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 21, 1996
---------------------
THE SOUTHERN COMPANY
- -----------------------------------------------------------------------
(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.)
270 Peachtree Street, NW, Atlanta, Georgia 30303
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (770) 393-0650
-----------------
N/A
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(Former name or former address, if changed since last report
<PAGE>
Item 7. Financial Statements and Exhibits.
(c) Exhibits.
23 - Consent of Arthur Andersen LLP.
27 - Financial Data Schedule.
99 - Audited Financial Statements of The Southern
Company as of December 31, 1995.
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, 1996
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report dated February 21, 1996 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, 33-51433, 33-54415, 33-57951, 33-58371, and
33-60427.
/s/ Arthur Andersen LLP
Atlanta, Georgia
February 28, 1996
<PAGE>
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<LEGEND>
This schedule contains summary financial information extracted from the
financial statements filed as Exhibit 99 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CIK> 0000092122
<NAME> THE SOUTHERN COMPANY
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 23,026
<OTHER-PROPERTY-AND-INVEST> 1,293
<TOTAL-CURRENT-ASSETS> 3,510
<TOTAL-DEFERRED-CHARGES> 2,725
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 30,554
<COMMON> 3,348
<CAPITAL-SURPLUS-PAID-IN> 1,941
<RETAINED-EARNINGS> 3,483
<TOTAL-COMMON-STOCKHOLDERS-EQ> 8,772
100
1,332
<LONG-TERM-DEBT-NET> 8,352
<SHORT-TERM-NOTES> 445
<LONG-TERM-NOTES-PAYABLE> 316
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<PAGE>
1
EXHIBIT 99
MANAGEMENT'S REPORT
The Southern Company and Subsidiary Companies 1995 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 five 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.
/s/ A. W. Dahlberg
A. W. Dahlberg
Chairman, President, and Chief Executive Officer
/s/ W. L. Westbrook
W. L. Westbrook
Financial Vice President, Chief Financial Officer, and Treasurer
February 21, 1996
<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, 1995 and 1994, 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, 1995. 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 11-33) referred to above
present fairly, in all material respects, the financial position of The Southern
Company and subsidiary companies as of December 31, 1995 and 1994, and the
results of their operations and their cash flows for the periods stated, in
conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Atlanta, Georgia
February 21, 1996
<PAGE>
3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
The Southern Company and Subsidiary Companies 1995 Annual Report
RESULTS OF OPERATIONS
Earnings and Dividends
This year's financial performance continues to support The Southern Company's
goal to become America's Best Diversified Utility. The core business of selling
electricity in the Southeast remained strong, while the non-core business
expanded both internationally and domestically. The financial results for 1995
demonstrate a very successful year with several records being set. Net income of
$1.1 billion and earnings per share of $1.66 for 1995 both established record
highs. Southern Company common stock reached an all-time high closing price of
24 5/8, surpassing the previous record of 23 3/8 set in 1993. Continued cost
controls and the strong demand for electricity were the dominant forces that
favorably affected earnings in 1995.
Costs related to the work force reduction programs implemented in 1995 and
1994 decreased earnings by 2 cents and 9 cents per share, respectively. These
costs are expected to be recovered through future savings in approximately two
years following each program's implementation. Additional non-operating or
non-recurring items affected earnings in 1995 and 1994. After excluding these
items in both years, 1995 earnings from operations were $1.1 billion -- or $1.71
per share -- an increase of $108 million compared with 1994. The non-operating
items that affected earnings were as follows:
Consolidated Earnings
Net Income Per Share
--------------- ----------------
1995 1994 1995 1994
--------------- ----------------
(in millions)
Earnings as reported $1,103 $ 989 $1.66 $1.52
- ---------------------------------------------------------------------
Work force reduction
programs 17 61 .02 .09
Sale of facilities (12) (28) (.02) (.04)
Demand-side costs 17 - .03 -
Environmental
cleanup 5 5 .01 .01
Miscellaneous 5 - .01 -
- ---------------------------------------------------------------------
Total non-operating 32 38 .05 .06
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Earnings from
operations $1,135 $1,027 $1.71 $1.58
=====================================================================
Amount and
percent change $108 10.6% $0.13 8.2%
- ---------------------------------------------------------------------
In 1995, non-operating items -- both positive and negative -- had an impact
on earnings, which resulted in a net reduction of $32 million. These items were:
(1) Costs associated with work force reduction programs implemented primarily in
1995 decreased earnings. (2) The last in a series of four separate transactions
to sell Plant Scherer Unit 4 to two Florida utilities increased earnings. (3)
Georgia Power's demand-side conservation costs that were not recovered from
customers decreased earnings. (4) Environmental-cleanup costs decreased
earnings.
In 1994, earnings were $989 million or $1.52 per share -- down 5 cents from
the per share amount reported in 1993. Earnings in 1994 were significantly
affected by costs related to work force reduction programs and milder than
normal temperatures.
Dividends paid on common stock during 1995 were $1.22 per share or 30 1/2
cents per quarter. During 1994 and 1993, dividends paid per share were $1.18 and
$1.14, respectively. In January 1996, The Southern Company board of directors
raised the quarterly dividend to 31 1/2 cents per share or an annual rate of
$1.26 per share.
Acquisitions
Southern Electric International (Southern Electric) owns and manages
international and domestic non-core businesses for The Southern Company.
Southern Electric acquired several businesses in late 1994 and in 1995. These
businesses have been included in the consolidated statements of income since the
date of acquisition and not reflected in prior periods. These acquisitions
account for a significant portion of the amount of change in revenues and
certain expenses from year to year. Therefore to facilitate discussing the
results of operations, Southern Electric's 1995 variances are shown separately.
These variances are predominantly acquisition related and require no further
explanation.
<PAGE>
4
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
The Southern Company and Subsidiary Companies 1995 Annual Report
Revenues
Operating revenues increased in 1995 and decreased in 1994 as a result of the
following factors:
Increase (Decrease)
From Prior Year
------------------------------
1995 1994 1993
------------------------------
Retail -- (in millions)
Change in base rates $ - $ 3 $ 3
Sales growth 177 153 104
Weather 143 (177) 198
Fuel cost recovery and
other 134 (107) 199
-------------------------------------------------------------
Total retail 454 (128) 504
-------------------------------------------------------------
Sales for resale --
Within service area 39 (87) 38
Outside service area (90) (108) (184)
-------------------------------------------------------------
Total sales for resale (51) (195) (146)
Southern Electric 458 131 54
Other operating revenues 22 - 4
-------------------------------------------------------------
Total operating revenues $883 $(192) $ 416
=============================================================
Percent change 10.6% (2.3)% 5.2%
-------------------------------------------------------------
Retail revenues of $7.6 billion in 1995 increased 6.4 percent from last
year, compared with a decrease of 1.8 percent in 1994. Under fuel cost recovery
provisions, fuel revenues generally equal fuel expense -- including the fuel
component of purchased energy -- and do not affect net income.
Sales for resale revenues within the service area were $399 million in 1995,
up 11 percent from the prior year. This increase resulted primarily from the
prolonged hot summer weather, which increased the demand for electricity.
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.
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.
1995 1994 1993
---------------------------------
(in millions)
Capacity $237 $276 $350
Energy 151 176 230
------------------------------------------------------
Total $388 $452 $580
======================================================
Capacity revenues decreased in 1995 and 1994 because the amount of capacity
under contract declined, as scheduled, by some 100 megawatts and 400 megawatts,
respectively. 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 1995 and the percent change by year were as
follows:
Percent Change
----------------------------
(billions of Amount
kilowatt-hours) 1995 1995 1994 1993
------------- ----------------------------
Residential 39.1 9.2% (2.6)% 9.5%
Commercial 35.9 5.5 3.8 5.9
Industrial 51.7 2.7 3.2 1.9
Other 0.9 2.1 3.8 4.6
-----------
Total retail 127.6 5.4 1.6 5.3
Sales for resale --
Within service area 9.5 16.2 (38.5) 9.5
Outside service area 9.1 (15.1) (13.5) (25.2)
-----------
Total 146.2 4.4 (3.4) 2.1
===================================================================
The rate of increase in 1995 retail energy sales was fostered by the impact
of weather. Residential energy sales surged upward as a result of
hotter-than-normal summer weather in 1995, compared with the extremely mild
summer of 1994. 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 1996 through 2006.
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 continued to decrease
in 1995 and 1994, primarily as a result of the scheduled decline in megawatts of
capacity under contract.
<PAGE>
5
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
The Southern Company and Subsidiary Companies 1995 Annual Report
Expenses
Total operating expenses of $7.3 billion for 1995 increased $712 million
compared with the prior year. Core business expenses increased $322 million, and
Southern Electric comprised the remainder. The costs to produce and deliver
electricity for the core business in 1995 increased by $120 million to meet
higher energy demands. Depreciation expenses and property taxes increased by $78
million as a result of additional utility plant being placed into service. The
amortization of deferred expenses related to Plant Vogtle increased by $49
million in 1995 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 1994, operating expenses of $6.6 billion declined 2.1 percent compared
with 1993. The decrease was attributable to less energy being sold. Total
production costs were down $297 million. However, costs related to the 1994 work
force reduction programs increased operating expenses by $100 million. Also, a
$39 million increase in the amortization of deferred Plant Vogtle expenses
compared with the amount in 1993 contributed to offset the decrease in 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
nuclear generating units. The amount and sources of generation and the average
cost of fuel per net kilowatt-hour generated -- within the core business service
area -- were as follows:
1995 1994 1993
---------------------------
Total generation
(billions of kilowatt-hours) 147 142 144
Sources of generation
(percent) --
Coal 77 75 78
Nuclear 17 19 17
Hydro 4 5 4
Oil and gas 2 1 1
Average cost of fuel per net
kilowatt-hour generated
(cents) --
Coal 1.73 1.80 1.90
Nuclear 0.56 0.56 0.54
Oil and gas 3.37 3.99 4.34
Total 1.53 1.56 1.67
- --------------------------------------------------------------
Fuel and purchased power costs of $2.6 billion in 1995 increased $282 million
compared with 1994. Core business increased $73 million and Southern Electric
increased $209 million. The operating companies' customer demand for electricity
rose by 4.7 billion kilowatt-hours more than in 1994. The additional cost to
meet the demand was offset slightly by a lower average cost of fuel per net
kilowatt-hour generated. Fuel and purchased power expenses of $2.3 billion in
1994 decreased 10 percent compared with the prior year because of lower energy
demands and a lower average cost of fuel per net kilowatt-hour generated.
For 1995, income taxes increased $84 million compared with the prior year.
Core business income taxes increased $65 million, and Southern Electric
accounted for the remainder. The increase was attributable to additional taxable
income from operations. 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.
Total gross interest charges and preferred stock dividends increased $39
million from amounts reported in the previous year. These costs for core
business continued to decline by $12 million, but Southern Electric interest
charges increased by $51 million. The decline is attributable to lower interest
rates and continued refinancing activities in 1995. In 1994, these costs were
$765 million -- down $66 million or 8.0 percent. As a result of favorable market
conditions, $1.1 billion in 1995, $1.0 billion in 1994, and $3.0 billion in 1993
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.
