THE SOUTHERN COMPANY
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2009
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
to
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Commission |
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Registrant, State of Incorporation, |
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I.R.S. Employer |
File Number |
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Address and Telephone Number |
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Identification No. |
1-3526
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The Southern Company
(A Delaware Corporation)
30 Ivan Allen Jr. Boulevard, N.W.
Atlanta, Georgia 30308
(404) 506-5000
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58-0690070 |
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1-3164
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Alabama Power Company
(An Alabama Corporation)
600 North 18th Street
Birmingham, Alabama 35291
(205) 257-1000
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63-0004250 |
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1-6468
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Georgia Power Company
(A Georgia Corporation)
241 Ralph McGill Boulevard, N.E.
Atlanta, Georgia 30308
(404) 506-6526
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58-0257110 |
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0-2429
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Gulf Power Company
(A Florida Corporation)
One Energy Place
Pensacola, Florida 32520
(850) 444-6111
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59-0276810 |
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001-11229
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Mississippi Power Company
(A Mississippi Corporation)
2992 West Beach
Gulfport, Mississippi 39501
(228) 864-1211
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64-0205820 |
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333-98553
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Southern Power Company
(A Delaware Corporation)
30 Ivan Allen Jr. Boulevard, N.W.
Atlanta, Georgia 30308
(404) 506-5000
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58-2598670 |
Indicate by check mark whether the registrants (1) have filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrants were required to file such reports), and (2) have been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrants have submitted electronically and posted on
their corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrants were required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
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Large |
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Smaller |
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Accelerated |
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Accelerated |
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Non-accelerated |
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Reporting |
Registrant |
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Filer |
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Filer |
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Filer |
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Company |
The Southern Company
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X |
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Alabama Power Company
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X |
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Georgia Power Company
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X |
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Gulf Power Company
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X |
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Mississippi Power Company
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X |
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Southern Power Company
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X |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act.) Yes o No þ (Response applicable to all registrants.)
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Description of |
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Shares Outstanding |
Registrant |
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Common Stock |
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at June 30, 2009 |
The Southern Company |
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Par Value $5 Per Share |
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796,051,643 |
|
Alabama Power Company |
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Par Value $40 Per Share |
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25,475,000 |
|
Georgia Power Company |
|
Without Par Value |
|
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9,261,500 |
|
Gulf Power Company |
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Without Par Value |
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3,142,717 |
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Mississippi Power Company |
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Without Par Value |
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1,121,000 |
|
Southern Power Company |
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Par Value $0.01 Per Share |
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|
1,000 |
|
This combined Form 10-Q is separately filed by The Southern Company, Alabama Power Company,
Georgia Power Company, Gulf Power Company, Mississippi Power Company, and Southern Power Company.
Information contained herein relating to any individual registrant is filed by such registrant on
its own behalf. Each registrant makes no representation as to information relating to the other
registrants.
2
INDEX TO QUARTERLY REPORT ON FORM 10-Q
June 30, 2009
3
INDEX TO QUARTERLY REPORT ON FORM 10-Q
June 30, 2009
4
DEFINITIONS
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|
|
Term |
|
Meaning |
2007 Retail Rate Plan
|
|
Georgia Powers retail rate plan for the years 2008 through 2010 |
Alabama Power
|
|
Alabama Power Company |
Clean Air Act
|
|
Clean Air Act Amendments of 1990 |
DOE
|
|
U.S. Department of Energy |
Duke Energy
|
|
Duke Energy Corporation |
ECO Plan
|
|
Mississippi Powers Environmental Compliance Overview Plan |
EPA
|
|
U.S. Environmental Protection Agency |
FASB
|
|
Financial Accounting Standards Board |
FERC
|
|
Federal Energy Regulatory Commission |
Form 10-K
|
|
Combined Annual Report on Form 10-K of Southern Company,
Alabama Power, Georgia Power, Gulf Power, Mississippi Power,
and Southern Power for the year ended December 31, 2008 and,
with respect to Southern Company, the subsequently revised
audited financial statements included in the Current Report on
Form 8-K filed May 8, 2009 |
Georgia Power
|
|
Georgia Power Company |
Gulf Power
|
|
Gulf Power Company |
IGCC
|
|
Integrated coal gasification combined cycle |
IIC
|
|
Intercompany Interchange Contract |
Internal Revenue Code
|
|
Internal Revenue Code of 1986, as amended |
IRS
|
|
Internal Revenue Service |
KWH
|
|
Kilowatt-hour |
LIBOR
|
|
London Interbank Offered Rate |
Mirant
|
|
Mirant Corporation |
Mississippi Power
|
|
Mississippi Power Company |
mmBtu
|
|
Million British thermal unit |
MW
|
|
Megawatt |
MWH
|
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Megawatt-hour |
NRC
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|
Nuclear Regulatory Commission |
NSR
|
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New Source Review |
OCI
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Other Comprehensive Income |
PEP
|
|
Performance Evaluation Plan |
Power Pool
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|
The operating arrangement whereby the integrated generating
resources of the traditional operating companies and Southern
Power are subject to joint commitment and dispatch in order to
serve their combined load obligations |
PPA
|
|
Power Purchase Agreement |
PSC
|
|
Public Service Commission |
Rate ECR
|
|
Alabama Powers energy cost recovery rate mechanism |
registrants
|
|
Southern Company, Alabama Power, Georgia Power, Gulf Power,
Mississippi Power, and Southern Power |
SCS
|
|
Southern Company Services, Inc. |
SEC
|
|
Securities and Exchange Commission |
Southern Company
|
|
The Southern Company |
Southern Company system
|
|
Southern Company, the traditional operating companies, Southern
Power, and other subsidiaries |
5
DEFINITIONS
(continued)
|
|
|
Term |
|
Meaning |
SouthernLINC Wireless
|
|
Southern Communications Services, Inc. |
Southern Nuclear
|
|
Southern Nuclear Operating Company, Inc. |
Southern Power
|
|
Southern Power Company |
traditional operating companies
|
|
Alabama Power, Georgia Power, Gulf Power, and Mississippi Power |
wholesale revenues
|
|
revenues generated from sales for resale |
6
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This Quarterly Report on Form 10-Q contains forward-looking statements. Forward-looking statements
include, among other things, statements concerning the strategic goals for the wholesale business,
retail sales, customer growth, storm damage cost recovery and repairs, fuel cost recovery and other
rate actions, environmental regulations and expenditures, retail return on equity projections,
access to sources of capital, projections for postretirement benefit and nuclear decommissioning
trust contributions, financing activities, completion of construction projects, plans and estimated
costs for new generation resources, impacts of adoption of new accounting rules, potential
exemptions from ad valorem taxation of the Kemper IGCC project, unrecognized tax benefits related
to leveraged lease transactions, impact of the American Recovery and Reinvestment Act of 2009,
estimated sales and purchases under new power sale and purchase agreements, and estimated
construction and other expenditures. In some cases, forward-looking statements can be identified
by terminology such as may, will, could, should, expects, plans, anticipates,
believes, estimates, projects, predicts, potential, or continue or the negative of
these terms or other similar terminology. There are various factors that could cause actual
results to differ materially from those suggested by the forward-looking statements; accordingly,
there can be no assurance that such indicated results will be realized. These factors include:
|
|
the impact of recent and future federal and state regulatory change, including legislative
and regulatory initiatives regarding deregulation and restructuring of the electric utility
industry, implementation of the Energy Policy Act of 2005, environmental laws including
regulation of water quality and emissions of sulfur, nitrogen, mercury, carbon, soot, or
particulate matter and other substances, and also changes in tax and other laws and
regulations to which Southern Company and its subsidiaries are subject, as well as changes in
application of existing laws and regulations; |
|
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|
current and future litigation, regulatory investigations, proceedings, or inquiries,
including the pending EPA civil actions against certain Southern Company subsidiaries, FERC
matters, IRS audits, and Mirant matters; |
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the effects, extent, and timing of the entry of additional competition in the markets in
which Southern Companys subsidiaries operate; |
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variations in demand for electricity, including those relating to weather, the general
economy, population and business growth (and declines), and the effects of energy conservation
measures; |
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available sources and costs of fuels; |
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effects of inflation; |
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ability to control costs and avoid cost overruns during the development and construction of
facilities; |
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investment performance of Southern Companys employee benefit plans; |
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advances in technology; |
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state and federal rate regulations and the impact of pending and future rate cases and
negotiations, including rate actions relating to fuel and storm restoration cost recovery and
including Georgia Powers pending accounting order request; |
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regulatory approvals related to the potential Plant Vogtle expansion, including Georgia PSC
and NRC approvals; |
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the performance of projects undertaken by the non-utility businesses and the success of
efforts to invest in and develop new opportunities; |
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internal restructuring or other restructuring options that may be pursued; |
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potential business strategies, including acquisitions or dispositions of assets or
businesses, which cannot be assured to be completed or beneficial to Southern Company or its
subsidiaries; |
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the ability of counterparties of Southern Company and its subsidiaries to make payments as
and when due and to perform as required; |
|
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the ability to obtain new short- and long-term contracts with neighboring utilities and
other wholesale customers; |
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the direct or indirect effect on Southern Companys business resulting from terrorist
incidents and the threat of terrorist incidents; |
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interest rate fluctuations and financial market conditions and the results of financing
efforts, including Southern Companys and its subsidiaries credit ratings; |
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the ability of Southern Company and its subsidiaries to obtain additional generating
capacity at competitive prices; |
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catastrophic events such as fires, earthquakes, explosions, floods, hurricanes, droughts,
pandemic health events such as an avian or other influenza, or other similar occurrences; |
|
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the direct or indirect effects on Southern Companys business resulting from incidents
similar to the August 2003 power outage in the Northeast; |
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the effect of accounting pronouncements issued periodically by standard setting bodies; and |
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other factors discussed elsewhere herein and in other reports (including the Form 10-K)
filed by the registrants from time to time with the SEC. |
Each registrant expressly disclaims any obligation to update any forward-looking statements.
7
THE SOUTHERN COMPANY AND
SUBSIDIARY COMPANIES
8
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
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For the Three Months |
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For the Six Months |
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Ended June 30, |
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|
Ended June 30, |
|
|
|
2009 |
|
|
2008 |
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|
2009 |
|
|
2008 |
|
|
|
(in thousands) |
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|
(in thousands) |
|
Operating Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail revenues |
|
$ |
3,293,012 |
|
|
$ |
3,449,878 |
|
|
$ |
6,357,671 |
|
|
$ |
6,455,492 |
|
Wholesale revenues |
|
|
437,750 |
|
|
|
591,802 |
|
|
|
889,164 |
|
|
|
1,105,464 |
|
Other electric revenues |
|
|
128,403 |
|
|
|
141,162 |
|
|
|
251,201 |
|
|
|
271,352 |
|
Other revenues |
|
|
25,999 |
|
|
|
32,345 |
|
|
|
53,435 |
|
|
|
65,789 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues |
|
|
3,885,164 |
|
|
|
4,215,187 |
|
|
|
7,551,471 |
|
|
|
7,898,097 |
|
|
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|
|
|
|
|
|
|
|
|
|
Operating Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fuel |
|
|
1,449,138 |
|
|
|
1,622,074 |
|
|
|
2,855,405 |
|
|
|
3,074,017 |
|
Purchased power |
|
|
133,188 |
|
|
|
197,260 |
|
|
|
240,832 |
|
|
|
290,164 |
|
Other operations and maintenance |
|
|
831,214 |
|
|
|
914,998 |
|
|
|
1,702,295 |
|
|
|
1,811,815 |
|
MC Asset Recovery litigation settlement |
|
|
|
|
|
|
|
|
|
|
202,000 |
|
|
|
|
|
Depreciation and amortization |
|
|
377,341 |
|
|
|
358,745 |
|
|
|
767,099 |
|
|
|
702,630 |
|
Taxes other than income taxes |
|
|
208,089 |
|
|
|
198,042 |
|
|
|
407,969 |
|
|
|
387,314 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
2,998,970 |
|
|
|
3,291,119 |
|
|
|
6,175,600 |
|
|
|
6,265,940 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income |
|
|
886,194 |
|
|
|
924,068 |
|
|
|
1,375,871 |
|
|
|
1,632,157 |
|
Other Income and (Expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for equity funds used during construction |
|
|
47,500 |
|
|
|
35,486 |
|
|
|
90,112 |
|
|
|
76,071 |
|
Interest income |
|
|
4,870 |
|
|
|
1,188 |
|
|
|
11,778 |
|
|
|
10,993 |
|
Equity in income (losses) of unconsolidated subsidiaries |
|
|
680 |
|
|
|
1,097 |
|
|
|
(296 |
) |
|
|
1,425 |
|
Leveraged lease income (losses) |
|
|
8,676 |
|
|
|
(70,879 |
) |
|
|
18,117 |
|
|
|
(59,954 |
) |
Gain on disposition of lease termination |
|
|
26,300 |
|
|
|
|
|
|
|
26,300 |
|
|
|
|
|
Loss on extinguishment of debt |
|
|
(17,184 |
) |
|
|
|
|
|
|
(17,184 |
) |
|
|
|
|
Interest expense, net of amounts capitalized |
|
|
(232,830 |
) |
|
|
(228,948 |
) |
|
|
(458,557 |
) |
|
|
(446,057 |
) |
Other income (expense), net |
|
|
(3,681 |
) |
|
|
(4,483 |
) |
|
|
(16,531 |
) |
|
|
(3,569 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income and (expense) |
|
|
(165,669 |
) |
|
|
(266,539 |
) |
|
|
(346,261 |
) |
|
|
(421,091 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings Before Income Taxes |
|
|
720,525 |
|
|
|
657,529 |
|
|
|
1,029,610 |
|
|
|
1,211,066 |
|
Income taxes |
|
|
225,717 |
|
|
|
224,952 |
|
|
|
392,886 |
|
|
|
403,090 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Net Income |
|
|
494,808 |
|
|
|
432,577 |
|
|
|
636,724 |
|
|
|
807,976 |
|
Dividends on Preferred and Preference Stock of Subsidiaries |
|
|
16,195 |
|
|
|
16,195 |
|
|
|
32,390 |
|
|
|
32,390 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Net Income After Dividends on
Preferred and Preference Stock of Subsidiaries |
|
$ |
478,613 |
|
|
$ |
416,382 |
|
|
$ |
604,334 |
|
|
$ |
775,586 |
|
|
|
|
|
|
|
|
|
|
|
|
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|
Common Stock Data: |
|
|
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|
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|
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|
|
|
|
|
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Earnings per share (EPS) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS |
|
$ |
0.61 |
|
|
$ |
0.54 |
|
|
$ |
0.77 |
|
|
$ |
1.01 |
|
Diluted EPS |
|
$ |
0.60 |
|
|
$ |
0.54 |
|
|
$ |
0.77 |
|
|
$ |
1.00 |
|
Average number of shares of common stock outstanding (in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
790,748 |
|
|
|
769,122 |
|
|
|
785,303 |
|
|
|
767,636 |
|
Diluted |
|
|
792,068 |
|
|
|
773,140 |
|
|
|
786,865 |
|
|
|
771,727 |
|
Cash dividends paid per share of common stock |
|
$ |
0.4375 |
|
|
$ |
0.4200 |
|
|
$ |
0.8575 |
|
|
$ |
0.8225 |
|
The accompanying notes as they relate to Southern Company are an integral part of these condensed financial statements.
9
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
|
|
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|
|
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|
|
|
|
For the Six Months |
|
|
|
Ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(in thousands) |
|
Operating Activities: |
|
|
|
|
|
|
|
|
Consolidated net income |
|
$ |
636,724 |
|
|
$ |
807,976 |
|
Adjustments to reconcile consolidated net income
to net cash provided from operating activities |
|
|
|
|
|
|
|
|
Depreciation and amortization, total |
|
|
895,354 |
|
|
|
831,790 |
|
Deferred income taxes and investment tax credits |
|
|
(13,807 |
) |
|
|
(79,033 |
) |
Deferred revenues |
|
|
(26,295 |
) |
|
|
57,768 |
|
Allowance for equity funds used during construction |
|
|
(90,112 |
) |
|
|
(76,071 |
) |
Equity in income (losses) of unconsolidated subsidiaries |
|
|
296 |
|
|
|
(1,425 |
) |
Leveraged lease income (losses) |
|
|
(18,117 |
) |
|
|
59,954 |
|
Gain on disposition of lease termination |
|
|
(26,300 |
) |
|
|
|
|
Loss on extinguishment of debt |
|
|
17,184 |
|
|
|
|
|
Pension, postretirement, and other employee benefits |
|
|
(10,939 |
) |
|
|
24,596 |
|
Stock option expense |
|
|
18,956 |
|
|
|
15,734 |
|
Hedge settlements |
|
|
(16,167 |
) |
|
|
17,289 |
|
Other, net |
|
|
27,948 |
|
|
|
(3,969 |
) |
Changes in certain current assets and liabilities |
|
|
|
|
|
|
|
|
-Receivables |
|
|
74,770 |
|
|
|
(317,403 |
) |
-Fossil fuel stock |
|
|
(375,888 |
) |
|
|
(121,823 |
) |
-Materials and supplies |
|
|
(20,079 |
) |
|
|
(28,609 |
) |
-Other current assets |
|
|
(96,394 |
) |
|
|
(54,536 |
) |
-Accounts payable |
|
|
14,711 |
|
|
|
161,703 |
|
-Accrued taxes |
|
|
(140,308 |
) |
|
|
181,105 |
|
-Accrued compensation |
|
|
(298,670 |
) |
|
|
(185,500 |
) |
-Other current liabilities |
|
|
66,748 |
|
|
|
121,337 |
|
|
|
|
|
|
|
|
Net cash provided from operating activities |
|
|
619,615 |
|
|
|
1,410,883 |
|
|
|
|
|
|
|
|
Investing Activities: |
|
|
|
|
|
|
|
|
Property additions |
|
|
(2,192,959 |
) |
|
|
(1,983,177 |
) |
Investment in restricted cash from pollution control revenue bonds |
|
|
(49,478 |
) |
|
|
(161 |
) |
Distribution of restricted cash from pollution control revenue bonds |
|
|
59,741 |
|
|
|
32,908 |
|
Nuclear decommissioning trust fund purchases |
|
|
(823,416 |
) |
|
|
(405,999 |
) |
Nuclear decommissioning trust fund sales |
|
|
788,690 |
|
|
|
399,119 |
|
Proceeds from property sales |
|
|
339,903 |
|
|
|
5,495 |
|
Cost of removal, net of salvage |
|
|
(63,705 |
) |
|
|
(40,757 |
) |
Change in construction payables |
|
|
128,101 |
|
|
|
3,174 |
|
Other investing activities |
|
|
8,063 |
|
|
|
(34,547 |
) |
|
|
|
|
|
|
|
Net cash used for investing activities |
|
|
(1,805,060 |
) |
|
|
(2,023,945 |
) |
|
|
|
|
|
|
|
Financing Activities: |
|
|
|
|
|
|
|
|
Increase (decrease) in notes payable, net |
|
|
148,090 |
|
|
|
(151,513 |
) |
Proceeds |
|
|
|
|
|
|
|
|
Long-term debt issuances |
|
|
1,785,474 |
|
|
|
1,684,935 |
|
Common stock issuances |
|
|
539,088 |
|
|
|
235,454 |
|
Redemptions |
|
|
|
|
|
|
|
|
Long-term debt |
|
|
(199,929 |
) |
|
|
(361,263 |
) |
Redeemable
preferred stock
|
|
|
|
|
|
|
(125,000 |
) |
Payment of common stock dividends |
|
|
(670,226 |
) |
|
|
(630,594 |
) |
Payment of dividends on preferred and preference stock of subsidiaries |
|
|
(32,465 |
) |
|
|
(33,273 |
) |
Other financing activities |
|
|
(19,327 |
) |
|
|
(12,267 |
) |
|
|
|
|
|
|
|
Net cash provided from financing activities |
|
|
1,550,705 |
|
|
|
606,479 |
|
|
|
|
|
|
|
|
Net Change in Cash and Cash Equivalents |
|
|
365,260 |
|
|
|
(6,583 |
) |
Cash and Cash Equivalents at Beginning of Period |
|
|
416,581 |
|
|
|
200,550 |
|
|
|
|
|
|
|
|
Cash and Cash Equivalents at End of Period |
|
$ |
781,841 |
|
|
$ |
193,967 |
|
|
|
|
|
|
|
|
Supplemental Cash Flow Information: |
|
|
|
|
|
|
|
|
Cash paid during the period for |
|
|
|
|
|
|
|
|
Interest (net of $38,594 and $39,434 capitalized for 2009 and
2008, respectively) |
|
$ |
386,729 |
|
|
$ |
389,466 |
|
Income taxes (net of refunds) |
|
$ |
468,278 |
|
|
$ |
280,902 |
|
The accompanying notes as they relate to Southern Company are an integral part of these condensed financial statements.
10
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
At June 30, |
|
|
At December 31, |
|
Assets |
|
2009 |
|
|
2008 |
|
|
|
(in thousands) |
|
Current Assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
781,841 |
|
|
$ |
416,581 |
|
Restricted cash and cash equivalents |
|
|
96,540 |
|
|
|
102,537 |
|
Receivables |
|
|
|
|
|
|
|
|
Customer accounts receivable |
|
|
1,149,309 |
|
|
|
1,053,674 |
|
Unbilled revenues |
|
|
453,022 |
|
|
|
320,439 |
|
Under recovered regulatory clause revenues |
|
|
547,927 |
|
|
|
646,318 |
|
Other accounts and notes receivable |
|
|
335,712 |
|
|
|
301,028 |
|
Accumulated provision for uncollectible accounts |
|
|
(27,273 |
) |
|
|
(26,326 |
) |
Fossil fuel stock, at average cost |
|
|
1,387,738 |
|
|
|
1,018,314 |
|
Materials and supplies, at average cost |
|
|
773,721 |
|
|
|
756,746 |
|
Vacation pay |
|
|
134,958 |
|
|
|
140,283 |
|
Prepaid expenses |
|
|
364,463 |
|
|
|
301,570 |
|
Other regulatory assets, current |
|
|
322,790 |
|
|
|
275,424 |
|
Other current assets |
|
|
68,622 |
|
|
|
51,044 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
6,389,370 |
|
|
|
5,357,632 |
|
|
|
|
|
|
|
|
Property, Plant, and Equipment: |
|
|
|
|
|
|
|
|
In service |
|
|
51,880,917 |
|
|
|
50,618,219 |
|
Less accumulated depreciation |
|
|
18,739,799 |
|
|
|
18,285,800 |
|
|
|
|
|
|
|
|
Plant in service, net of depreciation |
|
|
33,141,118 |
|
|
|
32,332,419 |
|
Nuclear fuel, at amortized cost |
|
|
546,217 |
|
|
|
510,274 |
|
Construction work in progress |
|
|
3,810,611 |
|
|
|
3,035,795 |
|
|
|
|
|
|
|
|
Total property, plant, and equipment |
|
|
37,497,946 |
|
|
|
35,878,488 |
|
|
|
|
|
|
|
|
Other Property and Investments: |
|
|
|
|
|
|
|
|
Nuclear decommissioning trusts, at fair value |
|
|
940,499 |
|
|
|
864,396 |
|
Leveraged leases |
|
|
599,569 |
|
|
|
897,338 |
|
Miscellaneous property and investments |
|
|
227,196 |
|
|
|
226,757 |
|
|
|
|
|
|
|
|
Total other property and investments |
|
|
1,767,264 |
|
|
|
1,988,491 |
|
|
|
|
|
|
|
|
Deferred Charges and Other Assets: |
|
|
|
|
|
|
|
|
Deferred charges related to income taxes |
|
|
1,010,624 |
|
|
|
972,781 |
|
Unamortized debt issuance expense |
|
|
215,437 |
|
|
|
207,763 |
|
Unamortized loss on reacquired debt |
|
|
260,614 |
|
|
|
270,919 |
|
Deferred under recovered regulatory clause revenues |
|
|
364,728 |
|
|
|
606,483 |
|
Other regulatory assets, deferred |
|
|
2,553,505 |
|
|
|
2,636,217 |
|
Other deferred charges and assets |
|
|
357,561 |
|
|
|
428,432 |
|
|
|
|
|
|
|
|
Total deferred charges and other assets |
|
|
4,762,469 |
|
|
|
5,122,595 |
|
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
50,417,049 |
|
|
$ |
48,347,206 |
|
|
|
|
|
|
|
|
The accompanying notes as they relate to Southern Company are an integral part of these condensed financial statements.
11
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
At June 30, |
|
|
At December 31, |
|
Liabilities and Stockholders Equity |
|
2009 |
|
|
2008 |
|
|
|
(in thousands) |
|
Current Liabilities: |
|
|
|
|
|
|
|
|
Securities due within one year |
|
$ |
1,095,586 |
|
|
$ |
616,415 |
|
Notes payable |
|
|
1,093,217 |
|
|
|
953,437 |
|
Accounts payable |
|
|
1,419,534 |
|
|
|
1,249,694 |
|
Customer deposits |
|
|
319,842 |
|
|
|
302,495 |
|
Accrued taxes |
|
|
|
|
|
|
|
|
Accrued income taxes |
|
|
95,345 |
|
|
|
195,922 |
|
Unrecognized tax benefits |
|
|
150,344 |
|
|
|
131,641 |
|
Other accrued taxes |
|
|
301,852 |
|
|
|
396,206 |
|
Accrued interest |
|
|
222,382 |
|
|
|
195,500 |
|
Accrued vacation pay |
|
|
168,273 |
|
|
|
178,519 |
|
Accrued compensation |
|
|
162,969 |
|
|
|
446,718 |
|
Liabilities from risk management activities |
|
|
267,977 |
|
|
|
260,977 |
|
Other current liabilities |
|
|
365,441 |
|
|
|
298,711 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
5,662,762 |
|
|
|
5,226,235 |
|
|
|
|
|
|
|
|
Long-term Debt |
|
|
17,921,409 |
|
|
|
16,816,438 |
|
|
|
|
|
|
|
|
Deferred Credits and Other Liabilities: |
|
|
|
|
|
|
|
|
Accumulated deferred income taxes |
|
|
6,151,050 |
|
|
|
6,080,104 |
|
Deferred credits related to income taxes |
|
|
261,840 |
|
|
|
259,156 |
|
Accumulated deferred investment tax credits |
|
|
443,128 |
|
|
|
455,398 |
|
Employee benefit obligations |
|
|
2,029,596 |
|
|
|
2,057,424 |
|
Asset retirement obligations |
|
|
1,217,956 |
|
|
|
1,182,769 |
|
Other cost of removal obligations |
|
|
1,327,726 |
|
|
|
1,320,558 |
|
Other regulatory liabilities, deferred |
|
|
217,020 |
|
|
|
261,970 |
|
Other deferred credits and liabilities |
|
|
319,029 |
|
|
|
329,534 |
|
|
|
|
|
|
|
|
Total deferred credits and other liabilities |
|
|
11,967,345 |
|
|
|
11,946,913 |
|
|
|
|
|
|
|
|
Total Liabilities |
|
|
35,551,516 |
|
|
|
33,989,586 |
|
|
|
|
|
|
|
|
Redeemable Preferred Stock of Subsidiaries |
|
|
374,496 |
|
|
|
374,496 |
|
|
|
|
|
|
|
|
Stockholders Equity: |
|
|
|
|
|
|
|
|
Common Stockholders Equity: |
|
|
|
|
|
|
|
|
Common stock, par value $5 per share |
|
|
|
|
|
|
|
|
Authorized 1 billion shares |
|
|
|
|
|
|
|
|
Issued June 30, 2009: 796,509,669 Shares; |
|
|
|
|
|
|
|
|
December 31, 2008: 777,615,751 Shares |
|
|
|
|
|
|
|
|
Treasury June 30, 2009: 458,026 Shares; |
|
|
|
|
|
|
|
|
December 31, 2008: 423,477 Shares |
|
|
|
|
|
|
|
|
Par value |
|
|
3,982,521 |
|
|
|
3,888,041 |
|
Paid-in capital |
|
|
2,356,636 |
|
|
|
1,892,802 |
|
Treasury, at cost |
|
|
(13,299 |
) |
|
|
(12,279 |
) |
Retained earnings |
|
|
7,546,424 |
|
|
|
7,611,977 |
|
Accumulated other comprehensive loss |
|
|
(88,612 |
) |
|
|
(104,784 |
) |
|
|
|
|
|
|
|
Total Common Stockholders Equity |
|
|
13,783,670 |
|
|
|
13,275,757 |
|
Preferred and Preference Stock of Subsidiaries |
|
|
707,367 |
|
|
|
707,367 |
|
|
|
|
|
|
|
|
Total Stockholders Equity |
|
|
14,491,037 |
|
|
|
13,983,124 |
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders Equity |
|
$ |
50,417,049 |
|
|
$ |
48,347,206 |
|
|
|
|
|
|
|
|
The accompanying notes as they relate to Southern Company are an integral part of these condensed financial statements.
12
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months |
|
|
For the Six Months |
|
|
|
Ended June 30, |
|
|
Ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
(in thousands) |
|
|
(in thousands) |
|
Consolidated Net Income |
|
$ |
494,808 |
|
|
$ |
432,577 |
|
|
$ |
636,724 |
|
|
$ |
807,976 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Qualifying hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in fair value, net of tax of $(1,744),
$2,571, $(982), and $(11,417), respectively |
|
|
(2,811 |
) |
|
|
4,338 |
|
|
|
(1,664 |
) |
|
|
(17,913 |
) |
Reclassification adjustment for amounts included
in net income, net of tax of $4,630, $2,371,
$8,463, and $4,149, respectively |
|
|
7,370 |
|
|
|
3,733 |
|
|
|
13,468 |
|
|
|
6,508 |
|
Marketable securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value, net of tax of $1,204,
$(319), $1,295, and $(2,456), respectively |
|
|
2,935 |
|
|
|
(925 |
) |
|
|
3,669 |
|
|
|
(4,026 |
) |
Pension and other post retirement benefit plans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification adjustment for amounts included
in net income, net of tax of $221, $277, $443,
and $536, respectively |
|
|
349 |
|
|
|
471 |
|
|
|
699 |
|
|
|
882 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income (loss) |
|
|
7,843 |
|
|
|
7,617 |
|
|
|
16,172 |
|
|
|
(14,549 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends on preferred and preference stock of
subsidiaries |
|
|
(16,195 |
) |
|
|
(16,195 |
) |
|
|
(32,390 |
) |
|
|
(32,390 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income |
|
$ |
486,456 |
|
|
$ |
423,999 |
|
|
$ |
620,506 |
|
|
$ |
761,037 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes as they relate to Southern Company are an integral part of these condensed financial statements.
13
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SECOND QUARTER 2009 vs. SECOND QUARTER 2008
AND
YEAR-TO-DATE 2009 vs. YEAR-TO-DATE 2008
OVERVIEW
Discussion of the results of operations is focused on Southern Companys primary business of
electricity sales in the Southeast by the traditional operating companies Alabama Power, Georgia
Power, Gulf Power, and Mississippi Power and Southern Power. The traditional operating
companies are vertically integrated utilities providing electric service in four Southeastern
states. Southern Power constructs, acquires, owns, and manages generation assets and sells
electricity at market-based rates in the wholesale market. Southern Companys other business
activities include investments in leveraged lease projects, telecommunications, and energy-related
services. For additional information on these businesses, see BUSINESS The Southern Company
System Traditional Operating Companies, Southern Power, and Other Businesses in Item 1 of
the Form 10-K.
Southern Company continues to focus on several key performance indicators. These indicators include
customer satisfaction, plant availability, system reliability, and earnings per share. For
additional information on these indicators, see MANAGEMENTS DISCUSSION AND ANALYSIS OVERVIEW
Key Performance Indicators of Southern Company in Item 7 of the Form 10-K.
RESULTS OF OPERATIONS
Net Income
|
|
|
|
|
|
|
Second Quarter 2009 vs. Second Quarter 2008 |
|
Year-to-Date 2009 vs. Year-to-Date 2008 |
(change in millions) |
|
(% change) |
|
(change in millions) |
|
(% change) |
$62.2
|
|
14.9
|
|
$(171.3)
|
|
(22.1) |
|
Southern Companys second quarter 2009 net income after dividends on preferred and preference stock
of subsidiaries was $478.6 million ($0.61 per share) compared to $416.4 million ($0.54 per share)
for the second quarter 2008. The increase for the second quarter 2009 when compared to the
corresponding period in 2008 was primarily the result of an increase in customer charges at Alabama
Power, increased recognition of environmental compliance cost recovery revenues at Georgia Power,
lower operations and maintenance expenses, a 2008 charge related to tax treatment of leveraged
lease investments, and a gain on the early termination of two international leveraged lease
investments. The increase for the second quarter 2009 was partially offset by a decrease in
revenues from lower KWH sales, a decrease in revenues from market-response rates to large
commercial and industrial customers, and higher depreciation and amortization.
Southern Companys year-to-date 2009 net income after dividends on preferred and preference stock
of subsidiaries was $604.3 million ($0.77 per share) compared to $775.6 million ($1.01 per share)
for year-to-date 2008. The decrease for year-to-date 2009 when compared to the corresponding
period in 2008 was primarily the result of a litigation settlement with MC Asset Recovery, LLC (MC
Asset Recovery), a decrease in revenues from lower KWH sales, a decrease in revenues from
market-response rates to large commercial and industrial customers, and higher depreciation and
amortization. The decrease for year-to-date 2009 was partially offset by an increase in customer
charges at Alabama Power, increased recognition of environmental compliance cost recovery revenues
at Georgia Power, lower operations and maintenance expenses, a 2008 charge related to tax treatment
of leveraged lease investments, and a gain on the early termination of two international leveraged
lease investments.
14
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Retail Revenues
|
|
|
|
|
|
|
Second Quarter 2009 vs. Second Quarter 2008 |
|
Year-to-Date 2009 vs. Year-to-Date 2008 |
(change in millions) |
|
(% change) |
|
(change in millions) |
|
(% change) |
$(156.9)
|
|
(4.5)
|
|
$(97.8)
|
|
(1.5) |
|
In the second quarter 2009, retail revenues were $3.29 billion compared to $3.45 billion for the
corresponding period in 2008.
For year-to-date 2009, retail revenues were $6.36 billion compared to $6.46 billion for the
corresponding period in 2008.
Details of the change to retail revenues are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter |
|
Year-to-Date |
|
|
2009 |
|
2009 |
|
|
(in millions) |
|
(% change) |
|
(in millions) |
|
(% change) |
Retail prior year |
|
$ |
3,449.9 |
|
|
|
|
|
|
$ |
6,455.5 |
|
|
|
|
|
Estimated change in |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rates and pricing |
|
|
7.7 |
|
|
|
0.2 |
|
|
|
85.7 |
|
|
|
1.3 |
|
Sales growth (decline) |
|
|
(82.6 |
) |
|
|
(2.4 |
) |
|
|
(139.1 |
) |
|
|
(2.2 |
) |
Weather |
|
|
8.3 |
|
|
|
0.3 |
|
|
|
4.4 |
|
|
|
0.1 |
|
Fuel and other cost recovery |
|
|
(90.3 |
) |
|
|
(2.6 |
) |
|
|
(48.8 |
) |
|
|
(0.7 |
) |
|
Retail current year |
|
$ |
3,293.0 |
|
|
|
(4.5 |
)% |
|
$ |
6,357.7 |
|
|
|
(1.5 |
)% |
|
Revenues associated with changes in rates and pricing increased in the second quarter and for
year-to-date 2009 when compared to the corresponding periods in 2008 primarily as a result of an
increase in customer charges at Alabama Power and increased recognition of environmental compliance
cost recovery revenues at Georgia Power in accordance with its 2007 Retail Rate Plan, partially
offset by a decrease in revenues from market-response rates to large commercial and industrial
customers.
Revenues attributable to changes in sales declined in the second quarter and for year-to-date 2009
when compared to the corresponding periods in 2008 due to decreases in weather-adjusted retail KWH
sales of 6.8% and 6.5%, respectively, resulting primarily from recessionary economic conditions.
For the second quarter 2009, weather-adjusted residential KWH sales decreased 1.6%,
weather-adjusted commercial KWH sales decreased 0.5%, and weather-adjusted industrial KWH sales
decreased 17.7%. For year-to-date 2009, weather-adjusted residential KWH sales decreased 1.0%,
weather-adjusted commercial KWH sales decreased 0.9%, and weather-adjusted industrial KWH sales
decreased 17.3%. Reduced demand in the primary metals and chemical
sectors contributed to the decreases in weather-adjusted
industrial KWH sales in the second quarter and for year-to-date 2009 when compared to the
corresponding periods in 2008. Reduced demand in the stone, clay, and glass sector also
contributed to the second quarter 2009 decrease in weather-adjusted industrial KWH sales.
Revenues resulting from changes in weather increased in the second quarter 2009 and for
year-to-date 2009 as a result of more favorable weather when compared to the corresponding periods
in 2008.
Fuel and other cost recovery revenues decreased $90.3 million in the second quarter 2009 and $48.8
million for year-to-date 2009 when compared to the corresponding periods in 2008. Electric rates
for the traditional operating companies include provisions to adjust billings for fluctuations in
fuel costs, including the energy component of purchased power costs. Under these provisions, fuel
revenues generally equal fuel expenses, including the fuel component of purchased power costs, and
do not affect net income.
15
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Wholesale Revenues
|
|
|
|
|
|
|
Second Quarter 2009 vs. Second Quarter 2008 |
|
Year-to-Date 2009 vs. Year-to-Date 2008 |
(change in millions) |
|
(% change) |
|
(change in millions) |
|
(% change) |
$(154.0)
|
|
(26.0)
|
|
$(216.3)
|
|
(19.6) |
|
In the second quarter 2009, wholesale revenues were $437.8 million compared to $591.8 million for
the corresponding period in 2008. Wholesale fuel revenues, which are generally offset by wholesale
fuel expenses and do not affect net income, decreased $143.3 million in the second quarter 2009
when compared to the corresponding period in 2008. Excluding wholesale fuel revenues, wholesale
revenues decreased $10.7 million in the second quarter 2009 when compared to the corresponding
period in 2008. The decrease was primarily the result of fewer short-term opportunity sales due to
lower energy prices, partially offset by additional revenues associated with Plant Franklin Unit 3
at Southern Power which went into service in June 2008.
For year-to-date 2009, wholesale revenues were $889.2 million compared to $1.11 billion for the
corresponding period in 2008. Wholesale fuel revenues, which are generally offset by wholesale
fuel expenses and do not affect net income, decreased $225.2 million for year-to-date 2009 when
compared to the corresponding period in 2008. Excluding wholesale fuel revenues, wholesale
revenues increased $8.9 million for year-to-date 2009 when compared to the corresponding period in
2008. The increase was primarily the result of additional revenues associated with Plant Franklin
Unit 3 at Southern Power, returns on new and existing wholesale contracts, and changes in
mark-to-market positions on sales of uncontracted generating capacity. Fewer short-term
opportunity sales due to lower energy prices partially offset this increase.
Short-term opportunity sales are made at market-based rates that generally provide a margin above
Southern Companys variable cost to produce the energy.
Other Electric Revenues
|
|
|
|
|
|
|
Second Quarter 2009 vs. Second Quarter 2008 |
|
Year-to-Date 2009 vs. Year-to-Date 2008 |
(change in millions) |
|
(% change) |
|
(change in millions) |
|
(% change) |
$(12.8)
|
|
(9.0)
|
|
$(20.2)
|
|
(7.4) |
|
In the second quarter 2009, other electric revenues were $128.4 million compared to $141.2 million
for the corresponding period in 2008. The decrease was primarily the result of a $15.3 million
decrease in co-generation revenues due to lower gas prices and a decline in sales volume, partially
offset by a $4.4 million increase in transmission revenues.
For year-to-date 2009, other electric revenues were $251.2 million compared to $271.4 million for
the corresponding period in 2008. The decrease was the result of a $21.6 million decrease in
co-generation revenues due to lower gas prices and a decline in sales volume.
Revenues from co-generation are generally offset by related expenses and do not affect net income.
16
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Other Revenues
|
|
|
|
|
|
|
Second Quarter 2009 vs. Second Quarter 2008 |
|
Year-to-Date 2009 vs. Year-to-Date 2008 |
(change in millions) |
|
(% change) |
|
(change in millions) |
|
(% change) |
$(6.3)
|
|
(19.6)
|
|
$(12.4)
|
|
(18.8) |
|
In the second quarter 2009, other revenues were $26.0 million compared to $32.3 million for the
corresponding period in 2008. The decrease was primarily the result of a $6.4 million decrease in
revenues at SouthernLINC Wireless related to lower average revenue per subscriber and fewer
subscribers as a result of increased competition in the industry when compared to the corresponding
period in 2008.
For year-to-date 2009, other revenues were $53.4 million compared to $65.8 million for the
corresponding period in 2008. The decrease was primarily the result of a $12.1 million decrease in
revenues at SouthernLINC Wireless related to lower average revenue per subscriber and fewer
subscribers as a result of increased competition in the industry when compared to the corresponding
period in 2008.
Fuel and Purchased Power Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter 2009 |
|
|
Year-to-Date 2009 |
|
|
|
vs. |
|
|
vs. |
|
|
|
Second Quarter 2008 |
|
|
Year-to-Date 2008 |
|
|
|
(change in millions) |
|
(% change) |
|
(change in millions) |
|
(% change) |
Fuel |
|
$ |
(172.9 |
) |
|
|
(10.7 |
) |
|
$ |
(218.6 |
) |
|
|
(7.1 |
) |
Purchased power |
|
|
(64.1 |
) |
|
|
(32.5 |
) |
|
|
(49.3 |
) |
|
|
(17.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Total fuel and purchased power expenses |
|
$ |
(237.0 |
) |
|
|
|
|
|
$ |
(267.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fuel and purchased power expenses for the second quarter 2009 were $1.58 billion compared to $1.82
billion for the corresponding period in 2008. The decrease was primarily the result of a $204.3
million net decrease related to total KWHs generated and purchased and a $32.7 million net decrease
in the average cost of fuel and purchased power when compared to the corresponding period in 2008.
The net decrease in the average cost of fuel and purchased power for the second quarter 2009
resulted from lower fossil fuel prices when compared to the corresponding period in 2008.
For year-to-date 2009, fuel and purchased power expenses were $3.10 billion compared to $3.36
billion for the corresponding period in 2008. The decrease was primarily the result of a $326.3
million net decrease related to total KWHs generated and purchased, partially offset by a $58.4
million net increase in the average cost of fuel and purchased power, primarily related to a 23.7%
increase in the cost of coal per net KWH generated, when compared to the corresponding period in
2008.
Fuel expenses at the traditional operating companies are generally offset by fuel revenues and do
not affect net income. See FUTURE EARNINGS POTENTIAL FERC and State PSC Matters Retail Fuel
Cost Recovery herein for additional information. Fuel expenses incurred under Southern Powers
PPAs are generally the responsibility of the counterparties and do not significantly affect net
income.
17
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Details of Southern Companys cost of generation and purchased power are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter |
|
Second Quarter |
|
Percent |
|
Year-to-Date |
|
Year-to-Date |
|
Percent |
Average Cost |
|
2009 |
|
2008 |
|
Change |
|
2009 |
|
2008 |
|
Change |
|
|
(cents per net KWH) |
|
|
|
|
|
(cents per net KWH) |
|
|
|
|
Fuel
|
|
|
3.29 |
|
|
|
3.29 |
|
|
|
|
|
|
|
3.34 |
|
|
|
3.18 |
|
|
|
5.0 |
|
Purchased power
|
|
|
7.79 |
|
|
|
9.61 |
|
|
|
(18.9 |
) |
|
|
6.31 |
|
|
|
8.28 |
|
|
|
(23.8 |
) |
|
Energy purchases will vary depending on demand for energy within the Southern Company service area,
the market cost of available energy as compared to the cost of Southern Company system-generated
energy, and the availability of Southern Company system generation.
Other Operations and Maintenance Expenses
|
|
|
|
|
|
|
Second Quarter 2009 vs. Second Quarter 2008 |
|
Year-to-Date 2009 vs. Year-to-Date 2008 |
(change in millions) |
|
(% change) |
|
(change in millions) |
|
(% change) |
$(83.8)
|
|
(9.2)
|
|
$(109.5)
|
|
(6.0) |
|
In the second quarter 2009, other operations and maintenance expenses were $831.2 million compared
to $915.0 million for the corresponding period in 2008. The decrease was primarily the result of a
$28.2 million decrease in fossil and hydro expenses mainly due to less planned spending on outages
and maintenance; a $27.2 million decrease in transmission and distribution expenses mainly due to
lower maintenance expenses; a $10.8 million decrease in administrative and general expenses
primarily related to employee medical expenses; a $5.8 million decrease in expenses related to
lower advertising, litigation, and property insurance costs; a $5.5 million decrease in expenses
primarily related to lower sales volume at SouthernLINC Wireless; and a $5.3 million decrease in
expenses related to customer service and sales.
For year-to-date 2009, other operations and maintenance expenses were $1.70 billion compared to
$1.81 billion for the corresponding period in 2008. The decrease was primarily the result of a
$53.2 million decrease in fossil and hydro expenses mainly due to less planned spending on outages
and maintenance; a $41.2 million decrease in transmission and distribution expenses mainly due to
lower maintenance and metering expenses; a $13.1 million decrease in expenses related to lower
advertising, litigation, and property insurance costs; a $10.1 million decrease in expenses
primarily related to lower sales volume at SouthernLINC Wireless; and a $6.9 million decrease in
expenses related to customer service and sales. This decrease was partially offset by a $16.3
million increase in administration and general expenses largely
related to the $29.4 million charge in the first quarter 2009 in
connection with a voluntary attrition
program at Georgia Power under which 579 employees elected to resign their positions effective
March 31, 2009. In the second quarter 2009, approximately one-third of the $29.4
million charge was offset by lower salary and employee benefits
costs, and the other two-thirds will be offset during the remainder of
the year. This charge is not expected to have a material impact on Southern Companys
financial statements for the year ending December 31, 2009.
MC Asset Recovery Litigation Settlement
|
|
|
|
|
|
|
Second Quarter 2009 vs. Second Quarter 2008 |
|
Year-to-Date 2009 vs. Year-to-Date 2008 |
(change in millions) |
|
(% change) |
|
(change in millions) |
|
(% change) |
|
|
|
|
$202.0
|
|
N/M |
|
N/M Not Meaningful
In the first quarter 2009, Southern Company entered into a litigation settlement agreement
with MC Asset Recovery which resulted in a charge of $202.0 million. See Note (B) to the Condensed
Financial Statements under Mirant Matters MC Asset Recovery Litigation herein for additional
information.
18
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Depreciation and Amortization
|
|
|
|
|
|
|
Second Quarter 2009 vs. Second Quarter 2008 |
|
Year-to-Date 2009 vs. Year-to-Date 2008 |
(change in millions) |
|
(% change) |
|
(change in millions) |
|
(% change) |
$18.6
|
|
5.2
|
|
$64.5
|
|
9.2 |
|
In the second quarter 2009, depreciation and amortization was $377.3 million compared to $358.7
million for the corresponding period in 2008. The increase was primarily the result of an increase
in plant in service related to environmental, transmission, and distribution projects at Georgia
Power; an increase in depreciation rates at Southern Power; and the completion of Southern Powers
Plant Franklin Unit 3 in June 2008.
For year-to-date 2009, depreciation and amortization was $767.1 million compared to $702.6 million
for the corresponding period in 2008. The increase was primarily the result of an increase in
plant in service related to environmental, transmission, and distribution projects at Alabama Power
and Georgia Power; an increase in depreciation rates at Southern Power; and the completion of
Southern Powers Plant Franklin Unit 3 in June 2008.
Taxes Other Than Income Taxes
|
|
|
|
|
|
|
Second Quarter 2009 vs. Second Quarter 2008 |
|
Year-to-Date 2009 vs. Year-to-Date 2008 |
(change in millions) |
|
(% change) |
|
(change in millions) |
|
(% change) |
$10.1
|
|
5.1
|
|
$20.7
|
|
5.3 |
|
In the second quarter 2009, taxes other than income taxes were $208.1 million compared to $198.0
million for the corresponding period in 2008.
For year-to-date 2009, taxes other than income taxes were $408.0 million compared to $387.3 million
for the corresponding period in 2008.
The second quarter and year-to-date 2009 increases were primarily the result of increases in state
and municipal public utility license tax bases at Alabama Power, higher ad valorem taxes at Georgia
Power, and increases in franchise fees at Gulf Power. Increases in franchise fees are associated
with increases in revenues from retail energy sales.
Allowance for Equity Funds Used During Construction
|
|
|
|
|
|
|
Second Quarter 2009 vs. Second Quarter 2008 |
|
Year-to-Date 2009 vs. Year-to-Date 2008 |
(change in millions) |
|
(% change) |
|
(change in millions) |
|
(% change) |
$12.0
|
|
33.9
|
|
$14.0
|
|
18.5 |
|
In the second quarter 2009, allowance for equity funds used during construction (AFUDC) was $47.5
million compared to $35.5 million for the corresponding period in 2008.
For year-to-date 2009, AFUDC was $90.1 million compared to $76.1 million for the corresponding
period in 2008.
The second quarter and year-to-date 2009 increases were primarily the result of additional
investments in environmental projects mainly at Alabama Power and Gulf Power.
19
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Leveraged Lease Income (Losses)
|
|
|
|
|
|
|
Second Quarter 2009 vs. Second Quarter 2008 |
|
Year-to-Date 2009 vs. Year-to-Date 2008 |
(change in millions) |
|
(% change) |
|
(change in millions) |
|
(% change) |
$79.6
|
|
112.2
|
|
$78.1
|
|
130.2 |
|
In the second quarter 2009, leveraged lease income (losses) was $8.7 million compared to $(70.9)
million for the corresponding period in 2008.
For year-to-date 2009, leveraged lease income (losses) was $18.1 million compared to $(60.0)
million for the corresponding period in 2008.
Southern Company has several leveraged lease investments in international and domestic energy
generation, distribution, and transportation assets. Southern Company receives federal income tax
deductions for depreciation and amortization, as well as interest on long-term debt related to
these investments. The second quarter and year-to-date 2009 increases were primarily the result of
the 2008 application of certain accounting standards related to leveraged leases, including a
second quarter 2008 after tax charge of $51.2 million. See Note (B) to the Condensed Financial
Statements under Income Tax Matters Leveraged Leases herein for additional information.
Gain on Disposition of Lease Termination
|
|
|
|
|
|
|
Second Quarter 2009 vs. Second Quarter 2008 |
|
Year-to-Date 2009 vs. Year-to-Date 2008 |
(change in millions) |
|
(% change) |
|
(change in millions) |
|
(% change) |
$26.3
|
|
N/M
|
|
$26.3
|
|
N/M |
|
N/M Not Meaningful
In the second quarter 2009, Southern Company terminated two international leveraged lease
investments early which resulted in a gain of $26.3 million.
Loss on Extinguishment of Debt
|
|
|
|
|
|
|
Second Quarter 2009 vs. Second Quarter 2008 |
|
Year-to-Date 2009 vs. Year-to-Date 2008 |
(change in millions) |
|
(% change) |
|
(change in millions) |
|
(% change) |
$17.2
|
|
N/M
|
|
$17.2
|
|
N/M |
|
N/M Not Meaningful
In the second quarter 2009, Southern Company terminated two international leveraged lease
investments early. The proceeds from the terminations were used to
extinguish all debt related to leveraged lease investments, a portion of
which had make-whole redemption provisions which resulted in a loss of $17.2 million.
Interest Expense, Net of Amounts Capitalized
|
|
|
|
|
|
|
Second Quarter 2009 vs. Second Quarter 2008 |
|
Year-to-Date 2009 vs. Year-to-Date 2008 |
(change in millions) |
|
(% change) |
|
(change in millions) |
|
(% change) |
$3.9
|
|
1.7
|
|
$12.5
|
|
2.8 |
|
In the second quarter 2009, interest expense, net of amounts capitalized was $232.8 million
compared to $228.9 million for the corresponding period in 2008. The increase when compared to the
corresponding period in 2008 was not material.
20
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For year-to-date 2009, interest expense, net of amounts capitalized was $458.6 million compared to
$446.1 million for the corresponding period in 2008. The increase was primarily due to a $53.0
million increase associated with $2.46 billion in additional debt outstanding at June 30, 2009
compared to June 30, 2008. See MANAGEMENTS DISCUSSION AND ANALYSIS FINANCIAL CONDITION AND
LIQUIDITY Financing Activities of Southern Company in Item 7 of the Form 10-K and herein for
additional information. Partially offsetting this increase was $30.2 million related to lower
average interest rates on existing variable rate debt and an $11.2 million decrease related to
other interest charges.
Other Income (Expense), Net
|
|
|
|
|
|
|
Second Quarter 2009 vs. Second Quarter 2008 |
|
Year-to-Date 2009 vs. Year-to-Date 2008 |
(change in millions) |
|
(% change) |
|
(change in millions) |
|
(% change) |
$0.8
|
|
17.9
|
|
$(12.9)
|
|
N/M |
|
N/M Not Meaningful
In the second quarter 2009, other income (expense), net was $(3.7) million compared to $(4.5)
million for the corresponding period in 2008. The decrease in expense when compared to the
corresponding period in 2008 is not material.
For year-to-date 2009, other income (expense), net was $(16.5) million compared to $(3.6) million
for the corresponding period in 2008. The increase in expense was primarily the result of the
first quarter 2008 recognition of a $6.4 million fee received for participating in an asset auction
and a $6.0 million gain on the sale of an undeveloped tract of land to the Orlando Utilities
Commission.
Income Taxes
|
|
|
|
|
|
|
Second Quarter 2009 vs. Second Quarter 2008 |
|
Year-to-Date 2009 vs. Year-to-Date 2008 |
(change in millions) |
|
(% change) |
|
(change in millions) |
|
(% change) |
$0.7
|
|
0.3
|
|
$(10.2)
|
|
(2.5) |
|
In the second quarter 2009, income taxes were $225.7 million compared to $225.0 million for the
corresponding period in 2008. The increase was the result of taxes on higher pre-tax earnings,
largely offset by lower tax expenses associated with the early termination of one of the
international leveraged lease investments and the extinguishment of the associated debt discussed
previously under Gain on Disposition of Lease Termination and Loss on Extinguishment of Debt.
See Note (G) to the Condensed Financial Statements under Effective Tax Rate herein for details
regarding the impact of the early lease termination on the effective tax rate.
For year-to-date 2009, income taxes were $392.9 million compared to $403.1 million for the
corresponding period in 2008. The decrease was primarily the result of lower tax expenses
associated with the early termination of one of the international leveraged lease investments and
the extinguishment of the associated debt discussed previously under Gain on Disposition of Lease
Termination and Loss on Extinguishment of Debt. See Note (G) to the Condensed Financial
Statements under Effective Tax Rate herein for details regarding the impact of the MC Asset
Recovery litigation settlement and the early lease termination on the effective tax rate.
FUTURE EARNINGS POTENTIAL
The results of operations discussed above are not necessarily indicative of Southern Companys
future earnings potential. The level of Southern Companys future earnings depends on numerous
factors that affect the opportunities, challenges, and risks of Southern Companys primary business
of selling electricity. These factors include the traditional operating companies ability to
maintain a constructive regulatory environment that continues to allow for the recovery of
prudently incurred costs during a time of increasing costs. Other major factors include
profitability of the competitive wholesale supply business and federal regulatory policy, which may
impact Southern Companys level of participation in this market. Future earnings for the
electricity
21
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
business in the near term will depend, in part, upon maintaining energy sales, which is subject to
a number of factors. These factors include weather, competition, new energy contracts with
neighboring utilities and other wholesale customers, energy conservation practiced by customers,
the price of electricity, the price elasticity of demand, and the rate of economic growth or
decline in the service area. In addition, the level of future earnings for the wholesale supply
business also depends on numerous factors including creditworthiness of customers, total generating
capacity available in the Southeast, and the successful remarketing of capacity as current
contracts expire. Recent recessionary conditions have negatively impacted sales for the
traditional operating companies and have negatively impacted wholesale capacity revenues at
Southern Power. The current economic recession is expected to continue to have a negative impact
on energy sales, particularly to industrial customers. The timing and extent of the economic
recovery will impact future earnings. For additional information relating to these issues, see
RISK FACTORS in Item 1A and MANAGEMENTS DISCUSSION AND ANALYSIS FUTURE EARNINGS POTENTIAL of
Southern Company in Item 7 of the Form 10-K.
Environmental Matters
Compliance costs related to the Clean Air Act and other environmental statutes and regulations
could affect earnings if such costs cannot continue to be fully recovered in rates on a timely
basis. See MANAGEMENTS DISCUSSION AND ANALYSIS FUTURE EARNINGS POTENTIAL Environmental
Matters of Southern Company in Item 7 and Note 3 to the financial statements of Southern Company
under Environmental Matters in Item 8 of the Form 10-K for additional information.
Water Quality
See MANAGEMENTS DISCUSSION AND ANALYSIS FUTURE EARNINGS POTENTIAL Environmental Matters
Environmental Statutes and Regulations Water Quality of Southern Company in Item 7 of the Form
10-K for additional information regarding the EPAs regulation of cooling water intake structures.
On April 1, 2009, the U.S. Supreme Court reversed the U.S. Court of Appeals for the Second
Circuits decision with respect to the rules use of cost-benefit analysis and held that the EPA
could consider costs in arriving at its standards and in providing variances from those standards
for existing power plant cooling water intake structures. Other aspects of the courts decision
were not appealed and remain unaffected by the U.S. Supreme Courts ruling. While the U.S. Supreme
Courts decision may ultimately result in greater flexibility for demonstrating compliance with the
standards, the full scope of the regulations will depend on subsequent legal proceedings, further
rulemaking by the EPA, the results of studies and analyses performed as part of the rules
implementation, and the actual requirements established by state regulatory agencies and,
therefore, cannot be determined at this time.
Global Climate Issues
See MANAGEMENTS DISCUSSION AND ANALYSIS FUTURE EARNINGS POTENTIAL Environmental Matters
Global Climate Issues of Southern Company in Item 7 of the Form 10-K for information regarding the
potential for legislation and regulation addressing greenhouse gas emissions. On April 17, 2009,
the EPA released a proposed finding that certain greenhouse gas emissions from new motor vehicles
endanger public health and welfare due to climate change. The ultimate outcome of the proposed
endangerment finding cannot be determined at this time and will depend on additional regulatory
action and potential legal challenges. However, regulatory decisions that may follow from such a
finding could have implications for both new and existing stationary sources, such as power plants.
In addition, federal legislative proposals that would impose mandatory requirements related to
greenhouse gas emissions, renewable energy standards, and energy efficiency standards continue to
be actively considered in Congress, and the reduction of greenhouse gas emissions has been
identified as a high priority by the current Administration. On June 26, 2009, the American Clean
Energy and Security Act of 2009, which would impose mandatory greenhouse gas restrictions through
implementation of a cap and trade program, a renewable energy standard, and other measures, was
passed by the House of Representatives and is expected to now be considered by the Senate. The
ultimate outcome of these matters cannot be determined at this time; however, mandatory
restrictions on
22
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Southern Companys greenhouse gas emissions, or requirements relating to renewable energy or energy
efficiency, could result in significant additional compliance costs that could affect future unit
retirement and replacement decisions and results of operations, cash flows, and financial condition
if such costs are not recovered through regulated rates.
FERC and State PSC Matters
Market-Based Rate Authority
See MANAGEMENTS DISCUSSION AND ANALYSIS FUTURE EARNINGS POTENTIAL FERC Matters
Market-Based Rate Authority of Southern Company in Item 7 and Note 3 to the financial statements
of Southern Company under FERC Matters Market-Based Rate Authority in Item 8 of the Form 10-K
for information regarding market-based rate authority. In October 2008, Southern Company filed
with the FERC a revised market-based rate (MBR) tariff and a new cost-based rate (CBR) tariff.
The revised MBR tariff provides for a must offer energy auction whereby Southern Company offers
all of its available energy for sale in a day-ahead auction and an hour-ahead auction with reserve
prices not to exceed the CBR tariff price, after considering Southern Companys native load
requirements, reliability obligations, and sales commitments to third parties. All sales under the
energy auction would be at market clearing prices established under the auction rules. The new CBR
tariff provides for a cost-based price for wholesale sales of less than a year. On March 5, 2009,
the FERC accepted Southern Companys CBR tariff for filing. On March 25, 2009, the FERC accepted
Southern Companys compliance filing related to the MBR tariff and directed Southern Company to
commence the energy auction in 30 days. Southern Company commenced the energy auction on April 23,
2009. The FERC has determined that implementation of the energy auction in accordance with the MBR
tariff order adequately mitigates going forward any presumption of market power that Southern
Company may have in the Southern Company retail service territory and adjacent market areas. The
original generation dominance proceeding initiated by the FERC in December 2004 remains pending
before the FERC. The ultimate outcome of this matter cannot be determined at this time.
Retail Fuel Cost Recovery
The traditional operating companies each have established fuel cost recovery rates approved by
their respective state PSCs. Over the past several years, the traditional operating companies have
experienced higher than expected fuel costs for coal, natural gas, and uranium. These higher fuel
costs have resulted in under recovered fuel costs included in the balance sheets of approximately
$882 million at June 30, 2009 as compared to $1.2 billion at December 31, 2008. Operating revenues
are adjusted for differences in actual recoverable fuel costs and amounts billed in current
regulated rates. Accordingly, changes to the billing factors will have no significant effect on
Southern Companys revenues or net income but will affect cash flow. The traditional operating
companies continuously monitor the under recovered fuel cost balance in light of these higher fuel
costs. See MANAGEMENTS DISCUSSION AND ANALYSIS FUTURE EARNINGS POTENTIAL PSC Matters
Fuel Cost Recovery of Southern Company in Item 7 and Note 3 to the financial statements of
Southern Company under Alabama Power Retail Regulatory Matters, Georgia Power Retail Regulatory
Matters, and Gulf Power Retail Regulatory Matters in Item 8 of the Form 10-K for additional
information.
On March 10, 2009, the Georgia PSC granted Georgia Powers request to delay its fuel case filing
until September 4, 2009. The extension was requested as a result of difficulty in establishing a
forward-looking fuel rate due to volatile coal and gas prices, uncertain sales forecasts, and a
continuing decline in the State of Georgias economy. The ultimate outcome of this matter cannot
now be determined.
23
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Retail Rate Matters
Under the 2007 Retail Rate Plan, Georgia Powers earnings are evaluated against a retail return on
equity (ROE) range of 10.25% to 12.25%. In connection with the 2007 Retail Rate Plan, the Georgia
PSC ordered that Georgia Power file its next general base rate case by July 1, 2010; however, the
2007 Retail Rate Plan provides that Georgia Power may file for a general base rate increase in the
event its projected retail ROE falls below 10.25%.
The economic recession has significantly reduced Georgia Powers revenues upon which retail rates
were set under the 2007 Retail Rate Plan. Despite stringent efforts to reduce expenses, current
projections indicate Georgia Powers retail ROE will be less than 10.25% in both 2009 and 2010.
However, in lieu of filing to increase customer rates as allowed under the 2007 Retail Rate Plan,
on June 29, 2009, Georgia Power filed a request with the Georgia PSC for an accounting order that
would allow Georgia Power to amortize approximately $324 million of its regulatory liability
related to other cost of removal obligations. Under Georgia Powers proposal, the regulatory
liability would be amortized ratably over the 18-month period from July 1, 2009 through December
31, 2010 as a reduction to operating expenses. Even if the Georgia PSC approves the accounting
order request as filed, Georgia Power currently expects its retail ROE will remain below the 10.25%
low end of its allowed retail ROE range in 2009 and 2010. The accounting order request is subject
to the review and approval of the Georgia PSC. The ultimate outcome of this matter cannot be
determined at this time.
