e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
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 March 31, 2010
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
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58-0690070 |
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(A Delaware Corporation) |
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30 Ivan Allen Jr. Boulevard, N.W. |
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Atlanta, Georgia 30308 |
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(404) 506-5000 |
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1-3164
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Alabama Power Company
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63-0004250 |
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(An Alabama Corporation) |
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600 North 18th Street |
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Birmingham, Alabama 35291 |
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(205) 257-1000 |
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1-6468
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Georgia Power Company
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58-0257110 |
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(A Georgia Corporation) |
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241 Ralph McGill Boulevard, N.E. |
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Atlanta, Georgia 30308 |
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(404) 506-6526 |
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0-2429
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Gulf Power Company
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59-0276810 |
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(A Florida Corporation) |
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One Energy Place |
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Pensacola, Florida 32520 |
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(850) 444-6111 |
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001-11229
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Mississippi Power Company
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64-0205820 |
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(A Mississippi Corporation) |
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2992 West Beach |
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Gulfport, Mississippi 39501 |
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(228) 864-1211 |
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333-98553
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Southern Power Company
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58-2598670 |
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(A Delaware Corporation) |
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30 Ivan Allen Jr. Boulevard, N.W. |
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Atlanta, Georgia 30308 |
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(404) 506-5000 |
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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 þ No o
(Response applicable only to The Southern Company at this time.)
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 |
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Registrant |
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Common Stock |
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at March 31, 2010 |
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The Southern Company |
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Par Value $5 Per Share |
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824,535,663 |
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Alabama Power Company |
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Par Value $40 Per Share |
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30,537,500 |
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Georgia Power Company |
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Without Par Value |
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9,261,500 |
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Gulf Power Company |
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Without Par Value |
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3,642,717 |
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Mississippi Power Company |
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Without Par Value |
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1,121,000 |
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Southern Power Company |
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Par Value $0.01 Per Share |
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1,000 |
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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
March 31, 2010
3
INDEX TO QUARTERLY REPORT ON FORM 10-Q
March 31, 2010
4
DEFINITIONS
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Term |
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Meaning |
2007 Retail Rate Plan
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Georgia Powers retail rate plan for the years 2008 through 2010 |
AFUDC
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Allowance for funds used during construction |
Alabama Power
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Alabama Power Company |
Clean Air Act
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Clean Air Act Amendments of 1990 |
DOE
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U.S. Department of Energy |
Duke Energy
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Duke Energy Corporation |
ECO Plan
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Mississippi Powers Environmental Compliance Overview Plan |
EPA
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U.S. Environmental Protection Agency |
FERC
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Federal Energy Regulatory Commission |
Fitch
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Fitch Ratings, Inc. |
Form 10-K
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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, 2009 |
GAAP
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Generally Accepted Accounting Principles |
Georgia Power
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Georgia Power Company |
Gulf Power
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Gulf Power Company |
IGCC
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Integrated coal gasification combined cycle |
IIC
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Intercompany Interchange Contract |
Internal Revenue Code
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Internal Revenue Code of 1986, as amended |
IRS
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Internal Revenue Service |
KWH
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Kilowatt-hour |
LIBOR
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London Interbank Offered Rate |
Mirant
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Mirant Corporation |
Mississippi Power
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Mississippi Power Company |
mmBtu
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Million British thermal unit |
Moodys
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Moodys Investors Service |
MW
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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
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Mississippi Powers 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
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Power Purchase Agreement |
PSC
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Public Service Commission |
Rate ECR
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Alabama Powers energy cost recovery rate mechanism |
registrants
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Southern Company, Alabama Power, Georgia Power, Gulf Power,
Mississippi Power, and Southern Power |
SCS
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Southern Company Services, Inc. |
SEC
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Securities and Exchange Commission |
Southern Company
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The Southern Company |
Southern Company system
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Southern Company, the traditional operating companies, Southern
Power, and other subsidiaries |
5
DEFINITIONS
(continued)
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Term |
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Meaning |
SouthernLINC Wireless
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Southern Communications Services, Inc. |
Southern Nuclear
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Southern Nuclear Operating Company, Inc. |
Southern Power
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Southern Power Company |
S&P
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Standard and Poors Ratings Services, a division of The McGraw
Hill Companies, Inc. |
traditional operating companies
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Alabama Power, Georgia Power, Gulf Power, and Mississippi Power |
Westinghouse |
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Westinghouse Electric Company LLC |
wholesale revenues
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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, economic recovery, fuel cost recovery and other rate actions, environmental
regulations and expenditures, earnings, dividend payout ratios, access to sources of capital,
financing activities, start and completion of construction projects, plans and estimated costs for
new generation resources, impact of the American Recovery and Reinvestment Act of 2009, impact of
recent healthcare legislation, 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:
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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, coal combustion byproducts, and emissions of sulfur,
nitrogen, carbon, soot, particulate matter, hazardous air pollutants, including mercury, 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 and recovery from the recent recession, 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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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 and nuclear
decommissioning trusts; |
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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 other cost recovery mechanisms; |
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regulatory approvals and actions related to the potential Plant Vogtle expansion, including
Georgia PSC and NRC approvals and potential DOE loan guarantees; |
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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 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 influenzas, or other similar occurrences; |
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the direct or indirect effects on Southern Companys business resulting from incidents
affecting the U.S. electric grid or operation of generating resources; |
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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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Ended March 31, |
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2010 |
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2009 |
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(in thousands) |
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Operating Revenues: |
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Retail revenues |
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$ |
3,458,920 |
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$ |
3,064,659 |
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Wholesale revenues |
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541,587 |
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451,414 |
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Other electric revenues |
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135,435 |
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122,798 |
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Other revenues |
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21,375 |
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27,436 |
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Total operating revenues |
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4,157,317 |
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3,666,307 |
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Operating Expenses: |
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Fuel |
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1,645,158 |
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1,406,267 |
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Purchased power |
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126,566 |
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107,644 |
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Other operations and maintenance |
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908,024 |
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871,081 |
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MC Asset Recovery litigation settlement |
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202,000 |
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Depreciation and amortization |
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343,380 |
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389,758 |
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Taxes other than income taxes |
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212,195 |
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199,880 |
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Total operating expenses |
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3,235,323 |
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3,176,630 |
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Operating Income |
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921,994 |
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489,677 |
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Other Income and (Expense): |
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Allowance for equity funds used during construction |
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49,391 |
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42,612 |
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Interest income |
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4,787 |
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6,908 |
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Leveraged lease income (losses) |
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6,131 |
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9,441 |
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Interest expense, net of amounts capitalized |
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(222,482 |
) |
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(225,727 |
) |
Other income (expense), net |
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(13,437 |
) |
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(13,826 |
) |
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Total other income and (expense) |
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(175,610 |
) |
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(180,592 |
) |
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Earnings Before Income Taxes |
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746,384 |
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309,085 |
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Income taxes |
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|
235,681 |
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|
167,169 |
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Consolidated Net Income |
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510,703 |
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|
141,916 |
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Dividends on Preferred and Preference Stock of Subsidiaries |
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16,195 |
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16,195 |
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Consolidated Net Income After Dividends on
Preferred and Preference Stock of Subsidiaries |
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$ |
494,508 |
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$ |
125,721 |
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Common Stock Data: |
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Earnings per share (EPS) - |
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Basic EPS |
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$ |
0.60 |
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$ |
0.16 |
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Diluted EPS |
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$ |
0.60 |
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$ |
0.16 |
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Average number of shares of common stock outstanding (in
thousands) |
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Basic |
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|
822,526 |
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|
779,858 |
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Diluted |
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|
824,787 |
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|
781,645 |
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Cash dividends paid per share of common stock |
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$ |
0.4375 |
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$ |
0.4200 |
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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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For the Three Months |
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Ended March 31, |
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2010 |
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2009 |
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(in thousands) |
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Operating Activities: |
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Consolidated net income |
|
$ |
510,703 |
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$ |
141,916 |
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Adjustments to reconcile consolidated net income
to net cash provided from operating activities |
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Depreciation and amortization, total |
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|
421,568 |
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|
|
456,833 |
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Deferred income taxes |
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|
107,374 |
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(30,386 |
) |
Deferred revenues |
|
|
(19,846 |
) |
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|
(10,732 |
) |
Allowance for equity funds used during construction |
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|
(49,391 |
) |
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(42,612 |
) |
Leveraged lease income (losses) |
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|
(6,131 |
) |
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|
(9,441 |
) |
Pension, postretirement, and other employee benefits |
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|
4,627 |
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|
7,974 |
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Stock based compensation expense |
|
|
18,973 |
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|
16,955 |
|
Hedge settlements |
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|
|
|
|
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(16,167 |
) |
MC Asset Recovery litigation settlement |
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|
|
|
|
|
202,000 |
|
Other, net |
|
|
(48,531 |
) |
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|
8,550 |
|
Changes in certain current assets and liabilities |
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|
|
|
|
|
|
|
-Receivables |
|
|
43,402 |
|
|
|
292,162 |
|
-Fossil fuel stock |
|
|
133,275 |
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|
|
(160,992 |
) |
-Materials and supplies |
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|
696 |
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|
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(12,648 |
) |
-Other current assets |
|
|
(94,609 |
) |
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(67,717 |
) |
-Accounts payable |
|
|
(99,951 |
) |
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|
80,995 |
|
-Accrued taxes |
|
|
(72,598 |
) |
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|
(185,215 |
) |
-Accrued compensation |
|
|
(112,453 |
) |
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|
(319,715 |
) |
-Other current liabilities |
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|
1,852 |
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|
49,371 |
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|
|
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Net cash provided from operating activities |
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|
738,960 |
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|
|
401,131 |
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Investing Activities: |
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Property additions |
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|
(1,054,040 |
) |
|
|
(1,136,212 |
) |
Investment in restricted cash from pollution control revenue bonds |
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|
(1 |
) |
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(49,348 |
) |
Distribution of restricted cash from pollution control revenue bonds |
|
|
7,582 |
|
|
|
23,079 |
|
Nuclear decommissioning trust fund purchases |
|
|
(238,302 |
) |
|
|
(379,332 |
) |
Nuclear decommissioning trust fund sales |
|
|
189,445 |
|
|
|
381,280 |
|
Cost of removal, net of salvage |
|
|
(28,241 |
) |
|
|
(30,231 |
) |
Change in construction payables |
|
|
28,199 |
|
|
|
116,003 |
|
Other investing activities |
|
|
7,170 |
|
|
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(47,269 |
) |
|
|
|
|
|
|
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Net cash used for investing activities |
|
|
(1,088,188 |
) |
|
|
(1,122,030 |
) |
|
|
|
|
|
|
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Financing Activities: |
|
|
|
|
|
|
|
|
Increase in notes payable, net |
|
|
132,211 |
|
|
|
121,274 |
|
Proceeds |
|
|
|
|
|
|
|
|
Long-term debt issuances |
|
|
350,000 |
|
|
|
1,255,925 |
|
Common stock issuances |
|
|
147,345 |
|
|
|
151,379 |
|
Redemptions |
|
|
|
|
|
|
|
|
Long-term debt |
|
|
(255,562 |
) |
|
|
(193,417 |
) |
Payment of common stock dividends |
|
|
(359,144 |
) |
|
|
(326,780 |
) |
Payment of dividends on preferred and preference stock of subsidiaries |
|
|
(16,194 |
) |
|
|
(16,265 |
) |
Other financing activities |
|
|
(100 |
) |
|
|
(15,618 |
) |
|
|
|
|
|
|
|
Net cash provided from (used for) financing activities |
|
|
(1,444 |
) |
|
|
976,498 |
|
|
|
|
|
|
|
|
Net Change in Cash and Cash Equivalents |
|
|
(350,672 |
) |
|
|
255,599 |
|
Cash and Cash Equivalents at Beginning of Period |
|
|
689,722 |
|
|
|
416,581 |
|
|
|
|
|
|
|
|
Cash and Cash Equivalents at End of Period |
|
$ |
339,050 |
|
|
$ |
672,180 |
|
|
|
|
|
|
|
|
Supplemental Cash Flow Information: |
|
|
|
|
|
|
|
|
Cash paid during the period for |
|
|
|
|
|
|
|
|
Interest (net of $20,828 and $18,298 capitalized for 2010 and
2009, respectively) |
|
$ |
181,934 |
|
|
$ |
178,560 |
|
Income taxes (net of refunds) |
|
$ |
5,610 |
|
|
$ |
172,517 |
|
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 March 31, |
|
|
At December 31, |
|
Assets |
|
2010 |
|
|
2009 |
|
|
|
(in thousands) |
|
Current Assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
339,050 |
|
|
$ |
689,722 |
|
Restricted cash and cash equivalents |
|
|
35,554 |
|
|
|
43,135 |
|
Receivables |
|
|
|
|
|
|
|
|
Customer accounts receivable |
|
|
998,672 |
|
|
|
953,222 |
|
Unbilled revenues |
|
|
337,865 |
|
|
|
394,492 |
|
Under recovered regulatory clause revenues |
|
|
197,565 |
|
|
|
333,459 |
|
Other accounts and notes receivable |
|
|
362,761 |
|
|
|
374,670 |
|
Accumulated provision for uncollectible accounts |
|
|
(26,282 |
) |
|
|
(24,568 |
) |
Fossil fuel stock, at average cost |
|
|
1,313,716 |
|
|
|
1,446,984 |
|
Materials and supplies, at average cost |
|
|
798,024 |
|
|
|
793,847 |
|
Vacation pay |
|
|
145,758 |
|
|
|
145,049 |
|
Prepaid expenses |
|
|
439,414 |
|
|
|
508,338 |
|
Other regulatory assets, current |
|
|
225,164 |
|
|
|
166,549 |
|
Other current assets |
|
|
52,870 |
|
|
|
48,558 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
5,220,131 |
|
|
|
5,873,457 |
|
|
|
|
|
|
|
|
Property, Plant, and Equipment: |
|
|
|
|
|
|
|
|
In service |
|
|
54,909,016 |
|
|
|
53,587,853 |
|
Less accumulated depreciation |
|
|
19,371,351 |
|
|
|
19,121,271 |
|
|
|
|
|
|
|
|
Plant in service, net of depreciation |
|
|
35,537,665 |
|
|
|
34,466,582 |
|
Nuclear fuel, at amortized cost |
|
|
679,368 |
|
|
|
593,119 |
|
Construction work in progress |
|
|
3,781,363 |
|
|
|
4,170,596 |
|
|
|
|
|
|
|
|
Total property, plant, and equipment |
|
|
39,998,396 |
|
|
|
39,230,297 |
|
|
|
|
|
|
|
|
Other Property and Investments: |
|
|
|
|
|
|
|
|
Nuclear decommissioning trusts, at fair value |
|
|
1,167,560 |
|
|
|
1,070,117 |
|
Leveraged leases |
|
|
616,394 |
|
|
|
610,252 |
|
Miscellaneous property and investments |
|
|
284,984 |
|
|
|
282,974 |
|
|
|
|
|
|
|
|
Total other property and investments |
|
|
2,068,938 |
|
|
|
1,963,343 |
|
|
|
|
|
|
|
|
Deferred Charges and Other Assets: |
|
|
|
|
|
|
|
|
Deferred charges related to income taxes |
|
|
1,133,674 |
|
|
|
1,047,452 |
|
Unamortized debt issuance expense |
|
|
205,419 |
|
|
|
208,346 |
|
Unamortized loss on reacquired debt |
|
|
249,785 |
|
|
|
254,936 |
|
Deferred under recovered regulatory clause revenues |
|
|
501,165 |
|
|
|
373,245 |
|
Other regulatory assets, deferred |
|
|
2,788,142 |
|
|
|
2,701,910 |
|
Other deferred charges and assets |
|
|
414,395 |
|
|
|
392,880 |
|
|
|
|
|
|
|
|
Total deferred charges and other assets |
|
|
5,292,580 |
|
|
|
4,978,769 |
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
52,580,045 |
|
|
$ |
52,045,866 |
|
|
|
|
|
|
|
|
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 March 31, |
|
|
At December 31, |
|
Liabilities
and Stockholders Equity |
|
2010 |
|
|
2009 |
|
|
|
(in thousands) |
|
Current Liabilities: |
|
|
|
|
|
|
|
|
Securities due within one year |
|
$ |
1,243,596 |
|
|
$ |
1,112,705 |
|
Notes payable |
|
|
769,967 |
|
|
|
639,199 |
|
Accounts payable |
|
|
1,229,108 |
|
|
|
1,329,448 |
|
Customer deposits |
|
|
337,014 |
|
|
|
330,582 |
|
Accrued taxes |
|
|
|
|
|
|
|
|
Accrued income taxes |
|
|
74,508 |
|
|
|
13,005 |
|
Unrecognized tax benefits |
|
|
158,993 |
|
|
|
165,645 |
|
Other accrued taxes |
|
|
200,072 |
|
|
|
398,384 |
|
Accrued interest |
|
|
229,224 |
|
|
|
218,188 |
|
Accrued vacation pay |
|
|
181,051 |
|
|
|
183,911 |
|
Accrued compensation |
|
|
141,409 |
|
|
|
247,950 |
|
Liabilities from risk management activities |
|
|
181,525 |
|
|
|
124,648 |
|
Other regulatory liabilities, current |
|
|
408,816 |
|
|
|
528,147 |
|
Other current liabilities |
|
|
360,620 |
|
|
|
292,016 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
5,515,903 |
|
|
|
5,583,828 |
|
|
|
|
|
|
|
|
Long-term Debt |
|
|
18,097,952 |
|
|
|
18,131,244 |
|
|
|
|
|
|
|
|
Deferred Credits and Other Liabilities: |
|
|
|
|
|
|
|
|
Accumulated deferred income taxes |
|
|
6,635,337 |
|
|
|
6,454,822 |
|
Deferred credits related to income taxes |
|
|
244,573 |
|
|
|
248,232 |
|
Accumulated deferred investment tax credits |
|
|
451,155 |
|
|
|
447,650 |
|
Employee benefit obligations |
|
|
2,299,778 |
|
|
|
2,304,344 |
|
Asset retirement obligations |
|
|
1,217,546 |
|
|
|
1,201,343 |
|
Other cost of removal obligations |
|
|
1,103,065 |
|
|
|
1,091,425 |
|
Other regulatory liabilities, deferred |
|
|
325,968 |
|
|
|
277,932 |
|
Other deferred credits and liabilities |
|
|
412,097 |
|
|
|
345,888 |
|
|
|
|
|
|
|
|
Total deferred credits and other liabilities |
|
|
12,689,519 |
|
|
|
12,371,636 |
|
|
|
|
|
|
|
|
Total Liabilities |
|
|
36,303,374 |
|
|
|
36,086,708 |
|
|
|
|
|
|
|
|
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 March 31, 2010: 825,023,621 Shares; |
|
|
|
|
|
|
|
|
December 31, 2009: 820,151,801 Shares |
|
|
|
|
|
|
|
|
Treasury March 31, 2010: 487,958 Shares; |
|
|
|
|
|
|
|
|
December 31, 2009: 505,116 Shares |
|
|
|
|
|
|
|
|
Par value |
|
|
4,125,133 |
|
|
|
4,100,742 |
|
Paid-in capital |
|
|
3,141,952 |
|
|
|
2,994,245 |
|
Treasury, at cost |
|
|
(15,508 |
) |
|
|
(14,797 |
) |
Retained earnings |
|
|
8,021,810 |
|
|
|
7,884,922 |
|
Accumulated other comprehensive loss |
|
|
(78,540 |
) |
|
|
(87,778 |
) |
|
|
|
|
|
|
|
Total Common Stockholders Equity |
|
|
15,194,847 |
|
|
|
14,877,334 |
|
Preferred and Preference Stock of Subsidiaries |
|
|
707,328 |
|
|
|
707,328 |
|
|
|
|
|
|
|
|
Total Stockholders Equity |
|
|
15,902,175 |
|
|
|
15,584,662 |
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders Equity |
|
$ |
52,580,045 |
|
|
$ |
52,045,866 |
|
|
|
|
|
|
|
|
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 |
|
|
|
Ended March 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(in thousands) |
|
Consolidated Net Income |
|
$ |
510,703 |
|
|
$ |
141,916 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
Qualifying hedges: |
|
|
|
|
|
|
|
|
Changes in fair value, net of tax of $786
and $762, respectively |
|
|
1,201 |
|
|
|
1,147 |
|
Reclassification adjustment for amounts included in net income,
net of tax of $3,552 and $3,833, respectively |
|
|
5,646 |
|
|
|
6,098 |
|
Marketable securities: |
|
|
|
|
|
|
|
|
Change in fair value, net of tax of $1,144
and $91, respectively |
|
|
2,026 |
|
|
|
734 |
|
Pension and other post retirement benefit plans: |
|
|
|
|
|
|
|
|
Reclassification adjustment for amounts included in net income,
net of tax of $230 and $222, respectively |
|
|
365 |
|
|
|
350 |
|
|
|
|
|
|
|
|
Total other comprehensive income (loss) |
|
|
9,238 |
|
|
|
8,329 |
|
|
|
|
|
|
|
|
Dividends on preferred and preference stock of subsidiaries |
|
|
(16,195 |
) |
|
|
(16,195 |
) |
|
|
|
|
|
|
|
Comprehensive Income |
|
$ |
503,746 |
|
|
$ |
134,050 |
|
|
|
|
|
|
|
|
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
FIRST QUARTER 2010 vs. FIRST QUARTER 2009
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 renewable energy projects. 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
|
|
|
First Quarter 2010 vs. First Quarter 2009
|
|
(change in millions)
|
|
(% change) |
$368.8
|
|
293.3 |
|
Southern Companys first quarter 2010 net income after dividends on preferred and preference stock
of subsidiaries was $494.5 million ($0.60 per share) compared to $125.7 million ($0.16 per share)
for the first quarter 2009. The increase for the first quarter 2010 when compared to the
corresponding period in 2009 was primarily the result of a litigation settlement agreement with MC
Asset Recovery, LLC (MC Asset Recovery) in the first quarter 2009; increases in revenues due to
significantly colder weather; the amortization of the regulatory liability related to other cost of
removal obligations at Georgia Power as authorized by the Georgia PSC; and revenues associated with
increases in rates under Alabama Powers Rate Stabilization and Equalization Plan (Rate RSE) and
Rate Certificated New Plant for environmental costs (Rate CNP Environmental) that took effect
January 2010. The increase for the first quarter 2010 was partially offset by increases in
operations and maintenance expenses.
Retail Revenues
|
|
|
First Quarter 2010 vs. First Quarter 2009
|
|
(change in millions)
|
|
(% change) |
$394.3
|
|
12.9
|
|
14
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In the first quarter 2010, retail revenues were $3.46 billion compared to $3.06 billion for the
corresponding period in 2009. Details of the change to retail revenues follow:
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
|
2010 |
|
|
(in millions) |
|
(% change) |
Retail prior year |
|
$ |
3,064.7 |
|
|
|
|
|
Estimated
change in |
|
|
|
|
|
|
|
|
Rates and pricing |
|
|
75.4 |
|
|
|
2.5 |
|
Sales growth (decline) |
|
|
11.5 |
|
|
|
0.4 |
|
Weather |
|
|
125.8 |
|
|
|
4.1 |
|
Fuel and other cost recovery |
|
|
181.5 |
|
|
|
5.9 |
|
|
Retail current year |
|
$ |
3,458.9 |
|
|
|
12.9 |
% |
|
Revenues associated with changes in rates and pricing increased in the first quarter 2010 when
compared to the corresponding period in 2009 primarily due to Rate RSE and Rate CNP Environmental
increases at Alabama Power effective January 2010 and recovery of environmental compliance costs at
Gulf Power.
Revenues attributable to changes in sales growth increased in the first quarter 2010 when compared
to the corresponding period in 2009 due to a 2.6% increase in weather-adjusted retail KWH sales.
This increase was mainly due to a 6.9% increase in weather-adjusted industrial KWH sales and a 1.6%
increase in weather-adjusted residential KWH sales, partially offset by a 0.3% decrease in
weather-adjusted commercial KWH sales. The increase in weather-adjusted industrial KWH sales was
primarily due to increased production activity in the primary metals, transportation, and chemical
sectors.
Revenues resulting from changes in weather increased $125.8 million in the first quarter 2010 as a
result of significantly colder weather when compared to the corresponding period in 2009.
Fuel and other cost recovery revenues increased $181.5 million in the first quarter 2010 when
compared to the corresponding period in 2009. 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.
Wholesale Revenues
|
|
|
First Quarter 2010 vs. First Quarter 2009
|
|
(change in millions)
|
|
(% change) |
$90.2
|
|
20.0 |
|
In the first quarter 2010, wholesale revenues were $541.6 million compared to $451.4 million for
the corresponding period in 2009. Wholesale fuel revenues, which are generally offset by wholesale
fuel expenses and do not affect net income, increased $80.7 million in the first quarter 2010 when
compared to the corresponding period in 2009. Excluding wholesale fuel revenues, wholesale
revenues increased $9.5 million in the first quarter 2010 when compared to the corresponding period
in 2009. The increase in the first quarter 2010 was primarily due to higher energy prices and a
10.1% increase in KWH sales primarily resulting from significantly colder weather when compared to
the corresponding period in 2009. Also contributing to the increase were energy and capacity
revenues under a new PPA that began in January 2010 at Southern Power.
15
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Other Electric Revenues
|
|
|
First Quarter 2010 vs. First Quarter 2009
|
|
(change in millions)
|
|
(% change) |
$12.6
|
|
10.3 |
|
In the first quarter 2010, other electric revenues were $135.4 million compared to $122.8 million
for the corresponding period in 2009. The increase in the first quarter 2010 when compared to the
corresponding period in 2009 was primarily the result of a $5.7 million increase in transmission
revenues, a $2.8 million increase in co-generation revenues due to increased sales volume, and a
$2.3 million increase in rents from electric property. The increase in the first quarter 2010 was
partially offset by a decrease in revenues from other energy services of $5.2 million. Revenues
from co-generation and other energy services are generally offset by related expenses and do not
affect net income.
Other Revenues
|
|
|
First Quarter 2010 vs. First Quarter 2009
|
|
(change in millions)
|
|
(% change) |
$(6.0)
|
|
(22.1) |
|
In the first quarter 2010, other revenues were $21.4 million compared to $27.4 million for the
corresponding period in 2009. The decrease for the first quarter 2010 when compared to the
corresponding period in 2009 was primarily the result of a $5.6 million decrease in revenues at
SouthernLINC Wireless related to lower average revenue per subscriber and fewer subscribers due to
increased competition in the industry.
Fuel and Purchased Power Expenses
|
|
|
|
|
|
|
|
|
|
|
First Quarter 2010 |
|
|
vs. |
|
|
First Quarter 2009 |
|
|
|
(change in millions) |
|
(% change) |
Fuel* |
|
$ |
238.9 |
|
|
|
17.0 |
|
Purchased power |
|
|
18.9 |
|
|
|
17.6 |
|
|
|
|
|
|
Total fuel and purchased power expenses |
|
$ |
257.8 |
|
|
|
|
|
|
|
|
|
|
* |
|
Fuel includes fuel purchased by the Southern Company system for tolling
agreements where power is generated by
the provider and is included in purchased power when determining the average cost of
purchased power. |
Fuel and purchased power expenses for the first quarter 2010 were $1.77 billion compared to
$1.51 billion for the corresponding period in 2009. The increase for the first quarter 2010 when
compared to the corresponding period in 2009 was primarily the result of a $121.6 million net
increase related to total KWHs generated and purchased and a $136.2 million increase in the average
cost of fuel and purchased power. The increase in the total KWHs generated and purchased resulted
primarily from increased generation, and the increase in average cost of fuel and purchased power
resulted primarily from higher fossil fuel prices when compared to the corresponding period in
2009.
Fuel expenses at the traditional operating companies are generally offset by fuel revenues and do
not affect net income. See FUTURE EARNINGS POTENTIAL 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.
16
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
First Quarter |
|
Percent |
Average Cost |
|
2010 |
|
2009 |
|
Change |
|
|
(cents per net KWH) |
|
|
|
|
|
Fuel |
|
|
3.59 |
|
|
|
3.40 |
|
|
|
5.6 |
|
Purchased power |
|
|
7.82 |
|
|
|
5.09 |
|
|
|
53.6 |
|
|
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
|
|
|
First Quarter 2010 vs. First Quarter 2009
|
|
(change in millions)
|
|
(% change) |
$36.9
|
|
4.2 |
|
In the first quarter 2010, other operations and maintenance expenses were $908.0 million compared
to $871.1 million for the corresponding period in 2009. The increase in the first quarter 2010
when compared to the corresponding period in 2009 was primarily the result of a $22.4 million
increase in fossil, hydro, and nuclear expenses mainly due to scheduled outages, an $18.9 million
increase in commodity and labor costs, a $17.6 million increase in affiliated service company
expenses, and an $8.2 million increase in the injuries and damages reserve. The increase for the
first quarter 2010 was partially offset by a $29.4 million charge in the first quarter 2009 in
connection with a voluntary attrition plan at Georgia Power.
MC Asset Recovery Litigation Settlement
|
|
|
First Quarter 2010 vs. First Quarter 2009
|
|
(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 and required 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. The settlement has been completed and resolves all claims by MC Asset Recovery
against Southern Company. In June 2009, the case was dismissed with prejudice. See Note (B) to
the Condensed Financial Statements under Mirant Matters herein for additional information.
Depreciation and Amortization
|
|
|
First Quarter 2010 vs. First Quarter 2009
|
|
(change in millions)
|
|
(% change) |
$(46.4)
|
|
(11.9) |
|
In the first quarter 2010, depreciation and amortization was $343.4 million compared to $389.8
million for the corresponding period in 2009. The decrease for the first quarter 2010 when
compared to the corresponding period 2009 was primarily the result of amortization of $60.3 million
of the regulatory liability related to other cost of removal obligations as authorized by the
Georgia PSC. This decrease for the first quarter 2010 was partially offset by depreciation on
additional plant in service related to transmission, distribution, and environmental projects at
Georgia Power. See Note 3 to the financial statements of Southern Company in Item 8 of the Form
10-K under Retail Regulatory Matters Georgia Power Cost of Removal for additional information
on the other cost of removal regulatory liability.
17
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Taxes Other Than Income Taxes
|
|
|
First Quarter 2010 vs. First Quarter 2009
|
|
(change in millions)
|
|
(% change) |
$12.3
|
|
6.2 |
|
In the first quarter 2010, taxes other than income taxes were $212.2 million compared to $199.9
million for the corresponding period in 2009. The increase for the first quarter 2010 when
compared to the corresponding period in 2009 was primarily the result of increases in municipal
franchise fees at Georgia Power resulting from increases in retail revenues.
Allowance for Funds Used During Construction
|
|
|
First Quarter 2010 vs. First Quarter 2009
|
|
(change in millions)
|
|
(% change) |
$6.8
|
|
15.9 |
|
In the first quarter 2010, AFUDC equity was $49.4 million compared to $42.6 million for the
corresponding period in 2009. The increase for the first quarter 2010 when compared to the
corresponding period in 2009 was primarily due to the increase in construction work in progress
balances related to three new combined cycle generating units and two new nuclear generating units
at Georgia Power, as well as ongoing environmental and transmission projects. This increase for
the first quarter 2010 was partially offset by decreases in construction work in progress related
to the completion of environmental projects at generating facilities at Alabama Power and Gulf
Power.
Income Taxes
|
|
|
First Quarter 2010 vs. First Quarter 2009
|
|
(change in millions)
|
|
(% change) |
$68.5
|
|
41.0 |
|
In the first quarter 2010, income taxes were $235.7 million compared to $167.2 million for the
corresponding period in 2009. The increase for the first quarter 2010 when compared to the
corresponding period in 2009 was primarily the result of higher pre-tax earnings, partially offset
by a decrease in uncertain tax positions of $16.0 million at Georgia Power related to state income
tax credits that remain subject to litigation. See FUTURE EARNINGS POTENTIAL Income Tax Matters
Georgia State Income Tax Credits and Note (B) to the Condensed Financial Statements under
Income Tax Matters Georgia State Income Tax Credits herein for additional information.
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 all
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 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
18
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
customers, total
generating capacity available in the Southeast, future acquisitions and construction of generating
facilities, and the successful remarketing of capacity as current contracts expire. Recessionary
conditions have impacted sales for the traditional operating companies and have negatively impacted
wholesale capacity revenues at Southern Power. The timing and extent of the economic recovery will
impact growth and may 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.
Carbon Dioxide Litigation
New York Case
See MANAGEMENTS DISCUSSION AND ANALYSIS FUTURE EARNINGS POTENTIAL Environmental Matters
Carbon Dioxide Litigation New York Case of Southern Company in Item 7 and Note 3 to the
financial statements of Southern Company under Environmental Matters Carbon Dioxide Litigation
New York Case in Item 8 of the Form 10-K for additional information regarding carbon dioxide
litigation. The U.S. Court of Appeals for the Second Circuit denied the defendants petition for
rehearing en banc on March 5, 2010 and granted the defendants request to stay the mandate to allow
the defendants to file a petition for writ of certiorari with the U.S. Supreme Court on March 16,
2010. The ultimate outcome of these matters cannot be determined at this time.
Other Litigation
See MANAGEMENTS DISCUSSION AND ANALYSIS FUTURE EARNINGS POTENTIAL Environmental Matters
Carbon Dioxide Litigation Other Litigation of Southern Company in Item 7 and Note 3 to the
financial statements of Southern Company under Environmental Matters Carbon Dioxide Litigation
Other Litigation in Item 8 of the Form 10-K for additional information regarding carbon dioxide
litigation related to Hurricane Katrina. On February 26, 2010, the U.S. Court of Appeals for the
Fifth Circuit granted the defendants petition for rehearing en banc. The ultimate outcome of this
matter cannot be determined at this time.