<PAGE>
6
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
The Southern Company and Subsidiary Companies 1995 Annual Report
Future Earnings Potential
The results of operations for the past three years are not necessarily
indicative of future earnings potential. The level of future earnings depends on
numerous factors ranging from energy sales growth to a less regulated more
competitive environment, with non-core business becoming more significant.
Work force reduction programs were implemented in 1995 and 1994 that reduced
earnings by $17 million and $61 million, respectively. These actions will assist
in efforts to control growth in future operating expenses.
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 weather, competition, changes in contracts with neighboring utilities,
energy conservation practiced by customers, the elasticity of demand, and the
rate of economic growth in the company's service area. 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
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 enhances 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. Also, electricity sales for resale rates are
being driven down by wholesale transmission access and numerous potential new
energy suppliers, including power marketers and brokers. The Southern Company is
aggressively working to maintain and expand its share of wholesale sales in the
Southeastern power markets.
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. New federal legislation is being discussed,
and legislation allowing customer choice has already been introduced in Florida
and Georgia. 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 by
seeking new markets that evolve with the changing regulation.
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 -- founded in 1981 -- is focusing on
international and domestic cogeneration, the independent power market, and the
privatization of generating and distribution facilities in the international
market. In late 1995, South Western Electricity (SWEB) was acquired for
approximately $1.8 billion. For additional information on this acquisition, see
Note 14 to the financial statements. This British electric distribution utility
and other investments made by Southern Electric should increase the
opportunities for future earnings growth. At December 31, 1995, Southern
Electric's total assets amounted to $5.0 billion.
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.
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.
<PAGE>
7
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
The Southern Company and Subsidiary Companies 1995 Annual Report
The staff of the Securities and Exchange Commission has questioned certain of
the current accounting practices of the electric utility industry -- including
The Southern Company's -- regarding the recognition, measurement, and
classification of decommissioning costs for nuclear generating facilities in the
financial statements. In response to these questions, the Financial Accounting
Standards Board (FASB) has decided to review the accounting for liabilities
related to closure and removal of long-lived assets, including nuclear
decommissioning. If the FASB issues new accounting rules, the estimated costs of
closing and removing The Southern Company's nuclear and other facilities may be
required to be recorded as liabilities in the Consolidated Balance Sheets. Also,
the annual provisions for such costs could increase. Because of the company's
current ability to recover closure and removal costs through rates, these
changes would not have a significant adverse effect on results of operations.
See Note 1 to the financial statements under "Depreciation and Nuclear
Decommissioning" for additional information.
The Southern 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."
The operating companies are subject to the provisions of FASB Statement No.
71, Accounting for the Effects of Certain Types of Regulation. In the event that
a portion of a company's operations is no longer subject to these provisions,
the company would be required to write off related regulatory assets and
liabilities, and determine if any other assets have been impaired. See Note 1 to
the financial statements under "Regulatory Assets and Liabilities" for
additional information.
New Accounting Standards
The FASB has issued Statement No. 121, Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed of. This statement
requires that long-lived assets be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount for an asset may not
be recoverable. This statement also imposes stricter criteria for regulatory
assets by requiring that such assets be probable of future recovery at each
balance sheet date. The Southern Company adopted the new rules January 1, 1996,
with no material effect on the financial statements. However, this conclusion
may change in the future as competitive factors influence wholesale and retail
pricing in the utility industry.
The FASB has issued Statement No. 123, Accounting for Stock-Based
Compensation. This statement establishes a fair value based method of accounting
for employee stock options. This method provides for a compensation cost to be
charged to results of operations at the grant date. However, the statement
allows companies to continue following the accounting prescribed by Accounting
Principles Bulletin Opinion No. 25. Opinion No. 25 generally requires
compensation cost to be recognized only for the excess of the quoted market
price at the grant date over the price that an employee must pay to acquire the
stock. The Southern Company has elected to continue with Opinion No. 25.
FINANCIAL CONDITION
Overview
The Southern Company's financial condition continues to remain strong. Both
earnings per share and market price per share set new record levels in 1995.
Earnings from operations continued to increase in 1995 and exceeded $1.1
billion. Based on this performance, in January 1996, The Southern Company board
of directors increased the common stock dividend for the fifth consecutive year.
In 1995, Southern Electric acquired SWEB for approximately $1.8 billion. For
more information on the purchase of this British electric distribution utility,
see Note 14 to the financial statements.
Another major change in The Southern Company's financial condition was gross
property additions of $1.4 billion to utility plant. The majority of funds
needed for gross property additions since 1992 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, 1995, the
credit risk for derivatives outstanding was not material. See Note 1 to the
financial statements under "Financial Instruments" for additional information.
<PAGE>
8
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
The Southern Company and Subsidiary Companies 1995 Annual Report
Capital Structure
The Southern Company achieved a ratio of common equity to total capitalization
- -- including short-term debt -- of 42.4 percent in 1995, compared with 44.4
percent in 1994, and 43.8 percent in 1993. The company's goal is to maintain
the common equity ratio generally within a range of 40 percent to 45 percent.
During 1995, the subsidiary companies sold $375 million of first mortgage
bonds and, through public authorities, $732 million of pollution control revenue
bonds. The companies continued to reduce financing costs by retiring higher-cost
bonds. Retirements, including maturities, of bonds totaled $1.3 billion during
1995, $973 million during 1994, and $2.5 billion during 1993. Retirements of
preferred stock totaled $1 million a year during 1995 and 1994 and $516 million
during 1993. As a result, the composite interest rate on long-term debt
decreased from 8.2 percent at December 31, 1992, to 7.1 percent at December 31,
1995. During this same period, the composite dividend rate on preferred stock
declined from 7.3 percent to 6.5 percent.
In 1995, The Southern Company raised $174 million from the issuance of new
common stock under the company's various stock plans. An additional $103 million
of new common stock was issued through a public offering in early 1995. At the
close of 1995, the company's common stock had a market value of 24 5/8 per
share, compared with a book value of $13.10 per share. The market-to-book value
ratio was 188 percent at the end of 1995, compared with 160 percent at year-end
1994 and 184 percent at year-end 1993.
Capital Requirements for Construction
The construction program of The Southern Company is budgeted at $1.5 billion for
1996, $1.4 billion for 1997, and $1.3 billion for 1998. The total is $4.2
billion for the three years. Actual construction costs may vary from this
estimate because of changes in such factors as: business conditions;
environmental regulations; nuclear plant regulations; load projections;
the cost and efficiency of construction labor, equipment, and materials; and the
cost of capital. In addition, there can be no assurance that costs related to
capital expenditures for the operating companies will be fully recovered.
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 600
megawatts of capacity is planned to be completed by 1998 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 $996
million will be required by the end of 1998 for present sinking fund
requirements and maturities of long-term debt. Also, the 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 -- has significantly
impacted The Southern Company. Specific reductions in sulfur dioxide and
nitrogen oxide emissions from fossil-fired generating plants are required in two
phases. Phase I compliance began in 1995 and initially affected 28 generating
units of The Southern Company. As a result of the company's compliance strategy,
an additional 22 generating units were brought into compliance with Phase I
requirements. Phase II compliance is required in 2000, and all fossil-fired
generating plants will be affected.
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.
<PAGE>
9
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
The Southern Company and Subsidiary Companies 1995 Annual Report
The Southern Company achieved Phase I sulfur dioxide compliance at the
affected plants by switching to low-sulfur coal, which required some equipment
upgrades. This compliance strategy resulted in unused emission allowances being
banked for later use. Compliance with nitrogen oxide emission limits was
achieved by the installation of new control equipment at 22 of the original 28
affected generating units. Construction expenditures for Phase I compliance
totaled approximately $320 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 units as required to meet 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 1 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.
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.
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 issued rules
for the application of reasonably available control technology to reduce
nitrogen oxide emissions by May 31, 1995. The results of these new rules
required nitrogen oxide controls, above Title IV requirements, on some Georgia
Power plants. The EPA along with 37 states is conducting studies to evaluate the
benefits of regional controls in meeting the ozone standards. Final attainment
rules, based on modeling studies, could require installation of additional
controls for nitrogen oxide emissions to meet the 1999 deadline in Atlanta or as
part of any regional controls if enacted. A decision on new requirements is
expected in 1997. 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 during 1996. 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.
The EPA is evaluating the need to revise the ambient air quality standards
for particulate matter 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 1996, 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 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
<PAGE>
10
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
The Southern Company and Subsidiary Companies 1995 Annual Report
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, $8 million, and $41 million in 1995, 1994, and 1993,
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 Bruswick, Georgia.
Several major pieces of environmental legislation are being considered for
reauthorization or amendment by Congress. These include: the Clean Air Act; the
Clean Water Act; the Comprehensive Environmental Response, Compensation, and
Liability Act; the Resource Conservation and Recovery Act; the Toxic Substances
Control Act; and the Endangered Species Act. Changes to these laws could affect
many areas of 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.
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
The Southern Company may require additional equity capital in 1996. The amount
and timing of additional equity capital to be raised in 1996 -- 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 1996 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 companies 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.
To meet short-term cash needs and contingencies, The Southern Company had
approximately $772 million of cash and cash equivalents and $2.8 billion of
unused credit arrangements with banks at the beginning of 1996.
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 1998.
