87 93 104
- --------------------------------------------------------------------------------------------------------------------------
Net interest charges and preferred dividends 747 818 840
- --------------------------------------------------------------------------------------------------------------------------
Consolidated Net Income $ 989 $1,002 $ 953
==========================================================================================================================
Common Stock Data: (Note 10)
Average number of shares of common stock outstanding (in millions) 650 637 632
Earnings per share of common stock $ 1.52 $1.57 $1.51
Cash dividends paid per share of common stock $ 1.18 $1.14 $1.10
- --------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
For the Years Ended December 31, 1994, 1993, and 1992
=========================================================================================================================
1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------------
(in millions)
Balance at Beginning of Year $2,968 $2,721 $2,490
Consolidated net income 989 1,002 953
- -------------------------------------------------------------------------------------------------------------------------
3,957 3,723 3,443
Cash dividends on common stock 766 726 695
Capital and preferred stock transactions, net - 29 27
- -------------------------------------------------------------------------------------------------------------------------
Balance at End of Year (Note 10) $3,191 $2,968 $2,721
=========================================================================================================================
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
12
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1994, 1993, and 1992
The Southern Company and Subsidiary Companies 1994 Annual Report
<TABLE>
<CAPTION>
=================================================================================================
1994 1993 1992
- -------------------------------------------------------------------------------------------------
(in millions)
<S> <C> <C> <C>
Operating Activities:
Consolidated net income $ 989 $1,002 $ 953
Adjustments to reconcile consolidated net income
to net cash provided by operating activities --
Depreciation and amortization 1,050 1,011 969
Deferred income taxes and investment tax credits (4) 189 215
Allowance for equity funds used during construction (11) (9) (10)
Deferred Plant Vogtle costs (Note 1) 75 36 (31)
Gain on asset sales (52) (36) --
Other, net 45 (9) (32)
Changes in certain current assets and liabilities --
Receivables, net 114 (55) (10)
Fossil fuel stock (110) 138 53
Materials and supplies (18) (2) (76)
Accounts payable 81 43 35
Other (48) (61) (71)
- -------------------------------------------------------------------------------------------------
Net cash provided from operating activities 2,111 2,247 1,995
- -------------------------------------------------------------------------------------------------
Investing Activities:
Gross property additions (1,536) (1,441) (1,105)
Southern Electric's investments (405) (465) --
Sales of property 171 262 44
Other (87) (37) 61
- -------------------------------------------------------------------------------------------------
Net cash used for investing activities (1,857) (1,681) (1,000)
- -------------------------------------------------------------------------------------------------
Financing Activities:
Proceeds --
Common stock 279 205 30
Preferred securities 100 -- --
Preferred stock -- 426 410
First mortgage bonds 185 2,185 1,815
Other long-term debt 1,188 592 256
Retirements --
Preferred stock (1) (516) (326)
First mortgage bonds (241) (2,178) (2,575)
Other long-term debt (1,039) (450) (296)
Increase in notes payable, net 37 114 525
Payment of common stock dividends (766) (726) (695)
Miscellaneous (35) (137) (148)
- -------------------------------------------------------------------------------------------------
Net cash used for financing activities (293) (485) (1,004)
- -------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents (39) 81 (9)
Cash and Cash Equivalents at Beginning of Year 178 97 106
- -------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year $ 139 $ 178 $ 97
=================================================================================================
Supplemental Cash Flow Information:
Cash paid during the year for --
Interest (net of amount capitalized) $618 $673 $743
Income taxes 716 530 458
- -------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
13
CONSOLIDATED BALANCE SHEETS
At December 31, 1994 and 1993
The Southern Company and Subsidiary Companies 1994 Annual Report
<TABLE>
<CAPTION>
=============================================================================================
Assets 1994 1993
- ---------------------------------------------------------------------------------------------
(in millions)
<S> <C> <C>
Utility Plant:
Plant in service (Note 1) $29,209 $27,687
Less accumulated provision for depreciation 9,577 8,934
- ---------------------------------------------------------------------------------------------
19,632 18,753
Nuclear fuel, at amortized cost 238 229
Construction work in progress (Note 4) 1,247 1,031
- ---------------------------------------------------------------------------------------------
Total 21,117 20,013
- ---------------------------------------------------------------------------------------------
Other Property and Investments:
Argentine operating concession, being amortized (Note 5) 446 469
Nuclear decommissioning trusts 125 88
Miscellaneous 224 179
- ---------------------------------------------------------------------------------------------
Total 795 736
- ---------------------------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents 139 178
Special deposits 36 -
Receivables, less accumulated provisions for uncollectible accounts
of $9 million in 1994 and in 1993 1,022 1,147
Fossil fuel stock, at average cost 354 254
Materials and supplies, at average cost 553 535
Prepayments 194 148
Vacation pay deferred (Note 1) 70 73
- ---------------------------------------------------------------------------------------------
Total 2,368 2,335
- ---------------------------------------------------------------------------------------------
Deferred Charges:
Deferred charges related to income taxes (Note 9) 1,454 1,546
Deferred Plant Vogtle costs (Note 1) 432 507
Debt expense, being amortized 48 33
Premium on reacquired debt, being amortized 298 288
Miscellaneous 530 453
- ---------------------------------------------------------------------------------------------
Total 2,762 2,827
- ---------------------------------------------------------------------------------------------
Total Assets $27,042 $25,911
=============================================================================================
The accompanying notes are an integral part of these balance sheets.
</TABLE>
<PAGE>
14
CONSOLIDATED BALANCE SHEETS (continued)
At December 31, 1994 and 1993
The Southern Company and Subsidiary Companies 1994 Annual Report
<TABLE>
<CAPTION>
=============================================================================================
Capitalization and Liabilities 1994 1993
- ---------------------------------------------------------------------------------------------
(in millions)
<S> <C> <C>
Capitalization (See accompanying statements):
Common stock equity $ 8,186 $ 7,684
Preferred stock 1,332 1,333
Preferred securities 100 -
Long-term debt 7,593 7,412
- ---------------------------------------------------------------------------------------------
Total 17,211 16,429
- ---------------------------------------------------------------------------------------------
Current Liabilities:
Amount of securities due within one year 229 157
Notes payable 978 941
Accounts payable 806 698
Customer deposits 102 103
Taxes accrued-
Federal and state income - 34
Other 153 172
Interest accrued 190 186
Vacation pay accrued 87 90
Miscellaneous 233 190
- ---------------------------------------------------------------------------------------------
Total 2,778 2,571
- ---------------------------------------------------------------------------------------------
Deferred Credits and Other Liabilities:
Accumulated deferred income taxes (Note 9) 4,007 3,979
Deferred credits related to income taxes (Note 9) 987 1,051
Accumulated deferred investment tax credits 858 900
Prepaid capacity revenues 138 144
Department of Energy assessments 92 98
Disallowed Plant Vogtle capacity buyback costs 60 63
Storm damage reserves 53 22
Miscellaneous 858 654
- ---------------------------------------------------------------------------------------------
Total 7,053 6,911
- ---------------------------------------------------------------------------------------------
Commitments and Contingent Matters (Notes 1, 2, 3, 4, 5, 6, 7, 8, and 13)
Total Capitalization and Liabilities $27,042 $25,911
==============================================================================================
The accompanying notes are an integral part of these balance sheets.
</TABLE>
<PAGE>
15
CONSOLIDATED STATEMENTS OF CAPITALIZATION
At December 31, 1994 and 1993
The Southern Company and Subsidiary Companies 1994 Annual Report
<TABLE>
<CAPTION>
================================================================================================
1994 1993 1994 1993
- ------------------------------------------------------------------------------------------------
(in millions) (percent of total)
<S> <C> <C> <C> <C>
Common Stock Equity:
Common stock, par value $5 per share --
Authorized -- 1 billion shares
Outstanding -- 1994: 657 million shares,
1993: 643 million shares (Note 10) $ 3,283 $ 3,213
Paid-in capital 1,712 1,503
Retained earnings (Note 10) 3,191 2,968
- -------------------------------------------------------------------------------------------------
Total common stock equity 8,186 7,684 47.6 % 46.8 %
- -------------------------------------------------------------------------------------------------
Cumulative Preferred Stock of Subsidiaries:
$100 par or stated value --
4.20% to 5.96% 199 199
6.32% to 7.88% 205 205
11.36% -- 1
$25 par or stated value --
$1.90 to $2.125 295 295
6.40% to 7.60% 323 323
Auction rates -- at January 1, 1995:
4.59% to 4.64% 70 70
Adjustable rates -- January 1, 1995:
6.07% to 6.86% 240 240
- -------------------------------------------------------------------------------------------------
Total (annual dividend requirement -- $90 million) 1,332 1,333 7.7 8.1
- -------------------------------------------------------------------------------------------------
Cumulative Preferred Securities of Subsidiaries:
$25 stated value -- 9% 100 --
- -------------------------------------------------------------------------------------------------
Total (annual distribution requirement -- $9 million) 100 -- 0.6 --
- -------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
16
CONSOLIDATED STATEMENTS OF CAPITALIZATION (continued)
At December 31, 1994 and 1993
The Southern Company and Subsidiary Companies 1994 Annual Report
<TABLE>
<CAPTION>
===============================================================================================
1994 1993 1994 1993
- ------------------------------------------------------------------------------------------------
(in millions) (percent of total)
<S> <C> <C> <C> <C>
Long-Term Debt of Subsidiaries:
First mortgage bonds --
Maturity Interest Rates
-------- --------------
1994 4 5/8% -- 26
1995 4 3/4 % -- 11
1995 5 1/8 % 130 130
1996 4 1/2 % to 6% 210 235
1997 5 7/8 % 25 25
1998 5% to 9.2% 230 249
1999 6 1/8% to 6 3/8% 365 365
2000 through 2004 6% to 7% 1,250 1,215
2005 through 2009 6 7/8% to 9% 228 230
2015 through 2019 9.23% to 10 5/8% 65 215
2020 through 2024 7.3% to 9 3/8% 1,921 1,779
2032 Variable rates 200 200
- -----------------------------------------------------------------------------------------------
Total first mortgage bonds 4,624 4,680
Other long-term debt (Note 11) 3,261 2,962
Unamortized debt premium (discount), net (63) (74)
- -----------------------------------------------------------------------------------------------
Total long-term debt (annual interest
requirement -- $570 million) 7,822 7,568
Less amount due within one year (Note 12) 229 156
-----------------------------------------------------------------------------------------------
Long-term debt excluding amount due within one year 7,593 7,412 44.1 45.1
- ------------------------------------------------------------------------------------------------
Total Capitalization $17,211 $16,429 100.0 % 100.0%
================================================================================================
</TABLE>
CONSOLIDATED STATEMENTS OF PAID-IN CAPITAL
For the Years Ended December 31, 1994, 1993, and 1992
<TABLE>
<CAPTION>
=========================================================================================================
1994 1993 1992
- ---------------------------------------------------------------------------------------------------------
(in millions)
<S> <C> <C> <C>
Balance at Beginning of Year $1,503 $2,931 $2,908
Proceeds from sales of common stock over the par value -- 13.9 million,
9.7 million, and 1.6 million shares in 1994, 1993, and 1992, respectively 209 179 23
Two-for-one stock split (Note 10) -- (1,607) --
- -----------------------------------------------------------------------------------------------------------
Balance at End of Year $1,712 $1,503 $2,931
===========================================================================================================
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
17
NOTES TO FINANCIAL STATEMENTS
The Southern Company and Subsidiary Companies 1994 Annual Report
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
The Southern Company is the parent company of five operating companies, a system
service company, Southern Communications Services (Southern Communications),
Southern Electric International (Southern Electric), Southern Nuclear Operating
Company (Southern Nuclear), and The Southern Development and Investment Group
(SDIG). 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) or the
Securities and Exchange Commission (SEC). The system service company provides,
at cost, specialized services to The Southern Company and subsidiary companies.