Air Quality
See MANAGEMENTS DISCUSSION AND ANALYSIS FUTURE EARNINGS POTENTIAL Environmental Matters
Environmental Statutes and Regulations Air Quality of Southern Company in Item 7 of the Form
10-K for information regarding the Industrial Boiler Maximum Achievable Control Technology
regulations. On April 29, 2010, the EPA issued a proposed rule that would establish emissions
limits for various hazardous air pollutants typically emitted from industrial boilers, including
biomass boilers. The EPA is required to finalize the rules by December 16, 2010. The impact of
these proposed regulations will depend on their final form and any legal challenges, and cannot be
determined at this time.
Coal Combustion Byproducts
See MANAGEMENTS DISCUSSION AND ANALYSIS FUTURE EARNINGS POTENTIAL Environmental Matters
Environmental Statutes and Regulations Coal Combustion Byproducts of Southern Company in Item 7
of the Form 10-K for information regarding potential additional regulation of coal combustion
byproducts. On May 4, 2010, the EPA issued a proposal requesting comments on two potential
regulatory options for management and disposal
19
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
of coal combustion byproducts,
either of which could require conversion of existing storage
units to lined landfills with additional waste management and groundwater monitoring
requirements. Under both options, the EPA proposes to exempt the beneficial reuse of coal
combustion byproducts from regulation. The outcome of these proposed regulations will depend on
their final form and any legal challenges, and cannot be determined at this time. However,
additional regulation of coal combustion byproducts could have a significant impact on the
traditional operating companies management, beneficial use, and disposal of such byproducts and
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.
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 and other emissions. On April
1, 2010, the EPA issued a final rule regulating greenhouse gas emissions from new motor vehicles
under the Clean Air Act. The EPA has stated that, once this rule becomes effective on January 2,
2011, carbon dioxide and other greenhouse gases will become regulated pollutants under the
Prevention of Significant Deterioration (PSD) preconstruction permit program and the Title V
operating permit program, which both apply to power plants. As a result, the construction of new
facilities or the major modification of existing facilities could trigger the requirement for a PSD
permit and the installation of the best available control technology for carbon dioxide and other
greenhouse gases. The EPA also published a proposed rule governing how these programs would be
applied to stationary sources, including power plants, in October 2009. The EPA is expected to
finalize this proposed rule during 2010. The ultimate outcome of these proposed and final rules
cannot be determined at this time and will depend on additional regulatory action and any legal
challenges.
State PSC Matters
Retail Fuel Cost Recovery
The traditional operating companies each have established fuel cost recovery rates approved by
their respective state PSCs. In recent years, the traditional operating companies have experienced
volatility in pricing of fuel commodities with higher than expected pricing for coal and uranium
and volatile price swings in natural gas. These higher fuel costs have resulted in total under
recovered fuel costs included in the balance sheets of Georgia Power and Gulf Power of
approximately $696 million at March 31, 2010. Alabama Power and Mississippi Power collected all
previously under recovered fuel costs and, as of March 31, 2010, had a total over recovered fuel
balance of $208 million. At December 31, 2009, total under recovered fuel costs included in the
balance sheets of Georgia Power and Gulf Power were approximately $667 million and Alabama Power
and Mississippi Power had a total over recovered fuel balance of $229 million. Fuel cost recovery
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 or over recovered fuel cost balances. 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 under Retail
Regulatory Matters Alabama Power Fuel Cost Recovery and Retail Regulatory Matters Georgia
Power Fuel Cost Recovery in Item 8 of the Form 10-K for additional information.
On March 11, 2010, the Georgia PSC voted to approve the stipulation among Georgia Power, the
Georgia PSC Public Interest Advocacy Staff, and three customer groups with the exception that the
under recovered fuel balance be collected over 42 months. The new rates, which became effective
April 1, 2010, will result in an increase of approximately $373 million to Georgia Powers total
annual fuel cost recovery billings. Georgia Power is required to file its next fuel case by March
1, 2011.
20
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Legislation
See MANAGEMENTS DISCUSSION AND ANALYSIS FUTURE EARNINGS POTENTIAL Legislation of Southern
Company in Item 7 of the Form 10-K for additional information.
On March 23, 2010, the Patient Protection and Affordable Care Act (PPACA) was signed into law and,
on March 30, 2010, the Health Care and Education Reconciliation Act of 2010 (HCERA and, together
with PPACA, the Acts), which makes various amendments to certain aspects of the PPACA, was signed
into law. The Acts effectively change the tax treatment of federal subsidies paid to sponsors of
retiree health benefit plans that provide prescription drug benefits that are at least actuarially
equivalent to the corresponding benefits provided under Medicare Part D. The federal subsidy paid
to employers was introduced as part of the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003 (MPDIMA). Since the 2006 tax year, Southern Company and the traditional
operating companies have been receiving the federal subsidy related to certain retiree prescription
drug plans that were determined to be actuarially equivalent to the benefit provided under Medicare
Part D. Under the MPDIMA, the federal subsidy does not reduce an employers income tax deduction
for the costs of providing such prescription drug plans nor is it subject to income tax
individually. Under the Acts, beginning in 2013, an employers income tax deduction for the costs
of providing Medicare Part D-equivalent prescription drug benefits to retirees will be reduced by
the amount of the federal subsidy. Under GAAP, any impact from a change in tax law must be
recognized in the period enacted regardless of the effective date; however, as a result of state
regulatory treatment, this change had no material impact on the financial statements of Southern
Company. Southern Company is in the process of assessing the extent to which the legislation may
affect its future health care and related employee benefit plan costs. Any future impact on the
financial statements of Southern Company cannot be determined at this time.
On April 28, 2010, Southern Company signed a Smart Grid Investment Grant agreement with the DOE,
formally accepting a $165 million grant under the American Recovery and Reinvestment Act of 2009.
This funding, to be matched by Southern Company, will be used for transmission and distribution
automation and modernization projects.
Income Tax Matters
Georgia State Income Tax Credits
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 had 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. On March 22, 2010, the Superior
Court of Fulton County ruled in favor of Georgia Powers motion for summary judgment. On April 30,
2010, the Georgia Department of Revenue filed its notice of appeal with the Georgia Court of
Appeals. 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 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 cash flow. See
Note 5 to the financial statements of Southern Company under Unrecognized Tax Benefits in Item 8
of the Form 10-K and Note (G) to the Condensed Financial Statements herein for additional
information. The ultimate outcome of this matter cannot now be determined.
Construction Projects
The subsidiary companies of Southern Company are engaged in continuous construction programs to
accommodate existing and estimated future loads on their respective systems. Southern Company
intends to continue its strategy of developing and constructing new generating facilities,
including units at Southern Power, proposed new nuclear units, and a proposed IGCC facility, as
well as adding environmental control equipment and expanding the transmission and distribution
systems. For the traditional operating companies, major generation construction projects are
subject to state
21
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PSC approvals in order to be included in retail rates. While Southern Power
generally constructs and acquires generation
assets covered by long-term PPAs, any uncontracted capacity could negatively affect future
earnings. See Note 7 to the financial statements of Southern Company under Construction Program
in Item 8 of the Form 10-K for estimated construction expenditures for the next three years. In
addition, see Note 3 to the financial statements of Southern Company under Retail Regulatory
Matters Georgia Power Nuclear Construction and Retail Regulatory Matters Integrated Coal
Gasification Combined Cycle in Item 8 of the Form 10-K and Note (B) to the Condensed Financial
Statements under Retail Regulatory Matters Nuclear and Retail Regulatory Matters Integrated
Coal Gasification Combined Cycle herein for additional information.
Other Matters
Southern Company and its subsidiaries are involved in various other matters being litigated,
regulatory matters, and certain tax-related issues that could affect future earnings. In addition,
Southern Company and its subsidiaries are subject to certain claims and legal actions arising in
the ordinary course of business. The business activities of Southern Companys subsidiaries are
subject to extensive governmental regulation related to public health and the environment, such as
regulation of air emissions and water discharges. 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 and other claims
for damages caused by alleged exposure to hazardous materials, and common law nuisance claims for
injunctive relief and property damage allegedly caused by greenhouse gas and other emissions, 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.
The extent of coastal contamination resulting from the oil spill that began in April 2010 in the Gulf of Mexico has
potential impacts on certain steam plant operations as well as potential significant economic
impacts on the affected areas within Southern Companys service territory. The ultimate impact of
this matter cannot be determined at this time.
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, Unbilled Revenues, and
Pension and Other Postretirement Benefits.
22
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 March 31, 2010. 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. See Sources of Capital and
Financing Activities herein for additional information.
Net cash provided from operating activities totaled $739.0 million for the first quarter 2010, an
increase of $337.8 million from the corresponding period in 2009. Significant changes in operating
cash flow for the first quarter 2010 as compared to the corresponding period in 2009 include an
increase in net income as previously discussed and a reduction in fossil fuel stock. Net cash used
for investing activities totaled $1.1 billion for the first quarter 2010. This amount was
unchanged from the corresponding period in 2009 and consisted primarily of property, plant, and
equipment additions. Net cash used for financing activities totaled $1.4 million for the first
quarter 2010, a decrease of $977.9 million from the corresponding period in 2009, primarily due to
fewer issuances of securities in the first quarter 2010.
Significant balance sheet changes for the first quarter 2010 include a decrease in cash and cash
equivalents of $351 million and an increase of $768 million in total property, plant, and equipment
for the installation of equipment to comply with environmental standards and construction of
generation, transmission, and distribution facilities. Other significant changes include an
increase in equity of $318 million.
The market price of Southern Companys common stock at March 31, 2010 was $33.16 per share (based
on the closing price as reported on the New York Stock Exchange) and the book value was $18.43 per
share, representing a market-to-book ratio of 180%, compared to $33.32, $18.15, and 184%,
respectively, at the end of 2009. The dividend for the first quarter 2010 was $0.4375 per share
compared to $0.42 per share in the first quarter 2009. In April 2010, the quarterly dividend
payable in June 2010 was increased to $0.455 per share.
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 program 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 $1.24 billion will be required through March 31, 2011 for maturities 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; project scope and design changes; 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 2010, 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.
23
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
However, the amount, type, and timing of any future 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.
In addition, on February 16, 2010, the DOE offered Georgia Power a conditional commitment for
federal loan guarantees that would apply to future Georgia Power borrowings related to two
additional nuclear units on the site of Plant Vogtle (Plant Vogtle Units 3 and 4). Any borrowings
guaranteed by the DOE would be full recourse to Georgia Power and secured by a first priority lien
on Georgia Powers 45.7% undivided ownership interest in Plant Vogtle Units 3 and 4. Total
guaranteed borrowings would not exceed 70% of eligible project costs, or approximately $3.4
billion, and are expected to be funded by the Federal Financing Bank. Georgia Power has 90 days to
accept the conditional commitment. Georgia Power will work with the DOE to finalize loan
guarantees. Final approval and issuance of loan guarantees by the DOE are subject to receipt of
the combined construction and operating license for Plant Vogtle Units 3 and 4 from the NRC,
negotiation of definitive agreements, completion of due diligence by the DOE, receipt of any
necessary regulatory approvals, and satisfaction of other conditions. There can be no assurance
that the DOE will issue loan guarantees for Georgia Power.
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 March 31, 2010,
Southern Company and its subsidiaries had approximately $339 million of cash and cash equivalents
and approximately $4.8 billion of unused committed credit arrangements with banks. Of the unused
credit arrangements, $1.3 billion expire in 2010, $235 million expire in 2011, and $3.2 billion
expire in 2012. Of the credit arrangements expiring in 2010 and 2011, $81 million contain
provisions allowing two-year term loans executable at expiration and $692 million contain
provisions allowing one-year term loans executable at expiration. At March 31, 2010, approximately
$1.8 billion of the credit facilities were dedicated to providing liquidity support to the
traditional operating companies variable rate pollution control revenue bonds. Subsequent to
March 31, 2010, Georgia Power and Gulf Power renewed credit arrangements totaling $500 million and
extended the expiration dates to 2011. Of these facilities, $200 million contain provisions
allowing one-year term loans executable at expiration. 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 March 31, 2010, the Southern Company system had
approximately $770 million of commercial paper borrowings outstanding. Management believes that
the 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. In April 2010,
Mississippi Power was required to notify the lessor, Juniper Capital L.P., if it intended to
terminate the lease at the end of the initial term expiring in October 2011. Mississippi Power
chose not to give notice to terminate the lease. Mississippi Power has the option to purchase the
units or renew the lease. The ultimate outcome of this matter cannot be determined at this time.
24
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 March 31, 2010, 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 $453
million. At March 31, 2010, the maximum potential collateral requirements under these contracts at
a rating below BBB- and/or Baa3 were approximately $2.3 billion. 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.
On January 22, 2010, Fitch applied new guidelines regarding the ratings of various hybrid capital
instruments and preferred securities of companies in all sectors, including banks, insurers,
non-bank financial institutions, and non-financial corporate entities, including utilities. As a
result, the Fitch ratings of the preferred stock, preference stock, and long-term debt payable to
affiliated trusts of the traditional operating companies decreased from A to A- at Alabama Power
and Georgia Power, from A- to BBB+ at Gulf Power, and from A+ to A at Mississippi Power. These
ratings are not applicable to the collateral requirements described above.
Market Price Risk
Southern Companys market risk exposure relative to interest rate changes for the first quarter
2010 has not changed materially compared with the December 31, 2009 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 2010, 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, the registrants may enter
into fixed-price contracts for natural gas purchases; however, a significant portion of contracts
are priced at market. As such, Southern Company had no material change in market risk exposure for
the first quarter 2010 when compared with the December 31, 2009 reporting period.
25
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 months ended March
31, 2010 were as follows:
|
|
|
|
|
|
|
First Quarter |
|
|
2010 |
|
|
Changes |
|
|
Fair Value |
|
|
(in millions) |
|
Contracts outstanding at the beginning of the period, assets (liabilities), net |
|
$ |
(178 |
) |
Contracts realized or settled |
|
|
43 |
|
Current period changes(a) |
|
|
(137 |
) |
|
Contracts outstanding at the end of the period, assets (liabilities), net |
|
$ |
(272 |
) |
|
(a) Current period changes also include the changes in fair value of new contracts entered into
during the period, if any.
The change in the fair value positions of the energy-related derivative contracts for the
three months ended March 31, 2010 was a decrease of $94 million, substantially all of which is due
to natural gas positions. The change is attributable to both the volume and prices of natural gas.
At March 31, 2010, Southern Company had a net hedge volume of 141 million mmBtu (includes location
basis of 1.2 million mmBtu) with a weighted average contract cost approximately $2.05 per mmBtu
above market prices, compared to 145 million mmBtu at December 31, 2009 with a weighted average
contract cost approximately $1.23 per mmBtu above market prices. The majority of the natural gas
hedges are recovered through the traditional operating companies fuel cost recovery clauses.
The fair value of energy-related derivative contracts by hedge designation reflected in the
financial statements as assets (liabilities) consists of the following:
|
|
|
|
|
|
|
|
|
Asset (Liability) Derivatives |
|
March 31, 2010 |
|
December 31, 2009 |
|
|
(in millions) |
Regulatory hedges |
|
$ |
(272 |
) |
|
$ |
(175 |
) |
Cash flow hedges |
|
|
2 |
|
|
|
(2 |
) |
Not designated |
|
|
(2 |
) |
|
|
(1 |
) |
|
Total fair value |
|
$ |
(272 |
) |
|
$ |
(178 |
) |
|
Energy-related derivative contracts that 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 that are designated as cash flow hedges are mainly used by Southern Power 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 gains (losses) recognized in income for the three months ended March
31, 2010 and 2009 for energy-related derivative contracts that are not hedges were $(1) million and
$(1) million, respectively.
26
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 March 31, 2010 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
Fair Value Measurements |
|
|
Total |
|
Maturity |
|
|
Fair Value |
|
Year 1 |
|
Years 2&3 |
|
Years 4&5 |
|
|
|
|
|
|
(in millions) |
|
|
|
|
Level 1 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Level 2 |
|
|
(272 |
) |
|
|
(163 |
) |
|
|
(108 |
) |
|
|
(1 |
) |
Level 3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of contracts outstanding at end of period |
|
$ |
(272 |
) |
|
$ |
(163 |
) |
|
$ |
(108 |
) |
|
$ |
(1 |
) |
|
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 Note 1 under Financial
Instruments and Note 11 to the financial statements of Southern Company in Item 8 of the Form 10-K
and Note (H) to the Condensed Financial Statements herein.
Financing Activities
In the first three months of 2010, Georgia Power issued $350 million aggregate principal amount of
Series 2010A Floating Rate Senior Notes due March 15, 2013. The proceeds were used to repay at
maturity $250 million aggregate principal amount of Series 2008A Floating Rate Senior Notes due
March 17, 2010, to repay a portion of its outstanding short-term indebtedness, and for general
corporate purposes, including Georgia Powers continuous construction program. Southern Company
issued $149 million of common stock through the Southern Investment Plan and employee and director
stock plans. The proceeds were primarily used to repay short-term and long-term indebtedness and
to fund ongoing construction projects. See Southern Companys Condensed Consolidated Statements of
Cash Flows herein for further details regarding financing activities during the first three months
of 2010.
Subsequent to March 31, 2010, Gulf Power issued $175 million aggregate principal amount of Series
2010A 4.75% Senior Notes due April 15, 2020. The proceeds will be used to repay at maturity $140
million aggregate principal amount of Series 2009A Floating Rate Senior Notes due June 28, 2010, to
repay a portion of its outstanding short-term indebtedness, and for general corporate purposes,
including Gulf Powers continuous construction program. Gulf Power settled $100 million of
interest rate hedges related to the Series 2010A Senior Note issuance at a gain of approximately
$1.5 million. The gain will be amortized to interest expense, in earnings, over 10 years.
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.
27
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 Note 1 to the financial statements of each registrant under
Financial Instruments, Note 11 to the financial statements of Southern Company, Alabama Power,
and Georgia Power, and Note 10 to the financial statements of Gulf Power, Mississippi Power, and
Southern Power in Item 8 of the Form 10-K. Also, see Note (H) 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 first quarter 2010 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 first quarter 2010
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.
28
ALABAMA POWER COMPANY
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
For the Three Months |
|
|
|
Ended March 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(in thousands) |
|
Operating Revenues: |
|
|
|
|
|
|
|
|
Retail revenues |
|
$ |
1,176,009 |
|
|
$ |
1,058,137 |
|
Wholesale revenues, non-affiliates |
|
|
171,824 |
|
|
|
158,695 |
|
Wholesale revenues, affiliates |
|
|
98,334 |
|
|
|
84,352 |
|
Other revenues |
|
|
48,978 |
|
|
|
38,582 |
|
|
|
|
|
|
|
|
Total operating revenues |
|
|
1,495,145 |
|
|
|
1,339,766 |
|
|
|
|
|
|
|
|
Operating Expenses: |
|
|
|
|
|
|
|
|
Fuel |
|
|
489,043 |
|
|
|
483,233 |
|
Purchased power, non-affiliates |
|
|
17,883 |
|
|
|
15,544 |
|
Purchased power, affiliates |
|
|
51,643 |
|
|
|
41,560 |
|
Other operations and maintenance |
|
|
310,773 |
|
|
|
276,859 |
|
Depreciation and amortization |
|
|
145,283 |
|
|
|
143,416 |
|
Taxes other than income taxes |
|
|
81,873 |
|
|
|
80,281 |
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
1,096,498 |
|
|
|
1,040,893 |
|
|
|
|
|
|
|
|
Operating Income |
|
|
398,647 |
|
|
|
298,873 |
|
Other Income and (Expense): |
|
|
|
|
|
|
|
|
Allowance for equity funds used during construction |
|
|
13,238 |
|
|
|
16,725 |
|
Interest income |
|
|
4,038 |
|
|
|
4,122 |
|
Interest expense, net of amounts capitalized |
|
|
(74,562 |
) |
|
|
(72,207 |
) |
Other income (expense), net |
|
|
(6,501 |
) |
|
|
(6,372 |
) |
|
|
|
|
|
|
|
Total other income and (expense) |
|
|
(63,787 |
) |
|
|
(57,732 |
) |
|
|
|
|
|
|
|
Earnings Before Income Taxes |
|
|
334,860 |
|
|
|
241,141 |
|
Income taxes |
|
|
122,246 |
|
|
|
85,009 |
|
|
|
|
|
|
|
|
Net Income |
|
|
212,614 |
|
|
|
156,132 |
|
Dividends on Preferred and Preference Stock |
|
|
9,866 |
|
|
|
9,866 |
|
|
|
|
|
|
|
|
Net Income After Dividends on Preferred and Preference Stock |
|
$ |
202,748 |
|
|
$ |
146,266 |
|
|
|
|
|
|
|
|
CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
For the Three Months |
|
|
|
Ended March 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(in thousands) |
|
Net Income After Dividends on Preferred and Preference Stock |
|
$ |
202,748 |
|
|
$ |
146,266 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
Qualifying hedges: |
|
|
|
|
|
|
|
|
Changes in fair value, net of tax of $28 and $(886), respectively |
|
|
46 |
|
|
|
(1,457 |
) |
Reclassification adjustment for amounts included in net income, net of tax of $610 and $1,061, respectively |
|
|
1,003 |
|
|
|
1,745 |
|
|
|
|
|
|
|
|
Total other comprehensive income (loss) |
|
|
1,049 |
|
|
|
288 |
|
|
|
|
|
|
|
|
Comprehensive Income |
|
$ |
203,797 |
|
|
$ |
146,554 |
|
|
|
|
|
|
|
|
The accompanying notes as they relate to Alabama Power are an integral part of these condensed financial statements.
30
ALABAMA POWER COMPANY
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
For the Three Months |
|
|
|
Ended March 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(in thousands) |
|
Operating Activities: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
212,614 |
|
|
$ |
156,132 |
|
Adjustments to reconcile net income
to net cash provided from operating activities |
|
|
|
|
|
|
|
|
Depreciation and amortization, total |
|
|
168,138 |
|
|
|
164,488 |
|
Deferred income taxes |
|
|
46,926 |
|
|
|
(25,795 |
) |
Allowance for equity funds used during construction |
|
|
(13,238 |
) |
|
|
(16,725 |
) |
Pension, postretirement, and other employee benefits |
|
|
(7,713 |
) |
|
|
(4,933 |
) |
Stock based compensation expense |
|
|
2,930 |
|
|
|
2,851 |
|
Other, net |
|
|
5,975 |
|
|
|
8,858 |
|
Changes in certain current assets and liabilities |
|
|
|
|
|
|
|
|
-Receivables |
|
|
10,961 |
|
|
|
173,032 |
|
-Fossil fuel stock |
|
|
13,355 |
|
|
|
(11,654 |
) |
-Materials and supplies |
|
|
(3,033 |
) |
|
|
(6,775 |
) |
-Other current assets |
|
|
(77,543 |
) |
|
|
(73,518 |
) |
-Accounts payable |
|
|
(75,215 |
) |
|
|
(136,678 |
) |
-Accrued taxes |
|
|
69,072 |
|
|
|
123,746 |
|
-Accrued compensation |
|
|
(41,078 |
) |
|
|
(64,030 |
) |
-Other current liabilities |
|
|
(38,405 |
) |
|
|
7,928 |
|
|
|
|
|
|
|
|
Net cash provided from operating activities |
|
|
273,746 |
|
|
|
296,927 |
|
|
|
|
|
|
|
|
Investing Activities: |
|
|
|
|
|
|
|
|
Property additions |
|
|
(254,694 |
) |
|
|
(337,984 |
) |
Investment in restricted cash from pollution control revenue bonds |
|
|
(1 |
) |
|
|
(160 |
) |
Distribution of restricted cash from pollution control revenue bonds |
|
|
5,241 |
|
|
|
13,774 |
|
Nuclear decommissioning trust fund purchases |
|
|
(39,486 |
) |
|
|
(60,600 |
) |
Nuclear decommissioning trust fund sales |
|
|
39,486 |
|
|
|
60,600 |
|
Cost of removal, net of salvage |
|
|
(5,035 |
) |
|
|
(5,109 |
) |
Other investing activities |
|
|
(43,245 |
) |
|
|
3,025 |
|
|
|
|
|
|
|
|
Net cash used for investing activities |
|
|
(297,734 |
) |
|
|
(326,454 |
) |
|
|
|
|
|
|
|
Financing Activities: |
|
|
|
|
|
|
|
|
Decrease in notes payable, net |
|
|
|
|
|
|
(24,995 |
) |
Proceeds |
|
|
|
|
|
|
|
|
Capital contributions from parent company |
|
|
5,677 |
|
|
|
6,682 |
|
Senior notes issuances |
|
|
|
|
|
|
500,000 |
|
Payment of preferred and preference stock dividends |
|
|
(9,863 |
) |
|
|
(9,868 |
) |
Payment of common stock dividends |
|
|
(135,675 |
) |
|
|
(130,700 |
) |
Other financing activities |
|
|
(1,196 |
) |
|
|
(5,822 |
) |
|
|
|
|
|
|
|
Net cash provided from (used for) financing activities |
|
|
(141,057 |
) |
|
|
335,297 |
|
|
|
|
|
|
|
|
Net Change in Cash and Cash Equivalents |
|
|
(165,045 |
) |
|
|
305,770 |
|
Cash and Cash Equivalents at Beginning of Period |
|
|
368,016 |
|
|
|
28,181 |
|
|
|
|
|
|
|
|
Cash and Cash Equivalents at End of Period |
|
$ |
202,971 |
|
|
$ |
333,951 |
|
|
|
|
|
|
|
|
Supplemental Cash Flow Information: |
|
|
|
|
|
|
|
|
Cash paid during the period for |
|
|
|
|
|
|
|
|
Interest (net of $5,159 and $6,992 capitalized for 2010 and 2009, respectively) |
|
$ |
58,529 |
|
|
$ |
54,875 |
|
Income taxes (net of refunds) |
|
$ |
18,872 |
|
|
$ |
(640 |
) |
The accompanying notes as they relate to Alabama Power are an integral part of these condensed financial statements.
31
ALABAMA POWER COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
At March 31, |
|
|
At December 31, |
|
Assets |
|
2010 |
|
|
2009 |
|
|
|
(in thousands) |
|
Current Assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
202,971 |
|
|
$ |
368,016 |
|
Restricted cash and cash equivalents |
|
|
31,471 |
|
|
|
36,711 |
|
Receivables |
|
|
|
|
|
|
|
|
Customer accounts receivable |
|
|
353,676 |
|
|
|
322,292 |
|
Unbilled revenues |
|
|
116,784 |
|
|
|
134,875 |
|
Under recovered regulatory clause revenues |
|
|
372 |
|
|
|
37,338 |
|
Other accounts and notes receivable |
|
|
27,158 |
|
|
|
33,522 |
|
Affiliated companies |
|
|
82,479 |
|
|
|
61,508 |
|
Accumulated provision for uncollectible accounts |
|
|
(11,690 |
) |
|
|
(9,551 |
) |
Fossil fuel stock, at average cost |
|
|
381,122 |
|
|
|
394,511 |
|
Materials and supplies, at average cost |
|
|
329,149 |
|
|
|
326,074 |
|
Vacation pay |
|
|
54,591 |
|
|
|
53,607 |
|
Prepaid expenses |
|
|
187,147 |
|
|
|
111,320 |
|
Other regulatory assets, current |
|
|
49,878 |
|
|
|
34,347 |
|
Other current assets |
|
|
6,034 |
|
|
|
6,203 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
1,811,142 |
|
|
|
1,910,773 |
|
|
|
|
|
|
|
|
Property, Plant, and Equipment: |
|
|
|
|
|
|
|
|
In service |
|
|
19,380,772 |
|
|
|
18,574,229 |
|
Less accumulated provision for depreciation |
|
|
6,652,573 |
|
|
|
6,558,864 |
|
|
|
|
|
|
|
|
Plant in service, net of depreciation |
|
|
12,728,199 |
|
|
|
12,015,365 |
|
Nuclear fuel, at amortized cost |
|
|
289,139 |
|
|
|
253,308 |
|
Construction work in progress |
|
|
628,855 |
|
|
|
1,256,311 |
|
|
|
|
|
|
|
|
Total property, plant, and equipment |
|
|
13,646,193 |
|
|
|
13,524,984 |
|
|
|
|
|
|
|
|
Other Property and Investments: |
|
|
|
|
|
|
|
|
Equity investments in unconsolidated subsidiaries |
|
|
61,103 |
|
|
|
59,628 |
|
Nuclear decommissioning trusts, at fair value |
|
|
513,629 |
|
|
|
489,795 |
|
Miscellaneous property and investments |
|
|
69,430 |
|
|
|
69,749 |
|
|
|
|
|
|
|
|
Total other property and investments |
|
|
644,162 |
|
|
|
619,172 |
|
|
|
|
|
|
|
|
Deferred Charges and Other Assets: |
|
|
|
|
|
|
|
|
Deferred charges related to income taxes |
|
|
408,602 |
|
|
|
387,447 |
|
Prepaid pension costs |
|
|
141,710 |
|
|
|
132,643 |
|
Other regulatory assets, deferred |
|
|
759,220 |
|
|
|
750,492 |
|
Other deferred charges and assets |
|
|
212,159 |
|
|
|
198,582 |
|
|
|
|
|
|
|
|
Total deferred charges and other assets |
|
|
1,521,691 |
|
|
|
1,469,164 |
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
17,623,188 |
|
|
$ |
17,524,093 |
|
|
|
|
|
|
|
|
The accompanying notes as they relate to Alabama Power are an integral part of these condensed financial statements.
32
ALABAMA POWER COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
At March 31, |
|
|
At December 31, |
|
Liabilities and Stockholders Equity |
|
2010 |
|
|
2009 |
|
|
|
(in thousands) |
|
Current Liabilities: |
|
|
|
|
|
|
|
|
Securities due within one year |
|
$ |
300,386 |
|
|
$ |
100,000 |
|
Accounts payable |
|
|
|
|
|
|
|
|
Affiliated |
|
|
189,679 |
|
|
|
194,675 |
|
Other |
|
|
210,732 |
|
|
|
328,400 |
|
Customer deposits |
|
|
87,263 |
|
|
|
86,975 |
|
Accrued taxes |
|
|
|
|
|
|
|
|
Accrued income taxes |
|
|
68,988 |
|
|
|
14,789 |
|
Other accrued taxes |
|
|
51,046 |
|
|
|
31,918 |
|
Accrued interest |
|
|
62,651 |
|
|
|
65,455 |
|
Accrued vacation pay |
|
|
44,751 |
|
|
|
44,751 |
|
Accrued compensation |
|
|
31,131 |
|
|
|
71,286 |
|
Liabilities from risk management activities |
|
|
49,010 |
|
|
|
37,844 |
|
Over recovered regulatory clause revenues |
|
|
142,008 |
|
|
|
181,565 |
|
Other current liabilities |
|
|
43,151 |
|
|
|
40,020 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
1,280,796 |
|
|
|
1,197,678 |
|
|
|
|
|
|
|
|
Long-term Debt |
|
|
5,883,255 |
|
|
|
6,082,489 |
|
|
|
|
|
|
|
|
Deferred Credits and Other Liabilities: |
|
|
|
|
|
|
|
|
Accumulated deferred income taxes |
|
|
2,359,419 |
|
|
|
2,293,468 |
|
Deferred credits related to income taxes |
|
|
87,796 |
|
|
|
88,705 |
|
Accumulated deferred investment tax credits |
|
|
162,732 |
|
|
|
164,713 |
|
Employee benefit obligations |
|
|
387,708 |
|
|
|
387,936 |
|
Asset retirement obligations |
|
|
496,260 |
|
|
|
491,007 |
|
Other cost of removal obligations |
|
|
682,056 |
|
|
|
668,151 |
|
Other regulatory liabilities, deferred |
|
|
194,894 |
|
|
|
169,224 |
|
Deferred over recovered regulatory clause revenues |
|
|
43,738 |
|
|
|
22,060 |
|
Other deferred credits and liabilities |
|
|
45,445 |
|
|
|
37,113 |
|
|
|
|
|
|
|
|
Total deferred credits and other liabilities |
|
|
4,460,048 |
|
|
|
4,322,377 |
|
|
|
|
|
|
|
|
Total Liabilities |
|
|
11,624,099 |
|
|
|
11,602,544 |
|
|
|
|
|
|
|
|
Redeemable Preferred Stock |
|
|
341,715 |
|
|
|
341,715 |
|
|
|
|
|
|
|
|
Preference Stock |
|
|
343,373 |
|
|
|
343,373 |
|
|
|
|
|
|
|
|
Common Stockholders Equity: |
|
|
|
|
|
|
|
|
Common stock, par value $40 per share |
|
|
|
|
|
|
|
|
Authorized - 40,000,000 shares |
|
|
|
|
|
|
|
|
Outstanding - 30,537,500 shares |
|
|
1,221,500 |
|
|
|
1,221,500 |
|
Paid-in capital |
|
|
2,129,233 |
|
|
|
2,119,818 |
|
Retained earnings |
|
|
1,967,602 |
|
|
|
1,900,526 |
|
Accumulated other comprehensive loss |
|
|
(4,334 |
) |
|
|
(5,383 |
) |
|
|
|
|
|
|
|
Total common stockholders equity |
|
|
5,314,001 |
|
|
|
5,236,461 |
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders Equity |
|
$ |
17,623,188 |
|
|
$ |
17,524,093 |
|
|
|
|
|
|
|
|
The accompanying notes as they relate to Alabama Power are an integral part of these condensed financial statements.
33
ALABAMA POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FIRST QUARTER 2010 vs. FIRST QUARTER 2009
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 given the effects of the recession,
and to effectively manage and secure timely recovery of costs. These costs include those related
to projected long-term demand growth, increasingly stringent environmental standards, fuel, 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
|
|
|
First Quarter 2010 vs. First Quarter 2009
|
|
(change in millions)
|
|
(% change) |
$56.4
|
|
38.6 |
|
Alabama Powers net income after dividends on preferred and preference stock for the first quarter
2010 was $202.7 million compared to $146.3 million for the corresponding period in 2009. The
increase was primarily due to increases in rates under Rate Stabilization and Equalization Plan
(Rate RSE) and Rate Certificated New Plant for environmental costs (Rate CNP Environmental) that
took effect January 2010 as well as significantly colder weather. The increases in revenues were
partially offset by increases in operations and maintenance expenses.