<PAGE>
11
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31, 1995, 1994, and 1993
The Southern Company and Subsidiary Companies 1995 Annual Report
<S> <C> <C> <C>
====================================================================================================================
1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------
(in millions)
Operating Revenues $9,180 $8,297 $8,489
- --------------------------------------------------------------------------------------------------------------------
Operating Expenses:
Operation --
Fuel 2,126 2,058 2,265
Purchased power 491 277 336
Other 1,626 1,505 1,445
Maintenance 683 660 653
Depreciation and amortization 904 821 793
Amortization of deferred Plant Vogtle costs, net (Note 1) 124 75 36
Taxes other than income taxes 535 475 462
Federal and state income taxes 805 711 734
- --------------------------------------------------------------------------------------------------------------------
Total operating expenses 7,294 6,582 6,724
- --------------------------------------------------------------------------------------------------------------------
Operating Income 1,886 1,715 1,765
Other Income:
Allowance for equity funds used during construction 5 11 9
Interest income 38 32 30
Other, net (65) (28) (34)
Income taxes applicable to other income 36 26 57
- --------------------------------------------------------------------------------------------------------------------
Income Before Interest Charges 1,900 1,756 1,827
- --------------------------------------------------------------------------------------------------------------------
Interest Charges and Other:
Interest on long-term debt 557 568 595
Allowance for debt funds used during construction (20) (18) (13)
Interest on notes payable 63 33 30
Amortization of debt discount, premium, and expense, net 44 30 26
Other interest charges 52 47 87
Minority interest in subsidiaries 13 20 7
Preferred dividends of subsidiary companies 88 87 93
- --------------------------------------------------------------------------------------------------------------------
Net interest charges and other, net 797 767 825
- --------------------------------------------------------------------------------------------------------------------
Consolidated Net Income $1,103 $ 989 $1,002
====================================================================================================================
Common Stock Data:
Average number of shares of common stock outstanding (in millions) 665 650 637
Earnings per share of common stock $1.66 $1.52 $1.57
Cash dividends paid per share of common stock $1.22 $1.18 $1.14
- --------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
For the Years Ended December 31, 1995, 1994, and 1993
1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------
(in millions)
Balance at Beginning of Year $3,191 $2,968 $2,721
Consolidated net income 1,103 989 1,002
- --------------------------------------------------------------------------------------------------------------------
4,294 3,957 3,723
Cash dividends on common stock 811 766 726
Capital and preferred stock transactions, net - - 29
- --------------------------------------------------------------------------------------------------------------------
Balance at End of Year (Note 9) $3,483 $3,191 $2,968
====================================================================================================================
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
12
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1995, 1994, and 1993
The Southern Company and Subsidiary Companies 1995 Annual Report
<S> <C> <C> <C>
==========================================================================================================================
1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------
(in millions)
Operating Activities:
Consolidated net income $ 1,103 $ 989 $ 1,002
Adjustments to reconcile consolidated net income
to net cash provided by operating activities --
Depreciation and amortization 1,134 1,050 1,011
Deferred income taxes and investment tax credits 117 (4) 189
Allowance for equity funds used during construction (5) (11) (9)
Amortization of deferred Plant Vogtle costs (Note 1) 124 75 36
Gain on asset sales (33) (52) (36)
Other, net (52) 45 (9)
Changes in certain current assets and liabilities --
Receivables, net (109) 114 (55)
Fossil fuel stock 28 (110) 138
Materials and supplies 11 (18) (2)
Accounts payable (138) 81 43
Other 135 (48) (61)
- --------------------------------------------------------------------------------------------------------------------------
Net cash provided from operating activities 2,315 2,111 2,247
- --------------------------------------------------------------------------------------------------------------------------
Investing Activities:
Gross property additions (1,401) (1,536) (1,441)
Southern Electric business acquisitions (1,416) (405) (465)
Sales of property 287 171 262
Other 153 (87) (37)
- -------------------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (2,377) (1,857) (1,681)
- --------------------------------------------------------------------------------------------------------------------------
Financing Activities:
Proceeds --
Common stock 277 279 205
Preferred stock - - 426
Preferred securities - 100 -
First mortgage bonds 375 185 2,185
Other long-term debt 1,805 1,188 592
Retirements --
Preferred stock (1) (1) (516)
First mortgage bonds (538) (241) (2,178)
Other long-term debt (902) (1,039) (450)
Increase in notes payable, net 727 37 114
Payment of common stock dividends (811) (766) (726)
Miscellaneous (237) (35) (137)
- --------------------------------------------------------------------------------------------------------------------------
Net cash provided from (used for) financing activities 695 (293) (485)
- --------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents 633 (39) 81
Cash and Cash Equivalents at Beginning of Year 139 178 97
- --------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year $ 772 $ 139 $ 178
==========================================================================================================================
Supplemental Cash Flow Information:
Cash paid during the year for --
Interest (net of amount capitalized) $622 $618 $673
Income taxes $645 $716 $530
- --------------------------------------------------------------------------------------------------------------------------
Business acquisitions --
Fair value of assets acquired $2,745 $604 $465
Less cash paid for common stock 1,416 405 465
- --------------------------------------------------------------------------------------------------------------------------
Liabilities assumed $1,329 $199 $ -
==========================================================================================================================
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
13
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
At December 31, 1995 and 1994
The Southern Company and Subsidiary Companies 1995 Annual Report
<S> <C> <C>
========================================================================================================
Assets 1995 1994
- --------------------------------------------------------------------------------------------------------
(in millions)
Utility Plant:
Plant in service (Note 1) $31,878 $29,209
Less accumulated provision for depreciation 10,067 9,577
- --------------------------------------------------------------------------------------------------------
21,811 19,632
Nuclear fuel, at amortized cost 225 238
Construction work in progress (Note 4) 990 1,247
- --------------------------------------------------------------------------------------------------------
Total 23,026 21,117
- --------------------------------------------------------------------------------------------------------
Other Property and Investments:
Argentine operating concession, being amortized 431 446
Goodwill (Note 14) 344 12
Nuclear decommissioning trusts 201 125
Miscellaneous 317 224
- --------------------------------------------------------------------------------------------------------
Total 1,293 807
- --------------------------------------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents 772 139
Special deposits 156 36
Receivables, less accumulated provisions for uncollectible accounts
of $37 million in 1995 and $9 million in 1994 1,363 1,022
Fossil fuel stock, at average cost 327 354
Materials and supplies, at average cost 552 553
Prepayments 266 194
Vacation pay deferred 74 70
- --------------------------------------------------------------------------------------------------------
Total 3,510 2,368
- --------------------------------------------------------------------------------------------------------
Deferred Charges:
Deferred charges related to income taxes (Note 8) 1,386 1,454
Deferred Plant Vogtle costs (Note 1) 308 432
Debt expense, being amortized 100 48
Premium on reacquired debt, being amortized 295 298
Miscellaneous 636 518
- --------------------------------------------------------------------------------------------------------
Total 2,725 2,750
- --------------------------------------------------------------------------------------------------------
Total Assets $30,554 $27,042
========================================================================================================
The accompanying notes are an integral part of these balance sheets.
</TABLE>
<PAGE>
14
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
At December 31, 1995 and 1994
The Southern Company and Subsidiary Companies 1995 Annual Report
<S> <C> <C>
========================================================================================================
Capitalization and Liabilities 1995 1994
- --------------------------------------------------------------------------------------------------------
(in millions)
Capitalization (See(Seeoaccompanyingtstatements):
Common stock equity $ 8,772 $ 8,186
Preferred stock of subsidiaries 1,332 1,332
Subsidiary obligated mandatorily redeemable preferred securities 100 100
Long-term debt 8,306 7,593
- --------------------------------------------------------------------------------------------------------
Total 18,510 17,211
- --------------------------------------------------------------------------------------------------------
Current Liabilities:
Amount of debt due within one year 509 229
Notes payable 1,670 978
Accounts payable 785 806
Customer deposits 216 102
Taxes accrued-
Federal and state income 93 -
Other 179 153
Interest accrued 199 190
Vacation pay accrued 100 87
Miscellaneous 530 233
- --------------------------------------------------------------------------------------------------------
Total 4,281 2,778
- --------------------------------------------------------------------------------------------------------
Deferred Credits and Other Liabilities:
Accumulated deferred income taxes (Note 8) 4,611 4,007
Deferred credits related to income taxes (Note 8) 936 987
Accumulated deferred investment tax credits 820 858
Minority interest 231 267
Prepaid capacity revenues 131 138
Department of Energy assessments 86 92
Disallowed Plant Vogtle capacity buyback costs 59 60
Storm damage reserves 31 53
Miscellaneous 858 591
- --------------------------------------------------------------------------------------------------------
Total 7,763 7,053
- --------------------------------------------------------------------------------------------------------
Commitments and Contingent Matters (Notes 1, 2, 3, 4, 5, 6, 7, and 14)
Total Capitalization and Liabilities $30,554 $27,042
========================================================================================================
The accompanying notes are an integral part of these balance sheets.
</TABLE>
<PAGE>
15
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CAPITALIZATION
At December 31, 1995 and 1994
The Southern Company and Subsidiary Companies 1995 Annual Report
<S> <C> <C> <C> <C>
==============================================================================================================
1995 1994 1995 1994
- --------------------------------------------------------------------------------------------------------------
(in millions) (percent of total)
Common Stock Equity:
Common stock, par value $5 per share --
Authorized -- 1 billion shares
Outstanding -- 1995: 670 million shares,
-- 1994: 657 million shares (Note 9) $3,348 $3,283
Paid-in capital 1,941 1,712
Retained earnings (Note 9) 3,483 3,191
- --------------------------------------------------------------------------------------------------------------
Total common stock equity 8,772 8,186 47.4% 47.6%
- --------------------------------------------------------------------------------------------------------------
Cumulative Preferred Stock of Subsidiaries:
$100 par or stated value --
4.20% to 5.96% 199 199
6.32% to 7.88% 205 205
$25 par or stated value --
$1.90 to $2.125 295 295
6.40% to 7.60% 323 323
Auction rates -- at January 1, 1996:
4.43% to 4.53% 70 70
Adjustable rates -- January 1, 1996:
4.67% to 5.27% 240 240
- --------------------------------------------------------------------------------------------------------------
Total (annual dividend requirement -- $86 million) 1,332 1,332 7.2 7.7
- --------------------------------------------------------------------------------------------------------------
Subsidiary Obligated Mandatorily
Redeemable Preferred Securities (Note 10):
$25 stated value -- 9% 100 100
- --------------------------------------------------------------------------------------------------------------
Total (annual distribution requirement -- $9 million) 100 100 0.5 0.6
- --------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
16
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CAPITALIZATION (continued)
At December 31, 1995 and 1994
The Southern Company and Subsidiary Companies 1995 Annual Report
<S> <C> <C> <C> <C> <C>
===========================================================================================================================
1995 1994 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
(in millions) (percent of total)
Long-Term Debt of Subsidiaries:
First mortgage bonds --
Maturity Interest Rates
1995 5 1/8 % - 130
1996 4 1/2 % 60 60
1996 4 3/4 % 150 150
1997 5 7/8 % 25 25
1998 5% to 5.55% 230 230
1999 6 1/8% to 6 3/8% 365 365
2000 6% to 7% 340 340
2001 through 2005 6 1/8% to 7% 910 910
2006 through 2010 6 7/8% to 9% 226 228
2016 through 2020 8.665% to 9 1/4% 255 65
2021 through 2025 7.3% to 9 3/8% 1,900 1,921
2032 Variable rates - 200
- ---------------------------------------------------------------------------------------------------------------------------
Total first mortgage bonds 4,461 4,624
Other long-term debt (Note 11) 4,403 3,261
Unamortized debt premium (discount), net (49) (63)
- ---------------------------------------------------------------------------------------------------------------------------
Total long-term debt (annual interest
requirement -- $626 million) 8,815 7,822
Less amount due within one year (Note 12) 509 229
- ---------------------------------------------------------------------------------------------------------------------------
Long-term debt excluding amount due within one year 8,306 7,593 44.9 44.1
- ---------------------------------------------------------------------------------------------------------------------------
Total Capitalization $18,510 $17,211 100.0% 100.0%
===========================================================================================================================
CONSOLIDATED STATEMENTS OF PAID-IN CAPITAL
For the Years Ended December 31, 1995, 1994, and 1993
===========================================================================================================================
1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------
(in millions)
Balance at Beginning of Year $1,712 $1,503 $2,931
Proceeds from sales of common stock over the par value -- 13.0 million,
13.9 million, and 9.7 million shares in 1995, 1994, and 1993, respectively 212 209 179
Two-for-one stock split (Note 9) - - (1,607)
Miscellaneous 17 - -
- ---------------------------------------------------------------------------------------------------------------------------
Balance at End of Year $1,941 $1,712 $1,503
===========================================================================================================================
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
17
NOTES TO FINANCIAL STATEMENTS
The Southern Company and Subsidiary Companies 1995 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), The Southern Development and Investment Group
(Southern Development), and other direct and indirect subsidiaries. The
operating companies provide electric service in four Southeastern states.