Southern Communications, beginning in mid-1995, will provide digital wireless
communications services -- over the 800-megahertz frequency band -- to The
Southern Company's subsidiaries and also will market these services to the
public within the Southeast. Southern Electric designs, builds, owns, and
operates power production facilities and provides a broad range of technical
services to industrial companies and utilities in the United States and a number
of international markets. Southern Nuclear provides services to The Southern
Company's nuclear power plants. SDIG develops new business opportunities related
to energy products and services.
The Southern Company is registered as a holding company under the Public
Utility Holding Company Act of 1935 (PUHCA). Both the company and its
subsidiaries are subject to the regulatory provisions of the PUHCA. The
operating companies also are subject to regulation by the FERC and their
respective state regulatory commissions. The companies follow generally accepted
accounting principles and comply with the accounting policies and practices
prescribed by their respective commissions.
All material intercompany items have been eliminated in consolidation.
Consolidated retained earnings at December 31, 1994, include $2.8 billion of
undistributed retained earnings of subsidiaries.
Certain prior years' data presented in the consolidated financial statements
have been reclassified to conform with current year presentation.
Regulatory Assets and Liabilities
The Southern 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 to be
credited to customers through the ratemaking process. Regulatory assets and
(liabilities) reflected in the Consolidated Balance Sheets at December 31 relate
to:
1994 1993
----------------
(in millions)
Deferred income taxes $1,454 $1,546
Deferred Plant Vogtle costs 432 507
Premium on reacquired debt 298 288
Demand-side programs 97 49
Department of Energy assessments 79 87
Vacation pay 70 73
Deferred fuel charges 51 83
Postretirement benefits 41 22
Work force reduction costs 15 5
Deferred income tax credits (987) (1,051)
Storm damage reserve (53) (22)
Other, net 108 91
- -------------------------------------------------------------
Total $1,605 $1,678
=============================================================
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 regulatory assets and liabilities. In addition, the company would be
required to determine any impairment to other assets, including plant, and write
down the assets to their fair value.
Revenues and Fuel Costs
The operating companies accrue revenues for service rendered but unbilled at the
end of each fiscal period. Fuel costs are expensed as the fuel is used. The
operating companies' electric rates include provisions to adjust billings for
fluctuations in fuel and the energy component of purchased power 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 1994, uncollectible
accounts continued to average less than 1 percent of revenues.
<PAGE>
18
NOTES (continued)
The Southern Company and Subsidiary Companies 1994 Annual Report
Fuel expense includes the amortization of the cost of nuclear fuel and a
charge, based on nuclear generation, for the permanent disposal of spent nuclear
fuel. Total charges for nuclear fuel included in fuel expense amounted to $152
million in 1994, $137 million in 1993, and $132 million in 1992. Alabama Power
and Georgia Power have contracts with the U.S. Department of Energy (DOE) that
provide for the permanent disposal of spent nuclear fuel, which was scheduled to
begin in 1998. However, the actual year this service will begin is uncertain.
Sufficient storage capacity currently is available to permit operation into 2003
at Plant Hatch, into 2009 at Plant Vogtle, and into 2012 and 2014 at Plant
Farley units 1 and 2, respectively.
Also, the Energy Policy Act of 1992 required the establishment in 1993 of a
Uranium Enrichment Decontamination and Decommissioning Fund, which is to be
funded in part by a special assessment on utilities with nuclear plants. This
assessment will be paid over a 15-year period, which began in 1993. This fund
will be used by the DOE for the decontamination and decommissioning of its
nuclear fuel enrichment facilities. The law provides that utilities will recover
these payments in the same manner as any other fuel expense. Alabama Power and
Georgia Power -- based on its ownership interests -- estimate their remaining
liability at December 31, 1994, under this law to be approximately $43 million
and $33 million, respectively. These obligations are recorded in the
Consolidated Balance Sheets.
Depreciation and Nuclear Decommissioning
Depreciation of the original cost of depreciable utility plant in service is
provided primarily by using composite straight-line rates, which approximated
3.2 percent in 1994 and 3.3 percent in both 1993 and 1992. 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 costs
of decommissioning nuclear facilities.
In 1988, the Nuclear Regulatory Commission (NRC) adopted regulations
requiring all licensees operating commercial power reactors to establish a plan
for providing, with reasonable assurance, funds for decommissioning. Alabama
Power and Georgia Power have external trust funds to comply with the NRC's
regulations. Amounts previously recorded in internal reserves are being
transferred into the external trust funds over set periods of time as approved
by the respective state public service commissions. The NRC's minimum external
funding requirements are based on a generic estimate of the cost to decommission
the radioactive portions of a nuclear unit based on the size and type of
reactor. Alabama Power and Georgia Power have filed plans with the NRC to ensure
that -- over time -- the deposits and earnings of the external trust funds will
provide the minimum funding amounts prescribed by the NRC.
Site study cost is the estimate to decommission the facility as of the site
study year, and ultimate cost is the estimate to decommission the facility as of
retirement date. The estimated costs of decommissioning -- both site study costs
and ultimate costs -- at December 31, 1994, for Alabama Power's Plant Farley and
Georgia Power's ownership interests in plants Hatch and Vogtle were as follows:
Plant Plant Plant
Farley Hatch Vogtle
--------------------------
Site study basis (year) 1993 1994 1994
Decommissioning periods:
Beginning year 2017 2014 2027
Completion year 2029 2027 2038
- --------------------------------------------------------------
(in millions)
Site study costs:
Radiated structures $409 $241 $193
Non-radiated structures 75 34 43
Other 94 60 49
- --------------------------------------------------------------
Total $578 $335 $285
==============================================================
(in millions)
Ultimate costs:
Radiated structures $1,258 $641 $ 843
Non-radiated structures 231 91 190
Other 289 160 215
- --------------------------------------------------------------
Total $1,778 $892 $1,248
==============================================================
<PAGE>
19
NOTES (continued)
The Southern Company and Subsidiary Companies 1994 Annual Report
Plant Plant Plant
Farley Hatch Vogtle
---------------------------
(in millions)
Amount expensed in 1994 $18 $6 $6
Accumulated provisions:
Balance in external trust
funds $ 71 $33 $22
Balance in internal reserves 51 29 10
- ----------------------------------------------------------------
Total $122 $62 $32
================================================================
Assumed in ultimate costs:
Inflation rate 4.5% 4.4% 4.4%
Trust earning rate 7.0 6.0 6.0
- ----------------------------------------------------------------
Annual provisions for nuclear decommissioning are based on an annuity --
sinking fund -- method as approved by the respective state public service
commissions. The decommissioning costs approved for ratemaking are $578 million
for Plant Farley, $184 million for Plant Hatch, and $155 million for Plant
Vogtle. These amounts for Georgia Power are the costs to decommission the
radioactive portions of the plants based on 1990 site studies. Georgia Power's
estimated ultimate costs, based on the 1990 studies, were $872 million and $1.4
billion for plants Hatch and Vogtle, respectively. Georgia Power expects the
GPSC to periodically review and adjust, if necessary, the amounts collected in
rates for the anticipated cost of decommissioning.
The decommissioning cost estimates are based on prompt dismantlement and
removal of the plant from service. The actual decommissioning costs may vary
from the above estimates because of changes in the assumed date of
decommissioning, changes in regulatory requirements, changes in technology, and
changes in costs of labor, materials, and equipment.
Income Taxes
The companies provide 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.
Effective January 1, 1993, The Southern Company adopted FASB Statement No.
109, Accounting for Income Taxes. Statement No. 109 required, among other
things, conversion to the liability method of accounting for accumulated
deferred income taxes. See Note 9 for additional information about Statement No.
109.
Plant Vogtle Phase-In Plans
In 1987 and 1989, the GPSC ordered that the allowed costs of Plant Vogtle, a
two-unit nuclear facility of which Georgia Power owns 45.7 percent, be phased
into rates under plans that meet the requirements of FASB Statement No. 92,
Accounting for Phase-In Plans. Under these plans, Georgia Power deferred
financing costs and depreciation expense until the allowed investment was fully
reflected in rates as of October 1991. In 1991, the GPSC modified the Plant
Vogtle phase-in plan to begin earlier amortization of the costs deferred under
the plan. Also, the GPSC levelized capacity buyback expense from co-owners of
Plant Vogtle. See Note 3 for additional information regarding Georgia Power's
1991 rate order. Previously, pursuant to two separate interim accounting orders
by the GPSC, Georgia Power deferred substantially all operating expenses and
financing costs related to Plant Vogtle. Under phase-in plans and accounting
orders from the GPSC, Georgia Power deferred and began amortizing the costs --
recovered through rates -- related to Plant Vogtle as follows:
1994 1993 1992
-------------------------------
(in millions)
Deferred capacity buybacks $ 10 $ 38 $100
Amortization of
deferred costs (85) (74) (69)
Income taxes - - (23)
- -------------------------------------------------------------------
Net (amortization) deferred (75) (36) 8
Effect of adoption of FASB
Statement No. 109 - 160 -
Deferred costs
at beginning of year 507 383 375
- ------------------------------------------------------------------
Deferred costs
at end of year $432 $507 $383
==================================================================
Each GPSC order called for recovery of deferred costs within 10 years. Also,
the orders authorized Georgia Power to impute a return similar to allowance for
funds used during construction (AFUDC) on its investment in Plant Vogtle units 1
and 2 after the units began commercial operation.
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
<PAGE>
20
NOTES (continued)
The Southern Company and Subsidiary Companies 1994 Annual Report
depreciation expense. The composite rates used by the operating companies to
calculate AFUDC during the years 1992 through 1994 ranged from a
before-income-tax rate of 5.0 percent to 11.3 percent. AFUDC, net of income tax,
as a percent of consolidated net income was 2.3 percent in 1994, 1.7 percent in
1993, and 1.8 percent in 1992.
Utility Plant
Utility plant is stated at original cost less regulatory disallowances. Original
cost includes: materials; labor; minor items of property; appropriate
administrative and general costs; payroll-related costs such as taxes, pensions,
and other benefits; and the estimated cost of funds used during construction.
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 Consolidated Statements of Cash Flows, temporary cash
investments are considered cash equivalents. Temporary cash investments are
securities with original maturities of 90 days or less.
Financial Instruments
In accordance with FASB Statement No. 107, Disclosure About Fair Value of
Financial Instruments, The Southern Company's only financial instrument that the
carrying amount did not approximate fair value at December 31 was as follows:
Long-Term Debt
-----------------------
Carrying Fair
Year Amount Value
- ---- -------- -----
(in millions)
1994 $7,674 $7,373
1993 7,321 7,729
- ----------------------------------------------------------------
The fair value of long-term debt was based on either closing market price or
closing price of comparable instruments.
Materials and Supplies
Generally, materials and supplies include the cost of transmission,
distribution, and generating plant materials. Materials are charged to inventory
when purchased and then expensed or capitalized to plant, as appropriate, when
installed.