Even though Rate RSE and Rate CNP have increased, there was an overall annual reduction in Alabama
Powers retail customer billings in 2010. 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.
Retail Revenues
|
|
|
First Quarter 2010 vs. First Quarter 2009
|
|
(change in millions)
|
|
(% change) |
$117.9
|
|
11.1 |
|
In the first quarter 2010, retail revenues were $1.18 billion compared to $1.06 billion for the
corresponding period in 2009.
34
ALABAMA POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Details of the change to retail revenues are as follows:
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
|
2010 |
|
|
(in millions) |
|
(% change) |
Retail prior year |
|
$ |
1,058.1 |
|
|
|
|
|
Estimated change in |
|
|
|
|
|
|
|
|
Rates and pricing |
|
|
61.9 |
|
|
|
5.8 |
|
Sales growth (decline) |
|
|
1.6 |
|
|
|
0.2 |
|
Weather |
|
|
58.1 |
|
|
|
5.5 |
|
Fuel and other cost recovery |
|
|
(3.7 |
) |
|
|
(0.4 |
) |
|
Retail current year |
|
$ |
1,176.0 |
|
|
|
11.1 |
% |
|
Revenues associated with changes in rates and pricing increased in the first quarter 2010 when
compared to the corresponding period in 2009 primarily due to Rate RSE and Rate CNP Environmental
increases effective January 2010.
Revenues attributable to changes in sales increased slightly in the first quarter 2010 from the
corresponding period in 2009. Industrial KWH energy sales increased 10.5% due to an increase in
demand resulting from changes in production levels primarily in the chemical and primary metals
sectors. Weather-adjusted residential KWH energy sales increased 2.5% due to an increase in
customer demand. Weather-adjusted commercial KWH energy sales decreased 0.8% due to a decrease in
customer growth.
Revenues resulting from changes in weather increased in the first quarter 2010 when compared to the
corresponding period in 2009. In the first quarter 2010, Alabama Powers service territory
experienced significantly colder weather. As a result, residential and commercial sales increased
10.6% and 2.5%, respectively.
Fuel and other cost recovery revenues decreased in the first quarter 2010 when compared to the
corresponding period in 2009 due to a decrease in costs associated with PPAs certificated by the
Alabama PSC and a reduction in Rate Natural Disaster Reserve (NDR) customer billing rate as a
result of achieving the target reserve balance. 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 NDR. Under these provisions, fuel and other cost recovery revenues generally
equal fuel and other cost recovery expenses and do not impact net income.
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.
Wholesale Revenues Non-Affiliates
|
|
|
First Quarter 2010 vs. First Quarter 2009
|
|
(change in millions)
|
|
(% change) |
$13.1
|
|
8.3 |
|
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 first quarter 2010, wholesale revenues from non-affiliates were $171.8 million compared to
$158.7 million for the corresponding period in 2009. This increase was primarily due to a 16.5%
increase in the price of energy, partially offset by a 7.0% decrease in KWH sales.
35
ALABAMA POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Wholesale Revenues Affiliates
|
|
|
First Quarter 2010 vs. First Quarter 2009
|
|
(change in millions)
|
|
(% change) |
$13.9
|
|
16.6 |
|
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 first quarter 2010, wholesale revenues from affiliates were $98.3 million compared to $84.4
million for the corresponding period in 2009. This increase was primarily due to a 12.7% increase
in KWH sales and a 3.4% increase in price.
Other Revenues
|
|
|
First Quarter 2010 vs. First Quarter 2009
|
|
(change in millions)
|
|
(% change) |
$10.4
|
|
26.9 |
|
In the first quarter 2010, other revenues were $49.0 million compared to $38.6 million for the
corresponding period in 2009. This increase was due to a $2.8 million increase in revenues from
gas-fueled co-generation steam facilities as a result of greater sales volume; a $1.4 million
increase in transmission sales; a $1.3 million adjustment related to the Open Access Transmission
Tariff; a $0.9 million increase in customer charges related to late fees; and a $0.8 million
increase in pole attachment rentals.
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
|
|
|
|
|
|
|
|
|
|
|
First Quarter 2010 |
|
|
vs. |
|
|
First Quarter 2009 |
|
|
(change in millions) |
|
(% change) |
Fuel* |
|
$ |
5.8 |
|
|
|
1.2 |
|
Purchased power non-affiliates |
|
|
2.4 |
|
|
|
15.0 |
|
Purchased power affiliates |
|
|
10.1 |
|
|
|
24.3 |
|
|
|
|
|
|
Total fuel and purchased power expenses |
|
$ |
18.3 |
|
|
|
|
|
|
|
|
|
|
* |
|
Fuel includes fuel purchased by Alabama Power for tolling agreements where power is
generated by the provider
and is included in purchased power when determining the average cost of purchased
power. |
In the first quarter 2010, total fuel and purchased power expenses were $558.6 million
compared to $540.3 million for the corresponding period in 2009. This increase was due to a $28.7
million increase in total KWHs generated and an $11.7 million increase in the average cost of
purchased power, partially offset by a $19.6 million decrease in the cost of fuel resulting from a
decrease in the average cost of natural gas.
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.
36
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
First Quarter |
|
Percent |
Average Cost |
|
2010 |
|
2009 |
|
Change |
|
|
(cents per net KWH) |
|
|
|
|
Fuel |
|
|
2.80 |
|
|
|
2.92 |
|
|
|
(4.1 |
) |
Purchased power |
|
|
7.08 |
|
|
|
6.14 |
|
|
|
15.3 |
|
|
In the first quarter 2010, fuel expense was $489.0 million compared to $483.2 million for the
corresponding period in 2009. The $5.8 million increase was due to a 34.9% increase in KWHs
generated by natural gas.
Non-Affiliates
In the first quarter 2010, purchased power expense from non-affiliates was $17.9 million compared
to $15.5 million for the corresponding period in 2009. This increase was related to a 54.1%
increase in the average cost per KWH, partially offset by a 25.3% decrease in the amount of energy
purchased.
Energy purchases from non-affiliates will vary depending on the market cost of available energy
compared to 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 first quarter 2010, purchased power expense from affiliates was $51.6 million compared to
$41.5 million for the corresponding period in 2009. This increase was related to a 13.8% increase
in the average cost per KWH and a 9.2% increase in the amount of energy 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, or other contractual agreements, as approved by the FERC.
Other Operations and Maintenance Expenses
|
|
|
First Quarter 2010 vs. First Quarter 2009
|
|
(change in millions)
|
|
(% change) |
$33.9
|
|
12.2 |
|
In the first quarter 2010, other operations and maintenance expenses were $310.8 million compared
to $276.9 million for the corresponding period in 2009. Steam production expenses increased $25.2
million due to scheduled outage costs, environmental mandates (which were offset by revenues
associated with Rate CNP Environmental), and maintenance costs related to increases in contract
labor and material expenses. Administration and general expenses increased $12.2 million related
to an increase in affiliated service company expenses, the injuries and damages reserve, and
property insurance expense.
Allowance for Funds Used During Construction
|
|
|
First Quarter 2010 vs. First Quarter 2009
|
|
(change in millions)
|
|
(% change) |
$(3.5)
|
|
(20.8) |
|
In the first quarter 2010, AFUDC equity was $13.2 million compared to $16.7 million for the
corresponding period in 2009. This decrease was due to the completion of construction projects
related to environmental mandates at generating facilities, partially offset by increases in
nuclear facility and general plant projects.
37
ALABAMA POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Income Taxes
|
|
|
First Quarter 2010 vs. First Quarter 2009
|
|
(change in millions)
|
|
(% change) |
$37.2
|
|
43.8 |
|
For the first quarter 2010, income taxes were $122.2 million compared to $85.0 million for the
corresponding period in 2009. This increase was primarily due to higher pre-tax earnings.
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 all 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. Recessionary conditions have impacted sales; the timing and extent
of the economic recovery will impact growth and may 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.
Carbon Dioxide Litigation
New York Case
See MANAGEMENTS DISCUSSION AND ANALYSIS FUTURE EARNINGS POTENTIAL Environmental Matters
Carbon Dioxide Litigation New York Case of Alabama Power in Item 7 and Note 3 to the financial
statements of Alabama Power under Environmental Matters Carbon Dioxide Litigation New York
Case in Item 8 of the Form 10-K for additional information regarding carbon dioxide litigation.
The U.S. Court of Appeals for the Second Circuit denied the defendants petition for rehearing en
banc on March 5, 2010 and granted the defendants request to stay the mandate to allow the
defendants to file a petition for writ of certiorari with the U.S. Supreme Court on March 16, 2010.
The ultimate outcome of these matters cannot be determined at this time.
38
ALABAMA POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Other Litigation
See MANAGEMENTS DISCUSSION AND ANALYSIS FUTURE EARNINGS POTENTIAL Environmental Matters
Carbon Dioxide Litigation Other Litigation of Alabama Power in Item 7 and Note 3 to the
financial statements of Alabama Power under Environmental Matters Carbon Dioxide Litigation
Other Litigation in Item 8 of the Form 10-K for additional information regarding carbon dioxide
litigation related to Hurricane Katrina. On February 26, 2010, the U.S. Court of Appeals for the
Fifth Circuit granted the defendants petition for rehearing en banc. The ultimate outcome of this
matter cannot be determined at this time.
Coal Combustion Byproducts
See MANAGEMENTS DISCUSSION AND ANALYSIS FUTURE EARNINGS POTENTIAL Environmental Matters
Environmental Statutes and Regulations Coal Combustion Byproducts of Alabama Power in Item 7 of
the Form 10-K for information regarding potential additional regulation of coal combustion
byproducts. On May 4, 2010, the EPA issued a proposal requesting comments on two potential
regulatory options for management and disposal of coal combustion byproducts,
either of which could require conversion of existing storage
units to lined landfills with additional waste management and groundwater monitoring
requirements. Under both options, the EPA proposes to exempt the beneficial reuse of coal
combustion byproducts from regulation. The outcome of these proposed regulations will depend on
their final form and any legal challenges, and cannot be determined at this time. However,
additional regulation of coal combustion byproducts could have a significant impact on
Alabama Powers
management, beneficial use, and disposal of such byproducts and
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.
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 and other emissions. On April
1, 2010, the EPA issued a final rule regulating greenhouse gas emissions from new motor vehicles
under the Clean Air Act. The EPA has stated that, once this rule becomes effective on January 2,
2011, carbon dioxide and other greenhouse gases will become regulated pollutants under the
Prevention of Significant Deterioration (PSD) preconstruction permit program and the Title V
operating permit program, which both apply to power plants. As a result, the construction of new
facilities or the major modification of existing facilities could trigger the requirement for a PSD
permit and the installation of the best available control technology for carbon dioxide and other
greenhouse gases. The EPA also published a proposed rule governing how these programs would be
applied to stationary sources, including power plants, in October 2009. The EPA is expected to
finalize this proposed rule during 2010. The ultimate outcome of these proposed and final rules
cannot be determined at this time and will depend on additional regulatory action and any legal
challenges.
FERC and Alabama PSC Matters
Retail Fuel Cost Recovery
See MANAGEMENTS DISCUSSION AND ANALYSIS FUTURE EARNINGS POTENTIAL PSC Matters 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 over recovered fuel costs as of
March 31, 2010 totaled $172.7 million as compared to $199.6 million at December 31, 2009. These
over recovered fuel costs at March 31, 2010 are included in over recovered regulatory clause
revenues and deferred over recovered regulatory clause revenues on Alabama Powers Condensed
39
ALABAMA POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 any return of the over recovered fuel costs.
Natural Disaster Cost Recovery
See MANAGEMENTS DISCUSSION AND ANALYSIS FUTURE EARNINGS POTENTIAL PSC Matters Natural
Disaster Reserve of Alabama Power in Item 7 and Note 3 to the financial statements of Alabama
Power under Retail Regulatory Matters Natural Disaster Reserve in Item 8 of the Form 10-K for
information regarding natural disaster cost recovery. At March 31, 2010, Alabama Power had an
accumulated balance of $76.6 million in the target reserve for future storms, which is included in
the Condensed Balance Sheets herein under other regulatory liabilities, deferred.
Hydro Relicensing
See MANAGEMENTS DISCUSSION AND ANALYSIS FUTURE EARNINGS POTENTIAL FERC Matters of Alabama
Power in Item 7 of the Form 10-K for information regarding Alabama Powers applications to the FERC
for new licenses for certain of its hydroelectric projects. On March 31, 2010, the FERC issued a
new 30-year license for the Lewis Smith and Bankhead developments on the Warrior River. The new
license authorizes Alabama Power to continue operating these facilities in a manner consistent with
past operations. On April 30, 2010, a stakeholders group filed a request for rehearing of the FERC
order issuing the new license. The ultimate outcome of this matter cannot be determined at this
time.
Legislation
See MANAGEMENTS DISCUSSION AND ANALYSIS FUTURE EARNINGS POTENTIAL Legislation of Alabama
Power in Item 7 of the Form 10-K for additional information.
On March 23, 2010, the Patient Protection and Affordable Care Act (PPACA) was signed into law and,
on March 30, 2010, the Health Care and Education Reconciliation Act of 2010 (HCERA and, together
with PPACA, the Acts), which makes various amendments to certain aspects of the PPACA, was signed
into law. The Acts effectively change the tax treatment of federal subsidies paid to sponsors of
retiree health benefit plans that provide prescription drug benefits that are at least actuarially
equivalent to the corresponding benefits provided under Medicare Part D. The federal subsidy paid
to employers was introduced as part of the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003 (MPDIMA). Since the 2006 tax year, Alabama Power has been receiving the
federal subsidy related to certain retiree prescription drug plans that were determined to be
actuarially equivalent to the benefit provided under Medicare Part D. Under the MPDIMA, the
federal subsidy does not reduce an employers income tax deduction for the costs of providing such
prescription drug plans nor is it subject to income tax individually. Under the Acts, beginning in
2013, an employers income tax deduction for the costs of providing Medicare Part D-equivalent
prescription drug benefits to retirees will be reduced by the amount of the federal subsidy. Under
GAAP, any impact from a change in tax law must be recognized in the period enacted regardless of
the effective date; however, as a result of state regulatory treatment, this change had no material
impact on the financial statements of Alabama Power. Southern Company is in the process of
assessing the extent to which the legislation may affect its future health care and related
employee benefit plan costs. Any future impact on the financial statements of Alabama Power cannot
be determined at this time.
On April 28, 2010, Southern Company signed a Smart Grid Investment Grant agreement with the DOE,
formally accepting a $165 million grant under the American Recovery and Reinvestment Act of 2009.
This funding will be used for transmission and distribution
automation and modernization projects. Alabama Power will receive, and will match, $65 million under this
agreement.
40
ALABAMA POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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, such as
regulation of air emissions and water discharges. 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 and other claims
for damages caused by alleged exposure to hazardous materials, and common law nuisance claims for
injunctive relief and property damage allegedly caused by greenhouse gas and other emissions, 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.
The extent
of coastal contamination resulting from the oil spill that began in April 2010 in the Gulf of
Mexico has potential impacts on certain steam plant operations as well as potential significant
economic impacts on the affected areas within Southern Companys service territory. The ultimate
impact of this matter cannot be determined at this time.
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, Unbilled Revenues, and Pension and Other Postretirement Benefits.
FINANCIAL CONDITION AND LIQUIDITY
Overview
Alabama Powers financial condition remained stable at March 31, 2010. 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. See Sources of Capital and
Financing Activities herein for additional information.
Net cash provided from operating activities totaled $273.7 million for the first three months of
2010, compared to $296.9 million for the corresponding period in 2009. The $23.2 million decrease
in cash provided from operating activities was primarily due to less cash collections of regulatory
clause revenues when compared to the prior year, partially offset by increases in net income and
deferred income taxes. Net cash used for investing activities totaled $297.7 million primarily
41
ALABAMA POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
due to gross property additions related to steam generation equipment in the first three months of
2010. Net cash used for financing activities totaled $141.1 million for the first three months of
2010, compared to $335.3 million provided in the corresponding period in 2009. The $476.4 million
change is primarily due to fewer issuances of securities. 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 quarter 2010 include an increase of $121.2 million
in total property, plant, and equipment primarily due to an increase in environmental-related
equipment, an increase of $54.2 million in accrued income taxes, and an increase of $66.0 million
in accumulated deferred income taxes.
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 $300 million will be required through March 31, 2011 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; project scope and design changes; 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.
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 March 31, 2010 cash and cash equivalents of approximately $203
million and unused committed credit arrangements with banks of approximately $1.3 billion. Of the
unused credit arrangements, $481 million expire in 2010, $25 million expire in 2011, and $765
million expire in 2012. Of the credit arrangements that expire in 2010, $372 million contain
provisions allowing for one-year term loans executable at expiration. Alabama Power expects to
renew its credit arrangements, as needed, prior to expiration. The credit arrangements provide
liquidity support to Alabama Powers commercial paper borrowings and $744 million are dedicated to
funding purchase obligations related to variable rate pollution control revenue bonds. 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 March 31, 2010, Alabama Power had no
commercial paper borrowings outstanding. Management believes that the need for working capital can
be adequately met by utilizing commercial paper programs, lines of credit, and cash.
42
ALABAMA POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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,
fuel purchases, fuel transportation and storage, emissions allowances, and energy price risk
management. At March 31, 2010, the maximum potential collateral requirements under these contracts
at a BBB- and/or Baa3 rating were approximately $4 million. At March 31, 2010, the maximum
potential collateral requirements under these contracts at a rating below BBB- and/or Baa3 were
approximately $349 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 Alabama Powers
ability to access capital markets, particularly the short-term debt market.
On January 22, 2010, Fitch applied new guidelines regarding the ratings of various hybrid capital
instruments and preferred securities of companies in all sectors, including banks, insurers,
non-bank financial institutions, and non-financial corporate entities, including utilities. As a
result, the Fitch ratings of Alabama Powers preferred stock, preference stock, and long-term debt
payable to affiliated trusts decreased from A to A-. These ratings are not applicable to the
collateral requirements described above.
Market Price Risk
During the first quarter 2010, Alabama Power had interest rate swaps totaling $576 million expire,
which did not materially increase market risk exposure relative to interest rate changes. Since a
significant portion of outstanding indebtedness remains 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 had no material change in market risk
exposure for the first quarter 2010 when compared with the December 31, 2009 reporting period.
The changes in fair value of energy-related derivative contracts, the majority of which are
composed of regulatory hedges, for the three months ended March 31, 2010 were as follows:
|
|
|
|
|
|
|
First Quarter |
|
|
2010 |
|
|
Changes |
|
|
Fair Value |
|
|
(in millions) |
Contracts outstanding at the beginning of the period, assets (liabilities), net |
|
$ |
(44 |
) |
Contracts realized or settled |
|
|
14 |
|
Current period changes(a) |
|
|
(37 |
) |
|
Contracts outstanding at the end of the period, assets (liabilities), net |
|
$ |
(67 |
) |
|
(a) Current period changes also include the changes in fair value of new contracts entered into
during the period, if any.
43
ALABAMA POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The change in the fair value positions of the energy-related derivative contracts for the
three months ended March 31, 2010 was a decrease of $23 million, substantially all of which is due
to natural gas positions. The change is attributable to both the volume and prices of natural gas.
At March 31, 2010, Alabama Power had a net hedge volume of 32 million mmBtu with a weighted
average contract cost approximately $2.07 per mmBtu above market prices, compared to 36 million
mmBtu at December 31, 2009 with a weighted average contract cost approximately $1.22 per mmBtu
above market prices. The majority of the natural gas hedges are recovered through the fuel cost
recovery clause.
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 clause.
Unrealized pre-tax gains and losses recognized in income for the three months ended March 31, 2010
and 2009 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 March 31, 2010 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
Fair Value Measurements |
|
|
Total |
|
Maturity |
|
|
Fair Value |
|
Year 1 |
|
Years 2&3 |
|
Years 4&5 |
|
|
(in millions) |
Level 1 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Level 2 |
|
|
(67 |
) |
|
|
(49 |
) |
|
|
(18 |
) |
|
|
|
|
Level 3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of
contracts
outstanding at end
of period |
|
$ |
(67 |
) |
|
$ |
(49 |
) |
|
$ |
(18 |
) |
|
$ |
|
|
|
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 Note 1 under Financial Instruments
and Note 11 to the financial statements of Alabama Power in Item 8 of the Form 10-K and Note (H) to
the Condensed Financial Statements herein.
Financing Activities
Alabama Power did not issue or redeem any securities during the three months ended March 31, 2010.
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.
44
GEORGIA POWER COMPANY
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
For the Three Months |
|
|
|
Ended March 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(in thousands) |
|
Operating Revenues: |
|
|
|
|
|
|
|
|
Retail revenues |
|
$ |
1,791,574 |
|
|
$ |
1,592,395 |
|
Wholesale revenues, non-affiliates |
|
|
109,624 |
|
|
|
95,986 |
|
Wholesale revenues, affiliates |
|
|
14,411 |
|
|
|
15,210 |
|
Other revenues |
|
|
68,556 |
|
|
|
62,250 |
|
|
|
|
|
|
|
|
Total operating revenues |
|
|
1,984,165 |
|
|
|
1,765,841 |
|
|
|
|
|
|
|
|
Operating Expenses: |
|
|
|
|
|
|
|
|
Fuel |
|
|
757,501 |
|
|
|
600,490 |
|
Purchased power, non-affiliates |
|
|
81,698 |
|
|
|
61,953 |
|
Purchased power, affiliates |
|
|
161,937 |
|
|
|
197,223 |
|
Other operations and maintenance |
|
|
389,281 |
|
|
|
390,493 |
|
Depreciation and amortization |
|
|
114,182 |
|
|
|
167,111 |
|
Taxes other than income taxes |
|
|
80,474 |
|
|
|
76,248 |
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
1,585,073 |
|
|
|
1,493,518 |
|
|
|
|
|
|
|
|
Operating Income |
|
|
399,092 |
|
|
|
272,323 |
|
Other Income and (Expense): |
|
|
|
|
|
|
|
|
Allowance for equity funds used during construction |
|
|
34,732 |
|
|
|
20,754 |
|
Interest income |
|
|
413 |
|
|
|
1,230 |
|
Interest expense, net of amounts capitalized |
|
|
(92,989 |
) |
|
|
(98,390 |
) |
Other income (expense), net |
|
|
(5,548 |
) |
|
|
(6,720 |
) |
|
|
|
|
|
|
|
Total other income and (expense) |
|
|
(63,392 |
) |
|
|
(83,126 |
) |
|
|
|
|
|
|
|
Earnings Before Income Taxes |
|
|
335,700 |
|
|
|
189,197 |
|
Income taxes |
|
|
93,372 |
|
|
|
62,628 |
|
|
|
|
|
|
|
|
Net Income |
|
|
242,328 |
|
|
|
126,569 |
|
Dividends on Preferred and Preference Stock |
|
|
4,345 |
|
|
|
4,345 |
|
|
|
|
|
|
|
|
Net Income After Dividends on Preferred and Preference Stock |
|
$ |
237,983 |
|
|
$ |
122,224 |
|
|
|
|
|
|
|
|
CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
For the Three Months |
|
|
|
Ended March 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(in thousands) |
|
Net Income After Dividends on Preferred and Preference Stock |
|
$ |
237,983 |
|
|
$ |
122,224 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
Qualifying hedges: |
|
|
|
|
|
|
|
|
Changes in fair value, net of tax of $4 and $1,180, respectively |
|
|
8 |
|
|
|
1,870 |
|
Reclassification adjustment for amounts included in net income,
net of tax of $1,798 and $1,743, respectively |
|
|
2,851 |
|
|
|
2,763 |
|
|
|
|
|
|
|
|
Total other comprehensive income (loss) |
|
|
2,859 |
|
|
|
4,633 |
|
|
|
|
|
|
|
|
Comprehensive Income |
|
$ |
240,842 |
|
|
$ |
126,857 |
|
|
|
|
|
|
|
|
The accompanying notes as they relate to Georgia Power are an integral part of these condensed financial statements.
46
GEORGIA POWER COMPANY
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
For the Three Months |
|
|
|
Ended March 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(in thousands) |
|
Operating Activities: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
242,328 |
|
|
$ |
126,569 |
|
Adjustments to reconcile net income
to net cash provided from operating activities |
|
|
|
|
|
|
|
|
Depreciation and amortization, total |
|
|
154,145 |
|
|
|
199,773 |
|
Deferred income taxes |
|
|
59,166 |
|
|
|
(7,130 |
) |
Deferred revenues |
|
|
(17,881 |
) |
|
|
(7,685 |
) |
Deferred expenses |
|
|
25,104 |
|
|
|
26,387 |
|
Allowance for equity funds used during construction |
|
|
(34,732 |
) |
|
|
(20,754 |
) |
Pension, postretirement, and other employee benefits |
|
|
(3,819 |
) |
|
|
(386 |
) |
Stock based compensation expense |
|
|
3,213 |
|
|
|
3,340 |
|
Hedge settlements |
|
|
|
|
|
|
(16,167 |
) |
Insurance cash surrender value |
|
|
|
|
|
|
23,700 |
|
Other, net |
|
|
(23,584 |
) |
|
|
(332 |
) |
Changes in certain current assets and liabilities |
|
|
|
|
|
|
|
|
-Receivables |
|
|
(9,093 |
) |
|
|
13,563 |
|
-Fossil fuel stock |
|
|
80,926 |
|
|
|
(112,255 |
) |
-Materials and supplies |
|
|
1,195 |
|
|
|
(5,065 |
) |
-Prepaid income taxes |
|
|
22,861 |
|
|
|
(5,139 |
) |
-Other current assets |
|
|
(7,675 |
) |
|
|
9,627 |
|
-Accounts payable |
|
|
(16,825 |
) |
|
|
174,347 |
|
-Accrued taxes |
|
|
(184,654 |
) |
|
|
(135,100 |
) |
-Accrued compensation |
|
|
(7,408 |
) |
|
|
(96,144 |
) |
-Other current liabilities |
|
|
43,485 |
|
|
|
61,917 |
|
|
|
|
|
|
|
|
Net cash provided from operating activities |
|
|
326,752 |
|
|
|
233,066 |
|
|
|
|
|
|
|
|
Investing Activities: |
|
|
|
|
|
|
|
|
Property additions |
|
|
(625,060 |
) |
|
|
(640,486 |
) |
Distribution of restricted cash from pollution control revenue bonds |
|
|
|
|
|
|
9,305 |
|
Nuclear decommissioning trust fund purchases |
|
|
(198,816 |
) |
|
|
(318,732 |
) |
Nuclear decommissioning trust fund sales |
|
|
149,959 |
|
|
|
320,681 |
|
Nuclear decommissioning trust securities lending collateral |
|
|
45,395 |
|
|
|
(5,411 |
) |
Cost of removal, net of salvage |
|
|
(14,115 |
) |
|
|
(16,368 |
) |
Change in construction payables, net of joint owner portion |
|
|
41,491 |
|
|
|
55,767 |
|
Other investing activities |
|
|
5,072 |
|
|
|
19,536 |
|
|
|
|
|
|
|
|
Net cash used for investing activities |
|
|
(596,074 |
) |
|
|
(575,708 |
) |
|
|
|
|
|
|
|
Financing Activities: |
|
|
|
|
|
|
|
|
Decrease in notes payable, net |
|
|
(80,879 |
) |
|
|
(76,509 |
) |
Proceeds |
|
|
|
|
|
|
|
|
Capital contributions from parent company |
|
|
460,202 |
|
|
|
280,016 |
|
Senior notes issuances |
|
|
350,000 |
|
|
|
500,000 |
|
Other long-term debt issuances |
|
|
|
|
|
|
750 |
|
Redemptions |
|
|
|
|
|
|
|
|
Senior notes |
|
|
(250,420 |
) |
|
|
(150,361 |
) |
Payment of preferred and preference stock dividends |
|
|
(4,348 |
) |
|
|
(4,413 |
) |
Payment of common stock dividends |
|
|
(205,000 |
) |
|
|
(184,725 |
) |
Other financing activities |
|
|
(1,883 |
) |
|
|
(7,554 |
) |
|
|
|
|
|
|
|
Net cash provided from financing activities |
|
|
267,672 |
|
|
|
357,204 |
|
|
|
|
|
|
|
|
Net Change in Cash and Cash Equivalents |
|
|
(1,650 |
) |
|
|
14,562 |
|
Cash and Cash Equivalents at Beginning of Period |
|
|
14,309 |
|
|
|
132,739 |
|
|
|
|
|
|
|
|
Cash and Cash Equivalents at End of Period |
|
$ |
12,659 |
|
|
$ |
147,301 |
|
|
|
|
|
|
|
|
Supplemental Cash Flow Information: |
|
|
|
|
|
|
|
|
Cash paid during the period for |
|
|
|
|
|
|
|
|
Interest (net of $13,176 and $9,143 capitalized for 2010 and 2009, respectively) |
|
$ |
62,182 |
|
|
$ |
60,905 |
|
Income taxes (net of refunds) |
|
$ |
(6,197 |
) |
|
$ |
13,330 |
|
The accompanying notes as they relate to Georgia Power are an integral part of these condensed financial statements.
47
GEORGIA POWER COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
At March 31, |
|
|
At December 31, |
|
Assets |
|
2010 |
|
|
2009 |
|
|
|
(in thousands) |
|
Current Assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
12,659 |
|
|
$ |
14,309 |
|
Receivables |
|
|
|
|
|
|
|
|
Customer accounts receivable |
|
|
496,449 |
|
|
|
486,885 |
|
Unbilled revenues |
|
|
149,417 |
|
|
|
172,035 |
|
Under recovered regulatory clause revenues |
|
|
185,899 |
|
|
|
291,837 |
|
Joint owner accounts receivable |
|
|
166,609 |
|
|
|
146,932 |
|
Other accounts and notes receivable |
|
|
47,141 |
|
|
|
62,758 |
|
Affiliated companies |
|
|
17,799 |
|
|
|
11,775 |
|
Accumulated provision for uncollectible accounts |
|
|
(9,835 |
) |
|
|
(9,856 |
) |
Fossil fuel stock, at average cost |
|
|
645,340 |
|
|
|
726,266 |
|
Materials and supplies, at average cost |
|
|
361,347 |
|
|
|
362,803 |
|
Vacation pay |
|
|
74,291 |
|
|
|
74,566 |
|
Prepaid income taxes |
|
|
73,759 |
|
|
|
132,668 |
|
Other regulatory assets, current |
|
|
100,870 |
|
|
|
76,634 |
|
Other current assets |
|
|
42,224 |
|
|
|
62,651 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
2,363,969 |
|
|
|
2,612,263 |
|
|
|
|
|
|
|
|
Property, Plant, and Equipment: |
|
|
|
|
|
|
|
|
In service |
|
|
25,567,541 |
|
|
|
25,120,034 |
|
Less accumulated provision for depreciation |
|
|
9,607,484 |
|
|
|
9,493,068 |
|
|
|
|
|
|
|
|
Plant in service, net of depreciation |
|
|
15,960,057 |
|
|
|
15,626,966 |
|
Nuclear fuel, at amortized cost |
|
|
390,228 |
|
|
|
339,810 |
|
Construction work in progress |
|
|
2,619,903 |
|
|
|
2,521,091 |
|
|
|
|
|
|
|
|
Total property, plant, and equipment |
|
|
18,970,188 |
|
|
|
18,487,867 |
|
|
|
|
|
|
|
|
Other Property and Investments: |
|
|
|
|
|
|
|
|
Equity investments in unconsolidated subsidiaries |
|
|
67,452 |
|
|
|
66,106 |
|
Nuclear decommissioning trusts, at fair value |
|
|
653,931 |
|
|
|
580,322 |
|
Miscellaneous property and investments |
|
|
38,397 |
|
|
|
38,516 |
|
|
|
|
|
|
|
|
Total other property and investments |
|
|
759,780 |
|
|
|
684,944 |
|
|
|
|
|
|
|
|
Deferred Charges and Other Assets: |
|
|
|
|
|
|
|
|
Deferred charges related to income taxes |
|
|
664,831 |
|
|
|
608,851 |
|
Deferred under recovered regulatory clause revenues |
|
|
501,165 |
|
|
|
373,245 |
|
Other regulatory assets, deferred |
|
|
1,343,252 |
|
|
|
1,321,904 |
|
Other deferred charges and assets |
|
|
199,561 |
|
|
|
205,492 |
|
|
|
|
|
|
|
|
Total deferred charges and other assets |
|
|
2,708,809 |
|
|
|
2,509,492 |
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
24,802,746 |
|
|
$ |
24,294,566 |
|
|
|
|
|
|
|
|
The accompanying notes as they relate to Georgia Power are an integral part of these condensed financial statements.