Contracts among the companies -- dealing with jointly owned generating
facilities, interconnecting transmission lines, and the exchange of electric
power -- are regulated by the Federal Energy Regulatory Commission (FERC) 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 provides digital wireless communications services to the
operating companies and also markets these services to the public within the
Southeast. Southern Electric designs, builds, owns, and operates power
production and delivery 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. Southern Development 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. The preparation of financial
statements in conformity with generally accepted accounting principles requires
the use of estimates, and the actual results may differ from those estimates.
All material intercompany items have been eliminated in consolidation.
Certain prior years' data presented in the consolidated financial statements
have been reclassified to conform with current year presentation.
Regulatory Assets and Liabilities
The operating companies are 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
operating companies 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:
1995 1994
------------------------
(in millions)
Deferred income taxes $1,386 $1,454
Deferred Plant Vogtle costs 308 432
Premium on reacquired debt 295 298
Demand-side programs 79 97
Department of Energy assessments 73 79
Vacation pay 74 70
Deferred fuel charges 49 51
Postretirement benefits 53 41
Work force reduction costs 56 15
Deferred income tax credits (936) (987)
Storm damage reserves (23) (53)
Other, net 98 108
- -----------------------------------------------------------------
Total $1,512 $1,605
=================================================================
In the event that a portion of the operating companies' operations is no
longer subject to the provisions of Statement No. 71, the companies would be
required to write off related regulatory assets and liabilities. In addition,
the operating companies would be required to determine any impairment to other
assets, including plant, and write down the assets, if impaired, to their fair
value.
Revenues and Fuel Costs
The 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 1995, uncollectible
accounts continued to average less than 1 percent of revenues.
<PAGE>
18
NOTES (continued)
The Southern Company and Subsidiary Companies 1995 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 $140
million in 1995, $152 million in 1994, and $137 million in 1993. 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. Although disposal was
scheduled to begin in 1998, 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 respective
remaining liability at December 31, 1995, under this law to be approximately $40
million and $31 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
3.3 percent in 1995, 3.2 percent in 1994, and 3.3 percent in 1993. 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 and removal of other 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 a specific facility as of
the site study year, and ultimate cost is the estimate to decommission a
specific facility as of retirement date. The estimated costs of decommissioning
- -- both site study costs and ultimate costs -- at December 31, 1995, 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 $489 $294 $233
Non-radiated structures 89 41 52
- --------------------------------------------------------------------
Total $578 $335 $285
====================================================================
(in millions)
Ultimate costs:
Radiated structures $1,504 $781 $1,018
Non-radiated structures 274 111 230
- --------------------------------------------------------------------
Total $1,778 $892 $1,248
====================================================================
<PAGE>
19
NOTES (continued)
The Southern Company and Subsidiary Companies 1995 Annual Report
Plant Plant Plant
Farley Hatch Vogtle
----------------------------
(in millions)
Amount expensed in 1995 $18 $11 $9
Accumulated provisions:
Balance in external trust
funds $108 $56 $36
Balance in internal reserves 49 30 13
- -----------------------------------------------------------------
Total $157 $86 $49
=================================================================
Significant assumptions:
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. All of Alabama Power's decommissioning costs are approved for
ratemaking. For Georgia Power, only the costs to decommission the radioactive
portion of the plants are included in cost of service. Alabama Power and Georgia
Power expect their respective state public service commission 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 NRC requirements, or changes in the assumptions used
in making estimates.
Income Taxes
The Southern Company uses the liability method of accounting for deferred income
taxes and provides deferred income taxes for all significant income tax
temporary differences. Investment tax credits utilized are deferred and
amortized to income over the average lives of the related property.
Plant Vogtle Phase-In Plans
In 1987 and 1989, the Georgia Public Service Commission (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. 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. Each GPSC order called for recovery of deferred costs within 10 years.
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:
1995 1994 1993
------------------------------
(in millions)
Deferred capacity buybacks $ - $ 10 $ 38
Amortization of
deferred costs (124) (85) (74)
- -----------------------------------------------------------------
Net amortization (124) (75) (36)
Effect of adoption of FASB
Statement No. 109 - - 160
Deferred costs
at beginning of year 432 507 383
- -----------------------------------------------------------------
Deferred costs
at end of year $308 $432 $507
=================================================================
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. In 1995 and 1994, the amount deferred was
exceeded by the amortization of amounts previously deferred by $50 million and
$1 million, respectively. The projected net amortization of the deferred expense
is $62 million in 1996 and $57 million in 1997.
<PAGE>
20
NOTES (continued)
The Southern Company and Subsidiary Companies 1995 Annual Report
Allowance for Funds Used During Construction (AFUDC)
AFUDC represents the estimated debt and equity costs of capital funds that are
necessary to finance the construction of new facilities. While cash is not
realized currently from such allowance, it increases the revenue requirement
over the service life of the plant through a higher rate base and higher
depreciation expense. The composite rates used by the operating companies to
calculate AFUDC during the years 1993 through 1995 ranged from a
before-income-tax rate of 3.6 percent to 9.8 percent. AFUDC, net of income tax,
as a percent of consolidated net income was 1.6 percent in 1995, 2.3 percent in
1994, and 1.7 percent in 1993.
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
Derivative financial instruments are used by The Southern Company to manage its
interest rate and foreign currency exposures. Gains and losses arising from
effective hedges of existing assets, liabilities, or firm commitments are
deferred and recognized when the offsetting gains and losses are recognized on
the related hedged items. Losses realized on termination of interest rate swap
contracts are deferred and amortized over the terms of the related new debt
agreements. At December 31, 1995, the credit risk for derivatives outstanding
was not material.
The Southern Company hedges its exposure to fluctuations in interest rates
by entering into swap agreements that allow the company to effectively convert
its outstanding variable-rate debt into fixed rates. During 1995, the company
terminated the swap contracts in place at December 31, 1994, incurring a loss on
termination of approximately $32 million, which is being amortized over the life
of the related new fixed-rate debt agreements. At December 31, 1995, six
interest rate swap agreements were in place.
The Southern Company hedges its net investment in South Western Electricity
(SWEB) through forward contracts involving Pounds Sterling. The company
regularly monitors its foreign currency exposure, and ensures that hedge
contract amounts do not exceed the amount of the underlying exposure. At
December 31, 1995, the status of outstanding derivative contracts was as
follows:
Year Of
Maturity or Notional Unrealized
Type Termination Amount Gain (Loss)
- --------------------- -------------- ---------------------------
(in millions)
Interest rate
swaps 1999-2006 $308 $(9)
Foreign currency
forwards 1996 389 -
- -----------------------------------------------------------------------
In accordance with FASB Statement No. 107, Disclosure About Fair Value of
Financial Instruments, The Southern Company's financial instruments that the
carrying amount did not approximate fair value at December 31 were as follows:
Carrying Fair
Amount Value
--------------------------
(in millions)
Long-term debt:
At December 31, 1995 $8,668 $8,935
At December 31, 1994 7,674 7,373
Preferred securities:
At December 31, 1995 100 114
- -----------------------------------------------------------------
The fair value for long-term debt and preferred securities were based on
either closing market price or closing price of comparable instruments.
<PAGE>
21
NOTES (continued)
The Southern Company and Subsidiary Companies 1995 Annual Report
Materials and Supplies
Generally, materials and supplies include the cost of transmission,
distribution, and generating plant materials. Materials are charged to inventory
when purchased and then expensed or capitalized to plant, as appropriate, when
installed.
2. RETIREMENT BENEFITS
Pension Plan
The system companies have defined benefit, trusteed, pension plans that cover
substantially all regular employees. Benefits are based on one of the following
formulas: years of service and final average pay or years of service and a
flat-dollar benefit. 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
In the United States, The Southern Company provides certain medical care and
life insurance benefits for retired employees. Substantially all employees may
become eligible for these benefits when they retire. 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.
FASB Statement No. 106, Employers' Accounting for Postretirement Benefits
Other Than Pensions, requires that medical care and life insurance benefits for
retired employees be accounted for on an accrual basis using a specified
actuarial method, "benefit/years-of-service." 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 was expensed
in 1993 and the remaining costs were deferred. An additional one-fifth of the
costs is being 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.
Funded Status and Cost of Benefits
The following tables show actuarial results and assumptions for pension and
postretirement 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
-----------------------
1995 1994
-----------------------
(in millions)
Actuarial present value of
benefit obligation:
Vested benefits $2,643 $1,593
Non-vested benefits 97 68
- ------------------------------------------------------------------
Accumulated benefit obligation 2,740 1,661
Additional amounts related to
projected salary increases 705 638
- ------------------------------------------------------------------
Projected benefit obligation 3,445 2,299
Less:
Fair value of plan assets 4,725 3,171
Unrecognized net gain (1,025) (789)
Unrecognized prior service cost 60 64
Unrecognized transition asset (126) (139)
- ------------------------------------------------------------------
Prepaid asset recognized in the
Consolidated Balance Sheets $ 189 $ 8
==================================================================
Postretirement Benefits
----------------------------
1995 1994
----------------------------
(in millions)
Actuarial present value of
benefit obligation:
Retirees and dependents $394 $375
Employees eligible to retire 63 40
Other employees 392 459
- ------------------------------------------------------------------
Accumulated benefit obligation 849 874
Less:
Fair value of plan assets 205 140
Unrecognized net loss (gain) 85 3
Unrecognized prior service cost (4) -
Unrecognized transition
obligation 292 500
- ------------------------------------------------------------------
Accrued liability recognized in the
Consolidated Balance Sheets $271 $231
==================================================================
In 1995, the system companies announced a cost sharing program for
postretirement benefits. The program establishes limits on amounts the companies
<PAGE>
22
NOTES (continued)
The Southern Company and Subsidiary Companies 1995 Annual Report
will pay to provide future retiree postretirement benefits. This change reduced
the 1995 accumulated postretirement benefit obligation by approximately $186
million.
The weighted average rates assumed in the actuarial calculations were:
1995 1994 1993
--------------------------------
Discount 7.3% 8.0% 7.5%
Annual salary increase 4.8 5.5 5.0
Long-term return on
plan assets 8.5 8.5 8.5
- ---------------------------------------------------------------
An additional assumption used in measuring the accumulated postretirement
benefit obligation was a weighted average medical care cost trend rate of 9.8
percent for 1995, decreasing gradually to 5.3 percent through the year 2005 and
remaining at that level thereafter. An annual increase in the assumed medical
care cost trend rate of 1 percent would increase the accumulated benefit
obligation at December 31, 1995, by $73 million and the aggregate of the service
and interest cost components of the net retiree cost by $16 million.