Vacation Pay
The operating companies' employees earn their vacation in one year and take it
in the subsequent year. However, for ratemaking purposes, vacation pay is
recognized as an allowable expense only when paid. Consistent with this
ratemaking treatment, the companies accrue a current liability for earned
vacation pay and record a current regulatory asset representing the future
recoverability of this cost. The amount was $70 million and $73 million at
December 31, 1994 and 1993, respectively. In 1995, an estimated 69 percent of
the 1994 deferred vacation cost will be expensed, and the balance will be
charged to construction and other accounts.
2. RETIREMENT BENEFITS
Pension Plan
The system companies have defined benefit, trusteed, non-contributory pension
plans that cover substantially all regular employees. Benefits are based on the
greater of amounts resulting from two different formulas: years of service and
final average pay or years of service and a flat-dollar benefit. Primarily, the
companies use the "entry age normal method with a frozen initial liability"
actuarial method for funding purposes, subject to limitations under federal
income tax regulations. Amounts funded to the pension trusts are primarily
invested in equity and fixed-income securities. FASB Statement No. 87,
Employers' Accounting for Pensions, requires use of the "projected unit credit"
actuarial method for financial reporting purposes.
Postretirement Benefits
The system companies also provide certain medical care and life insurance
benefits for retired employees. Substantially all employees may become eligible
for these benefits when they retire. Qualified trusts are funded to the extent
deductible under federal income tax regulations or to the extent required by the
operating companies' respective regulatory commissions. Amounts funded are
primarily invested in debt and equity securities.
Effective January 1, 1993, the system companies adopted FASB Statement No.
106, Employers' Accounting for Postretirement Benefits Other Than Pensions, on a
prospective basis. Statement No. 106 requires that medical care and life
insurance benefits for retired employees be accounted for on an accrual basis
<PAGE>
21
NOTES (continued)
The Southern Company and Subsidiary Companies 1994 Annual Report
using a specified actuarial method, "benefit/years-of-service." In October 1993,
the GPSC ordered Georgia Power to phase in the adoption of Statement No. 106 to
cost of service over a five-year period, whereby one-fifth of the additional
costs would be expensed in 1993 and the remaining costs would be deferred. An
additional one-fifth of the costs would be expensed each succeeding year until
the costs are fully reflected in cost of service in 1997. The costs deferred
during the five-year period will be amortized to expense over a 15-year period
beginning in 1998. For the other operating companies, the cost of postretirement
benefits is reflected in rates on a current basis.
Prior to 1993, the system companies, except for Georgia Power and Savannah
Electric, recognized these benefit costs on an accrual basis using the
"aggregate cost" actuarial method, which spreads the expected cost of such
benefits over the remaining periods of employees' service as a level percentage
of payroll costs. Consistent with regulatory treatment in those years, Georgia
Power and Savannah Electric recognized these costs on a cash basis as payments
were made. The total costs of such benefits recognized by system companies in
1992 were $42 million.
Funded Status and Cost of Benefits
Shown in the following tables are actuarial results and assumptions for pension
and postretirement medical and life insurance benefits as computed under the
requirements of FASB Statement Nos. 87 and 106, respectively. The funded status
of the plans at December 31 was as follows:
Pension
-------------------
1994 1993
--------------------
(in millions)
Actuarial present value of
benefit obligation:
Vested benefits $1,593 $1,534
Non-vested benefits 68 76
- ----------------------------------------------------------------------
Accumulated benefit obligation 1,661 1,610
Additional amounts related to
projected salary increases 638 558
- ----------------------------------------------------------------------
Projected benefit obligation 2,299 2,168
Less:
Fair value of plan assets 3,171 3,337
Unrecognized net gain (789) (1,060)
Unrecognized prior service cost 64 72
Unrecognized transition asset (139) (152)
- ----------------------------------------------------------------------
Prepaid asset recognized in the
Consolidated Balance Sheets $ 8 $ 29
======================================================================
Postretirement Medical
----------------------
1994 1993
----------------------
(in millions)
Actuarial present value of
benefit obligation:
Retirees and dependents $293 $243
Employees eligible to retire 40 48
Other employees 367 389
- -------------------------------------------------------------------
Accumulated benefit obligation 700 680
Less:
Fair value of plan assets 128 95
Unrecognized net loss (gain) 22 76
Unrecognized transition
obligation 394 419
- -------------------------------------------------------------------
Accrued liability recognized in the
Consolidated Balance Sheets $156 $ 90
===================================================================
Postretirement Life
-------------------
1994 1993
-------------------
(in millions)
Actuarial present value of benefit obligation:
Retirees and dependents $ 82 $ 75
Employees eligible to retire - -
Other employees 92 96
- -------------------------------------------------------------------
Accumulated benefit obligation 174 171
Less:
Fair value of plan assets 12 2
Unrecognized net loss (gain) (19) (13)
Unrecognized transition
obligation 106 113
- ------------------------------------------------------------------
Accrued liability recognized in the
Consolidated Balance Sheets $ 75 $ 69
===================================================================
The weighted average rates assumed in the actuarial calculations were:
1994 1993 1992
-------------------------------------
Discount 8.0% 7.5% 8.0%
Annual salary increase 5.5 5.0 6.0
Long-term return on
plan assets 8.5 8.5 8.5
- --------------------------------------------------------------------
An additional assumption used in measuring the accumulated postretirement
medical benefit obligation was a weighted average medical care cost trend rate
of 10.5 percent for 1994 decreasing gradually to 6.0 percent through the year
2000 and remaining at that level thereafter. An annual increase in the assumed
<PAGE>
22
NOTES (continued)
The Southern Company and Subsidiary Companies 1994 Annual Report
medical care cost trend rate of 1 percent would increase the accumulated medical
benefit obligation at December 31, 1994, by $130 million and the aggregate of
the service and interest cost components of the net retiree medical cost by $18
million.
Components of the plans' net costs are shown below:
Pension
-----------------------
1994 1993 1992
------------------------
(in millions)
Benefits earned during the year $ 77 $ 76 $ 75
Interest cost on projected
benefit obligation 160 156 146
Actual (return) loss on plan assets 75 (432) (135)
Net amortization and deferral (351) 186 (85)
- ----------------------------------------------------------------
Net pension cost (income) $ (39) $ (14) $ 1
================================================================
Of the above net pension amounts, pension income of $29 million in 1994 and
$9 million in 1993, and pension expense of $2 million in 1992, were recorded in
operating expenses, and the remainder was recorded in construction and other
accounts.
Postretirement Medical
----------------------
1994 1993
----------------------
(in millions)
Benefits earned during the year $ 26 $ 21
Interest cost on accumulated
benefit obligation 51 43
Amortization of transition obligation 21 22
Actual (return) loss on plan assets 2 (12)
Net amortization and deferral (10) 5
- -----------------------------------------------------------------
Net postretirement cost $ 90 $ 79
=================================================================
Postretirement Life
-------------------
1994 1993
-------------------
(in millions)
Benefits earned during the year $ 5 $ 6
Interest cost on accumulated
benefit obligation 13 13
Amortization of transition obligation 6 6
Actual (return) loss on plan assets - -
Net amortization and deferral - -
- -------------------------------------------------------------
Net postretirement cost $24 $25
=============================================================
Of the above net postretirement medical and life insurance costs recorded
in 1994 and 1993, $77 million and $64 million were charged to operating
expenses, $18 million and $21 million were deferred, and the remainder was
charged to construction and other accounts, respectively.
Work Force Reduction Programs
The system companies have incurred additional costs for work force reduction
programs. The costs related to these programs were $112 million, $35 million,
and $37 million for the years 1994, 1993, and 1992, respectively. A portion of
the cost of these programs was deferred and is being amortized in accordance
with regulatory treatment. The unamortized balance of these costs was $15
million at December 31, 1994.
3. LITIGATION AND REGULATORY MATTERS
Stockholder Suit
In April 1991, two Southern Company stockholders filed a derivative action suit
in the U.S. District Court for the Southern District of Georgia against certain
current and former directors and officers of The Southern Company. The suit
alleges violations of the Federal Racketeer Influenced and Corrupt Organizations
Act (RICO) by officers and breaches of fiduciary duty and gross negligence by
all defendants resulting from alleged fraudulent accounting for spare parts,
illegal political campaign contributions, violations of federal securities laws
involving misrepresentations and omissions in SEC filings, and concealment of
the foregoing acts. The complaint seeks damages -- including treble damages
pursuant to RICO -- in an unspecified amount, which if awarded, would be payable
to The Southern Company. The plaintiffs' amended complaint was dismissed by the
court in March 1992. The court ruled the plaintiffs had failed to present
adequately their allegation that The Southern Company board of directors'
refusal of an earlier demand by the plaintiffs was wrongful. In April 1994, the
U.S. Court of Appeals for the 11th Circuit reversed the dismissal and remanded
the case to the trial court, finding that allegations by the plaintiffs created
a reasonable doubt that the board validly exercised its business judgment in
refusing the earlier demand. This action is still pending.
Alabama Power Heat Pump Financing Suit
In September 1990, two customers of Alabama Power filed a civil complaint in the
Circuit Court of Shelby County, Alabama, against Alabama Power seeking to
represent all persons who, prior to June 23, 1989, entered into agreements with
Alabama Power for the financing of heat pumps and other merchandise purchased
from vendors other than Alabama Power. The plaintiffs contended that Alabama
Power was required to obtain a license under the Alabama Consumer Finance Act to
<PAGE>
23
NOTES (continued)
The Southern Company and Subsidiary Companies 1994 Annual Report
engage in the business of making consumer loans. The plaintiffs were seeking an
order declaring these agreements null and void and requiring Alabama Power to
refund all payments -- principal and interest -- made under these agreements.
The aggregate amount under these agreements, together with interest paid,
currently is estimated to be $40 million.
In June 1993, the court ordered Alabama Power to refund or forfeit interest
of approximately $10 million because of Alabama Power's failure to obtain such
license. However, the court's order did not require any refund or forfeiture
with respect to any principal payments under the agreements at issue. Alabama
Power has appealed the court's order to the Supreme Court of Alabama.
The final outcome of this matter cannot now be determined; however, in
management's opinion, the final outcome will not have a material adverse effect
on the company's financial statements.
Georgia Power Potentially Responsible Party Status
In January 1995, Georgia Power and four other unrelated entities were notified
by the EPA that they have been designated as potentially responsible parties
under the Comprehensive Environmental Response, Compensation and Liability Act
with respect to a site in Brunswick, Georgia. While Georgia Power believes that
the total amount of costs required for the cleanup of this site may be
substantial, it is unable at this time to estimate either such total or the
portion for which Georgia Power may be ultimately responsible.
The final outcome of this matter cannot now be determined; however, in
management's opinion -- based on the nature and extent of Georgia Power's
activities relating to the site -- the final outcome will not have a material
adverse effect on the company's financial statements.
Georgia Power Tax Litigation
In June 1994, a tax deficiency notice was received from the Internal Revenue
Service (IRS) for the years 1984 through 1987 with regard to the tax accounting
by Georgia Power for the sale in 1984 of an interest in Plant Vogtle and related
capacity and energy buyback commitments. The potential tax deficiency and
interest arising from this issue currently amount to approximately $28 million
and $32 million, respectively. The tax deficiency relates to a timing issue as
to when taxes are paid; therefore only the interest portion could affect future
income. Management believes that the IRS position is incorrect, and Georgia
Power has filed a petition with the U. S. Tax Court challenging the IRS
position. In order to minimize additional interest charges should the IRS's
position prevail, Georgia Power made a payment to the IRS related to the
potential tax deficiency in September 1994.