Legislation
On February 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act of
2009 (ARRA). Major tax incentives in the ARRA include an extension of bonus depreciation and
multiple renewable energy incentives, which could have a significant impact on the future cash flow
and net income of Southern Company. Southern Company estimates the cash flow reduction to 2009 tax
payments as a result of the bonus depreciation provisions of the ARRA to be between approximately
$225 million and $275 million. Southern Company and its subsidiaries have also filed an
application under the ARRA for a grant of approximately $360 million to be used primarily for the
advanced metering infrastructure program and other transmission and distribution automation and
modernization projects. Southern Company continues to assess the other financial implications of
the ARRA. The ultimate impact cannot be determined at this time.
Construction Projects
Integrated Coal Gasification Combined Cycle
See MANAGEMENTS DISCUSSION AND ANALYSIS FUTURE EARNINGS POTENTIAL Construction Projects
Integrated Coal Gasification Combined Cycle of Southern Company in Item 7 and Note 3 to the
financial statements of Southern Company under Integrated Coal Gasification Combined Cycle in
Item 8 of the Form 10-K for information regarding the Kemper IGCC.
On May 11, 2009, Mississippi Power received notification from the IRS formally certifying the
Internal Revenue Code Section 48A tax credits of $133 million to Mississippi Power. The
utilization of these credits is dependent upon meeting the certification requirements for the
Kemper IGCC, including an in-service date no later than May 2014.
On April 6, 2009, the Governor of the State of Mississippi signed into law a bill that will provide
an ad valorem tax exemption for a portion of the assessed value of all property utilized in certain
electric generating facilities with integrated gasification process facilities. This tax
exemption, which may not exceed 50% of the total value of the project, is for projects with a
capital investment from private sources of $1 billion or more. Mississippi
24
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Power expects the Kemper IGCC to be a qualifying project under the law and the gasification portion
of the Kemper IGCC to be exempt from ad valorem taxation.
On April 6, 2009, Mississippi Power received an accounting order from the Mississippi PSC directing
Mississippi Power to continue to charge all generation resource planning, evaluation, and screening
costs to regulatory assets including those costs associated with activities to obtain a certificate
of public convenience and necessity and costs necessary and prudent to preserve the availability,
economic viability, and/or required schedule of the Kemper IGCC generation resource planning,
evaluation, and screening activities until the Mississippi PSC makes findings and determination as
to the recovery of Mississippi Powers prudent expenditures. The Mississippi PSCs determination
of prudence for Mississippi Powers pre-construction costs is scheduled to occur by May 2010. As
of June 30, 2009, Mississippi Power had spent a total of $56.4 million associated with Mississippi
Powers generation resource planning, evaluation, and screening activities, including regulatory
filing costs. Costs incurred for the six months ended June 30, 2009 totaled $14.1 million as
compared to $13.0 million for the six months ended June 30, 2008. Of the total $56.4 million,
$51.9 million was deferred in other regulatory assets, $3.7 million was related to land purchases
capitalized, and $0.8 million was previously expensed.
Several motions were filed by intervenors, most of which were procedural in nature and sought to
stay or delay the timely and orderly administration of the docket. In addition to these procedural
motions, a motion was filed by the Attorney General for the State of Mississippi which questioned
whether the Mississippi PSC had authority to approve the gasification portion of the Kemper IGCC.
On June 5, 2009, all of these motions were denied by the Mississippi PSC.
On June 5, 2009, the Mississippi PSC issued an order initiating an evaluation of the Kemper IGCC
and establishing a two-phase procedural schedule. During Phase I, the Mississippi PSC will
determine if a need exists for new generating resources. Hearings for Phase I are scheduled for
October 2009 with a decision in November 2009. If it is determined a need exists in Phase I, the
appropriate resource to fill the need as well as the cost recovery of that resource through
application of the State of Mississippis Baseload Act of 2008 will be determined during Phase II.
Hearings regarding Phase II issues are scheduled for February 2010 with a decision by May 2010.
See MANAGEMENTS DISCUSSION AND ANALYSIS FUTURE EARNINGS POTENTIAL PSC Matters
Mississippi Base Load Construction Legislation of Southern Company in Item 7 of the Form 10-K for
information regarding the Baseload Act of 2008.
The ultimate outcome of these matters cannot now be determined.
Nuclear
See Note (B) to the Condensed Financial Statements under Construction Projects Nuclear herein
for information regarding the potential expansion of Plant Vogtle.
On March 17, 2009, the Georgia PSC voted to certify construction of Plant Vogtle Units 3 and 4 at
an in-service cost of $6.4 billion. In addition, the Georgia PSC voted to approve inclusion of the
related construction work in progress accounts in rate base and to recover financing costs during
the construction period beginning in 2011, which is expected to reduce the in-service cost to
approximately $4.5 billion.
On April 21, 2009, the Governor of the State of Georgia signed into law the Georgia Nuclear Energy
Financing Act that will allow Georgia Power to recover financing costs for nuclear construction
projects by including the related construction work in progress accounts in rate base during the
construction period. The cost recovery provisions will become effective January 1, 2011.
On
June 15, 2009, an environmental group filed a petition in the
Superior Court of Fulton County, Georgia seeking review of the
Georgia PSCs certification order and challenging the
constitutionality of the Georgia Nuclear Energy Financing Act. Georgia
Power believes there is no meritorious basis for this petition and
intends to vigorously defend against the requested actions. The
ultimate outcome of this matter cannot be determined at this time.
25
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Nuclear Relicensing
The NRC operating licenses for Plant Vogtle Units 1 and 2 were scheduled to expire in January 2027
and February 2029, respectively. In June 2007, Georgia Power filed an application with the NRC to
extend the licenses for Plant Vogtle Units 1 and 2 for an additional 20 years. On June 3, 2009,
the NRC approved the extension of the licenses as requested.
Other Matters
Southern Company is involved in various other matters being litigated, regulatory matters, and
certain tax-related issues that could affect future earnings. In addition, Southern Company is
subject to certain claims and legal actions arising in the ordinary course of business. Southern
Companys business activities are subject to extensive governmental regulation related to public
health and the environment. Litigation over environmental issues and claims of various types,
including property damage, personal injury, common law nuisance, and citizen enforcement of
environmental requirements such as opacity and air and water quality standards, has increased
generally throughout the United States. In particular, personal injury claims for damages caused
by alleged exposure to hazardous materials have become more frequent. The ultimate outcome of such
pending or potential litigation against Southern Company and its subsidiaries cannot be predicted
at this time; however, for current proceedings not specifically reported herein or in Note 3 to the
financial statements of Southern Company in Item 8 of the Form 10-K, management does not anticipate
that the liabilities, if any, arising from such current proceedings would have a material adverse
effect on Southern Companys financial statements.
See the Notes to the Condensed Financial Statements herein for discussion of various other
contingencies, regulatory matters, and other matters being litigated which may affect future
earnings potential.
ACCOUNTING POLICIES
Application of Critical Accounting Policies and Estimates
Southern Company prepares its consolidated financial statements in accordance with accounting
principles generally accepted in the United States. Significant accounting policies are
described in Note 1 to the financial statements of Southern Company in Item 8 of the Form 10-K.
In the application of these policies, certain estimates are made that may have a material impact
on Southern Companys results of operations and related disclosures. Different assumptions and
measurements could produce estimates that are significantly different from those recorded in the
financial statements. See MANAGEMENTS DISCUSSION AND ANALYSIS ACCOUNTING POLICIES
Application of Critical Accounting Policies and Estimates of Southern Company in Item 7 of the
Form 10-K for a complete discussion of Southern Companys critical accounting policies and
estimates related to Electric Utility Regulation, Contingent Obligations, and Unbilled Revenues.
New Accounting Standards
Variable Interest Entities
In June 2009, the FASB issued new guidance on the consolidation of variable interest entities,
which replaces the quantitative-based risks and rewards calculation for determining whether an
enterprise is the primary beneficiary in a variable interest entity with an approach that is
primarily qualitative, requires ongoing assessments of whether an enterprise is the primary
beneficiary of a variable interest entity, and requires additional disclosures about an
enterprises involvement in variable interest entities. Southern Company is required to adopt this
new guidance effective January 1, 2010 and is evaluating the impact, if any, it will have on its
financial statements.
26
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION AND LIQUIDITY
Overview
Southern Companys financial condition remained stable at June 30, 2009. Throughout the turmoil in
the financial markets, Southern Company and its subsidiaries have maintained adequate access to
capital without drawing on any committed bank credit arrangements used to support commercial paper
programs and variable rate pollution control revenue bonds. Southern Company intends to continue
to monitor its access to short-term and long-term capital markets as well as its bank credit
arrangements to meet future capital and liquidity needs. Market rates for committed credit have
increased, and Southern Company and its subsidiaries have been and expect to continue to be subject
to higher costs as existing facilities are replaced or renewed. Total committed credit fees for
Southern Company and its subsidiaries currently average less than 1/4 of 1% per year. Southern
Companys interest cost for short-term debt has decreased as market short-term interest rates have
declined from 2008 levels. The ultimate impact on future financing costs as a result of financial
turmoil cannot be determined at this time. Southern Company experienced no material counterparty
credit losses as a result of the turmoil in the financial markets. See Sources of Capital and
Financing Activities herein for additional information.
Southern Companys investments in pension and nuclear decommissioning trust funds stabilized during
the second quarter 2009. Southern Company expects that the earliest that cash may have to be
contributed to the pension trust fund is 2012 and such contribution could be significant; however,
projections of the amount vary significantly depending on interpretations of and decisions related
to federal legislation passed during 2008 as well as other key variables including future trust
fund performance and cannot be determined at this time. Southern Company does not expect any
changes to funding obligations to the nuclear decommissioning trusts prior to 2011.
For the first six months of 2009, net cash provided from operating activities totaled $620 million,
a decrease of $791 million from the corresponding period in 2008. Significant changes in operating
cash flow for the first six months of 2009 as compared to the corresponding period in 2008 include
a reduction to net income as previously discussed and increased outflows of funds used for federal
tax and property tax payments of $321 million and fuel purchases of $254 million. These uses of
funds were partially offset by increased cash inflows as a result of higher fuel rates included in
customer billings. Net cash used for investing activities totaled $1.8 billion for the first six
months of 2009 as compared to $2.0 billion for the corresponding period in 2008. While the cash
outflows in each of these periods were primarily related to property additions to utility plant,
the decrease in the current period as compared to the corresponding period in 2008 was primarily
due to approximately $340 million in cash received from the early termination of two leveraged
lease investments. For the first six months of 2009, net cash provided from financing activities
totaled $1.6 billion as compared to $606 million for the corresponding period in 2008 primarily due
to higher levels of short-term borrowings, the issuance of new long-term debt, and common stock
issuances.
Significant balance sheet changes for the first six months of 2009 include an increase of $365
million in cash and cash equivalents primarily due to cash received from the early termination of
two leveraged lease investments; an increase of $1.6 billion in total property, plant, and
equipment for the installation of equipment to comply with environmental standards and construction
of generation, transmission, and distribution facilities; and purchases of nuclear fuel. Other
significant changes include an increase in long-term debt, excluding amounts due within one year,
of $1.1 billion used primarily for construction expenditures and general corporate purposes.
The market price of Southern Companys common stock at June 30, 2009 was $31.16 per share (based on
the closing price as reported on the New York Stock Exchange) and the book value was $17.32 per
share, representing a market-to-book ratio of 180%, compared to $37.00, $17.08, and 217%,
respectively, at the end of 2008. The dividend for the second quarter 2009 was $0.4375 per share
compared to $0.42 per share in the second quarter 2008.
27
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Capital Requirements and Contractual Obligations
See MANAGEMENTS DISCUSSION AND ANALYSIS FINANCIAL CONDITION AND LIQUIDITY Capital
Requirements and Contractual Obligations of Southern Company in Item 7 of the Form 10-K for a
description of Southern Companys capital requirements for its construction programs and other
funding requirements associated with scheduled maturities of long-term debt, as well as the related
interest, preferred and preference stock dividends, leases, trust funding requirements, other
purchase commitments, unrecognized tax benefits and interest, and derivative obligations.
Approximately $1.1 billion will be required through June 30, 2010 to fund maturities and announced
redemptions of long-term debt. The construction programs are subject to periodic review and
revision, and actual construction costs may vary from these estimates because of numerous factors.
These factors include: changes in business conditions; changes in load projections; changes in
environmental statutes and regulations; changes in nuclear plants to meet new regulatory
requirements; changes in FERC rules and regulations; PSC approvals; changes in legislation; the
cost and efficiency of construction labor, equipment, and materials; and the cost of capital. In
addition, there can be no assurance that costs related to capital expenditures will be fully
recovered.
Sources of Capital
Southern Company intends to meet its future capital needs through internal cash flow and external
security issuances. Equity capital can be provided from any combination of Southern Companys
stock plans, private placements, or public offerings. The amount and timing of additional equity
capital to be raised in 2009, as well as in subsequent years, will be contingent on Southern
Companys investment opportunities. The traditional operating companies and Southern Power plan to
obtain the funds required for construction and other purposes from sources similar to those used in
the past, which were primarily from operating cash flows, security issuances, term loans,
short-term borrowings, and equity contributions from Southern Company.
However, the amount, type, and timing of any financings, if needed, will depend upon
prevailing market conditions, regulatory approval, and other factors. See MANAGEMENTS DISCUSSION
AND ANALYSIS FINANCIAL CONDITION AND LIQUIDITY Sources of Capital of Southern Company in
Item 7 of the Form 10-K for additional information.
Southern Companys current liabilities frequently exceed current assets because of the continued
use of short-term debt as a funding source to meet cash needs as well as scheduled maturities of
long-term debt. To meet short-term cash needs and contingencies, Southern Company has substantial
cash flow from operating activities and access to capital markets, including commercial paper
programs (which are backed by bank credit facilities), to meet liquidity needs. At June 30, 2009,
Southern Company and its subsidiaries had approximately $782 million of cash and cash equivalents
and approximately $4.7 billion of unused credit arrangements with banks, of which $484 million
expire in 2009, $965 million expire in 2010, $25 million expire in 2011, and $3.2 billion expire in
2012. Approximately $44 million of the credit facilities expiring in 2009 and 2010 allow for the
execution of term loans for an additional two-year period, and $501 million contain provisions
allowing one-year term loans. At June 30, 2009, approximately $1.3 billion of the credit
facilities were dedicated to providing liquidity support to the traditional operating companies
variable rate pollution control revenue bonds and such credit facilities also serve as liquidity
support for the commercial paper programs. Subsequent to June 30, 2009, financings at Georgia
Power increased the total amount of variable rate pollution control bonds requiring liquidity
support to $1.5 billion. See Note 6 to the financial statements of Southern Company under Bank
Credit Arrangements in Item 8 of the Form 10-K and Note (E) to the Condensed Financial Statements
under Bank Credit Arrangements herein for additional information. The traditional operating
companies may also meet short-term cash needs through a Southern Company subsidiary organized to
issue and sell commercial paper at the request and for the benefit of each of the traditional
operating companies. At June 30, 2009, the Southern Company system had outstanding commercial
paper of $1.1 billion. Management believes that the
28
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
need for working capital can be adequately met by utilizing commercial paper programs, lines
of credit, and cash.
Off-Balance Sheet Financing Arrangements
See MANAGEMENTS DISCUSSION AND ANALYSIS FINANCIAL CONDITION AND LIQUIDITY Off-Balance
Sheet Financing Arrangements of Southern Company in Item 7 and Note 7 to the financial statements
of Southern Company under Operating Leases in Item 8 of the Form 10-K for information related to
Mississippi Powers lease of a combined cycle generating facility at Plant Daniel.
Credit Rating Risk
Southern Company does not have any credit arrangements that would require material changes in
payment schedules or terminations as a result of a credit rating downgrade. There are certain
contracts that could require collateral, but not accelerated payment, in the event of a credit
rating change of certain subsidiaries to BBB and Baa2, or BBB- and/or Baa3 or below. These
contracts are for physical electricity purchases and sales, fuel purchases, fuel transportation and
storage, emissions allowances, energy price risk management, and construction of new generation.
At June 30, 2009, the maximum potential collateral requirements under these contracts at a BBB and
Baa2 rating were approximately $9 million and at a BBB- and/or Baa3 rating were approximately $413
million. At June 30, 2009, the maximum potential collateral requirements under these contracts at
a rating below BBB- and/or Baa3 were approximately $2.0 billion. In addition, certain nuclear fuel
agreements could require collateral of up to $251 million in the event of a rating change to below
investment grade for Southern Company. Generally, collateral may be provided by a Southern Company
guaranty, letter of credit, or cash. Additionally, any credit rating downgrade could impact
Southern Companys ability to access capital markets, particularly the short-term debt market.
Market Price Risk
Southern Companys market risk exposure relative to interest rate changes has not changed
materially compared with the December 31, 2008 reporting period. Since a significant portion of
outstanding indebtedness is at fixed rates, Southern Company is not aware of any facts or
circumstances that would significantly affect exposures on existing indebtedness in the near term.
However, the impact on future financing costs cannot now be determined.
Due to cost-based rate regulation, the traditional operating companies continue to have limited
exposure to market volatility in interest rates, commodity fuel prices, and prices of electricity.
In addition, Southern Powers exposure to market volatility in commodity fuel prices and prices of
electricity is limited because its long-term sales contracts shift substantially all fuel cost
responsibility to the purchaser. However, during 2009, Southern Power is exposed to market
volatility in energy-related commodity prices as a result of sales of uncontracted generating
capacity. The traditional operating companies continue to manage fuel-hedging programs implemented
per the guidelines of their respective state PSCs. To mitigate residual risks relative to
movements in electricity prices, the traditional operating companies enter into physical
fixed-price contracts for the purchase and sale of electricity through the wholesale electricity
market. To mitigate residual risks relative to movements in gas prices, Southern Companys
subsidiaries may enter into fixed-price contracts for natural gas purchases; however, a significant
portion of contracts are priced at market. As such, the traditional operating companies have no
material change in market risk exposure when compared with the December 31, 2008 reporting period.
29
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The changes in fair value of energy-related derivative contracts for the three and six months ended
June 30, 2009 were as follows:
|
|
|
|
|
|
|
|
|
|
|
Second Quarter |
|
Year-to-Date |
|
|
2009 |
|
2009 |
|
|
Changes |
|
Changes |
|
|
Fair Value |
|
|
(in millions) |
|
Contracts outstanding at the beginning of the period, assets
(liabilities), net |
|
$ |
(423 |
) |
|
$ |
(285 |
) |
Contracts realized or settled |
|
|
127 |
|
|
|
187 |
|
Current period changes(a) |
|
|
(6 |
) |
|
|
(204 |
) |
|
Contracts outstanding at the end of the period, assets (liabilities), net |
|
$ |
(302 |
) |
|
$ |
(302 |
) |
|
|
|
|
(a) |
|
Current period changes also include the changes in fair value of new contracts entered into
during the period, if any. |
The changes in the fair value positions of the energy-related derivative contracts for the
three months and six months ended June 30, 2009 were an increase of $121 million and a decrease of
$17 million, respectively, substantially all of which is due to natural gas positions. These
changes are attributable to both the volume and prices of natural gas. At June 30, 2009, Southern
Company had a net hedge volume of 173 million mmBtu (includes location basis of 2 million mmBtu)
with a weighted average contract cost approximately $1.78 per mmBtu above market prices, compared
to 173 million mmBtu (includes location basis of 2 million mmBtu) at March 31, 2009 with a weighted
average contract cost approximately $2.53 per mmBtu above market prices and compared to 149 million
mmBtu at December 31, 2008 with a weighted average contract cost approximately $1.97 per mmBtu
above market prices. The majority of the natural gas hedge settlements are recovered through the
traditional operating companies fuel cost recovery clauses.
At June 30, 2009 and December 31, 2008, the fair value of energy-related derivative contracts by
hedge designation was reflected in the financial statements as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 |
|
December 31, 2008 |
|
|
(in millions) |
Regulatory hedges |
|
$ |
(305 |
) |
|
$ |
(288 |
) |
Cash flow hedges |
|
|
|
|
|
|
(1 |
) |
Not designated |
|
|
3 |
|
|
|
4 |
|
|
Total fair value |
|
$ |
(302 |
) |
|
$ |
(285 |
) |
|
Energy-related derivative contracts which are designated as regulatory hedges relate to the
traditional operating companies fuel hedging programs, where gains and losses are initially
recorded as regulatory liabilities and assets, respectively, and then are included in fuel expense
as they are recovered through the fuel cost recovery clauses. Gains and losses on energy-related
derivatives designated as cash flow hedges are mainly used to hedge anticipated purchases and sales
and are initially deferred in OCI before being recognized in income in the same period as the
hedged transaction. Gains and losses on energy-related derivative contracts that are not
designated or fail to qualify as hedges are recognized in the statements of income as incurred.
Total net unrealized pre-tax losses recognized in the statements of income for the six months ended
June 30, 2009 for energy-related derivative contracts that are not hedges were $(1) million and
were not material for the three months ended June 30, 2009. For the three and six months ended
June 30, 2008, the total net unrealized gains (losses) recognized in the statements of income were
$7 million and $(7) million, respectively. See Note (E) to the Condensed Financial Statements
herein for further details of these gains (losses).
30
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The maturities of the energy-related derivative contracts and the level of the fair value hierarchy
in which they fall at June 30, 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 |
|
|
Fair Value Measurements |
|
|
Total |
|
Maturity |
|
|
|
Fair Value |
|
Year 1 |
|
Years 2&3 |
|
Years 4&5 |
|
|
|
(in millions) |
Level 1 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Level 2 |
|
|
(302 |
) |
|
|
(234 |
) |
|
|
(66 |
) |
|
|
(2 |
) |
|
Level 3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of contracts outstanding at end of period |
|
$ |
(302 |
) |
|
$ |
(234 |
) |
|
$ |
(66 |
) |
|
$ |
(2 |
) |
|
|
Southern Company uses over-the-counter contracts that are not exchange traded but are fair valued
using prices which are actively quoted, and thus fall into Level 2. See Note (C) to the Condensed
Financial Statements herein for further discussion on fair value measurements.
For additional information, see MANAGEMENTS DISCUSSION AND ANALYSIS FINANCIAL CONDITION AND
LIQUIDITY Market Price Risk of Southern Company in Item 7 and Notes 1 and 6 to the financial
statements of Southern Company under Financial Instruments in Item 8 of the Form 10-K and Note
(E) to the Condensed Financial Statements herein.
Financing Activities
In the first six months of 2009, Southern Company issued $350 million of Series 2009A 4.15% Senior
Notes due May 15, 2014, and its subsidiaries issued $1.3 billion of senior notes and incurred
obligations of $183 million related to the issuance of pollution control revenue bonds. Southern
Company also issued 14 million shares of common stock for $399 million through the Southern
Investment Plan and employee and director stock plans. In addition, during the three months ended
June 30, 2009, Southern Company issued 5 million shares of common stock through at-the-market
issuances pursuant to sales agency agreements related to Southern Companys continuous equity
offering program and received cash proceeds of $140 million, net of $1.4 million in fees and
commissions. The proceeds were primarily used to fund ongoing construction projects, to repay
short-term and long-term indebtedness, and for general corporate purposes.
Subsequent to June 30, 2009, Georgia Power incurred obligations in connection with the issuance of
$154.3 million of variable rate pollution control revenue bonds. The proceeds of the bonds were
used to retire $154.3 million of fixed rate pollution control
revenue bonds. Also, subsequent to June 30, 2009, Georgia Power issued a notice to redeem on August 21, 2009 its $55
million of Series D 5.50% Senior Insured Quarterly Notes due November 15, 2017.
Subsequent to June 30, 2009, Gulf Power entered into a forward starting interest rate swap to
mitigate exposure to interest rate changes related to anticipated debt issuances. The notional
amount of the swap is $50 million, and the swap has been designated as a cash flow hedge.
Subsequent
to June 30, 2009, Southern Company used a portion of the cash
received from the early termination of two leveraged lease
investments to extinguish $252.7 million of debt which included
all debt related to leveraged lease investments and to pay
make-whole redemption premiums of $17.2 million associated with
such debt.
In addition to any financings that may be necessary to meet capital requirements and contractual
obligations, Southern Company and its subsidiaries plan to continue, when economically feasible, a
program to retire higher-cost securities and replace these obligations with lower-cost capital if
market conditions permit.
31
PART I
Item 3. Quantitative And Qualitative Disclosures About Market Risk.
See MANAGEMENTS DISCUSSION AND ANALYSIS FINANCIAL CONDITION AND LIQUIDITY Market Price Risk
herein for each registrant and Notes 1 and 6 to the financial statements of Southern Company,
Alabama Power, Georgia Power, Gulf Power, Mississippi Power, and Southern Power under Financial
Instruments in Item 8 of the Form 10-K. Also, see Note (E) to the Condensed Financial Statements
herein for information relating to derivative instruments.
Item 4. Controls and Procedures.
(a) Evaluation of disclosure controls and procedures.
As of the end of the period covered by this quarterly report, Southern Company conducted an
evaluation under the supervision and with the participation of Southern Companys management,
including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the
design and operation of the disclosure controls and procedures (as defined in Sections 13a-15(e)
and 15d-15(e) of the Securities Exchange Act of 1934). Based upon this evaluation, the Chief
Executive Officer and the Chief Financial Officer concluded that the disclosure controls and
procedures are effective.
(b) Changes in internal controls.
There have been no changes in Southern Companys internal control over financial reporting (as such
term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) during
the second quarter 2009 that have materially affected or are reasonably likely to materially affect
Southern Companys internal control over financial reporting.
Item 4T. Controls and Procedures.
(a) Evaluation of disclosure controls and procedures.
As of the end of the period covered by this quarterly report, Alabama Power, Georgia Power, Gulf
Power, Mississippi Power, and Southern Power conducted separate evaluations under the supervision
and with the participation of each companys management, including the Chief Executive Officer and
the Chief Financial Officer, of the effectiveness of the design and operation of the disclosure
controls and procedures (as defined in Sections 13a-15(e) and 15d-15(e) of the Securities Exchange
Act of 1934). Based upon these evaluations, the Chief Executive Officer and the Chief Financial
Officer, in each case, concluded that the disclosure controls and procedures are effective.
(b) Changes in internal controls.
There have been no changes in Alabama Powers, Georgia Powers, Gulf Powers, Mississippi Powers,
or Southern Powers internal control over financial reporting (as such term is defined in Rules
13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) during the second quarter 2009
that have materially affected or are reasonably likely to materially affect Alabama Powers,
Georgia Powers, Gulf Powers, Mississippi Powers, or Southern Powers internal control over
financial reporting.
32
ALABAMA POWER COMPANY
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months |
|
|
For the Six Months |
|
|
|
Ended June 30, |
|
|
Ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
(in thousands) |
|
|
(in thousands) |
|
Operating Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail revenues |
|
$ |
1,119,606 |
|
|
$ |
1,147,786 |
|
|
$ |
2,177,743 |
|
|
$ |
2,182,040 |
|
Wholesale revenues, non-affiliates |
|
|
153,912 |
|
|
|
169,971 |
|
|
|
312,607 |
|
|
|
340,011 |
|
Wholesale revenues, affiliates |
|
|
52,493 |
|
|
|
96,421 |
|
|
|
136,845 |
|
|
|
180,113 |
|
Other revenues |
|
|
40,505 |
|
|
|
55,635 |
|
|
|
79,087 |
|
|
|
104,328 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues |
|
|
1,366,516 |
|
|
|
1,469,813 |
|
|
|
2,706,282 |
|
|
|
2,806,492 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fuel |
|
|
447,486 |
|
|
|
523,348 |
|
|
|
930,719 |
|
|
|
976,497 |
|
Purchased power, non-affiliates |
|
|
26,123 |
|
|
|
38,450 |
|
|
|
41,667 |
|
|
|
49,669 |
|
Purchased power, affiliates |
|
|
56,570 |
|
|
|
75,789 |
|
|
|
98,130 |
|
|
|
164,496 |
|
Other operations and maintenance |
|
|
278,298 |
|
|
|
306,543 |
|
|
|
555,157 |
|
|
|
616,093 |
|
Depreciation and amortization |
|
|
126,487 |
|
|
|
130,630 |
|
|
|
269,903 |
|
|
|
255,267 |
|
Taxes other than income taxes |
|
|
82,039 |
|
|
|
75,614 |
|
|
|
162,320 |
|
|
|
151,385 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
1,017,003 |
|
|
|
1,150,374 |
|
|
|
2,057,896 |
|
|
|
2,213,407 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income |
|
|
349,513 |
|
|
|
319,439 |
|
|
|
648,386 |
|
|
|
593,085 |
|
Other Income and (Expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for equity funds used during construction |
|
|
19,153 |
|
|
|
9,235 |
|
|
|
35,878 |
|
|
|
20,539 |
|
Interest income |
|
|
4,148 |
|
|
|
4,258 |
|
|
|
8,270 |
|
|
|
8,900 |
|
Interest expense, net of amounts capitalized |
|
|
(76,768 |
) |
|
|
(69,646 |
) |
|
|
(148,975 |
) |
|
|
(138,622 |
) |
Other income (expense), net |
|
|
(4,491 |
) |
|
|
(6,707 |
) |
|
|
(10,863 |
) |
|
|
(13,929 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income and (expense) |
|
|
(57,958 |
) |
|
|
(62,860 |
) |
|
|
(115,690 |
) |
|
|
(123,112 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings Before Income Taxes |
|
|
291,555 |
|
|
|
256,579 |
|
|
|
532,696 |
|
|
|
469,973 |
|
Income taxes |
|
|
105,357 |
|
|
|
93,798 |
|
|
|
190,366 |
|
|
|
167,226 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
|
186,198 |
|
|
|
162,781 |
|
|
|
342,330 |
|
|
|
302,747 |
|
Dividends on Preferred and Preference Stock |
|
|
9,866 |
|
|
|
9,866 |
|
|
|
19,732 |
|
|
|
19,732 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income After Dividends on Preferred and Preference Stock |
|
$ |
176,332 |
|
|
$ |
152,915 |
|
|
$ |
322,598 |
|
|
$ |
283,015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months |
|
|
For the Six Months |
|
|
|
Ended June 30, |
|
|
Ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
(in thousands) |
|
|
(in thousands) |
|
Net Income After Dividends on Preferred and Preference Stock |
|
$ |
176,332 |
|
|
$ |
152,915 |
|
|
$ |
322,598 |
|
|
$ |
283,015 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Qualifying hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in fair value, net of tax of $(700), $1,171,
$(1,586), and $(1,039), respectively |
|
|
(1,152 |
) |
|
|
1,927 |
|
|
|
(2,609 |
) |
|
|
(1,710 |
) |
Reclassification adjustment for amounts included in net
income, net of tax of $1,178, $443, $2,239, and $628, respectively |
|
|
1,938 |
|
|
|
728 |
|
|
|
3,683 |
|
|
|
1,033 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income (loss) |
|
|
786 |
|
|
|
2,655 |
|
|
|
1,074 |
|
|
|
(677 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income |
|
$ |
177,118 |
|
|
$ |
155,570 |
|
|
$ |
323,672 |
|
|
$ |
282,338 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes as they relate to Alabama Power are an integral part of these condensed financial statements.
34
ALABAMA POWER COMPANY
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
For the Six Months |
|
|
|
Ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(in thousands) |
|
Operating Activities: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
342,330 |
|
|
$ |
302,747 |
|
Adjustments to reconcile net income
to net cash provided from operating activities |
|
|
|
|
|
|
|
|
Depreciation and amortization, total |
|
|
311,868 |
|
|
|
297,792 |
|
Deferred income taxes and investment tax credits, net |
|
|
5,182 |
|
|
|
20,648 |
|
Allowance for equity funds used during construction |
|
|
(35,878 |
) |
|
|
(20,539 |
) |
Pension, postretirement, and other employee benefits |
|
|
(16,568 |
) |
|
|
(12,958 |
) |
Stock option expense |
|
|
3,168 |
|
|
|
2,520 |
|
Tax benefit of stock options |
|
|
42 |
|
|
|
460 |
|
Other, net |
|
|
638 |
|
|
|
14,499 |
|
Changes in certain current assets and liabilities |
|
|
|
|
|
|
|
|
-Receivables |
|
|
206,523 |
|
|
|
34,056 |
|
-Fossil fuel stock |
|
|
(59,418 |
) |
|
|
(21,879 |
) |
-Materials and supplies |
|
|
(9,094 |
) |
|
|
(6,887 |
) |
-Other current assets |
|
|
(62,618 |
) |
|
|
(42,632 |
) |
-Accounts payable |
|
|
(133,138 |
) |
|
|
(68,407 |
) |
-Accrued taxes |
|
|
25,199 |
|
|
|
64,490 |
|
-Accrued compensation |
|
|
(56,429 |
) |
|
|
(47,094 |
) |
-Other current liabilities |
|
|
18,302 |
|
|
|
26,481 |
|
|
|
|
|
|
|
|
Net cash provided from operating activities |
|
|
540,109 |
|
|
|
543,297 |
|
|
|
|
|
|
|
|
Investing Activities: |
|
|
|
|
|
|
|
|
Property additions |
|
|
(641,598 |
) |
|
|
(714,878 |
) |
Investment in restricted cash from pollution control revenue bonds |
|
|
(290 |
) |
|
|
(161 |
) |
Distribution of restricted cash from pollution control revenue bonds |
|
|
32,758 |
|
|
|
19,687 |
|
Nuclear decommissioning trust fund purchases |
|
|
(124,057 |
) |
|
|
(180,522 |
) |
Nuclear decommissioning trust fund sales |
|
|
124,057 |
|
|
|
180,522 |
|
Cost of removal, net of salvage |
|
|
(13,004 |
) |
|
|
(18,157 |
) |
Other investing activities |
|
|
(1,583 |
) |
|
|
(11,489 |
) |
|
|
|
|
|
|
|
Net cash used for investing activities |
|
|
(623,717 |
) |
|
|
(724,998 |
) |
|
|
|
|
|
|
|
Financing Activities: |
|
|
|
|
|
|
|
|
Increase (decrease) in notes payable, net |
|
|
(24,995 |
) |
|
|
24,980 |
|
Proceeds |
|
|
|
|
|
|
|
|
Common stock issued to parent |
|
|
|
|
|
|
150,000 |
|
Capital contributions from parent company |
|
|
11,510 |
|
|
|
12,178 |
|
Gross excess tax benefit of stock options |
|
|
81 |
|
|
|
858 |
|
Pollution control revenue bonds |
|
|
53,000 |
|
|
|
|
|
Senior notes issuances |
|
|
500,000 |
|
|
|
600,000 |
|
Redemptions |
|
|
|
|
|
|
|
|
Preferred stock |
|
|
|
|
|
|
(125,000 |
) |
Senior notes |
|
|
|
|
|
|
(250,000 |
) |
Payment of preferred and preference stock dividends |
|
|
(19,740 |
) |
|
|
(21,142 |
) |
Payment of common stock dividends |
|
|
(261,400 |
) |
|
|
(245,650 |
) |
Other financing activities |
|
|
(6,114 |
) |
|
|
(5,523 |
) |
|
|
|
|
|
|
|
Net cash provided from financing activities |
|
|
252,342 |
|
|
|
140,701 |
|
|
|
|
|
|
|
|
Net Change in Cash and Cash Equivalents |
|
|
168,734 |
|
|
|
(41,000 |
) |
Cash and Cash Equivalents at Beginning of Period |
|
|
28,181 |
|
|
|
73,616 |
|
|
|
|
|
|
|
|
Cash and Cash Equivalents at End of Period |
|
$ |
196,915 |
|
|
$ |
32,616 |
|
|
|
|
|
|
|
|
Supplemental Cash Flow Information: |
|
|
|
|
|
|
|
|
Cash paid during the period for |
|
|
|
|
|
|
|
|
Interest (net of $15,005 and $9,322 capitalized for 2009 and 2008, respectively) |
|
$ |
122,624 |
|
|
$ |
126,502 |
|
Income taxes (net of refunds) |
|
$ |
203,248 |
|
|
$ |
124,050 |
|
The accompanying notes as they relate to Alabama Power are an integral part of these condensed financial statements.
35
ALABAMA POWER COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
At June 30, |
|
|
At December 31, |
|
Assets |
|
2009 |
|
|
2008 |
|
|
|
(in thousands) |
|
Current Assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
196,915 |
|
|
$ |
28,181 |
|
Restricted cash and cash equivalents |
|
|
47,611 |
|
|
|
80,079 |
|
Receivables |
|
|
|
|
|
|
|
|
Customer accounts receivable |
|
|
375,523 |
|
|
|
350,410 |
|
Unbilled revenues |
|
|
137,895 |
|
|
|
98,921 |
|
Under recovered regulatory clause revenues |
|
|
125,583 |
|
|
|
153,899 |
|
Other accounts and notes receivable |
|
|
34,923 |
|
|
|
44,645 |
|
Affiliated companies |
|
|
21,122 |
|
|
|
70,612 |
|
Accumulated provision for uncollectible accounts |
|
|
(9,125 |
) |
|
|
(8,882 |
) |
Fossil fuel stock, at average cost |
|
|
375,978 |
|
|
|
322,089 |
|
Materials and supplies, at average cost |
|
|
313,297 |
|
|
|
305,880 |
|
Vacation pay |
|
|
52,825 |
|
|
|
52,577 |
|
Prepaid expenses |
|
|
146,665 |
|
|
|
88,219 |
|
Other regulatory assets, current |
|
|
78,371 |
|
|
|
74,825 |
|
Other current assets |
|
|
17,451 |
|
|
|
12,915 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
1,915,034 |
|
|
|
1,674,370 |
|
|
|
|
|
|
|
|
Property, Plant, and Equipment: |
|
|
|
|
|
|
|
|
In service |
|
|
17,897,911 |
|
|
|
17,635,129 |
|
Less accumulated provision for depreciation |
|
|
6,429,812 |
|
|
|
6,259,720 |
|
|
|
|
|
|
|
|
Plant in service, net of depreciation |
|
|
11,468,099 |
|
|
|
11,375,409 |
|
Nuclear fuel, at amortized cost |
|
|
244,057 |
|
|
|
231,862 |
|
Construction work in progress |
|
|
1,419,838 |
|
|
|
1,092,516 |
|
|
|
|
|
|
|
|
Total property, plant, and equipment |
|
|
13,131,994 |
|
|
|
12,699,787 |
|
|
|
|
|
|
|
|
Other Property and Investments: |
|
|
|
|
|
|
|
|
Equity investments in unconsolidated subsidiaries |
|
|
57,071 |
|
|
|
50,912 |
|
Nuclear decommissioning trusts, at fair value |
|
|
420,053 |
|
|
|
403,966 |
|
Miscellaneous property and investments |
|
|
65,735 |
|
|
|
62,782 |
|
|
|
|
|
|
|
|
Total other property and investments |
|
|
542,859 |
|
|
|
517,660 |
|
|
|
|
|
|
|
|
Deferred Charges and Other Assets: |
|
|
|
|
|
|
|
|
Deferred charges related to income taxes |
|
|
380,116 |
|
|
|
362,596 |
|
Prepaid pension costs |
|
|
186,893 |
|
|
|
166,334 |
|
Deferred under recovered regulatory clause revenues |
|
|
|
|
|
|
180,874 |
|
Other regulatory assets, deferred |
|
|
710,265 |
|
|
|
732,367 |
|
Other deferred charges and assets |
|
|
198,258 |
|
|
|
202,018 |
|
|
|
|
|
|
|
|
Total deferred charges and other assets |
|
|
1,475,532 |
|
|
|
1,644,189 |
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
17,065,419 |
|
|
$ |
16,536,006 |
|
|
|
|
|
|
|
|
The accompanying notes as they relate to Alabama Power are an integral part of these condensed financial statements.
36
ALABAMA POWER COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
At June 30, |
|
|
At December 31, |
|
Liabilities and Stockholder's Equity |
|
2009 |
|
|
2008 |
|
|
|
(in thousands) |
|
Current Liabilities: |
|
|
|
|
|
|
|
|
Securities due within one year |
|
$ |
250,000 |
|
|
$ |
250,079 |
|
Notes payable |
|
|
|
|
|
|
24,995 |
|
Accounts payable |
|
|
|
|
|
|
|
|
Affiliated |
|
|
169,684 |
|
|
|
178,708 |
|
Other |
|
|
252,902 |
|
|
|
358,176 |
|
Customer deposits |
|
|
84,880 |
|
|
|
77,205 |
|
Accrued taxes |
|
|
|
|
|
|
|
|
Accrued income taxes |
|
|
35,767 |
|
|
|
18,299 |
|
Other accrued taxes |
|
|
73,653 |
|
|
|
30,372 |
|
Accrued interest |
|
|
69,044 |
|
|
|
56,375 |
|
Accrued vacation pay |
|
|
44,217 |
|
|
|
44,217 |
|
Accrued compensation |
|
|
43,219 |
|
|
|
91,856 |
|
Liabilities from risk management activities |
|
|
87,888 |
|
|
|
83,873 |
|
Other current liabilities |
|
|
45,075 |
|
|
|
53,777 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
1,156,329 |
|
|
|
1,267,932 |
|
|
|
|
|
|
|
|
Long-term Debt |
|
|
6,156,915 |
|
|
|
5,604,791 |
|
|
|
|
|
|
|
|
Deferred Credits and Other Liabilities: |
|
|
|
|
|
|
|
|
Accumulated deferred income taxes |
|
|
2,248,530 |
|
|
|
2,243,117 |
|
Deferred credits related to income taxes |
|
|
89,884 |
|
|
|
90,083 |
|
Accumulated deferred investment tax credits |
|
|
168,668 |
|
|
|
172,638 |
|
Employee benefit obligations |
|
|
396,440 |
|
|
|
396,923 |
|
Asset retirement obligations |
|
|
476,038 |
|
|
|
461,284 |
|
Other cost of removal obligations |
|
|
657,939 |
|
|
|
634,792 |
|
Other regulatory liabilities, deferred |
|
|
57,749 |
|
|
|
79,151 |
|
Other deferred credits and liabilities |
|
|
40,428 |
|
|
|
45,857 |
|
|
|
|
|
|
|
|
Total deferred credits and other liabilities |
|
|
4,135,676 |
|
|
|
4,123,845 |
|
|
|
|
|
|
|
|
Total Liabilities |
|
|
11,448,920 |
|
|
|
10,996,568 |
|
|
|
|
|
|
|
|
Redeemable Preferred Stock |
|
|
341,716 |
|
|
|
341,716 |
|
|
|
|
|
|
|
|
Preference Stock |
|
|
343,412 |
|
|
|
343,412 |
|
|
|
|
|
|
|
|
Common Stockholders Equity: |
|
|
|
|
|
|
|
|
Common stock, par value $40 per share |
|
|
|
|
|
|
|
|
Authorized - 40,000,000 shares |
|
|
|
|
|
|
|
|
Outstanding - 25,475,000 shares |
|
|
1,019,000 |
|
|
|
1,019,000 |
|
Paid-in capital |
|
|
2,106,259 |
|
|
|
2,091,462 |
|
Retained earnings |
|
|
1,814,987 |
|
|
|
1,753,797 |
|
Accumulated other comprehensive loss |
|
|
(8,875 |
) |
|
|
(9,949 |
) |
|
|
|
|
|
|
|
Total common stockholders equity |
|
|
4,931,371 |
|
|
|
4,854,310 |
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders Equity |
|
$ |
17,065,419 |
|
|
$ |
16,536,006 |
|
|
|
|
|
|
|
|
The accompanying notes as they relate to Alabama Power are an integral part of these condensed financial statements.
37
ALABAMA POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SECOND QUARTER 2009 vs. SECOND QUARTER 2008
AND
YEAR-TO-DATE 2009 vs. YEAR-TO-DATE 2008
OVERVIEW
Alabama Power operates as a vertically integrated utility providing electricity to retail
customers within its traditional service area located within the State of Alabama and to wholesale
customers in the Southeast. Many factors affect the opportunities, challenges, and risks of
Alabama Powers primary business of selling electricity. These factors include the ability to
maintain a constructive regulatory environment, to maintain energy sales in the midst of the
current economic downturn, and to effectively manage and secure timely recovery of rising costs.
These costs include those related to projected long-term demand growth, increasingly stringent
environmental standards, fuel prices, capital expenditures, and restoration following major storms.
Appropriately balancing the need to recover these increasing costs with customer prices will
continue to challenge Alabama Power for the foreseeable future.
Alabama Power continues to focus on several key performance indicators. These indicators include
customer satisfaction, plant availability, system reliability, and net income after dividends on
preferred and preference stock. For additional information on these indicators, see MANAGEMENTS
DISCUSSION AND ANALYSIS OVERVIEW Key Performance Indicators of Alabama Power in Item 7 of the
Form 10-K.
RESULTS OF OPERATIONS
Net Income
|
|
|
|
|
|
|
Second Quarter 2009 vs. Second Quarter 2008 |
|
Year-to-Date 2009 vs. Year-to-Date 2008 |
(change in millions) |
|
(% change) |
|
(change in millions) |
|
(% change) |
$23.4
|
|
15.3
|
|
$39.6
|
|
14.0 |
|
Alabama Powers financial performance remained stable in the second quarter 2009 despite the
continued challenges of a recessionary economy. Alabama Powers net income after dividends on
preferred and preference stock for the second quarter 2009 was $176.3 million compared to $152.9
million for the corresponding period in 2008. The increase was primarily due to the corrective
rate package providing for adjustments associated with customer charges effective in January 2009
and a decrease in other operations and maintenance expenses primarily due to a reduction in
transmission and distribution, steam power, and administrative and general expenses. The increase
was partially offset by a decrease in retail revenues attributable to a decline in KWH sales and an
increase in interest expense, net of amounts capitalized.
Alabama Powers net income after dividends on preferred and preference stock for year-to-date 2009
was $322.6 million compared to $283.0 million for the corresponding period in 2008. The increase
was primarily due to the corrective rate package providing for adjustments associated with customer
charges effective in January 2009 and a decrease in other operations and maintenance expenses
primarily related to steam power. The increase was partially offset by a decrease in retail
revenues attributable to a decline in KWH sales, increases in income taxes, and an increase in
depreciation related to property, plant, and equipment associated with environmental mandates and
transmission and distribution projects.
38
ALABAMA POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Retail Revenues
|
|
|
|
|
|
|
Second Quarter 2009 vs. Second Quarter 2008 |
|
Year-to-Date 2009 vs. Year-to-Date 2008 |
(change in millions) |
|
(% change) |
|
(change in millions) |
|
(% change) |
$(28.2)
|
|
(2.5)
|
|
$(4.3)
|
|
(0.2) |
|
In the second quarter 2009, retail revenues were $1.12 billion compared to $1.15 billion for the
corresponding period in 2008. For year-to-date 2009, retail revenues were $2.18 billion compared
to $2.18 billion for the corresponding period in 2008.
Details of the change to retail revenues are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter |
|
Year-to-Date |
|
|
2009 |
|
2009 |
|
|
(in millions) |
|
(% change) |
|
(in millions) |
|
(% change) |
Retail prior year |
|
$ |
1,147.8 |
|
|
|
|
|
|
$ |
2,182.0 |
|
|
|
|
|
Estimated change in |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rates and pricing |
|
|
40.8 |
|
|
|
3.5 |
|
|
|
90.4 |
|
|
|
4.1 |
|
Sales growth (decline) |
|
|
(40.5 |
) |
|
|
(3.5 |
) |
|
|
(72.8 |
) |
|
|
(3.3 |
) |
Weather |
|
|
3.4 |
|
|
|
0.3 |
|
|
|
2.7 |
|
|
|
0.1 |
|
Fuel and other cost recovery |
|
|
(31.9 |
) |
|
|
(2.8 |
) |
|
|
(24.6 |
) |
|
|
(1.1 |
) |
|
Retail current year |
|
$ |
1,119.6 |
|
|
|
(2.5 |
)% |
|
$ |
2,177.7 |
|
|
|
(0.2 |
)% |
|
Revenues associated with changes in rates and pricing increased in the second quarter 2009 and
year-to-date 2009 when compared to the corresponding periods in 2008 primarily due to the
corrective rate package increase effective January 2009, which mainly provided for adjustments
associated with customer charges to certain existing rate structures. See MANAGEMENTS DISCUSSION
AND ANALYSIS FUTURE EARNINGS POTENTIAL PSC Matters Retail Rate Adjustments of Alabama Power
in Item 7 and Note 3 to the financial statements of Alabama Power under Retail Regulatory Matters
in Item 8 of the Form 10-K for additional information.
Revenues attributable to changes in sales declined in the second quarter 2009 when compared to the
corresponding period in 2008 due to a recessionary economy. Additionally, based on a change in the
historical trend in the timing of customers meter readings, Alabama Power changed the estimate
related to the meter read date assumption used in the unbilled revenue calculation. This change in
estimate resulted in a one-time increase in revenue of $13.4 million and a 1.8% increase in retail
KWH energy sales for the quarter. Industrial KWH energy sales decreased 24.3% due to a decline in
demand across all industrial segments. Weather-adjusted residential KWH energy sales decreased
1.9% driven by a decline in customer demand related to customer energy efficiency efforts in
addition to a recessionary economy. Weather-adjusted commercial KWH energy sales decreased 1.0%
due to a decline in customer demand.
For year-to-date 2009, revenues attributable to changes in sales declined due to a recessionary
economy when compared to the corresponding period in 2008. Industrial KWH energy sales decreased
23.0% due to a decline in demand across all industrial segments. Weather-adjusted residential KWH
energy sales decreased 2.3% driven by a decline in customer demand related to customer energy
efficiency efforts in addition to a recessionary economy. Weather-adjusted commercial KWH energy
sales decreased 1.7% due to a decline in customer demand.
39
ALABAMA POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Revenues resulting from changes in weather were relatively insignificant in the second quarter and
year-to-date 2009 when compared to the corresponding periods in 2008.
Fuel and other cost recovery revenues decreased in the second quarter and year-to-date 2009 when
compared to the corresponding periods in 2008 primarily due to decreases in fuel costs. Electric
rates include provisions to recognize the full recovery of fuel costs, purchased power costs, PPAs
certificated by the Alabama PSC, and costs associated with the natural disaster reserve. Under
these provisions, fuel and other cost recovery revenues generally equal fuel and other cost
recovery expenses and do not impact net income.
Wholesale Revenues Non-Affiliates
|
|
|
|
|
|
|
Second Quarter 2009 vs. Second Quarter 2008 |
|
Year-to-Date 2009 vs. Year-to-Date 2008 |
(change in millions) |
|
(% change) |
|
(change in millions) |
|
(% change) |
$(16.1)
|
|
(9.4)
|
|
$(27.4)
|
|
(8.1) |
|
Wholesale revenues from non-affiliates will vary depending on the market cost of available energy
compared to the cost of Alabama Power and Southern Company system-owned generation, demand for
energy within the Southern Company service territory, and availability of Southern Company system
generation.
In the second quarter 2009, wholesale revenues from non-affiliates were $153.9 million compared to
$170.0 million for the corresponding period in 2008. This decrease was due to a 7.0% decrease in
KWH sales and a 2.6% reduction in price.
For year-to-date 2009, wholesale revenues from non-affiliates were $312.6 million compared to
$340.0 million for the corresponding period in 2008. This decrease was due to a 5.1% reduction in
price and a 3.1% decrease in KWH sales.
Wholesale Revenues Affiliates
|
|
|
|
|
|
|
Second Quarter 2009 vs. Second Quarter 2008 |
|
Year-to-Date 2009 vs. Year-to-Date 2008 |
(change in millions) |
|
(% change) |
|
(change in millions) |
|
(% change) |
$(43.9)
|
|
(45.6)
|
|
$(43.3)
|
|
(24.0) |
|
Wholesale revenues from affiliates will vary depending on demand and the availability and cost of
generating resources at each company within the Southern Company system. These affiliate sales are
made in accordance with the IIC, as approved by the FERC. These transactions do not have a
significant impact on earnings since the energy is generally sold at marginal cost.
In the second quarter 2009, wholesale revenues from affiliates were $52.5 million compared to $96.4
million for the corresponding period in 2008. This decrease was primarily due to a 43.2% decrease
in fuel prices.
For year-to-date 2009, wholesale revenues from affiliates were $136.8 million compared to $180.1
million for the corresponding period in 2008. This decrease was due to a 34.3% decrease in fuel
prices, partially offset by a 15.7% increase in KWH sales.
40
ALABAMA POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Other Revenues
|
|
|
|
|
|
|
Second Quarter 2009 vs. Second Quarter 2008 |
|
Year-to-Date 2009 vs. Year-to-Date 2008 |
(change in millions) |
|
(% change) |
|
(change in millions) |
|
(% change) |
$(15.1)
|
|
(27.2)
|
|
$(25.2)
|
|
(24.2) |
|
In the second quarter 2009, other revenues were $40.5 million compared to $55.6 million for the
corresponding period in 2008. This decrease was primarily due to a $17.2 million decrease in
revenues from gas-fueled co-generation steam facilities resulting from lower gas prices and a
decline in sales volume.
For year-to-date 2009, other revenues were $79.1 million compared to $104.3 million for the
corresponding period in 2008. This decrease was primarily due to a $26.6 million decrease in
revenues from gas-fueled co-generation steam facilities resulting from lower gas prices and a
decline in sales volume.
Co-generation steam fuel revenues do not have a significant impact on earnings since they are
generally offset by fuel expense.
Fuel and Purchased Power Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter 2009 |
|
Year-to-Date 2009 |
|
|
vs. |
|
vs. |
|
|
Second Quarter 2008 |
|
Year-to-Date 2008 |
|
|
(change in millions) |
|
(% change) |
|
(change in millions) |
|
(% change) |
Fuel |
|
$ |
(75.9 |
) |
|
|
(14.5 |
) |
|
$ |
(45.8 |
) |
|
|
(4.7 |
) |
Purchased power non-affiliates |
|
|
(12.3 |
) |
|
|
(32.1 |
) |
|
|
(8.0 |
) |
|
|
(16.1 |
) |
Purchased power affiliates |
|
|
(19.2 |
) |
|
|
(25.4 |
) |
|
|
(66.4 |
) |
|
|
(40.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total fuel and purchased power expenses |
|
$ |
(107.4 |
) |
|
|
|
|
|
$ |
(120.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In the second quarter 2009, total fuel and purchased power expenses were $530.2 million compared to
$637.6 million for the corresponding period in 2008. This decrease was primarily due to a $71.8
million decrease in total KWHs generated and purchased and a $35.6 million decrease in the cost of
energy primarily resulting from a decrease in the average cost of natural gas.
For year-to-date 2009, total fuel and purchased power expenses were $1.07 billion compared to $1.19
billion for the corresponding period in 2008. This decrease was primarily due to a $151.6 million
decrease in total KWHs generated and purchased, partially offset by a $31.4 million increase in the
cost of energy primarily resulting from an increase in the average cost of coal.
Fuel and purchased power transactions do not have a significant impact on earnings since energy
expenses are generally offset by energy revenues through Rate ECR. See FUTURE EARNINGS POTENTIAL
FERC and Alabama PSC Matters Retail Fuel Cost Recovery herein for additional information.
41
ALABAMA POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Details of Alabama Powers cost of generation and purchased power are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter |
|
Second Quarter |
|
Percent |
|
Year-to-Date |
|
Year-to-Date |
|
Percent |
Average Cost |
|
2009 |
|
2008 |
|
Change |
|
2009 |
|
2008 |
|
Change |
|
|
(cents per net KWH) |
|
|
|
|
|
(cents per net KWH) |
|
|
|
|
Fuel |
|
|
2.78 |
|
|
|
2.72 |
|
|
|
2.2 |
|
|
|
2.85 |
|
|
|
2.66 |
|
|
|
7.1 |
|
Purchased power |
|
|
6.01 |
|
|
|
8.61 |
|
|
|
(30.2 |
) |
|
|
6.06 |
|
|
|
6.97 |
|
|
|
(13.1 |
) |
|
In the second quarter 2009, fuel expense was $447.4 million compared to $523.3 million for the
corresponding period in 2008. The total decline in fuel expense was driven by a decrease in
generation and lower natural gas prices. The decrease was primarily related to a 21.0% decrease in
KWHs generated by coal and a 49.8% decrease in the average cost of KWHs generated by natural gas,
resulting in a change in the fuel mix.
For year-to-date 2009, fuel expense was $930.6 million compared to $976.4 million for the
corresponding period in 2008. Total fuel expense decreased due to a 38.3% decrease in the average
cost of KWHs generated by natural gas and an 8.9% decrease in total KWHs generated. These
decreases were partially offset by a 22.9% increase in the average cost of KWHs generated by coal.
Non-Affiliates
In the second quarter 2009, purchased power expense from non-affiliates was $26.2 million compared
to $38.5 million for the corresponding period in 2008. This decrease was primarily related to a
21.0% decrease in price.
For year-to-date 2009, purchased power expense from non-affiliates was $41.7 million compared to
$49.7 million for the corresponding period in 2008. This decrease was primarily related to a 22.2%
decrease in price, partially offset by a 7.8% volume increase in the KWHs purchased due to the
availability of lower-priced market energy alternatives.
Energy purchases from non-affiliates will vary depending on the market cost of available energy
being lower than the cost of Southern Company system-generated energy, demand for energy within the
Southern Company system service territory, and availability of Southern Company system generation.
Affiliates
In the second quarter 2009, purchased power expense from affiliates was $56.6 million compared to
$75.8 million for the corresponding period in 2008. This decrease was primarily related to a 26.9%
decrease in price.
For year-to-date 2009, purchased power expense from affiliates was $98.1 million compared to $164.5
million for the corresponding period in 2008. This decrease was primarily related to a 33.2%
decrease in the amount of energy purchased and a 10.8% decrease in price.
42
ALABAMA POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Energy purchases from affiliates will vary depending on demand and the availability and cost of
generating resources at each company within the Southern Company system. These purchases are made
in accordance with the IIC, as approved by the FERC.
Other Operations and Maintenance Expenses
|
|
|
|
|
|
|
Second Quarter 2009 vs. Second Quarter 2008 |
|
Year-to-Date 2009 vs. Year-to-Date 2008 |
(change in millions) |
|
(% change) |
|
(change in millions) |
|
(% change) |
$(28.2)
|
|
(9.2)
|
|
$(60.9)
|
|
(9.9) |
|
In the second quarter 2009, other operations and maintenance expenses were $278.3 million compared
to $306.5 million for the corresponding period in 2008. This decrease was primarily a result of a
$10.9 million decrease in transmission and distribution expenses related to a reduction in overhead
line clearing costs, an $8.6 million decrease in steam power expense associated with fewer
scheduled outages, and a $7.2 million decrease in administrative and general expenses primarily
related to a reduction in employee medical and other expenses.
For year-to-date 2009, other operations and maintenance expenses were $555.2 million compared to
$616.1 million for the corresponding period in 2008. This decrease was primarily a result of a
$44.5 million decrease in steam power expense associated with fewer scheduled outages and a $15.0
million decrease in transmission and distribution expenses related to a reduction in overhead line
clearing.
Depreciation and Amortization
|
|
|
|
|
|
|
Second Quarter 2009 vs. Second Quarter 2008 |
|
Year-to-Date 2009 vs. Year-to-Date 2008 |
(change in millions) |
|
(% change) |
|
(change in millions) |
|
(% change) |
$(4.1)
|
|
(3.2)
|
|
$14.6
|
|
5.7 |
|
|
|
|
|
|
|
In the second quarter 2009, depreciation and amortization was $126.5 million compared to $130.6
million for the corresponding period in 2008. This change was the result of an increase in
property, plant, and equipment primarily related to environmental mandates and transmission and
distribution projects. This was offset by an adjustment to depreciation of $8.4 million, resulting
from the offer of settlement to the FERC discussed below.
On June 25, 2009, Alabama Power submitted an offer of settlement and stipulation to the FERC
relating to the 2008 depreciation study that was filed in October 2008. The settlement offer
withdraws the requests for authorization to use updated depreciation rates. In lieu of the new
rates, Alabama Power will use those depreciation rates employed prior and up to January 1, 2009
that were previously approved by the FERC. The settlement offer is pending FERC approval.
For year-to-date 2009, depreciation and amortization was $269.9 million compared to $255.3 million
for the corresponding period in 2008. This change was the result of an increase in property,
plant, and equipment primarily related to environmental mandates and transmission and distribution
projects.
See MANAGEMENTS DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Depreciation and Amortization
of Alabama Power in Item 7 of the Form 10-K for additional information.
43
ALABAMA POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Taxes Other than Income Taxes
|
|
|
|
|
|
|
Second Quarter 2009 vs. Second Quarter 2008 |
|
Year-to-Date 2009 vs. Year-to-Date 2008 |
(change in millions) |
|
(% change) |
|
(change in millions) |
|
(% change) |
$6.4
|
|
8.5
|
|
$10.9
|
|
7.2 |
|
In the second quarter 2009, taxes other than income taxes were $82.0 million compared to $75.6
million in the corresponding period in 2008. For year-to-date 2009, taxes other than income taxes
were $162.3 million compared to $151.4 million for the corresponding period in 2008. These
increases were primarily due to increases in state and municipal public utility license tax bases.
Allowance for Equity Funds Used During Construction
|
|
|
|
|
|
|
Second Quarter 2009 vs. Second Quarter 2008 |
|
Year-to-Date 2009 vs. Year-to-Date 2008 |
(change in millions) |
|
(% change) |
|
(change in millions) |
|
(% change) |
$9.9
|
|
107.4
|
|
$15.3
|
|
74.7 |
|
In the second quarter 2009, allowance for equity funds used during construction (AFUDC) was $19.1
million compared to $9.2 million for the corresponding period in 2008. For year-to-date 2009,
AFUDC was $35.8 million compared to $20.5 million for the corresponding period in 2008. These
increases were primarily due to increases in the amount of construction work in progress at
generating facilities related to environmental mandates.
Interest Expense, Net of Amounts Capitalized
|
|
|
|
|
|
|
Second Quarter 2009 vs. Second Quarter 2008 |
|
Year-to-Date 2009 vs. Year-to-Date 2008 |
(change in millions) |
|
(% change) |
|
(change in millions) |
|
(% change) |
$7.1
|
|
10.2
|
|
$10.4
|
|
7.5 |
|
In the second quarter 2009, interest expense, net of amounts capitalized was $76.7 million compared
to $69.6 million for the corresponding period in 2008. For year-to-date 2009, interest expense,
net of amounts capitalized was $149.0 million compared to $138.6 million for the corresponding
period in 2008. These increases were primarily due to the issuance of additional long-term debt.
See MANAGEMENTS DISCUSSION AND ANALYSIS FINANCIAL CONDITION AND LIQUIDITY Financing
Activities of Alabama Power in Item 7 of the Form 10-K and FINANCIAL CONDITION AND LIQUIDITY
Financing Activities herein for additional information.
Income Taxes
|
|
|
|
|
|
|
Second Quarter 2009 vs. Second Quarter 2008 |
|
Year-to-Date 2009 vs. Year-to-Date 2008 |
(change in millions) |
|
(% change) |
|
(change in millions) |
|
(% change) |
$11.6
|
|
12.3
|
|
$23.1
|
|
13.8 |
|
In the second quarter 2009, income taxes were $105.4 million compared to $93.8 million for the
corresponding period in 2008. For year-to-date 2009, income taxes were $190.3 million compared to
$167.2 million for the corresponding period in 2008. These increases were primarily due to higher
pre-tax income and a decrease in the tax benefit from the production activities deduction,
partially offset by the increase in non-taxable AFUDC.
44
ALABAMA POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FUTURE EARNINGS POTENTIAL
The results of operations discussed above are not necessarily indicative of Alabama Powers future
earnings potential. The level of Alabama Powers future earnings depends on numerous factors that
affect the opportunities, challenges, and risks of Alabama Powers primary business of selling
electricity. These factors include Alabama Powers ability to maintain a constructive regulatory
environment that continues to allow for the recovery of prudently incurred costs during a time of
increasing costs. Future earnings in the near term will depend, in part, upon maintaining energy
sales, which is subject to a number of factors. These factors include weather, competition, new
energy contracts with neighboring utilities, energy conservation practiced by customers, the price
of electricity, the price elasticity of demand, and the rate of economic growth or decline in
Alabama Powers service area. Recent recessionary conditions have negatively impacted sales and
are expected to continue to have a negative impact, particularly to industrial customers. The
timing and extent of the economic recovery will impact future earnings.