Components of the plans' net costs are shown below:
Pension
-----------------------------
1995 1994 1993
-----------------------------
(in millions)
Benefits earned during the year $ 79 $ 77 $ 76
Interest cost on projected
benefit obligation 193 160 156
Actual (return) loss on plan assets (730) 75 (432)
Net amortization and deferral 412 (351) 186
- --------------------------------------------------------------------
Net pension cost (income) $ (46) $(39) $(14)
====================================================================
Of the above net pension income, $30 million in 1995, $29 million in 1994,
and $9 million in 1993 were recorded in operating expenses, and the remainder
was recorded in construction and other accounts.
Postretirement Benefits
---------------------------
1995 1994 1993
---------------------------
(in millions)
Benefits earned during the year $ 28 $ 31 $ 27
Interest cost on accumulated
benefit obligation 67 64 56
Amortization of transition
obligation 27 27 28
Actual (return) loss on plan
assets
assets (23) 2 (12)
Net amortization and deferral 12 (10) 5
- ------------------------------------------------------------------
Net postretirement costs $111 $114 $104
==================================================================
Of the above net postretirement costs, $78 million in 1995, $77 million in
1994, and $64 million in 1993 were charged to operating expenses. In addition,
$11 million in 1995, $18 million in 1994, and $21 million in 1993 were deferred,
and the remainder was charged to construction and other accounts.
Work Force Reduction Programs
The system companies have incurred additional costs for work force reduction
programs. The costs related to these programs were $42 million, $112 million,
and $35 million for the years 1995, 1994, and 1993, respectively. In addition,
certain costs of these programs were deferred and are being amortized in
accordance with regulatory treatment. The unamortized balance of these costs was
$56 million at December 31, 1995.
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
<PAGE>
23
NOTES (continued)
The Southern Company and Subsidiary Companies 1995 Annual Report
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. In June 1995, for the second time, the trial court
dismissed the suit. The plaintiffs once again have filed an appeal. This action
is still pending.
Georgia Power Potentially Responsible Party Status
In January 1995, Georgia Power and four other unrelated entities were notified
by the Environmental Protection Agency (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. As
of December 31, 1995, Georgia Power had recorded approximately $4 million in
expenses associated with the site. 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. However, based on the nature and
extent of Georgia Power's activities relating to the site, management believes
that the company's portion of these costs should not be material.
Georgia Power Investment in Rocky Mountain
In its 1985 financing order, the GPSC concluded that completion of the Rocky
Mountain pumped storage hydroelectric plant 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 plant. 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 plant. However, full recovery of Georgia Power's costs depends
on the GPSC's treatment of the plant's costs and the disposition of the plant's
capacity output. In the event the GPSC does not allow full recovery of the plant
costs, then the portion not allowed may have to be written off. In 1995, the
plant went into commercial operation. At December 31, 1995, Georgia Power's net
investment in the plant was approximately $190 million.
The final outcome of this matter cannot now be determined. Accordingly, no
provision for any write-down of the investment in the plant has been made.
FERC Reviews Equity Returns
In May 1991, the FERC ordered that hearings be conducted concerning the
reasonableness of the operating companies' wholesale rate schedules and
contracts that have a return on 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 was substantially from October 1994 through December
1995. In November 1995, a FERC administrative law judge issued an opinion that
the FERC staff failed to meet its burden of proof, and therefore, no change in
the equity return was necessary. The FERC staff has filed exceptions to the
administrative law judge's opinion, and the matter is pending before the FERC.
If the rates of return on common equity recommended by the FERC staff were
applied to all of the schedules and contracts involved in both proceedings, and
refunds were ordered, the amount of refunds could range up to approximately $120
million at December 31, 1995. However, management believes that rates are not
excessive and that refunds are not justified.
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 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.
<PAGE>
24
NOTES (continued)
The Southern Company and Subsidiary Companies 1995 Annual Report
In June 1995, the APSC issued a rate order granting Alabama Power's request
for gradual adjustments to move toward parity among customer classes. This order
also calls for a moratorium on any periodic retail rate increases (but not
decreases) until July 2001.
In December 1995, the APSC issued an order authorizing Alabama Power to
reduce balance sheet items -- such as plant and deferred charges -- at any time
the company's actual base rate revenues exceed the budgeted revenues. In
accordance with this order, Alabama Power reduced the unamortized balance of
premium on reacquired debt by $10 million in 1995.
The ratemaking procedures will remain in effect until the APSC votes to
modify or discontinue them.
Georgia Power Retail Rate Plan
On February 16, 1996, the GPSC approved a rate plan recommended by the GPSC
staff that concludes the GPSC's review of Georgia Power's earnings initiated in
early 1995 and addressed the company's proposed alternative retail rate plan.
Under the three-year plan, effective January 1, 1996, Georgia Power's earnings
will be evaluated against a retail return on common equity range of 10 percent
to 12.5 percent. Earnings in excess of 12.5 percent will be used to accelerate
the amortization of regulatory assets or accelerate the depreciation of electric
plant. At its option, Georgia Power may also accelerate amortization or
depreciation of assets while within the allowed return on common equity range.
The company is required to absorb cost increases of approximately $29 million
annually during the plan's three-year operation, including $14 million annually
of accelerated depreciation of electric plant. During the plan's operation,
Georgia Power will not file for a general base rate increase unless its
projected retail return on equity falls below 10 percent. On July 1, 1998,
Georgia Power is required to file a general rate case. In response, the GPSC
would be expected to either continue the rate plan or adopt a different one.
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
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, pending the resolution of the
recovery of such costs.
After the Georgia Court of Appeals upheld the legality of the rate riders,
Georgia Power resumed collection under the riders in December 1994. In August
1995, the GPSC ordered Georgia Power to discontinue the demand-side conservation
programs by the end of 1995. However, Georgia Power's rate riders will continue
in effect until costs deferred are collected. Under the new retail rate plan,
approved February 16, 1996, Georgia Power will expense approximately $29 million
of deferred program costs over a three-year period that will not be recovered
under the rate riders.
4. CONSTRUCTION PROGRAM
The system companies are engaged in continuous construction programs, currently
estimated to total some $1.5 billion in 1996, $1.4 billion in 1997, and $1.3
billion in 1998. These estimates include AFUDC of $22 million in 1996, $22
million in 1997, and $25 million in 1998. 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, 1995, 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 600 megawatts is planned to be completed by 1998. In addition,
significant construction will continue related to transmission and distribution
facilities and the upgrading and extension of the useful lives of generating
plants.
<PAGE>
25
NOTES (continued)
The Southern Company and Subsidiary Companies 1995 Annual Report
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.
5. FINANCING, INVESTMENTS, AND COMMITMENTS
General
The Southern Company may require additional equity capital in 1996. The amount
and timing of additional equity capital to be raised in 1996 -- 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 is often utilized and the
amounts available are discussed below. The 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 has substantial investments in production and delivery
facilities in the United States and various international markets. The most
recent acquisition was SWEB, and for additional information see Note 14.
Southern Electric's total assets were $5.0 billion at December 31, 1995. The
consolidated financial statements reflect investments in majority-owned or
controlled subsidiaries on a consolidated basis and other investments on an
equity basis.
Bank Credit Arrangements
At the beginning of 1996, unused credit arrangements with banks totaled $2.8
billion, of which approximately $1.5 billion expires at various times during
1996 and 1997; $16 million expires in February 1998; $73 million expires in May
1998; $400 million expires in June 1998; $300 million expires in July 1998; $300
million expires in November 1998; and $56 million expires in December 1998.
Also, $136 million expires in the years 1999 through 2002.
Georgia Power's revolving credit agreements of $60 million, all of which
remained unused as of December 31, 1995, expire May 1, 1998. 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's revolving credit agreements of $20 million, of which $13
million remained unused as of December 31, 1995, expire May 31, 1998. 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, 1998, is under revolving credit
arrangements with several banks that provide 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, $100 million, $135
million, and $165 million available credit are currently dedicated to the
exclusive use of The Southern Company, 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.
The Southern Company has $300 million of revolving credit agreements
expiring July 1, 1998, and $300 million of revolving credit agreements expiring
November 30, 1998, all of which remained unused at December 31, 1995. These
agreements allow short-term borrowings to be converted into term loans, payable
in 12 equal quarterly installments, with the first installment due at the end of
the first calendar quarter after the applicable termination date or at an
earlier date at The Southern Company's option. In connection with these credit
arrangements, The Southern Company agrees to pay commitment fees based on the
unused portions of the commitments or to maintain compensating balances with the
banks.
<PAGE>
26
NOTES (continued)
The Southern Company and Subsidiary Companies 1995 Annual Report
Mississippi Power's revolving credit agreements of $40 million, all of which
remained unused as of December 31, 1995, expire December 1, 1998. 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
$16 million remained unused as of December 31, 1995, expire December 31, 1998.
These agreements allow short-term borrowings to be converted into terms 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.
Southern Electric's revolving credit agreements of $212 million, of which
$151 million remained unused as of December 31, 1995, expire at various times
from 1998 through 2002. These agreements allow for short-term borrowings with
various terms and conditions. These agreements require payment of commitment
fees based on the unused portions of the commitments.
A portion of the $2.8 billion unused credit arrangements with banks --
discussed earlier -- is allocated to provide liquidity support to the companies'
variable rate pollution control bonds. At December 31, 1995, the amount of
credit lines allocated was $692 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 The Southern Company, Alabama Power, and
Georgia Power, through commercial paper programs that have the liquidity support
of committed bank credit arrangements.
Assets Subject to Lien
Each of The Southern Company's subsidiaries is organized as a legal entity,
separate, and apart from The Southern Company and its other subsidiaries. The
subsidiary 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. There are no agreements or
other arrangements among the subsidiary companies under which the assets of one
company have been pledged or otherwise made available to satisfy obligations of
The Southern Company or any of its subsidiaries.
Fuel and Purchase Power Commitments
To supply a portion of the fuel requirements of the generating plants, The
Southern Company has 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. Also, The Southern Company has entered into various long-term
commitments for the purchase of electricity. Total estimated long-term
obligations at December 31, 1995, were as follows:
Purchased
Year Fuel Power
- ----------- -----------------------------
(in millions)
1996 $ 1,914 $ 495
1997 1,656 427
1998 1,482 155
1999 1,093 161
2000 728 166
2001 and thereafter 6,078 1,943
- -------------------------------------------------------------
Total commitments $12,951 $3,347
=============================================================
<PAGE>
27
NOTES (continued)
The Southern Company and Subsidiary Companies 1995 Annual Report
Operating Leases
The Southern Company has operating lease agreements with various terms and
expiration dates. These expenses totaled $17 million, $15 million, and $11
million for 1995, 1994, and 1993, respectively. At December 31, 1995, estimated
minimum rental commitments for noncancelable operating leases were as follows:
Year Amounts
- -------- ----------------
(in millions)
1996 $ 22
1997 20
1998 19
1999 19
2000 20
2001 and thereafter 252
- ---------------------------------------------------------------
Total minimum payments $352
===============================================================
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, and the
city of Dalton, Georgia. 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.
In 1995, Georgia Power completed the sale of Unit 4 of Plant Scherer to
Florida Power & Light Company (FP&L) and Jacksonville Electric Authority (JEA).