The final outcome of this matter cannot now be determined; however, in
management's opinion, the final outcome will not have a material adverse effect
on the company's financial statements.
Alabama Power Rate Adjustment Procedures
In November 1982, the Alabama Public Service Commission (APSC) adopted rates
that provide for periodic adjustments based upon Alabama Power's earned return
on end-of-period retail common equity. The rates also provide for adjustments to
recognize the placing of new generating facilities in retail service. Both
increases and decreases have been placed into effect since the adoption of these
rates. The last rate adjustment was effective in January 1992. The rate
adjustment procedures allow a return on common equity range of 13.0 percent to
14.5 percent and limit increases or decreases in rates to 4 percent in any
calendar year.
In 1994, the APSC issued an order -- at Alabama Power's request -- allowing
Alabama Power to establish a natural disaster reserve not to exceed $32 million
and to change the procedure for estimating the accrual of revenues for service
rendered but unbilled at the end of each month. This change increased unbilled
revenues for September 1994 by $28 million, which offset the initial accrual for
the natural disaster reserve for the same amount. Additional monthly accruals of
$250 thousand will be made until the reserve maximum is attained. In addition, a
moratorium on rate increases through the third quarter of 1995 was approved.
The ratemaking procedures will remain in effect until the APSC votes to
modify or discontinue them.
Georgia Power Demand-Side Conservation Programs
In October 1993, a Superior Court of Fulton County, Georgia, judge ruled that
rate riders previously approved by the GPSC for recovery of Georgia Power's
costs incurred in connection with demand-side conservation programs were
unlawful. The judge held that the GPSC lacked statutory authority to approve
<PAGE>
24
NOTES (continued)
The Southern Company and Subsidiary Companies 1994 Annual Report
such rate riders except through general rate case proceedings and that those
procedures had not been followed. Georgia Power suspended collection of the
demand-side conservation costs and appealed the court's decision to the Georgia
Court of Appeals. In December 1993, the GPSC approved Georgia Power's request
for an accounting order allowing Georgia Power to defer all current unrecovered
and future costs related to these programs until the superior court's decision
is reversed or until the next general rate case proceedings. An association of
industrial customers filed a petition for review of the accounting order in
superior court.
In July 1994, the Georgia Court of Appeals upheld the legality of the rate
riders. In November 1994, the Supreme Court of Georgia denied petitions for
review of this ruling. As a result, Georgia Power resumed collection under the
rate riders in December 1994. In early 1995, the GPSC initiated a true-up
proceeding to review Georgia Power's demand-side conservation program costs both
incurred and expected to be incurred during 1995 in order to adjust rate riders
accordingly. The proceeding will also address a plan for recovery of costs
deferred under the accounting order. Georgia Power's costs related to these
conservation programs through 1994 were $115 million, of which $18 million has
been collected and the remainder deferred.
The final outcome of this matter cannot now be determined; however, in
management's opinion, the final outcome will not have a material adverse effect
on the company's financial statements.
Georgia Power 1991 Rate Order; Phase-In Plan Modifications
Georgia Power received a rate order in 1991 from the GPSC that modified the
Plant Vogtle phase-in plans to begin earlier amortization of the costs deferred
under the plans. The amortization period began October 1991 -- rather than
October 1994 as originally scheduled -- and extends through September 1999. In
addition, the GPSC ordered the levelization of capacity buyback expense from the
co-owners of Plant Vogtle over a six-year period beginning October 1991. This
results in net cost deferrals during the first three years and subsequent
amortization of the deferred amounts in the last three years.
Mississippi Power Retail Rate Adjustment Plan
Mississippi Power's retail base rates have been set under a Performance
Evaluation Plan (PEP) since 1986 with various modifications. In January 1994,
the Mississippi Public Service Commission (MPSC) approved PEP-2. Under PEP-2,
Mississippi Power's rate of return is measured on retail net investment. Also,
three indicators are used to evaluate Mississippi Power's performance with
emphasis on price and service to the customer. In addition, PEP-2 provides for
the sharing of rate adjustments based on low rates and on the performance
rating. The evaluation periods for PEP-2 are semiannual. Any change in rates is
limited to 2 percent of retail revenues per period. PEP-2 will remain in effect
until the MPSC modifies or terminates the plan.
FERC Reviews Equity Returns
In May 1991, the FERC ordered that hearings be conducted concerning the
reasonableness of the Southern electric system's wholesale rate schedules and
contracts that have a return on common equity of 13.75 percent or greater. The
contracts that could be affected by the hearings include substantially all of
the transmission, unit power, long-term power, and other similar contracts. Any
change in the rate of return on common equity that may require refunds as a
result of this proceeding would be substantially for the period beginning in
July 1991 and ending in October 1992.
In August 1992, a FERC administrative law judge issued an opinion that
changes in rate schedules and contracts were not necessary and that the FERC
staff failed to show how any changes were in the public interest. The FERC staff
has filed exceptions to the administrative law judge's opinion, and the matter
remains pending before the FERC.
In August 1994, the FERC instituted another proceeding based on
substantially the same issues as in the 1991 proceeding. The second period under
review for possible refunds began in October 1994 and is scheduled to continue
until January 1996.
If the rates of return on common equity recommended by the FERC staff were
applied to all of the schedules and contracts involved in both proceedings, and
refunds were ordered, the amount of refunds could range up to approximately $77
million at December 31, 1994. Although the final outcome of this matter cannot
now be determined, in management's opinion, the final outcome will not result in
<PAGE>
25
NOTES (continued)
The Southern Company and Subsidiary Companies 1994 Annual Report
changes that would have a material adverse effect on the company's financial
statements.
4. CONSTRUCTION PROGRAM
General
The operating companies are engaged in continuous construction programs,
currently estimated to total some $1.4 billion in 1995, $1.3 billion in 1996,
and $1.3 billion in 1997. These estimates include AFUDC of $40 million in 1995,
$30 million in 1996, and $33 million in 1997. The construction programs are
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; changes in existing nuclear plants to meet new
regulatory requirements; increasing costs of labor, equipment, and materials;
and cost of capital. At December 31, 1994, significant purchase commitments were
outstanding in connection with the construction program. The operating companies
do not have any new baseload generating plants under construction. However,
within the service area, the construction of combustion turbine peaking units of
approximately 1,100 megawatts is planned to be completed by 1997. In addition,
significant construction will continue related to transmission and distribution
facilities and the upgrading and extension of the useful lives of generating
plants.
See Management's Discussion and Analysis under "Environmental Matters" for
information on the impact of the Clean Air Act Amendments of 1990 and other
environmental matters.
Rocky Mountain Project Status
In its 1985 financing order, the GPSC concluded that completion of the Rocky
Mountain pumped storage hydroelectric project in 1991 as then planned was not
economically justifiable and reasonable and withheld authorization for Georgia
Power to spend funds from approved securities issuances on that project. In
1988, Georgia Power and Oglethorpe Power Corporation (OPC) entered into a joint
ownership agreement for OPC to assume responsibility for the construction and
operation of the project, as discussed in Note 6. However, full recovery of
Georgia Power's costs depends on the GPSC's treatment of the project's costs and
the disposition of the project's capacity output. In the event the GPSC does not
allow full recovery of the project costs, then the portion not allowed may have
to be written off. AFUDC accrued on the Rocky Mountain project has not been
credited to income or included in the project cost since December 1985. If
accrual of AFUDC is not resumed, Georgia Power's portion of the estimated total
plant additions at completion would be approximately $200 million. The plant is
scheduled to be in commercial operation in 1995.
The ultimate outcome of this matter cannot now be determined.
5. FINANCING, INVESTMENT, AND COMMITMENTS
General
In early 1995, The Southern Company sold -- through a public offering -- 5
million shares of common stock with proceeds totaling $103 million. The company
may require additional equity capital during the remainder of 1995. The amount
and timing of additional equity capital to be raised in 1995 -- as well as in
subsequent years --will be contingent on The Southern Company's investment
opportunities. Equity capital can be provided from any combination of public
offerings, private placements, or the company's stock plans.
The operating companies' construction programs are expected to be financed
primarily from internal sources. Short-term debt will be utilized if necessary;
the amounts available are discussed below. The subsidiary companies may issue
additional long-term debt and preferred stock primarily for the purposes of debt
maturities and for redeeming higher-cost securities if market conditions permit.
Southern Electric Investments
Southern Electric's investments in generating facilities in domestic and various
foreign markets were approximately $436 million at December 31, 1994. The
consolidated financial statements reflect these investments in majority-owned or
controlled subsidiaries on a consolidated basis and other investments on an
equity basis.
<PAGE>
26
NOTES (continued)
The Southern Company and Subsidiary Companies 1994 Annual Report
Bank Credit Arrangements
At the beginning of 1995, unused credit arrangements with banks totaled $1.4
billion, of which approximately $875 million expires at various times during
1995 and 1996; $41 million expires at May 1, 1997; $25 million expires at May
31, 1997; $400 million expires at June 30, 1997; and $40 million expires at
December 1, 1997.
Georgia Power's revolving credit agreements of $60 million, of which $41
million remained unused as of December 31, 1994, expire May 1, 1997. During the
term of these agreements, Georgia Power may convert short-term borrowings 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 Georgia Power's option. In connection
with these credit arrangements, Georgia Power agrees to pay commitment fees
based on the unused portions of the commitments or to maintain compensating
balances with the banks.
Gulf Power has $25 million of revolving credit agreements expiring May 31,
1997. These agreements allow short-term and/or term borrowings with various
terms and conditions regarding repayment. In connection with these credit
arrangements, Gulf Power agrees to pay commitment fees based on the unused
portions of the commitments or to maintain compensating balances with the banks.
The $400 million expiring June 30, 1997, is under revolving credit
arrangements with several banks providing The Southern Company, Alabama Power,
and Georgia Power up to the total credit amount of $400 million. To provide
liquidity support to commercial paper programs, $135 million and $165 million of
the $400 million available credit are currently dedicated to the exclusive use
of Alabama Power and Georgia Power, respectively. During the term of these
agreements, short-term borrowings may 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 companies' option. In addition, these agreements require
payment of commitment fees based on the unused portions of the commitments or
the maintenance of compensating balances with the banks.
Mississippi Power has $40 million of revolving credit agreements expiring
December 1, 1997. 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 Mississippi Power's option. In
connection with these credit arrangements, Mississippi Power agrees to pay
commitment fees based on the unused portions of the commitments or to maintain
compensating balances with the banks.
Savannah Electric's revolving credit arrangements of $20 million, of which
$11 million remained unused as of December 31, 1994, expire December 31, 1996.
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 Savannah Electric's option. In connection with these
credit arrangements, Savannah Electric agrees to pay commitment fees based on
the unused portions of the commitments.
A portion of the $1.4 billion unused credit arrangements with banks --
discussed earlier -- is dedicated to provide liquidity support to the companies'
variable rate pollution control bonds. The amount of credit lines dedicated at
December 31, 1994, was $293 million.
In connection with all other lines of credit, the companies have the option
of paying fees or maintaining compensating balances, which are substantially all
the cash of the companies except for daily working funds and similar items.
These balances are not legally restricted from withdrawal.