For additional information relating to these issues, see RISK FACTORS in Item 1A and MANAGEMENTS
DISCUSSION AND ANALYSIS FUTURE EARNINGS POTENTIAL of Alabama Power in Item 7 of the Form 10-K.
Environmental Matters
Compliance costs related to the Clean Air Act and other environmental statutes and regulations
could affect earnings if such costs cannot continue to be fully recovered in rates on a timely
basis. See MANAGEMENTS DISCUSSION AND ANALYSIS FUTURE EARNINGS POTENTIAL Environmental
Matters of
Alabama Power in Item 7 and Note 3 to the financial statements of Alabama Power under
Environmental Matters in Item 8 of the Form 10-K for additional information.
Water Quality
See MANAGEMENTS DISCUSSION AND ANALYSIS FUTURE EARNINGS POTENTIAL Environmental Matters
Environmental Statutes and Regulations Water Quality of Alabama Power in Item 7 of the Form 10-K
for additional information regarding the EPAs regulation of cooling water intake structures. On
April 1, 2009, the U.S. Supreme Court reversed the U.S. Court of Appeals for the Second Circuits
decision with respect to the rules use of cost-benefit analysis and held that the EPA could
consider costs in arriving at its standards and in providing variances from those standards for
existing power plant cooling water intake structures. Other aspects of the courts decision were
not appealed and remain unaffected by the U.S. Supreme Courts ruling. While the U.S. Supreme
Courts decision may ultimately result in greater flexibility for demonstrating compliance with the
standards, the full scope of the regulations will depend on subsequent legal proceedings, further
rulemaking by the EPA, the results of studies and analyses performed as part of the rules
implementation, and the actual requirements established by state regulatory agencies and,
therefore, cannot be determined at this time.
Global Climate Issues
See MANAGEMENTS DISCUSSION AND ANALYSIS FUTURE EARNINGS POTENTIAL Environmental Matters
Global Climate Issues of Alabama Power in Item 7 of the Form 10-K for information regarding the
potential for legislation and regulation addressing greenhouse gas emissions. On April 17, 2009,
the EPA released a proposed finding that certain greenhouse gas emissions from new motor vehicles
endanger public health and welfare due to climate change. The ultimate outcome of the proposed
endangerment finding cannot be determined at this time and will depend on additional regulatory
action and potential legal challenges. However, regulatory decisions that may follow from such a
finding could have implications for both new and existing stationary sources, such as power plants. In addition,
federal legislative
45
ALABAMA POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
proposals that would impose mandatory requirements related to greenhouse gas
emissions, renewable energy standards, and energy efficiency standards continue to be actively
considered in Congress, and the reduction of greenhouse gas emissions has been identified as a high
priority by the current Administration. On June 26, 2009, the American Clean Energy and Security
Act of 2009, which would impose mandatory greenhouse gas restrictions through implementation of a
cap and trade program, a renewable energy program, and other measures, was passed by the House of
Representatives and is expected to now be considered by the Senate. The ultimate outcome of these
matters cannot be determined at this time; however, mandatory restrictions on Alabama Powers
greenhouse gas emissions, or requirements relating to renewable energy or energy efficiency, could
result in significant additional compliance costs that could affect future unit retirement and
replacement decisions and results of operations, cash flows, and financial condition if such costs
are not recovered through regulated rates.
FERC and Alabama PSC Matters
Market-Based Rate Authority
See MANAGEMENTS DISCUSSION AND ANALYSIS FUTURE EARNINGS POTENTIAL FERC Matters Market-Based
Rate Authority of Alabama Power in Item 7 and Note 3 to the financial statements of Alabama Power
under FERC Matters Market-Based Rate Authority in Item 8 of the Form 10-K for information
regarding market-based rate authority. In October 2008, Southern Company filed with the FERC a
revised market-based rate (MBR) tariff and a new cost-based rate (CBR) tariff. The revised MBR
tariff provides for a must offer energy auction whereby Southern Company offers all of its
available energy for sale in a day-ahead auction and an hour-ahead auction with reserve prices not
to exceed the CBR tariff price, after considering Southern Companys native load requirements,
reliability obligations, and sales commitments to third parties. All sales under the energy
auction would be at market clearing prices established under the auction rules. The new CBR tariff
provides for a cost-based price for wholesale sales of less than a year. On March 5, 2009, the
FERC accepted Southern Companys CBR tariff for filing. On March 25, 2009, the FERC accepted
Southern Companys compliance filing related to the MBR tariff and directed Southern Company to
commence the energy auction in 30 days. Southern Company commenced the energy auction on April 23,
2009. The FERC has determined that implementation of the energy auction in accordance with the MBR
tariff order adequately mitigates going forward any presumption of market power that Southern
Company may have in the Southern Company retail service territory and adjacent market areas. The
original generation dominance proceeding initiated by the FERC in December 2004 remains pending
before the FERC. The ultimate outcome of this matter cannot be determined at this time.
Retail Fuel Cost Recovery
See MANAGEMENTS DISCUSSION AND ANALYSIS FUTURE EARNINGS POTENTIAL PSC Matters Retail Fuel
Cost Recovery of Alabama Power in Item 7 and Note 3 to the financial statements of Alabama Power
under Retail Regulatory Matters Fuel Cost Recovery in Item 8 of the Form 10-K for information
regarding Alabama Powers fuel cost recovery. Alabama Powers under recovered fuel costs as of
June 30, 2009 totaled $102.1 million as compared to $305.8 million at December 31, 2008. These
under recovered fuel costs at June 30, 2009 are included in under recovered regulatory clause
revenues on Alabama Powers Condensed Balance Sheets herein. This classification is based on an
estimate which includes such factors as weather, generation availability, energy demand, and the
price of energy. A change in any of these factors could have a material impact on the timing of
the recovery of the under recovered fuel costs.
46
ALABAMA POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
On June 2, 2009, the Alabama PSC approved a decrease in Alabama Powers Rate ECR factor from 3.983
cents per KWH to 3.733 cents per KWH for billings beginning June 9, 2009 through October 8, 2010,
which will have no significant effect on Alabama Powers revenues or net income, but will decrease
annual cash flow. Thereafter, the Rate ECR factor will be 5.910 cents per KWH, absent a contrary order by the Alabama
PSC. Rate ECR revenues, as recorded on the financial statements, are adjusted for differences in
actual recoverable fuel costs and amounts billed in current regulated rates. Alabama Power will be
allowed to continue to include a carrying charge associated with the under recovered fuel costs in
the fuel expense calculation. In the event the Rate ECR factor results in an over recovered
position, Alabama Power will accrue interest on any such over recovered balance at the same rate
used to derive the carrying cost.
Natural Disaster Cost Recovery
See MANAGEMENTS DISCUSSION AND ANALYSIS FUTURE EARNINGS POTENTIAL PSC Matters Natural
Disaster Cost Recovery of Alabama Power in Item 7 and Note 3 to the financial statements of
Alabama Power under Retail Regulatory Matters Natural Disaster Cost Recovery in Item 8 of the
Form 10-K for information regarding natural disaster cost recovery. At June 30, 2009, Alabama
Power had accumulated a balance of $30.6 million in the target reserve for future storms, which is
included in the Condensed Balance Sheets herein under Other Regulatory Liabilities.
Steam Service
On February 5, 2009, the Alabama PSC granted a Certificate of Abandonment of Steam Service in the
downtown area of the City of Birmingham. The order allows Alabama Power to discontinue steam
service by the earlier of three years from May 14, 2008 or when it has no remaining steam service
customers. Currently, Alabama Power has contractual obligations to provide steam service until
2013. Impacts related to the abandonment of steam service are recognized in operating income and
are not material to the earnings of Alabama Power.
Legislation
On February 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act of
2009 (ARRA). Major tax incentives in the ARRA include an extension of bonus depreciation and
multiple renewable energy incentives, which could have a significant impact on the future cash flow
and net income of Alabama Power. Alabama Power estimates the cash flow reduction to 2009 tax
payments as a result of the bonus depreciation provisions of the ARRA to be between approximately
$75 million and $90 million. Southern Company and its subsidiaries have also filed an application
under the ARRA for a grant, of which approximately $120 million relates to Alabama Power, to be
used primarily for the advanced metering infrastructure program and other transmission and
distribution automation and modernization projects. Alabama Power continues to assess the other
financial implications of the ARRA. The ultimate impact cannot be determined at this time.
Other Matters
Alabama Power is involved in various other matters being litigated and regulatory matters that
could affect future earnings. In addition, Alabama Power is subject to certain claims and legal
actions arising in the ordinary course of business. Alabama Powers business activities are
subject to extensive governmental
regulation related to public health and the environment. Litigation over environmental issues and
claims of various types, including property damage, personal injury, common law nuisance, and
citizen enforcement of environmental requirements such as opacity and air and water quality
standards, has increased generally throughout the United
47
ALABAMA POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
States. In particular, personal injury
claims for damages caused by alleged exposure to hazardous materials have become more frequent.
The ultimate outcome of such pending or potential litigation against Alabama Power cannot be
predicted at this time; however, for current proceedings not specifically reported herein or in
Note 3 to the financial statements of Alabama Power in Item 8 of the Form 10-K, management does not
anticipate that the liabilities, if any, arising from such current proceedings would have a
material adverse effect on Alabama Powers financial statements.
See the Notes to the Condensed Financial Statements herein for discussion of various other
contingencies, regulatory matters, and other matters being litigated which may affect future
earnings potential.
ACCOUNTING POLICIES
Application of Critical Accounting Policies and Estimates
Alabama Power prepares its financial statements in accordance with accounting principles generally
accepted in the United States. Significant accounting policies are described in Note 1 to the
financial statements of Alabama Power in Item 8 of the Form 10-K. In the application of these
policies, certain estimates are made that may have a material impact on Alabama Powers results of
operations and related disclosures. Different assumptions and measurements could produce estimates
that are significantly different from those recorded in the financial statements. See MANAGEMENTS
DISCUSSION AND ANALYSIS ACCOUNTING POLICIES Application of Critical Accounting Policies and
Estimates of Alabama Power in Item 7 of the Form 10-K for a complete discussion of Alabama Powers
critical accounting policies and estimates related to Electric Utility Regulation, Contingent
Obligations, and Unbilled Revenues.
New Accounting Standards
Variable Interest Entities
In June 2009, the FASB issued new guidance on the consolidation of variable interest entities,
which replaces the quantitative-based risks and rewards calculation for determining whether an
enterprise is the primary beneficiary in a variable interest entity with an approach that is
primarily qualitative, requires ongoing assessments of whether an enterprise is the primary
beneficiary of a variable interest entity, and requires additional disclosures about an
enterprises involvement in variable interest entities. Alabama Power is required to adopt this
new guidance effective January 1, 2010 and is evaluating the impact, if any, it will have on its
financial statements.
FINANCIAL CONDITION AND LIQUIDITY
Overview
Alabama Powers financial condition remained stable at June 30, 2009. Throughout the turmoil in
the financial markets, Alabama Power has maintained adequate access to capital without drawing on
any of its committed bank credit arrangements used to support its commercial paper programs and
variable rate pollution control revenue bonds. Alabama Power intends to continue to monitor its
access to short-term and long-term capital markets as well as its bank credit arrangements to meet
future capital and liquidity needs. Market rates for committed credit have increased, and Alabama
Power has been and expects to continue to be subject to higher
costs as its existing facilities are replaced or renewed. Total committed credit fees currently
average less than 1/4 of 1% per year for Alabama Power. Alabama Powers interest cost for short-term
debt has decreased as market short-term interest rates have declined from 2008 levels. The
ultimate impact on future financing costs as a result of financial turmoil cannot be determined at
this time. Alabama Power experienced no material
48
ALABAMA POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
counterparty credit losses as a result of the
turmoil in the financial markets. See Sources of Capital and Financing Activities herein for
additional information.
Alabama Powers investments in pension and nuclear decommissioning trust funds stabilized during
the second quarter 2009. Alabama Power expects that the earliest that cash may have to be
contributed to the pension trust fund is 2012. The projections of the amount vary significantly
depending on interpretations of and decisions related to federal legislation passed during 2008 as
well as other key variables including future trust fund performance and cannot be determined at
this time. Alabama Power does not expect any changes to the funding obligations to the nuclear
decommissioning trust at this time.
Net cash provided from operating activities totaled $540.1 million for the first six months of
2009, compared to $543.3 million for the corresponding period in 2008. Changes in operating cash
flow were not material. Net cash used for investing activities totaled $623.7 million compared to
$725.0 million for the corresponding period in 2008. The $101.3 million decrease was primarily due
to a decline in gross property additions related to nuclear refueling outages. Net cash provided
from financing activities totaled $252.3 million for the first six months of 2009, compared to
$140.7 million for the corresponding period in 2008. The $111.6 million increase was primarily due
to no redemptions or maturities offset by fewer issuances of securities in the first six months of
2009 as compared to the first six months of 2008. Fluctuations in cash flow from financing
activities vary from year-to-year based on capital needs and the maturity or redemption of
securities.
Significant balance sheet changes for the first six months of 2009 include an increase of $168.7
million in cash and cash equivalents and an increase of $262.8 million in gross plant primarily due
to increases in transmission and distribution projects. Long-term debt increased $552.1 million.
Capital Requirements and Contractual Obligations
See MANAGEMENTS DISCUSSION AND ANALYSIS FINANCIAL CONDITION AND LIQUIDITY Capital
Requirements and Contractual Obligations of Alabama Power in Item 7 of the Form 10-K for a
description of Alabama Powers capital requirements for its construction program, scheduled
maturities of long-term debt, as well as the related interest, derivative obligations,
preferred and preference stock dividends, leases, purchase commitments, and trust funding
requirements. Approximately $250 million will be required through June 30, 2010 for maturities of
long-term debt. The construction program is subject to periodic review and revision, and actual
construction costs may vary from these estimates because of numerous factors. These factors
include: changes in business conditions; changes in load projections; changes in environmental
statutes and regulations; changes in nuclear plants to meet new regulatory requirements; changes in
FERC rules and regulations; Alabama PSC approvals; changes in legislation; the cost and efficiency
of construction labor, equipment, and materials; and the cost of capital. In addition, there can
be no assurance that costs related to capital expenditures will be fully recovered.
Sources of Capital
Alabama Power plans to obtain the funds required for construction and other
purposes from sources similar to those utilized in the past. Recently, Alabama Power has primarily
utilized funds from operating cash flows, unsecured debt, common stock, preferred stock, and
preference stock. However, the amount, type, and timing of any future financings, if needed, will
depend upon regulatory approval, prevailing market conditions, and other factors. See MANAGEMENTS
DISCUSSION AND
ANALYSIS FINANCIAL CONDITION AND LIQUIDITY Sources of Capital of Alabama Power in Item 7 of
the Form 10-K for additional information.
49
ALABAMA POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Alabama Powers current liabilities sometimes exceed current assets because of Alabama Powers debt
due within one year and the periodic use of short-term debt as a funding source primarily to meet
scheduled maturities of long-term debt as well as cash needs which can fluctuate significantly due
to the seasonality of the business. To meet short-term cash needs and contingencies, Alabama Power
had at June 30, 2009 cash and cash equivalents of approximately $196.9 million, unused committed
lines of credit of approximately $1.3 billion, and commercial paper programs. The credit
facilities provide liquidity support to Alabama Powers commercial paper borrowings and $582
million are dedicated to funding purchase obligations related to variable rate pollution control
revenue bonds. Of the unused credit facilities, $325 million will expire in 2009, $145 million
will expire in 2010, $25 million will expire in 2011, and $765 million will expire in 2012. Of the
facilities that expire in 2009 and 2010, $361 million allow for one-year term loans. Alabama Power
expects to renew its credit facilities, as needed, prior to expiration. See Note 6 to the
financial statements of Alabama Power under Bank Credit Arrangements in Item 8 of the Form 10-K
and Note (E) to the Condensed Financial Statements under Bank Credit Arrangements herein for
additional information. Alabama Power may also meet short-term cash needs through a Southern
Company subsidiary organized to issue and sell commercial paper at the request and for the benefit
of Alabama Power and other Southern Company subsidiaries. At June 30, 2009, Alabama Power had no
commercial paper outstanding and no outstanding borrowings under its committed lines of credit.
Management believes that the need for working capital can be adequately met by utilizing commercial
paper programs, lines of credit, and cash.
Credit Rating Risk
Alabama Power does not have any credit arrangements that would require material changes in payment
schedules or terminations as a result of a credit rating downgrade. There are certain contracts
that could require collateral, but not accelerated payment, in the event of a credit rating change
to BBB- and/or Baa3 or below. These contracts are primarily for physical electricity purchases and
sales, fuel purchases, fuel transportation and storage, emissions allowances, and energy price risk
management. At June 30, 2009, the maximum potential collateral requirements under these contracts
at a BBB- and/or Baa3 rating were approximately $16 million. At June 30, 2009, the maximum
potential collateral requirements under these contracts at a rating below BBB- and/or Baa3 were
approximately $175 million. Included in these amounts are certain agreements that could require
collateral in the event that one or more Power Pool participants has a credit rating change to
below investment grade. In addition, certain nuclear fuel agreements could require collateral of
up to $64 million in the event of a rating change to below investment grade for Southern Company.
Generally, collateral may be provided by a Southern Company guaranty, letter of credit, or cash.
Additionally, any credit rating downgrade could impact Alabama Powers ability to access capital
markets, particularly the short-term debt market.
Market Price Risk
Alabama Powers market risk exposure relative to interest rate changes has not changed materially
compared with the December 31, 2008 reporting period. Since a significant portion of outstanding
indebtedness is at fixed rates, Alabama Power is not aware of any facts or circumstances that would
significantly affect exposures on existing indebtedness in the near term. However, the impact on
future financing costs cannot now be determined.
Due to cost-based rate regulation, Alabama Power continues to have limited exposure to market
volatility in interest rates, commodity fuel prices, and prices of electricity. To mitigate
residual risks relative to movements in electricity prices, Alabama Power enters into physical
fixed-price contracts for the purchase and sale of electricity through the wholesale electricity
market. Alabama Power continues to manage a retail fuel-hedging program implemented per the
guidelines of the Alabama PSC. As such, Alabama Power has no material change in market risk
exposure when compared with the December 31, 2008 reporting period.
50
ALABAMA POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The changes in fair value of energy-related derivative contracts for the three and six months ended
June 30, 2009 were as follows:
|
|
|
|
|
|
|
|
|
|
|
Second Quarter |
|
Year-to-Date |
|
|
2009 |
|
2009 |
|
|
Changes |
|
Changes |
|
|
Fair Value |
|
|
(in millions) |
Contracts outstanding at the beginning of the period, assets
(liabilities), net |
|
$ |
(130.2 |
) |
|
$ |
(91.9 |
) |
Contracts realized or settled |
|
|
40.6 |
|
|
|
63.9 |
|
Current period changes(a) |
|
|
(1.9 |
) |
|
|
(63.5 |
) |
|
Contracts outstanding at the end of the period, assets (liabilities), net |
|
$ |
(91.5 |
) |
|
$ |
(91.5 |
) |
|
|
|
|
(a) |
|
Current period changes also include the changes in fair value of new contracts entered into
during the period, if any. |
The increases in the fair value positions of the energy-related derivative contracts for the
three months and six months ended June 30, 2009 were $39 million and $0.4 million, respectively,
substantially all of which is due to natural gas positions. These changes are attributable to both
the volume and prices of natural gas. At June 30, 2009, Alabama Power had a net hedge volume of 49
million mmBtu with a weighted average contract cost approximately $1.89 per mmBtu above market
prices, compared to 49 million mmBtu at March 31, 2009 with a weighted average contract cost
approximately $2.70 per mmBtu above market prices and compared to 45 million mmBtu at December 31,
2008 with a weighted average contract cost approximately $2.12 per mmBtu above market prices. The
majority of the natural gas hedge settlements are recovered through the fuel cost recovery clause.
At June 30, 2009 and December 31, 2008, the fair value of energy-related derivative contracts by
hedge designation was reflected in the financial statements as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
December 31, |
|
|
2009 |
|
2008 |
|
|
(in millions) |
Regulatory hedges |
|
|
$(91.5 |
) |
|
|
$(91.9 |
) |
Cash flow hedges |
|
|
|
|
|
|
|
|
Not designated |
|
|
|
|
|
|
|
|
|
Total fair value |
|
|
$(91.5 |
) |
|
|
$(91.9 |
) |
|
Energy-related derivative contracts which are designated as regulatory hedges relate to Alabama
Powers fuel hedging program where gains and losses are initially recorded as regulatory
liabilities and assets, respectively, and then are included in fuel expense as they are recovered
through the fuel cost recovery clauses. Certain other gains and losses on energy-related
derivatives, designated as cash flow hedges, are initially deferred in OCI before being recognized
in income in the same period as the hedged transaction. Gains and losses on energy-related
derivative contracts that are not designated or fail to qualify as hedges are recognized in the
statements of income as incurred.
Unrealized pre-tax gains and losses recognized in income for the three months and six months ended
June 30, 2009 and 2008 for energy-related derivative contracts that are not hedges were not
material.
51
ALABAMA POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The maturities of the energy-related derivative contracts and the level of the fair value hierarchy
in which they fall at June 30, 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 |
|
|
Fair Value Measurements |
|
|
Total |
|
Maturity |
|
|
Fair Value |
|
Year 1 |
|
Years 2&3 |
|
Years 4&5 |
|
|
(in millions) |
Level 1 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Level 2 |
|
|
(91.5 |
) |
|
|
(77.0 |
) |
|
|
(14.6 |
) |
|
|
0.1 |
|
Level 3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of
contracts
outstanding at end
of period |
|
$ |
(91.5 |
) |
|
$ |
(77.0 |
) |
|
$ |
(14.6 |
) |
|
$ |
0.1 |
|
|
Alabama Power uses over-the-counter contracts that are not exchange traded but are fair valued
using prices which are actively quoted, and thus fall into Level 2. See Note (C) to the Condensed
Financial Statements herein for further discussion on fair value measurements.
For additional information, see MANAGEMENTS DISCUSSION AND ANALYSIS FINANCIAL CONDITION AND
LIQUIDITY Market Price Risk of Alabama Power in Item 7 and Notes 1 and 6 to the financial
statements of Alabama Power under Financial Instruments in Item 8 of the Form 10-K and Note (E)
to the Condensed Financial Statements herein.
Financing Activities
In March 2009, Alabama Power issued $500 million of Series 2009A 6.00% Senior Notes due March 1,
2039. The proceeds were used to repay short-term indebtedness and for other general corporate
purposes, including Alabama Powers continuous construction program.
In June 2009, Alabama Power incurred obligations related to the issuance of $53 million of The
Industrial Development Board of the City of Mobile Pollution Control Revenue Bonds (Alabama Power
Barry Plant Project), First Series 2009. The proceeds were used to fund pollution control and
environmental improvement facilities at Plant Barry.
Subsequent to June 30, 2009, Alabama Power issued 3,375,000 shares of common stock to Southern
Company at $40 a share ($135 million aggregate purchase price). The proceeds were used for general
corporate purposes.
In addition to any financings that may be necessary to meet capital requirements and contractual
obligations, Alabama Power plans to continue, when economically feasible, a program to retire
higher-cost securities and replace these obligations with lower-cost capital if market conditions
permit.
52
GEORGIA POWER COMPANY
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months |
|
|
For the Six Months |
|
|
|
Ended June 30, |
|
|
Ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
(in thousands) |
|
|
(in thousands) |
|
Operating Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail revenues |
|
$ |
1,682,225 |
|
|
$ |
1,830,753 |
|
|
$ |
3,274,620 |
|
|
$ |
3,405,760 |
|
Wholesale revenues, non-affiliates |
|
|
96,570 |
|
|
|
142,276 |
|
|
|
192,556 |
|
|
|
294,968 |
|
Wholesale revenues, affiliates |
|
|
29,623 |
|
|
|
72,164 |
|
|
|
44,833 |
|
|
|
146,074 |
|
Other revenues |
|
|
65,896 |
|
|
|
65,969 |
|
|
|
128,146 |
|
|
|
129,207 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues |
|
|
1,874,314 |
|
|
|
2,111,162 |
|
|
|
3,640,155 |
|
|
|
3,976,009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fuel |
|
|
652,889 |
|
|
|
683,299 |
|
|
|
1,253,379 |
|
|
|
1,321,222 |
|
Purchased power, non-affiliates |
|
|
70,817 |
|
|
|
107,723 |
|
|
|
132,770 |
|
|
|
165,754 |
|
Purchased power, affiliates |
|
|
172,418 |
|
|
|
247,842 |
|
|
|
369,641 |
|
|
|
500,777 |
|
Other operations and maintenance |
|
|
353,562 |
|
|
|
391,781 |
|
|
|
744,055 |
|
|
|
760,596 |
|
Depreciation and amortization |
|
|
175,080 |
|
|
|
159,204 |
|
|
|
342,191 |
|
|
|
309,812 |
|
Taxes other than income taxes |
|
|
81,008 |
|
|
|
79,485 |
|
|
|
157,256 |
|
|
|
150,771 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
1,505,774 |
|
|
|
1,669,334 |
|
|
|
2,999,292 |
|
|
|
3,208,932 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income |
|
|
368,540 |
|
|
|
441,828 |
|
|
|
640,863 |
|
|
|
767,077 |
|
Other Income and (Expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for equity funds used during construction |
|
|
22,313 |
|
|
|
23,981 |
|
|
|
43,067 |
|
|
|
51,738 |
|
Interest income |
|
|
(197 |
) |
|
|
1,050 |
|
|
|
1,033 |
|
|
|
1,837 |
|
Interest expense, net of amounts capitalized |
|
|
(99,425 |
) |
|
|
(83,727 |
) |
|
|
(197,815 |
) |
|
|
(170,065 |
) |
Other income (expense), net |
|
|
2,531 |
|
|
|
1,371 |
|
|
|
(4,189 |
) |
|
|
(1,922 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income and (expense) |
|
|
(74,778 |
) |
|
|
(57,325 |
) |
|
|
(157,904 |
) |
|
|
(118,412 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings Before Income Taxes |
|
|
293,762 |
|
|
|
384,503 |
|
|
|
482,959 |
|
|
|
648,665 |
|
Income taxes |
|
|
99,682 |
|
|
|
132,279 |
|
|
|
162,310 |
|
|
|
216,080 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
|
194,080 |
|
|
|
252,224 |
|
|
|
320,649 |
|
|
|
432,585 |
|
Dividends on Preferred and Preference Stock |
|
|
4,346 |
|
|
|
4,346 |
|
|
|
8,691 |
|
|
|
8,691 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income After Dividends on Preferred and
Preference Stock |
|
$ |
189,734 |
|
|
$ |
247,878 |
|
|
$ |
311,958 |
|
|
$ |
423,894 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months |
|
|
For the Six Months |
|
|
|
Ended June 30, |
|
|
Ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
(in thousands) |
|
|
(in thousands) |
|
Net Income After Dividends on Preferred and Preference Stock |
|
$ |
189,734 |
|
|
$ |
247,878 |
|
|
$ |
311,958 |
|
|
$ |
423,894 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Qualifying hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in fair value, net of tax of $(905), $6,027, $275, and
$(16), respectively |
|
|
(1,435 |
) |
|
|
9,556 |
|
|
|
435 |
|
|
|
(24 |
) |
Reclassification adjustment for amounts included in net
income, net of tax of $2,427, $489, $4,170, and $695, respectively |
|
|
3,848 |
|
|
|
774 |
|
|
|
6,611 |
|
|
|
1,101 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income (loss) |
|
|
2,413 |
|
|
|
10,330 |
|
|
|
7,046 |
|
|
|
1,077 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income |
|
$ |
192,147 |
|
|
$ |
258,208 |
|
|
$ |
319,004 |
|
|
$ |
424,971 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes as they relate to Georgia Power are an integral part of these condensed financial statements.
54
GEORGIA POWER COMPANY
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
For the Six Months |
|
|
|
Ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(in thousands) |
|
Operating Activities: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
320,649 |
|
|
$ |
432,585 |
|
Adjustments to reconcile net income
to net cash provided from operating activities |
|
|
|
|
|
|
|
|
Depreciation and amortization, total |
|
|
402,086 |
|
|
|
367,910 |
|
Deferred income taxes and investment tax credits |
|
|
54,721 |
|
|
|
29,175 |
|
Deferred revenues |
|
|
(20,929 |
) |
|
|
60,875 |
|
Deferred expenses |
|
|
20,523 |
|
|
|
27,059 |
|
Allowance for equity funds used during construction |
|
|
(43,067 |
) |
|
|
(51,738 |
) |
Pension, postretirement, and other employee benefits |
|
|
(11,543 |
) |
|
|
6,304 |
|
Hedge settlements |
|
|
(16,167 |
) |
|
|
(20,486 |
) |
Other, net |
|
|
42,135 |
|
|
|
(25,801 |
) |
Changes in certain current assets and liabilities |
|
|
|
|
|
|
|
|
-Receivables |
|
|
(126,080 |
) |
|
|
(193,372 |
) |
-Fossil fuel stock |
|
|
(222,837 |
) |
|
|
(40,214 |
) |
-Prepaid income taxes |
|
|
(20,298 |
) |
|
|
4,302 |
|
-Other current assets |
|
|
(14,914 |
) |
|
|
(14,874 |
) |
-Accounts payable |
|
|
120,228 |
|
|
|
102,384 |
|
-Accrued taxes |
|
|
(74,291 |
) |
|
|
(12,300 |
) |
-Accrued compensation |
|
|
(103,764 |
) |
|
|
(49,119 |
) |
-Other current liabilities |
|
|
31,345 |
|
|
|
54,941 |
|
|
|
|
|
|
|
|
Net cash provided from operating activities |
|
|
337,797 |
|
|
|
677,631 |
|
|
|
|
|
|
|
|
Investing Activities: |
|
|
|
|
|
|
|
|
Property additions |
|
|
(1,208,114 |
) |
|
|
(992,317 |
) |
Distribution of restricted cash from pollution control revenue bonds |
|
|
15,566 |
|
|
|
13,221 |
|
Nuclear decommissioning trust fund purchases |
|
|
(699,359 |
) |
|
|
(225,477 |
) |
Nuclear decommissioning trust fund sales |
|
|
664,633 |
|
|
|
218,597 |
|
Cost of removal, net of salvage |
|
|
(33,041 |
) |
|
|
(15,957 |
) |
Change in construction payables, net of joint owner portion |
|
|
103,558 |
|
|
|
7,200 |
|
Other investing activities |
|
|
43,910 |
|
|
|
(16,754 |
) |
|
|
|
|
|
|
|
Net cash used for investing activities |
|
|
(1,112,847 |
) |
|
|
(1,011,487 |
) |
|
|
|
|
|
|
|
Financing Activities: |
|
|
|
|
|
|
|
|
Increase (decrease) in notes payable, net |
|
|
114,439 |
|
|
|
(347,612 |
) |
Proceeds |
|
|
|
|
|
|
|
|
Capital contributions from parent company |
|
|
602,968 |
|
|
|
251,262 |
|
Pollution control revenue bonds issuances |
|
|
|
|
|
|
94,935 |
|
Senior notes issuances |
|
|
500,000 |
|
|
|
500,000 |
|
Other long-term debt issuances |
|
|
750 |
|
|
|
300,000 |
|
Redemptions |
|
|
|
|
|
|
|
|
Pollution control revenue bonds |
|
|
|
|
|
|
(41,935 |
) |
Senior notes |
|
|
(151,928 |
) |
|
|
(45,812 |
) |
Payment of preferred and preference stock dividends |
|
|
(8,758 |
) |
|
|
(8,309 |
) |
Payment of common stock dividends |
|
|
(369,450 |
) |
|
|
(360,600 |
) |
Other financing activities |
|
|
(7,963 |
) |
|
|
(8,430 |
) |
|
|
|
|
|
|
|
Net cash provided from financing activities |
|
|
680,058 |
|
|
|
333,499 |
|
|
|
|
|
|
|
|
Net Change in Cash and Cash Equivalents |
|
|
(94,992 |
) |
|
|
(357 |
) |
Cash and Cash Equivalents at Beginning of Period |
|
|
132,739 |
|
|
|
15,392 |
|
|
|
|
|
|
|
|
Cash and Cash Equivalents at End of Period |
|
$ |
37,747 |
|
|
$ |
15,035 |
|
|
|
|
|
|
|
|
Supplemental Cash Flow Information: |
|
|
|
|
|
|
|
|
Cash paid during the period for |
|
|
|
|
|
|
|
|
Interest (net of $18,986 and $21,619 capitalized for 2009 and 2008, respectively) |
|
$ |
167,890 |
|
|
$ |
154,225 |
|
Income taxes (net of refunds) |
|
$ |
79,141 |
|
|
$ |
130,091 |
|
The accompanying notes as they relate to Georgia Power are an integral part of these condensed financial statements.
55
GEORGIA POWER COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
At June 30, |
|
|
At December 31, |
|
Assets |
|
2009 |
|
|
2008 |
|
|
|
(in thousands) |
|
Current Assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
37,747 |
|
|
$ |
132,739 |
|
Restricted cash and cash equivalents |
|
|
11,081 |
|
|
|
22,381 |
|
Receivables |
|
|
|
|
|
|
|
|
Customer accounts receivable |
|
|
575,753 |
|
|
|
554,219 |
|
Unbilled revenues |
|
|
212,550 |
|
|
|
147,978 |
|
Under recovered regulatory clause revenues |
|
|
346,608 |
|
|
|
338,780 |
|
Joint owner accounts receivable |
|
|
146,544 |
|
|
|
43,858 |
|
Other accounts and notes receivable |
|
|
44,913 |
|
|
|
54,041 |
|
Affiliated companies |
|
|
15,784 |
|
|
|
13,091 |
|
Accumulated provision for uncollectible accounts |
|
|
(11,679 |
) |
|
|
(10,732 |
) |
Fossil fuel stock, at average cost |
|
|
707,594 |
|
|
|
484,757 |
|
Materials and supplies, at average cost |
|
|
362,530 |
|
|
|
356,537 |
|
Vacation pay |
|
|
65,644 |
|
|
|
71,217 |
|
Prepaid income taxes |
|
|
86,285 |
|
|
|
65,987 |
|
Other regulatory assets, current |
|
|
151,044 |
|
|
|
118,961 |
|
Other current assets |
|
|
52,240 |
|
|
|
63,464 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
2,804,638 |
|
|
|
2,457,278 |
|
|
|
|
|
|
|
|
Property, Plant, and Equipment: |
|
|
|
|
|
|
|
|
In service |
|
|
24,779,503 |
|
|
|
23,975,262 |
|
Less accumulated provision for depreciation |
|
|
9,301,959 |
|
|
|
9,101,474 |
|
|
|
|
|
|
|
|
Plant in service, net of depreciation |
|
|
15,477,544 |
|
|
|
14,873,788 |
|
Nuclear fuel, at amortized cost |
|
|
302,160 |
|
|
|
278,412 |
|
Construction work in progress |
|
|
1,759,917 |
|
|
|
1,434,989 |
|
|
|
|
|
|
|
|
Total property, plant, and equipment |
|
|
17,539,621 |
|
|
|
16,587,189 |
|
|
|
|
|
|
|
|
Other Property and Investments: |
|
|
|
|
|
|
|
|
Equity investments in unconsolidated subsidiaries |
|
|
63,450 |
|
|
|
57,163 |
|
Nuclear decommissioning trusts, at fair value |
|
|
520,445 |
|
|
|
460,430 |
|
Miscellaneous property and investments |
|
|
37,058 |
|
|
|
40,945 |
|
|
|
|
|
|
|
|
Total other property and investments |
|
|
620,953 |
|
|
|
558,538 |
|
|
|
|
|
|
|
|
Deferred Charges and Other Assets: |
|
|
|
|
|
|
|
|
Deferred charges related to income taxes |
|
|
586,370 |
|
|
|
572,528 |
|
Deferred under recovered regulatory clause revenues |
|
|
364,728 |
|
|
|
425,609 |
|
Other regulatory assets, deferred |
|
|
1,361,027 |
|
|
|
1,449,352 |
|
Other deferred charges and assets |
|
|
204,552 |
|
|
|
265,174 |
|
|
|
|
|
|
|
|
Total deferred charges and other assets |
|
|
2,516,677 |
|
|
|
2,712,663 |
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
23,481,889 |
|
|
$ |
22,315,668 |
|
|
|
|
|
|
|
|
The accompanying notes as they relate to Georgia Power are an integral part of these condensed financial statements.
56
GEORGIA POWER COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
At June 30, |
|
|
At December 31, |
|
Liabilities and Stockholder's Equity |
|
2009 |
|
|
2008 |
|
|
|
(in thousands) |
|
Current Liabilities: |
|
|
|
|
|
|
|
|
Securities due within one year |
|
$ |
435,372 |
|
|
$ |
280,443 |
|
Notes payable |
|
|
471,533 |
|
|
|
357,095 |
|
Accounts payable |
|
|
|
|
|
|
|
|
Affiliated |
|
|
240,279 |
|
|
|
260,545 |
|
Other |
|
|
678,495 |
|
|
|
422,485 |
|
Customer deposits |
|
|
193,851 |
|
|
|
186,919 |
|
Accrued taxes |
|
|
|
|
|
|
|
|
Accrued income taxes |
|
|
78,877 |
|
|
|
70,916 |
|
Unrecognized tax benefits |
|
|
148,686 |
|
|
|
128,712 |
|
Other accrued taxes |
|
|
155,370 |
|
|
|
278,172 |
|
Accrued interest |
|
|
91,215 |
|
|
|
79,432 |
|
Accrued vacation pay |
|
|
49,248 |
|
|
|
57,643 |
|
Accrued compensation |
|
|
38,556 |
|
|
|
135,191 |
|
Liabilities from risk management activities |
|
|
109,522 |
|
|
|
113,432 |
|
Other current liabilities |
|
|
207,789 |
|
|
|
136,176 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
2,898,793 |
|
|
|
2,507,161 |
|
|
|
|
|
|
|
|
Long-term Debt |
|
|
7,196,675 |
|
|
|
7,006,275 |
|
|
|
|
|
|
|
|
Deferred Credits and Other Liabilities: |
|
|
|
|
|
|
|
|
Accumulated deferred income taxes |
|
|
3,161,017 |
|
|
|
3,064,580 |
|
Deferred credits related to income taxes |
|
|
134,470 |
|
|
|
140,933 |
|
Accumulated deferred investment tax credits |
|
|
249,357 |
|
|
|
256,218 |
|
Employee benefit obligations |
|
|
870,699 |
|
|
|
882,965 |
|
Asset retirement obligations |
|
|
706,933 |
|
|
|
688,019 |
|
Other cost of removal obligations |
|
|
378,462 |
|
|
|
396,947 |
|
Other regulatory liabilities, deferred |
|
|
75,293 |
|
|
|
115,865 |
|
Other deferred credits and liabilities |
|
|
108,498 |
|
|
|
111,505 |
|
|
|
|
|
|
|
|
Total deferred credits and other liabilities |
|
|
5,684,729 |
|
|
|
5,657,032 |
|
|
|
|
|
|
|
|
Total Liabilities |
|
|
15,780,197 |
|
|
|
15,170,468 |
|
|
|
|
|
|
|
|
Preferred Stock |
|
|
44,991 |
|
|
|
44,991 |
|
|
|
|
|
|
|
|
Preference Stock |
|
|
220,966 |
|
|
|
220,966 |
|
|
|
|
|
|
|
|
Common Stockholders Equity: |
|
|
|
|
|
|
|
|
Common stock, without par value |
|
|
|
|
|
|
|
|
Authorized - 20,000,000 shares |
|
|
|
|
|
|
|
|
Outstanding - 9,261,500 shares |
|
|
398,473 |
|
|
|
398,473 |
|
Paid-in capital |
|
|
4,262,668 |
|
|
|
3,655,731 |
|
Retained earnings |
|
|
2,800,298 |
|
|
|
2,857,789 |
|
Accumulated other comprehensive loss |
|
|
(25,704 |
) |
|
|
(32,750 |
) |
|
|
|
|
|
|
|
Total common stockholders equity |
|
|
7,435,735 |
|
|
|
6,879,243 |
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders Equity |
|
$ |
23,481,889 |
|
|
$ |
22,315,668 |
|
|
|
|
|
|
|
|
The accompanying notes as they relate to Georgia Power are an integral part of these condensed financial statements.
57
GEORGIA POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SECOND QUARTER 2009 vs. SECOND QUARTER 2008
AND
YEAR-TO-DATE 2009 vs. YEAR-TO-DATE 2008
OVERVIEW
Georgia Power operates as a vertically integrated utility providing electricity to retail customers
within its traditional service area located within the State of Georgia and to wholesale customers
in the Southeast. Many factors affect the opportunities, challenges, and risks of Georgia Powers
business of selling electricity. These factors include the ability to maintain a constructive
regulatory environment, to maintain energy sales in the midst of the current economic downturn, and
to effectively manage and secure timely recovery of rising costs. These costs include those
related to projected long-term demand growth, increasingly stringent environmental standards,
capital expenditures, and fuel prices. Appropriately balancing the need to recover these
increasing costs with customer prices will continue to challenge Georgia Power for the foreseeable
future. Georgia Power is required to file a general rate case by July 1, 2010, which will determine
whether the 2007 Retail Rate Plan should be continued, modified, or discontinued. On June 29,
2009, Georgia Power filed a request with the Georgia PSC for an accounting order that would allow
Georgia Power to amortize approximately $324 million of its regulatory liability related to other
cost of removal obligations in lieu of filing a request for a base rate increase. See MANAGEMENTS
DISCUSSION AND ANALYSIS FUTURE EARNINGS POTENTIAL Retail Rate Matters herein for additional
information.
Georgia Power continues to focus on several key performance indicators. These indicators include
customer satisfaction, plant availability, system reliability, and net income after dividends on
preferred and preference stock. For additional information on these indicators, see MANAGEMENTS
DISCUSSION AND ANALYSIS OVERVIEW Key Performance Indicators of Georgia Power in Item 7 of the
Form 10-K.
RESULTS OF OPERATIONS
Net Income
|
|
|
|
|
|
|
Second Quarter 2009 vs. Second Quarter 2008 |
|
Year-to-Date 2009 vs. Year-to-Date 2008 |
(change in millions) |
|
(% change) |
|
(change in millions) |
|
(% change) |
$(58.2)
|
|
(23.5)
|
|
$(111.9)
|
|
(26.4) |
|
Georgia Powers second quarter 2009 net income after dividends on preferred and preference stock
was $189.7 million compared to $247.9 million for the corresponding period in 2008. Georgia
Powers year-to-date 2009 net income after dividends on preferred and preference stock was $312.0
million compared to $423.9 million for the corresponding period in 2008. These decreases were
primarily due to lower industrial base revenues resulting from the recessionary economy. Also
contributing to the year-to-date decrease was a charge in the first quarter 2009 in connection with
a voluntary attrition plan under which 579 employees resigned from their positions effective March
31, 2009.
Retail Revenues
|
|
|
|
|
|
|
Second Quarter 2009 vs. Second Quarter 2008 |
|
Year-to-Date 2009 vs. Year-to-Date 2008 |
(change in millions) |
|
(% change) |
|
(change in millions) |
|
(% change) |
$(148.5)
|
|
(8.1)
|
|
$(131.1)
|
|
(3.9) |
|
In the second quarter 2009, retail revenues were $1.68 billion compared to $1.83 billion for the
corresponding period in 2008. For year-to-date 2009, retail revenues were $3.27 billion compared
to $3.41 billion for the corresponding period in 2008.
58
GEORGIA POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Details of the change to retail revenues are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter |
|
Year-to-Date |
|
|
2009 |
|
2009 |
|
|
(in millions) |
|
(% change) |
|
(in millions) |
|
(% change) |
Retail prior year |
|
$ |
1,830.8 |
|
|
|
|
|
|
$ |
3,405.8 |
|
|
|
|
|
Estimated change in |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rates and pricing |
|
|
(42.1 |
) |
|
|
(2.3 |
) |
|
|
(22.5 |
) |
|
|
(0.7 |
) |
Sales growth (decline) |
|
|
(42.4 |
) |
|
|
(2.3 |
) |
|
|
(60.4 |
) |
|
|
(1.8 |
) |
Weather |
|
|
5.1 |
|
|
|
0.3 |
|
|
|
4.5 |
|
|
|
0.1 |
|
Fuel cost recovery |
|
|
(69.2 |
) |
|
|
(3.8 |
) |
|
|
(52.8 |
) |
|
|
(1.5 |
) |
|
Retail current year |
|
$ |
1,682.2 |
|
|
|
(8.1 |
)% |
|
$ |
3,274.6 |
|
|
|
(3.9 |
)% |
|
Revenues associated with changes in rates and pricing decreased in the second quarter and
year-to-date 2009 when compared to the corresponding periods in 2008 due to decreased revenues from
market-response rates to large commercial and industrial customers of $78.6 million and $105.2
million for the second quarter and year-to-date 2009, respectively, partially offset by increased
recognition of environmental compliance cost recovery revenues of $36.7 million and $83.0 million
for the second quarter and year-to-date 2009, respectively, in accordance with the 2007 Retail Rate
Plan.
Revenues attributable to changes in sales declined in the second quarter and year-to-date 2009 when
compared to the corresponding periods in 2008. These decreases were primarily due to the
recessionary economy, partially offset by a 0.3% increase in retail customers. Weather-adjusted
residential KWH sales decreased 1.1%, weather-adjusted commercial KWH sales decreased 0.8%, and
weather-adjusted industrial KWH sales decreased 14.6% for the second quarter 2009 when compared to
the corresponding period in 2008. Weather-adjusted residential KWH sales increased 0.1%,
weather-adjusted commercial KWH sales decreased 0.7%, and weather-adjusted industrial KWH sales
decreased 14.3% year-to-date 2009 when compared to the corresponding period in 2008.
Weather-adjusted industrial KWH sales decreased due to a broad decline in demand across all
industrial segments for the second quarter and year-to-date 2009.
Revenues attributable to changes in weather for the second quarter and year-to-date 2009 when
compared to the corresponding periods in 2008 were not material.
Fuel revenues and costs are allocated between retail and wholesale jurisdictions. Retail fuel cost
recovery revenues decreased by $69.2 million in the second quarter 2009 and by $52.8 million
year-to-date 2009 when compared to the corresponding periods in 2008 due to decreased KWH sales and
fuel and purchased power expenses. Electric rates include provisions to adjust billings for
fluctuations in fuel costs, including the energy component of purchased power costs. Under these
provisions, fuel revenues generally equal fuel expenses, including the fuel component of purchased
power costs, and do not impact net income.
Wholesale Revenues Non-Affiliates
|
|
|
|
|
|
|
Second Quarter 2009 vs. Second Quarter 2008 |
|
Year-to-Date 2009 vs. Year-to-Date 2008 |
(change in millions) |
|
(% change) |
|
(change in millions) |
|
(% change) |
$(45.7)
|
|
(32.1)
|
|
$(102.4)
|
|
(34.7) |
|
Wholesale revenues from non-affiliates will vary depending on the market cost of available energy
compared to the cost of Georgia Power and Southern Company system-owned generation, demand for
energy within the Southern Company service territory, and the availability of Southern Company
system generation.
59
GEORGIA POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In the second quarter 2009, wholesale revenues from non-affiliates were $96.6 million compared to
$142.3 million for the corresponding period in 2008. For year-to-date 2009, wholesale revenues
from non-affiliates were $192.6 million compared to $295.0 million for the corresponding period in
2008. These decreases were due to a 44.7% decrease and a 49.2% decease in KWH sales for the second
quarter and year-to-date 2009, respectively, due to lower demand primarily caused by the
recessionary economy.
Wholesale Revenues Affiliates
|
|
|
|
|
|
|
Second Quarter 2009 vs. Second Quarter 2008 |
|
Year-to-Date 2009 vs. Year-to-Date 2008 |
(change in millions) |
|
(% change) |
|
(change in millions) |
|
(% change) |
$(42.6)
|
|
(59.0)
|
|
$(101.3)
|
|
(69.3) |
|
Wholesale revenues from affiliates will vary depending on demand and the availability and cost of
generating resources at each company within the Southern Company system. These affiliate sales are
made in accordance with the IIC, as approved by the FERC. These transactions do not have a
significant impact on earnings since the energy is generally sold at marginal cost.
In the second quarter 2009, wholesale revenues from affiliates were $29.6 million compared to $72.2
million for the corresponding period in 2008. For year-to-date 2009, wholesale revenues from
affiliates were $44.8 million compared to $146.1 million for the corresponding period in 2008.
These decreases were due to a 19.6% decrease and a 58.7% decrease in KWH sales in the second
quarter and year-to-date 2009, respectively, due to lower demand primarily caused by the
recessionary economy.
Fuel and Purchased Power Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter 2009 |
|
Year-to-Date 2009 |
|
|
vs. |
|
vs. |
|
|
Second Quarter 2008 |
|
Year-to-Date 2008 |
|
|
(change in millions) |
|
(% change) |
|
(change in millions) |
|
(% change) |
Fuel |
|
$ |
(30.4 |
) |
|
|
(4.5 |
) |
|
$ |
(67.8 |
) |
|
|
(5.1 |
) |
Purchased power non-affiliates |
|
|
(36.9 |
) |
|
|
(34.3 |
) |
|
|
(33.0 |
) |
|
|
(19.9 |
) |
Purchased power affiliates |
|
|
(75.4 |
) |
|
|
(30.4 |
) |
|
|
(131.2 |
) |
|
|
(26.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total fuel and purchased power expenses |
|
$ |
(142.7 |
) |
|
|
|
|
|
$ |
(232.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In the second quarter 2009, total fuel and purchased power expenses were $896.1 million compared to
$1.04 billion for the corresponding period in 2008. The decrease was due to an $82.6 million
decrease related to fewer KHWs generated and purchased and a $60.1 million decrease in the average
cost of purchased power, partially offset by an increase in the average cost of fuel.
For year-to-date 2009, total fuel and purchased power expenses were $1.76 billion compared to $1.99
billion for the corresponding period in 2008. The decrease was due to a $190.3 million decrease
related to fewer KWHs generated and purchased and a $41.7 million decrease in the average cost of
purchased power, partially offset by an increase in the average cost of fuel.
60
GEORGIA POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Details of Georgia Powers cost of generation and purchased power are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter |
|
Second Quarter |
|
Percent |
|
|
|
|
|
|
|
|
|
Percent |
Average Cost |
|
2009 |
|
2008 |
|
Change |
|
Year-to-Date 2009 |
|
Year-to-Date 2008 |
|
Change |
|
|
(cents per net KWH) |
|
|
|
|
|
(cents per net KWH) |
|
|
|
|
Fuel |
|
|
3.40 |
|
|
|
3.03 |
|
|
|
12.2 |
|
|
|
3.32 |
|
|
|
2.94 |
|
|
|
12.9 |
|
Purchased power |
|
|
6.41 |
|
|
|
8.90 |
|
|
|
(28.0 |
) |
|
|
6.41 |
|
|
|
8.07 |
|
|
|
(20.6 |
) |
|
In the second quarter 2009, fuel expense was $652.9 million compared to $683.3 million for the
corresponding period in 2008. For year-to-date 2009, fuel expense was $1.25 billion compared to
$1.32 billion for the corresponding period in 2008. These decreases were due to lower natural gas
prices and decreases of 14.3% and 16.2% in KWHs generated in the second quarter and year-to-date
2009, respectively, as a result of lower KWH demand. These decreases were partially offset by
increases of 22.6% and 25.5% in the average cost of coal per KWH generated in the second quarter
and year-to-date 2009, respectively.
Fuel and purchased power transactions do not have a significant impact on earnings since energy
expenses are generally offset by energy revenues through Georgia Powers fuel cost recovery clause.
See FUTURE EARNINGS POTENTIAL FERC and Georgia PSC Matters Retail Fuel Cost Recovery herein
for additional information.
Non-Affiliates
In the second quarter 2009, purchased power from non-affiliates was $70.8 million compared to
$107.7 million for the corresponding period in 2008. For year-to-date 2009, purchased power from
non-affiliates was $132.8 million compared to $165.8 million for the corresponding period in 2008.
These decreases were due to 44.9% and 38.4% decreases in the average cost per KWH purchased in the
second quarter and year-to-date 2009, respectively, over the corresponding periods in 2008. These
decreases were partially offset by a 24.6% increase and a 33.1% increase in the volume of KWHs
purchased from available lower-priced market energy alternatives in the second quarter and
year-to-date 2009, respectively, over the corresponding periods in 2008.
Energy purchases from non-affiliates will vary depending on the market cost of available energy
being lower than the cost of Southern Company system-generated energy, demand for energy within the
Southern Company system service territory, and availability of Southern Company system generation.
Affiliates
In the second quarter 2009, purchased power from affiliates was $172.4 million compared to $247.8
million for the corresponding period in 2008. For year-to-date 2009, purchased power from
affiliates was $369.6 million compared to $500.8 million for the corresponding period in 2008.
These decreases were primarily due to 21.6% and 15.4% decreases in the average cost per KWH
purchased for the second quarter and year-to-date 2009, respectively. These decreases were
partially offset by a 20.5% increase and a 5.0% increase in the volume of KWHs purchased in the
second quarter and year-to-date 2009, respectively.
Energy purchases from affiliates will vary depending on demand and the availability and cost of
generating resources at each company within the Southern Company system. These purchases are made
in accordance with the IIC, as approved by the FERC.
61
GEORGIA POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Other Operations and Maintenance Expenses
|
|
|
|
|
|
|
Second Quarter 2009 vs. Second Quarter 2008 |
|
Year-to-Date 2009 vs. Year-to-Date 2008 |
(change in millions) |
|
(% change) |
|
(change in millions) |
|
(% change) |
$(38.2)
|
|
(9.8)
|
|
$(16.5)
|
|
(2.2) |
|
In the second quarter 2009, other operations and maintenance expenses were $353.6 million compared
to $391.8 million for the corresponding period in 2008. The decrease was due to a $19.1 million
decrease in power generation, a $13.9 million decrease in transmission and distribution, and a
decrease of $7.1 million in customer accounting, service, and sales costs all of which are related
to cost containment activities in an effort to offset the effects of the recessionary economy.
For year-to-date 2009, other operations and maintenance expenses were $744.1 million compared to
$760.6 million for the corresponding period in 2008. The decrease was due to a $20.1 million
decrease in power generation, an $18.3 million decrease in transmission and distribution, and a
$13.3 million decrease in customer accounting, service, and sales costs primarily due to the cost
containment activities described above, partially offset by a $4.5 million increase in
uncollectible accounts and a $29.4 million charge in the first quarter 2009 in connection with a
voluntary attrition plan under which 579 employees elected to resign their positions effective
March 31, 2009. In the second quarter 2009, approximately one-third of the $29.4
million charge was offset by lower salary and
employee benefits costs, and the other two-thirds will be offset during
the remainder of the year. This charge is not expected to have a material impact on Georgia Powers
financial statements for the year ending December 31, 2009.
Depreciation and Amortization
|
|
|
|
|
|
|
Second Quarter 2009 vs. Second Quarter 2008 |
|
Year-to-Date 2009 vs. Year-to-Date 2008 |
(change in millions) |
|
(% change) |
|
(change in millions) |
|
(% change) |
$15.9
|
|
10.0
|
|
$32.4
|
|
10.5 |
|
In the second quarter 2009, depreciation and amortization was $175.1 million compared to $159.2
million for the corresponding period in 2008. For year-to-date 2009, depreciation and amortization
was $342.2 million compared to $309.8 million for the corresponding period in 2008. These
increases were primarily due to additional plant in service related to transmission, distribution,
and environmental projects.
Allowance for Equity Funds Used During Construction
|
|
|
|
|
|
|
Second Quarter 2009 vs. Second Quarter 2008 |
|
Year-to-Date 2009 vs. Year-to-Date 2008 |
(change in millions) |
|
(% change) |
|
(change in millions) |
|
(% change) |
$(1.7)
|
|
(7.0)
|
|
$(8.6)
|
|
(16.8) |
|
In the second quarter 2009, allowance for equity funds used during construction (AFUDC) when
compared to the corresponding period in 2008 was not material.
For year-to-date 2009, AFUDC was $43.1 million compared to $51.7 million for the corresponding
period in 2008. The decrease was due to a decrease in the average construction work in progress
balances for year-to-date 2009 compared to the corresponding period in 2008 as a result of projects
completed in 2008.
62
GEORGIA POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Interest Expense, Net of Amount Capitalized
|
|
|
|
|
|
|
Second Quarter 2009 vs. Second Quarter 2008 |
|
Year-to-Date 2009 vs. Year-to-Date 2008 |
(change in millions) |
|
(% change) |
|
(change in millions) |
|
(% change) |
$15.7
|
|
18.7
|
|
$27.7
|
|
16.3 |
|
In the second quarter 2009, interest expense, net of amounts capitalized was $99.4 million compared
with $83.7 million for the corresponding period in 2008. For year-to-date 2009, interest expense,
net of amounts capitalized was $197.8 million compared to $170.1 million for the corresponding
period in 2008. These increases were primarily due to an increase in long-term debt levels
resulting from the issuance of additional senior notes in the last 12 months, partially offset by
lower average interest rates on existing variable rate debt.
Income Taxes
|
|
|
|
|
|
|
Second Quarter 2009 vs. Second Quarter 2008 |
|
Year-to-Date 2009 vs. Year-to-Date 2008 |
(change in millions) |
|
(% change) |
|
(change in millions) |
|
(% change) |
$(32.6)
|
|
(24.6)
|
|
$(53.8)
|
|
(24.9) |
|
In the second quarter 2009, income taxes were $99.7 million compared with $132.3 million for the
corresponding period in 2008. For year-to-date 2009, income taxes were $162.3 million compared
with $216.1 million for the corresponding period in 2008. The decreases were primarily due to
lower pre-tax net income.
FUTURE EARNINGS POTENTIAL
The results of operations discussed above are not necessarily indicative of Georgia Powers future
earnings potential. The level of Georgia Powers future earnings depends on numerous factors that
affect the opportunities, challenges, and risks of Georgia Powers business of selling electricity.
These factors include Georgia Powers ability to maintain a constructive regulatory environment
that continues to allow for the recovery of prudently incurred costs during a time of increasing
costs. Future earnings in the near term will depend, in part, upon maintaining energy sales, which
is subject to a number of factors. These factors include weather, competition, new energy
contracts with neighboring utilities, energy conservation practiced by customers, the price of
electricity, the price elasticity of demand, and the rate of economic growth or decline in Georgia
Powers service area. Recent recessionary conditions have negatively impacted sales and are
expected to continue to have a negative impact, particularly to industrial customers. The timing
and extent of the economic recovery will impact future earnings. For additional information
relating to these issues, see RISK FACTORS in Item 1A and MANAGEMENTS DISCUSSION AND ANALYSIS
FUTURE EARNINGS POTENTIAL of Georgia Power in Item 7 of the Form 10-K.
Environmental Matters
Compliance costs related to the Clean Air Act and other environmental statutes and regulations
could affect earnings if such costs cannot continue to be fully recovered in rates on a timely
basis. See MANAGEMENTS DISCUSSION AND ANALYSIS FUTURE EARNINGS POTENTIAL Environmental
Matters of Georgia Power in Item 7 and Note 3 to the financial statements of Georgia Power under
Environmental Matters in Item 8 of the Form 10-K for additional information.
Water Quality
See MANAGEMENTS DISCUSSION AND ANALYSIS FUTURE EARNINGS POTENTIAL Environmental Matters
Environmental Statutes and Regulations Water Quality of Georgia Power in Item 7 of the Form 10-K
for additional information regarding the EPAs regulation of cooling water intake structures. On
April 1, 2009, the U.S. Supreme Court reversed the U.S. Court of Appeals for the Second Circuits
decision
63
GEORGIA POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
with respect to the rules use of cost-benefit analysis and held that the EPA could
consider costs in arriving at its standards and in providing variances from those standards for
existing power plant cooling water intake structures. Other aspects of the courts decision were
not appealed and remain unaffected by the U.S. Supreme Courts ruling. While the U.S. Supreme
Courts decision may ultimately result in greater flexibility for demonstrating compliance with the
standards, the full scope of the regulations will depend on subsequent legal proceedings, further
rulemaking by the EPA, the results of studies and analyses performed as part of the rules
implementation, and the actual requirements established by state regulatory agencies and,
therefore, cannot be determined at this time.
Global Climate Issues
See MANAGEMENTS DISCUSSION AND ANALYSIS FUTURE EARNINGS POTENTIAL Environmental Matters
Global Climate Issues of Georgia Power in Item 7 of the Form 10-K for information regarding the
potential for legislation and regulation addressing greenhouse gas emissions. On April 17, 2009,
the EPA released a proposed finding that certain greenhouse gas emissions from new motor vehicles
endanger public health and welfare due to climate change. The ultimate outcome of the proposed
endangerment finding cannot be determined at this time and will depend on additional regulatory
action and potential legal challenges. However, regulatory decisions that may follow from such a
finding could have implications for both new and existing stationary sources, such as power
plants. In addition, federal legislative proposals that would impose mandatory requirements
related to greenhouse gas emissions, renewable energy standards, and energy efficiency standards
continue to be actively considered in Congress, and the reduction of greenhouse gas emissions has
been identified as a high priority by the current Administration. On June 26, 2009, the American
Clean Energy and Security Act of 2009, which would impose mandatory greenhouse gas restrictions
through implementation of a cap and trade program, a renewable energy standard, and other measures,
was passed by the House of Representatives and is expected to now be considered by the Senate. The
ultimate outcome of these matters cannot be determined at this time; however, mandatory
restrictions on Georgia Powers greenhouse gas emissions, or requirements relating to renewable
energy or energy efficiency, could result in significant additional compliance costs that could
affect future unit retirement and replacement decisions and results of operations, cash flows, and
financial condition if such costs are not recovered through regulated rates.
FERC and Georgia PSC Matters
Market-Based Rate Authority
See MANAGEMENTS DISCUSSION AND ANALYSIS FUTURE EARNINGS POTENTIAL FERC Matters Market-Based
Rate Authority of Georgia Power in Item 7 and Note 3 to the financial statements of Georgia Power
under FERC Matters Market-Based Rate Authority in Item 8 of the Form 10-K for information
regarding market-based rate authority. In October 2008, Southern Company filed with the FERC a
revised market-based rate (MBR) tariff and a new cost-based rate (CBR) tariff. The revised MBR
tariff provides for a must offer energy auction whereby Southern Company offers all of its
available energy for sale in a day-ahead auction and an hour-ahead auction with reserve prices not
to exceed the CBR tariff price, after considering Southern Companys native load requirements,
reliability obligations, and sales commitments to third parties. All sales under the energy
auction would be at market clearing prices established under the auction rules. The new CBR tariff
provides for a cost-based price for wholesale sales of less than a year. On
March 5, 2009, the FERC accepted Southern Companys CBR tariff for filing. On March 25, 2009, the
FERC accepted Southern Companys compliance filing related to the MBR tariff and directed Southern
Company to commence the energy auction in 30 days. Southern Company commenced the energy auction
on April 23, 2009. The FERC has determined that implementation of the energy auction in accordance
with the MBR tariff order adequately mitigates going forward any presumption of market power that
Southern Company may have in the Southern Company retail service territory and adjacent market
areas. The original generation dominance
64
GEORGIA POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
proceeding initiated by the FERC in December 2004 remains
pending before the FERC. The ultimate outcome of this matter cannot be determined at this time.