FP&L owns approximately 76.4 percent of the unit, with JEA owning the remainder.
Georgia Power operates and maintains the unit.
At December 31, 1995, 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% $3,295 $730
Plant Hatch
(nuclear) 50.1 842 394
Plant Miller
(coal)
Units 1 and 2 91.8 712 281
Plant Scherer
(coal)
Units 1 and 2 8.4 112 39
Plant Wansley
(coal) 53.5 297 132
Rocky Mountain
(pumped storage) 25.4 200 10
- ------------------------------------------------------------------
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 by the end of 1996, and will be constructed,
operated, and maintained by FPC. Georgia Power will have an approximate interest
of 33 percent 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.
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.
7. LONG-TERM POWER SALES AGREEMENTS
The operating companies have long-term contractual agreements for the sale of
capacity and energy to certain non-affiliated utilities located outside the
system's service area. The 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
<PAGE>
28
NOTES (continued)
The Southern Company and Subsidiary Companies 1995 Annual Report
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)
1995 $237 $ - $237
1994 257 19 276
1993 312 38 350
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 1,600 megawatts of capacity is scheduled to be sold annually
through 1999. Thereafter, these sales will decline to some 1,500 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.
8. 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, 1995, the tax- related regulatory assets and liabilities were
$1.4 billion and $936 million, respectively. These assets are attributable to
tax benefits flowed through to customers in prior years and to taxes applicable
to capitalized AFUDC. These liabilities are attributable to deferred taxes
previously recognized at rates higher than current enacted tax law and to
unamortized investment tax credits.
Details of the federal and state income tax provisions are as follows:
1995 1994 1993
---------------------------
(in millions)
Total provision for income taxes:
Federal --
Currently payable $567 $598 $421
Deferred -- current year 184 67 224
-- reversal of
prior years (111) (75) (51)
Deferred investment tax
credits 1 - (20)
- -------------------------------------------------------------------
641 590 574
- -------------------------------------------------------------------
State --
Currently payable 90 86 64
Deferred -- current year 26 15 39
-- reversal of
prior years (12) (11) (3)
- -------------------------------------------------------------------
104 90 100
- -------------------------------------------------------------------
International 24 5 3
- -------------------------------------------------------------------
Total 769 685 677
Less income taxes charged
(credited) to other income (36) (26) (57)
- -------------------------------------------------------------------
Federal and state income
taxes charged to operations $805 $711 $734
===================================================================
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:
1995 1994
-----------------------
(in millions)
Deferred tax liabilities:
Accelerated depreciation $2,795 $2,637
Property basis differences 2,175 1,647
Deferred plant costs 100 141
Other 247 271
- -------------------------------------------------------------------
Total 5,317 4,696
- -------------------------------------------------------------------
Deferred tax assets:
Federal effect of state deferred taxes 107 104
Other property basis differences 273 278
Deferred costs 118 79
Pension and other benefits 66 63
Other 192 225
- -------------------------------------------------------------------
Total 756 749
- -------------------------------------------------------------------
Net deferred tax liabilities 4,561 3,947
Portion included in current assets, net 50 60
- -------------------------------------------------------------------
Accumulated deferred income taxes
in the Consolidated Balance Sheet $4,611 $4,007
===================================================================
<PAGE>
29
NOTES (continued)
The Southern Company and Subsidiary Companies 1995 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 $38 million in 1995, $42 million in 1994, and $36 million in
1993. At December 31, 1995, 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:
1995 1994 1993
------------------------------
Federal statutory rate 35.0% 35.0% 35.0%
State income tax,
net of federal deduction 3.4 3.3 3.7
Non-deductible book
depreciation 1.6 1.8 1.9
Difference in prior years'
deferred and current tax rate (1.1) (1.5) (1.3)
Other 0.3 0.3 (1.1)
- ----------------------------------------------------------------------
Effective income tax rate 39.2% 38.9% 38.2%
======================================================================
The Southern Company files a consolidated federal income tax return. Under a
joint consolidated income tax agreement, each subsidiary's current and deferred
tax expense is computed on a stand-alone basis. Tax benefits from losses of the
parent company are allocated to each subsidiary based on the ratio of taxable
income to total consolidated taxable income.
9. 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, 1995, a total of 69 million shares was reserved for issuance
pursuant to the Dividend Reinvestment and Stock Purchase Plan, the Employee
Savings Plan, the 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. As of December 31, 1995, some 200 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 the 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 1994 and 1995 is summarized below:
Shares Average
Subject Option Price
To Option Per Share
-----------------------------------
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
Options granted 1,161,174 21.63
Options canceled (8,088) 21.63
Options exercised (413,391) 14.34
- ---------------------------------------------------------------------
Balance at December 31, 1995 2,476,299 $19.87
=====================================================================
Shares reserved for future grants:
At December 31, 1993 3,714,444
At December 31, 1994 3,268,001
At December 31, 1995 2,114,915
- ---------------------------------------------------------------------
Options exercisable:
At December 31, 1994 793,989
At December 31, 1995 831,227
- ---------------------------------------------------------------------
Common Stock Dividend Restrictions
The income of The Southern Company is derived primarily from equity in earnings
of its subsidiaries. At December 31, 1995, consolidated retained earnings
included $3.1 billion of undistributed retained earnings of the subsidiaries. Of
this amount, $2.0 billion was restricted against the payment by the subsidiary
companies of cash dividends on common stock under terms of bond indentures or
charters.
<PAGE>
30
NOTES (continued)
The Southern Company and Subsidiary Companies 1995 Annual Report
10. PREFERRED SECURITIES
In December 1994, Georgia Power Capital, L.P., of which Georgia Power is the
sole general partner, issued $100 million of 9 percent mandatorily redeemable
preferred securities. The sole asset of Georgia Power Capital is $103 million
aggregate principal amount of Georgia Power's 9 percent Junior Subordinated
Deferrable Interest Debentures due December 19, 2024. Georgia Power considers
that the mechanisms and obligations relating to the preferred securities, taken
together, constitute a full and unconditional guarantee by Georgia Power of
Georgia Power Capital's payment obligations with respect to the preferred
securities.
11. OTHER LONG-TERM DEBT
Details of other long-term debt at December 31 are as follows:
1995 1994
--------------------
(in millions)
Obligations incurred in connection
with the sale by public authorities
of tax-exempt pollution control
revenue bonds:
Collateralized --
4.375% to 9.375% due
2000-2025 $1,466 $1,179
Variable rates (3.5% to 6.1%
at 1/1/96) due 2011-2025 639 412
Non-collateralized --
7.25% due 2003 1 1
6.75% to 10.6% due 2015-2020 277 828
5.8% due 2022 10 10
Variable rates (3.25% to 3.75%
at 1/1/96) due 2019-2022 132 85
- ----------------------------------------------------------------
2,525 2,515
- ----------------------------------------------------------------
Capitalized lease obligations 147 148
- ----------------------------------------------------------------
Notes payable:
4.15% to 13% due 1995-1998 107 179
6.31% to 11% due 1999-2008 404 170
Adjustable rates (4% to 7% at
1/1/96) due 1995-1998 129 119
Adjustable rates (7.5% to 9.18%
at 1/1/96) due 1999-2000 165 130
Adjustable rate (7.7 % at
1/1/96) due 2000 926 -
- ----------------------------------------------------------------
1,731 598
- ----------------------------------------------------- ----------
Total $4,403 $3,261
================================================================
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 $122 million and $126 million at
December 31, 1995 and 1994, respectively. At December 31, 1995, the composite
interest rates for buildings and other were 9.7 percent and 11.3 percent,
respectively. Sinking fund requirements and/or serial maturities through 2000
applicable to other long-term debt are as follows: $264 million in 1996; $99
million in 1997; $42 million in 1998; $23 million in 1999; and $56 million in
2000.
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:
1995 1994
-----------------
(in millions)
Bond improvement fund requirements $ 43 $ 48
Less:
Portion to be satisfied by certifying
property additions 18 46
Reacquired bonds - -
- ------------------------------------------------------------------
Cash sinking fund requirements 25 2
First mortgage bond maturities
and redemptions 220 130
Other long-term debt maturities
(Note 11) 264 97
- ------------------------------------------------------------------
Total $509 $229
==================================================================
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.
<PAGE>
31
NOTES (continued)
The Southern Company and Subsidiary Companies 1995 Annual Report
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
taxes, for Alabama Power and Georgia Power -- based on its ownership and buyback
interests -- is $159 million and $162 million, respectively, per incident but
not more than an aggregate of $20 million per company 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 $10 million and $12 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 $21 million and $24
million, respectively. The maximum replacement power assessments are $8 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.
<PAGE>
32
NOTES (continued)
The Southern Company and Subsidiary Companies 1995 Annual Report
14. ACQUISITION
In 1995, Southern Electric acquired SWEB for approximately $1.8 billion. This
British utility distributes electricity to some 1.3 million customers.
The acquisition has been accounted for under the purchase method of
accounting. The acquisition cost exceeded the preliminary estimate of the fair
market value of net assets by $333 million. This amount is considered goodwill
and will be amortized on a straight-line basis over 40 years. The preliminary
estimate of net assets may be revised in 1996.
SWEB has been included in the consolidated financial statements since
September 1995. The following unaudited pro forma results of operations for the
years 1995 and 1994 have been prepared assuming the acquisition of SWEB,
effective January 1994, and assuming 100 percent short-term debt financing.