48
GEORGIA POWER COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
At March 31, |
|
|
At December 31, |
|
Liabilities and Stockholders Equity |
|
2010 |
|
|
2009 |
|
|
|
(in thousands) |
|
Current Liabilities: |
|
|
|
|
|
|
|
|
Securities due within one year |
|
$ |
103,819 |
|
|
$ |
253,882 |
|
Notes payable |
|
|
243,079 |
|
|
|
323,958 |
|
Accounts payable |
|
|
|
|
|
|
|
|
Affiliated |
|
|
247,428 |
|
|
|
238,599 |
|
Other |
|
|
629,714 |
|
|
|
602,003 |
|
Customer deposits |
|
|
204,640 |
|
|
|
200,103 |
|
Accrued taxes |
|
|
|
|
|
|
|
|
Accrued income taxes |
|
|
26,270 |
|
|
|
548 |
|
Unrecognized tax benefits |
|
|
158,210 |
|
|
|
164,863 |
|
Other accrued taxes |
|
|
99,088 |
|
|
|
290,174 |
|
Accrued interest |
|
|
113,787 |
|
|
|
89,228 |
|
Accrued vacation pay |
|
|
55,098 |
|
|
|
57,662 |
|
Accrued compensation |
|
|
37,344 |
|
|
|
42,756 |
|
Liabilities from risk management activities |
|
|
72,074 |
|
|
|
49,788 |
|
Other cost of removal obligations, current |
|
|
162,000 |
|
|
|
216,000 |
|
Other regulatory liabilities, current |
|
|
74,985 |
|
|
|
99,807 |
|
Other current liabilities |
|
|
148,299 |
|
|
|
84,319 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
2,375,835 |
|
|
|
2,713,690 |
|
|
|
|
|
|
|
|
Long-term Debt |
|
|
8,029,859 |
|
|
|
7,782,340 |
|
|
|
|
|
|
|
|
Deferred Credits and Other Liabilities: |
|
|
|
|
|
|
|
|
Accumulated deferred income taxes |
|
|
3,464,872 |
|
|
|
3,389,907 |
|
Deferred credits related to income taxes |
|
|
132,419 |
|
|
|
133,683 |
|
Accumulated deferred investment tax credits |
|
|
239,186 |
|
|
|
242,496 |
|
Employee benefit obligations |
|
|
921,235 |
|
|
|
923,177 |
|
Asset retirement obligations |
|
|
686,912 |
|
|
|
676,705 |
|
Other cost of removal obligations |
|
|
118,037 |
|
|
|
124,662 |
|
Other deferred credits and liabilities |
|
|
165,310 |
|
|
|
139,024 |
|
|
|
|
|
|
|
|
Total deferred credits and other liabilities |
|
|
5,727,971 |
|
|
|
5,629,654 |
|
|
|
|
|
|
|
|
Total Liabilities |
|
|
16,133,665 |
|
|
|
16,125,684 |
|
|
|
|
|
|
|
|
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 |
|
|
5,056,707 |
|
|
|
4,592,350 |
|
Retained earnings |
|
|
2,965,917 |
|
|
|
2,932,934 |
|
Accumulated other comprehensive loss |
|
|
(17,973 |
) |
|
|
(20,832 |
) |
|
|
|
|
|
|
|
Total common stockholders equity |
|
|
8,403,124 |
|
|
|
7,902,925 |
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders Equity |
|
$ |
24,802,746 |
|
|
$ |
24,294,566 |
|
|
|
|
|
|
|
|
The accompanying notes as they relate to Georgia Power are an integral part of these condensed financial statements.
49
GEORGIA POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FIRST QUARTER 2010 vs. FIRST QUARTER 2009
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 given the effects of the recession, 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, and fuel
prices. Georgia Power is currently constructing two new nuclear and three new combined cycle
generating units. Appropriately balancing required costs and capital expenditures 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 March 11, 2010, the Georgia PSC
approved Georgia Powers request to increase its fuel cost recovery rate effective April 1, 2010.
Georgia Power is required to file its next fuel cost recovery case by March 1, 2011.
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
|
|
|
First Quarter 2010 vs. First Quarter 2009 |
(change in millions) |
|
(% change) |
$115.8
|
|
94.7 |
|
Georgia Powers net income after dividends on preferred and preference stock for the first quarter
2010 was $238.0 million compared to $122.2 million for the corresponding period in 2009. The
increase was primarily due to higher residential base revenues resulting from the significantly
colder weather in the first quarter 2010 and the amortization of the regulatory liability related
to other cost of removal obligations as authorized by the Georgia PSC.
Retail Revenues
|
|
|
First Quarter 2010 vs. First Quarter 2009 |
(change in millions) |
|
(% change) |
$199.2
|
|
12.5 |
|
In the first quarter 2010, retail revenues were $1.8 billion compared to $1.6 billion for the
corresponding period in 2009.
50
GEORGIA POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Details of the change to retail revenues are as follows:
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
|
2010 |
|
|
(in millions) |
|
(% change) |
Retail prior year |
|
$ |
1,592.4 |
|
|
|
|
|
Estimated
change in |
|
|
|
|
|
|
|
|
Rates and pricing |
|
|
(2.5 |
) |
|
|
(0.2 |
) |
Sales growth (decline) |
|
|
13.9 |
|
|
|
0.9 |
|
Weather |
|
|
48.0 |
|
|
|
3.0 |
|
Fuel cost recovery |
|
|
139.8 |
|
|
|
8.8 |
|
|
Retail current year |
|
$ |
1,791.6 |
|
|
|
12.5 |
% |
|
Revenues associated with changes in rates and pricing decreased in the first quarter 2010 when
compared to the corresponding period in 2009 due to lower contributions from market-driven rates
for sales to industrial customers, partially offset by increased environmental compliance cost
recovery revenues in accordance with the 2007 Retail Rate Plan.
Revenues attributable to changes in sales increased in the first quarter 2010 when compared to the
corresponding period in 2009 representing signs of economic recovery in Georgia Powers sales
territory. Weather-adjusted residential KWH sales increased 1.2%, weather-adjusted commercial KWH
sales increased 0.9%, and weather-adjusted industrial KWH sales increased 4.6% in the first quarter
2010 when compared to the corresponding period in 2009.
Revenues resulting from changes in weather increased in the first quarter 2010 when compared to the
corresponding period in 2009 due to significantly colder weather in the first quarter 2010.
Fuel revenues and costs are allocated between retail and wholesale jurisdictions. Retail fuel cost
recovery revenues increased by $139.8 million in the first quarter of 2010 when compared to the
corresponding period in 2009 due to increased KWH sales and higher fuel costs.
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
|
|
|
First Quarter 2010 vs. First Quarter 2009 |
(change in millions) |
|
(% change) |
$13.6
|
|
14.2 |
|
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.
In the first quarter 2010, wholesale revenues from non-affiliates were $109.6 million compared to
$96.0 million in the corresponding period in 2009. This increase was due to a 6.4% increase in KWH
sales due to higher demand primarily resulting from significantly colder weather in the first
quarter 2010.
51
GEORGIA POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Other Revenues
|
|
|
First Quarter 2010 vs. First Quarter 2009 |
(change in millions) |
|
(% change) |
$6.3
|
|
10.1 |
|
In the first quarter 2010, other revenues were $68.6 million compared to $62.3 million in the
corresponding period in 2009. This increase was due to a $2.8 million increase in transmission
revenues due to the increased usage of Georgia Powers transmission system by non-affiliated
companies and for work performed for the other owners of the integrated transmission system, a $1.3
million increase in pole attachment and equipment rentals revenue, and a $1.5 million increase from
customer fees.
Fuel and Purchased Power Expenses
|
|
|
|
|
|
|
|
|
|
|
First Quarter 2010 |
|
|
vs. |
|
|
First Quarter 2009 |
|
|
(change in millions) |
|
(% change) |
Fuel* |
|
$ |
157.0 |
|
|
|
26.1 |
|
Purchased
power non-affiliates |
|
|
19.7 |
|
|
|
31.9 |
|
Purchased
power affiliates |
|
|
(35.3 |
) |
|
|
(17.9 |
) |
|
|
|
|
|
Total fuel and purchased power expenses |
|
$ |
141.4 |
|
|
|
|
|
|
|
|
|
|
* |
|
Fuel includes fuel purchased by Georgia Power for tolling agreements where power is
generated by the provider and is included in purchased power when determining the average cost of purchased power. |
In the first quarter 2010, total fuel and purchased power expenses were $1.0 billion compared to
$859.7 million in the corresponding period in 2009. The increase was due to a $44.3 million
increase related to higher KWHs generated primarily due to higher customer demand as a result of
significantly colder weather and a $97.1 million increase in the average cost of fuel.
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 Georgia PSC Matters Retail Fuel Cost Recovery herein for
additional information.
Details of Georgia Powers cost of generation and purchased power are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
First Quarter |
|
Percent |
Average Cost |
|
2010 |
|
2009 |
|
Change |
|
|
(cents per net KWH) |
|
|
|
|
Fuel |
|
|
3.78 |
|
|
|
3.23 |
|
|
|
17.0 |
|
Purchased power |
|
|
6.36 |
|
|
|
6.40 |
|
|
|
(0.6 |
) |
|
In the first quarter 2010, fuel expense was $757.5 million compared to $600.5 million in the
corresponding period in 2009. This increase was due to a 17.0% increase in the average cost of
fuel per KWH generated and a 10.3% increase of KWHs generated as a result of higher KWH demand.
Non-Affiliates
In the first quarter 2010, purchased power expense from non-affiliates was $81.7 million compared
to $62.0 million in the corresponding period in 2009. This increase was due to a 39.2% increase in
the average cost per KWH purchased reflecting additional tolling agreements associated with PPAs
that went into effect in June 2009 and a 0.4% increase in the volume of KWHs purchased.
52
GEORGIA POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Energy purchases from non-affiliates will vary depending on the market cost of available energy
compared to 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 first quarter 2010, purchased power expense from affiliates was $161.9 million compared to
$197.2 million in the corresponding period in 2009. This decrease was due to a 10.3% decrease in
the average cost per KWH purchased following the expiration of a PPA in December 2009 and a 3.9%
decrease in the volume of KWHs purchased.
Energy purchases from affiliated companies 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 or other contractual agreements, as approved by the FERC.
Other Operations and Maintenance Expenses
|
|
|
First Quarter 2010 vs. First Quarter 2009 |
(change in millions) |
|
(% change) |
$(1.2)
|
|
(0.3) |
|
In the first quarter 2010, other operations and maintenance expenses were $389.3 million compared
to $390.5 million in the corresponding period in 2009. This decrease was due to 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 and a $3.6 million decrease in
uncollectible account expense in 2010, partially offset by increases of $16.8 million in power
generation, $5.5 million in transmission and distribution, and $7.5 million in other administrative
and general expenses due to cost containment in 2009.
Depreciation and Amortization
|
|
|
First Quarter 2010 vs. First Quarter 2009 |
(change in millions) |
|
(% change) |
$(52.9)
|
|
(31.7) |
|
In the first quarter 2010, depreciation and amortization was $114.2 million compared to $167.1
million in the corresponding period in 2009. This decrease was due to the amortization of $60.3
million of the regulatory liability related to other cost of removal obligations as authorized by
the Georgia PSC, partially offset by depreciation on additional plant in service related to
transmission, distribution, and environmental projects. See Note 3 to the financial statements of
Georgia Power under Retail Regulatory Matters Rate Plans in Item 8 of the Form 10-K for
additional information on the other cost of removal regulatory liability, which became effective in
July 2009.
Taxes Other Than Income Taxes
|
|
|
First Quarter 2010 vs. First Quarter 2009 |
(change in millions) |
|
(% change) |
$4.3
|
|
5.5 |
|
In the first quarter 2010, taxes other than income taxes were $80.5 million compared to $76.2
million in the corresponding period in 2009. This increase was due to higher municipal franchise
fees resulting from retail revenue increases during the first quarter 2010.
53
GEORGIA POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Allowance for Funds Used During Construction
|
|
|
First Quarter 2010 vs. First Quarter 2009 |
(change in millions) |
|
(% change) |
$13.9
|
|
67.4 |
|
In the first quarter 2010, AFUDC equity was $34.7 million compared to $20.8 million in the
corresponding period in 2009. This increase was due to the increase in construction work in
progress balances related to three new combined cycle generating units at Plant McDonough, two new
nuclear generating units at Plant Vogtle, and ongoing environmental and transmission projects.
Income Taxes
|
|
|
First Quarter 2010 vs. First Quarter 2009 |
(change in millions) |
|
(% change) |
$30.8
|
|
49.1 |
|
In the first quarter 2010, income taxes were $93.4 million compared to $62.6 million in the
corresponding period in 2009. This increase was due to higher pre-tax earnings partially offset by
a decrease in uncertain tax positions of $16.0 million related to state income tax credits that
remain subject to litigation. See FUTURE EARNINGS POTENTIAL Income Tax Matters herein and
Notes 3 and 5 to the financial statements of Georgia Power under Income Tax Matters and
Unrecognized Tax Benefits, respectively, in Item 8 of the Form 10-K and Notes (B) and (G) to the
Condensed Financial Statements herein under Income Tax Matters
Georgia State Income Tax Credits
and Unrecognized Tax Benefits, respectively, for additional information.
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 all 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. Recessionary conditions have impacted sales; the timing and extent
of the economic recovery will impact growth and may 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.
54
GEORGIA POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Carbon Dioxide Litigation
New York Case
See MANAGEMENTS DISCUSSION AND ANALYSIS FUTURE EARNINGS POTENTIAL Environmental Matters -
Carbon Dioxide Litigation New York Case of Georgia Power in Item 7 and Note 3 to the financial
statements of Georgia Power under Environmental Matters Carbon Dioxide Litigation New York
Case in Item 8 of the Form 10-K for additional information regarding carbon dioxide litigation.
The U.S. Court of Appeals for the Second Circuit denied the defendants petition for rehearing en
banc on March 5, 2010 and granted the defendants request to stay the mandate to allow the
defendants to file a petition for writ of certiorari with the U.S. Supreme Court on March 16, 2010.
The ultimate outcome of these matters cannot be determined at this time.
Other Litigation
See MANAGEMENTS DISCUSSION AND ANALYSIS FUTURE EARNINGS POTENTIAL Environmental Matters -
Carbon Dioxide Litigation Other Litigation of Georgia Power in Item 7 and Note 3 to the
financial statements of Georgia Power under Environmental Matters Carbon Dioxide Litigation -
Other Litigation in Item 8 of the Form 10-K for additional information regarding carbon dioxide
litigation related to Hurricane Katrina. On February 26, 2010, the U.S. Court of Appeals for the
Fifth Circuit granted the defendants petition for rehearing en banc. The ultimate outcome of this
matter cannot be determined at this time.
Air Quality
See MANAGEMENTS DISCUSSION AND ANALYSIS FUTURE EARNINGS POTENTIAL Environmental Matters -
Environmental Statutes and Regulations Air Quality of Georgia Power in Item 7 of the Form 10-K
for information regarding the Industrial Boiler Maximum Achievable Control Technology regulations.
On April 29, 2010, the EPA issued a proposed rule that would establish emissions limits for various
hazardous air pollutants typically emitted from industrial boilers, including biomass boilers. The
EPA is required to finalize the rules by December 16, 2010. The impact of these proposed
regulations will depend on their final form and any legal challenges, and cannot be determined at
this time.
Coal Combustion Byproducts
See MANAGEMENTS DISCUSSION AND ANALYSIS FUTURE EARNINGS POTENTIAL Environmental Matters -
Environmental Statutes and Regulations Coal Combustion Byproducts of Georgia Power in Item 7 of
the Form 10-K for information regarding potential additional regulation of coal combustion
byproducts. On May 4, 2010, the EPA issued a proposal requesting comments on two potential
regulatory options for management and disposal of coal combustion byproducts,
either of which could require conversion of existing storage
units to lined landfills with additional waste management and groundwater monitoring
requirements. Under both options, the EPA proposes to exempt the beneficial reuse of coal
combustion byproducts from regulation. The outcome of these proposed regulations will depend on
their final form and any legal challenges, and cannot be determined at this time. However,
additional regulation of coal combustion byproducts could have a significant impact on Georgia Powers
management, beneficial use, and disposal of such byproducts and
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.
55
GEORGIA POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 and other emissions. On April
1, 2010, the EPA issued a final rule regulating greenhouse gas emissions from new motor vehicles
under the Clean Air Act. The EPA has stated that, once this rule becomes effective on January 2,
2011, carbon dioxide and other greenhouse gases will become regulated pollutants under the
Prevention of Significant Deterioration (PSD) preconstruction permit program and the Title V
operating permit program, which both apply to power plants. As a result, the construction of new
facilities or the major modification of existing facilities could trigger the requirement for a PSD
permit and the installation of the best available control technology for carbon dioxide and other
greenhouse gases. The EPA also published a proposed rule governing how these programs would be
applied to stationary sources, including power plants, in October 2009. The EPA is expected to
finalize this proposed rule during 2010. The ultimate outcome of these proposed and final rules
cannot be determined at this time and will depend on additional regulatory action and any legal
challenges.
Georgia PSC Matters
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. As of March 31, 2010, Georgia Power had a total under recovered fuel cost balance of
approximately $687 million compared to $665 million at December 31, 2009. 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.
On March 11, 2010, the Georgia PSC voted to approve the stipulation among Georgia Power, the
Georgia PSC Public Interest Advocacy Staff, and three customer groups with the exception that the
under recovered fuel balance be collected over 42 months. The new rates, which became effective
April 1, 2010, will result in an increase of approximately $373 million to Georgia Powers total
annual fuel cost recovery billings. Georgia Power is required to file its next fuel case by March
1, 2011.
Legislation
See MANAGEMENTS DISCUSSION AND ANALYSIS FUTURE EARNINGS POTENTIAL Legislation of Georgia
Power in Item 7 of the Form 10-K for additional information.
On March 23, 2010, the Patient Protection and Affordable Care Act (PPACA) was signed into law and,
on March 30, 2010, the Health Care and Education Reconciliation Act of 2010 (HCERA and, together
with PPACA, the Acts), which makes various amendments to certain aspects of the PPACA, was signed
into law. The Acts effectively change the tax treatment of federal subsidies paid to sponsors of
retiree health benefit plans that provide prescription drug benefits that are at least actuarially
equivalent to the corresponding benefits provided under Medicare Part D. The federal subsidy paid
to employers was introduced as part of the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003 (MPDIMA). Since the 2006 tax year, Georgia Power has been receiving the
federal subsidy related to certain retiree prescription drug plans that were determined to be
actuarially equivalent to the benefit provided under Medicare Part D. Under the MPDIMA, the
federal subsidy does not reduce an employers income tax deduction for the costs of providing such
prescription drug plans nor is it subject to income tax individually. Under the Acts, beginning in
2013, an employers income tax deduction for the costs of providing Medicare Part D-equivalent
prescription drug benefits to retirees will be reduced by the amount of the federal subsidy. Under
GAAP, any impact from a change in tax law must be recognized in the period enacted regardless of
the effective date; however, as a result of state regulatory treatment, this
56
GEORGIA POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
change had no material impact on the financial statements of Georgia Power. Southern Company is in
the process of assessing the extent to which the legislation may affect its future health care and
related employee benefit plan costs. Any future impact on the financial statements of Georgia Power
cannot be determined at this time.
On April 28, 2010, Southern Company signed a Smart Grid Investment Grant agreement with the DOE,
formally accepting a $165 million grant under the American Recovery and Reinvestment Act of 2009.
This funding will be used for transmission and distribution
automation and modernization projects. Georgia Power will receive, and will match, $51 million under this
agreement.
Income Tax Matters
Georgia State Income Tax Credits
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 had 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. On March 22, 2010, the Superior
Court of Fulton County ruled in favor of Georgia Powers motion for summary judgment. On April 30,
2010, the Georgia Department of Revenue filed its notice of appeal with the Georgia Court of
Appeals. 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 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 Georgia Powers cash flow. See Note
5 to the financial statements of Georgia Power under Unrecognized Tax Benefits in Item 8 of the
Form 10-K and Note (G) to the Condensed Financial Statements herein for additional information.
The ultimate outcome of this matter cannot now be determined.
Construction
Nuclear
See MANAGEMENTS DISCUSSION AND ANALYSIS FUTURE EARNINGS POTENTIAL Construction Nuclear of
Georgia Power in Item 7 of the Form 10-K for information regarding the potential expansion of Plant
Vogtle.
In June 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 Financing Act. On May 5, 2010, the court dismissed as
premature the plaintiffs claim challenging the Georgia Nuclear Energy Financing Act. The
dismissal of the claim related to the Georgia Nuclear Energy Financing Act is subject to appeal and
the plaintiffs are expected to re-file this claim in the future. In addition, on May 5, 2010, the
court issued an order remanding the Georgia PSCs certification order for inclusion of further
findings of fact and conclusions of law by the Georgia PSC. A remand for further findings of fact
and conclusions of law is a procedural step that does not vacate or otherwise affect the effectiveness of the Georgia
PSCs certification order or the ultimate conclusion of the Georgia PSC in certifying the
construction of Plant Vogtle Units 3
and 4.
In August 2009, the NRC issued letters to Westinghouse revising the review schedules needed to
certify the AP1000 standard design for new reactors and expressing concerns related to the
availability of adequate information and the shield building design. The shield building protects
the containment and provides structural support to the containment cooling water supply. Georgia
Power is continuing to work with Westinghouse and the NRC to resolve these concerns. Any possible
delays in the AP1000 design certification schedule, including those addressed by the NRC in their
letters, are not currently expected to affect the projected commercial operation dates for Plant
Vogtle Units 3 and 4.
There are pending technical and procedural challenges to the construction and licensing of Plant
Vogtle Units 3 and 4.
57
GEORGIA POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Similar additional challenges at the state and federal level are expected as
construction proceeds.
The ultimate outcome of these matters cannot be determined at this time.
Other Construction
In August 2009, Georgia Power filed its quarterly construction monitoring report for Plant
McDonough Units 4, 5, and 6 for the quarter ended June 30, 2009. In September 2009, Georgia Power
amended the report. As amended, the report includes a request for an increase in the certified
costs to construct Plant McDonough. On February 24, 2010, Georgia Power reached a stipulation
agreement with the Georgia PSC staff that was approved by the Georgia PSC on March 16, 2010. The
stipulation resolves the June 30, 2009 construction monitoring report, including the approval of
actual expenditures and the requested increase in the certified amount.
On May 6, 2010, the Georgia PSC approved Georgia Powers request to
extend the construction schedule for Plant McDonough
Units 4, 5, and 6 as a result of the short-term reduction in forecasted demand.
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, such as regulation of air emissions and water discharges. 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 and other claims for damages caused by alleged exposure to hazardous materials, and
common law nuisance claims for injunctive relief and property damage allegedly caused by greenhouse
gas and other emissions, 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.
The extent of coastal contamination resulting from the oil spill that began in April 2010 in the Gulf of
Mexico has potential impacts on certain steam plant operations as well as potential significant
economic impacts on the affected areas within Southern Companys service territory. The ultimate
impact of this matter cannot be determined at this time.
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.
58
GEORGIA POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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, Unbilled Revenues, and Pension and Other Postretirement Benefits.
FINANCIAL CONDITION AND LIQUIDITY
Overview
Georgia Powers financial condition remained stable at March 31, 2010. 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. See Sources of Capital and
Financing Activities herein for additional information.
Net cash provided from operating activities totaled $326.8 million for the first three months of
2010, compared to $233.1 million for the corresponding period in 2009. The $93.7 million increase
in cash provided from operating activities in the first three months of 2010 is primarily due to a
$115.8 million increase in net income. Net cash used for investing activities totaled $596.1
million primarily due to gross property additions to utility plant in the first three months of
2010. Net cash provided from financing activities totaled $267.7 million for the first three
months of 2010, compared to $357.2 million for the corresponding period in 2009. The $89.5 million
decrease is primarily due to higher issuances of senior notes in the first quarter 2009, partially
offset by higher capital contributions from Southern Company in the first quarter 2010.
Significant balance sheet changes for the first three months of 2010 include an increase of $482.3
million in total property, plant, and equipment, an increase of $247.5 million in long-term debt to
replace short-term debt and provide funds for Georgia Powers continuous construction program, and
an increase in paid in capital of $464.4 million reflecting equity contributions from Southern
Company.
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 $103.8 million will be required through March 31, 2011 to
fund 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; Georgia PSC approvals; changes in legislation;
the cost and efficiency of construction labor, equipment, and materials; project scope and design
changes; and the cost of capital. In addition, there can be no assurance that costs related to
capital expenditures will be fully recovered.
59
GEORGIA POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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.
In addition, on February 16, 2010, the DOE offered Georgia Power a conditional commitment for
federal loan guarantees that would apply to future Georgia Power borrowings related to two
additional nuclear units on the site of Plant Vogtle (Plant Vogtle Units 3 and 4). Any borrowings
guaranteed by the DOE would be full recourse to Georgia Power and secured by a first priority lien
on Georgia Powers 45.7% undivided ownership interest in Plant Vogtle Units 3 and 4. Total
guaranteed borrowings would not exceed 70% of eligible project costs, or approximately $3.4
billion, and are expected to be funded by the Federal Financing Bank. Georgia Power has 90 days to
accept the conditional commitment. Georgia Power will work with the DOE to finalize loan
guarantees. Final approval and issuance of loan guarantees by the DOE are subject to receipt of
the combined construction and operating license for Plant Vogtle Units 3 and 4 from the NRC,
negotiation of definitive agreements, completion of due diligence by the DOE, receipt of any
necessary regulatory approvals, and satisfaction of other conditions. There can be no assurance
that the DOE will issue loan guarantees for Georgia Power.
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 March 31, 2010 approximately $12.7
million of cash and cash equivalents and approximately $1.7 billion of unused committed credit
arrangements with banks. As of March 31, 2010, of the unused credit arrangements, $465 million
expire in 2010, $130 million expire in 2011, and $1.1 billion expire in 2012. Of the credit
arrangements that expire in 2010 and 2011, $40 million contain provisions allowing two-year term
loans executable at expiration and $95 million contain provisions allowing one-year term loans
executable at expiration. Georgia Power expects to renew its credit arrangements, as needed, prior
to expiration. At March 31, 2010, the credit arrangements were dedicated to providing liquidity
support to Georgia Powers commercial paper program and approximately $901 million of purchase
obligations related to variable rate pollution control revenue bonds. Subsequent to March 31,
2010, Georgia Power renewed existing credit arrangements totaling $425 million and extended the
expiration dates to 2011. Of these facilities, $125 million contain provisions allowing one-year
term loans executable at expiration. See Note 6 to the financial statements of 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. Georgia 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 Georgia Power and other Southern Company
subsidiaries. At March 31, 2010, Georgia Power had approximately $243 million of commercial paper
borrowings 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 March 31, 2010, the maximum potential
collateral requirements under these contracts at a BBB- and/or Baa3 rating were approximately $29
million. At March 31, 2010, the maximum potential collateral requirements under these contracts at
a rating below BBB- and/or Baa3 were
60
GEORGIA POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
approximately $1.2 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. 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.
On January 22, 2010, Fitch applied new guidelines regarding the ratings of various hybrid capital
instruments and preferred securities of companies in all sectors, including banks, insurers,
non-bank financial institutions, and non-financial corporate entities, including utilities. As a
result, the Fitch ratings of Georgia Powers preferred stock, preference stock, and long-term debt
payable to affiliated trusts decreased from A to A-. These ratings are not applicable to the
collateral requirements described above.
Market Price Risk
Georgia Powers market risk exposure relative to interest rate changes for the first quarter 2010
has not changed materially compared with the December 31, 2009 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 had no material change in market risk exposure for the
first quarter 2010 relative to fuel and electricity prices when compared with the December 31, 2009
reporting period.
The changes in fair value of energy-related derivative contracts, the majority of which are
composed of regulatory hedges, for the three months ended March 31, 2010 were as follows:
|
|
|
|
|
|
|
First Quarter |
|
|
2010 |
|
|
Changes |
|
|
Fair Value |
|
|
(in millions) |
Contracts outstanding at the beginning of the period, assets (liabilities), net |
|
$ |
(75 |
) |
Contracts realized or settled |
|
|
19 |
|
Current period changes(a) |
|
|
(69 |
) |
|
Contracts outstanding at the end of the period, assets (liabilities), net |
|
$ |
(125 |
) |
|
(a) |
|
Current period changes also include the changes in fair value of new contracts entered into during the period, if any. |
The change in the fair value positions of the energy-related derivative contracts for the three
months ended March 31, 2010 was a decrease of $50 million, substantially all of which is due to
natural gas positions. The change is attributable to both the volume and prices of natural gas.
At March 31, 2010, Georgia Power had a net hedge volume of 68 million mmBtu with a weighted average
contract cost approximately $1.85 per mmBtu above market prices, compared to 65 million mmBtu at
December 31, 2009 with a weighted average contract cost approximately $1.16 per mmBtu above market
prices. The natural gas hedges are recovered through the fuel cost recovery mechanism.
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.
61
GEORGIA POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Unrealized pre-tax gains and losses recognized in income for the three months ended March 31, 2010
and 2009 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 March 31, 2010 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
Fair Value Measurements |
|
|
Total |
|
Maturity |
|
|
Fair Value |
|
Year 1 |
|
Years 2&3 |
|
Years 4&5 |
|
|
(in millions) |
Level 1 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Level 2 |
|
|
(125 |
) |
|
|
(71 |
) |
|
|
(53 |
) |
|
|
(1 |
) |
Level 3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of contracts outstanding at end of period |
|
$ |
(125 |
) |
|
$ |
(71 |
) |
|
$ |
(53 |
) |
|
$ |
(1 |
) |
|
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 Note 1 under Financial Instruments
and Note 11 to the financial statements of Georgia Power in Item 8 of the Form 10-K and Note (H) to
the Condensed Financial Statements herein.
Financing Activities
In the first quarter 2010, Georgia Power issued $350 million aggregate principal amount of Series
2010A Floating Rate Senior Notes due March 15, 2013. The proceeds were used to repay at maturity
$250 million aggregate principal amount of Series 2008A Floating Rate Senior Notes due March 17,
2010, to repay a portion of its outstanding short-term indebtedness, and for general corporate
purposes, including Georgia Powers continuous construction program.
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.
62
GULF POWER COMPANY
CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
For the Three Months |
|
|
|
Ended March 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(in thousands) |
|
Operating Revenues: |
|
|
|
|
|
|
|
|
Retail revenues |
|
$ |
304,750 |
|
|
$ |
238,391 |
|
Wholesale revenues, non-affiliates |
|
|
27,914 |
|
|
|
21,966 |
|
Wholesale revenues, affiliates |
|
|
9,518 |
|
|
|
5,360 |
|
Other revenues |
|
|
14,530 |
|
|
|
18,567 |
|
|
|
|
|
|
|
|
Total operating revenues |
|
|
356,712 |
|
|
|
284,284 |
|
|
|
|
|
|
|
|
Operating Expenses: |
|
|
|
|
|
|
|
|
Fuel |
|
|
152,712 |
|
|
|
115,553 |
|
Purchased power, non-affiliates |
|
|
7,435 |
|
|
|
4,438 |
|
Purchased power, affiliates |
|
|
20,413 |
|
|
|
15,381 |
|
Other operations and maintenance |
|
|
70,418 |
|
|
|
72,491 |
|
Depreciation and amortization |
|
|
28,071 |
|
|
|
23,059 |
|
Taxes other than income taxes |
|
|
25,233 |
|
|
|
22,448 |
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
304,282 |
|
|
|
253,370 |
|
|
|
|
|
|
|
|
Operating Income |
|
|
52,430 |
|
|
|
30,914 |
|
Other Income and (Expense): |
|
|
|
|
|
|
|
|
Allowance for equity funds used during construction |
|
|
1,385 |
|
|
|
4,818 |
|
Interest income |
|
|
17 |
|
|
|
209 |
|
Interest expense, net of amounts capitalized |
|
|
(11,385 |
) |
|
|
(9,832 |
) |
Other income (expense), net |
|
|
(533 |
) |
|
|
(616 |
) |
|
|
|
|
|
|
|
Total other income and (expense) |
|
|
(10,516 |
) |
|
|
(5,421 |
) |
|
|
|
|
|
|
|
Earnings Before Income Taxes |
|
|
41,914 |
|
|
|
25,493 |
|
Income taxes |
|
|
15,063 |
|
|
|
7,400 |
|
|
|
|
|
|
|
|
Net Income |
|
|
26,851 |
|
|
|
18,093 |
|
Dividends on Preference Stock |
|
|
1,551 |
|
|
|
1,551 |
|
|
|
|
|
|
|
|
Net Income After Dividends on Preference Stock |
|
$ |
25,300 |
|
|
$ |
16,542 |
|
|
|
|
|
|
|
|
CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
For the Three Months |
|
|
|
Ended March 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(in thousands) |
|
Net Income After Dividends on Preference Stock |
|
$ |
25,300 |
|
|
$ |
16,542 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
Qualifying hedges: |
|
|
|
|
|
|
|
|
Changes in fair value, net of tax of $(953) and
$-, respectively |
|
|
(1,518 |
) |
|
|
|
|
Reclassification adjustment for amounts included in net
income, net of tax of $105 and $105, respectively |
|
|
166 |
|
|
|
167 |
|
|
|
|
|
|
|
|
Total other comprehensive income (loss) |
|
|
(1,352 |
) |
|
|
167 |
|
|
|
|
|
|
|
|
Comprehensive Income |
|
$ |
23,948 |
|
|
$ |
16,709 |
|
|
|
|
|
|
|
|
The accompanying notes as they relate to Gulf Power are an integral part of these condensed financial statements.