In addition, the companies from time to time borrow under uncommitted lines
of credit with banks, and in the case of Alabama Power and Georgia Power,
through commercial paper programs that have the liquidity support of committed
bank credit arrangements.
<PAGE>
27
NOTES (continued)
The Southern Company and Subsidiary Companies 1994 Annual Report
Assets Subject to Lien
The operating companies' mortgages, which secure the first mortgage bonds issued
by the companies, constitute a direct first lien on substantially all of the
companies' respective fixed property and franchises.
Fuel Commitments
To supply a portion of the fuel requirements of the system's generating plants,
the subsidiary companies have entered into various long-term commitments for the
procurement of fossil and nuclear fuel. In most cases, these contracts contain
provisions for price escalations, minimum purchase levels, and other financial
commitments. Total estimated long-term obligations were approximately $16
billion at December 31, 1994. Additional commitments for coal and nuclear fuel
will be required in the future to supply the operating companies' fuel needs.
To take advantage of lower-cost coal supplies, agreements were reached in
1986 for the payment of $121 million to terminate two contracts for the supply
of coal to Plant Daniel, which is jointly owned by Gulf Power and Mississippi
Power. Also, in March 1988, Gulf Power made an advance payment of $60 million to
a coal supplier under an agreement to lower the cost of future coal purchased
under an existing contract. These amounts are being amortized to expense.
Operating Leases
The operating companies have entered into coal rail car rental agreements with
various terms and expiration dates. These expenses totaled $15 million, $11
million, and $9 million for 1994, 1993, and 1992, respectively. At December 31,
1994, estimated minimum rental commitments for noncancelable operating leases
were as follows:
Year Amounts
- --- -----------
(in millions)
1995 $ 18
1996 17
1997 17
1998 17
1999 17
2000 and thereafter 242
- -------------------------------------------------------
Total minimum payments $328
=======================================================
6. FACILITY SALES AND JOINT OWNERSHIP AGREEMENTS
In 1992, Alabama Power sold an undivided interest in units 1 and 2 of Plant
Miller and related facilities to Alabama Electric Cooperative, Inc.
Since 1975, Georgia Power has sold undivided interests in plants Vogtle,
Hatch, Scherer, and Wansley in varying amounts, together with transmission
facilities, to OPC, the Municipal Electric Authority of Georgia (MEAG), and the
city of Dalton, Georgia. Georgia Power has completed three of four separate
transactions to sell Unit 4 of Plant Scherer to two Florida utilities. See Note
7 for additional information concerning these sales. In addition, Georgia Power
has joint ownership agreements with OPC for the Rocky Mountain project and with
Florida Power Corporation (FPC) for a combustion turbine unit at Intercession
City, Florida, both of which are discussed later.
At December 31, 1994, Alabama Power's and Georgia Power's ownership and
investment (exclusive of nuclear fuel) in jointly owned facilities with the
above entities were as follows:
Jointly Owned Facilities
------------------------
Percent Amount of Accumulated
Ownership Investment Depreciation
---------- ----------- ------------
Plant Vogtle (in millions)
(nuclear) 45.7% $3,289 $628
Plant Hatch
(nuclear) 50.1 842 346
Plant Miller
(coal)
Units 1 and 2 91.8 708 264
Plant Scherer
(coal)
Units 1 and 2 8.4 112 36
Unit 4 16.6 119 18
Plant Wansley
(coal) 53.5 287 129
Rocky Mountain
(pumped storage) 25.0* 199 -
- -------------------------------------------------------------
*Estimated ownership at date of completion.
Georgia Power and OPC have a joint ownership agreement regarding the
848-megawatt Rocky Mountain pumped storage hydroelectric project. Under the
agreement, Georgia Power will retain its present investment in the project and
OPC will finance, complete, and operate the facility. Upon completion, Georgia
<PAGE>
28
NOTES (continued)
The Southern Company and Subsidiary Companies 1994 Annual Report
Power will own an undivided interest in the project equal to the proportion its
investment bears to the total investment in the project (excluding each party's
cost of funds and ad valorem taxes). Based on current cost estimates, Georgia
Power's final ownership is estimated at approximately 25 percent of the project
at completion. The plant is scheduled to be in commercial operation in 1995.
In 1994, Georgia Power and FPC entered into a joint ownership agreement
regarding the Intercession City combustion turbine unit. The unit is scheduled
to be in commercial operation in early 1996, and will be constructed, operated,
and maintained by FPC. Georgia Power will have a 33 percent interest in the
150-megawatt unit, with retention of 100 percent of the capacity from June
through September. FPC will have the capacity the remainder of the year. Georgia
Power's investment in the unit at completion is estimated to be $14 million.
Also, Georgia Power entered into a separate four-year purchase power contract
with FPC. Beginning in 1996, Georgia Power will purchase 400 megawatts of
capacity. In 1998, this amount will decline to 200 megawatts for the remaining
two years.
Alabama Power and Georgia Power have contracted to operate and maintain the
jointly owned facilities -- except for the Rocky Mountain project and
Intercession City -- as agents for their respective co-owners. The companies'
proportionate share of their plant operating expenses is included in the
corresponding operating expenses in the Consolidated Statements of Income.
In connection with a joint ownership arrangement at Plant Vogtle, Georgia
Power has remaining commitments to purchase declining fractions of OPC's and
MEAG's capacity and energy from this plant for periods of up to 10 years
following commercial operation (and, with regard to a portion of the 5 percent
additional interest in Plant Vogtle owned by MEAG, until the latter of the
retirement of the plant or the latest stated maturity date of MEAG's bonds
issued to finance such ownership interest). The payments for such capacity are
required whether any capacity is available. The energy cost of these purchases
is a function of each unit's variable operating costs. Except as noted below,
the cost of such capacity and energy is included in purchased power in the
Consolidated Statements of Income. Capacity payments totaled $129 million, $183
million, and $289 million for 1994, 1993, and 1992, respectively. Projected
capacity payments for the next five years are as follows: $77 million in 1995;
$70 million in 1996; $59 million in 1997; $59 million in 1998; and $59 million
in 1999. Also, a portion of the above capacity payments relates to Plant Vogtle
costs that were written off after being disallowed for retail ratemaking
purposes.
In 1991, the GPSC ordered that the Plant Vogtle capacity buyback expense be
levelized over a six-year period. The amounts deferred and not expensed in the
year paid totaled $38 million in 1993 and $100 million in 1992. In 1994, the
amount deferred was exceeded by the amortization of amounts previously deferred
by almost $1 million. The projected net amortization of the deferred expense is
$49 million in 1995, $62 million in 1996, and $57 million in 1997.
7. SALES OF INTERESTS IN PLANT SCHERER
Georgia Power has completed three of four separate transactions to sell Unit 4
of Plant Scherer to Florida Power & Light Company (FP&L) and Jacksonville
Electric Authority (JEA) for a total price of approximately $808 million,
including any gains on these transactions. FP&L would eventually own
approximately 76.4 percent of the unit, with JEA owning the remainder. Georgia
Power will continue to operate the unit.
The completed and scheduled remaining transactions are as follows:
Closing Percent
Date Capacity Ownership Amount
------ -------- --------- -------
(megawatts) (in millions)
July 1991 290 35.46% $291
June 1993 258 31.44 253
June 1994 135 16.55 133
June 1995 135 16.55 131
-------------------------------------------------------------
Total 818 100.00% $808
=============================================================
Plant Scherer -- a jointly owned coal-fired generating plant -- has four
units with a total capacity of 3,272 megawatts. Unit 4 was completed in 1989.
See Note 6 for information regarding current plant ownership.
8. LONG-TERM POWER SALES AGREEMENTS
The operating subsidiaries of The Southern Company entered into long-term
contractual agreements for the sale of capacity and energy to certain
non-affiliated utilities located outside the system's service area. The
<PAGE>
29
NOTES (continued)
The Southern Company and Subsidiary Companies 1994 Annual Report
agreements for non-firm capacity expired in 1994. Other agreements -- expiring
at various dates discussed below -- are firm and pertain to capacity related to
specific generating units. Because the energy is generally sold at cost under
these agreements, revenues from capacity sales primarily affect profitability.
The capacity revenues have been as follows:
Unit Other
Year Power Long-Term Total
---- ----------------------------------
(in millions)
1994 $257 $19 $276
1993 312 38 350
1992 435 22 457
In 1994, long-term non-firm power of 200 megawatts was sold to FPC under a
contract that expired at year-end. In January 1995, the amount of unit power
sales to FPC increased by 200 megawatts.
Unit power from specific generating plants is currently being sold to FP&L,
FPC, JEA, and the city of Tallahassee, Florida. Under these agreements,
approximately 1,700 megawatts of capacity is scheduled to be sold during 1995.
Thereafter, these sales will decline to some 1,600 megawatts and remain at that
approximate level -- unless reduced by FP&L, FPC, and JEA for the periods after
1999 -- until the expiration of the contracts in 2010.
9. INCOME TAXES
Effective January 1, 1993, The Southern Company adopted FASB Statement No. 109,
Accounting for Income Taxes. The adoption resulted in the recording of
additional deferred income taxes and related regulatory assets and liabilities.
At December 31, 1994, the tax- related regulatory assets and liabilities were
$1.5 billion and $1.0 billion, respectively. These assets are attributable to
tax benefits flowed through to customers in prior years and to taxes applicable
to capitalized AFUDC. These liabilities are attributable to deferred taxes
previously recognized at rates higher than current enacted tax law and to
unamortized investment tax credits.
Details of the federal and state income tax provisions are as follows:
1994 1993 1992
-------------------------
(in millions)
Total provision for income taxes:
Federal --
Currently payable $603 $424 $343
Deferred -- current year 67 224 225
-- reversal of
prior years (75) (51) (41)
Deferred investment tax
credits - (20) (6)
- -------------------------------------------------------------------
595 577 521
- -------------------------------------------------------------------
State --
Currently payable 86 64 50
Deferred -- current year 15 39 46
-- reversal of
prior years (11) (3) (9)
- -------------------------------------------------------------------
90 100 87
- -------------------------------------------------------------------
Total 685 677 608
Less income taxes charged
(credited) to other income (26) (57) (39)
- -------------------------------------------------------------------
Federal and state income
taxes charged to operations $711 $734 $647
===================================================================
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:
1994 1993
-----------------------
(in millions)
Deferred tax liabilities:
Accelerated depreciation $2,637 $2,496
Property basis differences 1,647 1,741
Deferred plant costs 141 161
Other 271 289
- ------------------------------------------------------------------
Total 4,696 4,687
- ------------------------------------------------------------------
Deferred tax assets:
Federal effect of state deferred taxes 104 102
Other property basis differences 278 292
Deferred costs 79 69
Pension and other benefits 63 46
Other 225 210
- ------------------------------------------------------------------
Total 749 719
- ------------------------------------------------------------------
Net deferred tax liabilities 3,947 3,968
Portion included in current assets, net 60 11
- ------------------------------------------------------------------
Accumulated deferred income taxes
in the Consolidated Balance Sheet $4,007 $3,979
==================================================================
<PAGE>
30
NOTES (continued)
The Southern Company and Subsidiary Companies 1994 Annual Report
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 Consolidated Statements of Income. Credits amortized in this
manner amounted to $42 million in 1994, $36 million in 1993, and $41 million in
1992. At December 31, 1994, all investment tax credits available to reduce
federal income taxes payable had been utilized.