Eventually, the short-term borrowings will be replaced by a combination of
long-term debt and equity. The pro forma results are not necessarily indicative
of the actual results that would have been realized had the acquisition occurred
on the assumed date, nor are they necessarily indicative of future results. Pro
forma operating results are for information purposes only and are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1995 1994
--------------------------------------------------
As Pro As Pro
Reported Forma Reported Forma
----------- --------- ---------- --------
Operating revenues (in millions) $9,180 $10,013 $8,297 $9,493
Consolidated net income (in millions) $1,103 $1,144 $989 $1,053
Earnings per share $1.66 $1.72 $1.52 $1.62
</TABLE>
15. SEGMENT INFORMATION
The Southern Company's principal business segment -- or its core business -- is
the five electric utility operating companies, which provide electric service in
four Southeastern states. The other reportable business segment is Southern
Electric, which owns and operates power production and delivery facilities in
the United States and various international markets. Financial data for business
segments and geographic areas are as follows:
Business Segments
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Gross Depreciation
Operating Operating Total Property and
Year Revenues Income Assets Additions Amortization
- --------------- ---------------------------------------------------------------------------
(in millions)
1995
- ----
Core business $8,537 $1,781 $25,532 $1,265 $1,075
Southern Electric 643 105 5,022 136 59
- ---------------------------------------------------------------------------------------------------------
Consolidated $9,180 $1,886 $30,554 $1,401 $1,134
=========================================================================================================
1994
- ----
Core business $8,112 $1,678 $25,466 $1,529 $1,026
Southern Electric 185 37 1,576 7 24
- ---------------------------------------------------------------------------------------------------------
Consolidated $8,297 $1,715 $27,042 $1,536 $1,050
=========================================================================================================
1993
- ----
Core business $8,435 $1,754 $25,131 $1,430 $ 999
Southern Electric 54 11 780 11 12
- ---------------------------------------------------------------------------------------------------------
Consolidated $8,489 $1,765 $25,911 $1,441 $1,011
=========================================================================================================
</TABLE>
<PAGE>
33
NOTES (continued)
The Southern Company and Subsidiary Companies 1995 Annual Report
Geographic Areas
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Gross Depreciation
Operating Operating Total Property and
Year Revenues Income Assets Additions Amortization
- ---------------- ----------------------------------------------------------------------
(in millions)
1995
- ----
Domestic $8,619 $1,813 $26,049 $1,278 $1,087
International 561 73 4,505 123 47
- ---------------------------------------------------------------------------------------------------
Total $9,180 $1,886 $30,554 $1,401 $1,134
===================================================================================================
1994
- ----
Domestic $8,116 $1,679 $25,875 $1,531 $1,028
International 181 36 1,167 5 22
- ---------------------------------------------------------------------------------------------------
Total $8,297 $1,715 $27,042 $1,536 $1,050
===================================================================================================
1993
- ----
Domestic $8,435 $1,754 $25,178 $1,435 $1,002
International 54 11 733 6 9
- ---------------------------------------------------------------------------------------------------
Total $8,489 $1,765 $25,911 $1,441 $1,011
===================================================================================================
</TABLE>
<TABLE>
<CAPTION>
16. QUARTERLY FINANCIAL INFORMATION (Unaudited)
Summarized quarterly financial data for 1995 and 1994 are as follows:
<S> <C> <C> <C> <C> <C> <C> <C>
Per Common Share
-----------------------------------------------------
Operating Operating Consolidated Price Range
Quarter Ended Revenues Income Net Income Earnings Dividends High Low
--------------- ------------------------------------------ ------------------------------------------------------
(in millions)
March 1995 $1,929 $385 $206 $0.31 $0.305 21 1/2 19 3/8
June 1995 2,184 454 268 0.40 0.305 22 7/8 20 1/8
September 1995 2,759 673 469 0.71 0.305 24 21 1/8
December 1995 2,308 374 160 0.24 0.305 25 22 3/4
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
---------------------------------------------------------------------------------------------------------------------------------
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. The company's business is influenced by seasonal weather conditions.
</TABLE>
<PAGE>
34
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The Southern Company and Subsidiary Companies 1995 Annual Report
<S> <C> <C> <C>
=====================================================================================================
1995 1994 1993
- -----------------------------------------------------------------------------------------------------
Operating Revenues (in millions) $9,180 $8,297 $8,489
Consolidated Net Income (in millions) $1,103 $989 $1,002
Earnings Per Share of Common Stock $1.66 $1.52 $1.57
Cash Dividends Paid Per Share of Common Stock $1.22 $1.18 $1.14
Return on Average Common Equity (percent) 13.01 12.47 13.43
Total Assets (in millions) $30,554 $27,042 $25,911
Gross Property Additions (in millions) $1,401 $1,536 $1,441
- -----------------------------------------------------------------------------------------------------
Capitalization (in millions):
Common stock equity $8,772 $8,186 $7,684
Preferred stock 1,432 1,432 1,333
Long-term debt 8,306 7,593 7,412
- -----------------------------------------------------------------------------------------------------
Total excluding amounts due within one year $18,510 $17,211 $16,429
=====================================================================================================
Capitalization Ratios (per(percent):
Common stock equity 47.4 47.6 46.8
Preferred stock 7.7 8.3 8.1
Long-term debt 44.9 44.1 45.1
- -----------------------------------------------------------------------------------------------------
Total excluding amounts due within one year 100.0 100.0 100.0
=====================================================================================================
Other Common Stock Data:
Book value per share (year-end) $13.10 $12.47 $11.96
Market price per share:
High 25 22 23 5/8
Low 19 3/8 17 18 3/8
Close 24 5/8 20 22
Market-to-book ratio (year-end) (percent) 188.0 160.4 183.9
Price-earnings ratio (year-end) (times) 14.8 13.2 14.0
Dividends paid (in millions) $811 $766 $726
Dividend yield (year-end) (percent) 5.0 5.9 5.2
Dividend payout ratio (percent) 73.5 77.5 72.4
Cash coverage of dividends (year-end)(times) 2.9 2.7 2.9
Proceeds from sales of stock (in millions) $277 $279 $204
Shares outstanding (in thousands):
Average 665,064 649,927 637,319
Year-end 669,543 656,528 642,662
Stockholders of record (year-end) 225,739 234,927 237,105
- -----------------------------------------------------------------------------------------------------
First Mortgage Bonds (in millions):
Issued $375 $185 $2,185
Retired 538 241 2,178
Preferred Stock (in millions):Issued $-- $100 $426
Retired 1 1 516
- -----------------------------------------------------------------------------------------------------
Customers (year-end) (in thousands):
Residential 3,100 3,046 2,996
Commercial 450 439 427
Industrial 17 17 18
Other 5 5 4
- -----------------------------------------------------------------------------------------------------
Total 3,572 3,507 3,445
=====================================================================================================
Employees (year-end):
Core business 26,452 27,480 28,516
Southern Electric 5,430 1,400 745
- -----------------------------------------------------------------------------------------------------
Total 31,882 28,880 29,261
=====================================================================================================
</TABLE>
<PAGE>
35A
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The Southern Company and Subsidiary Companies 1995 Annual Report
<S> <C> <C> <C> <C>
===============================================================================================================
1992 1991 1990 1989
- ---------------------------------------------------------------------------------------------------------------
Operating Revenues (in millions) $8,073 $8,050 $8,053 $7,620
Consolidated Net Income (in millions) $953 $876 $604 $846
Earnings Per Share of Common Stock $1.51 $1.39 $0.96 $1.34
Cash Dividends Paid Per Share of Common Stock $1.10 $1.07 $1.07 $1.07
Return on Average Common Equity (percent) 13.42 12.74 8.85 12.49
Total Assets (in millions) $20,038 $19,863 $19,955 $20,092
Gross Property Additions (in millions) $1,105 $1,123 $1,185 $1,346
- ---------------------------------------------------------------------------------------------------------------
Capitalization (in millions):
Common stock equity $7,234 $6,976 $6,783 $6,861
Preferred stock 1,359 1,333 1,358 1,400
Long-term debt 7,241 7,992 8,458 8,575
- ---------------------------------------------------------------------------------------------------------------
Total excluding amounts due within one year $15,834 $16,301 $16,599 $16,836
===============================================================================================================
Capitalization Ratios (per(percent):
Common stock equity 45.7 42.8 40.9 40.8
Preferred stock 8.6 8.2 8.2 8.3
Long-term debt 45.7 49.0 50.9 50.9
- ---------------------------------------------------------------------------------------------------------------
Total excluding amounts due within one year 100.0 100.0 100.0 100.0
===============================================================================================================
Other Common Stock Data:
Book value per share (year-end) $11.43 $11.05 $10.74 $10.87
Market price per share:
High 19 1/2 17 3/8 14 5/8 14 7/8
Low 15 1/8 12 7/8 11 1/2 11
Close 19 1/4 17 1/8 13 7/8 14 1/2
Market-to-book ratio (year-end) (percent) 168.4 155.5 129.7 134.0
Price-earnings ratio (year-end) (times) 12.7 12.4 14.6 10.9
Dividends paid (in millions) $695 $676 $676 $675
Dividend yield (year-end) (percent) 5.7 6.2 7.7 7.3
Dividend payout ratio (percent) 72.9 77.1 111.8 79.8
Cash coverage of dividends (year-end) (times) 2.8 2.5 2.8 2.6
Proceeds from sales of stock (in millions) $30 $-- $-- $4
Shares outstanding (in thousands):
Average 631,844 631,307 631,307 631,303
Year-end 632,917 631,307 631,307 631,307
Stockholders of record (year-end) 247,378 254,568 263,046 273,751
- ---------------------------------------------------------------------------------------------------------------
First Mortgage Bonds (in millions):
Issued $1,815 $380 $300 $280
Retired 2,575 881 146 201
Preferred Stock (in millions):
Issued $410 $100 $-- $--
Retired 326 125 96 21
- ---------------------------------------------------------------------------------------------------------------
Customers (year-end) (in thousands):
Residential 2,950 2,903 2,865 2,824
Commercial 414 403 396 392
Industrial 18 18 18 18
Other 4 4 4 4
- ---------------------------------------------------------------------------------------------------------------
Total 3,386 3,328 3,283 3,238
===============================================================================================================
Employees (year-end):
Core business 28,872 30,144 30,087 30,368
Southern Electric 213 258 176 162
- ---------------------------------------------------------------------------------------------------------------
Total 29,085 30,402 30,263 30,530
===============================================================================================================
</TABLE>
<PAGE>
35B
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The Southern Company and Subsidiary Companies 1995 Annual Report
<S> <C> <C> <C> <C>
===============================================================================================================
1988 1987 1986 1985
- ---------------------------------------------------------------------------------------------------------------
Operating Revenues (in millions) $7,287 $7,204 $7,033 $6,999
Consolidated Net Income (in millions) $846 $577 $903 $845
Earnings Per Share of Common Stock $1.36 $0.96 $1.56 $1.56
Cash Dividends Paid Per Share of Common Stock $1.07 $1.07 $1.0325 $0.975
Return on Average Common Equity (percent) 13.03 9.27 15.61 16.59
Total Asset (in millions) $19,731 19,518 $18,483 $16,855
Gross Property Additions (in millions) $1,754 $1,853 $2,367 $2,242
- ---------------------------------------------------------------------------------------------------------------
Capitalization (in millions):
Common stock equity $6,686 $6,307 $6,133 $5,443
Preferred stock 1,465 1,363 1,392 1,308