64
GULF POWER COMPANY
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
For the Three Months |
|
|
|
Ended March 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(in thousands) |
|
Operating Activities: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
26,851 |
|
|
$ |
18,093 |
|
Adjustments to reconcile net income
to net cash provided from operating activities |
|
|
|
|
|
|
|
|
Depreciation and amortization, total |
|
|
29,659 |
|
|
|
24,269 |
|
Deferred income taxes |
|
|
2,917 |
|
|
|
(4,022 |
) |
Allowance for equity funds used during construction |
|
|
(1,385 |
) |
|
|
(4,818 |
) |
Pension, postretirement, and other employee benefits |
|
|
550 |
|
|
|
(391 |
) |
Stock based compensation expense |
|
|
623 |
|
|
|
479 |
|
Other, net |
|
|
(520 |
) |
|
|
(5,322 |
) |
Changes in certain current assets and liabilities |
|
|
|
|
|
|
|
|
-Receivables |
|
|
6,150 |
|
|
|
32,887 |
|
-Fossil fuel stock |
|
|
17,419 |
|
|
|
(18,231 |
) |
-Materials and supplies |
|
|
(1,170 |
) |
|
|
(205 |
) |
-Prepaid income taxes |
|
|
4,530 |
|
|
|
416 |
|
-Property damage cost recovery |
|
|
11 |
|
|
|
5,428 |
|
-Other current assets |
|
|
995 |
|
|
|
916 |
|
-Accounts payable |
|
|
(4,443 |
) |
|
|
(13,344 |
) |
-Accrued taxes |
|
|
15,539 |
|
|
|
6,361 |
|
-Accrued compensation |
|
|
(3,462 |
) |
|
|
(11,576 |
) |
-Other current liabilities |
|
|
6,304 |
|
|
|
5,761 |
|
|
|
|
|
|
|
|
Net cash provided from operating activities |
|
|
100,568 |
|
|
|
36,701 |
|
|
|
|
|
|
|
|
Investing Activities: |
|
|
|
|
|
|
|
|
Property additions |
|
|
(81,225 |
) |
|
|
(109,737 |
) |
Investment in restricted cash from pollution control revenue bonds |
|
|
|
|
|
|
(49,188 |
) |
Distribution of restricted cash from pollution control revenue bonds |
|
|
2,340 |
|
|
|
|
|
Cost of removal, net of salvage |
|
|
(5,759 |
) |
|
|
(2,330 |
) |
Construction payables |
|
|
(11,846 |
) |
|
|
2,362 |
|
Payments pursuant to long-term service agreements |
|
|
(699 |
) |
|
|
(1,602 |
) |
Other investing activities |
|
|
(190 |
) |
|
|
24 |
|
|
|
|
|
|
|
|
Net cash used for investing activities |
|
|
(97,379 |
) |
|
|
(160,471 |
) |
|
|
|
|
|
|
|
Financing Activities: |
|
|
|
|
|
|
|
|
Decrease in notes payable, net |
|
|
(6,599 |
) |
|
|
(89,930 |
) |
Proceeds |
|
|
|
|
|
|
|
|
Common stock issued to parent |
|
|
50,000 |
|
|
|
135,000 |
|
Capital contributions from parent company |
|
|
1,128 |
|
|
|
1,106 |
|
Pollution control revenue bonds |
|
|
|
|
|
|
130,400 |
|
Redemptions |
|
|
|
|
|
|
|
|
Senior notes |
|
|
(85 |
) |
|
|
|
|
Payment of preference stock dividends |
|
|
(1,551 |
) |
|
|
(1,551 |
) |
Payment of common stock dividends |
|
|
(26,075 |
) |
|
|
(22,350 |
) |
Other financing activities |
|
|
605 |
|
|
|
(838 |
) |
|
|
|
|
|
|
|
Net cash provided from financing activities |
|
|
17,423 |
|
|
|
151,837 |
|
|
|
|
|
|
|
|
Net Change in Cash and Cash Equivalents |
|
|
20,612 |
|
|
|
28,067 |
|
Cash and Cash Equivalents at Beginning of Period |
|
|
8,677 |
|
|
|
3,443 |
|
|
|
|
|
|
|
|
Cash and Cash Equivalents at End of Period |
|
$ |
29,289 |
|
|
$ |
31,510 |
|
|
|
|
|
|
|
|
Supplemental Cash Flow Information: |
|
|
|
|
|
|
|
|
Cash paid during the period for |
|
|
|
|
|
|
|
|
Interest (net of $552 and $1,920 capitalized for 2010 and
2009, respectively) |
|
$ |
9,461 |
|
|
$ |
8,347 |
|
Income taxes (net of refunds) |
|
$ |
(4,383 |
) |
|
$ |
3,281 |
|
The accompanying notes as they relate to Gulf Power are an integral part of these condensed financial statements.
65
GULF POWER COMPANY
CONDENSED BALANCE SHEETS
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
At March 31, |
|
|
At December 31, |
|
Assets |
|
2010 |
|
|
2009 |
|
|
|
(in thousands) |
|
Current Assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
29,289 |
|
|
$ |
8,677 |
|
Restricted cash and cash equivalents |
|
|
4,006 |
|
|
|
6,347 |
|
Receivables |
|
|
|
|
|
|
|
|
Customer accounts receivable |
|
|
71,847 |
|
|
|
64,257 |
|
Unbilled revenues |
|
|
46,453 |
|
|
|
60,414 |
|
Under recovered regulatory clause revenues |
|
|
11,293 |
|
|
|
4,285 |
|
Other accounts and notes receivable |
|
|
2,105 |
|
|
|
4,107 |
|
Affiliated companies |
|
|
1,260 |
|
|
|
7,503 |
|
Accumulated provision for uncollectible accounts |
|
|
(1,867 |
) |
|
|
(1,913 |
) |
Fossil fuel stock, at average cost |
|
|
166,242 |
|
|
|
183,619 |
|
Materials and supplies, at average cost |
|
|
44,740 |
|
|
|
38,478 |
|
Other regulatory assets, current |
|
|
23,710 |
|
|
|
19,172 |
|
Prepaid expenses |
|
|
10,272 |
|
|
|
44,760 |
|
Other current assets |
|
|
2,936 |
|
|
|
3,634 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
412,286 |
|
|
|
443,340 |
|
|
|
|
|
|
|
|
Property, Plant, and Equipment: |
|
|
|
|
|
|
|
|
In service |
|
|
3,496,308 |
|
|
|
3,430,503 |
|
Less accumulated provision for depreciation |
|
|
1,013,665 |
|
|
|
1,009,807 |
|
|
|
|
|
|
|
|
Plant in service, net of depreciation |
|
|
2,482,643 |
|
|
|
2,420,696 |
|
Construction work in progress |
|
|
178,726 |
|
|
|
159,499 |
|
|
|
|
|
|
|
|
Total property, plant, and equipment |
|
|
2,661,369 |
|
|
|
2,580,195 |
|
|
|
|
|
|
|
|
Other Property and Investments |
|
|
16,115 |
|
|
|
15,923 |
|
|
|
|
|
|
|
|
Deferred Charges and Other Assets: |
|
|
|
|
|
|
|
|
Deferred charges related to income taxes |
|
|
43,353 |
|
|
|
39,018 |
|
Other regulatory assets, deferred |
|
|
202,510 |
|
|
|
190,971 |
|
Other deferred charges and assets |
|
|
22,466 |
|
|
|
24,160 |
|
|
|
|
|
|
|
|
Total deferred charges and other assets |
|
|
268,329 |
|
|
|
254,149 |
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
3,358,099 |
|
|
$ |
3,293,607 |
|
|
|
|
|
|
|
|
The accompanying notes as they relate to Gulf Power are an integral part of these condensed financial statements.
66
GULF POWER COMPANY
CONDENSED BALANCE SHEETS
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
At March 31, |
|
|
At December 31, |
|
Liabilities and Stockholders Equity |
|
2010 |
|
|
2009 |
|
|
|
(in thousands) |
|
Current Liabilities: |
|
|
|
|
|
|
|
|
Securities due within one year |
|
$ |
140,000 |
|
|
$ |
140,000 |
|
Notes payable |
|
|
82,289 |
|
|
|
90,331 |
|
Accounts payable |
|
|
|
|
|
|
|
|
Affiliated |
|
|
44,423 |
|
|
|
47,421 |
|
Other |
|
|
69,713 |
|
|
|
80,184 |
|
Customer deposits |
|
|
33,539 |
|
|
|
32,361 |
|
Accrued taxes |
|
|
|
|
|
|
|
|
Accrued income taxes |
|
|
12,616 |
|
|
|
1,955 |
|
Other accrued taxes |
|
|
12,083 |
|
|
|
7,297 |
|
Accrued interest |
|
|
11,480 |
|
|
|
10,222 |
|
Accrued compensation |
|
|
5,875 |
|
|
|
9,337 |
|
Other regulatory liabilities, current |
|
|
23,654 |
|
|
|
22,416 |
|
Liabilities from risk management activities |
|
|
14,612 |
|
|
|
9,442 |
|
Other current liabilities |
|
|
17,510 |
|
|
|
20,092 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
467,794 |
|
|
|
471,058 |
|
|
|
|
|
|
|
|
Long-term Debt |
|
|
978,939 |
|
|
|
978,914 |
|
|
|
|
|
|
|
|
Deferred Credits and Other Liabilities: |
|
|
|
|
|
|
|
|
Accumulated deferred income taxes |
|
|
303,854 |
|
|
|
297,405 |
|
Accumulated deferred investment tax credits |
|
|
9,266 |
|
|
|
9,652 |
|
Employee benefit obligations |
|
|
108,794 |
|
|
|
109,271 |
|
Other cost of removal obligations |
|
|
190,936 |
|
|
|
191,248 |
|
Other regulatory liabilities, deferred |
|
|
41,216 |
|
|
|
41,399 |
|
Other deferred credits and liabilities |
|
|
105,223 |
|
|
|
92,370 |
|
|
|
|
|
|
|
|
Total deferred credits and other liabilities |
|
|
759,289 |
|
|
|
741,345 |
|
|
|
|
|
|
|
|
Total Liabilities |
|
|
2,206,022 |
|
|
|
2,191,317 |
|
|
|
|
|
|
|
|
Preference Stock |
|
|
97,998 |
|
|
|
97,998 |
|
|
|
|
|
|
|
|
Common Stockholders Equity: |
|
|
|
|
|
|
|
|
Common stock, without par value |
|
|
|
|
|
|
|
|
Authorized - 20,000,000 shares |
|
|
|
|
|
|
|
|
Outstanding - March 31, 2010: 3,642,717 shares |
|
|
|
|
|
|
|
|
- December 31, 2009: 3,142,717 shares |
|
|
303,060 |
|
|
|
253,060 |
|
Paid-in capital |
|
|
536,492 |
|
|
|
534,577 |
|
Retained earnings |
|
|
218,341 |
|
|
|
219,117 |
|
Accumulated other comprehensive loss |
|
|
(3,814 |
) |
|
|
(2,462 |
) |
|
|
|
|
|
|
|
Total common stockholders equity |
|
|
1,054,079 |
|
|
|
1,004,292 |
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders Equity |
|
$ |
3,358,099 |
|
|
$ |
3,293,607 |
|
|
|
|
|
|
|
|
The accompanying notes as they relate to Gulf Power are an integral part of these condensed financial statements.
67
GULF POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FIRST QUARTER 2010 vs. FIRST QUARTER 2009
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 given the effects of the recession, 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, and fuel prices.
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
|
|
|
First Quarter 2010 vs. First Quarter 2009 |
(change in millions)
|
|
(% change) |
$8.8
|
|
52.9 |
|
Gulf Powers net income after dividends on preference stock for the first quarter 2010 was $25.3
million compared to $16.5 million for the corresponding period in 2009. The increase was primarily
due to significantly colder weather, partially offset by a decline in sales growth.
Retail Revenues
|
|
|
First Quarter 2010 vs. First Quarter 2009 |
(change in millions)
|
|
(% change) |
$66.3
|
|
27.9 |
|
In the first quarter 2010, retail revenues were $304.7 million compared to $238.4 million for the
corresponding period in 2009.
Details of the change to retail revenues are as follows:
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
|
2010 |
|
|
(in millions) |
|
(% change) |
Retail prior year |
|
$ |
238.4 |
|
|
|
|
|
Estimated change in |
|
|
|
|
|
|
|
|
Rates and pricing |
|
|
16.2 |
|
|
|
6.8 |
|
Sales growth (decline) |
|
|
(2.9 |
) |
|
|
(1.2 |
) |
Weather |
|
|
12.8 |
|
|
|
5.4 |
|
Fuel and other cost recovery |
|
|
40.2 |
|
|
|
16.9 |
|
|
Retail current year |
|
$ |
304.7 |
|
|
|
27.9 |
% |
|
68
GULF POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Revenues associated with changes in rates and pricing increased in the first quarter 2010 when
compared to the corresponding period in 2009 primarily due to additions of environmental control
projects.
Annually, Gulf Power petitions the Florida PSC for recovery of projected environmental compliance
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 declined in the first quarter 2010 when compared to the
corresponding period in 2009. Weather-adjusted KWH energy sales to commercial and industrial
customers decreased 3.7% and 2.6%, respectively, due to decreased customer demand.
Weather-adjusted KWH energy sales to residential customers remained relatively flat.
Revenues attributable to changes in weather increased in the first quarter 2010 when compared to
the corresponding period for 2009 due to significantly colder weather in the first quarter 2010.
Fuel and other cost recovery revenues increased in the first quarter 2010 when compared to the
corresponding period for 2009 primarily due to increased KWH sales. 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 effect on net
income. See FUTURE EARNINGS POTENTIAL 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 Property Damage Reserve and Note 3 to the financial statements of Gulf Power under
Retail Regulatory Matters Fuel Cost Recovery in Item 8 of the Form 10-K for additional
information.
Wholesale Revenues Non-Affiliates
|
|
|
First Quarter 2010 vs. First Quarter 2009 |
(change in millions)
|
|
(% change) |
$5.9
|
|
27.1 |
|
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 first quarter 2010, wholesale revenues from non-affiliates were $27.9 million compared to
$22.0 million for the corresponding period in 2009. The increase was primarily due to increased
energy revenues related to a 19.2% increase in KWH sales to serve weather-related increases in
customer demand, and a 14.2% increase in price related to energy rates.
69
GULF POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Wholesale Revenues Affiliates
|
|
|
First Quarter 2010 vs. First Quarter 2009 |
(change in millions)
|
|
(% change) |
$4.2
|
|
77.6 |
|
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 first quarter 2010, wholesale revenues from affiliates were $9.5 million compared to $5.3
million for the corresponding period in 2009. The increase was primarily due to a 47.9% increase
in price related to energy rates and increased energy revenues related to a 20.1% increase in KWH
sales to serve weather-related increases in customer demand.
Other Revenues
|
|
|
First Quarter 2010 vs. First Quarter 2009 |
(change in millions)
|
|
(% change) |
$(4.1)
|
|
21.7 |
|
In the first quarter 2010, other revenues were $14.5 million compared to $18.6 million for the
corresponding period in 2009. The decrease was primarily due to decreased revenues from other
energy services, partially offset by higher franchise fees. The decreased 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
|
|
|
|
|
|
|
|
|
|
|
First Quarter 2010 |
|
|
vs. |
|
|
First Quarter 2009 |
|
|
(change in millions) |
|
(% change) |
Fuel* |
|
$ |
37.1 |
|
|
|
32.2 |
|
Purchased power non-affiliates |
|
|
3.0 |
|
|
|
67.5 |
|
Purchased power affiliates |
|
|
5.1 |
|
|
|
32.7 |
|
|
|
|
|
|
Total fuel and purchased power expenses |
|
$ |
45.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Fuel includes fuel purchased by Gulf Power for tolling agreements where power is
generated by the provider and
is included in purchased power when determining the average cost of purchased
power. |
In the first quarter 2010, total fuel and purchased power expenses were $180.6 million
compared to $135.4 million for the corresponding period in 2009. The net increase in fuel and
purchased power expenses was due to a $26.2 million increase as a result of the average cost of
fuel and a $19.0 million increase related to total KWHs generated and purchased.
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 Florida PSC Matters Retail Fuel Cost Recovery herein for
additional information.
70
GULF POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Details of Gulf Powers cost of generation and purchased power are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
First Quarter |
|
Percent |
Average Cost |
|
2010 |
|
2009 |
|
Change |
|
|
(cents per net KWH) |
|
|
|
|
Fuel |
|
|
4.92 |
|
|
|
4.31 |
|
|
|
14.15 |
|
Purchased power |
|
|
6.73 |
|
|
|
5.19 |
|
|
|
29.67 |
|
|
In the first quarter 2010, fuel expense was $152.7 million compared to $115.6 million for the
corresponding period in 2009. The increase was primarily due to 27.2% increase in the average cost
of coal and a 10.2% increase in KWHs generated as a result of increased demand, partially offset by
a 4.0% decrease in the average cost of natural gas prices.
Non-Affiliates
In the first quarter 2010, purchased power expense from non-affiliates was $7.4 million compared to
$4.4 million for the corresponding period in 2009. The increase was primarily due to a 258.3%
increase in average cost per KWH purchased, partially offset by a 10.1% decrease in the volume of
KWHs purchased. The average cost per KWH purchased increased primarily due to a greater portion of
KWHs being purchased from gas-fired generation, which had higher market pricing in the first
quarter 2010 due to greater demand for natural gas due to significantly colder weather, and PPAs
that began in June 2009.
Energy purchases from non-affiliates will vary depending on the market cost of available energy
compared to 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 first quarter 2010, purchased power expense from affiliates was $20.4 million compared to
$15.3 million for the corresponding period in 2009. The increase was primarily due to a 52.1%
increase in the volume of KWHs purchased from lower-priced Power Pool resources, partially offset
by an 11.8% decrease in 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 or other contractual agreements, as approved by the FERC.
Other Operations and Maintenance Expenses
|
|
|
First Quarter 2010 vs. First Quarter 2009 |
(change in millions)
|
|
(% change) |
$(2.1)
|
|
(2.9) |
|
In the first quarter 2010, other operations and maintenance expenses were $70.4 million compared to
$72.5 million for the corresponding period in 2009. The decrease was primarily due to decreases in
storm recovery costs and expenses from other energy services. These decreases were offset by
increased maintenance, labor, and benefits expenses. The decreased expenses from other energy
services and the decreased storm recovery costs did not have a material impact on earnings since
they were offset by decreased associated revenues.
71
GULF POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Depreciation and Amortization
|
|
|
First Quarter 2010 vs. First Quarter 2009 |
(change in millions)
|
|
(% change) |
$5.0
|
|
21.7 |
|
In the first quarter 2010, depreciation and amortization was $28.1 million compared to $23.1
million for the corresponding period in 2009. The increase was primarily due to the addition of an
environmental control project at Plant Crist being placed into service in December 2009 and other
net additions to generation and distribution facilities.
Taxes Other Than Income Taxes
|
|
|
First Quarter 2010 vs. First Quarter 2009 |
(change in millions)
|
|
(% change) |
$2.8
|
|
12.4 |
|
In the first quarter 2010, taxes other than income taxes were $25.2 million compared to $22.4
million for the corresponding period in 2009. The increase was primarily due to increases in gross
receipt taxes and franchise fees, which have no impact on net income.
Allowance for Funds Used During Construction
|
|
|
First Quarter 2010 vs. First Quarter 2009 |
(change in millions)
|
|
(% change) |
$(3.4)
|
|
(71.3) |
|
In the first quarter 2010, AFUDC equity was $1.4 million compared to $4.8 million for the
corresponding period in 2009. The decrease was primarily due to an environmental control project
at Plant Crist being placed into service in December 2009.
Interest Expense, Net of Amounts Capitalized
|
|
|
First Quarter 2010 vs. First Quarter 2009 |
(change in millions)
|
|
(% change) |
$1.6
|
|
15.8 |
|
In the first quarter 2010, interest expense, net of amounts capitalized was $11.4 million compared
to $9.8 million for the corresponding period in 2009. The increase was primarily due to the change
in capitalization of the AFUDC debt related to an environmental control project at Plant Crist
being placed into service in December 2009.
Income Taxes
|
|
|
First Quarter 2010 vs. First Quarter 2009 |
(change in millions)
|
|
(% change) |
$7.7
|
|
103.6 |
|
In the first quarter 2010, income taxes were $15.1 million compared to $7.4 million for the
corresponding period in 2009. The increase was due to higher pre-tax earnings.
72
GULF 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 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 all 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. Recessionary conditions have impacted sales; the timing and extent of the
economic recovery will impact growth and may 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.
Carbon Dioxide Litigation
New York Case
See MANAGEMENTS DISCUSSION AND ANALYSIS FUTURE EARNINGS POTENTIAL Environmental Matters
Carbon Dioxide Litigation New York Case of Gulf Power in Item 7 and Note 3 to the financial
statements of Gulf Power under Environmental Matters Carbon Dioxide Litigation New York Case
in Item 8 of the Form 10-K for additional information regarding carbon dioxide litigation. The
U.S. Court of Appeals for the Second Circuit denied the defendants petition for rehearing en banc
on March 5, 2010 and granted the defendants request to stay the mandate to allow the defendants to
file a petition for writ of certiorari with the U.S. Supreme Court on March 16, 2010. The ultimate
outcome of these matters cannot be determined at this time.
Other Litigation
See MANAGEMENTS DISCUSSION AND ANALYSIS FUTURE EARNINGS POTENTIAL Environmental Matters
Carbon Dioxide Litigation Other Litigation of Gulf Power in Item 7 and Note 3 to the financial
statements of Gulf Power under Environmental Matters Carbon Dioxide Litigation Other
Litigation in Item 8 of the Form 10-K for additional information regarding carbon dioxide
litigation related to Hurricane Katrina. On February 26, 2010, the U.S. Court of Appeals for the
Fifth Circuit granted the defendants petition for rehearing en banc. The ultimate outcome of this
matter cannot be determined at this time.
Coal Combustion Byproducts
See MANAGEMENTS DISCUSSION AND ANALYSIS FUTURE EARNINGS POTENTIAL Environmental Matters
Environmental Statutes and Regulations Coal Combustion Byproducts of Gulf Power in Item 7 of the
Form 10-K for information regarding potential additional regulation of coal combustion byproducts.
On May 4, 2010, the EPA issued a proposal requesting comments on two potential regulatory options
for management and disposal of coal combustion
73
GULF POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
byproducts,
either of which could require conversion of existing storage units to lined landfills with additional waste management and groundwater
monitoring requirements. Under both options, the EPA proposes to exempt the beneficial reuse of
coal combustion byproducts from regulation. The outcome of these proposed regulations will depend
on their final form and any legal challenges, and cannot be determined at this time. However,
additional regulation of coal combustion byproducts could have a significant impact on Gulf Powers management, beneficial use, and disposal of such byproducts and
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.
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 and other emissions. On April 1,
2010, the EPA issued a final rule regulating greenhouse gas emissions from new motor vehicles under
the Clean Air Act. The EPA has stated that, once this rule becomes effective on January 2, 2011,
carbon dioxide and other greenhouse gases will become regulated pollutants under the Prevention of
Significant Deterioration (PSD) preconstruction permit program and the Title V operating permit
program, which both apply to power plants. As a result, the construction of new facilities or the
major modification of existing facilities could trigger the requirement for a PSD permit and the
installation of the best available control technology for carbon dioxide and other greenhouse
gases. The EPA also published a proposed rule governing how these programs would be applied to
stationary sources, including power plants, in October 2009. The EPA is expected to finalize this
proposed rule during 2010. The ultimate outcome of these proposed and final rules cannot be
determined at this time and will depend on additional regulatory action and any legal challenges.
Florida PSC Matters
Retail Fuel Cost Recovery
Gulf Power has established fuel cost recovery rates approved by the Florida PSC. In recent years,
Gulf Power has experienced volatility in pricing of fuel commodities with higher than expected
pricing for coal and volatile price swings in 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 March 31, 2010 totaled $9.3 million, compared to $2.4 million at
December 31, 2009. 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.
74
GULF POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Legislation
See MANAGEMENTS DISCUSSION AND ANALYSIS FUTURE EARNINGS POTENTIAL Legislation of Gulf Power
in Item 7 of the Form 10-K for additional information.
On March 23, 2010, the Patient Protection and Affordable Care Act (PPACA) was signed into law and,
on March 30, 2010, the Health Care and Education Reconciliation Act of 2010 (HCERA and, together
with PPACA, the Acts), which makes various amendments to certain aspects of the PPACA, was signed
into law. The Acts effectively change the tax treatment of federal subsidies paid to sponsors of
retiree health benefit plans that provide prescription drug benefits that are at least actuarially
equivalent to the corresponding benefits provided under Medicare Part D. The federal subsidy paid
to employers was introduced as part of the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003 (MPDIMA). Since the 2006 tax year, Gulf Power has been receiving the
federal subsidy related to certain retiree prescription drug plans that were determined to be
actuarially equivalent to the benefit provided under Medicare Part D. Under the MPDIMA, the
federal subsidy does not reduce an employers income tax deduction for the costs of providing such
prescription drug plans nor is it subject to income tax individually. Under the Acts, beginning in
2013, an employers income tax deduction for the costs of providing Medicare Part D-equivalent
prescription drug benefits to retirees will be reduced by the amount of the federal subsidy. Under
GAAP, any impact from a change in tax law must be recognized in the period enacted regardless of
the effective date; however, as a result of state regulatory treatment, this change had no material
impact on the financial statements of Gulf Power. Southern Company is in the process of assessing
the extent to which the legislation may affect its future health care and related employee benefit
plan costs. Any future impact on the financial statements of Gulf Power cannot be determined at
this time.
On April 28, 2010, Southern Company signed a Smart Grid Investment Grant agreement with the DOE,
formally accepting a $165 million grant under the American Recovery and Reinvestment Act of 2009.
This funding will be used for transmission and distribution
automation and modernization projects. Gulf Power will receive, and will match, $15.5 million under this agreement.
Other Matters
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, such
as regulation of air emissions and water discharges. 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
and other claims for damages caused by alleged exposure to hazardous materials, and common law
nuisance claims for injunctive relief and property damage allegedly caused by greenhouse gas and
other emissions, 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.
The extent of coastal contamination resulting from the oil spill that began in April 2010 in the Gulf of
Mexico has potential impacts on certain steam plant operations as well as potential significant
economic impacts on the affected areas within Southern Companys service territory. The ultimate
impact of this matter cannot be determined at this time.
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.
75
GULF POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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, Unbilled Revenues, and Pension and Other Postretirement Benefits.
FINANCIAL CONDITION AND LIQUIDITY
Overview
Gulf Powers financial condition remained stable at March 31, 2010. 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. See Sources of Capital and Financing
Activities herein for additional information.
Net cash provided from operating activities totaled $100.6 million for the first three months of
2010 compared to $36.7 million for the corresponding period in 2009. The $63.9 million increase in
cash provided from operating activities was primarily due to a $35.7 million decrease in fossil
fuel stock resulting from an increase in generation and a decrease in cash payments related to fuel
inventory; a $26.7 million increase in liabilities primarily due to timing; and an $8.8 million
increase in net income; partially offset by a $26.7 million decrease in collections attributable to
regulatory fuel clause revenues. Net cash used for investing activities totaled $97.4 million in
the first three months of 2010 compared to $160.5 million for the corresponding period in 2009.
The $63.1 million decrease was primarily due to a $28.5 million decrease in gross property
additions and a $49.2 million investment in restricted cash in 2009, partially offset by a $14.2
million increase in construction payables, primarily due to non-affiliate payables. Net cash
provided from financing activities totaled $17.4 million for the first three months of 2010,
compared to $151.8 million for the corresponding period in 2009. The $134.4 million decrease in
cash provided from financing activities was primarily due to higher issuance of common stock in
2009 and issuance of pollution control revenue bonds in 2009.
Significant balance sheet changes for the first quarter 2010 include a net increase of $81.2
million in property, plant, and equipment, primarily related to environmental control projects; the
issuance of common stock to Southern Company for $50 million; a decrease of $34.5 million in
prepaid expenses, primarily due to a planned inspection under a long-term service agreement and a
decrease in PPA deferred capacity expense due to seasonality; and other regulatory assets,
deferred, and other deferred credits and liabilities increased by $11.5 million and $12.9 million,
respectively, primarily due to an increase in PPA deferred capacity expense.
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 March 31, 2011 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
76
GULF POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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; project scope and design changes; 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 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, Gulf Power had at March 31, 2010 approximately $29.3
million of cash and cash equivalents and $220 million of unused committed credit arrangements with
banks. As of March 31, 2010, of the unused credit arrangements, $190 million expire in 2010 and
$30 million expire in 2011. Of these credit arrangements, $100 million contain provisions allowing
one-year term loans executable at expiration. Gulf Power expects to renew its credit arrangements,
as needed, prior to expiration. 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. Subsequent to March 31, 2010, Gulf Power
renewed existing credit arrangements totaling $75 million and extended the expiration dates to
2011. All of these facilities contain provisions allowing one-year term loans executable at
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. Gulf 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 Gulf Power and other Southern Company subsidiaries. At March 31, 2010, Gulf
Power had $82 million of commercial paper borrowings 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 transportation and storage, and energy price risk management. At March 31, 2010, the maximum
potential collateral requirements under these contracts at a BBB- and/or Baa3 rating were
approximately $128 million. At March 31, 2010, the maximum potential collateral requirements under
these contracts at a rating below BBB- and/or Baa3 were approximately $572 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 Gulf Powers ability to access capital
markets, particularly the short-term debt market.
77
GULF POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
On January 22, 2010, Fitch applied new guidelines regarding the ratings of various hybrid capital
instruments and preferred securities of companies in all sectors, including banks, insurers,
non-bank financial institutions, and non-financial corporate entities, including utilities. As a
result, the Fitch rating of Gulf Powers preference stock decreased from A- to BBB+. These ratings
are not applicable to the collateral requirements described above.
Market Price Risk
Gulf Powers market risk exposure relative to interest rate changes for the first quarter 2010 has
not changed materially compared with the December 31, 2009 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 had no material change in market risk exposure for the first
quarter 2010 when compared with the December 31, 2009 reporting period.
The changes in fair value of energy-related derivative contracts, the majority of which are
composed of regulatory hedges, for the three months ended March 31, 2010 were as follows:
|
|
|
|
|
|
|
First Quarter |
|
|
2010 |
|
|
Changes |
|
|
Fair Value |
|
|
(in millions) |
Contracts outstanding at the beginning of the period, assets (liabilities), net |
|
$ |
(14 |
) |
Contracts realized or settled |
|
|
4 |
|
Current period changes(a) |
|
|
(11 |
) |
|
Contracts outstanding at the end of the period, assets (liabilities), net |
|
$ |
(21 |
) |
|
|
|
|
(a) |
|
Current period changes also include the changes in fair value of new contracts entered into
during the period, if any. |
The change in the fair value positions of the energy-related derivative contracts for the
three months ended March 31, 2010 was a decrease of $7 million, substantially all of which is due
to natural gas positions. The change is attributable to both the volume and prices of natural gas.
At March 31, 2010, Gulf Power had a net hedge volume of 10 million mmBtu with a weighted average
contract cost approximately $2.09 per mmBtu above market prices, compared to 11 million mmBtu at
December 31, 2009 with a weighted average contract cost approximately $1.29 per mmBtu above market
prices. Natural gas hedges are recovered through the fuel cost recovery clause.
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.
Unrealized pre-tax gains and losses recognized in income for the three months ended March 31, 2010
and 2009 for energy-related derivative contracts that are not hedges were not material.
78
GULF 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 March 31, 2010 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
Fair Value Measurements |
|
|
Total |
|
Maturity |
|
|
Fair Value |
|
Year 1 |
|
Years 2&3 |
|
Years 4&5 |
|
|
(in millions) |
Level 1 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Level 2 |
|
|
(21 |
) |
|
|
(14 |
) |
|
|
(6 |
) |
|
|
(1 |
) |
Level 3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of
contracts
outstanding at end
of period |
|
$ |
(21 |
) |
|
$ |
(14 |
) |
|
$ |
(6 |
) |
|
$ |
(1 |
) |
|
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 Note 1 under Financial Instruments
and Note 10 to the financial statements of Gulf Power in Item 8 of the Form 10-K and Note (H) to
the Condensed Financial Statements herein.
Financing Activities
In the first quarter 2010, Gulf Power issued to Southern Company 500,000 shares of common stock,
without par value, and realized proceeds of $50 million. The proceeds were used to repay a portion
of Gulf Powers short-term debt and for other general corporate purposes.
Subsequent to March 31, 2010, Gulf Power issued $175 million aggregate principal amount of Series
2010A 4.75% Senior Notes due April 15, 2020. The proceeds will be used to repay at maturity $140
million aggregate principal amount of Series 2009A Floating Rate Senior Notes due June 28, 2010, to
repay a portion of its outstanding short-term debt, and for general corporate purposes, including
Gulf Powers continuous construction program.
Also subsequent to March 31, 2010, Gulf Power settled $100 million of interest rate hedges related
to the Series 2010A Senior Note issuance at a gain of approximately $1.5 million. The gain will be
amortized to interest expense over 10 years.
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.
79
MISSISSIPPI POWER COMPANY
80
MISSISSIPPI POWER COMPANY
CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
For the Three Months |
|
|
|
Ended March 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(in thousands) |
|
Operating Revenues: |
|
|
|
|
|
|
|
|
Retail revenues |
|
$ |
186,587 |
|
|
$ |
175,735 |
|
Wholesale revenues, non-affiliates |
|
|
78,889 |
|
|
|
80,154 |
|
Wholesale revenues, affiliates |
|
|
14,675 |
|
|
|
9,418 |
|
Other revenues |
|
|
3,487 |
|
|
|
3,416 |
|
|
|
|
|
|
|
|
Total operating revenues |
|
|
283,638 |
|
|
|
268,723 |
|
|
|
|
|
|
|
|
Operating Expenses: |
|
|
|
|
|
|
|
|
Fuel |
|
|
130,797 |
|
|
|
119,965 |
|
Purchased power, non-affiliates |
|
|
3,621 |
|
|
|
2,835 |
|
Purchased power, affiliates |
|
|
14,721 |
|
|
|
21,805 |
|
Other operations and maintenance |
|
|
67,338 |
|
|
|
59,761 |
|
Depreciation and amortization |
|
|
18,675 |
|
|
|
18,015 |
|
Taxes other than income taxes |
|
|
18,460 |
|
|
|
14,924 |
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
253,612 |
|
|
|
237,305 |
|
|
|
|
|
|
|
|
Operating Income |
|
|
30,026 |
|
|
|
31,418 |
|
Other Income and (Expense): |
|
|
|
|
|
|
|
|
Interest income |
|
|
33 |
|
|
|
632 |
|
Interest expense, net of amounts capitalized |
|
|
(6,179 |
) |
|
|
(4,762 |
) |
Other income (expense), net |
|
|
1,549 |
|
|
|
1,629 |
|
|
|
|
|
|
|
|
Total other income and (expense) |
|
|
(4,597 |
) |
|
|
(2,501 |
) |
|
|
|
|
|
|
|
Earnings Before Income Taxes |
|
|
25,429 |
|
|
|
28,917 |
|
Income taxes |
|
|
9,743 |
|
|
|
10,513 |
|
|
|
|
|
|
|
|
Net Income |
|
|
15,686 |
|
|
|
18,404 |
|
Dividends on Preferred Stock |
|
|
433 |
|
|
|
433 |
|
|
|
|
|
|
|
|
Net Income After Dividends on Preferred Stock |
|
$ |
15,253 |
|
|
$ |
17,971 |
|
|
|
|
|
|
|
|
CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
For the Three Months |
|
|
|
Ended March 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(in thousands) |
|
Net Income After Dividends on Preferred Stock |
|
$ |
15,253 |
|
|
$ |
17,971 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
Qualifying hedges: |
|
|
|
|
|
|
|
|
Changes in fair value, net of tax of $12 and
$166, respectively |
|
|
20 |
|
|
|
268 |
|
|
|
|
|
|
|
|
Comprehensive Income |
|
$ |
15,273 |
|
|
$ |
18,239 |
|
|
|
|
|
|
|
|
The accompanying notes as they relate to Mississippi Power are an integral part of these condensed financial statements.