Retail Fuel Cost Recovery
See MANAGEMENTS DISCUSSION AND ANALYSIS FUTURE EARNINGS POTENTIAL PSC Matters Fuel Cost
Recovery of Georgia Power in Item 7 and Note 3 to the financial statements of Georgia Power under
Retail Regulatory Matters Fuel Cost Recovery in Item 8 of the Form 10-K for additional
information. In May 2008, the Georgia PSC approved an additional increase of approximately $222
million effective June 2008. On March 10, 2009, the Georgia PSC granted Georgia Powers request to
delay its fuel case filing until September 4, 2009. The extension was requested as a result of
difficulty in establishing a forward-looking fuel rate due to volatile coal and gas prices,
uncertain sales forecasts, and a continuing decline in the State of Georgias economy. As of June
30, 2009, Georgia Power had a total under recovered fuel cost balance of approximately $711 million
compared to $764 million at December 31, 2008. The ultimate outcome of this matter cannot be
determined at this time.
Fuel cost recovery revenues as recorded on the financial statements are adjusted for differences in
actual recoverable fuel costs and amounts billed in current regulated rates. Accordingly, any
changes in the billing factor will not have a significant effect on Georgia Powers revenues or net
income, but will affect cash flow.
Retail Rate Matters
Under the 2007 Retail Rate Plan, Georgia Powers earnings are evaluated against a retail return on
equity (ROE) range of 10.25% to 12.25%. In connection with the 2007 Retail Rate Plan, the Georgia
PSC ordered that Georgia Power file its next general base rate case by July 1, 2010; however, the
2007 Retail Rate Plan provides that Georgia Power may file for a general base rate increase in the
event its projected retail ROE falls below 10.25%.
The economic recession has significantly reduced Georgia Powers revenues upon which retail rates
were set under the 2007 Retail Rate Plan. Despite stringent efforts to reduce expenses, current
projections indicate Georgia Powers retail ROE will be less than 10.25% in both 2009 and 2010.
However, in lieu of filing to increase customer rates as allowed under the 2007 Retail Rate Plan,
on June 29, 2009, Georgia Power filed a request with the Georgia PSC for an accounting order that
would allow Georgia Power to amortize approximately $324 million of its regulatory liability
related to other cost of removal obligations. Under Georgia Powers proposal, the regulatory
liability would be amortized ratably over the 18-month period from July 1, 2009 through December
31, 2010 as a reduction to operating expenses. Even if the Georgia PSC approves the accounting
order request as filed, Georgia Power currently expects its retail ROE will remain below the 10.25%
low end of its allowed retail ROE range in 2009 and 2010. The accounting order request is subject
to the review and approval of the Georgia PSC. The ultimate outcome of this matter cannot be
determined at this time.
Legislation
On February 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act of
2009 (ARRA). Major tax incentives in the ARRA include an extension of bonus depreciation and
multiple renewable energy incentives, which could have a significant impact on the future cash flow
and net income of Georgia Power. Georgia Power estimates the cash flow reduction to 2009 tax
payments as a result of the bonus depreciation provisions of the ARRA to be between approximately
$120 million and $150 million. Southern Company and its subsidiaries have also filed an
application under the ARRA for a grant, of which approximately $140 million relates to Georgia
Power, to be used primarily for the advanced metering
65
GEORGIA POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
infrastructure program and other transmission
and distribution automation and modernization projects. Georgia Power continues to assess the
other financial implications of the ARRA. The ultimate impact cannot be determined at this time.
Construction
Nuclear
See Note (B) to the Condensed Financial Statements under Construction Projects Nuclear herein
for information regarding the potential expansion of Plant Vogtle.
On March 17, 2009, the Georgia PSC voted to certify construction of Plant Vogtle Units 3 and 4 at
an in-service cost of $6.4 billion. In addition, the Georgia PSC voted to approve inclusion of the
related construction work in progress accounts in rate base and to recover financing costs during
the construction period beginning in 2011, which is expected to reduce the in-service cost to
approximately $4.5 billion.
On April 21, 2009, the Governor of the State of Georgia signed into law the Georgia Nuclear Energy
Financing Act that will allow Georgia Power to recover financing costs for nuclear construction
projects by including the related construction work in progress accounts in rate base during the
construction period. The cost recovery provisions will become effective January 1, 2011.
On
June 15, 2009, an environmental group filed a petition in the
Superior Court of Fulton County, Georgia seeking review of the
Georgia PSCs certification order and challenging the
constitutionality of the Georgia Nuclear Energy Financing Act. Georgia
Power believes there is no meritorious basis for this petition and
intends to vigorously defend against the requested actions. The
ultimate outcome of this matter cannot be determined at this time.
Other
On March 17, 2009, the Georgia PSC approved Georgia Powers request to convert Plant Mitchell from
coal-fueled to wood biomass-fueled at an in-service cost of approximately $103 million. The
conversion is expected to be completed in 2012. The Georgia PSC also approved Georgia Powers plan
to install additional environmental controls at Plants Branch and Yates.
Nuclear Relicensing
The NRC operating licenses for Plant Vogtle Units 1 and 2 were scheduled to expire in January 2027
and February 2029, respectively. In June 2007, Georgia Power filed an application with the NRC to
extend the licenses for Plant Vogtle Units 1 and 2 for an additional 20 years. On June 3, 2009,
the NRC approved the extension of the licenses as requested.
Other Matters
Georgia Power is involved in various other matters being litigated, regulatory matters, and certain
tax-related issues that could affect future earnings. In addition, Georgia Power is subject to
certain claims and legal actions arising in the ordinary course of business. Georgia Powers
business activities are subject to extensive governmental regulation related to public health and
the environment. Litigation over environmental issues and claims of various types, including
property damage, personal injury, common law nuisance, and citizen enforcement of environmental
requirements such as opacity and air and water quality standards, has increased
generally throughout the United States. In particular, personal injury claims for damages caused
by alleged exposure to hazardous materials have become more frequent. The ultimate outcome of such
pending or potential litigation against Georgia Power cannot be predicted at this time; however,
for current proceedings not specifically reported herein or in Note 3 to the financial statements
of Georgia Power in Item 8 of the
Form 10-K, management does not anticipate that the liabilities, if any, arising from such current
proceedings would have a material adverse effect on Georgia Powers financial statements.
66
GEORGIA POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
See the Notes to the Condensed Financial Statements herein for discussion of various other
contingencies, regulatory matters, and other matters being litigated which may affect future
earnings potential.
ACCOUNTING POLICIES
Application of Critical Accounting Policies and Estimates
Georgia Power prepares its financial statements in accordance with accounting principles generally
accepted in the United States. Significant accounting policies are described in Note 1 to the
financial statements of Georgia Power in Item 8 of the Form 10-K. In the application of these
policies, certain estimates are made that may have a material impact on Georgia Powers results of
operations and related disclosures. Different assumptions and measurements could produce estimates
that are significantly different from those recorded in the financial statements. See MANAGEMENTS
DISCUSSION AND ANALYSIS ACCOUNTING POLICIES Application of Critical Accounting Policies and
Estimates of Georgia Power in Item 7 of the Form 10-K for a complete discussion of Georgia Powers
critical accounting policies and estimates related to Electric Utility Regulation, Contingent
Obligations, and Unbilled Revenues.
New Accounting Standards
Variable Interest Entities
In June 2009, the FASB issued new guidance on the consolidation of variable interest entities,
which replaces the quantitative-based risks and rewards calculation for determining whether an
enterprise is the primary beneficiary in a variable interest entity with an approach that is
primarily qualitative, requires ongoing assessments of whether an enterprise is the primary
beneficiary of a variable interest entity, and requires additional disclosures about an
enterprises involvement in variable interest entities. Georgia Power is required to adopt this
new guidance effective January 1, 2010 and is evaluating the impact, if any, it will have on its
financial statements.
FINANCIAL CONDITION AND LIQUIDITY
Overview
Georgia Powers financial condition remained stable at June 30, 2009. Throughout the turmoil in
the financial markets, Georgia Power has maintained adequate access to capital without drawing on
any of its committed bank credit arrangements used to support its commercial paper borrowings and
variable rate pollution control revenue bonds. Georgia Power intends to continue to monitor its
access to short-term and long-term capital markets as well as its bank credit arrangements to meet
future capital and liquidity needs. Market rates for committed credit have increased, and Georgia
Power has been and expects to continue to be subject to higher costs as its existing facilities are
replaced or renewed. Total committed credit fees at Georgia Power currently average less than
3/8 of 1% per year. Georgia Powers interest cost for short-term debt has
decreased as market short-term interest rates have declined from 2008 levels. The ultimate impact
on future financing costs as a result of financial turmoil cannot be determined at this time.
Georgia Power experienced no material counterparty credit losses as a result of the turmoil in the
financial markets. See Sources of Capital and
Financing Activities herein for additional information.
67
GEORGIA POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Georgia Powers investments in pension and nuclear decommissioning trust funds stabilized during
the second quarter 2009. Georgia Power expects that the earliest that cash may have to be
contributed to the pension trust fund is 2012 and such contribution could be significant; however,
projections of the amount vary significantly depending on interpretations of and decisions related
to federal legislation passed during 2008 as well as other key variables including future trust
fund performance and cannot be determined at this time. Georgia Power does not expect any changes
to funding obligations to the nuclear decommissioning trusts prior to 2011.
Net cash provided from operating activities totaled $337.8 million for the first six months of
2009, compared to $677.6 million for the corresponding period in 2008. The $339.8 million decrease
in cash provided from operating activities in the first six months of 2009 was primarily due to the
$112 million decrease in net income and an increase of $182 million in fuel and materials inventory
additions. Net cash used for investing activities totaled $1.1 billion for the first six months of
2009, compared to $1.0 billion for the corresponding period in 2008, primarily due to gross
property additions to utility plant. Net cash provided from financing activities totaled $680.1
million for the first six months of 2009, compared to $333.5 million for the corresponding period
in 2008. The $346.6 million increase was primarily due to higher capital contributions from
Southern Company.
Significant balance sheet changes for the first six months of 2009 include an increase of $1.0
billion in total property, plant, and equipment.
Capital Requirements and Contractual Obligations
See MANAGEMENTS DISCUSSION AND ANALYSIS FINANCIAL CONDITION AND LIQUIDITY Capital
Requirements and Contractual Obligations of Georgia Power in Item 7 of the Form 10-K for a
description of Georgia Powers capital requirements for its construction program, scheduled
maturities of long-term debt, as well as related interest, derivative obligations, preferred and
preference stock dividends, leases, purchase commitments, trust funding requirements, and
unrecognized tax benefits. Approximately $435 million will be required through June 30, 2010 to
fund maturities and announced redemptions of long-term debt. The construction program is subject
to periodic review and revision, and actual construction costs may vary from these estimates
because of numerous factors. These factors include: changes in business conditions; changes in
load projections; changes in environmental statutes and regulations; changes in nuclear plants to
meet new regulatory requirements; changes in FERC rules and regulations; Georgia PSC approvals;
changes in legislation; the cost and efficiency of construction labor, equipment, and materials;
and the cost of capital. In addition, there can be no assurance that costs related to capital
expenditures will be fully recovered.
Sources of Capital
Georgia Power plans to obtain the funds required for construction and other purposes from sources
similar to those utilized in the past. Recently, Georgia Power has primarily utilized funds from
operating cash flows, short-term debt, security issuances, term loans, and equity contributions
from Southern Company. However, the amount, type, and timing of any future financings, if needed,
will depend upon regulatory approval, prevailing market conditions, and other factors. See
MANAGEMENTS DISCUSSION AND ANALYSIS FINANCIAL CONDITION AND LIQUIDITY Sources of Capital of
Georgia Power in Item 7 of the Form 10-K for additional information.
Georgia Powers current liabilities frequently exceed current assets because of the continued use
of short-term debt as a funding source to meet scheduled maturities of long-term debt as well as
cash needs which can fluctuate significantly due to the seasonality of the business. To meet
short-term cash needs and contingencies, Georgia Power had at June 30, 2009 approximately $37.7
million of cash and cash equivalents and approximately $1.7 billion of unused credit arrangements
with banks. See Note 6 to the financial statements of
68
GEORGIA POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Georgia Power under Bank Credit
Arrangements in Item 8 of the Form 10-K and Note (E) to the Condensed Financial Statements under
Bank Credit Arrangements herein for additional information. Of the unused credit arrangements in
place at June 30, 2009, $555 million expire in 2010 and $1.1 billion expire in 2012. Subsequent to
June 30, 2009, Georgia Power entered into a new $40 million credit arrangement. The agreement
expires in 2010 and contains a two-year term loan executable at expiration. Georgia Power expects
to renew its credit facilities, as needed, prior to expiration.
Credit arrangements provide liquidity support to Georgia Powers purchase obligations related to
variable rate pollution control revenue bonds and commercial paper borrowings. At June 30, 2009,
Georgia Power had $636.3 million of variable rate pollution control revenue bonds. Subsequent to
June 30, 2009, Georgia Power incurred an additional $154.3 million of obligations related to
variable rate pollution control revenue bonds and converted another $20.8 million from a fixed rate
mode to a variable rate mode, increasing the total outstanding variable rate pollution control
bonds to $811.4 million. Georgia Power may meet short-term cash needs through a Southern Company
subsidiary organized to issue and sell commercial paper at the request and for the benefit of
Georgia Power and other Southern Company subsidiaries. At June 30, 2009, Georgia Power had
approximately $471 million of commercial paper outstanding. Management believes that the need for
working capital can be adequately met by utilizing commercial paper programs, lines of credit, and
cash.
Credit Rating Risk
Georgia Power does not have any credit arrangements that would require material changes in payment
schedules or terminations as a result of a credit rating downgrade. There are certain contracts
that could require collateral, but not accelerated payment, in the event of a credit rating change
to BBB- and/or Baa3 or below. These contracts are for physical electricity purchases and sales,
fuel purchases, fuel transportation and storage, emissions allowances, energy price risk
management, and construction of new generation. At June 30, 2009, the maximum potential collateral
requirements under these contracts at a BBB- and/or Baa3 rating were approximately $39 million. At
June 30, 2009, the maximum potential collateral requirements under these contracts at a rating
below BBB- and/or Baa3 were approximately $1.1 billion. Included in these amounts are certain
agreements that could require collateral in the event that one or more Power Pool participants has
a credit rating change to below investment grade. In addition, certain nuclear fuel agreements
could require collateral of up to $187 million in the event of a rating change to below investment
grade for Southern Company. Generally, collateral may be provided by a Southern Company guaranty,
letter of credit, or cash. Additionally, any credit rating downgrade could impact Georgia Powers
ability to access capital markets, particularly the short-term debt market.
Market Price Risk
Georgia Powers market risk exposure relative to interest rate changes has not changed materially
compared with the December 31, 2008 reporting period. Since a significant portion of outstanding
indebtedness is at fixed rates, Georgia Power is not aware of any facts or circumstances that would
significantly affect exposures
on existing indebtedness in the near term. However, the impact on future financing costs cannot
now be determined.
Due to cost-based rate regulation, Georgia Power continues to have limited exposure to market
volatility in interest rates, commodity fuel prices, and prices of electricity. To mitigate
residual risks relative to movements in electricity prices, Georgia Power enters into physical
fixed-price contracts for the purchase and sale of electricity through the wholesale electricity
market. Georgia Power continues to manage a fuel-hedging program implemented per the guidelines of
the Georgia PSC. As such, Georgia Power has no material change in market risk exposure when
compared with the December 31, 2008 reporting period.
69
GEORGIA POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The changes in fair value of energy-related derivative contracts for the three and six months ended
June 30, 2009 were as follows:
|
|
|
|
|
|
|
|
|
|
|
Second Quarter |
|
Year-to-Date |
|
|
2009 |
|
2009 |
|
|
Changes |
|
Changes |
|
|
Fair Value |
|
|
(in millions) |
Contracts outstanding at the beginning of the period, assets
(liabilities), net |
|
$ |
(176.6 |
) |
|
$ |
(113.2 |
) |
Contracts realized or settled |
|
|
54.3 |
|
|
|
74.1 |
|
Current period changes(a) |
|
|
(3.1 |
) |
|
|
(86.3 |
) |
|
Contracts outstanding at the end of the period, assets (liabilities), net |
|
$ |
(125.4 |
) |
|
$ |
(125.4 |
) |
|
|
|
|
(a) |
|
Current period changes also include the changes in fair value of new contracts entered into
during the period, if any. |
The changes in the fair value positions of the energy-related derivative contracts for the
three months and six months ended June 30, 2009 were an increase of $51 million and a decrease of
$12 million, respectively, substantially all of which is due to natural gas positions. These
changes are attributable to both the volume and prices of natural gas. At June 30, 2009, Georgia
Power had a net hedge volume of 75 million mmBtu with a weighted average contract cost
approximately $1.69 per mmBtu above market prices, compared to 72 million mmBtu at March 31, 2009
with a weighted average contract cost approximately $2.53 per mmBtu above market prices and
compared to 59 million mmBtu at December 31, 2008 with a weighted average contract cost
approximately $1.96 per mmBtu above market prices. The natural gas hedge settlements are recovered
through the fuel cost recovery mechanism.
At June 30, 2009 and December 31, 2008, the fair value of energy-related derivative contracts by
hedge designation was reflected in the financial statements as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
December 31, |
|
|
2009 |
|
2008 |
|
|
(in millions) |
Regulatory hedges |
|
$ |
(125.4 |
) |
|
$ |
(113.2 |
) |
Not designated |
|
|
|
|
|
|
|
|
|
Total fair value |
|
$ |
(125.4 |
) |
|
$ |
(113.2 |
) |
|
Energy-related derivative contracts which are designated as regulatory hedges relate to Georgia
Powers fuel hedging program where gains and losses are initially recorded as regulatory
liabilities and assets, respectively, and then are included in fuel expense as they are recovered
through the fuel cost recovery mechanism. Gains and losses on energy-related derivative contracts
that are not designated or fail to qualify as hedges are recognized in the statements of income as
incurred.
Unrealized pre-tax gains and losses recognized in income for the three and six months ended June
30, 2009 and 2008 for energy-related derivative contracts that are not hedges were not material.
70
GEORGIA POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The maturities of the energy-related derivative contracts and the level of the fair value hierarchy
in which they fall at June 30, 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 |
|
|
Fair Value Measurements |
|
|
Total |
|
Maturity |
|
|
Fair Value |
|
Year 1 |
|
Years 2&3 |
|
Years 4&5 |
|
|
|
|
|
|
(in millions) |
|
|
|
|
|
|
|
|
Level 1 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Level 2 |
|
|
(125.4 |
) |
|
|
(100.6 |
) |
|
|
(25.1 |
) |
|
|
0.3 |
|
Level 3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of
contracts
outstanding at end
of period |
|
$ |
(125.4 |
) |
|
$ |
(100.6 |
) |
|
$ |
(25.1 |
) |
|
$ |
0.3 |
|
|
Georgia Power uses over-the-counter contracts that are not exchange traded but are fair valued
using prices which are actively quoted, and thus fall into Level 2. See Note (C) to the Condensed
Financial Statements herein for further discussion on fair value measurements.
For additional information, see MANAGEMENTS DISCUSSION AND ANALYSIS FINANCIAL CONDITION AND
LIQUIDITY Market Price Risk of Georgia Power in Item 7 and Notes 1 and 6 to the financial
statements of Georgia Power under Financial Instruments in Item 8 of the Form 10-K and Note (E)
to the Condensed Financial Statements herein.
Financing Activities
During the first quarter 2009, Georgia Power issued $500 million of Series 2009A 5.95% Senior Notes
due February 1, 2039. The proceeds were used to repay at maturity $150 million aggregate principal
amount of Series U Floating Rate Senior Notes due February 7, 2009, to repay a portion of
short-term indebtedness, and for general corporate purposes, including Georgia Powers continuous
construction program. Georgia Power settled $100 million of hedges related to the Series 2009A
issuance at a loss of approximately $16 million, and this loss will be amortized to interest
expense, in earnings, together with a previously settled loss of approximately $2 million, over 10
years.
Subsequent to June 30, 2009, Georgia Power incurred obligations in connection with the issuance of
$154.3 million of variable rate pollution control revenue bonds. The proceeds of the bonds were
used to retire $154.3 million of fixed rate pollution control revenue bonds.
Subsequent to June 30, 2009, Georgia Power issued a notice to redeem on August 21, 2009 its $55
million of Series D 5.50% Senior Insured Quarterly Notes due November 15, 2017.
In addition to any financings that may be necessary to meet capital requirements and contractual
obligations, Georgia Power plans to continue, when economically feasible, a program to retire
higher-cost securities and replace these obligations with lower-cost capital if market conditions
permit.
71
GULF POWER COMPANY
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months |
|
|
For the Six Months |
|
|
|
|
|
|
|
Ended June 30, |
|
|
Ended June 30, |
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
(in thousands) |
|
|
(in thousands) |
|
Operating Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail revenues |
|
|
|
|
|
$ |
290,050 |
|
|
$ |
284,218 |
|
|
$ |
528,441 |
|
|
$ |
512,182 |
|
Wholesale revenues, non-affiliates |
|
|
|
|
|
|
22,700 |
|
|
|
25,052 |
|
|
|
44,666 |
|
|
|
50,708 |
|
Wholesale revenues, affiliates |
|
|
|
|
|
|
10,727 |
|
|
|
26,524 |
|
|
|
16,087 |
|
|
|
69,464 |
|
Other revenues |
|
|
|
|
|
|
17,618 |
|
|
|
14,073 |
|
|
|
36,185 |
|
|
|
29,048 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues |
|
|
|
|
|
|
341,095 |
|
|
|
349,867 |
|
|
|
625,379 |
|
|
|
661,402 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fuel |
|
|
|
|
|
|
156,195 |
|
|
|
165,999 |
|
|
|
271,748 |
|
|
|
316,126 |
|
Purchased power, non-affiliates |
|
|
|
|
|
|
6,051 |
|
|
|
6,086 |
|
|
|
10,489 |
|
|
|
9,212 |
|
Purchased power, affiliates |
|
|
|
|
|
|
13,240 |
|
|
|
16,685 |
|
|
|
28,621 |
|
|
|
25,428 |
|
Other operations and maintenance |
|
|
|
|
|
|
64,983 |
|
|
|
65,774 |
|
|
|
137,474 |
|
|
|
132,205 |
|
Depreciation and amortization |
|
|
|
|
|
|
23,317 |
|
|
|
22,206 |
|
|
|
46,376 |
|
|
|
43,910 |
|
Taxes other than income taxes |
|
|
|
|
|
|
22,989 |
|
|
|
20,803 |
|
|
|
45,437 |
|
|
|
41,499 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
|
|
|
|
286,775 |
|
|
|
297,553 |
|
|
|
540,145 |
|
|
|
568,380 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income |
|
|
|
|
|
|
54,320 |
|
|
|
52,314 |
|
|
|
85,234 |
|
|
|
93,022 |
|
Other Income and (Expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for equity funds used during construction |
|
|
|
|
|
|
5,707 |
|
|
|
2,040 |
|
|
|
10,525 |
|
|
|
3,523 |
|
Interest income |
|
|
|
|
|
|
85 |
|
|
|
709 |
|
|
|
294 |
|
|
|
1,418 |
|
Interest expense, net of amounts capitalized |
|
|
|
|
|
|
(9,907 |
) |
|
|
(10,678 |
) |
|
|
(19,739 |
) |
|
|
(21,674 |
) |
Other income (expense), net |
|
|
|
|
|
|
(487 |
) |
|
|
(344 |
) |
|
|
(1,103 |
) |
|
|
(1,010 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income and (expense) |
|
|
|
|
|
|
(4,602 |
) |
|
|
(8,273 |
) |
|
|
(10,023 |
) |
|
|
(17,743 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings Before Income Taxes |
|
|
|
|
|
|
49,718 |
|
|
|
44,041 |
|
|
|
75,211 |
|
|
|
75,279 |
|
Income taxes |
|
|
|
|
|
|
15,899 |
|
|
|
15,499 |
|
|
|
23,299 |
|
|
|
25,656 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
|
|
|
|
|
33,819 |
|
|
|
28,542 |
|
|
|
51,912 |
|
|
|
49,623 |
|
Dividends on Preference Stock |
|
|
|
|
|
|
1,550 |
|
|
|
1,550 |
|
|
|
3,101 |
|
|
|
3,101 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income After Dividends on Preference Stock |
|
|
|
|
|
$ |
32,269 |
|
|
$ |
26,992 |
|
|
$ |
48,811 |
|
|
$ |
46,522 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months |
|
|
For the Six Months |
|
|
|
Ended June 30, |
|
|
Ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
(in thousands) |
|
|
(in thousands) |
|
Net Income After Dividends on Preference Stock |
|
$ |
32,269 |
|
|
$ |
26,992 |
|
|
$ |
48,811 |
|
|
$ |
46,522 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Qualifying hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in fair value, net of tax of $-, $403, $-, and
$(1,077), respectively |
|
|
|
|
|
|
643 |
|
|
|
|
|
|
|
(1,715 |
) |
Reclassification adjustment for amounts included in net
income, net of tax of $104, $103, $209, and $157,
respectively |
|
|
167 |
|
|
|
162 |
|
|
|
334 |
|
|
|
249 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income (loss) |
|
|
167 |
|
|
|
805 |
|
|
|
334 |
|
|
|
(1,466 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income |
|
$ |
32,436 |
|
|
$ |
27,797 |
|
|
$ |
49,145 |
|
|
$ |
45,056 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes as they relate to Gulf Power are an integral part of these condensed financial statements.
73
GULF POWER COMPANY
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
For the Six Months |
|
|
|
Ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(in thousands) |
|
Operating Activities: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
51,912 |
|
|
$ |
49,623 |
|
Adjustments to reconcile net income
to net cash provided from operating activities |
|
|
|
|
|
|
|
|
Depreciation and amortization, total |
|
|
48,831 |
|
|
|
46,438 |
|
Deferred income taxes |
|
|
(10,224 |
) |
|
|
9,215 |
|
Allowance for equity funds used during construction |
|
|
(10,525 |
) |
|
|
(3,523 |
) |
Pension, postretirement, and other employee benefits |
|
|
(597 |
) |
|
|
554 |
|
Stock option expense |
|
|
637 |
|
|
|
537 |
|
Tax benefit of stock options |
|
|
3 |
|
|
|
109 |
|
Hedge settlements |
|
|
|
|
|
|
(5,220 |
) |
Other, net |
|
|
(1,762 |
) |
|
|
(60 |
) |
Changes in certain current assets and liabilities |
|
|
|
|
|
|
|
|
-Receivables |
|
|
(3,606 |
) |
|
|
(27,073 |
) |
-Fossil fuel stock |
|
|
(50,999 |
) |
|
|
(26,432 |
) |
-Materials and supplies |
|
|
(459 |
) |
|
|
6,669 |
|
-Prepaid income taxes |
|
|
416 |
|
|
|
|
|
-Property damage cost recovery |
|
|
10,816 |
|
|
|
12,463 |
|
-Other current assets |
|
|
1,319 |
|
|
|
1,339 |
|
-Accounts payable |
|
|
(1,002 |
) |
|
|
6,419 |
|
-Accrued taxes |
|
|
13,591 |
|
|
|
4,433 |
|
-Accrued compensation |
|
|
(9,347 |
) |
|
|
(6,952 |
) |
-Other current liabilities |
|
|
10,640 |
|
|
|
2,838 |
|
|
|
|
|
|
|
|
Net cash provided from operating activities |
|
|
49,644 |
|
|
|
71,377 |
|
|
|
|
|
|
|
|
Investing Activities: |
|
|
|
|
|
|
|
|
Property additions |
|
|
(240,336 |
) |
|
|
(149,760 |
) |
Investment in restricted cash from pollution control revenue bonds |
|
|
(49,188 |
) |
|
|
|
|
Distribution of restricted cash from pollution control revenue bonds |
|
|
11,417 |
|
|
|
|
|
Cost of removal, net of salvage |
|
|
(5,439 |
) |
|
|
(4,519 |
) |
Construction payables |
|
|
9,661 |
|
|
|
5,754 |
|
Other investing activities |
|
|
(3,375 |
) |
|
|
(2,885 |
) |
|
|
|
|
|
|
|
Net cash used for investing activities |
|
|
(277,260 |
) |
|
|
(151,410 |
) |
|
|
|
|
|
|
|
Financing Activities: |
|
|
|
|
|
|
|
|
Decrease in notes payable, net |
|
|
(73,944 |
) |
|
|
(40,801 |
) |
Proceeds |
|
|
|
|
|
|
|
|
Common stock issued to parent |
|
|
135,000 |
|
|
|
|
|
Capital contributions from parent company |
|
|
1,897 |
|
|
|
73,060 |
|
Gross excess tax benefit of stock options |
|
|
9 |
|
|
|
212 |
|
Pollution control revenue bonds |
|
|
130,400 |
|
|
|
|
|
Senior notes |
|
|
140,000 |
|
|
|
|
|
Other long-term debt issuances |
|
|
|
|
|
|
110,000 |
|
Redemptions |
|
|
|
|
|
|
|
|
Senior notes |
|
|
(722 |
) |
|
|
(651 |
) |
Payment of preference stock dividends |
|
|
(3,101 |
) |
|
|
(2,956 |
) |
Payment of common stock dividends |
|
|
(44,650 |
) |
|
|
(40,850 |
) |
Other financing activities |
|
|
(1,556 |
) |
|
|
(2,141 |
) |
|
|
|
|
|
|
|
Net cash provided from financing activities |
|
|
283,333 |
|
|
|
95,873 |
|
|
|
|
|
|
|
|
Net Change in Cash and Cash Equivalents |
|
|
55,717 |
|
|
|
15,840 |
|
Cash and Cash Equivalents at Beginning of Period |
|
|
3,443 |
|
|
|
5,348 |
|
|
|
|
|
|
|
|
Cash and Cash Equivalents at End of Period |
|
$ |
59,160 |
|
|
$ |
21,188 |
|
|
|
|
|
|
|
|
Supplemental Cash Flow Information: |
|
|
|
|
|
|
|
|
Cash paid during the period for |
|
|
|
|
|
|
|
|
Interest (net of $4,195 and $1,404 capitalized for
2009 and 2008, respectively) |
|
$ |
19,502 |
|
|
$ |
19,831 |
|
Income taxes (net of refunds) |
|
$ |
25,642 |
|
|
$ |
17,744 |
|
The accompanying notes as they relate to Gulf Power are an integral part of these condensed financial statements.
74
GULF POWER COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
At June 30, |
|
|
At December 31, |
|
Assets |
|
2009 |
|
|
2008 |
|
|
|
(in thousands) |
|
Current Assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
59,160 |
|
|
$ |
3,443 |
|
Restricted cash and cash equivalents |
|
|
37,771 |
|
|
|
|
|
Receivables |
|
|
|
|
|
|
|
|
Customer accounts receivable |
|
|
91,578 |
|
|
|
69,531 |
|
Unbilled revenues |
|
|
71,132 |
|
|
|
48,742 |
|
Under recovered regulatory clause revenues |
|
|
54,573 |
|
|
|
98,644 |
|
Other accounts and notes receivable |
|
|
5,943 |
|
|
|
7,201 |
|
Affiliated companies |
|
|
4,205 |
|
|
|
8,516 |
|
Accumulated provision for uncollectible accounts |
|
|
(2,120 |
) |
|
|
(2,188 |
) |
Fossil fuel stock, at average cost |
|
|
159,084 |
|
|
|
108,129 |
|
Materials and supplies, at average cost |
|
|
37,295 |
|
|
|
36,836 |
|
Other regulatory assets, current |
|
|
37,791 |
|
|
|
38,908 |
|
Other current assets |
|
|
25,320 |
|
|
|
25,655 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
581,732 |
|
|
|
443,417 |
|
|
|
|
|
|
|
|
Property, Plant, and Equipment: |
|
|
|
|
|
|
|
|
In service |
|
|
2,872,680 |
|
|
|
2,785,561 |
|
Less accumulated provision for depreciation |
|
|
993,670 |
|
|
|
971,464 |
|
|
|
|
|
|
|
|
Plant in service, net of depreciation |
|
|
1,879,010 |
|
|
|
1,814,097 |
|
Construction work in progress |
|
|
540,019 |
|
|
|
391,987 |
|
|
|
|
|
|
|
|
Total property, plant, and equipment |
|
|
2,419,029 |
|
|
|
2,206,084 |
|
|
|
|
|
|
|
|
Other Property and Investments |
|
|
15,779 |
|
|
|
15,918 |
|
|
|
|
|
|
|
|
Deferred Charges and Other Assets: |
|
|
|
|
|
|
|
|
Deferred charges related to income taxes |
|
|
31,556 |
|
|
|
24,220 |
|
Other regulatory assets, deferred |
|
|
172,345 |
|
|
|
170,836 |
|
Other deferred charges and assets |
|
|
24,569 |
|
|
|
18,550 |
|
|
|
|
|
|
|
|
Total deferred charges and other assets |
|
|
228,470 |
|
|
|
213,606 |
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
3,245,010 |
|
|
$ |
2,879,025 |
|
|
|
|
|
|
|
|
The accompanying notes as they relate to Gulf Power are an integral part of these condensed financial statements.
75
GULF POWER COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
At June 30, |
|
|
At December 31, |
|
Liabilities and Stockholder's Equity |
|
2009 |
|
|
2008 |
|
|
|
(in thousands) |
|
Current Liabilities: |
|
|
|
|
|
|
|
|
Securities due within one year |
|
$ |
140,000 |
|
|
$ |
|
|
Notes payable |
|
|
65,986 |
|
|
|
148,239 |
|
Accounts payable |
|
|
|
|
|
|
|
|
Affiliated |
|
|
58,777 |
|
|
|
50,304 |
|
Other |
|
|
93,742 |
|
|
|
90,381 |
|
Customer deposits |
|
|
30,571 |
|
|
|
28,017 |
|
Accrued taxes |
|
|
|
|
|
|
|
|
Accrued income taxes |
|
|
23,610 |
|
|
|
39,983 |
|
Other accrued taxes |
|
|
18,064 |
|
|
|
11,855 |
|
Accrued interest |
|
|
9,363 |
|
|
|
8,959 |
|
Accrued compensation |
|
|
6,319 |
|
|
|
15,667 |
|
Other regulatory liabilities, current |
|
|
17,799 |
|
|
|
4,602 |
|
Liabilities from risk management activities |
|
|
23,734 |
|
|
|
26,928 |
|
Other current liabilities |
|
|
21,254 |
|
|
|
29,047 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
509,219 |
|
|
|
453,982 |
|
|
|
|
|
|
|
|
Long-term Debt |
|
|
979,177 |
|
|
|
849,265 |
|
|
|
|
|
|
|
|
Deferred Credits and Other Liabilities: |
|
|
|
|
|
|
|
|
Accumulated deferred income taxes |
|
|
275,861 |
|
|
|
254,354 |
|
Accumulated deferred investment tax credits |
|
|
10,454 |
|
|
|
11,255 |
|
Employee benefit obligations |
|
|
95,660 |
|
|
|
97,389 |
|
Other cost of removal obligations |
|
|
185,098 |
|
|
|
180,325 |
|
Other regulatory liabilities, deferred |
|
|
41,668 |
|
|
|
28,597 |
|
Other deferred credits and liabilities |
|
|
85,743 |
|
|
|
83,768 |
|
|
|
|
|
|
|
|
Total deferred credits and other liabilities |
|
|
694,484 |
|
|
|
655,688 |
|
|
|
|
|
|
|
|
Total Liabilities |
|
|
2,182,880 |
|
|
|
1,958,935 |
|
|
|
|
|
|
|
|
Preference Stock |
|
|
97,998 |
|
|
|
97,998 |
|
|
|
|
|
|
|
|
Common Stockholders Equity: |
|
|
|
|
|
|
|
|
Common stock, without par value |
|
|
|
|
|
|
|
|
Authorized - 20,000,000 shares |
|
|
|
|
|
|
|
|
Outstanding - June 30, 2009: 3,142,717 shares |
|
|
|
|
|
|
|
|
- December 31, 2008: 1,792,717 shares |
|
|
253,060 |
|
|
|
118,060 |
|
Paid-in capital |
|
|
514,091 |
|
|
|
511,547 |
|
Retained earnings |
|
|
201,579 |
|
|
|
197,417 |
|
Accumulated other comprehensive loss |
|
|
(4,598 |
) |
|
|
(4,932 |
) |
|
|
|
|
|
|
|
Total common stockholders equity |
|
|
964,132 |
|
|
|
822,092 |
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders Equity |
|
$ |
3,245,010 |
|
|
$ |
2,879,025 |
|
|
|
|
|
|
|
|
The accompanying notes as they relate to Gulf Power are an integral part of these condensed financial statements.
76
GULF POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SECOND QUARTER 2009 vs. SECOND QUARTER 2008
AND
YEAR-TO-DATE 2009 vs. YEAR-TO-DATE 2008
OVERVIEW
Gulf Power operates as a vertically integrated utility providing electricity to retail customers
within its traditional service area located in northwest Florida and to wholesale customers in the
Southeast. Many factors affect the opportunities, challenges, and risks of Gulf Powers business
of selling electricity. These factors include the ability to maintain a constructive regulatory
environment, to maintain energy sales in the midst of the current economic downturn, and to
effectively manage and secure timely recovery of rising costs. These costs include those related
to projected long-term demand growth, increasingly stringent environmental standards, fuel prices,
and storm restoration costs. Appropriately balancing the need to recover these increasing costs
with customer prices will continue to challenge Gulf Power for the foreseeable future.
Gulf Power continues to focus on several key performance indicators. These indicators include
customer satisfaction, plant availability, system reliability, and net income after dividends on
preference stock. For additional information on these indicators, see MANAGEMENTS DISCUSSION AND
ANALYSIS OVERVIEW Key Performance Indicators of Gulf Power in Item 7 of the Form 10-K.
RESULTS OF OPERATIONS
Net Income
|
|
|
|
|
|
|
Second Quarter 2009 vs. Second Quarter 2008 |
|
Year-to-Date 2009 vs. Year-to-Date 2008 |
(change in millions) |
|
(% change) |
|
(change in millions) |
|
(% change) |
$5.3
|
|
19.6
|
|
$2.3
|
|
4.9 |
|
Gulf Powers net income after dividends on preference stock for the second quarter 2009 was $32.3
million compared to $27.0 million for the corresponding period in 2008. The increase was primarily
due to increased allowance for equity funds used during construction (AFUDC), which is non-taxable,
and a decrease in other operations and maintenance expenses.
Gulf Powers net income after dividends on preference stock for year-to-date 2009 was $48.8 million
compared to $46.5 million for the corresponding period in 2008. The increase was primarily due to
increased AFUDC, partially offset by a decline in sales, less favorable weather, and increased
other operations and maintenance expenses.
Retail Revenues
|
|
|
|
|
|
|
Second Quarter 2009 vs. Second Quarter 2008 |
|
Year-to-Date 2009 vs. Year-to-Date 2008 |
(change in millions) |
|
(% change) |
|
(change in millions) |
|
(% change) |
$5.9
|
|
2.1
|
|
$16.2
|
|
3.1 |
|
In the second quarter 2009, retail revenues were $290.1 million compared to $284.2 million for the
corresponding period in 2008. For year-to-date 2009, retail revenues were $528.4 million compared
to $512.2 million for the corresponding period in 2008.
77
GULF POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Details of the change to retail revenues are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter |
|
Year-to-Date |
|
|
2009 |
|
2009 |
|
|
|
(in millions) |
|
(% change) |
|
(in millions) |
|
(% change) |
Retail prior year |
|
$ |
284.2 |
|
|
|
|
|
|
$ |
512.2 |
|
|
|
|
|
Estimated change in |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rates and pricing |
|
|
8.0 |
|
|
|
2.9 |
|
|
|
15.3 |
|
|
|
3.0 |
|
Sales growth (decline) |
|
|
0.6 |
|
|
|
0.2 |
|
|
|
(3.5 |
) |
|
|
(0.7 |
) |
Weather |
|
|
(1.4 |
) |
|
|
(0.5 |
) |
|
|
(3.0 |
) |
|
|
(0.6 |
) |
Fuel and other cost recovery |
|
|
(1.3 |
) |
|
|
(0.5 |
) |
|
|
7.4 |
|
|
|
1.4 |
|
|
Retail current year |
|
$ |
290.1 |
|
|
|
2.1 |
% |
|
$ |
528.4 |
|
|
|
3.1 |
% |
|
Revenues associated with changes in rates and pricing increased in the second quarter and
year-to-date 2009 when compared to the corresponding periods in 2008 primarily due to increased
revenue associated with higher projected environmental compliance costs in 2009. Annually, Gulf
Power petitions the Florida PSC for recovery of projected costs including any true-up amount from
prior periods, and approved rates are implemented each January. These recovery provisions include
related expenses and a return on average net investment. See Note 1 to the financial statements of
Gulf Power under Revenues and Note 3 to the financial statements of Gulf Power under
Environmental Matters Environmental Remediation and Retail Regulatory Matters Environmental
Cost Recovery in Item 8 of the Form 10-K for additional information.
Revenues attributable to changes in sales increased in the second quarter 2009 when compared to the
corresponding period in 2008. Weather-adjusted KWH energy sales to residential and commercial
customers increased 3.6% and 1.9%, respectively, primarily due to increased customer usage. KWH
energy sales to industrial customers decreased 22.1% as a result of recessionary economic
conditions and increased customer co-generation due to the lower cost of natural gas.
Revenues attributable to changes in sales declined year-to-date 2009 when compared to the
corresponding period in 2008. Weather-adjusted KWH energy sales to residential customers increased
0.4% primarily due to increased customer usage. Weather-adjusted KWH energy sales to commercial
customers decreased 0.9% primarily due to decreased customer usage driven by the recession.
KWH energy sales to industrial customers decreased 21.2% as a result of recessionary economic
conditions and increased customer co-generation due to the lower cost of natural gas.
Revenues attributable to changes in weather decreased in the second quarter and year-to-date 2009
when compared to the corresponding periods in 2008. These decreases were due to less favorable
weather in 2009.
Fuel and other cost recovery revenues decreased in the second quarter 2009 when compared to the
corresponding period in 2008 due to overall decreased customer usage primarily resulting from
decreased industrial usage. Fuel and other cost recovery revenues increased year-to-date 2009 when
compared to the corresponding period in 2008 primarily due to higher projected fuel and purchased
power costs. Fuel and other cost recovery revenues include fuel expenses, the energy component of
purchased power costs, purchased power capacity costs, and revenues related to the recovery of
storm damage restoration costs. Annually, Gulf Power petitions the Florida PSC for recovery of
projected fuel and purchased power costs including any true-up amount from prior periods, and
approved rates are implemented each January. The recovery provisions generally equal the related
expenses and have no material impact on net income. See FUTURE EARNINGS POTENTIAL FERC and
Florida PSC Matters Retail Fuel Cost Recovery herein and MANAGEMENTS DISCUSSION AND ANALYSIS FUTURE EARNINGS POTENTIAL PSC Matters Fuel Cost Recovery of Gulf Power in Item 7 and Note 1
to the financial statements of Gulf Power under Revenues and
78
GULF POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Property Damage Reserve and Note 3
to the financial statements of Gulf Power under Retail Regulatory Matters Storm Damage Cost
Recovery and Fuel Cost Recovery in Item 8 of the Form 10-K for additional information.
Wholesale Revenues Non-Affiliates
|
|
|
|
|
|
|
Second Quarter 2009 vs. Second Quarter 2008 |
|
Year-to-Date 2009 vs. Year-to-Date 2008 |
(change in millions) |
|
(% change) |
|
(change in millions) |
|
(% change) |
$(2.3)
|
|
(9.4)
|
|
$(6.0)
|
|
(11.9) |
|
Wholesale revenues from non-affiliates will vary depending on the market cost of available energy
compared to the cost of Gulf Power and Southern Company system-owned generation, demand for energy
within the Southern Company service territory, and availability of Southern Company system
generation. Wholesale revenues from non-affiliates are predominantly unit power sales under
long-term contracts to other Florida utilities. Revenues from these contracts have both 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.
In the second quarter 2009, wholesale revenues from non-affiliates were $22.7 million compared to
$25.0 million for the corresponding period in 2008. The decrease was primarily a result of lower
energy revenues related to 17.5% decrease in KWH sales.
For year-to-date 2009, wholesale revenues from non-affiliates were $44.7 million compared to $50.7
million for the corresponding period in 2008. The decrease was primarily a result of lower energy
revenues related to 21.5% decrease in KWH sales.
Wholesale Revenues Affiliates
|
|
|
|
|
|
|
Second Quarter 2009 vs. Second Quarter 2008 |
|
Year-to-Date 2009 vs. Year-to-Date 2008 |
(change in millions) |
|
(% change) |
|
(change in millions) |
|
(% change) |
$(15.8)
|
|
(59.6)
|
|
$(53.4)
|
|
(76.8) |
|
Wholesale revenues from affiliates will vary depending on demand and the availability and cost of
generating resources at each company within the Southern Company system. These affiliate sales are
made in accordance with the IIC, as approved by the FERC. These transactions do not have a
significant impact on earnings since the energy is generally sold at marginal cost.
In the second quarter 2009, wholesale revenues from affiliates were $10.7 million compared to $26.5
million for the corresponding period in 2008. The decrease was due to reduced customer demand
resulting in a 30.4% decrease in KWH sales and a 41.9% decrease in price related to lower Power
Pool interchange energy rates.
For year-to-date 2009, wholesale revenues from affiliates were $16.1 million compared to $69.5
million for the corresponding period in 2008. The decrease was due to reduced customer demand
resulting in a 66.9% decrease in KWH sales and a 30.0% decrease in price related to lower Power
Pool interchange energy rates.
79
GULF POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Other Revenues
|
|
|
|
|
|
|
Second Quarter 2009 vs. Second Quarter 2008 |
|
Year-to-Date 2009 vs. Year-to-Date 2008 |
(change in millions) |
|
(% change) |
|
(change in millions) |
|
(% change) |
$3.5
|
|
25.2
|
|
$7.2
|
|
24.6 |
|
In the second quarter 2009, other revenues were $17.6 million compared to $14.1 million for the
corresponding period in 2008. For year-to-date 2009, other revenues were $36.2 million compared to
$29.0 million for the corresponding period in 2008. These increases were primarily due to other
energy services and higher franchise fees. The increased revenues from other energy services did
not have a material impact on net income since they were generally offset by associated expenses.
Franchise fees have no impact on net income.
Fuel and Purchased Power Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter 2009 |
|
Year-to-Date 2009 |
|
|
vs. |
|
vs. |
|
|
Second Quarter 2008 |
|
Year-to-Date 2008 |
|
|
(change in millions) |
|
(% change) |
|
(change in millions) |
|
(% change) |
Fuel |
|
$ |
(9.8 |
) |
|
|
(5.9 |
) |
|
$ |
(44.4 |
) |
|
|
(14.0 |
) |
Purchased power non-affiliates |
|
|
(0.1 |
) |
|
|
(0.6 |
) |
|
|
1.3 |
|
|
|
13.9 |
|
Purchased power affiliates |
|
|
(3.4 |
) |
|
|
(20.6 |
) |
|
|
3.2 |
|
|
|
12.6 |
|
|
|
|
|
|
|
|
|
|
|
|
Total fuel and purchased power expenses |
|
$ |
(13.3 |
) |
|
|
|
|
|
$ |
(39.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In the second quarter 2009, total fuel and purchased power expenses were $175.5 million compared to
$188.8 million for the corresponding period in 2008. The net decrease in fuel and purchased power
expenses was due to an $18.1 million decrease related to fewer KWHs generated and a $5.6 million
decrease in the average cost of fuel and purchased power, partially offset by a $10.4 million
increase related to KWHs purchased.
For year-to-date 2009, total fuel and purchased power expenses were $310.8 million compared to
$350.7 million for the corresponding period in 2008. The net decrease in fuel and purchased power
expenses was due to a $68.2 million decrease related to fewer KWHs generated, partially offset by a
$26.9 million increase related to KWHs purchased as well as a $1.4 million increase in the average
cost of fuel and purchased power.
Fuel and purchased power transactions do not have a significant impact on earnings since energy
expenses are generally offset by energy revenues through Gulf Powers fuel cost recovery clause.
See FUTURE EARNINGS POTENTIAL FERC and Florida PSC Matters Retail Fuel Cost Recovery herein
for additional information.
Details of Gulf Powers cost of generation and purchased power are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter |
|
Second Quarter |
|
Percent |
|
Year-to-Date |
|
Year-to-Date |
|
Percent |
Average Cost |
|
2009 |
|
2008 |
|
Change |
|
2009 |
|
2008 |
|
Change |
|
|
|
(cents per net KWH) |
|
|
|
|
|
(cents per net KWH) |
|
|
|
|
Fuel |
|
|
4.45 |
|
|
|
4.26 |
|
|
|
4.5 |
|
|
|
4.39 |
|
|
|
4.03 |
|
|
|
8.9 |
|
Purchased power |
|
|
6.71 |
|
|
|
10.73 |
|
|
|
(37.5 |
) |
|
|
5.87 |
|
|
|
8.90 |
|
|
|
(34.0 |
) |
|
80
GULF POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In the second quarter 2009, fuel expense was $156.2 million compared to $166.0 million for the
corresponding period in 2008. The decrease was due to a decrease of 10.9% in KWHs generated as a
result of lower KWH demand, and lower natural gas prices of 47.7%. The decrease was partially
offset by an increase of 27.5% in the average cost of coal per KWH generated.
For year-to-date 2009, fuel expense was $271.7 million compared to $316.1 million for the
corresponding period in 2008. The decrease was due to a decrease of 21.6% in KWHs generated as a
result of lower KWH demand, and lower natural gas prices of 38.3%. The decrease was partially
offset by an increase of 25.1% in the average cost of coal per KWH generated.
Non-Affiliates
In the second quarter 2009, purchased power from non-affiliates was $6.0 million compared to $6.1
million for the corresponding period in 2008. The decrease was not material.
For year-to-date 2009, purchased power from non-affiliates was $10.5 million compared to $9.2
million for the corresponding period in 2008. The increase was due to a 30.4% increase in the
volume of KWHs purchased from available lower-priced market energy alternatives. The increase was
partially offset by a 1.6% decrease in the average cost per KWH purchased.
Energy purchases from non-affiliates will vary depending on the market cost of available energy
being lower than the cost of Southern Company system-generated energy, demand for energy within the
Southern Company system service territory, and the availability of Southern Company system
generation.
Affiliates
In the second quarter 2009, purchased power from affiliates was $13.3 million compared to $16.7
million for the corresponding period in 2008. The decrease was due to a 51.7% decrease in average
cost per KWH purchased, partially offset by a 66.3% increase in the volume of KWHs purchased from
available lower-priced market energy alternatives.
For year-to-date 2009, purchased power from affiliates was $28.6 million compared to $25.4 million
for the corresponding period in 2008. The increase was due to a 106.9% increase in the volume of
KWHs purchased from available lower-priced market energy alternatives, partially offset by a 45.3%
decrease in the average cost per KWH purchased.
Energy purchases from affiliates will vary depending on demand and the availability and cost of
generating resources at each company within the Southern Company system. These purchases are made
in accordance with the IIC, as approved by the FERC.
Other Operations and Maintenance Expenses
|
|
|
|
|
|
|
Second Quarter 2009 vs. Second Quarter 2008 |
|
Year-to-Date 2009 vs. Year-to-Date 2008 |
(change in millions) |
|
(% change) |
|
(change in millions) |
|
(% change) |
$(0.8)
|
|
(1.2)
|
|
$5.3
|
|
4.0 |
|
In the second quarter 2009, other operations and maintenance expenses when compared to the
corresponding period in 2008 were not material.
81
GULF POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For year-to-date 2009, other operations and maintenance expenses were $137.5 million compared to
$132.2 million for the corresponding period in 2008. The increase was primarily due to a $5.5
million increase in other energy services and a $1.5 million increase in scheduled maintenance at
generation facilities, partially offset by a $1.7 million decrease in storm recovery costs. The
increased expense from other energy services and the decreased storm recovery costs did not have a
material impact on earnings since they were offset by increased associated revenues.
Depreciation and Amortization
|
|
|
|
|
|
|
Second Quarter 2009 vs. Second Quarter 2008 |
|
Year-to-Date 2009 vs. Year-to-Date 2008 |
(change in millions) |
|
(% change) |
|
(change in millions) |
|
(% change) |
$1.1
|
|
5.0
|
|
$2.5
|
|
5.6 |
|
In the second quarter 2009, depreciation and amortization was $23.3 million compared to $22.2
million for the corresponding period in 2008. For year-to-date 2009, depreciation and amortization
was $46.4 million compared to $43.9 million for the corresponding period in 2008. The increases
were primarily due to net additions to generation and distribution facilities.
Taxes Other Than Income Taxes
|
|
|
|
|
|
|
Second Quarter 2009 vs. Second Quarter 2008 |
|
Year-to-Date 2009 vs. Year-to-Date 2008 |
(change in millions) |
|
(% change) |
|
(change in millions) |
|
(% change) |
$2.2
|
|
10.5
|
|
$3.9
|
|
9.5 |
|
In the second quarter 2009, taxes other than income taxes were $23.0 million compared to $20.8
million for the corresponding period in 2008. For year-to-date 2009, taxes other than income taxes
were $45.4 million compared to $41.5 million for the corresponding period in 2008. The increases
were primarily due to increases in franchise fees and gross receipt taxes, which were directly
related to increased retail revenues.
Allowance for Equity Funds Used During Construction
|
|
|
|
|
|
|
Second Quarter 2009 vs. Second Quarter 2008 |
|
Year-to-Date 2009 vs. Year-to-Date 2008 |
(change in millions) |
|
(% change) |
|
(change in millions) |
|
(% change) |
$3.7
|
|
N/M
|
|
$7.0
|
|
N/M |
|
N/M-Not Meaningful
In the second quarter 2009, AFUDC was $5.7 million compared to $2.0 million for the
corresponding period in 2008. For year-to-date 2009, AFUDC was $10.5 million compared to $3.5
million for the corresponding period in 2008. These increases were primarily due to the
construction of environmental control projects.
Interest Income
|
|
|
|
|
|
|
Second Quarter 2009 vs. Second Quarter 2008 |
|
Year-to-Date 2009 vs. Year-to-Date 2008 |
(change in millions) |
|
(% change) |
|
(change in millions) |
|
(% change) |
$(0.6)
|
|
(88.0)
|
|
$(1.1)
|
|
(79.3) |
|
In the second quarter 2009, interest income was $0.1 million compared to $0.7 million for the
corresponding period in 2008. For year-to-date 2009, interest income was $0.3 million compared to
$1.4 million for the corresponding period in 2008. These decreases were primarily due to decreases
in interest received related to the recovery of financing costs associated with the fuel clause and
interest on investments.
82
GULF POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Interest Expense, Net of Amounts Capitalized
|
|
|
|
|
|
|
Second Quarter 2009 vs. Second Quarter 2008 |
|
Year-to-Date 2009 vs. Year-to-Date 2008 |
(change in millions) |
|
(% change) |
|
(change in millions) |
|
(% change) |
$(0.8)
|
|
(7.2)
|
|
$(1.9)
|
|
(8.9) |
|
In the second quarter 2009, interest expense, net of amounts capitalized was $9.9 million compared
to $10.7 million for the corresponding period in 2008. For year-to-date 2009, interest expense,
net of amounts capitalized was $19.8 million compared to $21.7 million for the corresponding period
in 2008. These decreases were primarily the result of an increase in capitalization of AFUDC
related to the construction of environmental control projects.
Income Taxes
|
|
|
|
|
|
|
Second Quarter 2009 vs. Second Quarter 2008 |
|
Year-to-Date 2009 vs. Year-to-Date 2008 |
(change in millions) |
|
(% change) |
|
(change in millions) |
|
(% change) |
$0.4
|
|
2.6
|
|
$(2.4)
|
|
(9.2) |
|
In the second quarter 2009, income taxes were $15.9 million compared to $15.5 million for the
corresponding period in 2008. The increase was primarily due to higher earnings before income
taxes, partially offset by an increase in the tax benefit associated with an increase in AFUDC,
which is non-taxable, and state tax credits.
For year-to-date 2009, income taxes were $23.3 million compared to $25.7 million for the
corresponding period in 2008. The decrease was primarily due to an increase in the tax benefit
associated with an increase in AFUDC, which is non-taxable, and state tax credits, partially offset
by a decrease in the federal production activities deduction.
FUTURE EARNINGS POTENTIAL
The results of operations discussed above are not necessarily indicative of Gulf Powers future
earnings potential. The level of Gulf Powers future earnings depends on numerous factors that
affect the opportunities, challenges, and risks of Gulf Powers business of selling electricity.
These factors include Gulf Powers ability to maintain a constructive regulatory environment that
continues to allow for the recovery of prudently incurred costs during a time of increasing costs.
Future earnings in the near term will depend, in part, upon maintaining energy sales, which is
subject to a number of factors. These factors include weather, competition, new energy contracts
with neighboring utilities, energy conservation practiced by customers, the price of electricity,
the price elasticity of demand, and the rate of economic growth or decline in Gulf Powers service
area. Recent recessionary conditions have negatively impacted sales and are expected to continue
to have a negative impact, particularly to industrial customers. The timing and extent of the
economic recovery will impact future earnings. For additional information relating to these
issues, see RISK FACTORS in Item 1A and MANAGEMENTS DISCUSSION AND ANALYSIS FUTURE EARNINGS
POTENTIAL of Gulf Power in Item 7 of the Form 10-K.
Environmental Matters
Compliance costs related to the Clean Air Act and other environmental statutes and regulations
could affect earnings if such costs cannot continue to be fully recovered in rates on a timely
basis. See MANAGEMENTS DISCUSSION AND ANALYSIS FUTURE EARNINGS POTENTIAL Environmental
Matters of Gulf
Power in Item 7 and Note 3 to the financial statements of Gulf Power under Environmental Matters
in Item 8 of the Form 10-K for additional information.
83
GULF POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Water Quality
See MANAGEMENTS DISCUSSION AND ANALYSIS FUTURE EARNINGS POTENTIAL Environmental Matters
Environmental Statutes and Regulations Water Quality of Gulf Power in Item 7 of the Form 10-K
for additional information regarding the EPAs regulation of cooling water intake structures. On
April 1, 2009, the U.S. Supreme Court reversed the U.S. Court of Appeals for the Second Circuits
decision with respect to the rules use of cost-benefit analysis and held that the EPA could
consider costs in arriving at its standards and in providing variances from those standards for
existing power plant cooling water intake structures. Other aspects of the courts decision were
not appealed and remain unaffected by the U.S. Supreme Courts ruling. While the U.S. Supreme
Courts decision may ultimately result in greater flexibility for demonstrating compliance with the
standards, the full scope of the regulations will depend on subsequent legal proceedings, further
rulemaking by the EPA, the results of studies and analyses performed as part of the rules
implementation, and the actual requirements established by state regulatory agencies and,
therefore, cannot be determined at this time.
Global Climate Issues
See MANAGEMENTS DISCUSSION AND ANALYSIS FUTURE EARNINGS POTENTIAL Environmental Matters
Global Climate Issues of Gulf Power in Item 7 of the Form 10-K for information regarding the
potential for legislation and regulation addressing greenhouse gas emissions. On April 17, 2009,
the EPA released a proposed finding that certain greenhouse gas emissions from new motor vehicles
endanger public health and welfare due to climate change. The ultimate outcome of the proposed
endangerment finding cannot be determined at this time and will depend on additional regulatory
action and potential legal challenges. However, regulatory decisions that may follow from such a
finding could have implications for both new and existing stationary sources, such as power plants.
In addition, federal legislative proposals that would impose mandatory requirements related to
greenhouse gas emissions, renewable energy standards, and energy efficiency standards continue to
be actively considered in Congress, and the reduction of greenhouse gas emissions has been
identified as a high priority by the current Administration. On June 26, 2009, the American Clean
Energy and Security Act of 2009, which would impose mandatory greenhouse gas restrictions through
implementation of a cap and trade program, a renewable energy standard, and other measures, was
passed by the House of Representatives and is expected to now be considered by the Senate. The
ultimate outcome of these matters cannot be determined at this time; however, mandatory
restrictions on Gulf Powers greenhouse gas emissions, or requirements relating to renewable energy
or energy efficiency, could result in significant additional compliance costs that could affect
future unit retirement and replacement decisions and results of operations, cash flows, and
financial condition if such costs are not recovered through regulated rates.
FERC and Florida PSC Matters
Market-Based Rate Authority
See MANAGEMENTS DISCUSSION AND ANALYSIS FUTURE EARNINGS POTENTIAL FERC Matters Market-Based
Rate Authority of Gulf Power in Item 7 and Note 3 to the financial statements of Gulf Power under
FERC Matters Market-Based Rate Authority in Item 8 of the Form 10-K for information regarding
market-based rate authority. In October 2008, Southern Company filed with the FERC a revised
market-based rate (MBR) tariff and a new cost-based rate (CBR) tariff. The revised MBR tariff
provides for a must offer energy auction whereby Southern Company offers all of its available
energy for sale in a day-ahead auction and an hour-ahead auction with reserve prices not to exceed
the CBR tariff price, after considering Southern Companys native load requirements, reliability
obligations, and sales commitments to third parties. All
sales under the energy auction would be at market clearing prices established under the auction
rules. The new CBR tariff provides for a cost-based price for wholesale sales of less than a year.
On March 5, 2009, the FERC accepted Southern Companys CBR tariff for filing. On March 25, 2009,
the FERC accepted Southern
84
GULF POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Companys compliance filing related to the MBR tariff and directed
Southern Company to commence the energy auction in 30 days. Southern Company commenced the energy
auction on April 23, 2009. The FERC has determined that implementation of the energy auction in
accordance with the MBR tariff order adequately mitigates going forward any presumption of market
power that Southern Company may have in the Southern Company retail service territory and adjacent
market areas. The original generation dominance proceeding initiated by the FERC in December 2004
remains pending before the FERC. The ultimate outcome of this matter cannot be determined at this
time.
Retail Fuel Cost Recovery
Gulf Power has established fuel cost recovery rates approved by the Florida PSC. In recent years,
Gulf Power has experienced higher than expected fuel costs for coal and natural gas. If the
projected fuel cost over or under recovery balance at year-end exceeds 10% of the projected fuel
revenue applicable for the period, Gulf Power is required to notify the Florida PSC and indicate if
an adjustment to the fuel cost recovery factor is being requested.
Under recovered fuel costs at June 30, 2009 totaled $52.7 million, compared to $96.7 million at
December 31, 2008. This amount is included in under recovered regulatory clause revenues on Gulf
Powers Condensed Balance Sheets herein. Fuel cost recovery revenues, as recorded on the financial
statements, are adjusted for differences in actual recoverable costs and amounts billed in current
regulated rates. Accordingly, any change in the billing factor would have no significant effect on
Gulf Powers revenues or net income, but would affect cash flow. See MANAGEMENTS DISCUSSION AND
ANALYSIS FUTURE EARNINGS POTENTIAL PSC Matters Fuel Cost Recovery of Gulf Power in Item 7
and Notes 1 and 3 to the financial statements of Gulf Power under Revenues and Retail Regulatory
Matters Fuel Cost Recovery, respectively, in Item 8 of the Form 10-K for additional information.
Legislation
On February 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act of
2009 (ARRA). Major tax incentives in the ARRA include an extension of bonus depreciation and
multiple renewable energy incentives, which could have a significant impact on the future cash flow
and net income of Gulf Power. Gulf Power estimates the cash flow reduction to 2009 tax payments as
a result of the bonus depreciation provisions of the ARRA to be between approximately $13 million
and $16 million. Southern Company and its subsidiaries have also filed an application under the
ARRA for a grant, of which approximately $38 million relates to Gulf Power, to be used primarily
for the advanced metering infrastructure program and other transmission and distribution automation
and modernization projects. Gulf Power continues to assess the other financial implications of the
ARRA. The ultimate impact cannot be determined at this time.