A reconciliation of the federal statutory income tax rate to the effective
income tax rate is as follows:
1994 1993 1992
---------------------------
Federal statutory rate 35.0% 35.0% 34.0%
State income tax,
net of federal deduction 3.3 3.7 3.4
Non-deductible book
depreciation 1.8 1.9 2.2
Difference in prior years'
deferred and current tax rate (1.5) (1.3) (1.5)
Other 0.3 (1.1) (1.6)
- ---------------------------------------------------------------
Effective income tax rate 38.9% 38.2% 36.5%
===============================================================
The Southern Company and its subsidiaries file a consolidated federal income
tax return. Under a joint consolidated income tax agreement, each company's
current and deferred tax expense is computed on a stand-alone basis, and
consolidated tax savings are allocated to each company based on its ratio of
taxable income to total consolidated taxable income.
10. COMMON STOCK
Stock Distribution
In January 1994, The Southern Company board of directors authorized a
two-for-one common stock split in the form of a stock distribution for each
share held as of February 7, 1994. For all reported common stock data, the
number of common shares outstanding and per share amounts for earnings,
dividends, and market price reflect the stock distribution.
Shares Reserved
At December 31, 1994, a total of 15 million shares was reserved for issuance
pursuant to the Dividend Reinvestment and Stock Purchase Plan, the Employee
Savings Plan, Outside Directors Stock Plan, and the Executive Stock Option Plan.
Executive Stock Option Plan
The Southern Company's Executive Stock Option Plan authorizes the granting of
non-qualified stock options to key employees of The Southern Company, including
officers. Currently, 36 employees are eligible to participate in the plan. As of
December 31, 1994, 42 current and former employees participated in the plan. The
maximum number of shares of common stock that may be issued under the Executive
Stock Option Plan may not exceed 6 million. The price of options granted to date
has been at the fair market value of the shares on the date of grant. Options
granted to date become exercisable pro rata over a maximum period of four years
from date of grant. Options outstanding will expire no later than 10 years after
the date of grant, unless terminated earlier by the board of directors in
accordance with the plan. Stock option activity in 1993 and 1994 is summarized
below:
Shares Average
Subject Option Price
To Option Per Share
---------------------------
Balance at December 31, 1992 1,189,122 $15.02
Options granted 359,492 21.22
Options canceled -- --
Options exercised (183,804) 14.14
- --------------------------------------------------------------------
Balance at December 31, 1993 1,364,810 16.77
Options granted 446,443 18.88
Options canceled - -
Options exercised (74,649) 14.81
- --------------------------------------------------------------------
Balance at December 31, 1994 1,736,604 $17.39
====================================================================
Shares reserved for future grants:
At December 31, 1992 4,073,936
At December 31, 1993 3,714,444
At December 31, 1994 3,268,001
- --------------------------------------------------------------------
Options exercisable:
At December 31, 1993 475,795
At December 31, 1994 793,989
- --------------------------------------------------------------------
Common Stock Dividend Restrictions
The income of The Southern Company is derived primarily from equity in earnings
of its operating subsidiaries. At December 31, 1994, $1.8 billion of
consolidated retained earnings was restricted against the payment by the
operating companies of cash dividends on common stock under terms of bond
indentures or charters.
<PAGE>
31
NOTES (continued)
The Southern Company and Subsidiary Companies 1994 Annual Report
11. OTHER LONG-TERM DEBT
Details of other long-term debt at December 31 are as follows:
1994 1993
-----------------
(in millions)
Obligations incurred in connection
with the sale by public authorities
of tax-exempt pollution control
revenue bonds:
Collateralized --
5.375% to 9.375% due
2004-2024 $1,179 $ 708
Variable rate (5% to 6.25%
at 1/1/95) due 2011-2024 412 63
Non-collateralized --
7.2 % to 12.25% due 2003-2014 1 650
6.75% to 10.6% due 2015-2017 828 890
5.8% due 2022 10 10
Variable rate (2.95% to 3.7% at
1/1/94) due 2011-2022 - 92
- -----------------------------------------------------------------
2,430 2,413
- -----------------------------------------------------------------
Capitalized lease obligations 148 247
- -----------------------------------------------------------------
Notes payable:
4.15% to 9.75% due 1994-1998 153 144
8.375% to 10% due 1997-1999 196 -
Adjustable rates (14.04% at
1/1/95) due 1995 26 -
Adjustable rates (4% to 7.8% at
1/1/95) due 1994-1996 133 115
Adjustable rates (5.5% to 8.14%
at 1/1/95) due 1998-2019 175 43
- -----------------------------------------------------------------
683 302
- -----------------------------------------------------------------
Total $3,261 $2,962
=================================================================
With respect to the collateralized pollution control revenue bonds, the
operating companies have authenticated and delivered to trustees a like
principal amount of first mortgage bonds as security for obligations under
installment sale or loan agreements. The principal and interest on the first
mortgage bonds will be payable only in the event of default under the
agreements.
Assets acquired under capital leases are recorded as utility plant in
service, and the related obligation is classified as other long-term debt. The
net book value of capitalized leases was $126 million and $217 million at
December 31, 1994 and 1993, respectively. At December 31, 1994, the composite
interest rates for buildings and other were 9.7 percent and 10.7 percent,
respectively. Sinking fund requirements and/or serial maturities through 1999
applicable to other long-term debt are as follows: $97 million in 1995; $166
million in 1996; $46 million in 1997; $29 million in 1998; and $23 million in
1999.
12. LONG-TERM DEBT DUE WITHIN ONE YEAR
A summary of the improvement fund requirements and scheduled maturities and
redemptions of long-term debt due within one year at December 31 is as follows:
1994 1993
-------------
(in millions)
Bond improvement fund requirements $ 48 $ 51
Less:
Portion to be satisfied by certifying
property additions 46 3
Reacquired bonds - 25
- ----------------------------------------------------------------
Cash sinking fund requirements 2 23
First mortgage bond maturities
and redemptions 130 44
Other long-term debt maturities
(Note 11) 97 89
- ----------------------------------------------------------------
Total $229 $156
================================================================
The first mortgage bond improvement (sinking) fund requirements amount to 1
percent of each outstanding series of bonds authenticated under the indentures
prior to January 1 of each year, other than those issued to collateralize
pollution control and other obligations. The requirements may be satisfied by
depositing cash or reacquiring bonds, or by pledging additional property equal
to 166 2/3 percent of such requirements.
13. NUCLEAR INSURANCE
Under the Price-Anderson Amendments Act of 1988, Alabama Power and Georgia Power
maintain agreements of indemnity with the NRC that, together with private
insurance, cover third-party liability arising from any nuclear incident
occurring at the companies' nuclear power plants. The act provides funds up to
$8.9 billion for public liability claims that could arise from a single nuclear
incident. Each nuclear plant is insured against this liability to a maximum of
$200 million by private insurance, with the remaining coverage provided by a
mandatory program of deferred premiums that could be assessed, after a nuclear
incident, against all owners of nuclear reactors. A company could be assessed up
to $79 million per incident for each licensed reactor it operates but not more
than an aggregate of $10 million per incident to be paid in a calendar year for
each reactor. Such maximum assessment, excluding any applicable state premium
<PAGE>
32
NOTES (continued)
The Southern Company and Subsidiary Companies 1994 Annual Report
taxes, for Alabama Power and Georgia Power -- based on its ownership and buyback
interests -- is $159 million and $163 million, respectively, per incident but
not more than an aggregate of $20 million and $21 million, respectively, to be
paid for each incident in any one year.
Alabama Power and Georgia Power are members of Nuclear Mutual Limited (NML),
a mutual insurer established to provide property damage insurance in an amount
up to $500 million for members' nuclear generating facilities. The members are
subject to a retrospective premium assessment in the event that losses exceed
accumulated reserve funds. Alabama Power's and Georgia Power's maximum annual
assessments are limited to $12 million and $15 million, respectively, under
current policies.
Additionally, both companies have policies that currently provide
decontamination, excess property insurance, and premature decommissioning
coverage up to $2.25 billion for losses in excess of the $500 million NML
coverage. This excess insurance is provided by Nuclear Electric Insurance
Limited (NEIL), a mutual insurance company.
NEIL also covers the additional costs that would be incurred in obtaining
replacement power during a prolonged accidental outage at a member's nuclear
plant. Members can be insured against increased costs of replacement power in an
amount up to $3.5 million per week -- starting 21 weeks after the outage -- for
one year and up to $2.8 million per week for the second and third years.
Under each of the NEIL policies, members are subject to assessments if
losses each year exceed the accumulated funds available to the insurer under
that policy. The maximum annual assessments under current policies for Alabama
Power and Georgia Power for excess property damage would be $27 million and $25
million, respectively. The maximum replacement power assessments are $10 million
for Alabama Power and $13 million for Georgia Power.
For all on-site property damage insurance policies for commercial nuclear
power plants, the NRC requires that the proceeds of such policies issued or
renewed on or after April 2, 1991, shall be dedicated first for the sole purpose
of placing the reactor in a safe and stable condition after an accident. Any
remaining proceeds are to be applied next toward the costs of decontamination
and debris removal operations ordered by the NRC, and any further remaining
proceeds are to be paid either to the company or to its bond trustees as may be
appropriate under the policies and applicable trust indentures.
Alabama Power and Georgia Power participate in an insurance program for
nuclear workers that provides coverage for worker tort claims filed for bodily
injury caused at commercial nuclear power plants. In the event that claims for
this insurance exceed the accumulated reserve funds, Alabama Power and Georgia
Power could be subject to a maximum total assessment of approximately $6 million
each.
All retrospective assessments -- whether generated for liability, property,
or replacement power -- may be subject to applicable state premium taxes.
14. QUARTERLY FINANCIAL INFORMATION (Unaudited)
Summarized quarterly financial data for 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
Per Common Share*
------------------------------------------------
Operating Operating Consolidated Price Range
Quarter Ended Revenues Income Net Income Earnings Dividends High Low
------------- ----------------------------------------- ------------------------------------------------
(in millions)
<S> <C> <C> <C> <C> <C> <C> <C>
March 1994 $1,932 $330 $142 $0.22 $0.295 22 18 1/2
June 1994 2,069 440 256 0.39 0.295 20 1/2 17 3/4
September 1994 2,381 607 416 0.64 0.295 20 17
December 1994 1,915 338 175 0.27 0.295 21 18 1/4
March 1993 $1,840 $377 $177 $0.28 $0.285 21 3/8 18 3/8
June 1993 2,068 426 250 0.39 0.285 22 1/2 19 3/8
September 1993 2,636 637 442 0.70 0.285 23 20 1/2
December 1993 1,945 325 133 0.20 0.285 23 5/8 20 3/4
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Earnings for 1994 declined by $61 million or 9 cents per share as a result
of work force reduction programs primarily recorded in the first quarter.
*Common stock data reflect a two-for-one stock split in the form of a stock
distribution for each share held as of February 7, 1994.
The company's business is influenced by seasonal weather conditions.