81
MISSISSIPPI POWER COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
For the Three Months |
|
|
|
Ended March 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(in thousands) |
|
Operating Activities: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
15,686 |
|
|
$ |
18,404 |
|
Adjustments to reconcile net income
to net cash provided from operating activities |
|
|
|
|
|
|
|
|
Depreciation and amortization, total |
|
|
20,118 |
|
|
|
19,479 |
|
Deferred income taxes |
|
|
(8,080 |
) |
|
|
(4,562 |
) |
Pension, postretirement, and other employee benefits |
|
|
1,822 |
|
|
|
1,902 |
|
Stock based compensation expense |
|
|
757 |
|
|
|
657 |
|
Generation construction screening costs |
|
|
(18,832 |
) |
|
|
(8,400 |
) |
Other, net |
|
|
1,144 |
|
|
|
(113 |
) |
Changes in certain current assets and liabilities |
|
|
|
|
|
|
|
|
-Receivables |
|
|
7,715 |
|
|
|
19,380 |
|
-Under recovered regulatory clause revenues |
|
|
|
|
|
|
12,947 |
|
-Fossil fuel stock |
|
|
17,761 |
|
|
|
(20,315 |
) |
-Materials and supplies |
|
|
(885 |
) |
|
|
(379 |
) |
-Prepaid income taxes |
|
|
|
|
|
|
1,061 |
|
-Other current assets |
|
|
(8,262 |
) |
|
|
(2,592 |
) |
-Other accounts payable |
|
|
970 |
|
|
|
(17,890 |
) |
-Accrued taxes |
|
|
(12,109 |
) |
|
|
(18,604 |
) |
-Accrued compensation |
|
|
(7,719 |
) |
|
|
(15,483 |
) |
-Over recovered regulatory clause revenues |
|
|
7,596 |
|
|
|
|
|
-Other current liabilities |
|
|
(708 |
) |
|
|
1,629 |
|
|
|
|
|
|
|
|
Net cash provided from (used for) operating activities |
|
|
16,974 |
|
|
|
(12,879 |
) |
|
|
|
|
|
|
|
Investing Activities: |
|
|
|
|
|
|
|
|
Property additions |
|
|
(19,054 |
) |
|
|
(26,476 |
) |
Cost of removal, net of salvage |
|
|
(3,375 |
) |
|
|
(2,941 |
) |
Construction payables |
|
|
2,812 |
|
|
|
1,082 |
|
Other investing activities |
|
|
(5,316 |
) |
|
|
(506 |
) |
|
|
|
|
|
|
|
Net cash used for investing activities |
|
|
(24,933 |
) |
|
|
(28,841 |
) |
|
|
|
|
|
|
|
Financing Activities: |
|
|
|
|
|
|
|
|
Decrease in notes payable, net |
|
|
|
|
|
|
(26,293 |
) |
Proceeds |
|
|
|
|
|
|
|
|
Capital contributions from parent company |
|
|
752 |
|
|
|
1,294 |
|
Senior notes issuances |
|
|
|
|
|
|
125,000 |
|
Redemptions |
|
|
|
|
|
|
|
|
Capital leases |
|
|
(323 |
) |
|
|
|
|
Senior notes |
|
|
|
|
|
|
(40,000 |
) |
Payment of preferred stock dividends |
|
|
(433 |
) |
|
|
(433 |
) |
Payment of common stock dividends |
|
|
(17,150 |
) |
|
|
(17,125 |
) |
Other financing activities |
|
|
74 |
|
|
|
(1,742 |
) |
|
|
|
|
|
|
|
Net cash provided from (used for) financing activities |
|
|
(17,080 |
) |
|
|
40,701 |
|
|
|
|
|
|
|
|
Net Change in Cash and Cash Equivalents |
|
|
(25,039 |
) |
|
|
(1,019 |
) |
Cash and Cash Equivalents at Beginning of Period |
|
|
65,025 |
|
|
|
22,413 |
|
|
|
|
|
|
|
|
Cash and Cash Equivalents at End of Period |
|
$ |
39,986 |
|
|
$ |
21,394 |
|
|
|
|
|
|
|
|
Supplemental Cash Flow Information: |
|
|
|
|
|
|
|
|
Cash paid during the period for |
|
|
|
|
|
|
|
|
Interest (net of $9 and $125 capitalized for 2010 and 2009, respectively) |
|
$ |
7,028 |
|
|
$ |
3,847 |
|
Income taxes (net of refunds) |
|
$ |
(3,821 |
) |
|
$ |
(2,325 |
) |
The accompanying notes as they relate to Mississippi Power are an integral part of these condensed financial statements.
82
MISSISSIPPI POWER COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
At March 31, |
|
|
At December 31, |
|
Assets |
|
2010 |
|
|
2009 |
|
|
|
(in thousands) |
|
Current Assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
39,986 |
|
|
$ |
65,025 |
|
Receivables |
|
|
|
|
|
|
|
|
Customer accounts receivable |
|
|
36,271 |
|
|
|
36,766 |
|
Unbilled revenues |
|
|
25,212 |
|
|
|
27,168 |
|
Other accounts and notes receivable |
|
|
6,247 |
|
|
|
11,337 |
|
Affiliated companies |
|
|
13,041 |
|
|
|
13,215 |
|
Accumulated provision for uncollectible accounts |
|
|
(842 |
) |
|
|
(940 |
) |
Fossil fuel stock, at average cost |
|
|
109,477 |
|
|
|
127,237 |
|
Materials and supplies, at average cost |
|
|
28,678 |
|
|
|
27,793 |
|
Other regulatory assets, current |
|
|
67,582 |
|
|
|
53,273 |
|
Prepaid income taxes |
|
|
35,105 |
|
|
|
32,237 |
|
Other current assets |
|
|
15,611 |
|
|
|
12,625 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
376,368 |
|
|
|
405,736 |
|
|
|
|
|
|
|
|
Property, Plant, and Equipment: |
|
|
|
|
|
|
|
|
In service |
|
|
2,327,318 |
|
|
|
2,316,494 |
|
Less accumulated provision for depreciation |
|
|
958,076 |
|
|
|
950,373 |
|
|
|
|
|
|
|
|
Plant in service, net of depreciation |
|
|
1,369,242 |
|
|
|
1,366,121 |
|
Construction work in progress |
|
|
65,061 |
|
|
|
48,219 |
|
|
|
|
|
|
|
|
Total property, plant, and equipment |
|
|
1,434,303 |
|
|
|
1,414,340 |
|
|
|
|
|
|
|
|
Other Property and Investments |
|
|
6,729 |
|
|
|
7,018 |
|
|
|
|
|
|
|
|
Deferred Charges and Other Assets: |
|
|
|
|
|
|
|
|
Deferred charges related to income taxes |
|
|
13,161 |
|
|
|
8,536 |
|
Other regulatory assets, deferred |
|
|
232,984 |
|
|
|
209,100 |
|
Other deferred charges and assets |
|
|
22,570 |
|
|
|
27,951 |
|
|
|
|
|
|
|
|
Total deferred charges and other assets |
|
|
268,715 |
|
|
|
245,587 |
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
2,086,115 |
|
|
$ |
2,072,681 |
|
|
|
|
|
|
|
|
The accompanying notes as they relate to Mississippi Power are an integral part of these condensed financial statements.
83
MISSISSIPPI POWER COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
At March 31, |
|
|
At December 31, |
|
Liabilities and Stockholders Equity |
|
2010 |
|
|
2009 |
|
|
|
(in thousands) |
|
Current Liabilities: |
|
|
|
|
|
|
|
|
Securities due within one year |
|
$ |
81,356 |
|
|
$ |
1,330 |
|
Accounts payable |
|
|
|
|
|
|
|
|
Affiliated |
|
|
45,414 |
|
|
|
49,209 |
|
Other |
|
|
46,075 |
|
|
|
38,662 |
|
Customer deposits |
|
|
11,572 |
|
|
|
11,143 |
|
Accrued taxes |
|
|
|
|
|
|
|
|
Accrued income taxes |
|
|
31,318 |
|
|
|
10,590 |
|
Other accrued taxes |
|
|
16,710 |
|
|
|
49,547 |
|
Accrued interest |
|
|
4,290 |
|
|
|
5,739 |
|
Accrued compensation |
|
|
6,066 |
|
|
|
13,785 |
|
Other regulatory liabilities, current |
|
|
5,982 |
|
|
|
7,610 |
|
Over recovered regulatory clause liabilities |
|
|
56,191 |
|
|
|
48,596 |
|
Liabilities from risk management activities |
|
|
29,619 |
|
|
|
19,454 |
|
Other current liabilities |
|
|
24,557 |
|
|
|
21,142 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
359,150 |
|
|
|
276,807 |
|
|
|
|
|
|
|
|
Long-term Debt |
|
|
413,173 |
|
|
|
493,480 |
|
|
|
|
|
|
|
|
Deferred Credits and Other Liabilities: |
|
|
|
|
|
|
|
|
Accumulated deferred income taxes |
|
|
223,507 |
|
|
|
223,066 |
|
Deferred credits related to income taxes |
|
|
12,819 |
|
|
|
13,937 |
|
Accumulated deferred investment tax credits |
|
|
12,528 |
|
|
|
12,825 |
|
Employee benefit obligations |
|
|
163,070 |
|
|
|
161,778 |
|
Other cost of removal obligations |
|
|
101,911 |
|
|
|
97,820 |
|
Other regulatory liabilities, deferred |
|
|
55,267 |
|
|
|
54,576 |
|
Other deferred credits and liabilities |
|
|
53,658 |
|
|
|
47,090 |
|
|
|
|
|
|
|
|
Total deferred credits and other liabilities |
|
|
622,760 |
|
|
|
611,092 |
|
|
|
|
|
|
|
|
Total Liabilities |
|
|
1,395,083 |
|
|
|
1,381,379 |
|
|
|
|
|
|
|
|
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 |
|
|
327,169 |
|
|
|
325,562 |
|
Retained earnings |
|
|
293,372 |
|
|
|
295,269 |
|
Accumulated other comprehensive income (loss) |
|
|
20 |
|
|
|
|
|
|
|
|
|
|
|
|
Total common stockholders equity |
|
|
658,252 |
|
|
|
658,522 |
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders Equity |
|
$ |
2,086,115 |
|
|
$ |
2,072,681 |
|
|
|
|
|
|
|
|
The accompanying notes as they relate to Mississippi Power are an integral part of these condensed financial statements.
84
MISSISSIPPI POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FIRST QUARTER 2010 vs. FIRST QUARTER 2009
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 given the effects of the
recession, 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, 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
|
|
|
First Quarter 2010 vs. First Quarter 2009
|
|
(change in millions)
|
|
(% change) |
$(2.7)
|
|
(15.1) |
|
Mississippi Powers net income after dividends on preferred stock for the first quarter 2010 was
$15.3 million compared to $18.0 million for the corresponding period in 2009. The decrease in net
income after dividends on preferred stock for the first quarter 2010 was primarily due to a
decrease in wholesale energy revenue from non-affiliate customers served outside Mississippi
Powers service territory; a decrease in interest income; and increases in operations and
maintenance expenses and interest expense, net of amounts capitalized. The decrease in net income
after dividends on preferred stock for the first quarter 2010 was partially offset by an increase
in territorial base revenue primarily resulting from significantly colder weather in the first
quarter 2010 compared to the first quarter 2009.
Retail Revenues
|
|
|
First Quarter 2010 vs. First Quarter 2009
|
|
(change in millions)
|
|
(% change) |
$10.9
|
|
6.1 |
|
In the first quarter 2010, retail revenues were $186.6 million compared to $175.7 million for the
corresponding period in 2009.
85
MISSISSIPPI POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Details of the change to retail revenues are as follows:
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
|
2010 |
|
|
(in millions) |
|
(% change) |
Retail prior year |
|
$ |
175.7 |
|
|
|
|
|
Estimated change in |
|
|
|
|
|
|
|
|
Rates and pricing |
|
|
(0.2 |
) |
|
|
(0.1 |
) |
Sales growth (decline) |
|
|
(1.1 |
) |
|
|
(0.7 |
) |
Weather |
|
|
6.9 |
|
|
|
3.9 |
|
Fuel and other cost recovery |
|
|
5.3 |
|
|
|
3.0 |
|
|
Retail current year |
|
$ |
186.6 |
|
|
|
6.1 |
% |
|
Revenues associated with changes in rates and pricing decreased in the first quarter 2010 when
compared to the corresponding period in 2009 due to a $0.7 million decrease related to System
Restoration Rider (SRR) revenues pursuant to an order from the Mississippi PSC, partially offset by
an increase 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 first quarter 2010 when compared to the
corresponding period in 2009, primarily resulting from the continued decline in the number of
residential and commercial customers due to a weak job market and customer relocations, partially
offset by continued economic recovery for some larger industrial customers and increased
residential energy use. Weather-adjusted KWH energy sales to residential customers increased 4.6%
primarily due to improved economic conditions and lower fuel costs. Weather-adjusted KWH energy
sales to commercial customers decreased 6.9% primarily due to the declining number of commercial
customers in Mississippi Powers service territory. KWH energy sales to industrial customers
increased 7.4% as a result of increased production for several large industrial customers due to
improving economic conditions.
Revenues attributable to changes in weather increased in the first quarter 2010 when compared to
the corresponding period for 2009 due to significantly colder weather in the first quarter 2010.
Fuel and other cost recovery revenues increased in the first quarter 2010 when compared to the
corresponding period in 2009 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
|
|
|
First Quarter 2010 vs. First Quarter 2009
|
|
(change in millions)
|
|
(% change) |
$(1.3)
|
|
(1.6) |
|
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.
86
MISSISSIPPI POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In the first quarter 2010, wholesale revenues from non-affiliates were $78.9 million compared
to $80.2 million for the corresponding period in 2009. The decrease was due to $8.4 million in
decreased revenues from customers outside Mississippi Powers service territory, partially offset
by $7.2 million in increased revenues from customers inside Mississippi Powers service territory.
The $8.4 million decrease in revenues from customers outside Mississippi Powers service territory
was primarily due to a $9.6 million decrease in sales, partially offset by a $1.1 million increase
associated with higher prices, resulting from higher marginal cost of fuel. The $7.2 million
increase in revenues from customers inside Mississippi Powers service territory was primarily due
to a $4.2 million increase in fuel revenues and a $3.0 million increase in wholesale base revenues
due to significantly colder weather when compared to the corresponding period in 2009.
Wholesale Revenues Affiliates
|
|
|
First Quarter 2010 vs. First Quarter 2009
|
|
(change in millions)
|
|
(% change) |
$5.3
|
|
55.8 |
|
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 first quarter 2010, wholesale revenues from affiliates were $14.7 million compared to $9.4
million for the corresponding period in 2009. The increase was primarily due to a $4.9 million
increase in energy revenues, of which $4.3 million was associated with increased sales and $0.6
million was associated with lower prices. Capacity revenues increased $0.3 million.
Fuel and Purchased Power Expenses
|
|
|
|
|
|
|
|
|
|
|
First Quarter 2010 |
|
|
vs. |
|
|
First Quarter 2009 |
|
|
(change in millions) |
|
(% change) |
Fuel |
|
$ |
10.8 |
|
|
|
9.0 |
|
Purchased power non-affiliates |
|
|
0.8 |
|
|
|
27.7 |
|
Purchased power affiliates |
|
|
(7.1 |
) |
|
|
(32.5 |
) |
|
|
|
|
|
Total fuel and purchased power expenses |
|
$ |
4.5 |
|
|
|
|
|
|
|
|
|
|
In the first quarter 2010, total fuel and purchased power expenses were $149.1 million compared to
$144.6 million for the corresponding period in 2009. The increase was primarily due to an $11.6
million increase in total KWHs generated and purchased, partially offset by a $7.1 million decrease
in 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
First Quarter |
|
Percent |
Average Cost |
|
2010 |
|
2009 |
|
Change |
|
|
(cents per net KWH) |
|
|
|
|
Fuel |
|
|
4.23 |
|
|
|
4.44 |
|
|
|
(4.7 |
) |
Purchased power |
|
|
3.76 |
|
|
|
3.91 |
|
|
|
(3.8 |
) |
|
87
MISSISSIPPI POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In the first quarter 2010, fuel expense was $130.8 million compared to $120.0 million for the
corresponding period in 2009. The increase was primarily due to a 14.3% increase in generation
from Mississippi Power facilities resulting from higher energy demand in the first quarter 2010
compared to the corresponding period in 2009. This increase was partially offset by a 4.7%
decrease in the price of fuel primarily due to a decrease in coal prices.
Non-Affiliates
In the first quarter 2010, purchased power expense from non-affiliates was $3.6 million compared to
$2.8 million for the corresponding period in 2009. The increase was primarily the result of a
172.5% increase in the average cost of purchased power per KWH, partially offset by a 53.1%
decrease in KWH volume purchased. The increase in prices was due to a higher marginal cost of fuel
while the decrease in volume was a result of higher cost opportunity purchases.
Energy purchases from non-affiliates will vary depending on the market cost of available energy
compared to 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 first quarter 2010, purchased power expense from affiliates was $14.7 million compared to
$21.8 million for the corresponding period in 2009. The decrease was primarily due to a 25.5%
decrease in the average cost of purchased power per KWH and a 9.4% decrease 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
|
|
|
First Quarter 2010 vs. First Quarter 2009
|
|
(change in millions)
|
|
(% change) |
$7.5
|
|
12.7 |
|
In the first quarter 2010, other operations and maintenance expenses were $67.3 million compared to
$59.8 million for the corresponding period in 2009. The increase was primarily due to a $2.9
million increase in generation planned maintenance expenses, a $1.0 million increase in
environmental expenses, a $1.0 million increase in transmission and distribution maintenance
expenses, and a $2.1 million increase in administrative and general expenses primarily due to an
increase in affiliate service company expenses.
Taxes Other Than Income Taxes
|
|
|
First Quarter 2010 vs. First Quarter 2009
|
|
(change in millions)
|
|
(% change) |
$3.6
|
|
23.7 |
|
In the first quarter 2010, taxes other than income taxes were $18.5 million compared to $14.9
million for the corresponding period in 2009. The increase was primarily due to a $3.2 million
increase in ad valorem taxes, a $0.2 million increase in franchise taxes, and a $0.1 million
increase in payroll taxes.
The retail portion of the increase in ad valorem taxes is recoverable under Mississippi Powers ad
valorem tax cost recovery clause and, therefore, does not affect net income.
88
MISSISSIPPI POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Interest Income
|
|
|
First Quarter 2010 vs. First Quarter 2009
|
|
(change in millions)
|
|
(% change) |
($0.6)
|
|
(94.8) |
|
In the first quarter 2010, interest income decreased $0.6 million compared to the corresponding
period in 2009. The decrease was primarily due to lower interest income related to a regulatory
recovery mechanism for fuel and energy cost hedging.
Interest Expense, Net of Amounts Capitalized
|
|
|
First Quarter 2010 vs. First Quarter 2009
|
|
(change in millions)
|
|
(% change) |
$1.4
|
|
29.8 |
|
In the first quarter 2010, interest expense, net of amounts capitalized was $6.2 million compared
to $4.8 million for the corresponding period in 2009. The increase was primarily due to a $0.9
million increase in interest expense associated with the issuance of new long-term debt in March
2009, a $0.2 million increase in interest expense associated with higher commitment fees, and a
$0.2 million increase in interest expense related to a regulatory recovery mechanism for fuel and
energy cost hedging.
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.
Income Taxes
|
|
|
First Quarter 2010 vs. First Quarter 2009
|
|
(change in millions)
|
|
(% change) |
$(0.8)
|
|
(7.3) |
|
In the first quarter 2010, income taxes were $9.7 million compared to $10.5 million for the
corresponding period in 2009. The decrease was primarily due to a $1.0 million decrease resulting
from the decrease in pre-tax earnings and a $0.1 million decrease due to higher State of
Mississippi manufacturing investment tax credits, partially offset by a $0.3 million increase due
to a lower federal production activities deduction.
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 all 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. Recessionary conditions have impacted
sales; the timing and extent of the economic recovery will impact growth and may 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.
89
MISSISSIPPI POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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.
Carbon Dioxide Litigation
New York Case
See MANAGEMENTS DISCUSSION AND ANALYSIS FUTURE EARNINGS POTENTIAL Environmental Matters
Carbon Dioxide Litigation New York Case of Mississippi Power in Item 7 and Note 3 to the
financial statements of Mississippi Power under Environmental Matters Carbon Dioxide Litigation
New York Case in Item 8 of the Form 10-K for additional information regarding carbon dioxide
litigation. The U.S. Court of Appeals for the Second Circuit denied the defendants petition for
rehearing en banc on March 5, 2010 and granted the defendants request to stay the mandate to allow
the defendants to file a petition for writ of certiorari with the U.S. Supreme Court on March 16,
2010. The ultimate outcome of these matters cannot be determined at this time.
Other Litigation
See MANAGEMENTS DISCUSSION AND ANALYSIS FUTURE EARNINGS POTENTIAL Environmental Matters
Carbon Dioxide Litigation Other Litigation of Mississippi Power in Item 7 and Note 3 to the
financial statements of Mississippi Power under Environmental Matters Carbon Dioxide Litigation
Other Litigation in Item 8 of the Form 10-K for additional information regarding carbon dioxide
litigation related to Hurricane Katrina. On February 26, 2010, the U.S. Court of Appeals for the
Fifth Circuit granted the defendants petition for rehearing en banc. The ultimate outcome of this
matter cannot be determined at this time.
Coal Combustion Byproducts
See MANAGEMENTS DISCUSSION AND ANALYSIS FUTURE EARNINGS POTENTIAL Environmental Matters
Environmental Statutes and Regulations Coal Combustion Byproducts of Mississippi Power in Item
7 of the Form 10-K for information regarding potential additional regulation of coal combustion
byproducts. On May 4, 2010, the EPA issued a proposal requesting comments on two potential
regulatory options for management and disposal of coal combustion byproducts, either of which could require conversion of existing storage
units to lined landfills with additional waste management and groundwater monitoring
requirements. Under both options, the EPA proposes to exempt the beneficial reuse of coal
combustion byproducts from regulation. The outcome of these proposed regulations will depend on
their final form and any legal challenges, and cannot be determined at this time. However,
additional regulation of coal combustion byproducts could have a significant impact on Mississippi Powers
management, beneficial use, and disposal of such byproducts and
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.
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 and other emissions. On
April 1, 2010, the EPA issued a final
90
MISSISSIPPI POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
rule regulating greenhouse gas emissions from new motor vehicles under the Clean Air Act. The
EPA has stated that, once this rule becomes effective on January 2, 2011, carbon dioxide and other
greenhouse gases will become regulated pollutants under the Prevention of Significant Deterioration
(PSD) preconstruction permit program and the Title V operating permit program, which both apply to
power plants. As a result, the construction of new facilities or the major modification of
existing facilities could trigger the requirement for a PSD permit and the installation of the best
available control technology for carbon dioxide and other greenhouse gases. The EPA also published
a proposed rule governing how these programs would be applied to stationary sources, including
power plants, in October 2009. The EPA is expected to finalize this proposed rule during 2010.
The ultimate outcome of these proposed and final rules cannot be determined at this time and will
depend on additional regulatory action and any legal challenges.
FERC and Mississippi PSC Matters
Retail Regulatory Matters
Performance Evaluation Plan
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.
In November 2009, the revised PEP was approved by the Mississippi PSC and Mississippi Power resumed
annual evaluations. Mississippi Power filed its annual PEP filing for 2010 under the revised PEP,
which resulted in a lower allowed return on investment but no rate change.
On March 15, 2010, Mississippi Power submitted its annual PEP lookback filing for 2009, which
recommended no surcharge or refund. The ultimate outcome of this matter cannot now be determined.
System Restoration Rider
See MANAGEMENTS DISCUSSION AND ANALYSIS FUTURE EARNINGS POTENTIAL PSC Matters System
Restoration Rider of Mississippi Power in Item 7 of the Form 10-K for additional information.
In September 2009, the Mississippi PSC issued an order requiring Mississippi Power to develop SRR
factors designed to reduce SRR revenue by approximately $1.5 million. The revised factors were in
effect from November 2009 to March 2010. Beginning in April 2010, the SRR factors were reset to
zero. On January 29, 2010, Mississippi Power submitted its 2010 SRR rate filing with the
Mississippi PSC and expects to accrue approximately $3.0 million to the property damage reserve in
2010.
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 12, 2010, Mississippi Power submitted its 2010 ECO Plan notice which proposes an
increase in annual revenues for Mississippi Power of approximately $3.9 million. In its 2010 ECO
Plan filing, Mississippi Power is proposing to change the true-up provision of the ECO Plan rate
schedule to consider actual revenues collected in addition to actual costs. Hearings on the ECO
Plan are expected to be held with the Mississippi PSC in June 2010. The final outcome of this
matter cannot now be determined.
91
MISSISSIPPI POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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. Mississippi Power establishes an annual retail fuel cost recovery
factor that is approved by the Mississippi PSC. Mississippi Power is required to file for an
adjustment to the retail fuel cost recovery factor annually; such filing occurred in November 2009.
The Mississippi PSC approved the retail fuel cost recovery factor on December 15, 2009 with the
new rates effective January 2010. The retail fuel cost recovery factor will result in an annual
decrease in an amount equal to 11.3% of total 2009 retail revenues. At March 31, 2010, the amount
of over recovered retail fuel costs included in the balance sheet was $35.3 million compared to
$29.4 million at December 31, 2009. Mississippi Power also has a wholesale Municipal and Rural
Associations (MRA) and a Market Based (MB) fuel cost recovery factor. Effective January 1, 2010,
the wholesale MRA fuel rate decreased, resulting in an annual decrease in an amount equal to 20.9%
of total 2009 MRA revenue. Effective February 1, 2010, the wholesale MB fuel rate decreased,
resulting in an annual decrease in an amount equal to 16.9% of total 2009 MB revenue. At March 31,
2010, the amount of over recovered wholesale MRA and MB fuel costs included in the balance sheet
was $17.5 million and $3.4 million compared to $16.8 million and $2.4 million, respectively, at
December 31, 2009. 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 decrease to the billing factor will have no significant effect on
Mississippi Powers revenues or net income, but will decrease annual cash flow.
Depreciation Study
See Note 1 to the financial statements of Mississippi Power under Depreciation and Amortization
in Item 8 of the Form 10-K for additional information. In September 2009, Mississippi Power filed
a depreciation study, as of December 31, 2008, with the Mississippi PSC and the FERC. The FERC
accepted this study in October 2009. On April 20, 2010, the Mississippi PSC issued an order
approving the depreciation rates effective January 1, 2010.
Integrated Coal Gasification Combined Cycle
See MANAGEMENTS DISCUSSION AND ANALYSIS FUTURE EARNINGS POTENTIAL Integrated Coal
Gasification Combined Cycle and PSC Matters Mississippi Baseload Construction Legislation
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 March 9, 2010, the Mississippi Department of Environmental Quality issued the PSD air permit
modification for the Kemper IGCC, which modifies the original PSD air permit issued in October
2008. The Mississippi Chapter of the Sierra Club has requested a formal evidentiary hearing
regarding the issuance of the modified permit.
Mississippi Power filed an application in November 2009 with the DOE and in December 2009 with the
IRS for certain tax credits available to projects using advanced coal technologies under the Energy
Improvement and Extension Act of 2008. The DOE subsequently certified the Kemper IGCC, and on
April 30, 2010, the IRS allocated $279 million of tax credits under Section 48A of the
Internal Revenue Code to Mississippi Power. The utilization of these credits is dependent upon
meeting the IRS certification requirements and completing the Kemper
IGCC in a timely manner. 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 these credits.
92
MISSISSIPPI POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
On April 29, 2010, the Mississippi PSC issued an order finding that Mississippi Powers
application to acquire, construct, and operate the Kemper IGCC did not satisfy the requirement of
public convenience and necessity in the form that the project and the related cost recovery were
originally proposed by Mississippi Power. The order requires Mississippi Power to accept certain
conditions prior to the Mississippi PSCs approval of a Certificate of Public Convenience and
Necessity. Among those conditions imposed in the order, Mississippi Power would be required to
accept a construction cost cap of $2.4 billion and an operating cost cap based on
assumptions contained in Mississippi Powers proposal. In addition, the order deferred a decision
on whether, when, and to what extent the Mississippi PSC would apply the cost recovery provisions
of the State of Mississippi Baseload Act of 2008 (Baseload Act) for financing cost recovery on construction work in
progress (CWIP) balances during construction. According to the order, while the Kemper IGCC satisfies the
eligibility requirements for application of the Baseload Act, the Mississippi PSC declined to
approve CWIP recovery until Mississippi Power submits additional evidence supporting a specific
request for CWIP within a defined recovery period. Mississippi Power expects to file a
motion for reconsideration or, in the alternative, for rehearing, of the order.
The April 2010 order also approved recovery of $46 million of $50.5 million in prudent pre-construction costs
incurred through March 2009. The remaining $4.5 million is associated with overhead costs and
variable pay of SCS, which were recommended for exclusion from pre-construction costs by a
consultant hired by the Mississippi Public Utilities Staff. An additional $2.7 million has been
incurred for costs of this type since March 2009. The remaining $4.5 million, as well as
additional pre-construction amounts incurred to date, will be reviewed and addressed in a future
proceeding.
As of March 31, 2010, Mississippi Power had spent a total of $97.0 million associated with
Mississippi Powers generation resource planning, evaluation, and screening activities, including
regulatory filing costs. Costs incurred during the first quarter 2010 totaled $23.5 million
compared to $8.4 million during the first quarter 2009. Of the total $97.0 million, $87.0 million
was deferred in other regulatory assets, $9.0 million was related to land purchases capitalized,
and $1.0 million was previously expensed.
In the event that Mississippi Power does not proceed with the Kemper IGCC, Mississippi Power would
seek recovery of the pre-construction costs incurred as of March 2010, as well as contract
termination obligations and other costs incurred since March 2010, in the amount of approximately
$41.0 million. In November 2009, the Mississippi PSC issued an order that found Mississippi Power
has a demonstrated need for additional capacity. In the event that Mississippi Power does not
proceed with the Kemper IGCC, Mississippi Power would provide for its capacity need through either
the construction of a combined cycle plant, a PPA, or other means available to Mississippi Power.
The ultimate outcome of these matters cannot now be determined.
Legislation
See MANAGEMENTS DISCUSSION AND ANALYSIS FUTURE EARNINGS POTENTIAL Legislation of
Mississippi Power in Item 7 of the Form 10-K for additional information.
On March 23, 2010, the Patient Protection and Affordable Care Act (PPACA) was signed into law and,
on March 30, 2010, the Health Care and Education Reconciliation Act of 2010 (HCERA and, together
with PPACA, the Acts), which makes various amendments to certain aspects of the PPACA, was signed
into law. The Acts effectively change the tax treatment of federal subsidies paid to sponsors of
retiree health benefit plans that provide prescription drug benefits that are at least actuarially
equivalent to the corresponding benefits provided under Medicare Part D. The federal subsidy paid
to employers was introduced as part of the Medicare Prescription Drug, Improvement, and
Modernization Act of
93
MISSISSIPPI POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
2003 (MPDIMA). Since the 2006 tax year, Mississippi Power has been receiving the federal
subsidy related to certain retiree prescription drug plans that were determined to be actuarially
equivalent to the benefit provided under Medicare Part D. Under the MPDIMA, the federal subsidy
does not reduce an employers income tax deduction for the costs of providing such prescription
drug plans nor is it subject to income tax individually. Under the Acts, beginning in 2013, an
employers income tax deduction for the costs of providing Medicare Part D-equivalent prescription
drug benefits to retirees will be reduced by the amount of the federal subsidy. Under GAAP, any
impact from a change in tax law must be recognized in the period enacted regardless of the
effective date; however, as a result of state regulatory treatment, this change had no material
impact on the financial statements of Mississippi Power. Southern Company is in the process of
assessing the extent to which the legislation may affect its future health care and related
employee benefit plan costs. Any future impact on the financial statements of Mississippi Power
cannot be determined at this time.
On April 8, 2010, Mississippi Power received notice that an award had been granted
under the American Recovery and Reinvestment Act of 2009 grant application for smart grid workforce
training. Mississippi Power will receive, and will match, $2.6 million under this agreement. Receipt of this award is subject to negotiation of definitive agreements with the DOE.
The ultimate impact of these matters cannot be determined at this time.
On April 28, 2010, Southern Company signed a Smart Grid Investment Grant agreement with the DOE,
formally accepting a $165 million grant under the American Recovery and Reinvestment Act of 2009.
This funding will be used for transmission and distribution
automation and modernization projects. Mississippi Power will receive, and will match, $25 million under this
agreement.
Other Matters
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, such
as regulation of air emissions and water discharges. 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
and other claims for damages caused by alleged exposure to hazardous materials, and common law
nuisance claims for injunctive relief and property damage allegedly caused by greenhouse gas and
other emissions, 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.
The extent of coastal contamination resulting from the oil spill that began in April 2010 in the Gulf of
Mexico has potential impacts on certain steam plant operations as well as potential significant
economic impacts on the affected areas within Southern Companys service territory. The ultimate
impact of this matter cannot be determined at this time.