Long-term debt 8,433 8,333 7,812 7,220
- ---------------------------------------------------------------------------------------------------------------
Total excluding amounts due within one year $16,584 $16,003 $15,337 $13,971
===============================================================================================================
Capitalization Ratios (per(percent):
Common stock equity 40.3 39.4 40.0 38.9
Preferred stock 8.8 8.5 9.1 9.4
Long-term debt 50.9 52.1 50.9 51.7
- ---------------------------------------------------------------------------------------------------------------
Total excluding amounts due within one year 100.0 100.0 100.0 100.0
===============================================================================================================
Other Common Stock Data:
Book value per share (year-end) $10.60 $10.28 $10.35 $9.72
Market price per share:
High 12 1/8 14 1/2 13 5/8 11 5/8
Low 10 1/8 8 7/8 10 1/8 8 7/8
Close 11 1/8 11 1/8 12 5/8 11 1/8
Market-to-book ratio (year-end)(percent) 105.5 108.8 122.5 114.5
Price-earnings ratio (year-end) (times) 8.2 11.7 8.2 7.1
Dividends paid (in millions) $661 $628 $583 $512
Dividend yield (year-end) (percent) 9.6 9.6 8.4 9.2
Dividend payout ratio (percent) 78.1 108.9 64.6 60.6
Cash coverage of dividends (year-end) (times) 2.3 2.0 2.7 2.6
Proceeds from sales of stock (in millions) $194 $247 $379 $373
Shares outstanding (in thousands):
Average 622,292 601,390 580,252 541,244
Year-end 630,898 613,565 592,364 560,063
Stockholders of record (year-end) 290,725 296,079 297,302 318,221
- ---------------------------------------------------------------------------------------------------------------
First Mortgage Bonds (in millions):
Issued $335 $700 $735 $20
Retired 273 369 875 69
Preferred Stock (in millions):
Issued $120 $125 $100 $150
Retired 10 160 53 6
- ---------------------------------------------------------------------------------------------------------------
Customers (year-end) (in thousands):
Residential 2,781 2,733 2,675 2,611
Commercial 384 374 362 348
Industrial 18 18 17 17
Other 4 4 4 4
- ---------------------------------------------------------------------------------------------------------------
Total 3,187 3,129 3,058 2,980
===============================================================================================================
Employees (year-end):
Core business 32,366 32,557 32,321 32,335
Southern Electric 157 55 37 19
- ---------------------------------------------------------------------------------------------------------------
Total 32,523 32,612 32,358 32,354
===============================================================================================================
</TABLE>
<PAGE>
36
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA (continued)
The Southern Company and Subsidiary Companies 1995 Annual Report
<S> <C> <C> <C>
==============================================================================================
1995 1994 1993
- ----------------------------------------------------------------------------------------------
Operating Revenues (in millions):
Residential $2,840 $2,560 $2,696
Commercial 2,485 2,357 2,313
Industrial 2,206 2,162 2,200
Other 72 70 68
- ----------------------------------------------------------------------------------------------
Total retail 7,603 7,149 7,277
Sales for resale within service area 399 360 447
Sales for resale outside service area 415 505 613
- ----------------------------------------------------------------------------------------------
Total revenues from sales of electricity 8,417 8,014 8,337
Other revenues 763 283 152
- ----------------------------------------------------------------------------------------------
Total $9,180 $8,297 $8,489
==============================================================================================
Kilowatt-Hour Sales (in millions):
Residential 39,147 35,836 36,807
Commercial 35,938 34,080 32,847
Industrial 51,644 50,311 48,738
Other 863 844 814
- ----------------------------------------------------------------------------------------------
Total retail 127,592 121,071 119,206
Sales for resale within service area 9,472 8,151 13,258
Sales for resale outside service area 9,143 10,769 12,445
- ----------------------------------------------------------------------------------------------
Total 146,207 139,991 144,909
==============================================================================================
Average Revenue Per Kilowatt-Hour (cents):
Residential 7.25 7.14 7.32
Commercial 6.91 6.92 7.04
Industrial 4.27 4.30 4.51
Total retail 5.96 5.90 6.10
Sales for resale 4.38 4.57 4.12
Total sales 5.76 5.72 5.75
Average Annual Kilowatt-Hour Use Per Residential Customer 12,722 11,851 12,378
Average Annual Revenue Per Residential Customer $922.83 $846.48 $906.60
Plant Nameplate Capacity Ratings (year-end)(megawatts) 30,733 29,932 29,513
Maximum Peak-Hour Demand (megawatts):
Winter 21,422 22,254 19,432
Summer 27,420 24,546 25,937
System Reserve Margin (at peak) (percent) 9.4 19.3 13.2
Annual Load Factor (percent) 59.5 63.5 59.4
Plant Availability (percent):
Fossil-steam 86.7 85.2 87.9
Nuclear 88.3 89.8 85.9
- ----------------------------------------------------------------------------------------------
Source of Energy Supply (percent):
Coal 72.5 70.8 73.0
Nuclear 16.4 17.9 16.3
Hydro 4.1 4.7 3.9
Oil and gas 1.7 0.9 0.9
Purchased power 5.3 5.7 5.9
- ----------------------------------------------------------------------------------------------
Total 100.0 100.0 100.0
==============================================================================================
Total Fuel Economy Data:
BTU per net kilowatt-hour generated 10,099 10,010 9,994
Cost of fuel per million BTU (cents) 151.70 155.81 166.85
Average cost of fuel per net kilowatt-hour generated (cents) 1.53 1.56 1.67
- ----------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
37A
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA (continued)
The Southern Company and Subsidiary Companies 1995 Annual Report
<S> <C> <C> <C>
===================================================================================================================
1992 1991 1990 1989
- -------------------------------------------------------------------------------------------------------------------
Operating Revenues (in millions):
Residential $2,402 $2,391 $2,342 $2,194
Commercial 2,181 2,122 2,062 1,965
Industrial 2,126 2,088 2,085 2,011
Other 64 65 64 60
- -------------------------------------------------------------------------------------------------------------------
Total retail 6,773 6,666 6,553 6,230
Sales for resale within service area 409 417 412 401
Sales for resale outside service area 797 884 977 928
- -------------------------------------------------------------------------------------------------------------------
Total revenues from sales of electricity 7,979 7,967 7,942 7,559
Other revenues 94 83 111 161
- -------------------------------------------------------------------------------------------------------------------
Total $8,073 $8,050 $8,053 $7,620
===================================================================================================================
Kilowatt-Hour Sales (in millions):
Residential 33,627 33,622 33,118 31,627
Commercial 31,025 30,379 29,658 28,454
Industrial 47,816 46,050 45,974 45,022
Other 777 817 806 787
- -------------------------------------------------------------------------------------------------------------------
Total retail 113,245 110,868 109,556 105,890
Sales for resale within service area 12,107 12,320 11,134 11,419
Sales for resale outside service area 16,632 19,839 24,402 24,228
- -------------------------------------------------------------------------------------------------------------------
Total 141,984 143,027 145,092 141,537
===================================================================================================================
Average Revenue Per Kilowatt-Hour (cents):
Residential 7.14 7.11 7.07 6.94
Commercial 7.03 6.99 6.96 6.91
Industrial 4.45 4.53 4.53 4.47
Total retail 5.98 6.01 5.98 5.88
Sales for resale 4.20 4.05 3.91 3.73
Total sales 5.62 5.57 5.47 5.34
Average Annual Kilowatt-Hour Use Per Residential Customer 11,490 11,659 11,637 11,287
Average Annual Revenue Per Residential Customer $820.67 $829.18 $822.93 $782.90
Plant Nameplate Capacity Ratings (year-end)(megawatts) 29,830 29,915 29,532 29,532
Maximum Peak-Hour Demand (megawatts):
Winter 19,121 19,166 17,629 20,772
Summer 24,146 25,261 25,981 24,399
System Reserve Margin (at peak) (percent) 14.3 16.5 14.0 21.0
Annual Load Factor (percent) 60.3 58.3 56.6 58.6
Plant Availability (percent):
Fossil-steam 88.6 91.3 91.9 92.2
Nuclear 85.2 83.4 83.0 87.0
- -------------------------------------------------------------------------------------------------------------------
Source of Energy Supply (percent):
Coal 71.7 72.6 72.1 71.5
Nuclear 16.2 16.2 15.6 15.7
Hydro 4.6 4.4 4.4 5.2
Oil and gas 0.5 0.6 1.3 1.1
Purchased power 7.0 6.2 6.6 6.5
- -------------------------------------------------------------------------------------------------------------------
100.0 100.0 100.0 100.0
Total
===================================================================================================================
Total Fuel Economy Data:
BTU per net kilowatt-hour generated 9,976 10,022 10,065 10,086
Cost of fuel per million BTU (cents) 162.58 168.28 172.81 171.00
Average cost of fuel per net kilowatt-hour generated (cents) 1.62 1.69 1.74 1.72
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
37B
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA (continued)
The Southern Company and Subsidiary Companies 1995 Annual Report
<S> <C> <C> <C> <C>
=================================================================================================================
1988 1987 1986 1985
- -----------------------------------------------------------------------------------------------------------------
Operating Revenues (in millions):
Residential $2,103 $2,042 $1,996 $1,825
Commercial 1,835 1,692 1,613 1,512
Industrial 1,945 1,870 1,845 1,830
Other 56 54 52 50
- -----------------------------------------------------------------------------------------------------------------
Total retail 5,939 5,658 5,506 5,217
Sales for resale within service area 480 461 511 436
Sales for resale outside service area 777 1,028 957 1,289
- -----------------------------------------------------------------------------------------------------------------
Total revenues from sales of electricity 7,196 7,147 6,974 6,942
Other revenues 91 57 59 57
- -----------------------------------------------------------------------------------------------------------------
Total $7,287 $7,204 $7,033 $6,999
=================================================================================================================
Kilowatt-Hour Sales (in millions):
Residential 31,041 30,583 29,501 27,088
Commercial 27,005 25,593 24,166 22,512
Industrial 43,675 42,113 40,503 39,804
Other 763 737 723 713
- -----------------------------------------------------------------------------------------------------------------
Total retail 102,484 99,026 94,893 90,117
Sales for resale within service area 14,806 13,282 14,347 11,079
Sales for resale outside service area 15,860 22,905 16,909 27,881
- -----------------------------------------------------------------------------------------------------------------
Total 133,150 135,213 126,149 129,077
=================================================================================================================
Average Revenue Per Kilowatt-Hour (cents):
Residential 6.77 6.68 6.77 6.74
Commercial 6.79 6.61 6.67 6.71
Industrial 4.45 4.44 4.56 4.60
Total retail 5.80 5.71 5.80 5.79
Sales for resale 4.10 4.11 4.69 4.43
Total sales 5.40 5.29 5.53 5.38
Average Annual Kilowatt-Hour Use Per Residential Customer 11,255 11,307 11,157 10,515
Average Annual Revenue Per Residential Customer $762.42 $754.96 $754.93 $708.46
Plant Nameplate Capacity Ratings (year-end) (megawatts) 27,552 27,610 26,262 26,262
Maximum Peak-Hour Demand megawatts):
Winter 18,685 18,185 19,665 19,347
Summer 23,641 23,194 23,255 21,778
System Reserve Margin (at peak) (percent) 15.0 16.2 11.4 17.6
Annual Load Factor (percent) 59.8 58.7 57.2 57.4
Plant Availability (percent):
Fossil-steam 91.3 91.2 90.3 90.5
Nuclear 78.4 84.5 74.2 80.3
- -----------------------------------------------------------------------------------------------------------------
Source of Energy Supply (percent):
Coal 77.7 77.8 79.4 78.5
Nuclear 14.5 13.1 11.5 12.0
Hydro 2.3 3.3 2.2 3.1
Oil and gas 0.7 0.6 0.9 0.3
Purchased power 4.8 5.2 6.0 6.1
- -----------------------------------------------------------------------------------------------------------------
Total 100.0 100.0 100.0 100.0
=================================================================================================================
Total Fuel Economy Data:
BTU per net kilowatt-hour generated 10,094 10,122 10,171 10,193
Cost of fuel per million BTU (cents) 170.36 176.64 185.89 191.24
Average cost of fuel per net kilowatt-hour generated (cents) 1.72 1.78 1.89 1.95
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