<PAGE>
33
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The Southern Company and Subsidiary Companies 1994 Annual Report
(See Note Below)
<TABLE>
<CAPTION>
==========================================================================================================
1994 1993 1992
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Revenues (in millions) $8,297 $8,489 $8,073
Consolidated Net Income (in millions) $989 $1,002 $953
Earnings Per Share of Common Stock $1.52 $1.57 $1.51
Cash Dividends Paid Per Share of Common Stock $1.18 $1.14 $1.10
Return on Average Common Equity (percent) 12.47 13.43 13.42
Total Assets (in millions) $27,042 $25,911 $20,038
Gross Property Additions (in millions) $1,536 $1,441 $1,105
- ----------------------------------------------------------------------------------------------------------
Capitalization (in millions):
Common stock equity $8,186 $7,684 $7,234
Preferred stock 1,332 1,333 1,351
Preferred and preference stock subject
to mandatory redemption -- -- 8
Preferred securities 100 -- --
Long-term debt 7,593 7,412 7,241
- ----------------------------------------------------------------------------------------------------------
Total excluding amounts due within one year $17,211 $16,429 $15,834
==========================================================================================================
Capitalization Ratios (percent):
Common stock equity 47.6 46.8 45.7
Preferred stock 8.3 8.1 8.6
Long-term debt 44.1 45.1 45.7
- ----------------------------------------------------------------------------------------------------------
Total excluding amounts due within one year 100.0 100.0 100.0
==========================================================================================================
Other Common Stock Data:
Book value per share (year-end) $12.47 $11.96 $11.43
Market price per share:
High 22 23 5/8 19 1/2
Low 17 18 3/8 15 1/8
Close 20 22 19 1/4
Market-to-book ratio (year-end) (percent) 160.4 183.9 168.4
Price-earnings ratio (year-end) (times) 13.2 14.0 12.7
Dividends paid (in millions) $766 $726 $695
Dividend yield (year-end) (percent) 5.9 5.2 5.7
Dividend payout ratio (percent) 77.5 72.4 72.9
Cash coverage of dividends (year-end) (times) 2.7 2.9 2.8
Proceeds from sales of stock (in millions) $279 $204 $30
Shares outstanding (in thousands):
Average 649,927 637,319 631,844
Year-end 656,528 642,662 632,917
Stockholders of record (year-end) 234,927 237,105 247,378
- ----------------------------------------------------------------------------------------------------------
First Mortgage Bonds (in millions):
Issued $185 $2,185 $1,815
Retired 241 2,178 2,575
Preferred Stock (in millions):
Issued $-- $426 $410
Retired 1 516 326
- ----------------------------------------------------------------------------------------------------------
Customers (year-end) (in thousands):
Residential 3,046 2,996 2,950
Commercial 439 427 414
Industrial 17 18 18
Other 5 4 4
- ----------------------------------------------------------------------------------------------------------
Total 3,507 3,445 3,386
==========================================================================================================
Employees (year-end) 27,826 28,743 29,085
- ----------------------------------------------------------------------------------------------------------
Note: Common stock data reflect a two-for-one stock split in the form of a
stock distribution for each share held as of February 7, 1994.
</TABLE>
<PAGE>
34A
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The Southern Company and Subsidiary Companies 1994 Annual Report
(See Note Below)
<TABLE>
<CAPTION>
==========================================================================================================
1991 1990 1989
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Revenues (in millions) $8,050 $8,053 $7,620
Consolidated Net Income (in millions) $876 $604 $846
Earnings Per Share of Common Stock $1.39 $0.96 $1.34
Cash Dividends Paid Per Share of Common Stock $1.07 $1.07 $1.07
Return on Average Common Equity (percent) 12.74 8.85 12.49
Total Assets (in millions) $19,863 $19,955 $20,092
Gross Property Additions (in millions) $1,123 $1,185 $1,346
- ----------------------------------------------------------------------------------------------------------
Capitalization (in millions):
Common stock equity $6,976 $6,783 $6,861
Preferred stock 1,207 1,207 1,209
Preferred and preference stock subject
to mandatory redemption 126 151 191
Preferred securities -- -- --
Long-term debt 7,992 8,458 8,575
- ----------------------------------------------------------------------------------------------------------
Total excluding amounts due within one year $16,301 $16,599 $16,836
==========================================================================================================
Capitalization Ratios (percent):
Common stock equity 42.8 40.9 40.8
Preferred stock 8.2 8.2 8.3
Long-term debt 49.0 50.9 50.9
- ----------------------------------------------------------------------------------------------------------
Total excluding amounts due within one year 100.0 100.0 100.0
==========================================================================================================
Other Common Stock Data:
Book value per share (year-end) $11.05 $10.74 $10.87
Market price per share:
High 17 3/8 14 5/8 14 7/8
Low 12 7/8 11 1/2 11
Close 17 1/8 13 7/8 14 1/2
Market-to-book ratio (year-end) (percent) 155.5 129.7 134.0
Price-earnings ratio (year-end) (times) 12.4 14.6 10.9
Dividends paid (in millions) $676 $676 $675
Dividend yield (year-end) (percent) 6.2 7.7 7.3
Dividend payout ratio (percent) 77.1 111.8 79.8
Cash coverage of dividends (year-end) (times) 2.5 2.8 2.6
Proceeds from sales of stock (in millions) $-- $-- $4
Shares outstanding (in thousands):
Average 631,307 631,307 631,303
Year-end 631,307 631,307 631,307
Stockholders of record (year-end) 254,568 263,046 273,751
- ----------------------------------------------------------------------------------------------------------
First Mortgage Bonds (in millions):
Issued $380 $300 $280
Retired 881 146 201
Preferred Stock (in millions):
Issued $100 $-- $--
Retired 125 96 21
- ----------------------------------------------------------------------------------------------------------
Customers (year-end) (in thousands):
Residential 2,903 2,865 2,824
Commercial 403 396 392
Industrial 18 18 18
Other 4 4 4
- ----------------------------------------------------------------------------------------------------------
Total 3,328 3,283 3,238
==========================================================================================================
Employees (year-end) 30,402 30,263 30,530
- ----------------------------------------------------------------------------------------------------------
Note: Common stock data reflect a two-for-one stock split in the form of a
stock distribution for each share held as of February 7, 1994.
</TABLE>
<PAGE>
34B
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The Southern Company and Subsidiary Companies 1994 Annual Report
(See Note Below)
<TABLE>
<CAPTION>
==========================================================================================================
1988 1987 1986
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Revenues (in millions) $7,287 $7,204 $7,033
Consolidated Net Income (in millions) $846 $577 $903
Earnings Per Share of Common Stock $1.36 $0.96 $1.56
Cash Dividends Paid Per Share of Common Stock $1.07 $1.07 $1.0325
Return on Average Common Equity (percent) 13.03 9.27 15.61
Total Assets (in millions) $19,731 $19,518 $18,483
Gross Property Additions (in millions) $1,754 $1,853 $2,367
- ----------------------------------------------------------------------------------------------------------
Capitalization (in millions):
Common stock equity $6,686 $6,307 $6,133
Preferred stock 1,259 1,139 1,214
Preferred and preference stock subject
to mandatory redemption 206 224 178
Preferred securities -- -- --
Long-term debt 8,433 8,333 7,812
- ----------------------------------------------------------------------------------------------------------
Total excluding amounts due within one year $16,584 $16,003 $15,337
==========================================================================================================
Capitalization Ratios (percent):
Common stock equity 40.3 39.4 40.0
Preferred stock 8.8 8.5 9.1
Long-term debt 50.9 52.1 50.9
- ----------------------------------------------------------------------------------------------------------
Total excluding amounts due within one year 100.0 100.0 100.0
==========================================================================================================
Other Common Stock Data:
Book value per share (year-end) $10.60 $10.28 $10.35
Market price per share:
High 12 1/8 14 1/2 13 5/8
Low 10 1/8 8 7/8 10 1/8
Close 11 1/8 11 1/8 12 5/8
Market-to-book ratio (year-end) (percent) 105.5 108.8 122.5
Price-earnings ratio (year-end) (times) 8.2 11.7 8.2
Dividends paid (in millions) $661 $628 $583
Dividend yield (year-end) (percent) 9.6 9.6 8.4
Dividend payout ratio (percent) 78.1 108.9 64.6
Cash coverage of dividends (year-end) (times) 2.3 2.0 2.7
Proceeds from sales of stock (in millions) $194 $247 $379
Shares outstanding (in thousands):
Average 622,292 601,390 580,252
Year-end 630,898 613,565 592,364
Stockholders of record (year-end) 290,725 296,079 297,302
- ----------------------------------------------------------------------------------------------------------
First Mortgage Bonds (in millions):
Issued $335 $700 $735
Retired 273 369 875
Preferred Stock (in millions):
Issued $120 $125 $100
Retired 10 160 53
- ----------------------------------------------------------------------------------------------------------
Customers (year-end) (in thousands):
Residential 2,781 2,733 2,675
Commercial 384 374 362
Industrial 18 18 17
Other 4 4 4
Total 3,187 3,129 3,058
==========================================================================================================
Employees (year-end) 32,523 32,612 32,358
- ----------------------------------------------------------------------------------------------------------
Note: Common stock data reflect a two-for-one stock split in the form of a
stock distribution for each share held as of February 7, 1994.
</TABLE>
<PAGE>
34C
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The Southern Company and Subsidiary Companies 1994 Annual Report
(See Note Below)
<TABLE>
<CAPTION>
==============================================================================================
1985 1984
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Operating Revenues (in millions) $6,999 $6,350
Consolidated Net Income (in millions) $845 $735
Earnings Per Share of Common Stock $1.56 $1.47
Cash Dividends Paid Per Share of Common Stock $0.975 $0.915
Return on Average Common Equity (percent) 16.59 16.55
Total Assets (in millions) $16,855 $15,327
Gross Property Additions (in millions) $2,242 $2,130
- ----------------------------------------------------------------------------------------------
Capitalization (in millions):
Common stock equity $5,443 $4,741
Preferred stock 1,114 1,004
Preferred and preference stock subject
to mandatory redemption 194 206
Preferred securities -- --
Long-term debt 7,220 6,774
- ----------------------------------------------------------------------------------------------
Total excluding amounts due within one year $13,971 $12,725
Capitalization Ratios (percent):
Common stock equity 38.9 37.3
Preferred stock 9.4 9.5
Long-term debt 51.7 53.2
- ----------------------------------------------------------------------------------------------
Total excluding amounts due within one year 100.0 100.0
Other Common Stock Data:
Book value per share (year-end) $9.72 $9.08
Market price per share:
High 11 5/8 9 3/8
Low 8 7/8 7 1/8
Close 11 1/8 9 3/8
Market-to-book ratio (year-end) (percent) 114.5 103.9
Price-earnings ratio (year-end) (times) 7.1 6.4
Dividends paid (in millions) $512 $444
Dividend yield (year-end) (percent) 9.2 10.2
Dividend payout ratio (percent) 60.6 60.4
Cash coverage of dividends (year-end) (times) 2.6 3.1
Proceeds from sales of stock (in millions) $373 $318
Shares outstanding (in thousands):
Average 541,244 501,313
Year-end 560,063 522,018
Stockholders of record (year-end) 318,221 336,165
- ----------------------------------------------------------------------------------------------
First Mortgage Bonds (in millions):
Issued $20 $150
Retired 69 71
Preferred Stock (in millions):
Issued $150 $50
Retired 6 6
- ----------------------------------------------------------------------------------------------
Customers (year-end) (in thousands):
Residential 2,611 2,541
Commercial 348 336
Industrial 17 17
Other 4 4
- ----------------------------------------------------------------------------------------------
Total 2,980 2,898
==============================================================================================
Employees (year-end) 32,354 31,753
- ----------------------------------------------------------------------------------------------
Note: Common stock data reflect a two-for-one stock split in the form of a
stock distribution for each share held as of February 7, 1994.