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
94
MISSISSIPPI POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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, Plant Daniel Operating
Lease, and Pension and Other Postretirement Benefits.
FINANCIAL CONDITION AND LIQUIDITY
Overview
Mississippi Powers financial condition remained stable at March 31, 2010. 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. See Sources of Capital
and Financing Activities herein for additional information.
Net cash provided from operating activities totaled $17.0 million for the first three months of
2010, compared to net cash used for operating activities of $12.9 million for the corresponding
period in 2009. The $29.9 million increase in cash provided from operating activities is primarily
due to a decrease in fossil fuel stock resulting from an increase in Mississippi Power-owned
generation and a decrease in cash payments related to fuel inventory, partially offset by an
increase in spending related to the Kemper IGCC and a decrease in cash related to lower fuel rates
effective in the first quarter 2010. Net cash used for investing activities totaled $24.9 million
for the first three months of 2010, compared to $28.8 million for the corresponding period in 2009.
The $3.9 million decrease in net cash used for investing activities is primarily due to a decrease
in property additions. Net cash used for financing activities totaled $17.1 million for the first
three months of 2010, compared to net cash provided from financing activities of $40.7 million for
the corresponding period in 2009. The $57.8 million increase in net cash used for financing
activities was primarily due to the issuance of $125 million in senior notes in the first quarter
2009, partially offset by the repayment of $40 million of senior notes and a decrease of $26.3
million in notes payable in the first quarter 2009.
Significant balance sheet changes for the first three months of 2010 include a decrease in cash of
$25.0 million. Fossil fuel stock decreased $17.8 million due to decreases in coal inventory and
emissions allowances of $17.0 million and $0.8 million, respectively. Other regulatory assets
increased $38.2 million primarily due to increased spending related to the Kemper IGCC and
mark-to-market losses on forward gas contracts. Total property, plant, and equipment increased by
$20.0 million primarily due to construction projects in progress. Accrued income taxes increased
by $20.7 million primarily due to the tax accrual for 2010. Other accrued taxes decreased by $32.8
million primarily due to property tax payments of $42.8 million in the first quarter 2010.
Liabilities from risk management activities increased $10.2 million due to mark-to-market losses on
energy related derivative positions.
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, lease
obligations, purchase commitments, derivative obligations, preferred stock dividends, and trust
funding requirements. Approximately $81.4 million will be required through March 31, 2011 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; project scope and design changes; and the cost of capital. In addition,
there can be no assurance that costs related to capital expenditures will be fully recovered.
95
MISSISSIPPI POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 March 31, 2010 approximately $40
million of cash and cash equivalents and $156 million of unused committed credit arrangements with
banks. Of the unused credit arrangements, $106 million expire in 2010 and $50 million expire in
2011. Of these credit arrangements, $41 million contain provisions allowing two-year term loans
executable at expiration and $65 million contain provisions allowing one-year term loans executable
at expiration. Mississippi Power expects to renew its credit arrangements, as needed, prior to
expiration. The credit arrangements provide liquidity support to Mississippi Powers commercial
paper program and $40 million are dedicated to funding purchase obligations related to variable
rate pollution control revenue bonds. 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 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 Mississippi Power and other Southern
Company subsidiaries. At March 31, 2010, Mississippi Power had no commercial paper borrowings
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. In April 2010,
Mississippi Power was required to notify the lessor, Juniper Capital L.P., if it intended to
terminate the lease at the end of the initial term expiring in October 2011. Mississippi Power
chose not to give notice to terminate the lease. Mississippi Power has the option to purchase the
units or renew the lease. The ultimate outcome of this matter cannot be determined at this time.
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 sales,
fuel purchases, fuel transportation and storage, emissions allowances, and energy price risk
management. At March 31, 2010, the maximum potential collateral requirements under these contracts
at a BBB- and/or Baa3 rating were approximately $4 million. At March 31, 2010, the maximum
potential collateral requirements under these contracts at a rating below BBB- and/or Baa3 were
approximately $396 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.
96
MISSISSIPPI POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
On January 22, 2010, Fitch applied new guidelines regarding the ratings of various hybrid
capital instruments and preferred securities of companies in all sectors, including banks,
insurers, non-bank financial institutions, and non-financial corporate entities, including
utilities. As a result, the Fitch rating of Mississippi Powers preferred stock decreased from A+
to A. These ratings are not applicable to the collateral requirements described above.
Market Price Risk
Mississippi Powers market risk exposure relative to interest rate changes for the first quarter
2010 has not changed materially compared with the December 31, 2009 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 had no material change in market risk exposure for
the first quarter 2010 when compared with the December 31, 2009 reporting period.
The changes in fair value of energy-related derivative contracts, the majority of which are
composed of regulatory hedges, for the three months ended March 31, 2010 were as follows:
|
|
|
|
|
|
|
First Quarter |
|
|
2010 |
|
|
Changes |
|
|
Fair Value |
|
|
(in millions) |
Contracts outstanding at the beginning of the period, assets (liabilities), net |
|
$ |
(42 |
) |
Contracts realized or settled |
|
|
6 |
|
Current period changes(a) |
|
|
(23 |
) |
|
Contracts outstanding at the end of the period, assets (liabilities), net |
|
$ |
(59 |
) |
|
|
|
|
(a) |
|
Current period changes also include the changes in fair value of new contracts
entered into during the period, if any. |
The change in the fair value positions of the energy-related derivative contracts for the
three months ended March 31, 2010 was a decrease of $17 million, substantially all of which is due
to natural gas positions. The change is attributable to the price of natural gas. At March 31,
2010, Mississippi Power had a net hedge volume of 23 million mmBtu with a weighted average contract
cost approximately $2.62 per mmBtu above market prices, compared to 23 million mmBtu at December
31, 2009 with a weighted average contract cost approximately $1.83 per mmBtu above market prices.
The majority of the natural gas hedges are recovered through the energy cost management clause.
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.
Unrealized pre-tax gains and losses recognized in income for the three months ended March 31, 2010
and 2009 for energy-related derivative contracts that are not hedges were not material.
97
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 March 31, 2010 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
|
Fair Value Measurements |
|
|
|
Total |
|
Maturity |
|
|
Fair Value |
|
Year 1 |
|
Years 2&3 |
|
Years 4&5 |
|
|
(in millions) |
|
Level 1 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Level 2 |
|
|
(59 |
) |
|
|
(30 |
) |
|
|
(29 |
) |
|
|
|
|
Level 3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of
contracts outstanding
at end of period |
|
$ |
(59 |
) |
|
$ |
(30 |
) |
|
$ |
(29 |
) |
|
$ |
|
|
|
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 Note 1 under Financial
Instruments and Note 10 to the financial statements of Mississippi Power in Item 8 of the Form
10-K and Note (H) to the Condensed Financial Statements herein.
Financing Activities
Mississippi Power did not issue or redeem any securities during the three months ended March 31,
2010.
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.
98
SOUTHERN POWER COMPANY
AND SUBSIDIARY COMPANIES
99
SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
For the Three Months |
|
|
|
Ended March 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(in thousands) |
|
Operating Revenues: |
|
|
|
|
|
|
|
|
Wholesale revenues, non-affiliates |
|
$ |
153,337 |
|
|
$ |
94,612 |
|
Wholesale revenues, affiliates |
|
|
101,757 |
|
|
|
135,284 |
|
Other revenues |
|
|
1,394 |
|
|
|
1,621 |
|
|
|
|
|
|
|
|
Total operating revenues |
|
|
256,488 |
|
|
|
231,517 |
|
|
|
|
|
|
|
|
Operating Expenses: |
|
|
|
|
|
|
|
|
Fuel |
|
|
97,514 |
|
|
|
65,781 |
|
Purchased power, non-affiliates |
|
|
18,542 |
|
|
|
21,482 |
|
Purchased power, affiliates |
|
|
23,411 |
|
|
|
15,202 |
|
Other operations and maintenance |
|
|
38,878 |
|
|
|
32,973 |
|
Depreciation and amortization |
|
|
29,109 |
|
|
|
24,339 |
|
Taxes other than income taxes |
|
|
5,106 |
|
|
|
4,759 |
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
212,560 |
|
|
|
164,536 |
|
|
|
|
|
|
|
|
Operating Income |
|
|
43,928 |
|
|
|
66,981 |
|
Other Income and (Expense): |
|
|
|
|
|
|
|
|
Interest expense, net of amounts capitalized |
|
|
(20,054 |
) |
|
|
(21,559 |
) |
Other income (expense), net |
|
|
419 |
|
|
|
(211 |
) |
|
|
|
|
|
|
|
Total other income and (expense) |
|
|
(19,635 |
) |
|
|
(21,770 |
) |
|
|
|
|
|
|
|
Earnings Before Income Taxes |
|
|
24,293 |
|
|
|
45,211 |
|
Income taxes |
|
|
9,483 |
|
|
|
17,295 |
|
|
|
|
|
|
|
|
Net Income |
|
$ |
14,810 |
|
|
$ |
27,916 |
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
For the Three Months |
|
|
|
Ended March 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(in thousands) |
|
Net Income |
|
$ |
14,810 |
|
|
$ |
27,916 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
Qualifying hedges: |
|
|
|
|
|
|
|
|
Changes in fair value, net of tax of $1,714 and
$302, respectively |
|
|
2,677 |
|
|
|
466 |
|
Reclassification adjustment for amounts included in net
income, net of tax of $1,003 and $935, respectively |
|
|
1,567 |
|
|
|
1,440 |
|
|
|
|
|
|
|
|
Total other comprehensive income (loss) |
|
|
4,244 |
|
|
|
1,906 |
|
|
|
|
|
|
|
|
Comprehensive Income |
|
$ |
19,054 |
|
|
$ |
29,822 |
|
|
|
|
|
|
|
|
The accompanying notes as they relate to Southern Power are an integral part of these condensed financial statements.
100
SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
For the Three Months |
|
|
|
Ended March 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(in thousands) |
|
Operating Activities: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
14,810 |
|
|
$ |
27,916 |
|
Adjustments to reconcile net income
to net cash provided from operating activities |
|
|
|
|
|
|
|
|
Depreciation and amortization, total |
|
|
32,355 |
|
|
|
27,371 |
|
Deferred income taxes |
|
|
13,388 |
|
|
|
18,763 |
|
Deferred revenues |
|
|
(20,993 |
) |
|
|
(22,020 |
) |
Mark-to-market adjustments |
|
|
762 |
|
|
|
883 |
|
Accumulated billings on construction contract |
|
|
401 |
|
|
|
11,520 |
|
Accumulated costs on construction contract |
|
|
(13 |
) |
|
|
(20,145 |
) |
Other, net |
|
|
541 |
|
|
|
(134 |
) |
Changes in certain current assets and liabilities |
|
|
|
|
|
|
|
|
-Receivables |
|
|
16,566 |
|
|
|
2,439 |
|
-Fossil fuel stock |
|
|
3,815 |
|
|
|
1,464 |
|
-Materials and supplies |
|
|
4,721 |
|
|
|
(497 |
) |
-Prepaid income taxes |
|
|
(9,201 |
) |
|
|
7,870 |
|
-Other current assets |
|
|
1,020 |
|
|
|
652 |
|
-Accounts payable |
|
|
(15,247 |
) |
|
|
(19,840 |
) |
-Accrued taxes |
|
|
3,433 |
|
|
|
3,628 |
|
-Accrued interest |
|
|
(12,028 |
) |
|
|
(12,194 |
) |
-Other current liabilities |
|
|
297 |
|
|
|
88 |
|
|
|
|
|
|
|
|
Net cash provided from operating activities |
|
|
34,627 |
|
|
|
27,764 |
|
|
|
|
|
|
|
|
Investing Activities: |
|
|
|
|
|
|
|
|
Property additions |
|
|
(67,556 |
) |
|
|
(4,632 |
) |
Change in construction payables |
|
|
15,489 |
|
|
|
(271 |
) |
Payments pursuant to long-term service agreements |
|
|
(8,145 |
) |
|
|
(6,136 |
) |
Other investing activities |
|
|
(245 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net cash used for investing activities |
|
|
(60,457 |
) |
|
|
(11,039 |
) |
|
|
|
|
|
|
|
Financing Activities: |
|
|
|
|
|
|
|
|
Increase in notes payable, net |
|
|
48,006 |
|
|
|
|
|
Proceeds Capital contributions |
|
|
702 |
|
|
|
1,060 |
|
Payment of common stock dividends |
|
|
(26,775 |
) |
|
|
(26,525 |
) |
|
|
|
|
|
|
|
Net cash provided from (used for) financing activities |
|
|
21,933 |
|
|
|
(25,465 |
) |
|
|
|
|
|
|
|
Net Change in Cash and Cash Equivalents |
|
|
(3,897 |
) |
|
|
(8,740 |
) |
Cash and Cash Equivalents at Beginning of Period |
|
|
7,152 |
|
|
|
37,894 |
|
|
|
|
|
|
|
|
Cash and Cash Equivalents at End of Period |
|
$ |
3,255 |
|
|
$ |
29,154 |
|
|
|
|
|
|
|
|
Supplemental Cash Flow Information: |
|
|
|
|
|
|
|
|
Cash paid during the period for |
|
|
|
|
|
|
|
|
Interest (net of $1,926 and $78 capitalized for 2010 and 2009, respectively) |
|
$ |
28,900 |
|
|
$ |
30,791 |
|
Income taxes (net of refunds) |
|
$ |
1,532 |
|
|
$ |
(10,003 |
) |
The accompanying notes as they relate to Southern Power are an integral part of these condensed financial statements.
101
SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
At March 31, |
|
|
At December 31, |
|
Assets |
|
2010 |
|
|
2009 |
|
|
|
(in thousands) |
|
Current Assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
3,255 |
|
|
$ |
7,152 |
|
Receivables |
|
|
|
|
|
|
|
|
Customer accounts receivable |
|
|
29,874 |
|
|
|
28,873 |
|
Other accounts receivable |
|
|
1,829 |
|
|
|
2,064 |
|
Affiliated companies |
|
|
23,256 |
|
|
|
38,561 |
|
Fossil fuel stock, at average cost |
|
|
11,536 |
|
|
|
15,351 |
|
Materials and supplies, at average cost |
|
|
26,886 |
|
|
|
31,607 |
|
Prepaid service agreements current |
|
|
23,821 |
|
|
|
44,090 |
|
Prepaid income taxes |
|
|
23,878 |
|
|
|
5,177 |
|
Other prepaid expenses |
|
|
2,261 |
|
|
|
3,176 |
|
Assets from risk management activities |
|
|
16,040 |
|
|
|
4,901 |
|
Other current assets |
|
|
6,650 |
|
|
|
6,754 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
169,286 |
|
|
|
187,706 |
|
|
|
|
|
|
|
|
Property, Plant, and Equipment: |
|
|
|
|
|
|
|
|
In service |
|
|
2,972,925 |
|
|
|
2,994,463 |
|
Less accumulated provision for depreciation |
|
|
459,472 |
|
|
|
439,457 |
|
|
|
|
|
|
|
|
Plant in service, net of depreciation |
|
|
2,513,453 |
|
|
|
2,555,006 |
|
Construction work in progress |
|
|
263,770 |
|
|
|
153,982 |
|
|
|
|
|
|
|
|
Total property, plant, and equipment |
|
|
2,777,223 |
|
|
|
2,708,988 |
|
|
|
|
|
|
|
|
Other Property and Investments: |
|
|
|
|
|
|
|
|
Goodwill |
|
|
1,835 |
|
|
|
1,794 |
|
Other intangible assets, net of amortization of $151 and $17
at March 31, 2010 and December 31, 2009, respectively |
|
|
48,969 |
|
|
|
49,102 |
|
|
|
|
|
|
|
|
Total other property and investments |
|
|
50,804 |
|
|
|
50,896 |
|
|
|
|
|
|
|
|
Deferred Charges and Other Assets: |
|
|
|
|
|
|
|
|
Prepaid long-term service agreements |
|
|
71,012 |
|
|
|
74,513 |
|
Other deferred charges and assets affiliated |
|
|
3,474 |
|
|
|
3,540 |
|
Other deferred charges and assets non-affiliated |
|
|
16,407 |
|
|
|
17,410 |
|
|
|
|
|
|
|
|
Total deferred charges and other assets |
|
|
90,893 |
|
|
|
95,463 |
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
3,088,206 |
|
|
$ |
3,043,053 |
|
|
|
|
|
|
|
|
The accompanying notes as they relate to Southern Power are an integral part of these condensed financial statements.
102
SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
At March 31, |
|
|
At December 31, |
|
Liabilities and Stockholders Equity |
|
2010 |
|
|
2009 |
|
|
|
(in thousands) |
|
Current Liabilities: |
|
|
|
|
|
|
|
|
Notes payable |
|
$ |
166,954 |
|
|
$ |
118,948 |
|
Accounts payable |
|
|
|
|
|
|
|
|
Affiliated |
|
|
52,271 |
|
|
|
58,493 |
|
Other |
|
|
31,193 |
|
|
|
31,128 |
|
Accrued taxes |
|
|
|
|
|
|
|
|
Accrued income taxes |
|
|
2,340 |
|
|
|
1,449 |
|
Other accrued taxes |
|
|
6,358 |
|
|
|
2,576 |
|
Accrued interest |
|
|
17,895 |
|
|
|
29,923 |
|
Liabilities from risk management activities |
|
|
15,102 |
|
|
|
8,119 |
|
Other current liabilities |
|
|
471 |
|
|
|
323 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
292,584 |
|
|
|
250,959 |
|
|
|
|
|
|
|
|
Long-term Debt |
|
|
1,297,670 |
|
|
|
1,297,607 |
|
|
|
|
|
|
|
|
Deferred Credits and Other Liabilities: |
|
|
|
|
|
|
|
|
Accumulated deferred income taxes |
|
|
253,292 |
|
|
|
238,293 |
|
Deferred convertible investment tax credits |
|
|
26,300 |
|
|
|
16,800 |
|
Deferred capacity revenues affiliated |
|
|
14,392 |
|
|
|
36,369 |
|
Other deferred credits and liabilities affiliated |
|
|
5,392 |
|
|
|
5,651 |
|
Other deferred credits and liabilities non-affiliated |
|
|
10,474 |
|
|
|
2,252 |
|
|
|
|
|
|
|
|
Total deferred credits and other liabilities |
|
|
309,850 |
|
|
|
299,365 |
|
|
|
|
|
|
|
|
Total Liabilities |
|
|
1,900,104 |
|
|
|
1,847,931 |
|
|
|
|
|
|
|
|
Common Stockholders Equity: |
|
|
|
|
|
|
|
|
Common stock, par value $.01 per share |
|
|
|
|
|
|
|
|
Authorized - 1,000,000 shares |
|
|
|
|
|
|
|
|
Outstanding - 1,000 shares |
|
|
|
|
|
|
|
|
Paid-in capital |
|
|
865,163 |
|
|
|
864,462 |
|
Retained earnings |
|
|
340,096 |
|
|
|
352,061 |
|
Accumulated other comprehensive loss |
|
|
(17,157 |
) |
|
|
(21,401 |
) |
|
|
|
|
|
|
|
Total common stockholders equity |
|
|
1,188,102 |
|
|
|
1,195,122 |
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders Equity |
|
$ |
3,088,206 |
|
|
$ |
3,043,053 |
|
|
|
|
|
|
|
|
The accompanying notes as they relate to Southern Power are an integral part of these condensed financial statements.
103
SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FIRST QUARTER 2010 vs. FIRST QUARTER 2009
OVERVIEW
Southern Power and its wholly-owned subsidiaries construct, acquire, own, and manage generation
assets and sell electricity at market-based prices in the 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
|
|
|
First Quarter 2010 vs. First Quarter 2009 |
(change in millions) |
|
(% change) |
$(13.1)
|
|
(46.9) |
|
Southern Powers net income for the first quarter 2010 was $14.8 million compared to $27.9 million
for the corresponding period in 2009. The decrease was primarily due to decreased affiliate
capacity revenues, higher other operations and maintenance expenses, and higher depreciation and
amortization.
Wholesale
Revenues Non-Affiliates
|
|
|
First Quarter 2010 vs. First Quarter 2009 |
|
(change in millions)
|
|
(% change) |
$58.7
|
|
62.1 |
|
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 energy sales to non-affiliates for the first quarter 2010 were $153.3 million compared to
$94.6 million for the corresponding period in 2009. The increase was mainly due to $19.2 million
of energy and capacity revenues under a new PPA that began in January 2010 and $34.7 million of
energy sales that were not covered by PPAs as a result of significantly more favorable weather in
the first quarter 2010 compared to 2009.
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.
104
SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Wholesale
Revenues Affiliates
|
|
|
First Quarter 2010 vs. First Quarter 2009 |
|
(change in millions)
|
|
(% change) |
$(33.5)
|
|
(24.8) |
|
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 first quarter 2010 were $101.8 million compared to
$135.3 million for the corresponding period in 2009. The decrease was primarily the result of
$38.7 million and $19.2 million of lower energy and capacity revenues, respectively, associated
with the expiration of PPAs covering Plant Wansley Units 6 and 7 in December 2009. These decreases
were partially offset by increased energy revenues of $20.9 million related to increased power
sales under the IIC and $3.5 million of capacity revenues associated with a new PPA with Gulf Power
that began in June 2009.
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
|
|
|
|
|
|
|
|
|
|
|
First Quarter 2010 |
|
|
vs. |
|
|
First Quarter 2009 |
|
|
|
(change in millions) |
|
(% change) |
Fuel |
|
$ |
31.7 |
|
|
|
48.2 |
|
Purchased power non-affiliates |
|
|
(2.9 |
) |
|
|
(13.7 |
) |
Purchased power affiliates |
|
|
8.2 |
|
|
|
54.0 |
|
|
|
|
|
|
Total fuel and purchased power expenses |
|
$ |
37.0 |
|
|
|
|
|
|
|
|
|
|
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 generally accompanied by
an increase or decrease in related fuel revenues and does not have a significant impact on net
income. Southern Power is responsible for the cost of fuel for units that are not covered under
PPAs. Power from these units is sold into the market or sold to affiliates under the IIC.
In the first quarter 2010, total fuel and purchased power expenses were $139.5 million compared to
$102.5 million for the corresponding period in 2009. Fuel and purchased power expenses increased
$16.0 million due to a 3.4% increase in the average cost of natural gas and a 44.0% increase in the
average cost of purchased power. Additionally, fuel and purchased power expenses increased $21.0
million due to an increase in KWHs generated and purchased.
In the first quarter 2010, fuel expense was $97.5 million compared to $65.8 million for the
corresponding period in 2009. Fuel expense increased $3.2 million due to a 3.4% increase in the
average cost of natural gas and $28.5 million due to an increase in KWHs generated.
In the first quarter 2010, purchased power expense was $42.0 million compared to $36.7 million for
the corresponding period in 2009. Purchased power expenses increased $12.8 million due to an
increase in the average cost of purchased power partially offset by a $7.5 million decrease due to
fewer KWHs purchased.
105
SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Other Operations and Maintenance Expenses
|
|
|
First Quarter 2010 vs. First Quarter 2009
|
|
(change in millions)
|
|
(% change) |
$5.9
|
|
17.9 |
|
In the first quarter 2010, other operations and maintenance expenses were $38.9 million compared to
$33.0 million for the corresponding period in 2009. This increase was primarily due to a $2.9
million increase in salaries and wages relating mainly to payroll taxes, a $1.8 million increase
related to more scheduled generating plant outages in the first quarter 2010 compared to the
corresponding period in 2009, and a $0.6 million increase in contract labor expense.
Depreciation and Amortization
|
|
|
First Quarter 2010 vs. First Quarter 2009
|
|
(change in millions)
|
|
(% change) |
$4.8
|
|
19.6 |
|
In the first quarter 2010, depreciation and amortization was $29.1 million compared to $24.3
million for the corresponding period in 2009. The increase was primarily due to equipment
retirements at Plant Franklin Unit 2 and Plant Harris Unit 1.
See Note 1 to the financial statements of Southern Power under Depreciation in Item 8 of the Form
10-K for additional information.
Interest Expense, Net of Amounts Capitalized
|
|
|
First Quarter 2010 vs. First Quarter 2009
|
|
(change in millions)
|
|
(% change) |
$(1.5)
|
|
(7.0) |
|
In the first quarter 2010, interest expense, net of amounts capitalized was $20.1 million compared
to $21.6 million for the corresponding period in 2009. The decrease was primarily due to an
increase in capitalized interest associated with the construction of the Cleveland County
combustion turbine units and the Nacogdoches biomass plant. See
FUTURE EARNINGS POTENTIAL
Construction Projects herein for additional information.
Income Taxes
|
|
|
First Quarter 2010 vs. First Quarter 2009
|
|
(change in millions)
|
|
(% change) |
$(7.8)
|
|
(45.2) |
|
In the first quarter 2010, income taxes were $9.5 million compared to $17.3 million for the
corresponding period in 2009 primarily due to lower pre-tax earnings.
106
SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
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 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.
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 acquisition strategy and to construct generating
facilities. Other factors that could influence future earnings include weather, demand, generation
patterns, and operational limitations. Recessionary conditions have lowered demand and have
negatively impacted capacity revenues under Southern Powers PPAs where the amounts purchased are
based on demand. Southern Power is unable to predict whether demand under these PPAs will return
to pre-recession levels. 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.
Carbon Dioxide Litigation
Other Litigation
See MANAGEMENTS DISCUSSION AND ANALYSIS FUTURE EARNINGS POTENTIAL Environmental Matters
Carbon Dioxide Litigation Other Litigation of Southern Power in Item 7 and Note 3 to the
financial statements of Southern Power under Carbon Dioxide Litigation Other Litigation in
Item 8 of the Form 10-K for additional information regarding carbon dioxide litigation related to
Hurricane Katrina. On February 26, 2010, the U.S. Court of Appeals for the Fifth Circuit granted
the defendants petition for rehearing en banc. The ultimate outcome of this matter cannot be
determined at this time.
Environmental Statutes and Regulations
See MANAGEMENTS DISCUSSION AND ANALYSIS FUTURE EARNINGS POTENTIAL Environmental Matters
Environmental Statutes and Regulations of Southern Power in Item 7 of the Form 10-K for
information regarding the Industrial Boiler Maximum Achievable Control Technology regulations. On
April 29, 2010, the EPA issued a proposed rule that would establish emissions limits for various
hazardous air pollutants typically emitted from industrial boilers, including biomass boilers. The EPA is required to
finalize the rules by December 16, 2010. The impact of these proposed regulations will depend on
their final form and any legal challenges, and cannot be determined at this time.
107
SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 and other emissions. On April
1, 2010, the EPA issued a final rule regulating greenhouse gas emissions from new motor vehicles
under the Clean Air Act. The EPA has stated that, once this rule becomes effective on January 2,
2011, carbon dioxide and other greenhouse gases will become regulated pollutants under the
Prevention of Significant Deterioration (PSD) preconstruction permit program and the Title V
operating permit program, which both apply to power plants. As a result, the construction of new
facilities or the major modification of existing facilities could trigger the requirement for a PSD
permit and the installation of the best available control technology for carbon dioxide and other
greenhouse gases. The EPA also published a proposed rule governing how these programs would be
applied to stationary sources, including power plants, in October 2009. The EPA is expected to
finalize this proposed rule during 2010. The ultimate outcome of these proposed and final rules
cannot be determined at this time and will depend on additional regulatory action and any legal
challenges.
Legislation
See MANAGEMENTS DISCUSSION AND ANALYSIS FUTURE EARNINGS POTENTIAL Legislation of Southern
Power in Item 7 of the Form 10-K for additional information. On March 23, 2010, the Patient
Protection and Affordable Care Act (PPACA) was signed into law and, on March 30, 2010, the Health
Care and Education Reconciliation Act of 2010 (HCERA and, together with PPACA, the Acts), which
makes various amendments to certain aspects of the PPACA, was signed into law. The Acts
effectively change the tax treatment of federal subsidies paid to sponsors of retiree health
benefit plans that provide prescription drug benefits that are at least actuarially equivalent to
the corresponding benefits provided under Medicare Part D. The federal subsidy paid to employers
was introduced as part of the Medicare Prescription Drug, Improvement, and Modernization Act of
2003 (MPDIMA). Since the 2006 tax year, Southern Company has been receiving the federal subsidy
related to certain retiree prescription drug plans that were determined to be actuarially
equivalent to the benefit provided under Medicare Part D. Under the MPDIMA, the federal subsidy
does not reduce an employers income tax deduction for the costs of providing such prescription
drug plans nor is it subject to income tax individually. Under the Acts, beginning in 2013, an
employers income tax deduction for the costs of providing Medicare Part D-equivalent prescription
drug benefits to retirees will be reduced by the amount of the federal subsidy. Under GAAP, any
impact from a change in tax law must be recognized in the period enacted regardless of the
effective date. Southern Power incurred a non-cash write-off of approximately $3 million to
expense during the quarter ended March 31, 2010. Southern Company is in the process of assessing
the extent to which the legislation may affect its future health care and related employee benefit
plan costs. Any future impact on the financial statements of Southern Power cannot be determined at
this time.
Construction Projects
Cleveland County Units 1-4
In December 2008, Southern Power announced that it would 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 capacity of 720 MWs. The units are expected to go into commercial
operation in 2012. Costs incurred through March 31, 2010 were $80.5 million. The total estimated
construction cost is expected to be between $350 million and $400 million.
108
SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Nacogdoches
On October 8, 2009, Southern Power acquired all of the outstanding membership interests of
Nacogdoches Power LLC from American Renewables LLC, the original developer of the project.
Nacogdoches is constructing a biomass generating plant in Sacul, Texas with an estimated capacity
of 100 MWs. The generating plant will be fueled from wood waste. Construction commenced in 2009
and the plant is expected to begin commercial operation in 2012. Costs incurred through March 31,
2010 were $133.2 million. The total estimated cost of the project is expected to be between $475
million and $500 million. The output of the plant is contracted under a PPA with Austin Energy
that begins in 2012 and expires upon the earlier of 2032 or when a contractual limit of $2.3
billion in billings is reached.
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 and other claims for damages caused by alleged exposure to hazardous
materials, and common law nuisance claims for injunctive relief and property damage allegedly
caused by greenhouse gas and other emissions, 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, Percentage of Completion, Impairment of Long Lived Assets and
Intangibles, Acquisition Accounting, Contingent Obligations, Depreciation, and Convertible
Investment Tax Credits.
FINANCIAL CONDITION AND LIQUIDITY
Overview
Southern Powers financial condition remained stable at March 31, 2010. 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. See Sources of Capital
herein for additional information on lines of credit.
109
SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Net cash provided from operating activities totaled $34.6 million for the first three months of
2010, compared to $27.8 million for the corresponding period in 2009. This increase was mainly due
to a reduction in accounts receivable related to lower sales to affiliate companies. Net cash used
for investing activities totaled $60.5 million for the first three months of 2010, compared to
$11.0 million for the corresponding period in 2009. The $49.5 million increase was primarily due
to an increase in construction work in progress related to construction activities at Cleveland
County and Nacogdoches. Net cash provided from financing activities totaled $21.9 million for the
first three months of 2010, compared to $25.5 million cash used for financing activities for the
corresponding period in 2009. The increase was primarily due to an increase in short-term
borrowings in 2010.
Significant asset changes in the balance sheet for the first quarter 2010 include an increase in
construction work in progress due to Cleveland County and Nacogdoches construction activities and a
decrease in accounts receivable-affiliated companies mainly due to the expiration, in December
2009, of PPAs covering Plant Wansley Units 6 and 7.
Significant liability and stockholders equity changes in the balance sheet for the first quarter
2010 include an increase in notes payable mainly related to Cleveland County and Nacogdoches
construction activities and a decrease in deferred capacity revenues affiliated due to
seasonality.
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 programs are 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; legislation; the cost and efficiency
of construction labor, equipment, and materials; project scope and design changes; 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 future 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 to meet cash needs which can fluctuate significantly due to the
seasonality of the business. To meet liquidity and capital resource requirements, Southern Power
had at March 31, 2010 cash and cash equivalents of approximately $3 million and $400 million in
committed credit arrangements with banks, all of which 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. At March 31, 2010,
Southern Power had $167 million of commercial paper borrowings outstanding.
110
SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 March
31, 2010, 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 $327
million. At March 31, 2010, the maximum potential collateral requirements under these contracts at
a rating below BBB- and/or Baa3 were approximately $999 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 Southern Powers ability to access capital markets, particularly the
short-term debt market.
In addition, through the acquisition of Plant Rowan, Southern Power assumed PPAs with Duke Energy
and North Carolina Municipal Power Agency No. 1 (NCMPA1) that could require collateral, but not
accelerated payment, in the event of a downgrade of Southern Powers credit. The Duke Energy PPA
defines the downgrade to be below BBB- or Baa3. The NCMPA1 PPA requires credit assurances without
stating a specific credit rating. The amount of collateral required would depend upon actual
losses, if any, resulting from a credit downgrade for both PPAs.
Market Price Risk
Southern Power is exposed to market risks, including changes in interest rates and certain
energy-related commodity prices and, occasionally, currency exchange rates. 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 for the first quarter 2010
has not changed materially compared with the December 31, 2009 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.
111
SOUTHERN POWER 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 months ended March
31, 2010 were as follows:
|
|
|
|
|
|
|
First Quarter |
|
|
2010 |
|
|
Changes |
|
|
|
Fair Value |
|
|
|
(in millions) |
Contracts outstanding at the beginning of the period, assets (liabilities), net |
|
$ |
(3.5 |
) |
Contracts realized or settled |
|
|
0.5 |
|
Current period changes(a) |
|
|
3.1 |
|
|
Contracts outstanding at the end of the period, assets (liabilities), net |
|
$ |
0.1 |
|
|
(a) Current period changes also include the changes in fair value of new contracts
entered into during the period, if any.