Other Matters
On March 16, 2009, Gulf Power entered into a PPA (the Agreement) with Shell Energy North America
(US), L.P. (Shell). Under the terms of the Agreement, Gulf Power will be entitled to all of the
capacity and energy from an approximately 885 MW combined cycle power plant (the Plant) located
in Autauga County, Alabama that is owned and operated by Tenaska Alabama II Partners, L.P.
(Tenaska). Shell is entitled to all of the capacity and energy from the Plant under a 20-year
Energy Conversion Agreement between Shell and Tenaska
that expires on May 24, 2023. On July 14, 2009, the Florida PSC approved the Agreement. The
Agreement will commence on the first day of the month after the Florida PSCs approval becomes a
final, non-appealable order. The earliest possible effective date for the Agreement is October
1, 2009. Unless earlier terminated in accordance with its terms, the Agreement will terminate
on May 24, 2023. Payments
85
GULF POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
under the Agreement will be material; however these costs have been
approved by the Florida PSC for recovery through Gulf Powers fuel clause and purchased power
capacity clause; therefore, no material impact is expected on Gulf Powers net income. The
ultimate outcome of this matter cannot now be determined.
Gulf Power is involved in various other matters being litigated and regulatory matters that
could affect future earnings. In addition, Gulf Power is subject to certain claims and legal
actions arising in the ordinary course of business. Gulf Powers business activities are
subject to extensive governmental regulation related to public health and the environment.
Litigation over environmental issues and claims of various types, including property damage,
personal injury, common law nuisance, and citizen enforcement of environmental requirements such
as opacity and air and water quality standards, has increased generally throughout the United
States. In particular, personal injury claims for damages caused by alleged exposure to
hazardous materials have become more frequent. The ultimate outcome of such pending or
potential litigation against Gulf Power cannot be predicted at this time; however, for current
proceedings not specifically reported herein or in Note 3 to the financial statements of Gulf
Power in Item 8 of the Form 10-K, management does not anticipate that the liabilities, if any,
arising from such current proceedings would have a material adverse effect on Gulf Powers
financial statements.
See the Notes to the Condensed Financial Statements herein for discussion of various other
contingencies, regulatory matters, and other matters being litigated which may affect future
earnings potential.
ACCOUNTING POLICIES
Application of Critical Accounting Policies and Estimates
Gulf Power prepares its financial statements in accordance with accounting principles generally
accepted in the United States. Significant accounting policies are described in Note 1 to the
financial statements of Gulf Power in Item 8 of the Form 10-K. In the application of these
policies, certain estimates are made that may have a material impact on Gulf Powers results of
operations and related disclosures. Different assumptions and measurements could produce estimates
that are significantly different from those recorded in the financial statements. See MANAGEMENTS
DISCUSSION AND ANALYSIS ACCOUNTING POLICIES Application of Critical Accounting Policies and
Estimates of Gulf Power in Item 7 of the Form 10-K for a complete discussion of Gulf Powers
critical accounting policies and estimates related to Electric Utility Regulation, Contingent
Obligations, and Unbilled Revenues.
New Accounting Standards
Variable Interest Entities
In June 2009, the FASB issued new guidance on the consolidation of variable interest entities,
which replaces the quantitative-based risks and rewards calculation for determining whether an
enterprise is the primary beneficiary in a variable interest entity with an approach that is
primarily qualitative, requires ongoing assessments of whether an enterprise is the primary
beneficiary of a variable interest entity, and requires additional disclosures about an
enterprises involvement in variable interest entities. Gulf Power is required to adopt this new
guidance effective January 1, 2010 and is evaluating the impact, if any, it will have on its
financial statements.
86
GULF POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION AND LIQUIDITY
Overview
Gulf Powers financial condition remained stable at June 30, 2009. Throughout the turmoil in the
financial markets, Gulf Power has maintained adequate access to capital without drawing on any of
its committed bank credit arrangements used to support its commercial paper borrowings and variable
rate pollution control revenue bonds. Gulf Power intends to continue to monitor its access to
short-term and long-term capital markets as well as its bank credit arrangements to meet future
capital and liquidity needs. Market rates for committed credit have increased, and Gulf Power has
been and expects to continue to be subject to higher costs as its existing facilities are replaced
or renewed. In the second quarter 2009, Gulf Power renewed $20 million of expiring credit
facilities and entered into an additional $80 million of credit facilities. Total committed credit
fees at Gulf Power currently average less than 1/2 of 1% per year. Gulf Powers interest cost for
short-term debt has decreased as market short-term interest rates have declined from 2008 levels.
The ultimate impact on future financing costs as a result of financial turmoil cannot be determined
at this time. Gulf Power experienced no material counterparty credit losses as a result of the
turmoil in the financial markets. See Sources of Capital and Financing Activities herein for
additional information.
Gulf Powers investments in pension trust funds stabilized during the second quarter 2009. Gulf
Power expects that the earliest that cash may have to be contributed to the pension trust fund is
2012 and such contribution could be significant; however, projections of the amount vary
significantly depending on interpretations of and decisions related to federal legislation passed
during 2008 as well as other key variables including future trust fund performance and cannot be
determined at this time.
Net cash provided from operating activities totaled $49.6 million for the first six months of 2009
compared to $71.4 million for the corresponding period in 2008. The $21.8 million decrease in cash
provided from operating activities was primarily due to a $22.4 million increase in customer
receivables. Net cash used for investing activities in the first six months of 2009 totaled $277.3
million primarily due to gross property additions to utility plant. These additions were primarily
related to installation of equipment to comply with environmental requirements. Net cash provided
from financing activities totaled $283.3 million for the first six months of 2009, compared to
$95.9 million for the corresponding period in 2008. The $187.4 million increase in cash provided
from financing activities was primarily due to the issuances of $140.0 million of senior notes,
$135.0 million of common stock to Southern Company, and $130.4 million of pollution control revenue
bonds in 2009, partially offset by an issuance of $110 million of long-term debt in 2008, a $71.2
million decrease of capital contributions from Southern Company, and a $33.1 million increase in
cash payments related to notes payable.
Significant balance sheet changes for the first six months of 2009 include a net increase of $212.9
million in property, plant, and equipment, primarily related to environmental control projects; the
issuance of $140.0 million in senior notes; the issuance of common stock to Southern Company for
$135.0 million; the issuance of $130.4 million of pollution control revenue bonds, with a related
restricted cash balance of $37.8 million; an increase in customer accounts receivable and unbilled
revenues of $44.4 million; and a $44.0 million decrease in under recovered regulatory clause
revenues related to fuel.
87
GULF POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Capital Requirements and Contractual Obligations
See MANAGEMENTS DISCUSSION AND ANALYSIS FINANCIAL CONDITION AND LIQUIDITY Capital
Requirements and Contractual Obligations of Gulf Power in Item 7 of the Form 10-K for a
description of Gulf Powers capital requirements for its construction program, maturities of
long-term debt, leases, derivative obligations, preference stock dividends, purchase commitments,
and trust funding requirements. Approximately $140 million will be required through June 30, 2010
to fund maturities of debt. The construction program is subject to periodic review and revision,
and actual construction costs may vary from these estimates because of numerous factors. These
factors include: changes in business conditions; changes in load projections; storm impacts;
changes in environmental statutes and regulations; changes in FERC rules and regulations; Florida
PSC approvals; changes in legislation; the cost and efficiency of construction labor, equipment,
and materials; and the cost of capital. In addition, there can be no assurance that costs related
to capital expenditures will be fully recovered.
Sources of Capital
Gulf Power plans to obtain the funds required for construction and other purposes from sources
similar to those utilized in the past. Recently, Gulf Power has utilized funds from operating cash
flows, short-term debt, security offerings, a long-term bank note, and equity contributions from
Southern Company. However, the amount, type, and timing of any future financings, if needed, will
depend upon regulatory approval, prevailing market conditions, and other factors. See MANAGEMENTS
DISCUSSION AND ANALYSIS FINANCIAL CONDITION AND LIQUIDITY Sources of Capital of Gulf Power in
Item 7 of the Form 10-K for additional information.
Gulf Powers current liabilities frequently exceed current assets because of the continued use of
short-term debt as a funding source to meet cash needs which can fluctuate significantly due to the
seasonality of the business. To meet short-term cash needs and contingencies, Gulf Power had at
June 30, 2009 approximately $59.2 million of cash and cash equivalents and $220 million of unused
committed lines of credit with banks. Of these credit agreements, $90 million expire in 2009, $130
million expire in 2010, and $70 million of these facilities contain provisions allowing one-year
term loans executable at expiration. Gulf Power expects to renew its credit facilities, as needed,
prior to expiration. See Note 6 to the financial statements of Gulf Power under Bank Credit
Arrangements in Item 8 of the Form 10-K and Note (E) to the Condensed Financial Statements under
Bank Credit Arrangements herein for additional information. These credit arrangements provide
liquidity support to Gulf Powers commercial paper borrowings and $69 million are dedicated to
funding purchase obligations related to variable rate pollution control revenue bonds. Gulf Power
may meet short-term cash needs through a Southern Company subsidiary organized to issue and sell
commercial paper at the request and for the benefit of Gulf Power and other Southern Company
subsidiaries. At June 30, 2009, Gulf Power had $66 million of commercial paper outstanding.
Management believes that the need for working capital can be adequately met by utilizing the
commercial paper program, lines of credit, and cash.
Credit Rating Risk
Gulf Power does not have any credit arrangements that would require material changes in payment
schedules or terminations as a result of a credit rating downgrade. There are certain contracts
that could require collateral, but not accelerated payment, in the event of a credit rating change
to BBB- and/or Baa3 or below. These contracts are for physical electricity purchases and sales,
fuel purchases, fuel transportation and storage, emissions allowances, and energy price risk
management. At June 30, 2009, the maximum potential collateral requirements under these contracts
at a BBB- and/or Baa3 rating were approximately $62 million. At June 30, 2009, the
maximum potential collateral requirements under these contracts at a rating below BBB- and/or Baa3
were approximately $246 million. Included in these amounts are certain agreements that could
require collateral
88
GULF POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
in the event that one or more Power Pool participants has a credit rating change
to below investment grade. Generally, collateral may be provided by a Southern Company guaranty,
letter of credit, or cash. Additionally, any credit rating downgrade could impact Gulf Powers
ability to access capital markets, particularly the short-term debt market.
Market Price Risk
Gulf Powers market risk exposure relative to interest rate changes has not changed materially
compared with the December 31, 2008 reporting period. Since a significant portion of outstanding
indebtedness is at fixed rates, Gulf Power is not aware of any facts or circumstances that would
significantly affect exposures on existing indebtedness in the near term. However, the impact on
future financing costs cannot now be determined.
Due to cost-based rate regulation, Gulf Power continues to have limited exposure to market
volatility in interest rates, commodity fuel prices, and prices of electricity. To mitigate
residual risks relative to movements in electricity prices, Gulf Power enters into physical
fixed-price contracts for the purchase and sale of electricity through the wholesale electricity
market. Gulf Power continues to manage a fuel-hedging program implemented per the guidelines of
the Florida PSC. As such, Gulf Power has no material change in market risk exposure when compared
with the December 31, 2008 reporting period.
The changes in fair value of energy-related derivative contracts for the three and six months ended
June 30, 2009 were as follows:
|
|
|
|
|
|
|
|
|
|
|
Second Quarter |
|
Year-to-Date |
|
|
2009 |
|
2009 |
|
|
Changes |
|
Changes |
|
|
|
Fair Value |
|
|
|
(in millions) |
Contracts outstanding at the beginning of the period, assets
(liabilities), net |
|
$ |
(43.2 |
) |
|
$ |
(31.2 |
) |
Contracts realized or settled |
|
|
15.2 |
|
|
|
23.2 |
|
Current period changes(a) |
|
|
(0.2 |
) |
|
|
(20.2 |
) |
|
Contracts outstanding at the end of the period, assets (liabilities), net |
|
$ |
(28.2 |
) |
|
$ |
(28.2 |
) |
|
|
|
|
(a) |
|
Current period changes also include the changes in fair value of new contracts entered into
during the period, if any. |
The increases in the fair value positions of the energy-related derivative contracts for the
three months and six months ended June 30, 2009 were $15 million and $3 million, respectively,
substantially all of which is due to natural gas positions. These changes are attributable to both
the volume and prices of natural gas. At June 30, 2009, Gulf Power had a net hedge volume of 15
million mmBtu with a weighted average contract cost approximately $1.95 per mmBtu above market
prices, compared to 16 million mmBtu at March 31, 2009 with a weighted average contract cost
approximately $2.76 per mmBtu above market prices and compared to 14 million mmBtu at December 31,
2008 with a weighted average contract cost approximately $2.24 per mmBtu above market prices.
Natural gas hedge settlements are recovered through the fuel cost recovery clause.
89
GULF POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
At June 30, 2009 and December 31, 2008, the fair value of energy-related derivative contracts by
hedge designation was reflected in the financial statements as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
December 31, |
|
|
2009 |
|
2008 |
|
|
|
(in millions) |
Regulatory hedges |
|
$ |
(28.2 |
) |
|
$ |
(31.2 |
) |
Not designated |
|
|
|
|
|
|
|
|
|
Total fair value |
|
$ |
(28.2 |
) |
|
$ |
(31.2 |
) |
|
Energy-related derivative contracts which are designated as regulatory hedges relate to Gulf
Powers fuel hedging program where gains and losses are initially recorded as regulatory
liabilities and assets, respectively, and then are included in fuel expense as they are recovered
through the fuel cost recovery clause. Gains and losses on energy-related derivative contracts
that are not designated or fail to qualify as hedges are recognized in the statements of income as
incurred.
Unrealized pre-tax gains and losses recognized in income for the three and six months ended June
30, 2009 and 2008 for energy-related derivative contracts that are not hedges were not material.
The maturities of the energy-related derivative contracts and the level of the fair value hierarchy
in which they fall at June 30, 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 |
|
|
Fair Value Measurements |
|
|
|
Total |
|
Maturity |
|
|
Fair Value |
|
Year 1 |
|
Years 2&3 |
|
Years 4&5 |
|
|
|
(in millions) |
Level 1 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Level 2 |
|
|
(28.2 |
) |
|
|
(23.4 |
) |
|
|
(4.8 |
) |
|
|
|
|
Level 3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of
contracts
outstanding at end
of period |
|
$ |
(28.2 |
) |
|
$ |
(23.4 |
) |
|
$ |
(4.8 |
) |
|
$ |
|
|
|
Gulf Power uses over-the-counter contracts that are not exchange traded but are fair valued using
prices which are actively quoted, and thus fall into Level 2. See Note (C) to the Condensed
Financial Statements herein for further discussion on fair value measurements.
For additional information, see MANAGEMENTS DISCUSSION AND ANALYSIS FINANCIAL CONDITION AND
LIQUIDITY Market Price Risk of Gulf Power in Item 7 and Notes 1 and 6 to the financial
statements of Gulf Power under Financial Instruments in Item 8 of the Form 10-K and Note (E) to
the Condensed Financial Statements herein.
90
GULF POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Financing Activities
On January 22, 2009, Gulf Power issued to Southern Company 1,350,000 shares of Gulf Power common
stock, without par value, and realized proceeds of $135 million. The proceeds were used to repay a
portion of Gulf Powers short-term debt and for other general corporate purposes, including Gulf
Powers continuous construction program.
Also during the first quarter 2009, Gulf Power incurred obligations related to the issuance of
$130.4 million of pollution control revenue bonds. The proceeds are being used for the
acquisition, construction, installation, and equipping of certain solid waste disposal facilities
located at Plant Crist.
In June 2009, Gulf Power issued $140 million of Series 2009A Floating Rate Senior Notes due June
28, 2010. The proceeds were used to repay a portion of short-term indebtedness and for other
general corporate purposes, including Gulf Powers continuous construction program.
Subsequent to June 30, 2009, Gulf Power entered into a forward starting interest rate swap to
mitigate exposure to interest rate changes related to anticipated debt issuances. The notional
amount of the swap is $50 million, and the swap has been designated as a cash flow hedge.
In addition to any financings that may be necessary to meet capital requirements, contractual
obligations, and storm-recovery, Gulf Power plans to continue, when economically feasible, a
program to retire higher-cost securities and replace these obligations with lower-cost capital if
market conditions permit.
91
MISSISSIPPI POWER COMPANY
92
MISSISSIPPI POWER COMPANY
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months |
|
|
For the Six Months |
|
|
|
Ended June 30, |
|
|
Ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
(in thousands) |
|
|
(in thousands) |
|
Operating Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail revenues |
|
$ |
201,132 |
|
|
$ |
187,121 |
|
|
$ |
376,867 |
|
|
$ |
355,510 |
|
Wholesale revenues, non-affiliates |
|
|
73,693 |
|
|
|
83,595 |
|
|
|
153,847 |
|
|
|
168,401 |
|
Wholesale revenues, affiliates |
|
|
7,963 |
|
|
|
22,546 |
|
|
|
17,381 |
|
|
|
50,925 |
|
Other revenues |
|
|
3,893 |
|
|
|
4,670 |
|
|
|
7,309 |
|
|
|
8,512 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues |
|
|
286,681 |
|
|
|
297,932 |
|
|
|
555,404 |
|
|
|
583,348 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fuel |
|
|
125,832 |
|
|
|
138,857 |
|
|
|
245,797 |
|
|
|
268,973 |
|
Purchased power, non-affiliates |
|
|
2,873 |
|
|
|
5,426 |
|
|
|
5,708 |
|
|
|
7,681 |
|
Purchased power, affiliates |
|
|
21,595 |
|
|
|
17,484 |
|
|
|
43,400 |
|
|
|
43,482 |
|
Other operations and maintenance |
|
|
61,601 |
|
|
|
63,368 |
|
|
|
121,362 |
|
|
|
128,141 |
|
Depreciation and amortization |
|
|
17,660 |
|
|
|
17,101 |
|
|
|
35,675 |
|
|
|
35,098 |
|
Taxes other than income taxes |
|
|
16,221 |
|
|
|
16,286 |
|
|
|
31,145 |
|
|
|
31,851 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
245,782 |
|
|
|
258,522 |
|
|
|
483,087 |
|
|
|
515,226 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income |
|
|
40,899 |
|
|
|
39,410 |
|
|
|
72,317 |
|
|
|
68,122 |
|
Other Income and (Expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
163 |
|
|
|
184 |
|
|
|
795 |
|
|
|
593 |
|
Interest expense, net of amounts capitalized |
|
|
(6,254 |
) |
|
|
(4,391 |
) |
|
|
(11,016 |
) |
|
|
(8,832 |
) |
Other income (expense), net |
|
|
1,136 |
|
|
|
2,899 |
|
|
|
2,765 |
|
|
|
4,518 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income and (expense) |
|
|
(4,955 |
) |
|
|
(1,308 |
) |
|
|
(7,456 |
) |
|
|
(3,721 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings Before Income Taxes |
|
|
35,944 |
|
|
|
38,102 |
|
|
|
64,861 |
|
|
|
64,401 |
|
Income taxes |
|
|
13,578 |
|
|
|
13,664 |
|
|
|
24,091 |
|
|
|
23,358 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
|
22,366 |
|
|
|
24,438 |
|
|
|
40,770 |
|
|
|
41,043 |
|
Dividends on Preferred Stock |
|
|
433 |
|
|
|
433 |
|
|
|
866 |
|
|
|
866 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income After Dividends on Preferred Stock |
|
$ |
21,933 |
|
|
$ |
24,005 |
|
|
$ |
39,904 |
|
|
$ |
40,177 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months |
|
|
For the Six Months |
|
|
|
Ended June 30, |
|
|
Ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
(in thousands) |
|
|
(in thousands) |
|
Net Income After Dividends on Preferred Stock |
|
$ |
21,933 |
|
|
$ |
24,005 |
|
|
$ |
39,904 |
|
|
$ |
40,177 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Qualifying hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in fair value, net of tax of $(139), $(144), $27, and
$(1,454), respectively |
|
|
(224 |
) |
|
|
(233 |
) |
|
|
44 |
|
|
|
(2,347 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income |
|
$ |
21,709 |
|
|
$ |
23,772 |
|
|
$ |
39,948 |
|
|
$ |
37,830 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes as they relate to Mississippi Power are an integral part of these condensed financial statements.
93
MISSISSIPPI POWER COMPANY
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
For the Six Months |
|
|
|
Ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(in thousands) |
|
Operating Activities: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
40,770 |
|
|
$ |
41,043 |
|
Adjustments to reconcile net income
to net cash provided from operating activities |
|
|
|
|
|
|
|
|
Depreciation and amortization, total |
|
|
39,202 |
|
|
|
37,232 |
|
Deferred income taxes and investment tax credits, net |
|
|
(11,019 |
) |
|
|
(8,732 |
) |
Pension, postretirement, and other employee benefits |
|
|
2,852 |
|
|
|
3,765 |
|
Stock option expense |
|
|
747 |
|
|
|
555 |
|
Tax benefit of stock options |
|
|
14 |
|
|
|
95 |
|
Generation construction screening expense |
|
|
(14,049 |
) |
|
|
(8,780 |
) |
Other, net |
|
|
2,078 |
|
|
|
(1,861 |
) |
Changes in certain current assets and liabilities |
|
|
|
|
|
|
|
|
-Receivables |
|
|
13,274 |
|
|
|
(22,108 |
) |
-Fossil fuel stock |
|
|
(44,024 |
) |
|
|
(30,521 |
) |
-Materials and supplies |
|
|
(1,464 |
) |
|
|
(13,569 |
) |
-Prepaid income taxes |
|
|
(446 |
) |
|
|
1,607 |
|
-Other current assets |
|
|
(12,644 |
) |
|
|
273 |
|
-Other accounts payable |
|
|
(14,103 |
) |
|
|
14,948 |
|
-Accrued taxes |
|
|
(14,243 |
) |
|
|
(20,369 |
) |
-Accrued compensation |
|
|
(12,990 |
) |
|
|
(12,379 |
) |
-Other current liabilities |
|
|
2,260 |
|
|
|
19,801 |
|
|
|
|
|
|
|
|
Net cash provided from (used for) operating activities |
|
|
(23,785 |
) |
|
|
1,000 |
|
|
|
|
|
|
|
|
Investing Activities: |
|
|
|
|
|
|
|
|
Property additions |
|
|
(50,943 |
) |
|
|
(57,404 |
) |
Cost of removal, net of salvage |
|
|
(7,287 |
) |
|
|
(424 |
) |
Construction payables |
|
|
(4,709 |
) |
|
|
(7,275 |
) |
Hurricane Katrina capital grant proceeds |
|
|
|
|
|
|
7,314 |
|
Other investing activities |
|
|
(1,412 |
) |
|
|
(998 |
) |
|
|
|
|
|
|
|
Net cash used for investing activities |
|
|
(64,351 |
) |
|
|
(58,787 |
) |
|
|
|
|
|
|
|
Financing Activities: |
|
|
|
|
|
|
|
|
Increase in notes payable, net |
|
|
20,501 |
|
|
|
10,669 |
|
Proceeds |
|
|
|
|
|
|
|
|
Capital contributions from parent company |
|
|
2,101 |
|
|
|
2,714 |
|
Gross excess tax benefit of stock options |
|
|
60 |
|
|
|
253 |
|
Senior notes issuances |
|
|
125,000 |
|
|
|
|
|
Other long-term debt issuances |
|
|
|
|
|
|
80,000 |
|
Redemptions |
|
|
|
|
|
|
|
|
Senior notes |
|
|
(40,000 |
) |
|
|
|
|
Payment of preferred stock dividends |
|
|
(866 |
) |
|
|
(866 |
) |
Payment of common stock dividends |
|
|
(34,250 |
) |
|
|
(34,200 |
) |
Other financing activities |
|
|
(1,780 |
) |
|
|
(1,471 |
) |
|
|
|
|
|
|
|
Net cash provided from financing activities |
|
|
70,766 |
|
|
|
57,099 |
|
|
|
|
|
|
|
|
Net Change in Cash and Cash Equivalents |
|
|
(17,370 |
) |
|
|
(688 |
) |
Cash and Cash Equivalents at Beginning of Period |
|
|
22,413 |
|
|
|
4,827 |
|
|
|
|
|
|
|
|
Cash and Cash Equivalents at End of Period |
|
$ |
5,043 |
|
|
$ |
4,139 |
|
|
|
|
|
|
|
|
Supplemental Cash Flow Information: |
|
|
|
|
|
|
|
|
Cash paid during the period for |
|
|
|
|
|
|
|
|
Interest (net of $117 and $58 capitalized for 2009 and 2008, respectively) |
|
$ |
8,873 |
|
|
$ |
7,844 |
|
Income taxes (net of refunds) |
|
$ |
27,149 |
|
|
$ |
32,628 |
|
The accompanying notes as they relate to Mississippi Power are an integral part of these condensed financial statements.
94
MISSISSIPPI POWER COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
At June 30, |
|
|
At December 31, |
|
Assets |
|
2009 |
|
|
2008 |
|
|
|
(in thousands) |
|
Current Assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
5,043 |
|
|
$ |
22,413 |
|
Receivables |
|
|
|
|
|
|
|
|
Customer accounts receivable |
|
|
52,477 |
|
|
|
40,262 |
|
Unbilled revenues |
|
|
31,445 |
|
|
|
24,798 |
|
Under recovered regulatory clause revenues |
|
|
21,163 |
|
|
|
54,994 |
|
Other accounts and notes receivable |
|
|
11,355 |
|
|
|
8,995 |
|
Affiliated companies |
|
|
23,443 |
|
|
|
24,108 |
|
Accumulated provision for uncollectible accounts |
|
|
(919 |
) |
|
|
(1,039 |
) |
Fossil fuel stock, at average cost |
|
|
129,562 |
|
|
|
85,538 |
|
Materials and supplies, at average cost |
|
|
28,607 |
|
|
|
27,143 |
|
Other regulatory assets, current |
|
|
72,074 |
|
|
|
59,220 |
|
Other current assets |
|
|
22,497 |
|
|
|
10,898 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
396,747 |
|
|
|
357,330 |
|
|
|
|
|
|
|
|
Property, Plant, and Equipment: |
|
|
|
|
|
|
|
|
In service |
|
|
2,296,298 |
|
|
|
2,234,573 |
|
Less accumulated provision for depreciation |
|
|
932,020 |
|
|
|
923,269 |
|
|
|
|
|
|
|
|
Plant in service, net of depreciation |
|
|
1,364,278 |
|
|
|
1,311,304 |
|
Construction work in progress |
|
|
40,180 |
|
|
|
70,665 |
|
|
|
|
|
|
|
|
Total property, plant, and equipment |
|
|
1,404,458 |
|
|
|
1,381,969 |
|
|
|
|
|
|
|
|
Other Property and Investments |
|
|
7,606 |
|
|
|
8,280 |
|
|
|
|
|
|
|
|
Deferred Charges and Other Assets: |
|
|
|
|
|
|
|
|
Deferred charges related to income taxes |
|
|
8,807 |
|
|
|
9,566 |
|
Other regulatory assets, deferred |
|
|
182,882 |
|
|
|
171,680 |
|
Other deferred charges and assets |
|
|
24,355 |
|
|
|
23,870 |
|
|
|
|
|
|
|
|
Total deferred charges and other assets |
|
|
216,044 |
|
|
|
205,116 |
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
2,024,855 |
|
|
$ |
1,952,695 |
|
|
|
|
|
|
|
|
The accompanying notes as they relate to Mississippi Power are an integral part of these condensed financial statements.
95
MISSISSIPPI POWER COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
At June 30, |
|
|
At December 31, |
|
Liabilities and Stockholder's Equity |
|
2009 |
|
|
2008 |
|
|
|
(in thousands) |
|
Current Liabilities: |
|
|
|
|
|
|
|
|
Securities due within one year |
|
$ |
1,279 |
|
|
$ |
41,230 |
|
Notes payable |
|
|
46,794 |
|
|
|
26,293 |
|
Accounts payable |
|
|
|
|
|
|
|
|
Affiliated |
|
|
38,537 |
|
|
|
36,847 |
|
Other |
|
|
43,203 |
|
|
|
63,704 |
|
Customer deposits |
|
|
10,539 |
|
|
|
10,354 |
|
Accrued taxes |
|
|
|
|
|
|
|
|
Accrued income taxes |
|
|
8,128 |
|
|
|
8,842 |
|
Other accrued taxes |
|
|
28,965 |
|
|
|
50,700 |
|
Accrued interest |
|
|
5,524 |
|
|
|
3,930 |
|
Accrued compensation |
|
|
7,614 |
|
|
|
20,604 |
|
Other regulatory liabilities, current |
|
|
9,695 |
|
|
|
9,718 |
|
Liabilities from risk management activities |
|
|
37,851 |
|
|
|
29,291 |
|
Other current liabilities |
|
|
20,290 |
|
|
|
19,144 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
258,419 |
|
|
|
320,657 |
|
|
|
|
|
|
|
|
Long-term Debt |
|
|
494,073 |
|
|
|
370,460 |
|
|
|
|
|
|
|
|
Deferred Credits and Other Liabilities: |
|
|
|
|
|
|
|
|
Accumulated deferred income taxes |
|
|
222,470 |
|
|
|
222,324 |
|
Deferred credits related to income taxes |
|
|
12,592 |
|
|
|
14,074 |
|
Accumulated deferred investment tax credits |
|
|
13,419 |
|
|
|
14,014 |
|
Employee benefit obligations |
|
|
143,513 |
|
|
|
142,188 |
|
Other cost of removal obligations |
|
|
96,497 |
|
|
|
96,191 |
|
Other regulatory liabilities, deferred |
|
|
54,359 |
|
|
|
51,340 |
|
Other deferred credits and liabilities |
|
|
51,662 |
|
|
|
52,216 |
|
|
|
|
|
|
|
|
Total deferred credits and other liabilities |
|
|
594,512 |
|
|
|
592,347 |
|
|
|
|
|
|
|
|
Total Liabilities |
|
|
1,347,004 |
|
|
|
1,283,464 |
|
|
|
|
|
|
|
|
Redeemable Preferred Stock |
|
|
32,780 |
|
|
|
32,780 |
|
|
|
|
|
|
|
|
Common Stockholders Equity: |
|
|
|
|
|
|
|
|
Common stock, without par value |
|
|
|
|
|
|
|
|
Authorized - 1,130,000 shares |
|
|
|
|
|
|
|
|
Outstanding - 1,121,000 shares |
|
|
37,691 |
|
|
|
37,691 |
|
Paid-in capital |
|
|
322,880 |
|
|
|
319,958 |
|
Retained earnings |
|
|
284,456 |
|
|
|
278,802 |
|
Accumulated other comprehensive income (loss) |
|
|
44 |
|
|
|
|
|
|
|
|
|
|
|
|
Total common stockholders equity |
|
|
645,071 |
|
|
|
636,451 |
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders Equity |
|
$ |
2,024,855 |
|
|
$ |
1,952,695 |
|
|
|
|
|
|
|
|
The accompanying notes as they relate to Mississippi Power are an integral part of these condensed financial statements.
96
MISSISSIPPI POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SECOND QUARTER 2009 vs. SECOND QUARTER 2008
AND
YEAR-TO-DATE 2009 vs. YEAR-TO-DATE 2008
OVERVIEW
Mississippi Power operates as a vertically integrated utility providing electricity to retail
customers within its traditional service area located within the State of Mississippi and to
wholesale customers in the Southeast. Many factors affect the opportunities, challenges, and risks
of Mississippi Powers business of selling electricity. These factors include the ability to
maintain a constructive regulatory environment, to maintain energy sales in the midst of the
current economic downturn, and to effectively manage and secure timely recovery of rising costs.
These costs include those related to projected long-term demand growth, increasingly stringent
environmental standards, fuel prices, capital expenditures, and restoration following major storms.
Mississippi Power has various regulatory mechanisms that operate to address cost recovery.
Appropriately balancing required costs and capital expenditures with reasonable retail rates will
continue to challenge Mississippi Power for the foreseeable future.
Mississippi Power continues to focus on several key performance indicators. In recognition that
Mississippi Powers long-term financial success is dependent upon how well it satisfies its
customers needs, Mississippi Powers retail base rate mechanism, PEP, includes performance
indicators that directly tie customer service indicators to Mississippi Powers allowed return. In
addition to the PEP performance indicators, Mississippi Power focuses on other performance
measures, including broader measures of customer satisfaction, plant availability, system
reliability, and net income after dividends on preferred stock. For additional information on
these indicators, see MANAGEMENTS DISCUSSION AND ANALYSIS OVERVIEW Key Performance
Indicators of Mississippi Power in Item 7 of the Form 10-K.
RESULTS OF OPERATIONS
Net Income
|
|
|
|
|
|
|
Second Quarter 2009 vs. Second Quarter 2008 |
|
Year-to-Date 2009 vs. Year-to-Date 2008 |
(change in millions) |
|
(% change) |
|
(change in millions) |
|
(% change) |
$(2.1)
|
|
(8.6)
|
|
$(0.3)
|
|
(0.7) |
|
Mississippi Powers net income after dividends on preferred stock for the second quarter 2009 was
$21.9 million compared to $24.0 million for the corresponding period in 2008. Mississippi Powers
net income after dividends on preferred stock for year-to-date 2009 was $39.9 million compared to
$40.2 million for the corresponding period in 2008. The decreases in net income after dividends
for the second quarter 2009 and year-to-date 2009 were primarily due to decreases in wholesale
energy revenues, total other income and (expense), and other revenues. These decreases were
partially offset by an increase in territorial base revenues primarily resulting from an increase
in territorial wholesale demand and a wholesale base rate increase as well as a decrease in other
operations and maintenance expenses.
97
MISSISSIPPI POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Retail Revenues
|
|
|
|
|
|
|
Second Quarter 2009 vs. Second Quarter 2008 |
|
Year-to-Date 2009 vs. Year-to-Date 2008 |
(change in millions) |
|
(% change) |
|
(change in millions) |
|
(% change) |
$14.0
|
|
7.5
|
|
$21.4
|
|
6.0 |
|
In the second quarter 2009, retail revenues were $201.1 million compared to $187.1 million for the
corresponding period in 2008. For year-to-date 2009, retail revenues were $376.9 million compared
to $355.5 million for the corresponding period in 2008.
Details of the change to retail revenues are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter |
|
Year-to-Date |
|
|
2009 |
|
2009 |
|
|
|
(in millions) |
|
(% change) |
|
(in millions) |
|
(% change) |
Retail prior year |
|
$ |
187.1 |
|
|
|
|
|
|
$ |
355.5 |
|
|
|
|
|
Estimated change in |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rates and pricing |
|
|
0.9 |
|
|
|
0.5 |
|
|
|
2.5 |
|
|
|
0.7 |
|
Sales growth (decline) |
|
|
(0.3 |
) |
|
|
(0.2 |
) |
|
|
(2.5 |
) |
|
|
(0.7 |
) |
Weather |
|
|
1.3 |
|
|
|
0.7 |
|
|
|
0.2 |
|
|
|
0.0 |
|
Fuel and other cost recovery |
|
|
12.1 |
|
|
|
6.5 |
|
|
|
21.2 |
|
|
|
6.0 |
|
|
Retail current year |
|
$ |
201.1 |
|
|
|
7.5 |
% |
|
$ |
376.9 |
|
|
|
6.0 |
% |
|
Revenues associated with changes in rates and pricing increased in the second quarter 2009 when
compared to the corresponding period in 2008 due to a $1.1 million increase related to the
reclassification of 2008 System Restoration Rider (SRR) revenue reductions to expense pursuant to
an order from the Mississippi PSC dated January 9, 2009, partially offset by decreases in retail
revenues of approximately $0.2 million related to the ECO Plan rate.
Revenues associated with changes in rates and pricing increased year-to-date 2009 when compared to
the corresponding period in 2008 due to a $2.1 million increase related to the reclassification of
2008 SRR revenue reductions to expense pursuant to an order from the Mississippi PSC dated January
9, 2009 and an increase in base rates of $0.9 million related to a rate change effective in
mid-January 2008. These increases were partially offset by a decrease of $0.5 million related to
the ECO Plan rate.
For additional information on SRR, see MANAGEMENTS DISCUSSION AND ANALYSIS FUTURE EARNINGS
POTENTIAL PSC Matters System Restoration Rider of Mississippi Power in Item 7 of the Form
10-K.
Revenues attributable to changes in sales declined in the second quarter 2009 when compared to the
corresponding period in 2008. Weather-adjusted KWH energy sales to residential and commercial
customers decreased 5.2% and 0.2%, respectively. KWH energy sales to industrial customers
increased 3.2%. The decrease in weather-adjusted KWH sales to residential and commercial customers
is primarily due to a recessionary economy. The increase in industrial sales is primarily due to
maintenance outages experienced by some industrial customers in 2008.
Revenues attributable to changes in sales declined for year-to-date 2009 when compared to the
corresponding period in 2008. Weather-adjusted KWH energy sales to residential and commercial
customers decreased 4.1% and 0.5%, respectively. KWH energy sales to industrial customers
decreased 1.6%. The decrease in weather-adjusted KWH sales to residential and commercial customers
is primarily due to a recessionary economy. The
decrease in industrial sales is primarily due to lower production levels experienced by industrial
customers resulting from a recessionary economy.
98
MISSISSIPPI POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Revenues attributable to changes in weather increased slightly in the second quarter and
year-to-date 2009 when compared to the corresponding periods in 2008. Revenues resulting from
changes in weather were minimal as overall weather conditions were similar in 2009 when compared to
the corresponding periods in 2008.
Fuel and other cost recovery revenues increased in the second quarter and year-to-date 2009 when
compared to the corresponding periods in 2008, primarily as a result of higher recoverable fuel
costs. Recoverable fuel costs include fuel and purchased power expenses reduced by the fuel
portion of wholesale revenues from energy sold to customers outside Mississippi Powers service
territory. Electric rates include provisions to adjust billings for fluctuations in fuel costs,
including the energy component of purchased power costs. Under these provisions, fuel revenues
generally equal fuel expenses, including the fuel component of purchased power costs, and do not
affect net income.
Wholesale Revenues Non-Affiliates
|
|
|
|
|
|
|
Second Quarter 2009 vs. Second Quarter 2008 |
|
Year-to-Date 2009 vs. Year-to-Date 2008 |
(change in millions) |
|
(% change) |
|
(change in millions) |
|
(% change) |
$(9.9)
|
|
(11.8)
|
|
$(14.6)
|
|
(8.6) |
|
Wholesale revenues from non-affiliates will vary depending on the market cost of available energy
compared to the cost of Mississippi Power and Southern Company system-owned generation, demand for
energy within the Southern Company service territory, and availability of Southern Company system
generation.
In the second quarter 2009, wholesale revenues from non-affiliates were $73.7 million compared to
$83.6 million for the corresponding period in 2008. The decrease was due to decreased revenues
from customers outside Mississippi Powers service territory of $15.5 million, partially offset by
$5.6 million increased revenues from customers inside Mississippi Powers service territory. The
$15.5 million decrease in revenues from customers outside Mississippi Powers service territory was
primarily due to a $17.5 million decrease associated with lower prices resulting from lower
marginal cost of fuel, partially offset by a $2.0 million increase in sales. The $5.6 million
increase in revenues from customers inside Mississippi Powers service territory was due to a $3.0
million increase in recoverable fuel costs and a $2.6 million increase due to higher demands by
customers and a base rate increase that was effective January 2009.
For year-to-date 2009, wholesale revenues to non-affiliates were $153.8 million compared to $168.4
million for the corresponding period in 2008. The decrease was due to decreased revenues from
customers outside Mississippi Powers service territory of $27.4 million, partially offset by $12.8
million increased revenues from customers inside Mississippi Powers service territory. The $27.4
million decrease in revenues from customers outside Mississippi Powers service territory was
primarily due to a $24.1 million decrease associated with lower prices resulting from lower
marginal cost of fuel, a $3.0 million decrease in sales, and a $0.3 million decrease in capacity
revenues. The $12.8 million increase in revenues from customers inside Mississippi Powers service
territory was due to a $6.9 million increase in recoverable fuel costs and a $5.9 million increase
due to higher demands by customers and a base rate increase that was effective January 2009.
99
MISSISSIPPI POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Wholesale Revenues Affiliates
|
|
|
|
|
|
|
Second Quarter 2009 vs. Second Quarter 2008 |
|
Year-to-Date 2009 vs. Year-to-Date 2008 |
(change in millions) |
|
(% change) |
|
(change in millions) |
|
(% change) |
$(14.5)
|
|
(64.7)
|
|
$(33.5)
|
|
(65.9) |
|
Wholesale revenues from affiliates will vary depending on demand and the availability and cost of
generating resources at each company within the Southern Company system. These affiliate sales are
made in accordance with the IIC, as approved by the FERC. These transactions do not have a
significant impact on earnings since the energy is generally sold at marginal cost.
In the second quarter 2009, wholesale revenues from affiliates were $8.0 million compared to $22.5
million for the corresponding period in 2008. The decrease was primarily due to a $14.9 million
decrease in energy revenues, of which $11.6 million was associated with decreased sales and $3.3
million was associated with lower prices. Capacity revenues increased $0.4 million.
For year-to-date 2009, wholesale revenues from affiliates were $17.4 million compared to $50.9
million for the corresponding period in 2008. The decrease was primarily due to a $34.1 million
decrease in energy revenues, of which $29.9 million was associated with decreased sales and $4.2
million was associated with lower prices. Capacity revenues increased $0.6 million.
Other Revenues
|
|
|
|
|
|
|
Second Quarter 2009 vs. Second Quarter 2008 |
|
Year-to-Date 2009 vs. Year-to-Date 2008 |
(change in millions) |
|
(% change) |
|
(change in millions) |
|
(% change) |
$(0.8)
|
|
(16.6)
|
|
$(1.2)
|
|
(14.1) |
|
In the second quarter 2009, other revenues were $3.9 million compared to $4.7 million for the
corresponding period in 2008. The decrease was primarily due to a $0.6 million transmission
contract buyout that occurred in 2008.
For year-to-date 2009, other revenues were $7.3 million compared to $8.5 million for the
corresponding period in 2008. The decrease was primarily due to a $0.6 million decrease in
transmission revenues and a $0.6 million transmission contract buyout that occurred in 2008.
Fuel and Purchased Power Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter 2009 |
|
Year-to-Date 2009 |
|
|
vs. |
|
vs. |
|
|
Second Quarter 2008 |
|
Year-to-Date 2008 |
|
|
(change in millions) |
|
(% change) |
|
(change in millions) |
|
(% change) |
Fuel |
|
$ |
(13.1 |
) |
|
|
(9.4 |
) |
|
$ |
(23.2 |
) |
|
|
(8.6 |
) |
Purchased power non-affiliates |
|
|
(2.5 |
) |
|
|
(47.1 |
) |
|
|
(2.0 |
) |
|
|
(25.7 |
) |
Purchased power affiliates |
|
|
4.1 |
|
|
|
23.5 |
|
|
|
(0.1 |
) |
|
|
(0.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total fuel and purchased power expenses |
|
$ |
(11.5 |
) |
|
|
|
|
|
$ |
(25.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In the second quarter 2009, total fuel and purchased power expenses were $150.3 million compared to
$161.8 million for the corresponding period in 2008. This decrease was primarily due to a $19.4
million decrease in the cost of fuel and purchased power, partially offset by a $7.9 million
increase in total KWHs generated and purchased.
100
MISSISSIPPI POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For year-to-date 2009, total fuel and purchased power expenses were $294.9 million compared to
$320.1 million for the corresponding period in 2008. This decrease was primarily due to a $13.5
million decrease in total KWHs generated and purchased and an $11.7 million decrease in the cost of
fuel and purchased power.
Fuel and purchased power transactions do not have a significant impact on earnings since energy
expenses are generally offset by energy revenues through Mississippi Powers fuel cost recovery
clause. See FUTURE EARNINGS POTENTIAL FERC and Mississippi PSC Matters Retail Regulatory
Matters herein for additional information.
Details of Mississippi Powers cost of generation and purchased power are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter |
|
Second Quarter |
|
Percent |
|
Year-to-Date |
|
Year-to-Date |
|
Percent |
Average Cost |
|
2009 |
|
2008 |
|
Change |
|
2009 |
|
2008 |
|
Change |
|
|
|
(cents per net KWH) |
|
|
|
|
|
(cents per net KWH) |
|
|
|
|
Fuel |
|
|
4.21 |
|
|
|
4.03 |
|
|
|
4.5 |
|
|
|
4.32 |
|
|
|
3.97 |
|
|
|
8.8 |
|
Purchased power |
|
|
3.36 |
|
|
|
6.77 |
|
|
|
(50.4 |
) |
|
|
3.62 |
|
|
|
5.94 |
|
|
|
(39.1 |
) |
|
In the second quarter 2009, fuel expense was $125.8 million compared to $138.9 million for the
corresponding period for 2008. The decrease was primarily due to a 13.2% decrease in generation
from Mississippi Power facilities resulting from purchased power available at lower cost and lower
energy sales, partially offset by a 4.5% increase in the price of fuel primarily due to an increase
in coal prices.
For year-to-date 2009, fuel expense was $245.8 million compared to $269.0 million for the
corresponding period for 2008. The decrease was primarily due to a 16.0% decrease in generation
from Mississippi Power facilities resulting from purchased power available at lower cost and lower
energy sales, partially offset by an 8.8% increase in the price of fuel primarily due to an
increase in coal prices.
Non-Affiliates
In the second quarter 2009, purchased power expense from non-affiliates was $2.9 million compared
to $5.4 million for the corresponding period in 2008. The decrease was primarily the result of a
74.4% decrease in the average cost of purchased power per KWH, partially offset by a 107.0%
increase in KWH volume purchased. The decrease in prices was due to a lower marginal cost of fuel
while the increase in volume was a result of lower cost opportunity purchases.
For year-to-date 2009, purchased power expense from non-affiliates was $5.7 million compared to
$7.7 million for the corresponding period in 2008. The decrease was primarily the result of a
61.1% decrease in the average cost of purchased power per KWH, partially offset by a 91.2% increase
in KWH volume purchased. The decrease in prices was due to a lower marginal cost of fuel while the
increase in volume was a result of lower cost opportunity purchases.
Energy purchases from non-affiliates will vary depending on the market cost of available energy
being lower than the cost of Southern Company system-generated energy, demand for energy within the
Southern Company system service territory, and availability of Southern Company system generation.
101
MISSISSIPPI POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Affiliates
In the second quarter 2009, purchased power from affiliates was $21.6 million compared to $17.5
million for the corresponding period in 2008. The increase was primarily due to a 118.1% increase
in KWH volume purchased, partially offset by a 43.4% decrease in the average cost of purchased
power per KWH.
For year-to-date 2009, purchased power from affiliates was $43.4 million compared to $43.5 million
for the corresponding period in 2008. The decrease was primarily due to a 32.2% decrease in the
average cost of purchased power per KWH, partially offset by a 47.2% increase in KWH volume
purchased.
Energy purchases from affiliates will vary depending on demand and the availability and cost of
generating resources at each company within the Southern Company system. These purchases are made
in accordance with the IIC, as approved by the FERC.
Other Operations and Maintenance Expenses
|
|
|
|
|
|
|
Second Quarter 2009 vs. Second Quarter 2008 |
|
Year-to-Date 2009 vs. Year-to-Date 2008 |
(change in millions) |
|
(% change) |
|
(change in millions) |
|
(% change) |
$(1.8)
|
|
(2.8)
|
|
$(6.7)
|
|
(5.3) |
|
In the second quarter 2009, other operations and maintenance expenses were $61.6 million compared
to $63.4 million for the corresponding period in 2008. The decrease in other operations and
maintenance expenses was primarily due to generation construction screening expenses of $2.5
million incurred in the second quarter 2008 which were originally expensed and subsequently
reclassified in the fourth quarter 2008 to a regulatory asset upon the FERCs acceptance of the
wholesale rate filing in October 2008. Also contributing to the change was a $2.2 million decrease
in transmission and distribution expenses as a result of the timing of projects and overall
reductions in spending and a $0.3 million decrease in customer accounting, service, and sales
expenses. These decreases were partially offset by a $2.6 million increase in production expenses
primarily due to outage work in 2009 and a $0.6 million increase in administrative and general
expenses primarily due to an increase in property insurance expense.
For year-to-date 2009, other operations and maintenance expenses were $121.4 million compared to
$128.1 million for the corresponding period in 2008. The decrease in other operations and
maintenance expenses was primarily due to generation construction screening expenses of $4.2
million incurred in the first six months of 2008 which were originally expensed and subsequently
reclassified in the fourth quarter 2008 to a regulatory asset upon the FERCs acceptance of the
wholesale rate filing in October 2008. Also contributing to the change was a $4.0 million decrease
in transmission and distribution expenses as a result of timing of projects and overall reductions
in spending and a $1.5 million decrease in generation-related environmental expenses. These
decreases were partially offset by a $3.0 million increase in production expenses primarily due to
outage work in 2009.
See Note 3 to the financial statements of Mississippi Power under FERC Matters in Item 8 of the
Form 10-K for additional information.
102
MISSISSIPPI POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Interest Expense, Net of Amounts Capitalized
|
|
|
|
|
|
|
Second Quarter 2009 vs. Second Quarter 2008 |
|
Year-to-Date 2009 vs. Year-to-Date 2008 |
(change in millions) |
|
(% change) |
|
(change in millions) |
|
(% change) |
$1.9
|
|
42.4
|
|
$2.2
|
|
24.7 |
|
In the second quarter 2009, interest expense, net of amounts capitalized was $6.3 million compared
to $4.4 million for the corresponding period in 2008. The increase was primarily due to a $1.6
million increase in interest expense associated with the issuance of long-term debt in November
2008 and March 2009.
For year-to-date 2009, interest expense, net of amounts capitalized was $11.0 million compared to
$8.8 million for the corresponding period in 2008. The increase was primarily due to a $2.3
million increase in interest expense associated with the issuance of long-term debt in November
2008 and March 2009.
For additional information, see MANAGEMENTS DISCUSSION AND ANALYSIS FINANCIAL CONDITION AND
LIQUIDITY Financing Activities of Mississippi Power in Item 7 of the Form 10-K and FINANCIAL
CONDITION AND LIQUIDITY Financing Activities herein for additional information.
Other Income (Expense), Net
|
|
|
|
|
|
|
Second Quarter 2009 vs. Second Quarter 2008 |
|
Year-to-Date 2009 vs. Year-to-Date 2008 |
(change in millions) |
|
(% change) |
|
(change in millions) |
|
(% change) |
$(1.8)
|
|
(60.8)
|
|
$(1.7)
|
|
(38.8) |
|
In the second quarter 2009, other income (expense), net was $1.1 million compared to $2.9 million
for the corresponding period in 2008. The decrease was primarily due to a $1.8 million decrease
due to mark-to-market losses on energy-related derivative positions.
For year-to-date 2009, other income (expense), net was $2.8 million compared to $4.5 million for
the corresponding period in 2008. The decrease was primarily due to a $1.9 million decrease in
income due to mark-to-market losses on energy-related derivative positions and amounts collected
from customers for construction of substation projects which had a tax effect of $0.8 million,
partially offset by a $0.7 million increase in customer projects.
Income Taxes
|
|
|
|
|
|
|
Second Quarter 2009 vs. Second Quarter 2008 |
|
Year-to-Date 2009 vs. Year-to-Date 2008 |
(change in millions) |
|
(% change) |
|
(change in millions) |
|
(% change) |
$(0.1)
|
|
(0.6)
|
|
$0.7
|
|
3.1 |
|
In the second quarter 2009, income taxes were $13.6 million compared to $13.7 million for the
corresponding period in 2008. The change was primarily due to a $0.6 million decrease resulting
from the decrease in pre-tax income, partially offset by an increase in income taxes resulting from
fully amortizing a regulatory liability through income taxes in 2008 of $0.4 million pursuant to a
December 2007 regulatory accounting order from the Mississippi PSC.
For year-to-date 2009, income taxes were $24.1 million compared to $23.4 million for the
corresponding period in 2008. The change was primarily due to a $0.4 million increase resulting
from the increase in pre-tax income and a $0.7 million increase resulting from fully amortizing a
regulatory liability through income taxes in 2008 pursuant to a December 2007 regulatory accounting
order from the Mississippi PSC.
103
MISSISSIPPI POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
See Note 3 to the financial statements of Mississippi Power under Retail Regulatory Matters in
Item 8 of the Form 10-K for additional information.
FUTURE EARNINGS POTENTIAL
The results of operations discussed above are not necessarily indicative of Mississippi Powers
future earnings potential. The level of Mississippi Powers future earnings depends on numerous
factors that affect the opportunities, challenges, and risks of Mississippi Powers business of
selling electricity. These factors include Mississippi Powers ability to maintain a constructive
regulatory environment that continues to allow for the recovery of prudently incurred costs during
a time of increasing costs. Future earnings in the near term will depend, in part, upon
maintaining energy sales, which is subject to a number of factors. These factors include weather,
competition, new energy contracts with neighboring utilities, energy conservation practiced by
customers, the price of electricity, the price elasticity of demand, and the rate of economic
growth or decline in Mississippi Powers service area. Recent recessionary conditions have
negatively impacted sales and are expected to continue to have a negative impact, particularly to
industrial customers. The timing and extent of the economic recovery will impact future earnings.
For additional information relating to these issues, see RISK FACTORS in Item 1A and MANAGEMENTS
DISCUSSION AND ANALYSIS FUTURE EARNINGS POTENTIAL of Mississippi Power in Item 7 of the Form
10-K.
Environmental Matters
Compliance costs related to the Clean Air Act and other environmental statutes and regulations
could affect earnings if such costs cannot continue to be fully recovered in rates on a timely
basis. See MANAGEMENTS DISCUSSION AND ANALYSIS FUTURE EARNINGS POTENTIAL Environmental
Matters of Mississippi Power in Item 7 and Note 3 to the financial statements of Mississippi Power
under Environmental Matters in Item 8 of the Form 10-K for additional information.
Water Quality
See MANAGEMENTS DISCUSSION AND ANALYSIS FUTURE EARNINGS POTENTIAL Environmental Matters
Environmental Statutes and Regulations Water Quality of Mississippi Power in Item 7 of the Form
10-K for additional information regarding the EPAs regulation of cooling water intake structures.
On April 1, 2009, the U.S. Supreme Court reversed the U.S. Court of Appeals for the Second
Circuits decision with respect to the rules use of cost-benefit analysis and held that the EPA
could consider costs in arriving at its standards and in providing variances from those standards
for existing power plant cooling water intake structures. Other aspects of the courts decision
were not appealed and remain unaffected by the U.S. Supreme Courts ruling. While the U.S. Supreme
Courts decision may ultimately result in greater flexibility for demonstrating compliance with the
standards, the full scope of the regulations will depend on subsequent legal proceedings, further
rulemaking by the EPA, the results of studies and analyses performed as part of the rules
implementation, and the actual requirements established by state regulatory agencies and,
therefore, cannot be determined at this time.
Global Climate Issues
See MANAGEMENTS DISCUSSION AND ANALYSIS FUTURE EARNINGS POTENTIAL Environmental Matters
Global Climate Issues of Mississippi Power in Item 7 of the Form 10-K for information regarding
the potential for legislation and regulation addressing greenhouse gas emissions. On April 17,
2009, the EPA released a proposed finding that certain greenhouse gas emissions from new motor
vehicles endanger public health and welfare due to climate change. The ultimate outcome of the
proposed endangerment
finding cannot be determined at this time and will depend on additional regulatory action and
potential legal challenges. However, regulatory decisions that may follow from such a finding
could have
104
MISSISSIPPI POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
implications for both new and existing stationary sources, such as power plants. In
addition, federal legislative proposals that would impose mandatory requirements related to
greenhouse gas emissions, renewable energy standards, and energy efficiency standards continue to
be actively considered in Congress, and the reduction of greenhouse gas emissions has been
identified as a high priority by the current Administration. On June 26, 2009, the American Clean
Energy and Security Act of 2009, which would impose mandatory greenhouse gas restrictions through
implementation of a cap and trade program, a renewable energy standard, and other measures, was
passed by the House of Representatives and is expected to now be considered by the Senate. The
ultimate outcome of these matters cannot be determined at this time; however, mandatory
restrictions on Mississippi Powers greenhouse gas emissions, or requirements relating to renewable
energy or energy efficiency, could result in significant additional compliance costs that could
affect future unit retirement and replacement decisions and results of operations, cash flows, and
financial condition if such costs are not recovered through regulated rates.
FERC and Mississippi PSC Matters
Market-Based Rate Authority
See MANAGEMENTS DISCUSSION AND ANALYSIS FUTURE EARNINGS POTENTIAL FERC Matters
Market-Based Rate Authority of Mississippi Power in Item 7 and Note 3 to the financial statements
of Mississippi Power under FERC Matters Market-Based Rate Authority in Item 8 of the Form 10-K
for information regarding market-based rate authority. In October 2008, Southern Company filed
with the FERC a revised market-based rate (MBR) tariff and a new cost-based rate (CBR) tariff.
The revised MBR tariff provides for a must offer energy auction whereby Southern Company offers
all of its available energy for sale in a day-ahead auction and an hour-ahead auction with reserve
prices not to exceed the CBR tariff price, after considering Southern Companys native load
requirements, reliability obligations, and sales commitments to third parties. All sales under the
energy auction would be at market clearing prices established under the auction rules. The new CBR
tariff provides for a cost-based price for wholesale sales of less than a year. On March 5, 2009,
the FERC accepted Southern Companys CBR tariff for filing. On March 25, 2009, the FERC accepted
Southern Companys compliance filing related to the MBR tariff and directed Southern Company to
commence the energy auction in 30 days. Southern Company commenced the energy auction on April 23,
2009. The FERC has determined that implementation of the energy auction in accordance with the MBR
tariff order adequately mitigates going forward any presumption of market power that Southern
Company may have in the Southern Company retail service territory and adjacent market areas. The
original generation dominance proceeding initiated by the FERC in December 2004 remains pending
before the FERC. The ultimate outcome of this matter cannot be determined at this time.
Retail Regulatory Matters
Environmental Compliance Overview Plan
See Note 3 to the financial statements of Mississippi Power under Retail Regulatory Matters
Environmental Compliance Overview Plan in Item 8 of the Form 10-K for information on Mississippi
Powers annual environmental filing with the Mississippi PSC. On February 3, 2009, Mississippi
Power submitted its 2009 ECO Plan notice which proposed an increase in annual revenue for
Mississippi Power of approximately $1.5 million. On June 19, 2009, the Mississippi PSC approved
the ECO Plan with the new rates effective in June 2009.
105
MISSISSIPPI POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Performance Evaluation Plan
The Mississippi Public Utilities Staff, pursuant to the Mississippi PSCs 2004 order approving the
current PEP, is reviewing the PEP to determine if any modifications should be made. On March 2,
2009, concurrent with this review, the annual PEP evaluation filing for 2009 was suspended.
Mississippi Power anticipates that, as a result of this required review, changes to the PEP will be
made. Annual evaluations will resume for 2010 under the current PEP or a revised PEP. Mississippi
Power does not anticipate that the suspension of the PEP filing for 2009 will have a material
impact on 2009 earnings. On August 3, 2009, the Mississippi Public Utilities Staff and Mississippi
Power filed a joint report with the Mississippi PSC proposing several changes to the PEP and asking
the Mississippi PSC to rule on the recommendations by the end of September 2009. While the final
outcome is not known, it is likely that any modifications made to the PEP will result in a lower
performance incentive under the PEP and therefore smaller and/or less frequent rate changes in the
future. See Note 3 to the financial statements of Mississippi Power under Retail Regulatory
Matters Performance Evaluation Plan in Item 8 of the Form 10-K for additional information
regarding Mississippi Powers base rates.
On March 16, 2009, Mississippi Power submitted its annual PEP lookback filing for 2008, which
recommended no surcharge or refund. The ultimate outcome of these
matters cannot now be determined.
Fuel Cost Recovery
See MANAGEMENTS DISCUSSION AND ANALYSIS FUTURE EARNINGS POTENTIAL PSC Matters Fuel Cost
Recovery of Mississippi Power in Item 7 of the Form 10-K for information regarding Mississippi
Powers fuel cost recovery. The Mississippi PSC approved the retail fuel cost recovery factor on
March 3, 2009, with the new rates effective in March 2009. The retail fuel cost recovery factor
will result in an annual increase in an amount equal to 10.3% of total 2008 retail revenues based
on ten months of recovery under the new rate. At June 30, 2009, the amount of under recovered
retail fuel costs included in the balance sheet was $16.3 million compared to $36.0 million at
December 31, 2008. Mississippi Power also has a wholesale Municipal and Rural Associations (MRA)
and Market Base (MB) fuel cost recovery factor. Effective January 1, 2009, the wholesale MRA fuel
rate increased resulting in an annual increase in an amount equal to 13.9% of total 2008 MRA
revenues. Effective February 1, 2009, the wholesale MB fuel rate increased resulting in an annual
increase in an amount equal to 16.7% of total 2008 MB revenues. At June 30, 2009, the amount of
under recovered wholesale MRA and MB fuel costs included in the balance sheet was $3.5 million and
$1.4 million compared to $15.4 million and $3.7 million, respectively, at December 31, 2008.
Mississippi Powers operating revenues are adjusted for differences in actual recoverable fuel cost
and amounts billed in accordance with the currently approved cost recovery rate. Accordingly, this
increase to the billing factor will have no significant effect on Mississippi Powers revenues or
net income, but will increase annual cash flow.
In October 2008, the Mississippi PSC opened a docket to investigate and review interest and
carrying charges under the fuel adjustment clause for utilities within the State of Mississippi
including Mississippi Power. A hearing was held in November 2008 to hear testimony regarding the
method of calculating carrying charges on over and under recoveries of fuel-related costs. On
March 4, 2009, the Mississippi PSC issued an order to apply the prime rate in calculating the
carrying costs on the retail over or under recovery balances related to fuel cost recovery. On May
20, 2009, Mississippi Power filed the carrying cost calculation methodology as part of its
compliance filing.
106
MISSISSIPPI POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Integrated Coal Gasification Combined Cycle
See MANAGEMENTS DISCUSSION AND ANALYSIS FUTURE EARNINGS POTENTIAL Integrated Coal
Gasification Combined Cycle of Mississippi Power in Item 7 and Note 3 to the financial
statements of Mississippi Power under Integrated Coal Gasification Combined Cycle in Item 8 of
the Form 10-K for information regarding the Kemper IGCC.
On May 11, 2009, Mississippi Power received notification from the IRS formally certifying the
Internal Revenue Code Section 48A tax credits of $133 million to Mississippi Power. The
utilization of these credits is dependent upon meeting the certification requirements for the
Kemper IGCC, including an in-service date no later than May 2014.
On April 6, 2009, the Governor of the State of Mississippi signed into law a bill that will provide
an ad valorem tax exemption for a portion of the assessed value of all property utilized in certain
electric generating facilities with integrated gasification process facilities. This tax
exemption, which may not exceed 50% of the total value of the project, is for projects with a
capital investment from private sources of $1 billion or more. Mississippi Power expects the
Kemper IGCC to be a qualifying project under the law and the gasification portion of the Kemper
IGCC to be exempt from ad valorem taxation.
On April 6, 2009, Mississippi Power received an accounting order from the Mississippi PSC directing
Mississippi Power to continue to charge all generation resource planning, evaluation, and screening
costs to regulatory assets including those costs associated with activities to obtain a certificate
of public convenience and necessity and costs necessary and prudent to preserve the availability,
economic viability, and/or required schedule of the Kemper IGCC generation resource planning,
evaluation, and screening activities until the Mississippi PSC makes findings and determination as
to the recovery of Mississippi Powers prudent expenditures. The Mississippi PSCs determination
of prudence for Mississippi Powers pre-construction costs is scheduled to occur by May 2010. As
of June 30, 2009, Mississippi Power had spent a total of $56.4 million associated with Mississippi
Powers generation resource planning, evaluation, and screening activities, including regulatory
filing costs. Costs incurred for the six months ended June 30, 2009 totaled $14.1 million as
compared to $13.0 million for the six months ended June 30, 2008. Of the total $56.4 million,
$51.9 million was deferred in other regulatory assets, $3.7 million was related to land purchases
capitalized, and $0.8 million was previously expensed.