</TABLE>
<PAGE>
35
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA (continued)
The Southern Company and Subsidiary Companies 1994 Annual Report
<TABLE>
<CAPTION>
==========================================================================================================
1994 1993 1992
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Revenues (in millions):
Residential $2,560 $2,696 $2,402
Commercial 2,357 2,313 2,181
Industrial 2,162 2,200 2,126
Other 70 68 64
- ----------------------------------------------------------------------------------------------------------
Total retail 7,149 7,277 6,773
Sales for resale within service area 360 447 409
Sales for resale outside service area 505 613 797
- ----------------------------------------------------------------------------------------------------------
Total revenues from sales of electricity 8,014 8,337 7,979
Other revenues 283 152 94
- ----------------------------------------------------------------------------------------------------------
Total $8,297 $8,489 $8,073
==========================================================================================================
Kilowatt-Hour Sales (in millions):
Residential 35,836 36,807 33,627
Commercial 34,080 32,847 31,025
Industrial 50,311 48,738 47,816
Other 844 814 777
- ----------------------------------------------------------------------------------------------------------
Total retail 121,071 119,206 113,245
Sales for resale within service area 8,151 13,258 12,107
Sales for resale outside service area 10,769 12,445 16,632
- ----------------------------------------------------------------------------------------------------------
Total 139,991 144,909 141,984
==========================================================================================================
Average Revenue Per Kilowatt-Hour (cents):
Residential 7.14 7.32 7.14
Commercial 6.92 7.04 7.03
Industrial 4.30 4.51 4.45
Total retail 5.90 6.10 5.98
Sales for resale 4.57 4.12 4.20
Total sales 5.72 5.75 5.62
Average Annual Kilowatt-Hour Use Per Residential Customer 11,851 12,378 11,490
Average Annual Revenue Per Residential Customer $846.48 $906.60 $820.67
Plant Nameplate Capacity Ratings (year-end) (megawatts) 29,932 29,513 29,830
Maximum Peak-Hour Demand (megawatts):
Winter 22,254 19,432 19,121
Summer 24,546 25,937 24,146
System Reserve Margin (at peak) (percent) 19.3 13.2 14.3
Annual Load Factor (percent) 63.5 59.4 60.3
Plant Availability (percent):
Fossil-steam 85.2 87.9 88.6
Nuclear 89.8 85.9 85.2
- ----------------------------------------------------------------------------------------------------------
Source of Energy Supply (percent):
Coal 70.8 73.0 71.7
Nuclear 17.9 16.3 16.2
Hydro 4.7 3.9 4.6
Oil and gas 0.9 0.9 0.5
Purchased power 5.7 5.9 7.0
- ----------------------------------------------------------------------------------------------------------
Total 100.0 100.0 100.0
==========================================================================================================
Total Fuel Economy Data:
BTU per net kilowatt-hour generated 10,010 9,994 9,976
Cost of fuel per million BTU (cents) 155.81 166.85 162.58
Average cost of fuel per net kilowatt-hour generated (cents) 1.56 1.67 1.62
- ----------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
36A
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA (continued)
The Southern Company and Subsidiary Companies 1994 Annual Report
<TABLE>
<CAPTION>
==========================================================================================================
1991 1990 1989
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Revenues (in millions):
Residential $2,391 $2,342 $2,194
Commercial 2,122 2,062 1,965
Industrial 2,088 2,085 2,011
Other 65 64 60
- ----------------------------------------------------------------------------------------------------------
Total retail 6,666 6,553 6,230
Sales for resale within service area 417 412 401
Sales for resale outside service area 884 977 928
- ----------------------------------------------------------------------------------------------------------
Total revenues from sales of electricity 7,967 7,942 7,559
Other revenues 83 111 61
- ----------------------------------------------------------------------------------------------------------
Total $8,050 $8,053 $7,620
==========================================================================================================
Kilowatt-Hour Sales (in millions):
Residential 33,622 33,118 31,627
Commercial 30,379 29,658 28,454
Industrial 46,050 45,974 45,022
Other 817 806 787
- ----------------------------------------------------------------------------------------------------------
Total retail 110,868 109,556 105,890
Sales for resale within service area 12,320 11,134 11,419
Sales for resale outside service area 19,839 24,402 24,228
- ----------------------------------------------------------------------------------------------------------
Total 143,027 145,092 141,537
==========================================================================================================
Average Revenue Per Kilowatt-Hour (cents):
Residential 7.11 7.07 6.94
Commercial 6.99 6.96 6.91
Industrial 4.53 4.53 4.47
Total retail 6.01 5.98 5.88
Sales for resale 4.05 3.91 3.73
Total sales 5.57 5.47 5.34
Average Annual Kilowatt-Hour Use Per Residential Customer 11,659 11,637 11,287
Average Annual Revenue Per Residential Customer $829.18 $822.93 $782.90
Plant Nameplate Capacity Ratings (year-end) (megawatts) 29,915 29,532 29,532
Maximum Peak-Hour Demand (megawatts):
Winter 19,166 17,629 20,772
Summer 25,261 25,981 24,399
System Reserve Margin (at peak) (percent) 16.5 14.0 21.0
Annual Load Factor (percent) 58.3 56.6 58.6
Plant Availability (percent):
Fossil-steam 91.3 91.9 92.2
Nuclear 83.4 83.0 87.0
- ----------------------------------------------------------------------------------------------------------
Source of Energy Supply (percent):
Coal 72.6 72.1 71.5
Nuclear 16.2 15.6 15.7
Hydro 4.4 4.4 5.2
Oil and gas 0.6 1.3 1.1
Purchased power 6.2 6.6 6.5
- ----------------------------------------------------------------------------------------------------------
Total 100.0 100.0 100.0
==========================================================================================================
Total Fuel Economy Data:
BTU per net kilowatt-hour generated 10,022 10,065 10,086
Cost of fuel per million BTU (cents) 168.28 172.81 171.00
Average cost of fuel per net kilowatt-hour generated (cents) 1.69 1.74 1.72
- ----------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
36B
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA (continued)
The Southern Company and Subsidiary Companies 1994 Annual Report
<TABLE>
<CAPTION>
==========================================================================================================
1988 1987 1986
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Revenues (in millions):
Residential $2,103 $2,042 $1,996
Commercial 1,835 1,692 1,613
Industrial 1,945 1,870 1,845
Other 56 54 52
- ----------------------------------------------------------------------------------------------------------
Total retail 5,939 5,658 5,506
Sales for resale within service area 480 461 511
Sales for resale outside service area 777 1,028 957
- ----------------------------------------------------------------------------------------------------------
Total revenues from sales of electricity 7,196 7,147 6,974
Other revenues 91 57 59
- ----------------------------------------------------------------------------------------------------------
Total $7,287 $7,204 $7,033
==========================================================================================================
Kilowatt-Hour Sales (in millions):
Residential 31,041 30,583 29,501
Commercial 27,005 25,593 24,166
Industrial 43,675 42,113 40,503
Other 763 737 723
- ----------------------------------------------------------------------------------------------------------
Total retail 102,484 99,026 94,893
Sales for resale within service area 14,806 13,282 14,347
Sales for resale outside service area 15,860 22,905 16,909
- ----------------------------------------------------------------------------------------------------------
Total 133,150 135,213 126,149
==========================================================================================================
Average Revenue Per Kilowatt-Hour (cents):
Residential 6.77 6.68 6.77
Commercial 6.79 6.61 6.67
Industrial 4.45 4.44 4.56
Total retail 5.80 5.71 5.80
Sales for resale 4.10 4.11 4.69
Total sales 5.40 5.29 5.53
Average Annual Kilowatt-Hour Use Per Residential Customer 11,255 11,307 11,157
Average Annual Revenue Per Residential Customer $762.42 $754.96 $754.93
Plant Nameplate Capacity Ratings (year-end) (megawatts) 27,552 27,610 26,262
Maximum Peak-Hour Demand (megawatts):
Winter 18,685 18,185 19,665
Summer 23,641 23,194 23,255
System Reserve Margin (at peak) (percent) 15.0 16.2 11.4
Annual Load Factor (percent) 59.8 58.7 57.2
Plant Availability (percent):
Fossil-steam 91.3 91.2 90.3
Nuclear 78.4 84.5 74.2
- ----------------------------------------------------------------------------------------------------------
Source of Energy Supply (percent):
Coal 77.7 77.8 79.4
Nuclear 14.5 13.1 11.5
Hydro 2.3 3.3 2.2
Oil and gas 0.7 0.6 0.9
Purchased power 4.8 5.2 6.0
- ----------------------------------------------------------------------------------------------------------
Total 100.0 100.0 100.0
==========================================================================================================
Total Fuel Economy Data:
BTU per net kilowatt-hour generated 10,094 10,122 10,171
Cost of fuel per million BTU (cents) 170.36 176.64 185.89
Average cost of fuel per net kilowatt-hour generated (cents) 1.72 1.78 1.89
- ----------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
36C
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA (continued)
The Southern Company and Subsidiary Companies 1994 Annual Report
<TABLE>
<CAPTION>
==============================================================================================
1985 1984
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Operating Revenues (in millions):
Residential $1,825 $1,751
Commercial 1,512 1,410
Industrial 1,830 1,790
Other 50 47
- ----------------------------------------------------------------------------------------------
Total retail 5,217 4,998
Sales for resale within service area 436 456
Sales for resale outside service area 1,289 854
- ----------------------------------------------------------------------------------------------
Total revenues from sales of electricity 6,942 6,308
Other revenues 57 42
- ----------------------------------------------------------------------------------------------
Total $6,999 $6,350
==============================================================================================
Kilowatt-Hour Sales (in millions):
Residential 27,088 26,163
Commercial 22,512 20,816
Industrial 39,804 39,055
Other 713 663
- ----------------------------------------------------------------------------------------------
Total retail 90,117 86,697
Sales for resale within service area 11,079 11,193
Sales for resale outside service area 27,881 21,374
- ----------------------------------------------------------------------------------------------
Total 129,077 119,264
==============================================================================================
Average Revenue Per Kilowatt-Hour (cents):
Residential 6.74 6.69
Commercial 6.71 6.77
Industrial 4.60 4.58
Total retail 5.79 5.76
Sales for resale 4.43 4.02
Total sales 5.38 5.29
Average Annual Kilowatt-Hour Use Per Residential Customer 10,515 10,434
Average Annual Revenue Per Residential Customer $708.46 $698.26
Plant Nameplate Capacity Ratings (year-end) (megawatts) 26,262 25,397
Maximum Peak-Hour Demand (megawatts):
Winter 19,347 16,353
Summer 21,778 20,210
System Reserve Margin (at peak) (percent) 17.6 32.8
Annual Load Factor (percent) 57.4 58.9
Plant Availability (percent):
Fossil-steam 90.5 90.5
Nuclear 80.3 66.9
- ----------------------------------------------------------------------------------------------
Source of Energy Supply (percent):
Coal 78.5 77.3
Nuclear 12.0 11.8
Hydro 3.1 5.6
Oil and gas 0.3 0.2
Purchased power 6.1 5.1
- ----------------------------------------------------------------------------------------------
Total 100.0 100.0
==============================================================================================
Total Fuel Economy Data:
BTU per net kilowatt-hour generated 10,193 10,208
Cost of fuel per million BTU (cents) 191.24 191.44
Average cost of fuel per net kilowatt-hour generated (cents) 1.95 1.95
- ----------------------------------------------------------------------------------------------
</TABLE>