Several motions were filed by intervenors, most of which were procedural in nature and sought to
stay or delay the timely and orderly administration of the docket. In addition to these procedural
motions, a motion was filed by the Attorney General for the State of Mississippi which questioned
whether the Mississippi PSC had authority to approve the gasification portion of the Kemper IGCC.
On June 5, 2009, all of these motions were denied by the Mississippi PSC.
On June 5, 2009, the Mississippi PSC issued an order initiating an evaluation of the Kemper IGCC
and establishing a two-phase procedural schedule. During Phase I, the Mississippi PSC will
determine if a need exists for new generating resources. Hearings for Phase I are scheduled for
October 2009 with a decision in November 2009. If it is determined a need exists in Phase I, the
appropriate resource to fill the need as well as the cost recovery of that resource through
application of the State of Mississippis Baseload Act of 2008 will be determined during Phase II.
Hearings regarding Phase II issues are scheduled for February 2010 with a decision by May 2010.
See MANAGEMENTS DISCUSSION AND ANALYSIS FUTURE EARNINGS POTENTIAL PSC Matters
Mississippi Base Load Construction Legislation of Mississippi Power in Item 7 of the Form 10-K for
information regarding the Baseload Act of 2008.
The ultimate outcome of these matters cannot now be determined.
107
MISSISSIPPI POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Legislation
On February 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act of
2009 (ARRA). Major tax incentives in the ARRA include an extension of bonus depreciation and
multiple renewable energy incentives, which could have a significant impact on the future cash flow
and net income of Mississippi Power. Mississippi Power estimates the cash flow reduction to 2009
tax payments as a result of the bonus depreciation provisions of the ARRA to be between
approximately $11 million and $14 million. Southern Company and its subsidiaries have also filed
an application under the ARRA for a grant, of which approximately $40 million relates to
Mississippi Power, to be used primarily for the advanced metering infrastructure program and other
transmission and distribution automation and modernization projects. Mississippi Power continues
to assess the other financial implications of the ARRA. The ultimate impact cannot be determined
at this time.
Other Matters
See MANAGEMENTS DISCUSSION AND ANALYSIS FUTURE EARNINGS POTENTIAL Other Matters of
Mississippi Power in Item 7 of the Form 10-K for information regarding the South Mississippi
Electric Power Association (SMEPA) contract. On June 3, 2009, Mississippi Powers 10-year power
supply agreement with SMEPA for approximately 152 MW effective April 1, 2011 was approved by the
U.S. Department of Agricultures Rural Utilities Service.
Mississippi Power is involved in various other matters being litigated and regulatory matters that
could affect future earnings. In addition, Mississippi Power is subject to certain claims and
legal actions arising in the ordinary course of business. Mississippi Powers business activities
are subject to extensive governmental regulation related to public health and the environment.
Litigation over environmental issues and claims of various types, including property damage,
personal injury, common law nuisance, and citizen enforcement of environmental requirements such as
opacity and air and water quality standards, has increased generally throughout the United States.
In particular, personal injury claims for damages caused by alleged exposure to hazardous materials
have become more frequent. The ultimate outcome of such pending or potential litigation against
Mississippi Power cannot be predicted at this time; however, for current proceedings not
specifically reported herein or in Note 3 to the financial statements of Mississippi Power in Item
8 of the Form 10-K, management does not anticipate that the liabilities, if any, arising from such
current proceedings would have a material adverse effect on Mississippi Powers financial
statements.
See the Notes to the Condensed Financial Statements herein for discussion of various other
contingencies, regulatory matters, and other matters being litigated which may affect future
earnings potential.
ACCOUNTING POLICIES
Application of Critical Accounting Policies and Estimates
Mississippi Power prepares its financial statements in accordance with accounting principles
generally accepted in the United States. Significant accounting policies are described in Note 1
to the financial statements of Mississippi Power in Item 8 of the Form 10-K. In the application of
these policies, certain estimates are made that may have a material impact on Mississippi Powers
results of operations and related disclosures. Different assumptions and measurements could
produce estimates that are significantly different from those recorded in the financial statements.
See MANAGEMENTS DISCUSSION AND ANALYSIS ACCOUNTING POLICIES Application of Critical
Accounting Policies and Estimates of Mississippi Power in Item 7 of the Form 10-K for a complete
discussion of Mississippi Powers critical accounting policies and estimates related to Electric
Utility Regulation, Contingent Obligations, Unbilled Revenues, and Plant Daniel Operating Lease.
108
MISSISSIPPI POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
New Accounting Standards
Variable Interest Entities
In June 2009, the FASB issued new guidance on the consolidation of variable interest entities,
which replaces the quantitative-based risks and rewards calculation for determining whether an
enterprise is the primary beneficiary in a variable interest entity with an approach that is
primarily qualitative, requires ongoing assessments of whether an enterprise is the primary
beneficiary of a variable interest entity, and requires additional disclosures about an
enterprises involvement in variable interest entities. Mississippi Power is required to adopt
this new guidance effective January 1, 2010 and is evaluating the impact, if any, it will have on
its financial statements.
FINANCIAL CONDITION AND LIQUIDITY
Overview
Mississippi Powers financial condition remained stable at June 30, 2009. Throughout the turmoil
in the financial markets, Mississippi Power has maintained adequate access to capital without
drawing on any of its committed bank credit arrangements used to support its commercial paper
borrowings and variable rate pollution control revenue bonds. Mississippi Power intends to
continue to monitor its access to short-term and long-term capital markets as well as its bank
credit arrangements to meet future capital and liquidity needs. Market rates for committed credit
have increased, and Mississippi Power has been and expects to continue to be subject to higher
costs as its existing facilities are replaced or renewed. Total committed credit fees at
Mississippi Power currently average less than 1/4 of 1% per year. Mississippi Powers interest cost
for short-term debt has decreased as market short-term interest rates have declined from 2008
levels. The ultimate impact on future financing costs as a result of financial turmoil cannot be
determined at this time. Mississippi Power experienced no material counterparty credit losses as a
result of the turmoil in the financial markets. See Sources of Capital and Financing
Activities herein for additional information.
Mississippi Powers investments in pension trust funds stabilized during the second quarter 2009.
Mississippi Power expects that the earliest that cash may have to be contributed to the pension
trust fund is 2012 and such contribution could be significant; however, projections of the amount
vary significantly depending on interpretations of and decisions related to federal legislation
passed during 2008 as well as other key variables including future trust fund performance and
cannot be determined at this time.
Net cash used for operating activities totaled $23.8 million for the first six months of 2009,
compared to $1.0 million provided from operating activities for the corresponding period in 2008.
The $24.8 million increase in cash used for operating activities was primarily due to a decrease in
Energy Cost Management clause (ECM) revenues resulting from a decrease in the ECM rate effective in
March 2009 and cash payments related to losses on settled hedges in 2009. Also contributing to the
increase in cash used for operating activities were increases in both coal prices and inventory.
These increases in cash used for operating activities were partially offset by an increase in cash
resulting from higher fuel rates effective in March 2009. The $5.6 million increase in net cash
used for investing activities was primarily due to grant proceeds of $7.3 million received in the
second quarter 2008. The $13.7 million increase in net cash provided from financing activities was
primarily due to a $9.8 million increase in borrowings from commercial paper in 2009 and an
increase in the issuance of long-term debt in the first quarter 2009 of $45 million compared to the
corresponding period in 2008, partially offset by cash outflows resulting from $40 million of
long-term senior notes that matured on March 9, 2009.
109
MISSISSIPPI POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Significant balance sheet changes for the first six months of 2009 include a decrease in under
recovered regulatory clause revenues of $33.8 million primarily due to lower fuel costs and the
implementation of a higher fuel cost recovery factor in 2009. Fossil fuel inventory increased
$44.0 million primarily due to increases in coal inventory and emissions allowances of $26.3
million and $19.9 million, respectively. Other regulatory assets increased $12.9 million primarily
due to mark-to-market losses on forward gas contracts and total property, plant, and equipment
increased by $22.5 million. Securities due within one year decreased by $40.0 million due to
senior notes maturing during the first quarter 2009. Notes payable increased by $20.5 million
primarily due to an increase in commercial paper borrowings. Accrued taxes, other decreased by
$21.8 million primarily due to 2008 property tax payments of $39.8 million in the first quarter
2009 offset by an $18.4 million accrual for 2009. Long-term debt increased by $124 million
primarily due to the issuance of senior notes in the first quarter 2009.
Capital Requirements and Contractual Obligations
See MANAGEMENTS DISCUSSION AND ANALYSIS FINANCIAL CONDITION AND LIQUIDITY Capital
Requirements and Contractual Obligations of Mississippi Power in Item 7 of the Form 10-K for a
description of Mississippi Powers capital requirements for its construction program, scheduled
maturities of long-term debt, as well as the related interest, lease obligations, purchase
commitments, derivative obligations, preferred stock dividends, and trust funding requirements.
Approximately $1.3 million will be required through June 30, 2010 for maturities of long-term debt.
The construction program is subject to periodic review and revision, and actual construction costs
may vary from these estimates because of numerous factors. These factors include: changes in
business conditions; changes in load projections; storm impacts; changes in environmental statutes
and regulations; changes in FERC rules and regulations; Mississippi PSC approvals; changes in
legislation; the cost and efficiency of construction labor, equipment, and materials; and the cost
of capital. In addition, there can be no assurance that costs related to capital expenditures will
be fully recovered.
Sources of Capital
Mississippi Power plans to obtain the funds required for construction and other purposes from
sources similar to those utilized in the past. Mississippi Power has primarily utilized funds from
operating cash flows, short-term borrowings, external security offerings, and capital contributions
from Southern Company. However, the amount, type, and timing of any future financings, if needed,
will depend upon regulatory approval, prevailing market conditions, and other factors. See
MANAGEMENTS DISCUSSION AND ANALYSIS FINANCIAL CONDITION AND LIQUIDITY Sources of Capital
of Mississippi Power in Item 7 of the Form 10-K for additional information.
Mississippi Powers current liabilities sometimes exceed current assets because of the continued
use of short-term debt as a funding source to meet scheduled maturities of long-term debt as well
as cash needs which can fluctuate significantly due to the seasonality of the business. To meet
short-term cash needs and contingencies, Mississippi Power had at June 30, 2009 approximately $5.0
million of cash and cash equivalents and $148.5 million of unused committed credit arrangements
with banks. These credit arrangements provide liquidity support to Mississippi Powers commercial
paper borrowings and $40 million are dedicated to funding purchase obligations related to variable
rate pollution control revenue bonds. Of the unused credit facilities, $58.5 million expire in
2009 and $90 million expire in 2010 while $43.5 million of these credit arrangements contain
provisions allowing two-year term loans executable at expiration and $15 million contain provisions
allowing one-year term loans executable at expiration. Mississippi Power expects to renew its
credit facilities, as needed, prior to expiration.
110
MISSISSIPPI POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
See Note 6 to the financial statements of Mississippi Power under Bank Credit Arrangements in
Item 8 of the Form 10-K and Note (E) to the Condensed Financial Statements under Bank Credit
Arrangements herein for additional information. Mississippi Power may meet short-term cash needs
through a Southern Company subsidiary organized to issue and sell commercial paper at the request
and for the benefit of Mississippi Power and other Southern Company subsidiaries. At June 30,
2009, Mississippi Power had $45.4 million of commercial paper outstanding. Management believes
that the need for working capital can be adequately met by utilizing commercial paper, lines of
credit, and cash.
Off-Balance Sheet Financing Arrangements
See MANAGEMENTS DISCUSSION AND ANALYSIS FINANCIAL CONDITION AND LIQUIDITY Off-Balance Sheet
Financing Arrangements of Mississippi Power in Item 7 and Note 7 to the financial statements of
Mississippi Power under Operating Leases in Item 8 of the Form 10-K for information related to
Mississippi Powers lease of a combined cycle generating facility at Plant Daniel.
Credit Rating Risk
Mississippi Power does not have any credit arrangements that would require material changes in
payment schedules or terminations as a result of a credit rating downgrade. There are certain
contracts that could require collateral, but not accelerated payment, in the event of a credit
rating change to BBB- and/or Baa3 or below. These contracts are for physical electricity purchases
and sales, fuel purchases, fuel transportation and storage, emissions allowances, and energy price
risk management. At June 30, 2009, the maximum potential collateral requirements under these
contracts at a BBB- and/or Baa3 rating were approximately $12 million. At June 30, 2009, the
maximum potential collateral requirements under these contracts at a rating below BBB- and/or Baa3
were approximately $211 million. Included in these amounts are certain agreements that could
require collateral in the event that one or more Power Pool participants has a credit rating change
to below investment grade. Generally, collateral may be provided by a Southern Company guaranty,
letter of credit, or cash. Additionally, any credit rating downgrade could impact Mississippi
Powers ability to access capital markets, particularly the short-term debt market.
Market Price Risk
Mississippi Powers market risk exposure relative to interest rate changes has not changed
materially compared with the December 31, 2008 reporting period. Since a significant portion of
outstanding indebtedness is at fixed rates, Mississippi Power is not aware of any facts or
circumstances that would significantly affect exposures on existing indebtedness in the near term.
However, the impact on future financing costs cannot now be determined.
Due to cost-based rate regulation, Mississippi Power continues to have limited exposure to market
volatility in interest rates, commodity fuel prices, and prices of electricity. To mitigate
residual risks relative to movements in electricity prices, Mississippi Power enters into physical
fixed-price contracts for the purchase and sale of electricity through the wholesale electricity
market. Mississippi Power continues to manage retail fuel-hedging programs implemented per the
guidelines of the Mississippi PSC and wholesale fuel-hedging programs under agreements with
wholesale customers. As such, Mississippi Power has no material change in market risk exposure
when compared with the December 31, 2008 reporting period.
111
MISSISSIPPI POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The changes in fair value of energy-related derivative contracts for the three and six months ended
June 30, 2009 were as follows:
|
|
|
|
|
|
|
|
|
|
|
Second Quarter |
|
Year-to-Date |
|
|
2009 |
|
2009 |
|
|
Changes |
|
Changes |
|
|
|
Fair Value |
|
|
|
(in millions) |
Contracts outstanding at the beginning of the period, assets
(liabilities), net |
|
$ |
(76.0 |
) |
|
$ |
(52.0 |
) |
Contracts realized or settled |
|
|
16.8 |
|
|
|
25.8 |
|
Current period changes(a) |
|
|
(0.6 |
) |
|
|
(33.6 |
) |
|
Contracts outstanding at the end of the period, assets (liabilities), net |
|
$ |
(59.8 |
) |
|
$ |
(59.8 |
) |
|
|
|
|
(a) |
|
Current period changes also include the changes in fair value of new contracts
entered into during the period, if any. |
The changes in the fair value positions of the energy-related derivative contracts for the
three months and six months ended June 30, 2009 were an increase of $16 million and a decrease of
$8 million, respectively, substantially all of which is due to natural gas positions. These
changes are attributable to the prices of natural gas positions. At June 30, 2009, Mississippi
Power had a net hedge volume of 30 million mmBtu with a weighted average contract cost
approximately $2.02 per mmBtu above market prices, compared to 30 million mmBtu at March 31, 2009
with a weighted average contract cost approximately $2.60 per mmBtu above market prices and
compared to 29 million mmBtu at December 31, 2008 with a weighted average contract cost
approximately $1.89 per mmBtu above market prices. The majority of the natural gas hedge
settlements are recovered through the energy cost management clause.
At June 30, 2009 and December 31, 2008, the fair value of energy-related derivative contracts by
hedge designation was reflected in the financial statements as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 |
|
December 31, 2008 |
|
|
|
(in millions) |
Regulatory hedges |
|
$ |
(59.6 |
) |
|
$ |
(52.0 |
) |
Cash flow hedges |
|
|
|
|
|
|
|
|
Not designated |
|
|
(0.2 |
) |
|
|
|
|
|
Total fair value |
|
$ |
(59.8 |
) |
|
$ |
(52.0 |
) |
|
Energy-related derivative contracts which are designated as regulatory hedges relate to Mississippi
Powers fuel hedging program where gains and losses are initially recorded as regulatory
liabilities and assets, respectively, and then are included in fuel expense as they are recovered
through the energy cost management clause. Certain other gains and losses on energy-related
derivatives, designated as cash flow hedges, are initially deferred in OCI before being recognized
in income in the same period as the hedged transaction. Gains and losses on energy-related
derivative contracts that are not designated or fail to qualify as hedges are recognized in the
statements of income as incurred.
Unrealized pre-tax gains and losses recognized in income for the three and six months ended June
30, 2009 for energy-related derivative contracts that are not hedges were not material. For the
three and six months ended June 30, 2008, the total net unrealized gains recognized in the
statements of income were $2 million and $2 million, respectively. See Note (E) to the Condensed
Financial Statements herein for further details of these gains.
112
MISSISSIPPI POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The maturities of the energy-related derivative contracts and the level of the fair value hierarchy
in which they fall at June 30, 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 |
|
|
Fair Value Measurements |
|
|
Total |
|
Maturity |
|
|
Fair Value |
|
Year 1 |
|
Years 2&3 |
|
Years 4&5 |
|
|
|
(in millions) |
|
Level 1 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Level 2 |
|
|
(59.8 |
) |
|
|
(36.4 |
) |
|
|
(21.1 |
) |
|
|
(2.3 |
) |
Level 3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of
contracts
outstanding at end
of period |
|
$ |
(59.8 |
) |
|
$ |
(36.4 |
) |
|
$ |
(21.1 |
) |
|
$ |
(2.3 |
) |
|
Mississippi Power uses over-the-counter contracts that are not exchange traded but are fair valued
using prices which are actively quoted, and thus fall into Level 2. See Note (C) to the Condensed
Financial Statements herein for further discussion on fair value measurements.
For additional information, see MANAGEMENTS DISCUSSION AND ANALYSIS FINANCIAL CONDITION AND
LIQUIDITY Market Price Risk of Mississippi Power in Item 7 and Notes 1 and 6 to the financial
statements of Mississippi Power under Financial Instruments in Item 8 of the Form 10-K and Note
(E) to the Condensed Financial Statements herein.
Financing Activities
During the first quarter 2009, Mississippi Power issued $125 million of Series 2009A 5.55% Senior
Notes due March 1, 2019. The proceeds were used to repay at maturity Mississippi Powers $40
million aggregate principal amount of Series F Floating Rate Senior Notes due March 9, 2009, to
repay a portion of short-term indebtedness, and for general corporate purposes, including
Mississippi Powers continuous construction program.
In addition to any financings that may be necessary to meet capital requirements, contractual
obligations, and storm restoration costs, Mississippi Power plans to continue, when economically
feasible, a program to retire higher-cost securities and replace these obligations with lower-cost
capital if market conditions permit.
113
SOUTHERN POWER COMPANY
AND SUBSIDIARY COMPANIES
114
SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months |
|
|
For the Six Months |
|
|
|
Ended June 30, |
|
|
Ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
(in thousands) |
|
|
(in thousands) |
|
Operating Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale revenues, non-affiliates |
|
$ |
90,877 |
|
|
$ |
170,907 |
|
|
$ |
185,489 |
|
|
$ |
251,376 |
|
Wholesale revenues, affiliates |
|
|
137,718 |
|
|
|
143,893 |
|
|
|
273,002 |
|
|
|
277,386 |
|
Other revenues |
|
|
2,003 |
|
|
|
1,784 |
|
|
|
3,624 |
|
|
|
3,354 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues |
|
|
230,598 |
|
|
|
316,584 |
|
|
|
462,115 |
|
|
|
532,116 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fuel |
|
|
51,731 |
|
|
|
76,341 |
|
|
|
117,512 |
|
|
|
112,388 |
|
Purchased power, non-affiliates |
|
|
24,778 |
|
|
|
34,312 |
|
|
|
46,260 |
|
|
|
50,868 |
|
Purchased power, affiliates |
|
|
13,860 |
|
|
|
64,963 |
|
|
|
29,062 |
|
|
|
115,671 |
|
Other operations and maintenance |
|
|
34,966 |
|
|
|
35,654 |
|
|
|
67,939 |
|
|
|
70,685 |
|
Depreciation and amortization |
|
|
27,198 |
|
|
|
20,943 |
|
|
|
51,537 |
|
|
|
40,930 |
|
Taxes other than income taxes |
|
|
4,789 |
|
|
|
4,639 |
|
|
|
9,548 |
|
|
|
9,181 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
157,322 |
|
|
|
236,852 |
|
|
|
321,858 |
|
|
|
399,723 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income |
|
|
73,276 |
|
|
|
79,732 |
|
|
|
140,257 |
|
|
|
132,393 |
|
Other Income and (Expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net of amounts capitalized |
|
|
(21,592 |
) |
|
|
(19,894 |
) |
|
|
(43,151 |
) |
|
|
(39,251 |
) |
Other income (expense), net |
|
|
(23 |
) |
|
|
34 |
|
|
|
(234 |
) |
|
|
12,614 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income and (expense) |
|
|
(21,615 |
) |
|
|
(19,860 |
) |
|
|
(43,385 |
) |
|
|
(26,637 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings Before Income Taxes |
|
|
51,661 |
|
|
|
59,872 |
|
|
|
96,872 |
|
|
|
105,756 |
|
Income taxes |
|
|
20,607 |
|
|
|
24,452 |
|
|
|
37,902 |
|
|
|
41,361 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
$ |
31,054 |
|
|
$ |
35,420 |
|
|
$ |
58,970 |
|
|
$ |
64,395 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months |
|
|
For the Six Months |
|
|
|
Ended June 30, |
|
|
Ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
(in thousands) |
|
|
(in thousands) |
|
Net Income |
|
$ |
31,054 |
|
|
$ |
35,420 |
|
|
$ |
58,970 |
|
|
$ |
64,395 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Qualifying hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in fair value, net of tax
of $-, $(4,886), $302, and
$(7,831), respectively |
|
|
|
|
|
|
(7,554 |
) |
|
|
466 |
|
|
|
(12,116 |
) |
Reclassification adjustment for
amounts included in net
income, net of tax of $931,
$1,348, $1,866, and $2,690,
respectively |
|
|
1,435 |
|
|
|
2,084 |
|
|
|
2,875 |
|
|
|
4,158 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income (loss) |
|
|
1,435 |
|
|
|
(5,470 |
) |
|
|
3,341 |
|
|
|
(7,958 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income |
|
$ |
32,489 |
|
|
$ |
29,950 |
|
|
$ |
62,311 |
|
|
$ |
56,437 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes as they relate to Southern Power are an integral part of these condensed financial statements.
115
SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
For the Six Months |
|
|
|
Ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(in thousands) |
|
Operating Activities: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
58,970 |
|
|
$ |
64,395 |
|
Adjustments to reconcile net income
to net cash provided from operating activities |
|
|
|
|
|
|
|
|
Depreciation and amortization, total |
|
|
57,610 |
|
|
|
48,844 |
|
Deferred income taxes |
|
|
24,442 |
|
|
|
23,614 |
|
Deferred revenues |
|
|
(21,070 |
) |
|
|
(27,234 |
) |
Mark-to-market adjustments |
|
|
991 |
|
|
|
8,534 |
|
Accumulated billings on construction contract |
|
|
24,565 |
|
|
|
39,437 |
|
Accumulated costs on construction contract |
|
|
(31,113 |
) |
|
|
(46,014 |
) |
Gain on sale of property |
|
|
(24 |
) |
|
|
(6,015 |
) |
Other, net |
|
|
3,858 |
|
|
|
1,553 |
|
Changes in certain current assets and liabilities |
|
|
|
|
|
|
|
|
-Receivables |
|
|
(50,026 |
) |
|
|
(114,097 |
) |
-Fossil fuel stock |
|
|
1,389 |
|
|
|
(2,776 |
) |
-Materials and supplies |
|
|
(1,826 |
) |
|
|
(1,049 |
) |
-Prepaid income taxes |
|
|
5,510 |
|
|
|
(12,034 |
) |
-Other current assets |
|
|
1,493 |
|
|
|
(494 |
) |
-Accounts payable |
|
|
(15,940 |
) |
|
|
59,180 |
|
-Accrued taxes |
|
|
8,642 |
|
|
|
7,829 |
|
-Accrued interest |
|
|
27 |
|
|
|
(25 |
) |
-Other current liabilities |
|
|
(158 |
) |
|
|
2,326 |
|
|
|
|
|
|
|
|
Net cash provided from operating activities |
|
|
67,340 |
|
|
|
45,974 |
|
|
|
|
|
|
|
|
Investing Activities: |
|
|
|
|
|
|
|
|
Property additions |
|
|
(7,835 |
) |
|
|
(40,444 |
) |
Sale of property |
|
|
52 |
|
|
|
5,001 |
|
Change in construction payables |
|
|
(1,624 |
) |
|
|
(7,222 |
) |
Payments pursuant to long-term service agreements |
|
|
(15,450 |
) |
|
|
(14,094 |
) |
Other investing activities |
|
|
(184 |
) |
|
|
(726 |
) |
|
|
|
|
|
|
|
Net cash used for investing activities |
|
|
(25,041 |
) |
|
|
(57,485 |
) |
|
|
|
|
|
|
|
Financing Activities: |
|
|
|
|
|
|
|
|
Increase in notes payable, net |
|
|
|
|
|
|
56,625 |
|
Proceeds Capital contributions |
|
|
1,680 |
|
|
|
2,135 |
|
Payment of common stock dividends |
|
|
(53,050 |
) |
|
|
(47,250 |
) |
|
|
|
|
|
|
|
Net cash provided from (used for) financing activities |
|
|
(51,370 |
) |
|
|
11,510 |
|
|
|
|
|
|
|
|
Net Change in Cash and Cash Equivalents |
|
|
(9,071 |
) |
|
|
(1 |
) |
Cash and Cash Equivalents at Beginning of Period |
|
|
37,894 |
|
|
|
5 |
|
|
|
|
|
|
|
|
Cash and Cash Equivalents at End of Period |
|
$ |
28,823 |
|
|
$ |
4 |
|
|
|
|
|
|
|
|
Supplemental Cash Flow Information: |
|
|
|
|
|
|
|
|
Cash paid during the period for |
|
|
|
|
|
|
|
|
Interest (net of $163 and $7,000 capitalized for 2009 and 2008, respectively) |
|
$ |
37,508 |
|
|
$ |
31,941 |
|
Income taxes (net of refunds) |
|
$ |
7,725 |
|
|
$ |
29,866 |
|
The accompanying notes as they relate to Southern Power are an integral part of these condensed financial statements.
116
SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
At June 30, |
|
|
At December 31, |
|
Assets |
|
2009 |
|
|
2008 |
|
|
|
(in thousands) |
|
Current Assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
28,823 |
|
|
$ |
37,894 |
|
Receivables |
|
|
|
|
|
|
|
|
Customer accounts receivable |
|
|
39,530 |
|
|
|
23,640 |
|
Other accounts receivable |
|
|
1,514 |
|
|
|
2,162 |
|
Affiliated companies |
|
|
70,605 |
|
|
|
33,401 |
|
Fossil fuel stock, at average cost |
|
|
15,521 |
|
|
|
17,801 |
|
Materials and supplies, at average cost |
|
|
28,353 |
|
|
|
26,527 |
|
Prepaid service agreements current |
|
|
38,992 |
|
|
|
26,304 |
|
Prepaid income taxes |
|
|
15,962 |
|
|
|
18,066 |
|
Other prepaid expenses |
|
|
1,259 |
|
|
|
2,756 |
|
Assets from risk management activities |
|
|
12,884 |
|
|
|
10,799 |
|
Other current assets |
|
|
4,507 |
|
|
|
4,532 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
257,950 |
|
|
|
203,882 |
|
|
|
|
|
|
|
|
Property, Plant, and Equipment: |
|
|
|
|
|
|
|
|
In service |
|
|
2,880,403 |
|
|
|
2,847,757 |
|
Less accumulated provision for depreciation |
|
|
401,164 |
|
|
|
351,193 |
|
|
|
|
|
|
|
|
Plant in service, net of depreciation |
|
|
2,479,239 |
|
|
|
2,496,564 |
|
Construction work in progress |
|
|
10,449 |
|
|
|
8,775 |
|
|
|
|
|
|
|
|
Total property, plant, and equipment |
|
|
2,489,688 |
|
|
|
2,505,339 |
|
|
|
|
|
|
|
|
Deferred Charges and Other Assets: |
|
|
|
|
|
|
|
|
Prepaid long-term service agreements |
|
|
50,600 |
|
|
|
81,542 |
|
Other deferred charges and assets affiliated |
|
|
3,684 |
|
|
|
3,827 |
|
Other deferred charges and assets
non-affiliated |
|
|
18,690 |
|
|
|
18,550 |
|
|
|
|
|
|
|
|
Total deferred charges and other assets |
|
|
72,974 |
|
|
|
103,919 |
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
2,820,612 |
|
|
$ |
2,813,140 |
|
|
|
|
|
|
|
|
The accompanying notes as they relate to Southern Power are an integral part of these condensed financial statements.
117
SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
At June 30, |
|
|
At December 31, |
|
Liabilities and Stockholders Equity |
|
2009 |
|
|
2008 |
|
|
|
(in thousands) |
|
Current Liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
|
|
|
|
|
|
|
Affiliated |
|
$ |
49,256 |
|
|
$ |
61,527 |
|
Other |
|
|
6,502 |
|
|
|
11,278 |
|
Accrued taxes |
|
|
|
|
|
|
|
|
Accrued income taxes |
|
|
5,471 |
|
|
|
88 |
|
Other accrued taxes |
|
|
10,303 |
|
|
|
2,343 |
|
Accrued interest |
|
|
29,943 |
|
|
|
29,916 |
|
Liabilities from risk management activities |
|
|
8,982 |
|
|
|
7,452 |
|
Billings in excess of cost on construction contract |
|
|
5,359 |
|
|
|
11,907 |
|
Deferred capacity revenues current affiliated |
|
|
6,099 |
|
|
|
1,206 |
|
Other current liabilities |
|
|
67 |
|
|
|
223 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
121,982 |
|
|
|
125,940 |
|
|
|
|
|
|
|
|
Long-term Debt |
|
|
1,297,480 |
|
|
|
1,297,353 |
|
|
|
|
|
|
|
|
Deferred Credits and Other Liabilities: |
|
|
|
|
|
|
|
|
Accumulated deferred income taxes |
|
|
234,652 |
|
|
|
209,960 |
|
Deferred capacity revenues affiliated |
|
|
8,515 |
|
|
|
32,211 |
|
Other deferred credits and liabilities affiliated |
|
|
6,150 |
|
|
|
6,667 |
|
Other deferred credits and liabilities
non-affiliated |
|
|
2,532 |
|
|
|
2,648 |
|
|
|
|
|
|
|
|
Total deferred credits and other liabilities |
|
|
251,849 |
|
|
|
251,486 |
|
|
|
|
|
|
|
|
Total Liabilities |
|
|
1,671,311 |
|
|
|
1,674,779 |
|
|
|
|
|
|
|
|
Common Stockholders Equity: |
|
|
|
|
|
|
|
|
Common stock, par value $.01 per share |
|
|
|
|
|
|
|
|
Authorized - 1,000,000 shares |
|
|
|
|
|
|
|
|
Outstanding - 1,000 shares |
|
|
|
|
|
|
|
|
Paid-in capital |
|
|
863,788 |
|
|
|
862,109 |
|
Retained earnings |
|
|
308,229 |
|
|
|
302,309 |
|
Accumulated other comprehensive loss |
|
|
(22,716 |
) |
|
|
(26,057 |
) |
|
|
|
|
|
|
|
Total common stockholders equity |
|
|
1,149,301 |
|
|
|
1,138,361 |
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders Equity |
|
$ |
2,820,612 |
|
|
$ |
2,813,140 |
|
|
|
|
|
|
|
|
The accompanying notes as they relate to Southern Power are an integral part of these condensed financial statements.
118
SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SECOND QUARTER 2009 vs. SECOND QUARTER 2008
AND
YEAR-TO-DATE 2009 vs. YEAR-TO-DATE 2008
OVERVIEW
Southern Power and its wholly-owned subsidiaries construct, acquire, own, and manage generation
assets and sell electricity at market-based prices in the southeastern wholesale market. Southern
Power continues to execute its strategy through a combination of acquiring and constructing new
power plants and by entering into PPAs with investor owned utilities, independent power producers,
municipalities, and electric cooperatives.
To evaluate operating results and to ensure Southern Powers ability to meet its contractual
commitments to customers, Southern Power focuses on several key performance indicators. These
indicators include peak season equivalent forced outage rate (EFOR), return on invested capital
(ROIC), and net income. EFOR defines the hours during peak demand times when Southern Powers
generating units are not available due to forced outages (the lower the better). ROIC is focused
on earning a return on all invested capital that meets or exceeds Southern Powers weighted average
cost of capital. For additional information on these indicators, see MANAGEMENTS DISCUSSION AND
ANALYSIS OVERVIEW Key Performance Indicators of Southern Power in Item 7 of the Form 10-K.
RESULTS OF OPERATIONS
Net Income
|
|
|
|
|
|
|
Second Quarter 2009 vs. Second Quarter 2008 |
|
Year-to-Date 2009 vs. Year-to-Date 2008 |
(change in millions) |
|
(% change) |
|
(change in millions) |
|
(% change) |
$(4.3)
|
|
(12.3)
|
|
$(5.4)
|
|
(8.4) |
|
Southern Powers net income for the second quarter 2009 was $31.1 million compared to $35.4 million
for the corresponding period in 2008. The decrease was primarily due to increased depreciation
associated with an increase in depreciation rates and Plant Franklin Unit 3 being placed into
commercial operation in June 2008 and a reduction of capitalized interest as a result of the
completion of Plant Franklin Unit 3 in June 2008. These unfavorable impacts were partially offset
by increased revenues associated with Plant Franklin Unit 3 being placed into commercial operation
in June 2008 and increased generation from Southern Powers combined cycle units due to lower
natural gas prices.
Southern Powers net income for year-to-date 2009 was $59.0 million compared to $64.4 million for
the corresponding period in 2008. The decrease was primarily due to a gain on the sale of an
undeveloped tract of land in Orange County, Florida to the Orlando Utilities Commission (OUC) and
the receipt of a fee for participating in an asset auction that were both recognized in income in
the first quarter 2008. Additionally, the decrease was due to increased depreciation associated
with an increase in depreciation rates, increased depreciation associated with Plant Franklin Unit
3 being placed into commercial operation in June 2008, and a reduction of capitalized interest as a
result of the completion of Plant Franklin Unit 3 in June 2008. These unfavorable impacts were
partially offset by increased revenues associated with Plant Franklin Unit 3 being placed into
commercial operation in June 2008 and increased generation from Southern Powers combined cycle
units due to lower natural gas prices.
119
SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Wholesale Revenues Non-Affiliates
|
|
|
|
|
|
|
Second Quarter 2009 vs. Second Quarter 2008 |
|
Year-to-Date 2009 vs. Year-to-Date 2008 |
(change in millions) |
|
(% change) |
|
(change in millions) |
|
(% change) |
$(80.0)
|
|
(46.8)
|
|
$(65.9)
|
|
(26.2) |
|
Wholesale energy sales to non-affiliates will vary depending on the energy demand of those
customers and their generation capacity, as well as the market cost of available energy compared to
the cost of Southern Powers energy. Increases and decreases in revenues that are driven by fuel
prices are accompanied by an increase or decrease in fuel costs and do not have a significant
impact on net income.
Wholesale revenues from non-affiliates for the second quarter 2009 were $90.9 million compared to
$170.9 million for the corresponding period in 2008. The decrease was due to lower natural gas
prices reducing energy revenues by $88.2 million. The decrease was partially offset by increased
capacity revenues primarily from the operation of Plant Franklin Unit 3 of $2.0 million and
mark-to-market gains of $0.5 million recognized in 2009. Southern Power recognized mark-to-market
losses of $5.7 million in 2008.
Wholesale revenues from non-affiliates for year-to-date 2009 were $185.5 million compared to $251.4
million for the corresponding period in 2008. The decrease was due to lower natural gas prices
reducing energy revenues by $112.8 million. The decrease was partially offset by increased
capacity revenues primarily from the operation of Plant Franklin Unit 3 of $8.0 million and
mark-to-market gains of $4.9 million recognized in 2009. Southern Power recognized mark-to-market
losses of $34.0 million in 2008.
See MANAGEMENTS DISCUSSION AND ANALYSIS FUTURE EARNINGS POTENTIAL Power Sales Agreements of
Southern Power in Item 7 of the Form 10-K and FUTURE EARNINGS POTENTIAL Power Sales Agreements
herein for additional information.
Wholesale Revenues Affiliates
|
|
|
|
|
|
|
Second Quarter 2009 vs. Second Quarter 2008 |
|
Year-to-Date 2009 vs. Year-to-Date 2008 |
(change in millions) |
|
(% change) |
|
(change in millions) |
|
(% change) |
$(6.2)
|
|
(4.3)
|
|
$(4.4)
|
|
(1.6) |
|
Wholesale energy sales to affiliated companies within the Southern Company system will vary
depending on demand and the availability and cost of generating resources at each company. Sales
to affiliate companies that are not covered by PPAs are made in accordance with the IIC, as
approved by the FERC. Increases and decreases in revenues that are driven by fuel prices are
accompanied by an increase or decrease in fuel costs and do not have a significant impact on net
income.
Wholesale revenues from affiliates for the second quarter 2009 were $137.7 million compared to
$143.9 million for the corresponding period in 2008. The decrease was due to a decrease of $104.9
million due to lower natural gas prices. The decrease was substantially offset by increased energy
revenues of $98.7 million due to increased power sales under the IIC. The increase in sales under
the IIC was primarily due to lower natural gas prices.
120
SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Wholesale revenues from affiliates for year-to-date 2009 were $273.0 million compared to $277.4
million for the corresponding period in 2008. The decrease was due to a decrease of $125.8 million
due to lower natural gas prices. The decrease was substantially offset by increased energy
revenues of $121.4 million due to increased power sales under the IIC. The increase in sales under
the IIC was primarily due to lower natural gas prices.
See MANAGEMENTS DISCUSSION AND ANALYSIS FUTURE EARNINGS POTENTIAL Power Sales Agreements of
Southern Power in Item 7 of the Form 10-K for additional information.
Fuel and Purchased Power Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter 2009 |
|
Year-to-Date 2009 |
|
|
vs. |
|
vs. |
|
|
Second Quarter 2008 |
|
Year-to-Date 2008 |
|
|
|
(change in millions) |
|
(% change) |
|
(change in millions) |
|
(% change) |
Fuel |
|
$ |
(24.6 |
) |
|
|
(32.2 |
) |
|
$ |
5.1 |
|
|
|
4.6 |
|
Purchased power non-affiliates |
|
|
(9.5 |
) |
|
|
(27.8 |
) |
|
|
(4.6 |
) |
|
|
(9.1 |
) |
Purchased power affiliates |
|
|
(51.1 |
) |
|
|
(78.7 |
) |
|
|
(86.6 |
) |
|
|
(74.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total fuel and purchased power expenses |
|
$ |
(85.2 |
) |
|
|
|
|
|
$ |
(86.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Southern Power PPAs generally provide that the purchasers are responsible for substantially all of
the cost of fuel. Consequently, any increase or decrease in fuel costs is accompanied by an
increase or decrease in related fuel revenues and does not have a significant impact on net income.
In the second quarter 2009, total fuel and purchased power expenses were $90.4 million compared to
$175.6 million for the corresponding period in 2008. Fuel
expense decreased $117.3 million due to
a 33.7% decrease in the average cost of natural gas. This decrease was substantially offset by
increases of $77.2 million due to a 101% increase in generation associated with Plant Franklin Unit
3 being placed into commercial operation in June 2008 and increased generation at Southern Powers
other combined cycle units due to lower natural gas prices. Additionally, $16.5 million in
mark-to-market gains were recognized in the second quarter 2008
compared to $1.0 million in
mark-to-market gains recognized in the second quarter 2009. Purchased power expense decreased
$30.6 million due to increased generation at Southern Powers combined cycle units during the
second quarter 2009 due to lower natural gas prices. Additionally, purchased power expense
decreased $26.8 million due to a decrease in the average cost of purchased power and a decrease of
$3.2 million in mark-to-market losses recognized.
For year-to-date 2009, total fuel and purchased power expenses were $192.8 million compared to
$278.9 million for the corresponding period in 2008. Fuel expense increased $152.4 million due to
a 135.6% increase in generation associated with Plant Franklin Unit 3 being placed into commercial
operation in June 2008 and increased generation at Southern Powers other combined cycle units due
to lower natural gas prices. Additionally, $28.4 million in mark-to-market gains were recognized
in 2008 compared to $2.9 million in mark-to-market losses recognized in 2009. These increases were
substantially offset by decreases of $178.6 million due to a 44.4% decrease in the average cost of
natural gas. Purchased power expense decreased $60.9 million due to increased generation at
Southern Powers combined cycle units due to lower natural gas prices. Additionally, purchased
power expense decreased $30.3 million due to a decrease in the average cost of purchased power.
121
SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In the second quarter 2009, fuel expense was $51.7 million compared to $76.3 million for the
corresponding period in 2008. Fuel expense decreased $117.3 million due to a 33.7% decrease in the
average cost of natural gas. This decrease was substantially offset by increases of $77.2 million
due to a 101% increase in generation associated with Plant Franklin Unit 3 being placed into
commercial operation in June 2008 and increased generation at Southern Powers other combined cycle
units due to lower natural gas prices. Additionally, $16.5 million in mark-to-market gains were
recognized in the second quarter 2008 compared to $1.0 million
in mark-to- market gains recognized
in the second quarter 2009.
For year-to-date 2009, fuel expense was $117.5 million compared to $112.4 million for the
corresponding period in 2008. Fuel expense increased $152.4 million due to a 135.6% increase in
generation associated with Plant Franklin Unit 3 being placed into commercial operation in June
2008 and increased generation at Southern Powers other combined cycle units due to lower natural
gas prices. Additionally, $28.4 million in mark-to-market gains were recognized in 2008 compared
to $2.9 million in mark-to-market losses recognized in 2009. These increases were substantially
offset by decreases of $178.6 million due to a 44.4% decrease in the average cost of natural gas.
In the second quarter 2009, purchased power expense was $38.6 million compared to $99.3 million for
the corresponding period in 2008. Purchased power expense decreased $30.6 million due to increased
generation at Southern Powers combined cycle units during the second quarter 2009 due to lower
natural gas prices. Additionally, purchased power expense decreased $26.8 million due to a
decrease in the average cost of purchased power and a decrease of $3.2 million in mark-to-market
losses recognized.
For year-to-date 2009, purchased power expense was $75.3 million compared to $166.5 million for the
corresponding period in 2008. Purchased power expense decreased $60.9 million due to increased
generation at Southern Powers combined cycle units due to lower natural gas prices. Additionally,
purchased power expense decreased $30.3 million due to a decrease in the average cost of purchased
power.
Other Operations and Maintenance Expenses
|
|
|
|
|
|
|
Second Quarter 2009 vs. Second Quarter 2008 |
|
Year-to-Date 2009 vs. Year-to-Date 2008 |
(change in millions) |
|
(% change) |
|
(change in millions) |
|
(% change) |
$(0.7)
|
|
(1.9)
|
|
$(2.8)
|
|
(3.9) |
|
In the second quarter 2009, the change in other operations and maintenance expenses from the second
quarter 2008 was not material.
For year-to-date 2009, other operations and maintenance expenses were $67.9 million compared to
$70.7 million for the corresponding period in 2008. The decrease was primarily due to transmission
tariff penalties of $3.6 million recognized in 2008, partially offset by an increase in plant
maintenance activities of $0.8 million.
Depreciation and Amortization
|
|
|
|
|
|
|
Second Quarter 2009 vs. Second Quarter 2008 |
|
Year-to-Date 2009 vs. Year-to-Date 2008 |
(change in millions) |
|
(% change) |
|
(change in millions) |
|
(% change) |
$6.3
|
|
29.9
|
|
$10.6
|
|
25.9 |
|
In the second quarter 2009, depreciation and amortization was $27.2 million compared to $20.9
million for the corresponding period in 2008. For year-to-date 2009, depreciation and amortization
was $51.5 million compared to $40.9 million for the corresponding period in 2008. These increases
were due to the completion of Plant Franklin Unit 3 in June 2008 and higher depreciation rates
implemented in January 2009. See Note 1
122
SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
to the financial statements of Southern Power under
Depreciation in Item 8 of the Form 10-K and Note
(A) to the Condensed Financial Statements under Southern Power Depreciation Policy herein for
additional information.
Interest Expense, Net of Amounts Capitalized
|
|
|
|
|
|
|
Second Quarter 2009 vs. Second Quarter 2008 |
|
Year-to-Date 2009 vs. Year-to-Date 2008 |
(change in millions) |
|
(% change) |
|
(change in millions) |
|
(% change) |
$1.7
|
|
8.5
|
|
$3.9
|
|
9.9 |
|
In the second quarter 2009, interest expense, net of amounts capitalized was $21.6 million compared
to $19.9 million for the corresponding period in 2008. For year-to-date 2009, interest expense,
net of amounts capitalized was $43.2 million compared to $39.3 million for the corresponding period
in 2008. These increases were primarily due to a decrease in capitalized interest as a result of
the completion of Plant Franklin Unit 3 in June 2008, partially offset by a decrease in short-term
borrowing levels.
Other Income (Expense), Net
|
|
|
|
|
|
|
Second Quarter 2009 vs. Second Quarter 2008 |
|
Year-to-Date 2009 vs. Year-to-Date 2008 |
(change in millions) |
|
(% change) |
|
(change in millions) |
|
(% change) |
$(0.1)
|
|
N/M
|
|
$(12.8)
|
|
(101.9) |
|
N/M Not meaningful
In the second quarter 2009, the change in other income (expense), net from the second quarter
2008 was not material.
For year-to-date 2009, other income (expense), net was $(0.2) million as compared to $12.6 million
for the corresponding period in 2008. The change was primarily due to a $6.0 million gain on the
sale of an undeveloped tract of land in Orange County, Florida to the OUC and a $6.4 million fee
received for participating in an asset auction that were both recognized in the first quarter 2008.
Southern Power was not the successful bidder in the auction.
Income Taxes
|
|
|
|
|
|
|
Second Quarter 2009 vs. Second Quarter 2008 |
|
Year-to-Date 2009 vs. Year-to-Date 2008 |
(change in millions) |
|
(% change) |
|
(change in millions) |
|
(% change) |
$(3.9)
|
|
(15.7)
|
|
$(3.5)
|
|
(8.4) |
|
In the second quarter 2009, income taxes were $20.6 million compared to $24.5 million for the
corresponding period in 2008. For year-to-date 2009, income taxes were $37.9 million compared to
$41.4 million for the corresponding period in 2008. These decreases were primarily due to lower
pre-tax earnings.
FUTURE EARNINGS POTENTIAL
The results of operations discussed above are not necessarily indicative of Southern Powers future
earnings potential. The level of Southern Powers future earnings depends on numerous factors that
affect the opportunities, challenges, and risks of Southern Powers competitive wholesale business.
These factors include Southern Powers ability to achieve sales growth while containing costs.
Another major factor is federal regulatory policy, which may impact Southern Powers level of
participation in the market. The level of future earnings also depends on numerous factors
including regulatory matters (such as those related to affiliate contracts), creditworthiness of
customers, total generating capacity available in the Southeast, the successful remarketing of
capacity as current contracts expire, and Southern Powers ability to execute its
123
SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
acquisition
strategy. Recent recessionary conditions have negatively impacted capacity revenues. The
timing and extent of the economic recovery will impact future earnings. For additional information
relating to these issues, see RISK FACTORS in Item 1A and MANAGEMENTS DISCUSSION AND ANALYSIS -
FUTURE EARNINGS POTENTIAL of Southern Power in Item 7 of the Form 10-K.
Environmental Matters
See MANAGEMENTS DISCUSSION AND ANALYSIS FUTURE EARNINGS POTENTIAL Environmental Matters of
Southern Power in Item 7 of the Form 10-K for information on the
development by federal and state environmental regulatory agencies of additional control strategies
for emissions of air pollution from industrial sources, including electric generating facilities.
Compliance with possible additional federal or state legislation or regulations related to global
climate change, air quality, or other environmental and health concerns could also affect earnings.
While Southern Powers PPAs generally contain provisions that permit charging the counterparty
with some of the new costs incurred as a result of changes in environmental laws and regulations,
the full impact of any such regulatory or legislative changes cannot be determined at this time.
Global Climate Issues
See MANAGEMENTS DISCUSSION AND ANALYSIS FUTURE EARNINGS POTENTIAL Environmental Matters -
Global Climate Issues of Southern Power in Item 7 of the Form 10-K for information regarding the
potential for legislation and regulation addressing greenhouse gas emissions. On April 17, 2009,
the EPA released a proposed finding that certain greenhouse gas emissions from new motor vehicles
endanger public health and welfare due to climate change. The ultimate outcome of the proposed
endangerment finding cannot be determined at this time and will depend on additional regulatory
action and potential legal challenges. However, regulatory decisions that may follow from such a
finding could have implications for both new and existing stationary sources, such as power
plants. In addition, federal legislative proposals that would impose mandatory requirements
related to greenhouse gas emissions, renewable energy standards, and energy efficiency standards
continue to be actively considered in Congress, and the reduction of greenhouse gas emissions has
been identified as a high priority by the current Administration. On June 26, 2009, the American
Clean Energy and Security Act of 2009, which would impose mandatory greenhouse gas restrictions
through implementation of a cap and trade program, a renewable energy standard, and other measures,
was passed by the House of Representatives and is expected to now be considered by the Senate.
The ultimate outcome of these matters cannot be determined at this time; however, mandatory
restrictions on Southern Powers greenhouse gas emissions, or requirements relating to renewable
energy or energy efficiency, could result in significant additional compliance costs that could
affect future results of operations, cash flows, and financial condition.
FERC Matters
Market-Based Rate Authority
See MANAGEMENTS DISCUSSION AND ANALYSIS FUTURE EARNINGS POTENTIAL FERC Matters Market-Based
Rate Authority of Southern Power in Item 7 and Note 3 to the financial statements of Southern
Power under FERC Matters Market-Based Rate Authority in Item 8 of the Form 10-K for information
regarding market-based rate authority. In October 2008, Southern Company filed with the FERC a
revised market-based rate (MBR) tariff and a new cost-based rate (CBR) tariff.
124
SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The revised MBR tariff provides for a must offer energy auction whereby Southern Company offers
all of its available energy for sale in a day-ahead auction and an hour-ahead auction with reserve
prices not to exceed the CBR tariff price, after considering Southern Companys native load
requirements, reliability obligations, and sales commitments to third parties. All sales under the
energy auction would be at market clearing prices established under the auction rules. The new CBR
tariff provides for a cost-based price for wholesale sales of less than a year. On March 5, 2009,
the FERC accepted Southern Companys CBR tariff for filing. On March 25, 2009, the FERC accepted
Southern Companys compliance filing related to the MBR tariff and directed Southern Company to
commence the energy auction in 30 days. Southern Company commenced the energy auction on April 23,
2009. The FERC has determined that implementation of the energy auction in accordance with the MBR
tariff order adequately mitigates going forward any presumption of market power that Southern
Company may have in the Southern Company retail service territory and adjacent market areas. The
original generation dominance proceeding initiated by the FERC in December 2004 remains pending
before the FERC. The ultimate outcome of this matter cannot be determined at this time.
Legislation
On February 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act of
2009 (ARRA). Major tax incentives in the ARRA include an extension of bonus depreciation and
multiple renewable energy incentives. Southern Power estimates the cash flow reduction to 2009 tax
payments as a result of the bonus depreciation provisions of the ARRA to be immaterial. Southern
Power is currently assessing the other financial implications of the ARRA. The ultimate impact
cannot be determined at this time.
Construction Projects
Cleveland County Units 1-4
In December 2008, Southern Power announced that it will build an electric generating plant in
Cleveland County, North Carolina. The plant will consist of four combustion turbine natural gas
generating units with a total generating capacity of 720 MWs. The units are expected to go into
commercial operation in 2012. Costs incurred through June 30, 2009 were $7.5 million. The total
estimated construction cost is expected to be between $350 million and $400 million.
Power Sales Agreements
Southern Power has entered into PPAs with North Carolina Electric Membership Corporation (NCEMC)
and North Carolina Municipal Power Agency No. 1 (NCMPA1) for a portion of the generating capacity
from the Cleveland County plant that will begin in 2012 and expire in 2036 and 2031, respectively.
NCEMC will purchase 180 MWs of capacity that will be supported by one unit at the plant and will
purchase capacity from a second unit at the plant that will increase to 180 MWs over a seven-year
phase-in period. NCMPA1 will purchase 180 MWs from a third unit at the plant. The NCEMC PPAs were
approved by the Rural Utilities Service on March 6, 2009.
125
SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Potential Acquisition
On April 2, 2009, Southern Power signed an agreement to acquire all of the outstanding general and
limited partnership interests of Hartwell Energy Limited Partnership (Hartwell). Hartwell owns a
dual-fueled generating plant near Hartwell, Georgia with installed capacity of 318 MWs. The plant
consists of two combustion turbine natural gas generating units with oil back-up. The entire
output of the plant is sold under a PPA with Oglethorpe Power Corporation (Oglethorpe) through May
31, 2019.
The acquisition was subject to a right of first refusal held by Oglethorpe, certain regulatory
approvals, and other conditions. On July 31, 2009, Oglethorpe exercised its right of first refusal
and will purchase the ownership interests of Hartwell.
Other Matters
Southern Power is involved in various other matters being litigated and regulatory matters that
could affect future earnings. In addition, Southern Power is subject to certain claims and legal
actions arising in the ordinary course of business. Southern Powers business activities are
subject to extensive governmental regulation related to public health and the environment.
Litigation over environmental issues and claims of various types, including property damage,
personal injury, common law nuisance, and citizen enforcement of environmental requirements such as
opacity and air and water quality standards, has increased generally throughout the United States.
In particular, personal injury claims for damages caused by alleged exposure to hazardous materials
have become more frequent. The ultimate outcome of such potential litigation against Southern Power
and its subsidiaries cannot be predicted at this time; however, for current proceedings not
specifically reported herein or in Note 3 to the financial statements of Southern Power in Item 8
of the Form 10-K, management does not anticipate that the liabilities, if any, arising from any
such proceedings would have a material adverse effect on Southern Powers financial statements.
See Note (B) to the Condensed Financial Statements herein for discussion of various other
contingencies, regulatory matters, and other matters being litigated which may affect future
earnings potential.
ACCOUNTING POLICIES
Application of Critical Accounting Policies and Estimates
Southern Power prepares its consolidated financial statements in accordance with accounting
principles generally accepted in the United States. Significant accounting policies are described
in Note 1 to the
financial statements of Southern Power in Item 8 of the Form 10-K. In the application of these
policies, certain estimates are made that may have a material impact on Southern Powers results of
operations and related disclosures. Different assumptions and measurements could produce estimates
that are significantly different from those recorded in the financial statements. See MANAGEMENTS
DISCUSSION AND ANALYSIS - ACCOUNTING POLICIES Application of Critical Accounting
Policies and Estimates of Southern Power in Item 7 of the Form 10-K for a complete discussion of
Southern Powers critical accounting policies and estimates related to Revenue Recognition, Normal
Sale and Non-Derivative Transactions, Cash Flow Hedge Transactions, Mark-to-Market Transactions,
Percentage of Completion, Asset Impairments, Acquisition Accounting, Contingent Obligations, and
Depreciation.
126
SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
New Accounting Standards
Variable Interest Entities
In June 2009, the FASB issued new guidance on the consolidation of variable interest entities,
which replaces the quantitative-based risks and rewards calculation for determining whether an
enterprise is the primary beneficiary in a variable interest entity with an approach that is
primarily qualitative, requires ongoing assessments of whether an enterprise is the primary
beneficiary of a variable interest entity, and requires additional disclosures about an
enterprises involvement in variable interest entities. Southern Power is required to adopt this
new guidance effective January 1, 2010 and is evaluating the impact, if any, it will have on its
financial statements.
FINANCIAL CONDITION AND LIQUIDITY
Overview
Southern Powers financial condition remained stable at June 30, 2009. Throughout the turmoil in
the financial markets, Southern Power has maintained cash balances to cover the majority of its
capital needs and has had limited need to issue commercial paper or draw on committed credit
arrangements. Southern Power has successfully accessed the commercial paper market as needed
during 2009. There was no commercial paper outstanding at June 30, 2009. Southern Power intends
to continue to monitor its access to short-term and long-term capital markets as well as its bank
credit arrangements as needed to meet future capital and liquidity needs. Market rates for
committed credit have increased, and Southern Power may be subject to higher costs as its existing
facilities are replaced or renewed. The current facility expires in 2012 and the commitment fee is
less than 1/8 of 1%. Southern Power experienced no material counterparty
credit losses as a result of the turmoil in the financial markets. The ultimate impact on future
financing costs as a result of financial turmoil cannot be determined at this time. See Sources
of Capital herein for additional information.
Net cash provided from operating activities totaled $67.3 million for the first six months of 2009,
compared to $46.0 million for the corresponding period in 2008. The $21.3 million increase in cash
provided from operating activities was due primarily to the timing of income tax payments. Net
cash used for investing activities totaled $25.0 million for the first six months of 2009, compared
to $57.5 million for the corresponding period in 2008. The $32.5 million decrease was primarily
due to reduced property additions as Plant Franklin Unit 3 was completed in June 2008. Net cash
used in financing activities totaled $51.4 million for the first six months of 2009 compared to net
cash provided of $11.5 million for the corresponding period in 2008. The change was primarily due
to a reduction in short-term borrowings in 2009 and an increase in dividends paid to Southern
Company.
Significant asset changes in the balance sheet for the first six months of 2009 include increases
in accounts receivable balances due to seasonality and a reduction in prepaid service agreements
due to completion of scheduled outages.
Significant liability and stockholders equity changes in the balance sheet for the first six
months of 2009 include a reduction in affiliate accounts payable due to timing of payments to SCS,
a reduction in billings in excess of cost due to the timing of scheduled payments, and costs
incurred with regard to the OUC construction contract whereby Southern Power is providing
engineering, procurement, and construction services to build a combined cycle unit for OUC. The
OUC contract is not expected to have any positive or negative impacts to Southern Power over the
term of the contract as Southern Power is not anticipating any profit or loss from this transaction
at this time. Additionally, deferred capacity revenues decreased due to levelization.
127
SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Capital Requirements and Contractual Obligations
See MANAGEMENTS DISCUSSION AND ANALYSIS FINANCIAL CONDITION AND LIQUIDITY Capital
Requirements and Contractual Obligations of Southern Power in Item 7 of the Form 10-K for a
description of Southern Powers capital requirements for its construction program, maturing debt,
interest, leases, derivative obligations, purchase commitments, and long-term service agreements.
The construction program is subject to periodic review and revision; these amounts include
estimates for potential plant acquisitions and new construction as well as ongoing capital
improvements. Planned expenditures for plant acquisitions may vary due to market opportunities and
Southern Powers ability to execute its growth strategy. Actual construction costs may vary from
these estimates because of changes in factors such as: business conditions; environmental statutes
and regulations; FERC rules and regulations; load projections; the cost and efficiency of
construction labor, equipment, and materials; and the cost of capital.
Sources of Capital
Southern Power may use operating cash flows, external funds, equity capital, or loans from Southern
Company to finance any new projects, acquisitions, and ongoing capital requirements. Southern
Power expects to generate external funds from the issuance of unsecured senior debt and commercial
paper or utilization of credit arrangements from banks. However, the amount, type, and timing of
any financings, if needed, will depend upon prevailing market conditions, regulatory approval, and
other factors. See MANAGEMENTS DISCUSSION AND ANALYSIS FINANCIAL CONDITION AND LIQUIDITY
Sources of Capital of Southern Power in Item 7 of the Form 10-K for additional information.
Southern Powers current liabilities frequently exceed current assets due to the use of short-term
indebtedness as a funding source, as well as cash needs which can fluctuate significantly due to
the seasonality of the business. To meet liquidity and capital resource requirements, Southern
Power had at June 30, 2009 $400 million in committed credit arrangements with banks that will
expire in 2012. Proceeds from these credit arrangements may be used for working capital and
general corporate purposes as well as liquidity support for Southern Powers commercial paper
program. See Note 6 to the financial statements of Southern Power under Bank Credit Arrangements
in Item 8 of the Form 10-K and Note (E) to the Condensed Financial Statements under Bank Credit
Arrangements herein for additional information.
Southern Powers commercial paper program is used to finance acquisition and construction costs
related to electric generating facilities and for general corporate purposes.
Management believes that the need for working capital can be adequately met by utilizing commercial
paper programs, lines of credit, and cash.
Credit Rating Risk
Southern Power does not have any credit arrangements that would require material changes in payment
schedules or terminations as a result of a credit rating downgrade. There are certain contracts
that could require collateral, but not accelerated payment, in the event of a credit rating change
to BBB and Baa2, or BBB- and/or Baa3 or below. These contracts are for physical electricity
purchases and sales, fuel transportation and storage, and energy price risk management. At June
30, 2009, the maximum potential collateral requirements under these contracts at a BBB and Baa2
rating were approximately $9 million and at a BBB- and/or Baa3 rating were approximately $356
million. At June 30, 2009, the maximum potential collateral requirements under these contracts at
a rating below BBB- and/or Baa3 were approximately $850 million. Included in these amounts are
certain agreements that could require collateral in the event that one or more Power Pool
participants has a credit rating change to below investment grade. Generally, collateral
may
128
SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
be provided by a Southern Company guaranty, letter of credit, or cash. Additionally, any
credit rating downgrade could impact Southern Powers ability to access capital markets,
particularly the short-term debt market.
In addition, through the acquisition of Plant Rowan, Southern Power assumed a PPA with Duke Energy
that could require collateral, but not accelerated payment, in the event of a downgrade to Southern
Powers credit rating to below BBB- or Baa3. The amount of collateral required would depend upon
actual losses, if any, resulting from a credit downgrade.
Market Price Risk
Southern Power is exposed to market risks, including changes in interest rates and certain
energy-related commodity prices. To manage the volatility attributable to these exposures,
Southern Power takes advantage of natural offsets and enters into various derivative transactions
for the remaining exposures pursuant to Southern Powers policies in areas such as counterparty
exposure and hedging practices. It is Southern Powers policy that derivatives be used primarily
for hedging purposes. Derivative positions are monitored using techniques that include market
valuation and sensitivity analysis.
Southern Powers market risk exposure relative to interest rate changes has not changed materially
compared with the December 31, 2008 reporting period. Since a significant portion of outstanding
indebtedness is at fixed rates, Southern Power is not aware of any facts or circumstances that
would significantly affect exposure on existing indebtedness in the near term. However, the impact
on future financing costs cannot now be determined.
Because energy from Southern Powers facilities is primarily sold under long-term PPAs with tolling
agreements and provisions shifting substantially all of the responsibility for fuel cost to the
counterparties, Southern Powers exposure to market volatility in commodity fuel prices and prices
of electricity is generally limited. However, Southern Power has been and may continue to be
exposed to market volatility in energy-related commodity prices as a result of sales of
uncontracted generating capacity.
The changes in fair value of energy-related derivative contracts for the three and six months ended
June 30, 2009 were as follows:
|
|
|
|
|
|
|
|
|
|
|
Second Quarter |
|
Year-to-Date |
|
|
2009 |
|
2009 |
|
|
Changes |
|
Changes |
|
|
|
Fair Value |
|
|
|
(in millions) |
Contracts outstanding at the beginning of the period, assets
(liabilities), net |
|
$ |
3.3 |
|
|
$ |
3.4 |
|
Contracts realized or settled |
|
|
0.1 |
|
|
|
0.2 |
|
Current period changes(a) |
|
|
(0.2 |
) |
|
|
(0.4 |
) |
|
Contracts outstanding at the end of the period, assets (liabilities), net |
|
$ |
3.2 |
|
|
$ |
3.2 |
|
|
|
|
|
(a) |
|
Current period changes also include the changes in fair value of new contracts entered into during the period, if any. |
129
SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The decreases in the fair value positions of the energy-related derivative contracts for the three
months and six months ended June 30, 2009 were $0.1 million and $0.2 million, respectively, which
is due to both volume and price changes in power and natural gas positions. The net hedge position
at June 30, 2009 and respective period end dates that support these changes are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
March 31, |
|
December 31, |
|
|
2009 |
|
2009 |
|
2008 |
|
Power (net sold) |
|
|
|
|
|
|
|
|
|
|
|
|
|
MWHs (in millions) |
|
|
1.1 |
|
|
|
0.7 |
|
|
|
0.3 |
|
Weighted average contract
cost per MWH
above (below) market
prices (in dollars) |
|
$ |
2.29 |
|
|
$ |
3.71 |
|
|
$ |
(2.29 |
) |
|
Natural gas (net purchase) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity million mmBtu |
|
|
2.9 |
|
|
|
3.5 |
|
|
|
1.9 |
|
Location basis million mmBtu |
|
|
2.0 |
|
|
|
2.0 |
|
|
|
|
|
|
Commodity Weighted average
contract cost per mmBtu above
(below) market prices (in
dollars) |
|
$ |
0.24 |
|
|
$ |
(0.27 |
) |
|
$ |
(2.16 |
) |
|
Location basis Weighted
average contract cost per
mmBtu above (below) market
prices (in dollars) |
|
$ |
(0.05 |
) |
|
$ |
0.06 |
|
|
$ |
|
|
|
At June 30, 2009 and December 31, 2008, the fair value of energy-related derivative contracts by
hedge designation was reflected in the financial statements as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 |
|
December 31,
2008 |
|
|
|
(in millions) |
Cash flow hedges |
|
$ |
|
|
|
$ |
(0.8 |
) |
Not designated |
|
|
3.2 |
|
|
|
4.2 |
|
|
Total fair value |
|
$ |
3.2 |
|
|
$ |
3.4 |
|
|
Gains and losses on energy-related derivatives used by Southern Power to hedge anticipated
purchases and sales are initially deferred in OCI before being recognized in income in the same
period as the hedged transaction. Gains and losses on derivative contracts that are not designated
or fail to qualify as hedges are recognized in the statements of income as incurred.
Total net unrealized pre-tax losses recognized in the statements of income for the six months ended
June 30, 2009 for energy-related derivative contracts that are not hedges was $1 million and will
continue to be marked to market until the settlement date. For the three months ended June 30,
2009, the net unrealized loss was immaterial. For the three and six months ended June 30, 2008,
the total net unrealized gains (losses) recognized in the statements of income were $5 million and
$(9) million, respectively. See Note (E) to the Condensed Financial Statements herein for further
details of these gains (losses).
130
SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The maturities of the energy-related derivative contracts and the level of the fair value hierarchy
in which they fall at June 30, 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 |
|
|
Fair Value Measurements |
|
|
Total |
|
Maturity |
|
|
Fair Value |
|
Year 1 |
|
Years 2&3 |
|
Years 4&5 |
|
|
(in millions) |
Level 1 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Level 2 |
|
|
3.2 |
|
|
|
3.9 |
|
|
|
(0.7 |
) |
|
|
|
|
Level 3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of
contracts
outstanding at end
of period |
|
$ |
3.2 |
|
|
$ |
3.9 |
|
|
$ |
(0.7 |
) |
|
$ |
|
|
|
Southern Power uses over-the-counter contracts that are not exchange traded but are fair valued
using prices which are actively quoted, and thus fall into Level 2. See Note (C) to the Condensed
Financial Statements herein for further discussion on fair value measurements.
For additional information, see MANAGEMENTS DISCUSSION AND ANALYSIS FINANCIAL CONDITION AND
LIQUIDITY Market Price Risk of Southern Power in Item 7 and Notes 1 and 6 to the financial
statements of Southern Power under Financial Instruments in Item 8 of the Form 10-K and Note (E)
to the Condensed Financial Statements herein.
Financing Activities
Southern Power did not issue or redeem any long-term securities during the six months ended June
30, 2009.
131
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
FOR
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
ALABAMA POWER COMPANY
GEORGIA POWER COMPANY
GULF POWER COMPANY
MISSISSIPPI POWER COMPANY
SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
INDEX TO APPLICABLE NOTES TO
FINANCIAL STATEMENTS BY REGISTRANT
|
|
|
Registrant |
|
Applicable Notes |
|
|
|
Southern Company
|
|
A, B, C, D, E, F, G, H |
|
|
|
Alabama Power
|
|
A, B, C, E, F, G |
|
|
|
Georgia Power
|
|
A, B, C, E, F, G |
|
|
|
Gulf Power
|
|
A, B, C, E, F, G |
|
|
|
Mississippi Power
|
|
A, B, C, E, F, G |
|
|
|
Southern Power
|
|
A, B, C, E, G |
132
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
ALABAMA POWER COMPANY
GEORGIA POWER COMPANY
GULF POWER COMPANY
MISSISSIPPI POWER COMPANY
SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
NOTES TO THE CONDENSED FINANCIAL STATEMENTS:
|
(A) |
|
INTRODUCTION |
|
|
|
|
The condensed quarterly financial statements of each registrant included herein have been
prepared by such registrant, without audit, pursuant to the rules and regulations of the
SEC. The Condensed Balance Sheets as of December 31, 2008 have been derived from the
audited financial statements of each registrant. In the opinion of each registrants
management, the information regarding such registrant furnished herein reflects all
adjustments, which, except as otherwise disclosed, are of a normal recurring nature,
necessary to present fairly the results of operations for the periods ended June 30, 2009
and 2008. In addition, all subsequent events have been evaluated for disclosure through the
issuance of the financial statements on August 6, 2009. Certain information and footnote
disclosures normally included in annual financial statements prepared in accordance with
accounting principles generally accepted in the United States have been condensed or omitted
pursuant to such rules and regulations, although each registrant believes that the
disclosures regarding such registrant are adequate to make the information presented not
misleading. Disclosures which would substantially duplicate the disclosures in the audited
financial statements included in the Form 10-K and, with respect to Southern Company, the
subsequently revised audited financial statements included in the Current Report on Form 8-K
filed May 8, 2009 (the Form 8-K), and details which have not changed significantly in amount
or composition since the filing of the Form 10-K and, for Southern Company, the Form 8-K are
generally omitted from this Quarterly Report on Form 10-Q. Therefore, these Condensed
Financial Statements should be read in conjunction with the financial statements and the
notes thereto included in the Form 10-K and, for Southern Company, the Form 8-K. Due to the
seasonal variations in the demand for energy, operating results for the periods presented do
not necessarily indicate operating results for the entire year. |
|
|
|
|
Reclassifications |
|
|
|
|
Certain prior period data presented in the financial statements have been reclassified to conform
to the current year presentation. For comparative purposes, each registrants statement of income
for the three and six months ended June 30, 2008 were modified within the operating expenses
section to combine the line items Other operations and Maintenance into a single line item
entitled Other operations and maintenance. The balance sheets at December 31, 2008 of Southern
Company, Alabama Power, and Georgia Power were modified to present a separate line item for Other
regulatory assets, current previously included in Other current assets. In addition, Georgia
Powers balance sheet was modified to present a separate line item for Joint owner accounts
receivable previously included in Other accounts and notes receivable and to reflect a new line
item Liabilities from risk management activities previously included in Other current
liabilities. To conform to the current year presentation, Southern Powers balance sheet at
December 31, 2008 reflects a separate line item for the amount of Deferred capacity
revenuescurrent affiliated previously included in Accounts payableaffiliated. Southern
Company modified its statements of cash flows within the operating activities section for the prior
period by collapsing the line item Derivative fair value adjustments into Other, net. Also,
within the investing activities section, the line items Investment in unconsolidated subsidiaries
and Hurricane Katrina capital grant proceeds previously shown as separate line items are now
included in Other investing activities
while Change in construction payables previously included in Other investing activities is
shown separately in the current presentation. Within the operating activities of Georgia Powers
statements of cash flows, Deferred revenues and Deferred expenses previously included in
Other, net in |
133
NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
|
|
|
the prior period are now shown as separate line items. Also, within the financing
activities of the same statement, the line item Capital leases was collapsed into Other
financing activities. Mississippi Powers balance sheet was modified to combine the line item
Prepaid income taxes with Other current assets. Mississippi Powers statement of cash flows
for the six months ended June 30, 2008 was modified within the operating activities to present
separately from Other, net the amount of Generation construction screening expense. |
|
|
|
|
These reclassifications had no effect on total assets, net income, cash flows, or earnings per
share. |
|
|
|
|
Effective January 1, 2009, Southern Company and its subsidiaries adopted retrospectively a new
accounting standard for noncontrolling interests. In connection with the adoption, Southern
Company evaluated the requirements with respect to the presentation of preferred and preference
stock of subsidiaries. Based on the accounting guidance, the preferred and preference stock at
Georgia Power and the preference stock at Alabama Power and Gulf Power are considered to be
noncontrolling interests and are separately presented as a component of Stockholders Equity on
Southern Companys consolidated balance sheets. The preferred stock of Alabama Power and
Mississippi Power contains a feature that allows the holders to elect a majority of such
subsidiarys board of directors if dividends are not paid for four consecutive quarters. Because
such a potential redemption-triggering event is not solely within the control of Alabama Power and
Mississippi Power, this preferred stock is presented as Redeemable Preferred Stock of
Subsidiaries in a manner consistent with temporary equity. The preferred and preference stock at
Georgia Power and the preference stock at Alabama Power and Gulf Power do not contain such a
provision that would allow the holders to elect a majority of such subsidiarys board. |
|
|
|
|
In addition, the new accounting standard for noncontrolling interests requires that preferred and
preference dividends of subsidiaries previously presented within Southern Companys consolidated
statements of income as a component of Other Income and (Expense) be presented as a deduction
from Consolidated Net Income to arrive at Consolidated Net Income After Dividends on Preferred
and Preference Stock. In Southern Companys consolidated statements of cash flows, the preferred
and preference dividends previously classified in operating activities are now classified in
financing activities. |
|
|
|
|
Southern Power Depreciation Policy |
|
|
|
|
See Note 1 to the financial statements of Southern Power under Depreciation in Item 8 of the Form
10-K for information regarding Southern Powers depreciation policy. Southern Power revised its
depreciation rates in 2009. The change in estimate is due to revised useful life assumptions for
certain components of plant in service. The expected 2009 impact to Southern Power is an increase
in depreciation expense of $8.2 million and a reduction in net income of $5.0 million. |
|
|
|
|
Nuclear Relicensing |
|
|
|
|
The NRC operating licenses for Plant Vogtle Units 1 and 2 were scheduled to expire in January 2027
and February 2029, respectively. In June 2007, Georgia Power filed an application with the NRC to
extend the licenses for Plant Vogtle Units 1 and 2 for an additional 20 years. On June 3, 2009,
the NRC approved the extension of the licenses as requested. |
|
|
|
|
Leveraged Leases |
|
|
|
|
On June 29, 2009, Southern Company terminated two international leveraged lease investments for a
net gain, after termination of related debt, of $25.5 million. The termination is reflected on the
statements of cash flows and the statements of income on line items Proceeds from property sales,
Gain on disposition of lease termination, and Loss
on extinguishment of debt. |
134
NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
|
(B) |
|
CONTINGENCIES AND REGULATORY MATTERS |
|
|
|
|
See Note 3 to the financial statements of the registrants in Item 8 of the Form 10-K for
information relating to various lawsuits, other contingencies, and regulatory matters. |
|
|
|
|
General Litigation Matters |
|
|
|
|
Each registrant is subject to certain claims and legal actions arising in the ordinary course of
business. In addition, each registrants business activities are subject to extensive governmental
regulation related to public health and the environment. Litigation over environmental issues and
claims of various types, including property damage, personal injury, common law nuisance, and
citizen enforcement of environmental requirements such as opacity and air and water quality
standards, has increased generally throughout the United States. In particular, personal injury
claims for damages caused by alleged exposure to hazardous materials have become more frequent.
The ultimate outcome of such pending or potential litigation against the registrants and any of
their subsidiaries cannot be predicted at this time; however, for current proceedings not
specifically reported herein or in Note 3 to the financial statements of each registrant in Item 8
of the Form 10-K, management does not anticipate that the liabilities, if any, arising from such
current proceedings would have a material adverse effect on such registrants financial statements. |
|
|
|
|
Mirant Matters |
|
|
|
|
Mirant was an energy company with businesses that included independent power projects and energy
trading and risk management companies in the United States and selected other countries. It was a
wholly-owned subsidiary of Southern Company until its initial public offering in October 2000. In
April 2001, Southern Company completed a spin-off to its shareholders of its remaining ownership,
and Mirant became an independent corporate entity. |
|
|
|
|
Mirant Bankruptcy |
|
|
|
|
In July 2003, Mirant and certain of its affiliates filed voluntary petitions for relief under
Chapter 11 of the Bankruptcy Code in the U.S. Bankruptcy Court for the Northern District of Texas.
The Bankruptcy Court entered an order confirming Mirants plan of reorganization in December 2005,
and Mirant announced that this plan became effective in January 2006. As part of the plan, Mirant
transferred substantially all of its assets and its restructured debt to a new corporation that
adopted the name Mirant Corporation (Reorganized Mirant). |
|
|
|
|
Southern Company has certain contingent liabilities associated with guarantees of contractual
commitments made by Mirants subsidiaries discussed under Guarantees in Note 7 to the financial
statements of Southern Company in Item 8 of the Form 10-K and with various lawsuits related to
Mirant discussed below. Also, Southern Company has joint and several liability with Mirant
regarding the joint consolidated federal income tax returns through 2001, as discussed in Note 5 to
the financial statements of Southern Company in Item 8 of the Form 10-K. In December 2004, as a
result of concluding an IRS audit for the tax years 2000 and 2001, Southern Company paid
approximately $39 million in additional tax and interest related to Mirant tax items and filed a
claim in Mirants bankruptcy case for that amount. To date, Southern Company has received from the
IRS approximately $38 million in refunds related to Mirant. Southern Company believes it has a
right to recoup the $39 million tax payment owed by Mirant from such tax refunds. As a result,
Southern Company intends to retain the tax refunds and reduce its claim against Mirant for the
payment of Mirant taxes by the amount of such refunds. MC Asset Recovery, LLC, a special purpose
subsidiary of Reorganized Mirant (MC Asset Recovery), has objected to and sought to equitably
subordinate the Southern Company tax claim in its fraudulent transfer litigation against Southern
Company. Southern Companys proofs of claim filed in the Mirant bankruptcy survive the settlement
of the MC
Asset Recovery litigation. Southern Company has reserved the remaining amount with respect to its
Mirant tax claim. |
135
NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
|
|
|
Under the terms of the separation agreements entered into in connection with the spin-off, Mirant
agreed to indemnify Southern Company for costs associated with these guarantees, lawsuits, and
additional IRS assessments. As a result of Mirants bankruptcy, Southern Company sought
reimbursement as an unsecured creditor in Mirants Chapter 11 proceeding. As part of a
complaint filed against Southern Company in June 2005 and amended thereafter, Mirant and The
Official Committee of Unsecured Creditors of Mirant Corporation (Unsecured Creditors Committee)
objected to and sought equitable subordination of Southern Companys claims, and Mirant moved to
reject the separation agreements entered into in connection with the spin-off. MC Asset Recovery
has been substituted as plaintiff in the complaint. If Southern Companys claims for
indemnification with respect to these, or any additional future payments, are allowed, then
Mirants indemnity obligations to Southern Company would constitute unsecured claims against Mirant
entitled to stock in Reorganized Mirant. The final outcome of this matter cannot now be
determined. |
|
|
|
|
MC Asset Recovery Litigation |
|
|
|
|
In June 2005, Mirant, as a debtor in possession, and the Unsecured Creditors Committee filed a
complaint against Southern Company in the U.S. Bankruptcy Court for the Northern District of Texas,
which was amended in July 2005, February 2006, May 2006, and March 2007. |
|
|
|
|
In December 2005, the Bankruptcy Court entered an order authorizing the transfer of this
proceeding, along with certain other actions, to MC Asset Recovery. Under that order, Reorganized
Mirant was obligated to fund up to $20 million in professional fees in connection with the
lawsuits, as well as certain additional amounts. Any net recoveries from these lawsuits would be
distributed to, and shared equally by, certain unsecured creditors and the original equity holders.
In January 2006, the U.S. District Court for the Northern District of Texas substituted MC Asset
Recovery as plaintiff. |
|
|
|
|
The complaint, as amended in March 2007, alleged that Southern Company caused Mirant to engage in
certain fraudulent transfers and to pay illegal dividends to Southern Company prior to the
spin-off. The alleged fraudulent transfers and illegal dividends included without limitation:
(1) certain dividends from Mirant to Southern Company in the aggregate amount of $668 million,
(2) the repayment of certain intercompany loans and accrued interest in an aggregate amount of
$1.035 billion, and (3) the dividend distribution of one share of Series B Preferred Stock and its
subsequent redemption in exchange for Mirants 80% interest in a holding company that owned
SE Finance Capital Corporation and Southern Company Capital Funding, Inc., which transfer plaintiff
asserted was valued at over $200 million. The complaint also sought to recharacterize certain
advances from Southern Company to Mirant for investments in energy facilities from debt to equity.
The complaint further alleged that Southern Company was liable to Mirants creditors for the full
amount of Mirants liability under an alter ego theory of recovery and that Southern Company
breached its fiduciary duties to Mirant and its creditors, caused Mirant to breach its fiduciary
duties to creditors, and aided and abetted breaches of fiduciary duties by Mirants directors and
officers. The complaint also sought recoveries under the theories of restitution and unjust
enrichment. In addition, the complaint alleged a claim under the Federal Debt Collection Procedure
Act (FDCPA) to avoid certain transfers from Mirant to Southern Company; however, in July 2008, the
court ruled that the FDCPA does not apply and that Georgia law should apply instead. The complaint
sought monetary damages in excess of $2 billion plus interest, punitive damages, attorneys fees,
and costs. Finally, the complaint included an objection to Southern Companys pending claims
against Mirant in the Bankruptcy Court (which relate to reimbursement under the separation
agreements of payments such as income taxes, interest, legal fees, and other guarantees described
in Note 7 to the financial statements of Southern Company in Item 8 of the Form 10-K) and sought
equitable subordination of Southern Companys claims to the claims of all other creditors.
Southern Company served an answer to the complaint in April 2007. |
|
|
|
|
In January 2006, the U.S. District Court for the Northern District of Texas granted Southern
Companys motion to withdraw this action from the Bankruptcy Court and, in February 2006, granted |
136
NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
|
|
|
Southern Companys motion to transfer the case to the U.S. District Court for the Northern District
of Georgia. In May 2006, Southern Company filed a motion for summary judgment seeking entry of
judgment against the plaintiff as to all counts of the complaint. In December 2006, the U.S.
District Court for the Northern District of Georgia granted in part and denied in part the motion.
As a result, certain breach of fiduciary duty claims alleged in earlier versions of the complaint
were barred; all other claims in the complaint were allowed to proceed. In August 2008, Southern
Company filed a second motion for summary judgment. MC Asset Recovery filed its response to
Southern Companys motion for summary judgment in October 2008. On February 5, 2009, the court
denied the summary judgment motion in connection with the fraudulent conveyance and illegal
dividend claims concerning certain advance return/loan repayments in 1999, dividends in 1999 and
2000, and transfers in connection with Mirants separation from Southern Company. The court
granted Southern Companys motion for summary judgment with respect to certain claims, including
claims for unjust enrichment, claims that Southern Company aided and abetted Mirants directors
breach of fiduciary duties to Mirant, and claims that Southern Company used Mirant as an alter ego.
In addition, the court granted Southern Companys motion in connection with the fraudulent
transfer and illegal dividend claims concerning certain turbine termination payments. |
|
|
|
|
On March 31, 2009, Southern Company entered into a settlement agreement with MC Asset Recovery to
resolve the action. The settlement includes an agreement by Southern Company to pay MC Asset
Recovery $202 million and requires MC Asset Recovery to release Southern Company and certain other
designated avoidance actions assigned to MC Asset Recovery in connection with Mirants plan of
reorganization, as well as to release all actions against current or former officers and directors
of Mirant and Southern Company that have or could have been filed. Pursuant to the settlement,
Southern Company recorded a charge in the first quarter 2009 of $202 million, which was paid in the
second quarter 2009. The settlement has been completed and resolves all claims by MC Asset
Recovery against Southern Company. On June 29, 2009, the case was dismissed with prejudice.
Southern Companys claims in the Mirant bankruptcy remain pending. Southern Company is currently
evaluating potential recovery of the settlement payment through various means. The degree to which
any recovery is realized will determine, in part, the final income tax treatment of the settlement
payment. The ultimate outcome of any such recovery and/or income tax treatment cannot be
determined at this time. |
|
|
|
|
Environmental Matters |
|
|
|
|
New Source Review Actions |
|
|
|
|
In November 1999, the EPA brought a civil action in the U.S. District Court for the Northern
District of Georgia against certain Southern Company subsidiaries, including Alabama Power and
Georgia Power, alleging that these subsidiaries had violated the NSR provisions of the Clean Air
Act and related state laws at certain coal-fired generating facilities. Through subsequent
amendments and other legal procedures, the EPA filed a separate action in January 2001 against
Alabama Power in the U.S. District Court for the Northern District of Alabama after Alabama Power
was dismissed from the original action. In these lawsuits, the EPA alleged that NSR violations
occurred at eight coal-fired generating facilities operated by Alabama Power and Georgia Power,
including one facility co-owned by Mississippi Power. The civil actions request penalties and
injunctive relief, including an order requiring the installation of the best available control
technology at the affected units. The EPA concurrently issued notices of violation to Gulf Power
and Mississippi Power relating to Gulf Powers Plant Crist and Mississippi Powers Plant Watson.
In early 2000, the EPA filed a motion to amend its complaint to add Gulf Power and Mississippi
Power as defendants based on the allegations in the notices of violation. However, in March 2001,
the Court denied the motion based on lack of
jurisdiction, and the EPA has not refiled. The action against Georgia Power has been
administratively closed since the spring of 2001, and the case has not been reopened. |
137
NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
|
|
|
In June 2006, the U.S. District Court for the Northern District of Alabama entered a consent decree
between Alabama Power and the EPA, resolving a portion of the Alabama Power lawsuit relating to the
alleged NSR violations at Plant Miller. The consent decree required Alabama Power to pay $100,000
to resolve the governments claim for a civil penalty and to donate $4.9 million of sulfur dioxide
emission allowances to a nonprofit charitable organization. It also formalized specific emissions
reductions to be accomplished by Alabama Power, consistent with other Clean Air Act programs that
require emissions reductions. In August 2006, the district court in Alabama granted Alabama
Powers motion for summary judgment and entered final judgment in favor of Alabama Power on the
EPAs claims related to all of the remaining plants: Plants Barry, Gaston, Gorgas, and Greene
County. |
|
|
|
|
The plaintiffs appealed the district courts decision to the U.S. Court of Appeals for the Eleventh
Circuit, where the appeal was stayed, pending the U.S. Supreme Courts decision in a similar case
against Duke Energy. The Supreme Court issued its decision in the Duke Energy case in April 2007,
and in December 2007, the Eleventh Circuit vacated the district courts decision in the Alabama
Power case and remanded the case back to the district court for consideration of the legal issues
in light of the Supreme Courts decision in the Duke Energy case. In July 2008, the U.S. District
Court for the Northern District of Alabama granted partial summary judgment in favor of Alabama
Power regarding the proper legal test for determining whether projects are routine maintenance,
repair, and replacement and therefore are excluded from NSR permitting. The decision did not
resolve the case, and the ultimate outcome of these matters cannot be determined at this time. |
|
|
|
|
Southern Company and the traditional operating companies believe they have complied with applicable
laws and the EPA regulations and interpretations in effect at the time the work in question took
place. The Clean Air Act authorizes maximum civil penalties of $25,000 to $37,500 per day, per
violation at each generating unit, depending on the date of the alleged violation. An adverse
outcome in these matters could require substantial capital expenditures or affect the timing of
currently budgeted capital expenditures that cannot be determined at this time and could possibly
require payment of substantial penalties. Such expenditures could affect future results of
operations, cash flows, and financial condition if such costs are not recovered through regulated
rates. |
|
|
|
|
Carbon Dioxide Litigation |
|
|
|
|
New York Case |
|
|
|
|
In July 2004, three environmental groups and attorneys general from eight states, each outside of
Southern Companys service territory, and the corporation counsel for New York City filed
complaints in the U.S. District Court for the Southern District of New York against Southern
Company and four other electric power companies. The complaints allege that the companies
emissions of carbon dioxide, a greenhouse gas, contribute to global warming, which the plaintiffs
assert is a public nuisance. Under common law public and private nuisance theories, the plaintiffs
seek a judicial order (1) holding each defendant jointly and severally liable for creating,
contributing to, and/or maintaining global warming and (2) requiring each of the defendants to cap
its emissions of carbon dioxide and then reduce those emissions by a specified percentage each year
for at least a decade. The plaintiffs have not, however, requested that damages be awarded in
connection with their claims. Southern Company believes these claims are without merit and notes
that the complaint cites no statutory or regulatory basis for the claims. In September 2005, the
U.S. District Court for the Southern District of New York granted Southern Companys and the other
defendants motions to dismiss these cases. The plaintiffs filed an appeal to the U.S. Court of
Appeals for the Second Circuit in October 2005, but no decision has been issued. The ultimate
outcome of these matters cannot be determined at this time. |
138
NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
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Kivalina Case |
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In February 2008, the Native Village of Kivalina and the City of Kivalina filed a suit in the U.S.
District Court for the Northern District of California against several electric utilities
(including Southern Company), several oil companies, and a coal company. The plaintiffs are the
governing bodies of an Inupiat village in Alaska. The plaintiffs contend that the village is being
destroyed by erosion allegedly caused by global warming that the plaintiffs attribute to emissions
of greenhouse gases by the defendants. The plaintiffs assert claims for public and private
nuisance and contend that the defendants have acted in concert and are therefore jointly and
severally liable for the plaintiffs damages. The suit seeks damages for lost property values and
for the cost of relocating the village, which is alleged to be $95 million to $400 million. In
June 2008, all defendants filed motions to dismiss this case. Southern Company believes that these
claims are without merit and notes that the complaint cites no statutory or regulatory basis for
the claims. The ultimate outcome of this matter cannot be determined at this time. |
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Environmental Remediation |
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The registrants must comply with environmental laws and regulations that cover the handling and
disposal of waste and releases of hazardous substances. Under these various laws and regulations,
the subsidiaries may also incur substantial costs to clean up properties. The traditional
operating companies have each received authority from their respective state PSCs to recover
approved environmental compliance costs through regulatory mechanisms. Within limits approved by
the state PSCs, these rates are adjusted annually or as necessary. |
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Georgia Powers environmental remediation liability at June 30, 2009 was $11.1 million. Georgia
Power has been designated or identified as a potentially responsible party (PRP) at sites governed
by the Georgia Hazardous Site Response Act and/or by the federal Comprehensive Environmental
Response, Compensation, and Liability Act (CERCLA), including a large site in Brunswick, Georgia on
the CERCLA National Priorities List (NPL). The parties have completed the removal of wastes from
the Brunswick site as ordered by the EPA. Additional claims for recovery of natural resource
damages at this site or for the assessment and potential cleanup of other sites on the Georgia
Hazardous Sites Inventory and CERCLA NPL are anticipated. |
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By letter dated September 30, 2008, the EPA advised Georgia Power that it has been designated as a
PRP at the Ward Transformer Superfund site located in Raleigh, North Carolina. Numerous other
entities have also received notices from the EPA. Georgia Power, along with other named PRPs, is
negotiating with the EPA to address cleanup of the site and reimbursement for past expenditures
related to work performed at the site. In addition, on April 30, 2009, two PRPs filed separate
actions in the U.S. District Court for the Eastern District of North Carolina against numerous
other PRPs, including Georgia Power, seeking contribution from the defendants for expenses incurred
by the plaintiffs related to work performed at a portion of the site. The ultimate outcome of
these matters will depend upon further environmental assessment and the ultimate number of PRPs and
cannot be determined at this time; however, it is not expected to have a material impact on Georgia
Powers financial statements. |
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Gulf Powers environmental remediation liability includes estimated costs of environmental
remediation projects of approximately $67.2 million at June 30, 2009. These estimated costs relate
to site closure criteria by the Florida Department of Environmental Protection (FDEP) for potential
impacts to soil and groundwater from herbicide applications at Gulf Power substations. The
schedule for completion of the remediation projects will be subject to FDEP approval. The projects
have been approved by the Florida PSC for recovery through Gulf Powers environmental cost recovery
clause; therefore, there was no impact on net income as a result of these estimates. |
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In 2003, the Texas Commission on Environmental Quality (TCEQ) designated Mississippi Power as a
potentially responsible party at a site in Texas. The site was owned by an electric transformer |
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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
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company that handled Mississippi Powers transformers as well as those of many other entities. The
site owner is now in bankruptcy and the State of Texas has entered into an agreement with
Mississippi Power and several other utilities to investigate and remediate the site. Amounts
expensed related to this work have not been material. Hundreds of entities have received notices
from the TCEQ requesting their participation in the anticipated site remediation. The final impact
of this matter on Mississippi Power will depend upon further environmental assessment and the
ultimate number of potentially responsible parties. The remediation expenses incurred by
Mississippi Power are expected to be recovered through the ECO Plan. See Note 3 to the financial
statements of Mississippi Power under Retail Regulatory Matters Environmental Compliance
Overview Plan. |
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The final outcome of these matters cannot now be determined. However, based on the currently known
conditions at these sites and the nature and extent of activities relating to these sites, Southern
Company, Georgia Power, Gulf Power, and Mississippi Power do not believe that additional
liabilities, if any, at these sites would be material to their respective financial statements. |
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FERC Matters |
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Market-Based Rate Authority |
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Each of the traditional operating companies and Southern Power has authorization from the FERC to
sell power to non-affiliates, including short-term opportunity sales, at market-based prices.
Specific FERC approval must be obtained with respect to a market-based contract with an affiliate. |
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In December 2004, the FERC initiated a proceeding to assess Southern Companys generation dominance
within its retail service territory. The ability to charge market-based rates in other markets is
not an issue in the proceeding. Any new market-based rate sales by any subsidiary of Southern
Company in Southern Companys retail service territory entered into during a 15-month refund period
that ended in May 2006 could be subject to refund to a cost-based rate level. |
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In November 2007, the presiding administrative law judge issued an initial decision regarding the
methodology to be used in the generation dominance tests. The proceedings are ongoing. The
ultimate outcome of this generation dominance proceeding cannot now be determined, but an adverse
decision by the FERC in a final order could require the traditional operating companies and
Southern Power to charge cost-based rates for certain wholesale sales in the Southern Company
retail service territory, which may be lower than negotiated market-based rates and could also
result in total refunds of up to $19.7 million, plus interest. The potential refunds include $3.9
million for Alabama Power, $5.8 million for Georgia Power, $0.8 million for Gulf Power, $8.4
million for Mississippi Power, and $0.7 million for Southern Power, in each case plus interest.
Southern Company and its subsidiaries believe that there is no meritorious basis for an adverse
decision in this proceeding and are vigorously defending themselves in this matter. |
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In June 2007, the FERC issued its final rule in Order No. 697 regarding market-based rate
authority. The FERC generally retained its current market-based rate standards. Responding to a
number of requests for rehearing, the FERC issued Order No. 697-A on April 21, 2008 and Order No.
697-B on December 12, 2008 and Order No. 697-C on June 16, 2009. These orders largely affirmed and
clarified the FERCs prior revision and codification of the regulations governing market-based
rates for public utilities. In accordance with the orders, Southern Company submitted to the FERC
an updated market power analysis in September 2008 related to its continued market-based rate
authority. |
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In October 2008, Southern Company filed with the FERC a revised market-based rate (MBR) tariff and
a new cost-based rate (CBR) tariff. The revised MBR tariff provides for a must offer energy
auction whereby Southern Company offers all of its available energy for sale in a day-ahead auction
and an hour-ahead auction with reserve prices not to exceed the CBR tariff price, after considering |
140
NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
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Southern Companys native load requirements, reliability obligations, and sales commitments to
third parties. All sales under the energy auction would be at market clearing prices established
under the auction rules. The new CBR tariff provides for a cost-based price for wholesale sales of
less than a year. On March 5, 2009, the FERC accepted Southern Companys CBR tariff for filing.
On March 25, 2009, the FERC accepted Southern Companys compliance filing related to the MBR tariff
and directed Southern Company to commence the energy auction within 30 days. Southern Company
commenced the energy auction on April 23, 2009. The FERC has determined that implementation of the
energy auction in accordance with the MBR tariff order adequately mitigates going forward any
presumption of market power that Southern Company may have in the Southern Company retail service
territory and adjacent market areas. |
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Intercompany Interchange Contract |
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Southern Companys generation fleet in its retail service territory is operated under the IIC as
approved by the FERC. In May 2005, the FERC initiated a new proceeding to examine (1) the
provisions of the IIC among the traditional operating companies, Southern Power, and SCS, as agent,
under the terms of which the Power Pool is operated, (2) whether any parties to the IIC have
violated the FERCs standards of conduct applicable to utility companies that are transmission
providers, and (3) whether Southern Companys code of conduct defining Southern Power as a system
company rather than a marketing affiliate is just and reasonable. In connection with the
formation of Southern Power, the FERC authorized Southern Powers inclusion in the IIC in 2000.
The FERC also previously approved Southern Companys code of conduct. |
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In October 2006, the FERC issued an order accepting a settlement resolving the proceeding subject
to Southern Companys agreement to accept certain modifications to the settlements terms and
Southern Company notified the FERC that it accepted the modifications. The modifications largely
involve functional separation and information restrictions related to marketing activities
conducted on behalf of Southern Power. In November 2006, Southern Company filed with the FERC a
compliance plan in connection with the order. In April 2007, the FERC approved, with certain
modifications, the plan submitted by Southern Company. Implementation of the plan did not have a
material impact on Southern Companys or the traditional operating companies financial statements.
Southern Powers annual cost of implementing the compliance plan is approximately $7.0 million.
In November 2007, Southern Company notified the FERC that the plan had been implemented. In
December 2008, the FERC division of audits issued for public comment its final audit report
pertaining to compliance implementation and related matters. No comments challenging the audit
reports findings were submitted. A decision is now pending from the FERC. |
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Generation Interconnection Agreements |
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In November 2004, generator company subsidiaries of Tenaska, Inc. (Tenaska), as counterparties to
three previously executed interconnection agreements with subsidiaries of Southern Company, filed
complaints at the FERC requesting that the FERC modify the agreements and that those Southern
Company subsidiaries refund a total of $19 million previously paid for interconnection facilities,
of which $11 million would be refunded by Alabama Power and $8 million by Georgia Power. No other
similar complaints are pending with the FERC. |
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In January 2007, the FERC issued an order granting Tenaskas requested relief. Although the FERCs
order required the modification of Tenaskas interconnection agreements, under the provisions of
the order, Southern Company determined that no refund was payable to Tenaska.
Southern Company requested rehearing asserting that the FERC retroactively applied a new principle
to existing interconnection agreements. Tenaska requested rehearing of FERCs methodology for
determining the amount of refunds. The requested rehearings were denied, and Southern Company and
Tenaska appealed the orders to the U.S. |
141
NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
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Circuit Court for the District of Columbia. On July 7,
2009, the U.S. Circuit Court affirmed the FERCs January 2007 order. The ultimate outcome of these
matters cannot now be determined. |
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Right of Way Litigation |
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Southern Company and certain of its subsidiaries, including Mississippi Power, have been named as
defendants in numerous lawsuits brought by landowners since 2001. The plaintiffs lawsuits claim
that defendants may not use, or sublease to third parties, some or all of the fiber optic
communications lines on the rights of way that cross the plaintiffs properties and that such
actions exceed the easements or other property rights held by defendants. The plaintiffs assert
claims for, among other things, trespass and unjust enrichment and seek compensatory and punitive
damages and injunctive relief. Management of Southern Company and Mississippi Power believe that
they have complied with applicable laws and that the plaintiffs claims are without merit. |
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To date, Mississippi Power has entered into agreements with plaintiffs in approximately 95% of the
actions pending against Mississippi Power to clarify its easement rights in the State of
Mississippi. These agreements have been approved by the Circuit Courts of Harrison County and
Jasper County, Mississippi (First Judicial Circuit), and dismissals of the related cases are in
progress. These agreements have not resulted in any material effects on Southern Companys or
Mississippi Powers financial statements. |
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In addition, in late 2001, certain subsidiaries of Southern Company, including Mississippi Power,
were named as defendants in a lawsuit brought in Troup County, Georgia, Superior Court by
Interstate Fiber Network, a subsidiary of telecommunications company ITC DeltaCom, Inc. that uses
rights of way. This lawsuit alleges, among other things, that the defendants are contractually
obligated to indemnify, defend, and hold harmless the telecommunications company from any liability
that may be assessed against it in pending and future right of way litigation. Southern Company
and Mississippi Power believe that the plaintiffs claims are without merit. In the fall of 2004,
the trial court stayed the case until resolution of the underlying landowner litigation discussed
above. In January 2005, the Georgia Court of Appeals dismissed the telecommunications companys
appeal of the trial courts order for lack of jurisdiction. An adverse outcome in this matter,
combined with an adverse outcome against the telecommunications company in one or more of the right
of way lawsuits, could result in substantial judgments; however, the final outcome of these matters
cannot now be determined. |
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Nuclear Fuel Disposal Cost Litigation |
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See Note 3 to the financial statements of Southern Company, Alabama Power, and Georgia Power under
Nuclear Fuel Disposal Costs in Item 8 of the Form 10-K for information regarding the litigation
brought by Alabama Power and Georgia Power against the government for breach of contracts related
to the disposal of spent nuclear fuel. In July 2007, the U.S. Court of Federal Claims awarded
Georgia Power a total of $30 million, based on its ownership interests, and awarded Alabama Power
$17.3 million, representing all of the direct costs of the expansion of spent nuclear fuel storage
facilities from 1998 through 2004. In August 2007, the government filed a motion for
reconsideration, which was denied in November 2007. In January 2008, the government filed a notice
of appeal. In February 2008, the government filed a motion to stay the appeal pending the courts
decisions in three other cases already on appeal. In April 2008, the court granted the
governments motion to stay the appeal pending the courts decisions in three other similar cases
already on appeal. Those cases were decided in August 2008. Based on the rulings in those cases,
an appeal is expected. |
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In April 2008, a second claim against the government was filed for damages incurred after December
31, 2004 (the court-mandated cut-off in the original claim), due to the governments alleged |
142
NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
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continuing breach of contract. In October 2008, the court denied a similar request by the
government to stay this proceeding. The complaint does not contain any specific dollar amount for
recovery of damages. Damages will continue to accumulate until the issue is resolved or the
storage is provided. No amounts have been recognized in the financial statements as of June 30,
2009 for either claim. The final outcome of these matters cannot be determined at this time;
however, no material impact on net income is expected as any damage amounts collected from the
government are expected to be returned to customers. |
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Income Tax Matters |
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Leveraged Leases |
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In 2002, the IRS began the examination of three sale-in-lease-out (SILO) transactions entered into
by Southern Company. As a result of this examination, the IRS challenged the deductions related to
these transactions. Southern Company disagreed with the IRSs conclusion, went through all
administrative appeals, paid approximately $168 million of the additional tax, and sued the IRS for
the refund of such taxes. |
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During the second quarter 2008, decisions in favor of the IRS were reached in several court cases
involving other taxpayers with similar leveraged lease investments. Pursuant to the application of
certain accounting standards related to leveraged leases, management is required to assess on a
periodic basis the likely outcome of the uncertain tax positions related to the SILO transactions.
Based on these accounting standards and managements review of the recent court decisions, Southern
Company recorded an after-tax charge of approximately $67 million in the second quarter 2008. |
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In December 2008, Southern Company received from the Commissioner of the IRS an invitation to
participate in a global settlement initiative related to the SILO transactions. Southern Company
accepted the settlement offer on January 8, 2009. Pursuant to the settlement offer, Southern
Company recorded an additional after-tax charge in the fourth quarter 2008 of $16 million.
Including the charge recorded in the second quarter 2008, total after-tax charges related to
settling the SILO litigation amounted to $83 million in 2008. Of the total, approximately $7
million represented interest and $76 million represented non-cash charges related to the
reallocation of lease income and will be recognized in income over the remaining term of the
affected leases. All additional taxes due as a result of the settlement have now been paid. A
final closing agreement with the IRS was signed on June 19, 2009. This agreement ends the dispute
with the IRS. Subsequent to the settlement and before the end of the second quarter 2009, Southern
Company terminated one of the SILOs and one other international leveraged lease. Of the $76
million non-cash charges related to the IRS settlement, approximately $30 million related to the
SILO which was terminated on June 29, 2009. |
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Georgia State Income Tax Credits |
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Georgia Powers 2005 through 2008 income tax filings for the State of Georgia include state income
tax credits for increased activity through Georgia ports. Georgia Power has also filed similar
claims for the years 2002 through 2004. The Georgia Department of Revenue has not responded to
these claims. In July 2007, Georgia Power filed a complaint in the Superior Court of Fulton County
to recover the credits claimed for the years 2002 through 2004. An unrecognized tax benefit has
been
recorded related to these credits. If Georgia Power prevails, these claims could have a
significant, and possibly material, positive effect on Southern Companys and Georgia Powers net
income. If Georgia Power is not successful, payment of the related state tax could have a
significant, and possibly material, negative effect on Southern Companys and Georgia Powers cash
flow. The ultimate outcome of this matter cannot now be determined. |
143
NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
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Retail Rate Matters |
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Under the 2007 Retail Rate Plan, Georgia Powers earnings are evaluated against a retail return on
equity (ROE) range of 10.25% to 12.25%. In connection with the 2007 Retail Rate Plan, the Georgia
PSC ordered that Georgia Power file its next general base rate case by July 1, 2010; however, the
2007 Retail Rate Plan provides that Georgia Power may file for a general base rate increase in the
event its projected retail ROE falls below 10.25%. |
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The economic recession has significantly reduced Georgia Powers revenues upon which retail rates
were set under the Retail Rate Plan. Despite stringent efforts to reduce expenses, current
projections indicate Georgia Powers retail ROE will be less than 10.25% in both 2009 and 2010.
However, in lieu of filing to increase customer rates as allowed under the 2007 Retail Rate Plan,
on June 29, 2009, Georgia Power filed a request with the Georgia PSC for an accounting order that
would allow Georgia Power to amortize approximately $324 million of its regulatory liability
related to other cost of removal obligations. Under Georgia Powers proposal, the regulatory
liability would be amortized ratably over the 18-month period from July 1, 2009 through December
31, 2010 as a reduction to operating expenses. Even if the Georgia PSC approves the accounting
order request as filed, Georgia Power currently expects its retail ROE will remain below the 10.25%
low end of its allowed retail ROE range in 2009 and 2010. The accounting order request is subject
to the review and approval of the Georgia PSC. The ultimate outcome of this matter cannot be
determined at this time. |
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Construction Projects |
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Integrated Coal Gasification Combined Cycle |
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On January 16, 2009, Mississippi Power filed for a Certificate of Public Convenience and Necessity
with the Mississippi PSC to allow construction of a new electric generating plant located in Kemper
County, Mississippi. The plant would utilize an advanced integrated coal gasification combined
cycle technology with an output capacity of 582 MWs. The
Kemper IGCC will use locally mined lignite (an abundant, lower heating value coal) from a proposed
mine adjacent to the plant as fuel. This certificate, if approved by the Mississippi PSC, would
authorize Mississippi Power to acquire, construct and operate the Kemper IGCC and related
facilities. The Kemper IGCC, subject to federal and state reviews and certain regulatory
approvals, is expected to begin commercial operation in May 2014. As part of its filing,
Mississippi Power has requested certain rate recovery treatment in accordance with the base load
construction legislation. |
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Mississippi Power filed an application in June 2006 with the DOE for certain tax credits available
to projects using clean coal technologies under the Energy Policy Act of 2005. The DOE
subsequently certified the Kemper IGCC, and in November 2006 the IRS allocated Internal
Revenue Code Section 48A tax credits of $133 million to Mississippi Power. On May 11, 2009,
Mississippi Power received notification from the IRS formally certifying these tax credits. The
utilization of these credits is dependent upon meeting the certification requirements for the
Kemper IGCC, including an in-service date no later than May 2014. Mississippi Power has
secured all environmental reviews and permits necessary to commence construction of the Kemper
IGCC and has entered into a binding contract for the steam turbine generator, completing two
milestone requirements for the Section 48A credits. |
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On February 14, 2008, Mississippi Power also requested that the DOE transfer the remaining funds
previously granted to a cancelled Southern Company project that would have been located in Orlando,
Florida. On December 12, 2008, an agreement was reached to assign the remaining funds to the
Kemper IGCC. The estimated construction cost of the Kemper IGCC is approximately $2.2
billion, which is net of $220 million related to funding to be received from the DOE related to
project construction. The remaining DOE funding of $50 million is projected to be used for
demonstration over the first few years of operation. |
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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
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On April 6, 2009, the Governor of the State of Mississippi signed into law a bill that will provide
an ad valorem tax exemption for a portion of the assessed value of all property utilized in certain
electric generating facilities with integrated gasification process facilities. This tax
exemption, which may not exceed 50% of the total value of the project, is for projects with a
capital investment from private sources of $1 billion or more. Mississippi Power expects the
Kemper IGCC to be a qualifying project under the law and the gasification portion of the Kemper
IGCC to be exempt from ad valorem taxation. |
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Beginning in December 2006, the Mississippi PSC has approved Mississippi Powers requested
accounting treatment to defer the costs associated with Mississippi Powers generation resource
planning, evaluation, and screening activities as a regulatory asset. On December 22, 2008,
Mississippi Power requested an amendment to its original order that would allow these costs to
continue to be charged to and remain in a regulatory asset until January 1, 2010. On April 6,
2009, Mississippi Power received an accounting order from the Mississippi PSC directing Mississippi
Power to continue to charge all generation resource planning, evaluation, and screening costs to
regulatory assets including those costs associated with activities to obtain a certificate of
public convenience and necessity and costs necessary and prudent to preserve the availability,
economic viability, and/or required schedule of the Kemper IGCC generation resource planning,
evaluation, and screening activities until the Mississippi PSC makes findings and determination as
to the recovery of Mississippi Powers prudent expenditures. The Mississippi PSCs determination
of prudence for Mississippi Powers pre-construction costs is scheduled to occur by May 2010. As
of June 30, 2009, Mississippi Power had spent a total of $56.4 million associated with Mississippi
Powers generation resource planning, evaluation, and screening activities, including regulatory
filing costs. Costs incurred for the six months ended June 30, 2009 totaled $14.1 million as
compared to $13.0 million for the six months ended June 30, 2008. Of the total $56.4 million,
$51.9 million was deferred in other regulatory assets, $3.7 million was related to land purchases
capitalized, and $0.8 million was previously expensed. |
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Several motions were filed by intervenors, most of which were procedural in nature and sought to
stay or delay the timely and orderly administration of the docket. In addition to these procedural
motions, a motion was filed by the Attorney General for the State of Mississippi which questioned
whether the Mississippi PSC had authority to approve the gasification portion of the Kemper IGCC.
On June 5, 2009, all of these motions were denied by the Mississippi PSC. |
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On June 5, 2009, the Mississippi PSC issued an order initiating an evaluation of the Kemper IGCC
and establishing a two-phase procedural schedule. During Phase I, the Mississippi PSC will
determine if a need exists for new generating resources. Hearings for Phase I are scheduled for
October 2009 with a decision in November 2009. If it is determined a need exists in Phase I, the
appropriate resource to fill the need as well as the cost recovery of that resource through
application of the State of Mississippis Baseload Act of 2008 will be determined during Phase II.
Hearings regarding Phase II issues are scheduled for February 2010 with a decision by May 2010. |
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The ultimate outcome of these matters cannot now be determined. |
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Nuclear |
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In August 2006, Southern Nuclear, on behalf of Georgia Power, Oglethorpe Power Corporation (OPC),
the Municipal Electric Authority of Georgia (MEAG Power), and the City of Dalton, Georgia, an
incorporated municipality in the State of Georgia acting by and through its Board of Water, Light
and Sinking Fund Commissioners (collectively, Owners), filed an application with the NRC for an
early site permit relating to two additional nuclear units on the site of Plant Vogtle. See Note 4
to the financial statements of Southern Company and Georgia Power in Item 8 of the Form
10-K for additional information on these co-owners. On March 31, 2008, Southern Nuclear filed an |
145
NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
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application with the NRC for a combined construction and operating license (COL) for the new units.
If licensed by the NRC, Vogtle Units 3 and 4 are scheduled to be placed in service in 2016 and
2017, respectively. |
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On April 8, 2008, Georgia Power, acting for itself and as agent for the Owners, and a consortium
consisting of Westinghouse Electric Company LLC and Stone & Webster, Inc. (collectively,
Consortium) entered into an engineering, procurement, and construction agreement to design,
engineer, procure, construct, and test two AP1000 nuclear units with electric generating capacity
of approximately 1,100 MWs each and related facilities, structures, and improvements at Plant
Vogtle (Vogtle 3 and 4 Agreement). |
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The Vogtle 3 and 4 Agreement is an arrangement whereby the Consortium supplies and constructs the
entire facility with the exception of certain items provided by the Owners. Under the terms of the
Vogtle 3 and 4 Agreement, the Owners will pay a purchase price that will be subject to certain
price escalation and adjustments, adjustments for change orders, and performance bonuses. Each
Owner is severally (and not jointly) liable for its proportionate share, based on its ownership
interest, of all amounts owed to the Consortium under the Vogtle 3 and 4 Agreement. Georgia
Powers proportionate share, based on its current ownership interest, is 45.7%. |
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On March 17, 2009, the Georgia PSC voted to certify construction of Plant Vogtle Units 3 and 4 at
an in-service cost of $6.4 billion. In addition, the Georgia PSC voted to approve inclusion of the
related construction work in progress accounts in rate base and to recover financing costs during
the construction period beginning in 2011, which is expected to reduce the in-service cost to
approximately $4.5 billion. |
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On April 21, 2009, the Governor of the State of Georgia signed into law the Georgia Nuclear Energy
Financing Act that will allow Georgia Power to recover financing costs for nuclear construction
projects by including the related construction work in progress accounts in rate base during the
construction period. The cost recovery provisions will become effective January 1, 2011. |
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On
June 15, 2009, an environmental group filed a petition in the
Superior Court of Fulton County, Georgia seeking review of the
Georgia PSCs certification order and challenging the
constitutionality of the Georgia Nuclear Energy Financing Act. Georgia
Power believes there is no meritorious basis for this petition and
intends to vigorously defend against the requested actions. The
ultimate outcome of this matter cannot be determined at this time.
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The Owners and the Consortium have agreed to certain liquidated damages upon the Consortiums
failure to comply with the schedule and performance guarantees. The Owners and the Consortium also
have agreed to certain bonuses payable to the Consortium for early completion and unit performance.
The Consortiums liability to the Owners for schedule and performance liquidated damages and
warranty claims is subject to a cap. |
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The obligations of Westinghouse Electric Company LLC and Stone & Webster, Inc. under the Vogtle 3
and 4 Agreement are guaranteed by Toshiba Corporation and The Shaw Group, Inc., respectively. In
the event of certain credit rating downgrades of any Owner, such Owner will be required to provide
a letter of credit or other credit enhancement. |
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In addition, the Owners may terminate the Vogtle 3 and 4 Agreement at any time for their
convenience, provided that the Owners will be required to pay certain termination costs and, at
certain stages of the work, cancellation fees to the Consortium. The Consortium may terminate the
Vogtle 3 and 4 Agreement under certain circumstances, including delays in receipt of the COL or
delivery of full notice to proceed, certain Owner suspension or delays of work, action by a
governmental authority to permanently stop work, certain breaches of the Vogtle 3 and 4 Agreement
by the Owners, Owner insolvency, and certain other events. |
|
|
|
|
Southern Company is also exploring other possibilities relating to additional nuclear power
projects, both on its own or in partnership with other utilities. The final outcome of these
matters cannot now be determined. |
146
NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
|
(C) |
|
FAIR VALUE MEASUREMENTS |
|
|
|
|
As of June 30, 2009, assets and liabilities measured at fair value on a recurring basis during
the period, together with the level of the fair value hierarchy in which they fall, are as
follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using |
|
|
|
|
|
|
|
|
Quoted Prices |
|
|
|
|
|
|
|
|
|
|
|
|
in Active |
|
Significant |
|
|
|
|
|
|
|
|
|
|
Markets for |
|
Other |
|
Significant |
|
|
|
|
|
|
|
|
Identical |
|
Observable |
|
Unobservable |
|
|
|
|
|
|
|
|
Assets |
|
Inputs |
|
Inputs |
|
|
|
|
|
|
As of June 30, 2009: |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
|
Total |
|
|
|
|
|
|
(in millions) |
|
|
|
|
Southern Company |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy-related derivatives |
|
$ |
|
|
|
$ |
23 |
|
|
$ |
|
|
|
$ |
23 |
|
|
|
|
|
Nuclear decommissioning trusts(a)(b) |
|
|
594 |
|
|
|
343 |
|
|
|
|
|
|
|
937 |
|
|
|
|
|
Cash equivalents and restricted cash |
|
|
688 |
|
|
|
|
|
|
|
|
|
|
|
688 |
|
|
|
|
|
Other |
|
|
7 |
|
|
|
44 |
|
|
|
34 |
|
|
|
85 |
|
|
|
|
|
|
Total |
|
$ |
1,289 |
|
|
$ |
410 |
|
|
$ |
34 |
|
|
$ |
1,733 |
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy-related derivatives |
|
$ |
|
|
|
$ |
325 |
|
|
$ |
|
|
|
$ |
325 |
|
|
|
|
|
Interest rate derivatives |
|
|
|
|
|
|
16 |
|
|
|
|
|
|
|
16 |
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
341 |
|
|
$ |
|
|
|
$ |
341 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alabama Power |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy-related derivatives |
|
$ |
|
|
|
$ |
3 |
|
|
$ |
|
|
|
$ |
3 |
|
|
|
|
|
Nuclear decommissioning trusts(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic equity |
|
|
244 |
|
|
|
35 |
|
|
|
|
|
|
|
279 |
|
|
|
|
|
U.S. Treasury and government agency securities |
|
|
|
|
|
|
12 |
|
|
|
|
|
|
|
12 |
|
|
|
|
|
Corporate bonds |
|
|
7 |
|
|
|
56 |
|
|
|
|
|
|
|
63 |
|
|
|
|
|
Mortgage and asset backed securities |
|
|
|
|
|
|
50 |
|
|
|
|
|
|
|
50 |
|
|
|
|
|
Other |
|
|
|
|
|
|
14 |
|
|
|
|
|
|
|
14 |
|
|
|
|
|
Cash equivalents and restricted cash |
|
|
191 |
|
|
|
|
|
|
|
|
|
|
|
191 |
|
|
|
|
|
|
Total |
|
$ |
442 |
|
|
$ |
170 |
|
|
$ |
|
|
|
$ |
612 |
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy-related derivatives |
|
$ |
|
|
|
$ |
95 |
|
|
$ |
|
|
|
$ |
95 |
|
|
|
|
|
Interest rate derivatives |
|
|
|
|
|
|
9 |
|
|
|
|
|
|
|
9 |
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
104 |
|
|
$ |
|
|
|
$ |
104 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Georgia Power |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy-related derivatives |
|
$ |
|
|
|
$ |
4 |
|
|
$ |
|
|
|
$ |
4 |
|
|
|
|
|
Nuclear decommissioning trusts(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic equity |
|
|
343 |
|
|
|
1 |
|
|
|
|
|
|
|
344 |
|
|
|
|
|
U.S. Treasury and government agency securities |
|
|
|
|
|
|
24 |
|
|
|
|
|
|
|
24 |
|
|
|
|
|
Municipal bonds |
|
|
|
|
|
|
15 |
|
|
|
|
|
|
|
15 |
|
|
|
|
|
Corporate bonds |
|
|
|
|
|
|
86 |
|
|
|
|
|
|
|
86 |
|
|
|
|
|
Mortgage and asset backed securities |
|
|
|
|
|
|
25 |
|
|
|
|
|
|
|
25 |
|
|
|
|
|
Other |
|
|
|
|
|
|
25 |
|
|
|
|
|
|
|
25 |
|
|
|
|
|
Cash equivalents and restricted cash |
|
|
34 |
|
|
|
|
|
|
|
|
|
|
|
34 |
|
|
|
|
|
|
Total |
|
$ |
377 |
|
|
$ |
180 |
|
|
$ |
|
|
|
$ |
557 |
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy-related derivatives |
|
$ |
|
|
|
$ |
129 |
|
|
$ |
|
|
|
$ |
129 |
|
|
|
|
|
Interest rate derivatives |
|
|
|
|
|
|
7 |
|
|
|
|
|
|
|
7 |
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
136 |
|
|
$ |
|
|
|
$ |
136 |
|
|
|
|
|
|
147
NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using |
|
|
|
|
|
|
|
|
Quoted Prices |
|
|
|
|
|
|
|
|
|
|
|
|
in Active |
|
Significant |
|
|
|
|
|
|
|
|
|
|
Markets for |
|
Other |
|
Significant |
|
|
|
|
|
|
|
|
Identical |
|
Observable |
|
Unobservable |
|
|
|
|
|
|
|
|
Assets |
|
Inputs |
|
Inputs |
|
|
|
|
|
|
As of June 30, 2009: |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
|
Total |
|
|
|
|
|
|
(in millions) |
|
|
|
|
Gulf Power |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy-related derivatives |
|
$ |
|
|
|
$ |
1 |
|
|
$ |
|
|
|
$ |
1 |
|
Cash equivalents and restricted cash |
|
|
41 |
|
|
|
|
|
|
|
|
|
|
|
41 |
|
|
Total |
|
$ |
41 |
|
|
$ |
1 |
|
|
$ |
|
|
|
$ |
42 |
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy-related derivatives |
|
$ |
|
|
|
$ |
29 |
|
|
$ |
|
|
|
$ |
29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mississippi Power |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy-related derivatives |
|
$ |
|
|
|
$ |
2 |
|
|
$ |
|
|
|
$ |
2 |
|
Cash equivalents |
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
Total |
|
$ |
2 |
|
|
$ |
2 |
|
|
$ |
|
|
|
$ |
4 |
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy-related derivatives |
|
$ |
|
|
|
$ |
62 |
|
|
$ |
|
|
|
$ |
62 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Southern Power |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy-related derivatives |
|
$ |
|
|
|
$ |
13 |
|
|
$ |
|
|
|
$ |
13 |
|
Cash equivalents |
|
|
29 |
|
|
|
|
|
|
|
|
|
|
|
29 |
|
|
Total |
|
$ |
29 |
|
|
$ |
13 |
|
|
$ |
|
|
|
$ |
42 |
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy-related derivatives |
|
$ |
|
|
|
$ |
10 |
|
|
$ |
|
|
|
$ |
10 |
|
|
|
|
|
(a) |
|
Excludes receivables related to investment income, pending investment sales,
and payables related to pending investment purchases. |
|
(b) |
|
For additional detail, see the nuclear decommissioning trusts for Alabama Power and
Georgia Power. |
|
|
|
Energy-related derivatives and interest rate derivatives primarily consist of
over-the-counter contracts. See Note (E) under Financial Instruments herein for additional
information. The nuclear decommissioning trust funds are invested in a diversified mix of
equity and fixed income securities. The cash equivalents and restricted cash consist of
securities with original maturities of 90 days or less. Other represents marketable
securities and certain deferred compensation funds also invested in various marketable
securities. All of these financial instruments and investments are valued primarily using the
market approach. |
|
|
|
|
Changes in the fair value measurement of the Level 3 items using significant unobservable
inputs for Southern Company at June 30, 2009 are as follows: |
|
|
|
|
|
|
|
|
|
|
|
Level 3 |
|
|
Other |
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 30, 2009 |
|
June 30, 2009 |
|
|
(in millions) |
Beginning balance |
|
$ |
32 |
|
|
$ |
35 |
|
Total gains (losses) realized/unrealized: |
|
|
|
|
|
|
|
|
Included in earnings |
|
|
|
|
|
|
(3 |
) |
Included in OCI |
|
|
2 |
|
|
|
2 |
|
|
Ending balance at June 30, 2009 |
|
$ |
34 |
|
|
$ |
34 |
|
|
148
NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
Unrealized losses of $3 million were included in earnings during the six-month period relating
to assets still held at June 30, 2009 and are recorded in depreciation and amortization.
Southern Company, Alabama Power, and Georgia Power continue to elect the option to fair value
investment securities held in the nuclear decommissioning trust funds. For the three months
and six months ended June 30, 2009, the increase in fair value of the funds, which includes
reinvested interest and dividends, is recorded in the regulatory liability and was $45 million
and $22 million, respectively, for Alabama Power, $52 million and $27 million, respectively,
for Georgia Power, and $97 million and $49 million, respectively, for Southern Company.
As of June 30, 2009, other financial instruments for which the carrying amount did not equal
fair value were as follows:
|
|
|
|
|
|
|
|
|
|
|
Carrying Amount |
|
Fair Value |
|
|
(in millions) |
Long-term debt: |
|
|
|
|
|
|
|
|
Southern Company |
|
|
$18,916 |
|
|
|
$19,231 |
|
Alabama Power |
|
|
$6,407 |
|
|
|
$6,547 |
|
Georgia Power |
|
|
$7,566 |
|
|
|
$7,626 |
|
Gulf Power |
|
|
$1,119 |
|
|
|
$1,129 |
|
Mississippi Power |
|
|
$491 |
|
|
|
$500 |
|
Southern Power |
|
|
$1,297 |
|
|
|
$1,357 |
|
|
|
|
The fair values were based on either closing market prices (Level 1) or closing prices of
comparable instruments (Level 2). |
(D) |
|
STOCKHOLDERS EQUITY |
|
|
|
Earnings per Share |
|
|
|
For Southern Company, the only difference in computing basic and diluted earnings per share is
attributable to exercised options and outstanding options under the stock option plan. See Note 8
to the financial statements of Southern Company in Item 8 of the Form 10-K for further information
on the stock option plan. The effect of the stock options was determined using the treasury stock
method. Shares used to compute diluted earnings per share are as follows (in thousands): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
Three Months |
|
Six Months |
|
Six Months |
|
|
Ended |
|
Ended |
|
Ended |
|
Ended |
|
|
June 30, 2009 |
|
June 30, 2008 |
|
June 30, 2009 |
|
June 30, 2008 |
|
|
|
As reported shares |
|
|
790,748 |
|
|
|
769,122 |
|
|
|
785,303 |
|
|
|
767,636 |
|
Effect of options |
|
|
1,320 |
|
|
|
4,018 |
|
|
|
1,562 |
|
|
|
4,091 |
|
|
|
|
Diluted shares |
|
|
792,068 |
|
|
|
773,140 |
|
|
|
786,865 |
|
|
|
771,727 |
|
|
|
|
|
|
|
The reduction in the effect of options for the three and six months ended June 30, 2009 compared to
the corresponding periods in 2008 is primarily due to the anti-dilutive nature of certain stock
options outstanding that have exercise prices that exceed the average stock price of Southern
Company shares in the three and six months ended June 30, 2009. At June 30, 2009, there were 37.8
million stock options that were not included in the diluted earnings per share calculation because
they were anti-dilutive. Assuming an average stock price of $38.01 (the highest exercise price of
the anti-dilutive options outstanding), the effect of options for the three and six months ended
June 30, 2009 would have increased by 3.5 million and 3.1 million shares, respectively. |
149
NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
|
|
|
Changes in Stockholders Equity |
|
|
|
|
The following table presents year-to-date changes in stockholders equity of Southern Company: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred and |
|
|
|
|
Common |
|
Preference |
|
Total |
|
|
Stockholders |
|
Stock of |
|
Stockholders |
|
|
Equity |
|
Subsidiaries |
|
Equity |
|
|
|
|
|
|
(in millions) |
|
|
|
|
Balance at December 31, 2008 |
|
$ |
13,276 |
|
|
$ |
707 |
|
|
$ |
13,983 |
|
Net income after dividends on
preferred and preference stock |
|
|
604 |
|
|
|
|
|
|
|
604 |
|
Other comprehensive income (loss) |
|
|
16 |
|
|
|
|
|
|
|
16 |
|
Stock issued |
|
|
559 |
|
|
|
|
|
|
|
559 |
|
Cash dividends on common stock |
|
|
(670 |
) |
|
|
|
|
|
|
(670 |
) |
Other |
|
|
(1 |
) |
|
|
|
|
|
|
(1 |
) |
|
Balance at June 30, 2009 |
|
$ |
13,784 |
|
|
$ |
707 |
|
|
$ |
14,491 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred and |
|
|
|
|
Common |
|
Preference |
|
Total |
|
|
Stockholders |
|
Stock of |
|
Stockholders |
|
|
Equity |
|
Subsidiaries |
|
Equity |
|
|
(in millions) |
Balance at December 31, 2007 |
|
$ |
12,385 |
|
|
$ |
707 |
|
|
$ |
13,092 |
|
Net income after dividends on
preferred and preference stock |
|
|
776 |
|
|
|
|
|
|
|
776 |
|
Other comprehensive income (loss) |
|
|
(14 |
) |
|
|
|
|
|
|
(14 |
) |
Stock issued |
|
|
260 |
|
|
|
|
|
|
|
260 |
|
Cash dividends on common stock |
|
|
(630 |
) |
|
|
|
|
|
|
(630 |
) |
Other |
|
|
(7 |
) |
|
|
|
|
|
|
(7 |
) |
|
Balance at June 30, 2008 |
|
$ |
12,770 |
|
|
$ |
707 |
|
|
$ |
13,477 |
|
|
|
(E) |
|
FINANCING |
|
|
|
|
Bank Credit Arrangements |
|
|
|
|
At June 30, 2009, unused credit arrangements with banks totaled $4.7 billion, of which $484 million
expires during 2009, $965 million expires in 2010, $25 million expires in 2011, and $3.2 billion
expires in 2012. These credit arrangements provide liquidity support to the registrants
commercial paper borrowings and the traditional operating companies variable rate pollution
control revenue bonds. |
150
NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
|
|
|
The following table outlines the credit arrangements by company: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executable |
|
|
|
|
|
|
|
|
|
|
|
|
Term-Loans |
|
Expires |
|
|
|
|
|
|
|
|
|
|
One |
|
Two |
|
|
|
|
|
|
|
|
Company |
|
Total |
|
Unused |
|
Year |
|
Years |
|
2009 |
|
2010 |
|
2011 |
|
2012 |
|
|
(in millions) |
Southern
Company |
|
$ |
950 |
|
|
$ |
950 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
950 |
|
Alabama Power |
|
|
1,260 |
|
|
|
1,260 |
|
|
|
361 |
|
|
|
|
|
|
|
325 |
|
|
|
145 |
|
|
|
25 |
|
|
|
765 |
|
Georgia Power |
|
|
1,675 |
|
|
|
1,663 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
555 |
|
|
|
|
|
|
|
1,120 |
|
Gulf Power |
|
|
220 |
|
|
|
220 |
|
|
|
70 |
|
|
|
|
|
|
|
90 |
|
|
|
130 |
|
|
|
|
|
|
|
|
|
Mississippi Power |
|
|
149 |
|
|
|
149 |
|
|
|
15 |
|
|
|
44 |
|
|
|
59 |
|
|
|
90 |
|
|
|
|
|
|
|
|
|
Southern Power |
|
|
400 |
|
|
|
400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
400 |
|
Other |
|
|
55 |
|
|
|
55 |
|
|
|
55 |
|
|
|
|
|
|
|
10 |
|
|
|
45 |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
4,709 |
|
|
$ |
4,697 |
|
|
$ |
501 |
|
|
$ |
44 |
|
|
$ |
484 |
|
|
$ |
965 |
|
|
$ |
25 |
|
|
$ |
3,235 |
|
|
|
|
|
Subsequent to June 30, 2009, Georgia Power entered into an additional committed credit agreement
resulting in an increase of $40 million. The agreement expires in 2010 and contains a two year
term-loan option. |
|
|
|
|
See Note 6 to the financial statements of Southern Company, Alabama Power, Georgia Power, Gulf
Power, Mississippi Power, and Southern Power under Bank Credit Arrangements in Item 8 of the Form
10-K for additional information. |
|
|
|
|
Changes in Redeemable Preferred Stock of Subsidiaries |
|
|
|
|
The following table presents year-to-date changes in redeemable preferred stock of subsidiaries for
Southern Company: |
|
|
|
|
|
|
|
Redeemable Preferred |
|
|
Stock of Subsidiaries |
|
|
(in millions) |
Balance at December 31, 2008 |
|
$ |
375 |
|
Issuance (Redemption) of preferred stock |
|
|
|
|
|
Balance at June 30, 2009 |
|
$ |
375 |
|
|
|
|
|
|
|
Balance at December 31, 2007 |
|
$ |
498 |
|
Issuance (Redemption) of preferred stock |
|
|
(125 |
) |
Other |
|
|
2 |
|
|
Balance at June 30, 2008 |
|
$ |
375 |
|
|
|
|
|
Financial Instruments |
|
|
|
|
Southern Company, the traditional operating companies, and Southern Power are exposed to market
risks, primarily commodity price risk and interest rate risk. To manage the volatility
attributable to these exposures, each company nets its exposures, where possible, to take advantage
of natural offsets and enters into various derivative transactions for the remaining exposures
pursuant to the companies policies in areas such as counterparty exposure and risk management
practices. The registrants policy is that derivatives are to be used primarily for hedging
purposes and mandates strict adherence to all applicable risk management policies. Derivative
positions are monitored using techniques including, but not limited to, market valuation, value at
risk, stress testing, and sensitivity analysis. Derivative instruments are recognized at fair
value in the statement of financial position as either assets or liabilities. |
151
NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
|
|
|
Energy-Related Derivatives |
|
|
|
|
The traditional operating companies and Southern Power enter into energy-related derivatives to
hedge exposures to electricity, gas, and other fuel price changes. However, due to cost-based rate
regulations, the traditional operating companies have limited exposure to market volatility in
commodity fuel prices and prices of electricity. Each of the traditional operating companies
manages fuel-hedging programs, implemented per the guidelines of their respective state PSCs,
through the use of financial derivative contracts. Southern Power also has limited exposure to
market volatility in commodity fuel prices and prices of electricity because its long-term sales
contracts shift substantially all fuel cost responsibility to the purchaser. However, Southern
Power has been and may continue to be exposed to market volatility in energy-related commodity
prices as a result of sales of uncontracted generating capacity. |
|
|
|
|
To mitigate residual risks relative to movements in electricity prices, the registrants enter into
physical fixed-price or heat rate contracts for the purchase and sale of electricity through the
wholesale electricity market. To mitigate residual risks relative to movements in gas prices, the
registrants may enter into fixed-price contracts for natural gas purchases; however, a significant
portion of contracts are priced at market. |
|
|
|
|
Energy-related derivative contracts are accounted for in one of three methods: |
|
|
|
Regulatory Hedges Energy-related derivative contracts which are designated as regulatory
hedges relate primarily to the traditional operating companies fuel hedging programs, where
gains and losses are initially recorded as regulatory liabilities and assets, respectively,
and then are included in fuel expense as the underlying fuel is used in operations and
ultimately recovered through the respective fuel cost recovery clauses. |
|
|
|
|
Cash Flow Hedges Gains and losses on energy-related derivatives designated as cash flow
hedges, which are mainly used by Southern Power, to hedge anticipated purchases and sales are
initially deferred in OCI before being recognized in income in the same period as the hedged
transactions are reflected in earnings. |
|
|
|
|
Not Designated Gains and losses on energy-related derivative contracts that are not
designated or fail to qualify as hedges are recognized in the statements of income as
incurred. |
|
|
|
Some energy-related derivative contracts require physical delivery as opposed to financial
settlement, and this type of derivative is both common and prevalent within the electric industry.
When an energy-related derivative contract is settled physically, any cumulative unrealized gain or
loss is reversed and the contract price is recognized in the respective line item representing the
actual price of the underlying goods being delivered. |
|
|
|
|
At June 30, 2009, the net volume of energy-related derivative contracts for power and natural gas
positions for the registrants, together with the longest hedge date over which the respective
entity is hedging its exposure to the variability in future cash flows for forecasted transactions
and the longest date for derivatives not designated as hedges, were as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Power |
|
Gas |
|
|
|
|
|
|
Longest |
|
Longest |
|
Net |
|
Longest |
|
Longest |
As of June 30, |
|
Net Sold |
|
Hedge |
|
Non-Hedge |
|
Purchased |
|
Hedge |
|
Non-Hedge |
2009: |
|
MWH |
|
Date |
| Date |
|
mmBtu |
|
Date |
|
Date |
|
|
(in thousands) |
|
|
|
|
|
|
|
|
|
(in millions) |
|
|
|
|
|
|
|
|
Southern Company |
|
|
1,442 |
|
|
|
2009 |
|
|
|
2010 |
|
|
|
173 |
* |
|
|
2012 |
|
|
|
2010 |
|
Alabama Power |
|
|
6 |
|
|
|
|
|
|
|
2009 |
|
|
|
49 |
|
|
|
2012 |
|
|
|
|
|
Georgia Power |
|
|
7 |
|
|
|
|
|
|
|
2009 |
|
|
|
75 |
|
|
|
2012 |
|
|
|
|
|
Gulf Power |
|
|
1 |
|
|
|
|
|
|
|
2009 |
|
|
|
15 |
|
|
|
2012 |
|
|
|
|
|
Mississippi Power |
|
|
286 |
|
|
|
2009 |
|
|
|
2009 |
|
|
|
30 |
|
|
|
2012 |
|
|
|
2009 |
|
Southern Power |
|
|
1,142 |
|
|
|
|
|
|
|
2010 |
|
|
|
5 |
* |
|
|
|
|
|
|
2010 |
|
|
|
|
|
* |
|
Includes location basis of 2 million mmBtu. |
152
NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
|
|
|
For cash flow hedges, the amounts expected to be reclassified from OCI to revenue and fuel
expense for the next 12-month period ending June 30, 2010 are immaterial for all registrants. |
|
|
|
|
Interest Rate Derivatives |
|
|
|
|
Southern Company and certain subsidiaries also enter into interest rate derivatives, which include
forward-starting interest rate swaps, to hedge exposure to changes in interest rates. Derivatives
related to existing variable rate securities or forecasted transactions are accounted for as cash
flow hedges. The derivatives employed as hedging instruments are structured to minimize
ineffectiveness. |
|
|
|
|
For cash flow hedges, the fair value gains or losses are recorded in OCI and are reclassified into
earnings at the same time the hedged transactions affect earnings. |
|
|
|
|
At June 30, 2009, Southern Company had a total of $1.2 billion notional amount of interest rate
derivatives outstanding with net fair value losses of $16 million as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
Fair Value |
|
|
Notional |
|
Variable Rate |
|
Fixed Rate |
|
Hedge Maturity |
|
Gain (Loss) |
Registrant |
|
Amount |
|
Received |
|
Paid |
|
Date |
|
June 30, 2009 |
|
|
(in millions) |
|
|
|
|
|
|
|
(in millions) |
Cash flow hedges of existing debt |
|
|
|
|
|
|
|
|
Alabama Power |
|
$576 |
|
SIFMA* Index |
|
2.69% |
|
February 2010 |
|
$(9) |
Georgia Power |
|
301 |
|
SIFMA* Index |
|
2.22% |
|
December 2009 |
|
(3) |
Georgia Power |
|
300 |
|
1-month LIBOR |
|
2.43% |
|
April 2010 |
|
(4) |
|
|
|
|
|
|
|
|
|
Total |
|
$1,177 |
|
|
|
|
|
|
|
$(16) |
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Securities Industry and Financial Markets Association Municipal Swap Index (SIFMA) |
|
|
|
For the six months ended June 30, 2009, Georgia Power incurred net losses of $16 million (all
of which were incurred in the first quarter 2009) upon termination of certain interest rate
derivatives at the same time it issued debt. The effective portion of these losses has been
deferred in OCI and will be amortized to interest expense over the life of the original interest
rate derivative, reflecting the period in which the forecasted hedged transaction affects earnings. |
|
|
|
|
Subsequent to June 30, 2009, Gulf Power entered into a forward starting interest rate swap to
mitigate exposure to interest rate changes related to anticipated debt issuances. The notional
amount of the swap is $50 million, and the swap has been designated as a cash flow hedge. |
|
|
|
|
The following table reflects the estimated pre-tax gains (losses) that will be reclassified from
OCI to interest expense for the next 12-month period ending June 30, 2010, together with the
longest date that total deferred gains and losses are expected to be amortized into earnings. |
|
|
|
|
|
|
|
|
|
|
|
Estimated Gain (Loss) to |
|
|
|
|
be Reclassified for the |
|
Total Deferred |
|
|
12 Months Ending |
|
Gains (Losses) |
Registrant |
|
June 30, 2010 |
|
Amortized Through |
|
|
(in millions) |
|
|
|
|
Southern Company |
|
$ |
(35 |
) |
|
|
2037 |
|
Alabama Power |
|
|
(9 |
) |
|
|
2035 |
|
Georgia Power |
|
|
(15 |
) |
|
|
2037 |
|
Gulf Power |
|
|
(1 |
) |
|
|
2018 |
|
Southern Power |
|
|
(10 |
) |
|
|
2016 |
|
|
153
NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
|
|
|
Derivative Financial Statement Presentation and Amounts |
|
|
|
|
At June 30, 2009, the fair value of energy-related derivatives and interest rate derivatives was
reflected in the balance sheets as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives at June 30, 2009 |
|
|
Fair Value |
Derivative Category and Balance Sheet |
|
Southern |
|
Alabama |
|
Georgia |
|
Gulf |
|
Mississippi |
|
Southern |
Location |
|
Company |
|
Power |
|
Power |
|
Power |
|
Power |
|
Power |
|
|
(in millions) |
Derivatives designated as hedging
instruments for regulatory purposes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy-related derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other current assets |
|
$ |
4 |
|
|
$ |
1 |
|
|
$ |
2 |
|
|
$ |
1 |
|
|
$ |
|
|
|
|
|
|
Other deferred charges and assets |
|
|
5 |
|
|
|
2 |
|
|
|
2 |
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
Total derivatives designated as hedging
instruments for regulatory purposes |
|
$ |
9 |
|
|
$ |
3 |
|
|
$ |
4 |
|
|
$ |
1 |
|
|
$ |
1 |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging
instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy-related derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other current assets* |
|
$ |
14 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1 |
|
|
$ |
|
|
Assets from risk management activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 |
|
|
Total derivatives not designated as
hedging instruments |
|
$ |
14 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1 |
|
|
$ |
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total asset derivatives |
|
$ |
23 |
|
|
$ |
3 |
|
|
$ |
4 |
|
|
$ |
1 |
|
|
$ |
2 |
|
|
$ |
13 |
|
|
|
|
|
* |
|
Southern Company includes Assets from risk management activities in Other current assets. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability Derivatives at June 30, 2009 |
|
|
Fair Value |
Derivative Category and Balance Sheet |
|
Southern |
|
Alabama |
|
Georgia |
|
Gulf |
|
Mississippi |
|
Southern |
Location |
|
Company |
|
Power |
|
Power |
|
Power |
|
Power |
|
Power |
|
|
(in millions) |
Derivatives designated as hedging
instruments for regulatory purposes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy-related derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities from risk management activities |
|
$ |
241 |
|
|
$ |
78 |
|
|
$ |
102 |
|
|
$ |
24 |
|
|
$ |
37 |
|
|
|
|
|
Other deferred credits and liabilities |
|
|
73 |
|
|
|
17 |
|
|
|
27 |
|
|
|
5 |
|
|
|
24 |
|
|
|
|
|
|
Total derivatives designated as hedging
instruments for regulatory purposes |
|
$ |
314 |
|
|
$ |
95 |
|
|
$ |
129 |
|
|
$ |
29 |
|
|
$ |
61 |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives designated as hedging instruments
in cash flow and fair value hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities from risk management activities |
|
$ |
16 |
|
|
$ |
9 |
|
|
$ |
7 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging
instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy-related derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities from risk management activities |
|
$ |
10 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1 |
|
|
$ |
9 |
|
Other deferred credits and liabilities |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
Total derivatives not designated as hedging
instruments |
|
$ |
11 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1 |
|
|
$ |
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liability derivatives |
|
$ |
341 |
|
|
$ |
104 |
|
|
$ |
136 |
|
|
$ |
29 |
|
|
$ |
62 |
|
|
$ |
10 |
|
|
154
NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
|
|
|
All derivative instruments are measured at fair value. See Note (C) herein for additional
information. |
|
|
|
|
At June 30, 2009, the pre-tax effect of unrealized derivative gains (losses) arising from
energy-related derivative instruments designated as regulatory hedging instruments and deferred on
the balance sheets were as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Regulatory Hedge Unrealized Gain (Loss) Recognized on the Balance Sheet |
Derivative Category and Balance Sheet |
|
Southern |
|
Alabama |
|
Georgia |
|
Gulf |
|
Mississippi |
Location |
|
Company |
|
Power |
|
Power |
|
Power |
|
Power |
|
|
(in millions) |
Energy-related derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other regulatory assets, current |
|
$ |
(241 |
) |
|
$ |
(78 |
) |
|
$ |
(102 |
) |
|
$ |
(24 |
) |
|
$ |
(37 |
) |
Other regulatory assets, deferred |
|
|
(73 |
) |
|
|
(17 |
) |
|
|
(27 |
) |
|
|
(5 |
) |
|
|
(24 |
) |
Other current liabilities |
|
|
4 |
|
|
|
1 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
Other regulatory liabilities, current |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
Other regulatory liabilities, deferred |
|
|
5 |
|
|
|
2 |
|
|
|
2 |
|
|
|
|
|
|
|
1 |
|
|
Total energy-related derivative gains (losses) |
|
$ |
(305 |
) |
|
$ |
(92 |
) |
|
$ |
(125 |
) |
|
$ |
(28 |
) |
|
$ |
(60 |
) |
|
For the three months ended June 30, 2009 and June 30, 2008, the pre-tax effect of
energy-related derivatives and interest rate derivatives designated as cash flow hedging
instruments on the statements of income were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) |
|
|
|
|
Recognized in OCI |
|
Gain (Loss) Reclassified from Accumulated OCI |
Derivatives in Cash Flow |
|
on Derivative |
|
into Income (Effective Portion) |
Hedging Relationships |
|
(Effective Portion) |
|
Statements of Income Location |
|
Amount |
|
|
2009 |
|
2008 |
|
|
|
2009 |
|
2008 |
|
|
(in millions) |
|
|
|
(in millions) |
Southern Company |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy-related derivatives |
|
$ |
|
|
|
$ |
7 |
|
|
Fuel |
|
|
|
$ |
|
|
|
$ |
|
|
Interest rate derivatives |
|
|
(4 |
) |
|
|
|
|
|
Interest expense |
|
|
|
|
(12 |
) |
|
|
(6 |
) |
|
Total |
|
$ |
(4 |
) |
|
$ |
7 |
|
|
|
|
|
|
$ |
(12 |
) |
|
$ |
(6 |
) |
|
Alabama Power |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy-related derivatives |
|
$ |
|
|
|
$ |
|
|
|
Fuel |
|
|
|
$ |
|
|
|
$ |
|
|
Interest rate derivatives |
|
|
(2 |
) |
|
|
3 |
|
|
Interest expense |
|
|
|
|
(3 |
) |
|
|
(2 |
) |
|
Total |
|
$ |
(2 |
) |
|
$ |
3 |
|
|
|
|
|
|
$ |
(3 |
) |
|
$ |
(2 |
) |
|
Georgia Power |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate derivatives total |
|
$ |
(2 |
) |
|
$ |
16 |
|
|
Interest expense |
|
|
|
$ |
(6 |
) |
|
$ |
(1 |
) |
|
Gulf Power |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate derivatives total |
|
$ |
|
|
|
$ |
1 |
|
|
Interest expense |
|
|
|
$ |
|
|
|
$ |
|
|
|
Mississippi Power |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy-related derivatives total |
|
$ |
|
|
|
$ |
(1 |
) |
|
Fuel |
|
|
|
$ |
|
|
|
$ |
|
|
|
Southern Power |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy-related derivatives |
|
$ |
|
|
|
$ |
(12 |
) |
|
Fuel |
|
|
|
$ |
|
|
|
$ |
|
|
Interest rate derivatives |
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
|
|
(3 |
) |
|
|
(3 |
) |
|
Total |
|
$ |
|
|
|
$ |
(12 |
) |
|
|
|
|
|
$ |
(3 |
) |
|
$ |
(3 |
) |
|
155
NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
|
|
|
For the six months ended June 30, 2009 and June 30, 2008, the pre-tax effect of energy-related
derivatives and interest rate derivatives designated as cash flow hedging instruments on the
statements of income were as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) |
|
|
|
|
Recognized in OCI |
|
|
Derivatives in Cash Flow |
|
on Derivative |
|
Gain (Loss) Reclassified from Accumulated OCI |
Hedging Relationships |
|
(Effective Portion) |
|
into Income (Effective Portion) |
|
|
|
|
|
|
|
|
|
|
Statements of Income Location |
|
Amount |
|
|
2009 |
|
2008 |
|
|
|
|
|
2009 |
|
2008 |
|
|
(in millions) |
|
|
|
|
|
(in millions) |
Southern Company |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy-related derivatives |
|
$ |
1 |
|
|
$ |
(5 |
) |
|
Fuel |
|
|
|
$ |
|
|
|
$ |
|
|
Interest rate derivatives |
|
|
(3 |
) |
|
|
(24 |
) |
|
Interest expense |
|
|
|
|
(22 |
) |
|
|
(11 |
) |
|
Total |
|
$ |
(2 |
) |
|
$ |
(29 |
) |
|
|
|
|
|
$ |
(22 |
) |
|
$ |
(11 |
) |
|
Alabama Power |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy-related derivatives |
|
$ |
|
|
|
$ |
(1 |
) |
|
Fuel |
|
|
|
$ |
|
|
|
$ |
|
|
Interest rate derivatives |
|
|
(4 |
) |
|
|
(2 |
) |
|
Interest expense |
|
|
|
|
(6 |
) |
|
|
(2 |
) |
|
Total |
|
$ |
(4 |
) |
|
$ |
(3 |
) |
|
|
|
|
|
$ |
(6 |
) |
|
$ |
(2 |
) |
|
Georgia Power |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate derivatives total |
|
$ |
1 |
|
|
$ |
|
|
|
Interest expense |
|
|
|
$ |
(11 |
) |
|
$ |
(2 |
) |
|
Gulf Power |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate derivatives total |
|
$ |
|
|
|
$ |
(3 |
) |
|
Interest expense |
|
|
|
$ |
(1 |
) |
|
$ |
|
|
|
Mississippi Power |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy-related derivatives total |
|
$ |
|
|
|
$ |
(4 |
) |
|
Fuel |
|
|
|
$ |
|
|
|
$ |
|
|
|
Southern Power |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy-related derivatives |
|
$ |
1 |
|
|
$ |
(20 |
) |
|
Fuel |
|
|
|
$ |
|
|
|
$ |
|
|
Interest rate derivatives |
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
|
|
(5 |
) |
|
|
(7 |
) |
|
Total |
|
$ |
1 |
|
|
$ |
(20 |
) |
|
|
|
|
|
$ |
(5 |
) |
|
$ |
(7 |
) |
|
|
There was no material ineffectiveness recorded in earnings for any registrant for any period
presented. |
|
For the three months ended June 30, 2009 and June 30, 2008, the pre-tax effect of energy-related
derivatives not designated as hedging instruments on the statements of income were as follows: |
|
Derivatives not Designated |
|
|
|
|
|
|
|
|
|
Unrealized Gain (Loss) Recognized in Income |
as Hedging Instruments |
|
|
|
|
|
|
|
|
|
Statements of Income Location |
|
Amount |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Southern Company |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy-related derivatives
|
|
|
|
|
|
|
|
|
|
Wholesale revenues
|
|
$ |
1 |
|
|
$ |
(6 |
) |
|
|
|
|
|
|
|
|
|
|
Fuel
|
|
|
|
|
1 |
|
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
Purchased power
|
|
|
(2 |
) |
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
Other income (expense), net
|
|
|
|
|
|
|
2 |
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
7 |
|
|
Mississippi Power |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy-related derivatives
|
|
|
|
|
|
|
|
|
|
Other income (expense), net
|
|
$ |
|
|
|
$ |
2 |
|
|
Southern Power |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy-related derivatives
|
|
|
|
|
|
|
|
|
|
Wholesale revenues
|
|
$ |
1 |
|
|
$ |
(6 |
) |
|
|
|
|
|
|
|
|
|
|
Fuel
|
|
|
|
|
1 |
|
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
Purchased power
|
|
|
(2 |
) |
|
|
(5 |
) |
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
5 |
|
|
156
NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
|
|
|
For the six months ended June 30, 2009 and June 30, 2008, the pre-tax effect of energy-related
derivatives not designated as hedging instruments on the statements of income were as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not Designated |
|
Unrealized Gain (Loss) Recognized in Income |
|
as Hedging Instruments |
|
Statements of Income Location |
|
|
Amount |
|
|
|
|
|
|
|
2009 |
|
2008 |
|
|
|
|
|
|
(in millions) |
|
Southern Company |
|
|
|
|
|
|
|
|
|
|
|
|
Energy-related derivatives |
|
Wholesale revenues |
|
|
|
$ |
5 |
|
|
$ |
(34 |
) |
|
|
Fuel |
|
|
|
|
(3 |
) |
|
|
28 |
|
|
|
Purchased power |
|
|
|
|
(3 |
) |
|
|
(3 |
) |
|
|
Other income (expense), net |
|
|
|
|
|
|
|
|
2 |
|
|
Total |
|
|
|
|
|
$ |
(1 |
) |
|
$ |
(7 |
) |
|
Mississippi Power |
|
|
|
|
|
|
|
|
|
|
|
|
Energy-related derivatives |
|
Other income (expense), net |
|
|
|
$ |
|
|
|
$ |
2 |
|
|
Southern Power |
|
|
|
|
|
|
|
|
|
|
|
|
Energy-related derivatives |
|
Wholesale revenues |
|
|
|
$ |
5 |
|
|
$ |
(34 |
) |
|
|
Fuel |
|
|
|
|
(3 |
) |
|
|
28 |
|
|
|
Purchased power |
|
|
|
|
(3 |
) |
|
|
(3 |
) |
|
Total |
|
|
|
|
|
$ |
(1 |
) |
|
$ |
(9 |
) |
|
|
|
|
Contingent Features |
|
|
|
|
The registrants do not have any credit arrangements that would require material changes in payment
schedules or terminations as a result of a credit rating downgrade. There are certain derivatives
that could require collateral, but not accelerated payment, in the event of various credit rating
changes of certain Southern Company subsidiaries. At June 30, 2009, the fair value of derivative
liabilities with contingent features, by registrant, is as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Southern |
|
Alabama |
|
Georgia |
|
Gulf |
|
Mississipi |
|
Southern |
|
|
Company |
|
Power |
|
Power |
|
Power |
|
Power |
|
Power |
|
|
(in millions) |
Derivative liabilities |
|
$ |
68 |
|
|
$ |
19 |
|
|
$ |
30 |
|
|
$ |
5 |
|
|
$ |
8 |
|
|
$ |
6 |
|
|
|
|
At June 30, 2009, the registrants had no collateral posted with their derivative counterparties;
however, because of the joint and several liability features underlying these derivatives, the
maximum potential collateral requirements arising from the credit-risk-related contingent features,
at a rating below BBB- and/or Baa3, is $68 million for each registrant. |
|
|
|
|
Currently, each of the registrants has investment grade credit ratings from the major rating
agencies with respect to debt, preferred securities, preferred stock, and/or preference stock. |
|
|
|
|
Generally, collateral may be provided by a Southern Company guaranty, letter of credit, or cash.
For the traditional operating companies and Southern Power, included in these amounts are certain
agreements that could require collateral in the event that one or more Power Pool participants has
a credit rating change to below investment grade. |
157
NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
|
(F) |
|
RETIREMENT BENEFITS |
|
|
|
|
Southern Company has a defined benefit, trusteed, pension plan covering substantially all
employees. The plan is funded in accordance with requirements of the Employee Retirement Income
Security Act of 1974, as amended (ERISA). No contributions to the plan are expected for the year
ending December 31, 2009. Southern Company also provides certain defined benefit pension plans for
a selected group of management and highly compensated employees. Benefits under these
non-qualified pension plans are funded on a cash basis. In addition, Southern Company provides
certain medical care and life insurance benefits for retired employees through other postretirement
benefit plans. The traditional operating companies fund related trusts to the extent required by
their respective regulatory commissions. |
|
|
|
|
See Note 2 to the financial statements of Southern Company, Alabama Power, Georgia Power, Gulf
Power, and Mississippi Power in Item 8 of the Form 10-K. Components of the pension plans and
postretirement plans net periodic costs for the three-month and six-month periods ended June 30,
2009 and 2008 are as follows (in millions): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Southern |
|
Alabama |
|
Georgia |
|
Gulf |
|
Mississippi |
|
|
|
|
|
|
|
|
PENSION PLANS |
|
Company |
|
Power |
|
Power |
|
Power |
|
Power |
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
37 |
|
|
$ |
9 |
|
|
$ |
12 |
|
|
$ |
1 |
|
|
$ |
1 |
|
|
|
|
|
|
|
|
|
Interest cost |
|
|
97 |
|
|
|
24 |
|
|
|
36 |
|
|
|
5 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
Expected return on plan assets |
|
|
(136 |
) |
|
|
(41 |
) |
|
|
(54 |
) |
|
|
(6 |
) |
|
|
(5 |
) |
|
|
|
|
|
|
|
|
Net amortization |
|
|
11 |
|
|
|
2 |
|
|
|
4 |
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
Net cost (income) |
|
$ |
9 |
|
|
$ |
(6 |
) |
|
$ |
(2 |
) |
|
$ |
|
|
|
$ |
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
73 |
|
|
$ |
17 |
|
|
$ |
24 |
|
|
$ |
3 |
|
|
$ |
3 |
|
|
|
|
|
|
|
|
|
Interest cost |
|
|
194 |
|
|
|
48 |
|
|
|
73 |
|
|
|
9 |
|
|
|
9 |
|
|
|
|
|
|
|
|
|
Expected return on plan assets |
|
|
(271 |
) |
|
|
(82 |
) |
|
|
(108 |
) |
|
|
(12 |
) |
|
|
(10 |
) |
|
|
|
|
|
|
|
|
Net amortization |
|
|
21 |
|
|
|
5 |
|
|
|
8 |
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
Net cost (income) |
|
$ |
17 |
|
|
$ |
(12 |
) |
|
$ |
(3 |
) |
|
$ |
|
|
|
$ |
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
37 |
|
|
$ |
8 |
|
|
$ |
13 |
|
|
$ |
1 |
|
|
$ |
1 |
|
|
|
|
|
|
|
|
|
Interest cost |
|
|
87 |
|
|
|
22 |
|
|
|
34 |
|
|
|
4 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
Expected return on plan assets |
|
|
(132 |
) |
|
|
(40 |
) |
|
|
(53 |
) |
|
|
(6 |
) |
|
|
(5 |
) |
|
|
|
|
|
|
|
|
Net amortization |
|
|
11 |
|
|
|
3 |
|
|
|
3 |
|
|
|
1 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
Net cost (income) |
|
$ |
3 |
|
|
$ |
(7 |
) |
|
$ |
(3 |
) |
|
$ |
|
|
|
$ |
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
73 |
|
|
$ |
17 |
|
|
$ |
25 |
|
|
$ |
3 |
|
|
$ |
3 |
|
|
|
|
|
|
|
|
|
Interest cost |
|
|
174 |
|
|
|
44 |
|
|
|
67 |
|
|
|
8 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
Expected return on plan assets |
|
|
(263 |
) |
|
|
(80 |
) |
|
|
(106 |
) |
|
|
(12 |
) |
|
|
(10 |
) |
|
|
|
|
|
|
|
|
Net amortization |
|
|
23 |
|
|
|
6 |
|
|
|
8 |
|
|
|
1 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
Net cost (income) |
|
$ |
7 |
|
|
$ |
(13 |
) |
|
$ |
(6 |
) |
|
$ |
|
|
|
$ |
2 |
|
|
|
|
|
|
|
|
|
|
158
NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Southern |
|
Alabama |
|
Georgia |
|
Gulf |
|
Mississippi |
POSTRETIREMENT PLANS |
|
Company |
|
Power |
|
Power |
|
Power |
|
Power |
|
Three Months Ended
June 30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
6 |
|
|
$ |
1 |
|
|
$ |
3 |
|
|
$ |
1 |
|
|
$ |
|
|
Interest cost |
|
|
29 |
|
|
|
8 |
|
|
|
12 |
|
|
|
2 |
|
|
|
2 |
|
Expected return on plan assets |
|
|
(15 |
) |
|
|
(6 |
) |
|
|
(7 |
) |
|
|
(1 |
) |
|
|
(1 |
) |
Net amortization |
|
|
7 |
|
|
|
2 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
Net cost (income) |
|
$ |
27 |
|
|
$ |
5 |
|
|
$ |
11 |
|
|
$ |
2 |
|
|
$ |
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
13 |
|
|
$ |
3 |
|
|
$ |
5 |
|
|
$ |
1 |
|
|
$ |
1 |
|
Interest cost |
|
|
57 |
|
|
|
15 |
|
|
|
25 |
|
|
|
3 |
|
|
|
3 |
|
Expected return on plan assets |
|
|
(30 |
) |
|
|
(12 |
) |
|
|
(15 |
) |
|
|
(1 |
) |
|
|
(1 |
) |
Net amortization |
|
|
14 |
|
|
|
4 |
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
Net cost (income) |
|
$ |
54 |
|
|
$ |
10 |
|
|
$ |
22 |
|
|
$ |
3 |
|
|
$ |
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
7 |
|
|
$ |
2 |
|
|
$ |
3 |
|
|
$ |
1 |
|
|
$ |
1 |
|
Interest cost |
|
|
27 |
|
|
|
8 |
|
|
|
13 |
|
|
|
1 |
|
|
|
2 |
|
Expected return on plan assets |
|
|
(14 |
) |
|
|
(6 |
) |
|
|
(8 |
) |
|
|
(1 |
) |
|
|
(1 |
) |
Net amortization |
|
|
7 |
|
|
|
2 |
|
|
|
4 |
|
|
|
1 |
|
|
|
|
|
|
Net cost (income) |
|
$ |
27 |
|
|
$ |
6 |
|
|
$ |
12 |
|
|
$ |
2 |
|
|
$ |
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
14 |
|
|
$ |
4 |
|
|
$ |
5 |
|
|
$ |
1 |
|
|
$ |
1 |
|
Interest cost |
|
|
55 |
|
|
|
15 |
|
|
|
25 |
|
|
|
2 |
|
|
|
3 |
|
Expected return on plan assets |
|
|
(29 |
) |
|
|
(11 |
) |
|
|
(15 |
) |
|
|
(1 |
) |
|
|
(1 |
) |
Net amortization |
|
|
15 |
|
|
|
4 |
|
|
|
8 |
|
|
|
1 |
|
|
|
|
|
|
Net cost (income) |
|
$ |
55 |
|
|
$ |
12 |
|
|
$ |
23 |
|
|
$ |
3 |
|
|
$ |
3 |
|
|
|
(G) |
|
EFFECTIVE TAX RATE AND UNRECOGNIZED TAX BENEFITS |
|
|
|
|
Effective Tax Rate |
|
|
|
|
Southern Companys effective tax rate was 38.2% for the six months ended June 30, 2009, as compared
to 33.3% for the same period in 2008. See Note 5 to the financial statements of each registrant in
Item 8 of the Form 10-K for information on the effective income tax rate. Southern Companys
effective tax rate increased for the six months ended June 30, 2009 primarily due to the $202
million charge recorded for the MC Asset Recovery settlement. Southern Company is currently
evaluating potential recovery of the settlement payment through various means. The degree to which
any recovery is realized will determine, in part, the final income tax treatment of the settlement
payment. See Note (B) herein under Mirant Matters for further information regarding this matter.
The increase in Southern Companys effective tax rate was partially offset by the early
termination of an international leveraged lease investment, which is not taxable. |
159
NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
|
|
|
Unrecognized Tax Benefits |
|
|
|
|
Changes during 2009 for unrecognized tax benefits are as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Southern |
|
Alabama |
|
Georgia |
|
Gulf |
|
Mississippi |
|
Southern |
|
|
Company |
|
Power |
|
Power |
|
Power |
|
Power |
|
Power |
|
|
(in millions) |
|
Unrecognized tax benefits as of
December 31, 2008 |
|
$ |
146.4 |
|
|
$ |
3.0 |
|
|
$ |
137.1 |
|
|
$ |
0.3 |
|
|
$ |
1.8 |
|
|
$ |
0.5 |
|
Tax positions from current periods |
|
|
29.4 |
|
|
|
1.0 |
|
|
|
23.4 |
|
|
|
0.2 |
|
|
|
0.7 |
|
|
|
0.3 |
|
Tax positions from prior periods |
|
|
2.2 |
|
|
|
1.2 |
|
|
|
0.2 |
|
|
|
0.3 |
|
|
|
0.1 |
|
|
|
0.4 |
|
Reductions due to settlements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reductions due to expired
statute of limitations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of June 30, 2009 |
|
$ |
178.0 |
|
|
$ |
5.2 |
|
|
$ |
160.7 |
|
|
$ |
0.8 |
|
|
$ |
2.6 |
|
|
$ |
1.2 |
|
|
|
|
|
The tax positions increase from the current periods relates primarily to the Georgia state tax
credits and other miscellaneous uncertain tax positions. See Note (B) herein under Income Tax
Matters Georgia State Income Tax Credits for additional information. The tax positions increase
from the prior periods relates to the production activities deduction tax position. |
|
|
|
|
Impact on Southern Companys effective tax rate, if recognized, is as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of |
|
As of |
|
|
|
|
Georgia |
|
Other |
|
June 30, |
|
December 31, |
|
|
|
|
Power |
|
Registrants |
|
2009 |
|
2008 |
|
Change |
|
|
|
(in millions) |
Tax positions
impacting the
effective tax rate |
|
$ |
158.0 |
|
|
$ |
17.2 |
|
|
$ |
175.2 |
|
|
$ |
143.5 |
|
|
$ |
31.7 |
|
Tax positions not
impacting the
effective tax rate |
|
|
2.8 |
|
|
|
|
|
|
|
2.8 |
|
|
|
2.9 |
|
|
|
(0.1 |
) |
|
Balance of
unrecognized tax
benefits |
|
$ |
160.8 |
|
|
$ |
17.2 |
|
|
$ |
178.0 |
|
|
$ |
146.4 |
|
|
$ |
31.6 |
|
|
|
|
|
The change in the tax position impacting the effective tax rate increase relates primarily to
the Georgia state tax credits and the production activities deduction. |
|
|
|
|
Accrued interest for unrecognized tax benefits: |
|
|
|
|
|
|
|
|
(in millions) |
Interest accrued as of December 31, 2008 |
|
$ |
14.8 |
|
Interest accrued year-to-date |
|
|
4.4 |
|
|
Balance as of June 30, 2009 |
|
$ |
19.2 |
|
|
|
|
|
It is reasonably possible that the amount of the unrecognized benefit with respect to a
majority of Southern Companys and Georgia Powers unrecognized tax positions will significantly
increase or decrease within the next 12 months. The conclusion or settlement of the Georgia state
tax credits litigation would substantially reduce the balances. The conclusion or settlement of
federal or state audits could also impact the balances significantly. At this time, an estimate of
the range of reasonably possible outcomes cannot be determined. |
160
NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
|
(H) |
|
SEGMENT AND RELATED INFORMATION |
|
|
|
|
Southern Companys reportable business segments are the sale of electricity in the Southeast by the
four traditional operating companies and Southern Power. Southern Powers revenues from sales to
the traditional operating companies were $138 million and $273 million for the three months and six
months ended June 30, 2009, respectively, and $144 million and $277 million for the three months
and six months ended June 30, 2008, respectively. The All Other column includes parent Southern
Company, which does not allocate operating expenses to business segments. Also, this category
includes segments below the quantitative threshold for separate disclosure. These segments include
investments in telecommunications, energy-related services, and leveraged lease projects. All
other intersegment revenues are not material. Financial data for business segments and products
and services are as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electric Utilities |
|
|
|
|
|
|
|
|
Traditional |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating |
|
Southern |
|
|
|
|
|
|
|
|
|
All |
|
|
|
|
|
|
Companies |
|
Power |
|
Eliminations |
|
Total |
|
Other |
|
Eliminations |
|
Consolidated |
|
|
(in millions) |
|
|
|
Three Months Ended June 30, 2009: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues |
|
$ |
3,780 |
|
|
$ |
230 |
|
|
$ |
(151 |
) |
|
$ |
3,859 |
|
|
$ |
43 |
|
|
$ |
(17 |
) |
|
$ |
3,885 |
|
Segment net income (loss) after
dividends on preferred and
preference stock of subsidiaries |
|
|
421 |
|
|
|
31 |
|
|
|
|
|
|
|
452 |
|
|
|
25 |
|
|
|
1 |
|
|
|
478 |
|
Six Months Ended June 30, 2009: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues |
|
$ |
7,338 |
|
|
$ |
462 |
|
|
$ |
(302 |
) |
|
$ |
7,498 |
|
|
$ |
87 |
|
|
$ |
(34 |
) |
|
$ |
7,551 |
|
Segment net income (loss) after
dividends on preferred and
preference stock of subsidiaries |
|
|
723 |
|
|
|
59 |
|
|
|
|
|
|
|
782 |
|
|
|
(180 |
) |
|
|
2 |
|
|
|
604 |
|
Total assets at June 30, 2009 |
|
$ |
46,943 |
|
|
$ |
2,821 |
|
|
$ |
(141 |
) |
|
$ |
49,623 |
|
|
$ |
1,359 |
|
|
$ |
(565 |
) |
|
$ |
50,417 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electric Utilities |
|
|
|
|
|
|
|
|
Traditional |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating |
|
Southern |
|
|
|
|
|
|
|
|
|
All |
|
|
|
|
|
|
Companies |
|
Power |
|
Eliminations |
|
Total |
|
Other |
|
Eliminations |
|
Consolidated |
|
|
(in millions) |
|
|
|
Three Months Ended June 30, 2008: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues |
|
$ |
4,075 |
|
|
$ |
316 |
|
|
$ |
(208 |
) |
|
$ |
4,183 |
|
|
$ |
47 |
|
|
$ |
(15 |
) |
|
$ |
4,215 |
|
Segment net income (loss) after
dividends on preferred and
preference stock of subsidiaries |
|
|
451 |
|
|
|
35 |
|
|
|
|
|
|
|
486 |
|
|
|
(71 |
) |
|
|
2 |
|
|
|
417 |
|
Six Months Ended June 30, 2008: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues |
|
$ |
7,693 |
|
|
$ |
532 |
|
|
$ |
(393 |
) |
|
$ |
7,832 |
|
|
$ |
95 |
|
|
$ |
(29 |
) |
|
$ |
7,898 |
|
Segment net income (loss) after
dividends on preferred and
preference stock of subsidiaries |
|
|
793 |
|
|
|
64 |
|
|
|
|
|
|
|
857 |
|
|
|
(81 |
) |
|
|
|
|
|
|
776 |
|
Total assets at December 31, 2008 |
|
$ |
44,794 |
|
|
$ |
2,813 |
|
|
$ |
(139 |
) |
|
$ |
47,468 |
|
|
$ |
1,407 |
|
|
$ |
(528 |
) |
|
$ |
48,347 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electric Utilities Revenues |
Period |
|
Retail |
|
Wholesale |
|
Other |
|
Total |
|
|
(in millions) |
Three Months Ended June 30, 2009 |
|
$ |
3,293 |
|
|
$ |
438 |
|
|
$ |
128 |
|
|
$ |
3,859 |
|
Three Months Ended June 30, 2008 |
|
|
3,449 |
|
|
|
591 |
|
|
|
143 |
|
|
|
4,183 |
|
|
Six Months Ended June 30, 2009 |
|
$ |
6,358 |
|
|
$ |
889 |
|
|
$ |
251 |
|
|
$ |
7,498 |
|
Six Months Ended June 30, 2008 |
|
|
6,455 |
|
|
|
1,105 |
|
|
|
272 |
|
|
|
7,832 |
|
|
161
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
See the Notes to the Condensed Financial Statements herein for information regarding
certain legal and administrative proceedings in which the registrants are involved.
Item 1A. Risk Factors.
See RISK FACTORS in Item 1A of the Form 10-K for a discussion of the risk factors of the
registrants. There have been no material changes to these risk factors from those
previously disclosed in the Form 10-K.
Item 4. Submission of Matters to a Vote of Security Holders.
Southern Company
Southern Company held its annual meeting of stockholders on May 27, 2009. Each nominee
for director of Southern Company received the requisite plurality of votes for election.
The vote tabulation was as follows:
|
|
|
|
|
|
|
|
|
Nominees |
|
Shares For |
|
Shares Withheld |
Juanita Powell Baranco |
|
|
557,953,677 |
|
|
|
16,261,476 |
|
Francis S. Blake |
|
|
541,627,901 |
|
|
|
32,587,252 |
|
Jon A. Boscia |
|
|
552,156,149 |
|
|
|
22,059,004 |
|
Thomas F. Chapman |
|
|
559,142,402 |
|
|
|
15,072,751 |
|
H. William Habermeyer, Jr. |
|
|
555,213,786 |
|
|
|
19,001,367 |
|
Veronica M. Hagen |
|
|
553,930,534 |
|
|
|
20,284,619 |
|
Warren A. Hood, Jr. |
|
|
559,164,234 |
|
|
|
15,050,919 |
|
Donald M. James |
|
|
529,248,958 |
|
|
|
44,966,195 |
|
J. Neal Purcell |
|
|
555,467,932 |
|
|
|
18,747,221 |
|
David M. Ratcliffe |
|
|
554,108,638 |
|
|
|
20,106,515 |
|
William G. Smith, Jr. |
|
|
559,122,012 |
|
|
|
15,093,141 |
|
Gerald J. St. Pé |
|
|
555,689,823 |
|
|
|
18,525,330 |
|
162
Item 4. Submission of Matters to a Vote of Security Holders. (Continued)
In addition, at the annual meeting, stockholders were asked to vote on a number of
proposals which were as follows:
|
|
|
to ratify the appointment of the independent registered public accounting firm.
Vote tabulation for this proposal was 566,494,731 shares for, 4,531,672 shares
against, and 3,188,750 shares abstaining. As a result of this vote, the
appointment of the independent registered public accounting firm was ratified. |
|
|
|
|
to amend the Southern Company by-laws. Vote tabulation for this proposal was
428,773,461 shares for, 40,706,371 shares against, and 7,716,817 shares
abstaining. Although this proposal received a majority of the votes, its approval
was contingent upon the approval of the next proposal to amend the Certificate of
Incorporation and, therefore, this proposal to amend the by-laws of Southern
Company was not approved. |
|
|
|
|
to amend Southern Companys Certificate of Incorporation. Vote tabulation for
this proposal was 427,791,284 shares for, 44,157,735 shares against, and 5,247,630
shares abstaining. Since this proposal to amend Southern Companys Certificate of
Incorporation did not receive the requisite votes totaling 66 2/3% of the shares
outstanding, it was not approved. |
|
|
|
|
stockholder proposal on an environmental report. Vote tabulation for this
proposal was 43,159,326 shares for, 332,611,437 shares against, and 52,424,690
shares abstaining. As a result of this vote, the stockholder proposal on an
environmental report was not approved. |
|
|
|
|
stockholder proposal on a pension policy. Vote tabulation for this proposal was
162,455,186 shares for, 250,634,517 shares against, and 15,111,301 shares
abstaining. As a result of this vote, the stockholder proposal on a pension
policy was not approved. |
Alabama Power
Alabama Power held its annual meeting of common shareholders and preferred shareholders on
April 24, 2009, and the following persons were elected to serve as directors of Alabama
Power:
|
|
|
Whit Armstrong
|
|
Malcolm Portera |
Ralph D. Cook
|
|
Robert D. Powers |
David J. Cooper, Sr.
|
|
David M. Ratcliffe |
John D. Johns
|
|
C. Dowd Ritter |
Patricia M. King
|
|
James H. Sanford |
James K. Lowder
|
|
John C. Webb, IV |
Charles D. McCrary
|
|
James W. Wright |
All 25,475,000 of the shares of Alabama Powers common stock outstanding on the record
date were owned by Southern Company and were voted in favor of the nominees for directors.
None of the shares of preferred stock or Class A preferred stock were voted. None of the
shares of preference stock were entitled to vote.
163
Item 4. Submission of Matters to a Vote of Security Holders. (Continued)
Georgia Power
Georgia Power held its annual meeting of common stockholders and preferred shareholders on
May 14, 2009, and the following persons were elected to serve as directors of Georgia
Power:
|
|
|
Robert L. Brown, Jr.
|
|
Beverly Daniel Tatum |
Anna R. Cablik
|
|
D. Gary Thompson |
Michael D. Garrett
|
|
Richard W. Ussery |
Stephen S. Green
|
|
W. Jerry Vereen |
David M. Ratcliffe
|
|
E. Jenner Wood, III |
Jimmy C. Tallent |
|
|
All of the 9,261,500 outstanding shares of Georgia Powers common stock were owned by
Southern Company and were voted in favor of the nominees for directors. None of the
shares of Class A preferred stock were voted. None of the shares of preference stock were
entitled to vote.
Gulf Power
By written consent, in lieu of the annual meeting of shareholders of Gulf Power, effective
June 30, 2009, the following persons were elected to serve as directors of Gulf Power:
|
|
|
C. LeDon Anchors
|
|
William A. Pullum |
William C. Cramer, Jr.
|
|
Winston E. Scott |
Fred C. Donovan, Sr.
|
|
Susan N. Story |
All of the 3,142,717 outstanding shares of Gulf Powers common stock are owned by Southern
Company and were voted in favor of the nominees for directors. None of the shares of
preference stock were entitled to vote.
Mississippi Power
Mississippi Power held its annual meeting of common stockholders and preferred
shareholders on May 20, 2009, and the following persons were elected to serve as directors
of Mississippi Power:
|
|
|
Roy Anderson, III
|
|
George A. Schloegel |
Aubrey B. Patterson, Jr.
|
|
Philip J. Terrell |
Christine L. Pickering
|
|
Anthony J. Topazi |
Martha D. Saunders |
|
|
All of the 1,121,000 outstanding shares of Mississippi Powers common stock are owned by
Southern Company and were voted in favor of the nominees for directors. None of the
shares of preferred stock were voted.
164
|
|
|
Item 4. Submission of Matters to a Vote of Security Holders. (Continued) |
Southern Power
By written consent, in lieu of the annual meeting of stockholders of Southern Power,
effective May 29, 2009, the following persons were elected to serve as directors of
Southern Power:
|
|
|
William P. Bowers
|
|
G. Edison Holland, Jr. |
Thomas A. Fanning
|
|
David M. Ratcliffe |
All of the 1,000 outstanding shares of Southern Powers common stock are owned by Southern
Company and were voted in favor of the nominees for directors.
165
Item 6. Exhibits.
|
|
|
|
|
(3) Articles of Incorporation and By-Laws |
|
|
|
|
|
Georgia Power |
|
|
|
|
|
(c)1
|
|
-
|
|
By-laws of Georgia Power as
amended effective May 20, 2009,
and as presently in effect.
(Designated in Form 8-K dated May
20, 2009, File No. 1-6468, as
Exhibit 3(c)2.) |
|
|
|
|
|
(4) Instruments Describing Rights of Security Holders, Including Indentures |
|
|
|
|
|
Southern Company |
|
|
|
|
|
(a)1
|
|
-
|
|
Fourth Supplemental Indenture
to the Senior Note Indenture
dated as of May 19, 2009,
providing for the issuance of
Southern Companys Series 2009A
4.15% Senior Notes due May 15,
2014. (Designated in Form 8-K
dated May 11, 2009, File No.
1-3526, as Exhibit 4.2.) |
|
|
|
|
|
Gulf Power |
|
|
|
|
|
(d)1
|
|
-
|
|
Fifteenth Supplemental
Indenture to Senior Note
Indenture dated as of June 26,
2009, providing for the issuance
of Gulf Powers Series 2009A
Floating Rate Senior Notes due
June 28, 2010. (Designated in
Form 8-K dated June 22, 2009,
File No. 0-2429, as Exhibit 4.2.) |
|
|
|
|
|
(24) Power of Attorney and Resolutions |
|
|
|
|
|
Southern Company |
|
|
|
|
|
(a)1
|
|
-
|
|
Power of Attorney and
resolution. (Designated in the
Form 10-K for the year ended
December 31, 2008, File No.
1-3526 as Exhibit 24(a).) |
|
|
|
|
|
Alabama Power |
|
|
|
|
|
(b)1
|
|
-
|
|
Power of Attorney and
resolution. |
|
|
|
|
|
Georgia Power |
|
|
|
|
|
(c)1
|
|
-
|
|
Power of Attorney and
resolution. (Designated in the
Form 10-K for the year ended
December 31, 2008, File No.
1-6468 as Exhibit 24(c).) |
|
|
|
|
|
(c)2
|
|
-
|
|
Power of Attorney for Ronnie R.
Labrato. (Designated in the
Form 10-Q for the quarter ended
March 31, 2009, File No. 1-6468
as Exhibit 24(c)2.) |
|
|
|
|
|
Gulf Power |
|
|
|
|
|
(d)1
|
|
-
|
|
Power of Attorney and
resolution. (Designated in the
Form 10-K for the year ended
December 31, 2008, File No.
0-2429 as Exhibit 24(d).) |
|
|
|
|
|
Mississippi Power |
|
|
|
|
|
(e)1
|
|
-
|
|
Power of Attorney and
resolution. (Designated in the
Form 10-K for the year ended
December 31, 2008, File No.
001-11229 as Exhibit 24(e).) |
166
|
|
|
|
|
Southern Power |
|
|
|
|
|
(f)1
|
|
-
|
|
Power of Attorney and
resolution. (Designated in the
Form 10-K for the year ended
December 31, 2008, File No.
333-98553 as Exhibit 24(f).) |
|
|
|
|
|
(31) Section 302 Certifications |
|
|
|
|
|
Southern Company |
|
|
|
|
|
(a)1
|
|
-
|
|
Certificate of Southern
Companys Chief Executive Officer
required by Section 302 of the
Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
(a)2
|
|
-
|
|
Certificate of Southern
Companys Chief Financial Officer
required by Section 302 of the
Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
Alabama Power |
|
|
|
|
|
(b)1
|
|
-
|
|
Certificate of Alabama Powers
Chief Executive Officer required
by Section 302 of the
Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
(b)2
|
|
-
|
|
Certificate of Alabama Powers Chief Financial Officer required by Section 302 of the
Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
Georgia Power |
|
|
|
|
|
(c)1
|
|
-
|
|
Certificate of Georgia Powers
Chief Executive Officer required
by Section 302 of the
Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
(c)2
|
|
-
|
|
Certificate of Georgia Powers
Chief Financial Officer required
by Section 302 of the
Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
Gulf Power |
|
|
|
|
|
(d)1
|
|
-
|
|
Certificate of Gulf Powers
Chief Executive Officer required
by Section 302 of the
Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
(d)2
|
|
-
|
|
Certificate of Gulf Powers
Chief Financial Officer required
by Section 302 of the
Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
Mississippi Power |
|
|
|
|
|
(e)1
|
|
-
|
|
Certificate of Mississippi
Powers Chief Executive Officer
required by Section 302 of the
Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
(e)2
|
|
-
|
|
Certificate of Mississippi
Powers Chief Financial Officer
required by Section 302 of the
Sarbanes-Oxley Act of 2002. |
167
|
|
|
|
|
Southern Power |
|
|
|
|
|
(f)1
|
|
-
|
|
Certificate of Southern Powers
Chief Executive Officer required
by Section 302 of the
Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
(f)2
|
|
-
|
|
Certificate of Southern Powers
Chief Financial Officer required
by Section 302 of the
Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
(32) Section 906 Certifications |
|
|
|
|
|
Southern Company |
|
|
|
|
|
(a)
|
|
-
|
|
Certificate of Southern
Companys Chief Executive Officer
and Chief Financial Officer
required by Section 906 of the
Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
Alabama Power |
|
|
|
|
|
(b)
|
|
-
|
|
Certificate of Alabama Powers
Chief Executive Officer and Chief
Financial Officer required by
Section 906 of the Sarbanes-Oxley
Act of 2002. |
|
|
|
|
|
Georgia Power |
|
|
|
|
|
(c)
|
|
-
|
|
Certificate of Georgia Powers Chief Executive Officer and
Chief Financial Officer required by Section 906 of the
Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
Gulf Power |
|
|
|
|
|
(d)
|
|
-
|
|
Certificate of Gulf Powers Chief Executive Officer and Chief
Financial Officer required by Section 906 of the Sarbanes-Oxley
Act of 2002. |
|
|
|
|
|
Mississippi Power |
|
|
|
|
|
(e)
|
|
-
|
|
Certificate of Mississippi
Powers Chief Executive Officer
and Chief Financial Officer
required by Section 906 of the
Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
Southern Power |
|
|
|
|
|
(f)
|
|
-
|
|
Certificate of Southern Powers
Chief Executive Officer and Chief
Financial Officer required by
Section 906 of the Sarbanes-Oxley
Act of 2002. |
168
(101) XBRL-Related Documents*
|
|
|
|
|
Southern Company |
|
|
|
|
|
INS
|
|
XBRL Instance Document* |
|
|
SCH
|
|
XBRL Taxonomy Extension Schema Document* |
|
|
PRE
|
|
XBRL Taxonomy Presentation Linkbase Document* |
|
|
LAB
|
|
XBRL Taxonomy Label Linkbase Document* |
|
|
CAL
|
|
XBRL Taxonomy Calculation Linkbase Document* |
|
|
DEF
|
|
XBRL Definition Linkbase Document* |
|
|
|
|
|
* |
|
To be filed subsequently by amendment. |
169
THE SOUTHERN COMPANY
SIGNATURES
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
signature of the undersigned company shall be deemed to relate only to matters having reference
to such company and any subsidiaries thereof.
|
|
|
|
|
|
|
|
|
|
|
THE SOUTHERN COMPANY |
|
|
|
|
|
|
|
|
|
|
|
By
|
|
David M. Ratcliffe |
|
|
|
|
|
|
Chairman, President, and Chief Executive Officer |
|
|
|
|
|
|
(Principal Executive Officer) |
|
|
|
|
|
|
|
|
|
|
|
By
|
|
W. Paul Bowers |
|
|
|
|
|
|
Executive Vice President and Chief Financial Officer |
|
|
|
|
|
|
(Principal Financial Officer) |
|
|
|
|
|
|
|
|
|
|
|
By
|
|
/s/ Melissa K. Caen
(Melissa K. Caen, Attorney-in-fact)
|
|
|
Date: August 6, 2009
170
ALABAMA POWER COMPANY
SIGNATURES
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
signature of the undersigned company shall be deemed to relate only to matters having reference
to such company and any subsidiaries thereof.
|
|
|
|
|
|
|
|
|
|
|
ALABAMA POWER COMPANY |
|
|
|
|
|
|
|
|
|
|
|
By
|
|
Charles D. McCrary |
|
|
|
|
|
|
President and Chief Executive Officer |
|
|
|
|
|
|
(Principal Executive Officer) |
|
|
|
|
|
|
|
|
|
|
|
By
|
|
Art P. Beattie |
|
|
|
|
|
|
Executive Vice President, Chief Financial Officer, and Treasurer |
|
|
|
|
|
|
(Principal Financial Officer) |
|
|
|
|
|
|
|
|
|
|
|
By
|
|
/s/ Melissa K. Caen
(Melissa K. Caen, Attorney-in-fact)
|
|
|
Date: August 6, 2009
171
GEORGIA POWER COMPANY
SIGNATURES
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
signature of the undersigned company shall be deemed to relate only to matters having reference
to such company and any subsidiaries thereof.
|
|
|
|
|
|
|
|
|
|
|
GEORGIA POWER COMPANY |
|
|
|
|
|
|
|
|
|
|
|
By
|
|
Michael D. Garrett |
|
|
|
|
|
|
President and Chief Executive Officer |
|
|
|
|
|
|
(Principal Executive Officer) |
|
|
|
|
|
|
|
|
|
|
|
By
|
|
Ronnie R. Labrato |
|
|
|
|
|
|
Executive Vice President, Chief Financial Officer, and Treasurer |
|
|
|
|
|
|
(Principal Financial Officer) |
|
|
|
|
|
|
|
|
|
|
|
By
|
|
/s/ W. Paul Bowers
(W. Paul Bowers, Attorney-in-fact)
|
|
|
Date: August 6, 2009
172
GULF POWER COMPANY
SIGNATURES
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
signature of the undersigned company shall be deemed to relate only to matters having reference
to such company and any subsidiaries thereof.
|
|
|
|
|
|
|
|
|
|
|
GULF POWER COMPANY |
|
|
|
|
|
|
|
|
|
|
|
By
|
|
Susan N. Story |
|
|
|
|
|
|
President and Chief Executive Officer |
|
|
|
|
|
|
(Principal Executive Officer) |
|
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By
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Philip C. Raymond |
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Vice President and Chief Financial Officer |
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(Principal Financial Officer) |
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By
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/s/ W. Paul Bowers
(W. Paul Bowers, Attorney-in-fact)
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Date: August 6, 2009
173
MISSISSIPPI POWER COMPANY
SIGNATURES
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
signature of the undersigned company shall be deemed to relate only to matters having reference
to such company and any subsidiaries thereof.
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MISSISSIPPI POWER COMPANY |
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By
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Anthony J. Topazi |
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President and Chief Executive Officer |
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(Principal Executive Officer) |
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By
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Frances Turnage |
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Vice President, Treasurer, and Chief Financial Officer |
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(Principal Financial Officer) |
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By
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/s/ W. Paul Bowers
(W. Paul Bowers, Attorney-in-fact)
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Date: August 6, 2009
174
SOUTHERN POWER COMPANY
SIGNATURES
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
signature of the undersigned company shall be deemed to relate only to matters having reference
to such company and any subsidiaries thereof.
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SOUTHERN POWER COMPANY |
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By
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Ronnie L. Bates |
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President and Chief Executive Officer |
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(Principal Executive Officer) |
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By
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Michael W. Southern |
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Senior Vice President, Treasurer, and Chief Financial Officer |
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(Principal Financial Officer) |
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By
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/s/ Laura I. Patterson
(Laura I. Patterson, Attorney-in-fact)
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Date: August 6, 2009
175