The increase in the fair value positions of the energy-related derivative contracts for the
three months ended March 31, 2010 was $3.6 million, which is due to both power and natural gas
positions. This change is attributable to both the volume and prices of power and natural gas as
follows:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
December 31, |
|
|
2010 |
|
2009 |
|
Power
(net sold) |
|
|
|
|
|
|
|
|
|
MWHs (in millions) |
|
|
1.3 |
|
|
|
2.7 |
|
Weighted average contract cost
per MWH
above (below) market prices
(in dollars) |
|
$ |
9.03 |
|
|
$ |
(0.36 |
) |
|
Natural
gas (net purchase) |
|
|
|
|
|
|
|
|
|
Commodity million mmBtu |
|
|
6.4 |
|
|
|
8.3 |
|
Location basis million mmBtu |
|
|
1.2 |
|
|
|
2.0 |
|
|
Commodity Weighted average
contract cost per mmBtu above
(below) market prices (in
dollars) |
|
$ |
2.41 |
|
|
$ |
0.29 |
|
|
Location basis Weighted
average contract cost per
mmBtu above (below) market
prices (in dollars) |
|
$ |
(0.03 |
) |
|
$ |
(0.04 |
) |
|
The fair value of energy-related derivative contracts by hedge designation reflected in the
financial statements as assets (liabilities) consists of the following:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
December 31, |
Asset (Liability) Derivatives |
|
2010 |
|
2009 |
|
|
|
(in millions)
|
Cash flow hedges |
|
$ |
1.8 |
|
|
$ |
(2.5 |
) |
Not designated |
|
|
(1.7 |
) |
|
|
(1.0 |
) |
|
Total fair value |
|
$ |
0.1 |
|
|
$ |
(3.5 |
) |
|
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
as hedges are recognized in the statements of income as incurred.
Total net unrealized pre-tax losses recognized in income for the three months ended March 31, 2010
for energy-related derivative contracts that are not hedges were $0.7 million and will continue to
be marked to market until the settlement date. For the three months ended March 31, 2009, the
total net unrealized pre-tax losses recognized in the statements of income were $1.0 million.
112
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 March 31, 2010 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
Fair Value Measurements |
|
|
Total |
|
Maturity |
|
|
Fair Value |
|
Year 1 |
|
Years 2&3 |
|
Years 4&5 |
|
|
|
(in millions)
|
Level 1 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Level 2 |
|
|
0.1 |
|
|
|
1.0 |
|
|
|
(1.0 |
) |
|
|
0.1 |
|
Level 3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of contracts
outstanding at end
of period |
|
$ |
0.1 |
|
|
$ |
1.0 |
|
|
$ |
(1.0 |
) |
|
$ |
0.1 |
|
|
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 Note 1 under Financial
Instruments and Note 9 to the financial statements of Southern Power in Item 8 of the Form 10-K
and Note (H) to the Condensed Financial Statements herein.
Financing Activities
Southern Power did not issue or redeem any long-term securities during the three months ended March
31, 2010.
113
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, I |
|
|
|
Alabama Power
|
|
A, B, C, E, F, G, H |
|
|
|
Georgia Power
|
|
A, B, C, E, F, G, H |
|
|
|
Gulf Power
|
|
A, B, C, E, F, G, H |
|
|
|
Mississippi Power
|
|
A, B, C, E, F, G, H |
|
|
|
Southern Power
|
|
A, B, C, E, G, H |
114
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:
|
|
|
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, 2009 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 March 31, 2010 and 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 Form 10-K and details which have not changed significantly in amount or
composition since the filing of the Form 10-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. Due to the seasonal
variations in the demand for energy, operating results for the periods presented are not
necessarily indicative of the operating results to be expected for the full year. |
|
|
|
|
Certain prior years data presented in the financial statements have been reclassified to conform
to the current year presentation. |
|
|
|
|
Affiliate Transactions |
|
|
|
|
Gulf Power purchased a turbine rotor assembly that was jointly-owned by Southern Power and Georgia
Power for approximately $11 million. These affiliate transactions were in accordance with FERC and
state PSC rules and guidelines. |
|
|
|
|
Variable Interest Entities |
|
|
|
|
Effective January 1, 2010, the traditional operating companies and Southern Power adopted new
accounting guidance which modified the consolidation model and expanded disclosures related to
variable interest entities (VIE). The primary beneficiary of a VIE is required to consolidate the
VIE when it has both the power to direct the activities of the VIE that most significantly impact
the VIEs economic performance and the obligation to absorb losses or the right to receive
benefits from the VIE that could potentially be significant to the VIE. The adoption of this new
accounting guidance did not result in the traditional operating companies or Southern Power
consolidating any VIEs that were not already consolidated under previous guidance, nor
deconsolidating any VIEs. |
|
|
|
|
Southern Power has certain wholly-owned subsidiaries that are determined to be VIEs. Southern Power is
considered the primary beneficiary of these VIEs because it controls the most significant
activities of the VIEs, including operating and maintaining the respective assets, and has the obligation to absorb expected losses of these VIEs to the extent of its equity interests. |
|
(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. |
115
NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
|
|
|
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, such as regulation of air emissions and
water discharges. 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 and other claims for damages caused
by alleged exposure to hazardous materials, and common law nuisance claims for injunctive relief
and property damage allegedly caused by greenhouse gas and other emissions, 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 U.S. 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. |
|
|
|
|
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). |
|
|
|
|
Under the terms of the separation agreements entered into in connection with the spin-off, Mirant
agreed to indemnify Southern Company for certain costs. As a result of Mirants bankruptcy,
Southern Company sought reimbursement as an unsecured creditor in Mirants Chapter 11 proceeding.
If Southern Companys claims for indemnification with respect to these costs are allowed, then
Mirants indemnity obligations to Southern Company would constitute unsecured claims against Mirant
entitled to stock in Reorganized Mirant. As a result of the $202 million settlement in March 2009
of another suit related to Mirant (MC Asset Recovery litigation), the maximum amount Southern
Company can assert by proof of claim in the Mirant bankruptcy is capped at $9.5 million. See Note
5 to the financial statements of Southern Company under Effective Tax Rate in Item 8 of the Form
10-K for more information regarding the MC Asset Recovery litigation settlement. The final outcome
of this matter cannot now be determined. |
|
|
|
|
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. After Alabama Power was
dismissed from the original action, the EPA filed a separate action in January 2001 against Alabama
Power in the U.S. District Court for the Northern District of Alabama. In these lawsuits, the EPA
alleges that NSR violations occurred at eight coal-fired generating facilities operated by Alabama
Power and Georgia Power, including facilities co-owned by Mississippi Power and Gulf Power. The
civil actions request penalties and injunctive relief, including an order requiring 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 |
116
NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
|
|
|
denied the motion based on lack of jurisdiction, and the EPA has not re-filed. The original
action, now solely against Georgia Power, has been administratively closed since the spring of
2001, and the case has not been reopened. |
|
|
|
|
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. In July 2008, the U.S. District Court for the Northern
District of Alabama granted partial summary judgment in favor of Alabama Power with respect to its
other affected units 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, which remains ongoing. |
|
|
|
|
Southern Company and the traditional operating companies believe that they 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 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 and, in September 2009, the U.S. Court of Appeals
for the Second Circuit reversed the district courts ruling, vacating the dismissal of the
plaintiffs claim, and remanding the case to the district court. In November 2009, the defendants,
including Southern Company, sought rehearing en banc. The U.S. Court of Appeals for the Second
Circuit denied the defendants petition for rehearing en banc on March 5, 2010 and granted the
defendants request to stay the mandate to allow the defendants to file a petition for writ of
certiorari with the U.S. Supreme Court on March 16, 2010. The ultimate outcome of these matters
cannot be determined at this time. |
|
|
|
|
Kivalina Case |
|
|
|
|
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 some of 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.
Southern Company believes that these claims are without merit and notes that the complaint cites no
statutory or
regulatory basis for the claims. In September 2009, the U.S. District Court for the Northern
District of California granted the defendants motions to dismiss the case based on lack of
jurisdiction and ruled the claims were barred by the political question doctrine and by the
plaintiffs failure to establish the standard for determining that the defendants conduct |
117
NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
|
|
|
caused the injury alleged. In November 2009, the plaintiffs filed an appeal with the U.S. Court of
Appeals for the Ninth Circuit challenging the district courts order dismissing the case. The
ultimate outcome of this matter cannot be determined at this time. |
|
|
|
|
Other Litigation |
|
|
|
|
Common law nuisance claims for injunctive relief and property damage allegedly caused by greenhouse
gas emissions have become more frequent, and courts have recently determined that private parties
and states have standing to bring such claims. For example, in October 2009, the U.S. Court of
Appeals for the Fifth Circuit reversed the U.S. District Court for the Southern District of
Mississippis dismissal of private party claims against certain oil, coal, chemical, and utility
companies alleging damages as a result of Hurricane Katrina. In reversing the dismissal, the U.S.
Court of Appeals for the Fifth Circuit held that plaintiffs have standing to assert their nuisance,
trespass, and negligence claims and none of these claims are barred by the political question
doctrine. On February 26, 2010, the U.S. Court of Appeals for the Fifth Circuit granted the
defendants petition for rehearing en banc. Southern Company is not currently a party to this
litigation, but the traditional operating companies and Southern Power were named as defendants in
an amended complaint which was rendered moot in August 2007 by the U.S. District Court for the
Southern District of Mississippi when such court dismissed the original matter. The ultimate
outcome of this matter cannot be determined at this time. |
|
|
|
|
Environmental Remediation |
|
|
|
|
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. |
|
|
|
|
Georgia Powers environmental remediation liability as of March 31, 2010 was $14.6 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; however, they are not
expected to have a material impact on Georgia Powers financial statements. |
|
|
|
|
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, in April 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. |
|
|
|
|
Gulf Powers environmental remediation liability includes estimated costs of environmental
remediation projects of approximately $63.5 million as of March 31, 2010. 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.
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
company that handled Mississippi |
118
NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
|
|
|
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 were not
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. |
|
|
|
|
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. |
|
|
|
|
FERC Matters |
|
|
|
|
Market-Based Rate Authority |
|
|
|
|
Each of the traditional operating companies and Southern Power have 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. |
|
|
|
|
In December 2004, the FERC initiated a proceeding to assess Southern Companys generation market
power within its retail service territory. The ability to charge market-based rates in other
markets was 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 have been subject to refund to a cost-based rate level. |
|
|
|
|
In December 2009, Southern Company and the FERC trial staff reached an agreement in principle that
would resolve the proceeding in its entirety. The agreement does not reflect any finding or
suggestion that any subsidiary of Southern Company possesses or has exercised any market power.
The agreement likewise does not require Southern Company to make any refunds related to sales
during the 15-month refund period. The agreement does provide for the traditional operating
companies and Southern Power to donate a total of $1.7 million to nonprofit organizations in the
states in which they operate for the purpose of offsetting the electricity bills of low-income
retail customers. The agreement is subject to review and approval by the FERC. |
|
|
|
|
The joint offer of settlement was filed on March 2, 2010. The final decision regarding the
resolution of the settlement now resides with the FERC, and there is no deadline by which a
decision must be reached. |
|
|
|
|
Intercompany Interchange Contract |
|
|
|
|
Southern Companys generation fleet in its retail service territory is operated under the
Intercompany Interchange Contract (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. |
|
|
|
|
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.
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 |
119
NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
|
|
|
Companys or the traditional operating companies financial statements. 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 were submitted challenging the audit reports findings of
Southern Companys compliance. The proceeding remains open pending a decision from the FERC
regarding the audit report. |
|
|
|
|
Right of Way Litigation |
|
|
|
|
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. |
|
|
|
|
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 the related cases have been dismissed.
These agreements have not resulted in any material effects on Southern Companys or Mississippi
Powers financial statements. |
|
|
|
|
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. |
|
|
|
|
Nuclear Fuel Disposal Cost Litigation |
|
|
|
|
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 approximately $30 million, based on its ownership interests, and awarded Alabama
Power approximately $17 million, representing substantially all of the direct costs of the
expansion of spent nuclear fuel storage facilities at Plants Farley, Hatch, and Vogtle from 1998
through 2004. In November 2007, the governments motion for reconsideration was denied. In
January 2008, the government filed an appeal and, in February 2008, filed a motion to stay the
appeal. In April 2008, the U.S. Court of Appeals for the Federal Circuit 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. The U.S. Court of Appeals for the Federal
Circuit has left the stay of appeals in place pending the decision in an appeal of several other
cases involving spent nuclear fuel contracts. On April 12, 2010, the government informed the U.S.
Court of Appeals for the Federal Circuit that it did not intend to challenge the decision in the
last of those cases and proposed that the stay be lifted so that the appeal can proceed. |
|
|
|
|
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
continuing breach of contract. In October 2008,
the U.S. Court of Appeals for the Federal Circuit 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 |
120
NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
|
|
|
until the issue is resolved or the storage is provided. No amounts have been recognized in the
financial statements as of March 31, 2010 for either claim. The final outcome of these matters
cannot be determined at this time, but no material impact on net income is expected as any damage
amounts collected from the government are expected to be returned to customers. |
|
|
|
|
Income Tax Matters |
|
|
|
|
Georgia State Income Tax Credits |
|
|
|
|
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 had 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. On March 22, 2010, the Superior
Court of Fulton County ruled in favor of Georgia Powers motion for summary judgment. On April 30,
2010, the Georgia Department of Revenue filed its notice of appeal with the Georgia Court of
Appeals. 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 Georgia
Powers and Southern Companys net income. If Georgia Power is not successful, payment of the
related state tax could have a significant, and possibly material, negative effect on Georgia
Powers and Southern Companys cash flow. See Note 5 to the financial statements of Southern
Company and Georgia Power in Item 8 of the Form 10-K under Unrecognized Tax Benefits and Note (G)
herein for additional information. The ultimate outcome of this matter cannot now be determined. |
|
|
|
|
Retail Regulatory Matters |
|
|
|
|
Retail Rate Matters |
|
|
|
|
On March 11, 2010, the Georgia PSC voted to approve the stipulation among Georgia Power, the
Georgia PSC Public Interest Advocacy Staff, and three customer groups with the exception that the
under recovered fuel balance be collected over 42 months. The new rates, which became effective
April 1, 2010, will result in an increase of approximately $373 million to Georgia Powers total
annual fuel cost recovery billings. Georgia Power is required to file its next fuel case by March
1, 2011. |
|
|
|
|
Nuclear |
|
|
|
|
See Note 3 to the financial statements of Southern Company and Georgia Power under Retail
Regulatory Matters Georgia Power Nuclear Construction and Construction Nuclear,
respectively, in Item 8 of the Form 10-K for additional information regarding Georgia Powers
construction of two nuclear generating units at Plant Vogtle. |
|
|
|
|
In June 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 Financing Act. On May 5, 2010, the court dismissed as
premature the plaintiffs claim challenging the Georgia Nuclear Energy Financing Act. The
dismissal of the claim related to the Georgia Nuclear Energy Financing Act is subject to appeal and
the plaintiffs are expected to re-file this claim in the future. In addition, on May 5, 2010, the
court issued an order remanding the Georgia PSCs certification order for inclusion of further
findings of fact and conclusions of law by the Georgia PSC. A remand for further findings of fact
and conclusions of law is a procedural step that does not vacate or otherwise affect the effectiveness of the Georgia
PSCs certification order or the ultimate conclusion of the Georgia PSC in certifying the
construction of Plant Vogtle Units 3 and 4. |
|
|
|
|
In August 2009, the NRC issued letters to Westinghouse revising the review schedules needed to
certify the AP1000 standard design for new reactors and expressing concerns related to the
availability of adequate information and the shield building design. The shield building protects
the containment and provides structural support to the containment cooling water supply. Georgia
Power is continuing to work with Westinghouse and the NRC to resolve these concerns. Any
possible delays in the AP1000 design certification schedule, including those addressed by the NRC
in their letters, are not currently expected to affect the projected commercial operation dates for
Plant Vogtle Units 3 and 4. |
121
NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
|
|
|
There are pending technical and procedural challenges to the construction and licensing of Plant
Vogtle Units 3 and 4. Similar additional challenges at the state and federal level are expected as
construction proceeds. |
|
|
|
|
The ultimate outcome of these matters cannot be determined at this time. |
|
|
|
|
Other Construction |
|
|
|
|
In August 2009, Georgia Power filed its quarterly construction monitoring report for Plant
McDonough Units 4, 5, and 6 for the quarter ended June 30, 2009. In September 2009, Georgia Power
amended the report. As amended, the report includes a request for an increase in the certified
costs to construct Plant McDonough. On February 24, 2010, Georgia Power reached a stipulation
agreement with the Georgia PSC staff that was approved by the Georgia PSC on March 16, 2010. The
stipulation resolves the June 30, 2009 construction monitoring report, including the approval of
actual expenditures and the requested increase in the certified amount. |
|
|
|
|
On May 6, 2010, the Georgia PSC approved Georgia Powers request to
extend the construction schedule for Plant McDonough
Units 4, 5, and 6 as a result of the short-term reduction in forecasted demand. |
|
|
|
|
Integrated Coal Gasification Combined Cycle |
|
|
|
|
See Note 3 to the financial statements of Southern Company under Retail Regulatory Matters-Integrated Coal Gasification Combined Cycle (IGCC) and of Mississippi Power under Integrated Coal Gasification
Combined Cycle in Item 8 of the Form 10-K for information regarding Mississippi Powers
construction of the Kemper IGCC. |
|
|
|
|
On March 9, 2010, the Mississippi Department of Environmental Quality issued the PSD air permit
modification for the Kemper IGCC, which modifies the original PSD air permit issued in October
2008. The Mississippi Chapter of the Sierra Club has requested a formal evidentiary hearing
regarding the issuance of the modified permit. |
|
|
|
|
Mississippi Power filed an application in November 2009 with the DOE and in December 2009 with the
IRS for certain tax credits available to projects using advanced coal technologies under the Energy
Improvement and Extension Act of 2008. The DOE subsequently certified the Kemper IGCC, and on
April 30, 2010, the IRS allocated $279 million of tax credits under Section 48A of the
Internal Revenue Code to Mississippi Power. The utilization of these credits is dependent upon
meeting the IRS certification requirements and completing the Kemper
IGCC in a timely manner. 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 these credits. |
|
|
|
|
On April 29, 2010, the Mississippi PSC issued an order finding that Mississippi Powers application
to acquire, construct, and operate the Kemper IGCC did not satisfy the requirement of public
convenience and necessity in the form that the project and the related cost recovery were
originally proposed by Mississippi Power. The order requires Mississippi Power to accept certain
conditions prior to the Mississippi PSCs approval of a Certificate of Public Convenience and
Necessity. Among those conditions imposed in the order, Mississippi Power would be required to
accept a construction cost cap of $2.4 billion and an operating cost cap based on
assumptions contained in Mississippi Powers proposal. In addition, the order deferred a decision
on whether, when, and to what extent the Mississippi PSC would apply the cost recovery provisions
of the State of Mississippi Baseload Act of 2008 (Baseload Act) for financing cost recovery on construction work in
progress (CWIP) balances during construction. According to the order, while the Kemper IGCC satisfies the
eligibility requirements for application of the Baseload Act, the Mississippi PSC declined to
approve CWIP recovery until Mississippi Power submits additional evidence supporting a specific
request for CWIP within a defined recovery period. Mississippi Power expects to file a motion for reconsideration or,
in the alternative, for rehearing, of the order. |
122
NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
|
|
|
The April 2010 order also approved recovery of $46 million of $50.5 million in prudent pre-construction costs
incurred through March 2009. The remaining $4.5 million is associated with overhead costs and
variable pay of SCS, which were recommended for exclusion from pre-construction costs by a
consultant hired by the Mississippi Public Utilities Staff. An additional $2.7 million has been
incurred for costs of this type since March 2009. The remaining $4.5 million, as well as
additional pre-construction amounts incurred to date, will be reviewed and addressed in a future
proceeding. |
|
|
|
|
As of March 31, 2010, Mississippi Power had spent a total of $97.0 million associated with
Mississippi Powers generation resource planning, evaluation, and screening activities, including
regulatory filing costs. Costs incurred during the first quarter 2010 totaled $23.5 million
compared to $8.4 million during the first quarter 2009. Of the total $97.0 million, $87.0 million
was deferred in other regulatory assets, $9.0 million was related to land purchases capitalized,
and $1.0 million was previously expensed. |
|
|
|
|
In the event that Mississippi Power does not proceed with the Kemper IGCC, Mississippi Power would
seek recovery of the pre-construction costs incurred as of March 2010, as well as contract
termination obligations and other costs incurred since March 2010, in the amount of approximately
$41.0 million. In November 2009, the Mississippi PSC issued an order that found Mississippi Power
has a demonstrated need for additional capacity. In the event that Mississippi Power does not
proceed with the Kemper IGCC, Mississippi Power would provide for its capacity need through either
the construction of a combined cycle plant, a PPA, or other means available to Mississippi Power. |
|
|
|
|
The ultimate outcome of these matters cannot now be determined. |
|
(C) |
|
FAIR VALUE MEASUREMENTS |
|
|
|
As of March 31, 2010, 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 March 31, 2010: |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
|
Total |
|
|
|
(in millions)
|
Southern Company |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy-related derivatives |
|
$ |
|
|
|
$ |
16 |
|
|
$ |
|
|
|
$ |
16 |
|
Interest rate derivatives |
|
|
|
|
|
|
6 |
|
|
|
|
|
|
|
6 |
|
Nuclear decommissioning trusts(a)(b) |
|
|
766 |
|
|
|
416 |
|
|
|
|
|
|
|
1,182 |
|
Cash equivalents and restricted cash |
|
|
201 |
|
|
|
|
|
|
|
|
|
|
|
201 |
|
Other investments |
|
|
22 |
|
|
|
50 |
|
|
|
19 |
|
|
|
91 |
|
|
Total |
|
$ |
989 |
|
|
$ |
488 |
|
|
$ |
19 |
|
|
$ |
1,496 |
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy-related derivatives |
|
$ |
|
|
|
$ |
288 |
|
|
$ |
|
|
|
$ |
288 |
|
Interest rate derivatives |
|
|
|
|
|
|
8 |
|
|
|
|
|
|
|
8 |
|
|
Total |
|
$ |
|
|
|
$ |
296 |
|
|
$ |
|
|
|
$ |
296 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alabama Power |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nuclear decommissioning trusts:(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic equity |
|
$ |
309 |
|
|
$ |
51 |
|
|
$ |
|
|
|
$ |
360 |
|
U.S. Treasury and government agency securities |
|
|
13 |
|
|
|
5 |
|
|
|
|
|
|
|
18 |
|
Corporate bonds |
|
|
|
|
|
|
81 |
|
|
|
|
|
|
|
81 |
|
Mortgage and asset backed securities |
|
|
|
|
|
|
40 |
|
|
|
|
|
|
|
40 |
|
Other |
|
|
|
|
|
|
14 |
|
|
|
|
|
|
|
14 |
|
Cash equivalents and restricted cash |
|
|
115 |
|
|
|
|
|
|
|
|
|
|
|
115 |
|
|
Total |
|
$ |
437 |
|
|
$ |
191 |
|
|
$ |
|
|
|
$ |
628 |
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy-related derivatives |
|
$ |
|
|
|
$ |
67 |
|
|
$ |
|
|
|
$ |
67 |
|
|
123
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 March 31, 2010: |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
|
Total |
|
|
|
(in millions)
|
Georgia Power |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nuclear decommissioning trusts:(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic equity |
|
$ |
444 |
|
|
$ |
1 |
|
|
$ |
|
|
|
$ |
445 |
|
U.S. Treasury and government agency securities |
|
|
|
|
|
|
35 |
|
|
|
|
|
|
|
35 |
|
Municipal bonds |
|
|
|
|
|
|
22 |
|
|
|
|
|
|
|
22 |
|
Corporate bonds |
|
|
|
|
|
|
98 |
|
|
|
|
|
|
|
98 |
|
Mortgage and asset backed securities |
|
|
|
|
|
|
43 |
|
|
|
|
|
|
|
43 |
|
Other |
|
|
|
|
|
|
26 |
|
|
|
|
|
|
|
26 |
|
|
Total |
|
$ |
444 |
|
|
$ |
225 |
|
|
$ |
|
|
|
$ |
669 |
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy-related derivatives |
|
$ |
|
|
|
$ |
125 |
|
|
$ |
|
|
|
$ |
125 |
|
Interest rate derivatives |
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
1 |
|
|
Total |
|
$ |
|
|
|
$ |
126 |
|
|
$ |
|
|
|
$ |
126 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gulf Power |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate derivatives |
|
$ |
|
|
|
$ |
1 |
|
|
$ |
|
|
|
$ |
1 |
|
Cash equivalents and restricted cash |
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
16 |
|
|
Total |
|
$ |
16 |
|
|
$ |
1 |
|
|
$ |
|
|
|
$ |
17 |
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy-related derivatives |
|
$ |
|
|
|
$ |
21 |
|
|
$ |
|
|
|
$ |
21 |
|
Interest rate derivatives |
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
1 |
|
|
Total |
|
$ |
|
|
|
$ |
22 |
|
|
$ |
|
|
|
$ |
22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mississippi Power |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents |
|
$ |
37 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
37 |
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy-related derivatives |
|
$ |
|
|
|
$ |
59 |
|
|
$ |
|
|
|
$ |
59 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Southern Power |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy-related derivatives |
|
$ |
|
|
|
$ |
16 |
|
|
$ |
|
|
|
$ |
16 |
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy-related derivatives |
|
$ |
|
|
|
$ |
16 |
|
|
$ |
|
|
|
$ |
16 |
|
|
|
|
|
|
(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 sections for Alabama
Power and Georgia Power in this table. |
|
|
|
Valuation Methodologies |
|
|
|
|
The energy-related derivatives primarily consist of over-the-counter financial products for
natural gas and physical power products, including from time to time, basis swaps. These are
standard products used within the energy industry and are valued using the market approach. The
inputs used are mainly from observable market sources, such as forward natural gas prices, power
prices, implied volatility, and LIBOR interest rates. Interest rate derivatives are also
standard over-the-counter financial products valued using the market approach. Inputs include
LIBOR interest rates, interest rate futures contracts, and occasionally implied volatility of
interest rate options. See Note (H) herein for additional information on how these derivatives
are used. |
124
NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
|
|
|
Other investments include investments in funds that are valued using the market approach and
income approach. Securities that are traded in the open market are valued at the closing price
on their principal exchange as of the measurement date. Discounts are applied in accordance
with GAAP when certain trading restrictions exist. For investments that are not traded in the
open market, the price paid will have been determined based on market factors including
comparable multiples and the expectations regarding cash flows and business plan execution. As
the investments mature or if market conditions change materially, further analysis of the fair
market value of the investment is performed. This analysis is typically based on a metric, such
as multiple of earnings, revenues, earnings before interest and income taxes, or earnings
adjusted for certain cash changes. These multiples are based on comparable multiples for
publicly traded companies or other relevant prior transactions. |
|
|
|
|
For fair value measurements of investments within the nuclear decommissioning trusts and rabbi
trust funds, specifically the fixed income assets using significant other observable inputs and
significant unobservable inputs, the primary valuation technique used is the market approach.
External pricing vendors are designated for each of the asset classes in the nuclear
decommissioning trusts and rabbi trust funds with each security discriminately assigned a
primary pricing source, based on similar characteristics. |
|
|
|
|
A market price secured from the primary source vendor is then used in the valuation of the
assets within the trusts. As a general approach, market pricing vendors gather market data
(including indices and market research reports) and integrate relative credit information,
observed market movements, and sector news into proprietary pricing models, pricing systems, and
mathematical tools. Dealer quotes and other market information including live trading levels
and pricing analysts judgment are also obtained when available. |
|
|
|
|
As of March 31, 2010, the fair value measurements of investments calculated at net asset value
per share (or its equivalent), as well as the nature and risks of those investments, are as
follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair |
|
Unfunded |
|
Redemption |
|
Redemption |
As of March 31, 2010: |
|
Value |
|
Commitments |
|
Frequency |
|
Notice Period |
|
|
|
(in millions)
|
Southern Company |
|
|
|
|
|
|
|
|
|
|
Nuclear decommissioning trusts: |
|
|
|
|
|
|
|
|
|
|
Corporate bonds commingled funds |
|
$ |
60 |
|
|
None |
|
Daily |
|
1 to 3 days |
Other commingled funds |
|
|
26 |
|
|
None |
|
Daily |
|
Not applicable |
Trust owned life insurance |
|
|
80 |
|
|
None |
|
Daily |
|
15 days |
Cash equivalents and restricted cash: |
|
|
|
|
|
|
|
|
|
|
Money market funds |
|
|
201 |
|
|
None |
|
Daily |
|
Not applicable |
Other: |
|
|
|
|
|
|
|
|
|
|
Deferred compensation money market
funds |
|
|
2 |
|
|
None |
|
Daily |
|
Not applicable |
|
|
|
|
|
|
|
|
|
|
|
|
Alabama Power |
|
|
|
|
|
|
|
|
|
|
Nuclear decommissioning trusts: |
|
|
|
|
|
|
|
|
|
|
Trust owned life insurance |
|
$ |
80 |
|
|
None |
|
Daily |
|
15 days |
Cash equivalents and restricted cash: |
|
|
|
|
|
|
|
|
|
|
Money market funds |
|
|
115 |
|
|
None |
|
Daily |
|
Not applicable |
|
|
|
|
|
|
|
|
|
|
|
|
Georgia Power |
|
|
|
|
|
|
|
|
|
|
Nuclear decommissioning trusts: |
|
|
|
|
|
|
|
|
|
|
Corporate bonds commingled funds |
|
$ |
60 |
|
|
None |
|
Daily |
|
1 to 3 days |
Other commingled funds |
|
|
26 |
|
|
None |
|
Daily |
|
Not applicable |
|
|
|
|
|
|
|
|
|
|
|
|
Gulf Power |
|
|
|
|
|
|
|
|
|
|
Cash equivalents and restricted cash: |
|
|
|
|
|
|
|
|
|
|
Money market funds |
|
$ |
16 |
|
|
None |
|
Daily |
|
Not applicable |
|
|
|
|
|
|
|
|
|
|
|
|
Mississippi Power |
|
|
|
|
|
|
|
|
|
|
Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
Money market funds |
|
$ |
37 |
|
|
None |
|
Daily |
|
Not applicable |
|
125
NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
|
|
|
The commingled funds in the nuclear decommissioning trusts invest primarily in a diversified
portfolio of investment high grade money market instruments, including, but not limited to,
commercial paper, notes, repurchase agreements, and other evidences of indebtedness with a
maturity not exceeding 13 months from the date of purchase. The commingled funds will, however,
maintain a dollar-weighted average portfolio maturity of 90 days or less. The assets may be
longer term investment grade fixed income obligations having a maximum five year final maturity
with put features or floating rates with a reset rate date of 13 months or less. The primary
objective for the commingled funds is a high level of current income consistent with stability
of principal and liquidity. |
|
|
|
|
Alabama Powers nuclear decommissioning trusts include investments in Trust-Owned Life Insurance
(TOLI). The taxable nuclear decommissioning trust invests in the TOLI in order to minimize the
impact of taxes on the portfolio and can draw on the value of the TOLI through death proceeds,
loans against the cash surrender value, and/or the cash surrender value, subject to legal
restrictions. The amounts reported in the tables above reflect the fair value of investments
the insurer has made in relation to the TOLI agreements. The nuclear decommissioning trusts do
not own the underlying investments, but the fair value of the investments approximates the cash
surrender value of the TOLI policies. The investments made by the insurer are in commingled
funds. The commingled funds primarily include investments in domestic and international equity
securities and predominantly high-quality fixed income securities. These fixed income
securities include U.S. Treasury and government agency fixed income securities, non-U.S.
government and agency fixed income securities, domestic and foreign corporate fixed income
securities, and, to some degree, mortgage and asset backed securities. The passively managed
funds seek to replicate the performance of a related index. The actively managed funds seek to
exceed the performance of a related index through security analysis and selection. |
|
|
|
|
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 ended
March 31, 2010, the increase in fair value of the funds, which includes reinvested interest and
dividends, is recorded in the regulatory liability and was $20 million for Alabama Power, $24
million for Georgia Power, and $44 million for Southern Company. |
|
|
|
|
The money market funds are short-term investments of excess funds in various money market mutual
funds, which are portfolios of short-term debt securities. The money market funds are regulated
by the SEC and typically receive the highest rating from credit rating agencies. Regulatory and
rating agency requirements for money market funds include minimum credit ratings and maximum
maturities for individual securities and a maximum weighted average portfolio maturity.
Redemptions are available on a same day basis up to the full amount of the investments in the
money market funds. |
|
|
|
|
Changes in the fair value measurement of the Level 3 items using significant unobservable inputs
for Southern Company at March 31, 2010 are as follows: |
|
|
|
|
|
|
|
Level 3 |
|
|
Other |
|
|
|
(in millions) |
Beginning balance at December 31, 2009 |
|
$ |
35 |
|
Total gains
(losses) realized/unrealized: |
|
|
|
|
Included in OCI |
|
|
4 |
|
Transfers out of Level 3 |
|
|
(20 |
) |
|
Ending balance at March 31, 2010 |
|
$ |
19 |
|
|
126
NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
|
|
|
Transfers in and out of the levels of fair value hierarchy are recognized as of the end of the
reporting period. At March 31, 2010, the value of one of the investments was reclassified from
Level 3 to Level 1 because the securities began trading on the public market. The reclassification
is reflected in the table above as a transfer out of Level 3 at its fair value. Additionally, the
discount is no longer being applied because the trading restrictions have been removed. |
|
|
|
|
At March 31, 2010, 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 |
|
$ |
19,242 |
|
|
$ |
19,669 |
|
Alabama Power |
|
$ |
6,183 |
|
|
$ |
6,347 |
|
Georgia Power |
|
$ |
8,072 |
|
|
$ |
8,154 |
|
Gulf Power |
|
$ |
1,119 |
|
|
$ |
1,142 |
|
Mississippi Power |
|
$ |
491 |
|
|
$ |
502 |
|
Southern Power |
|
$ |
1,298 |
|
|
$ |
1,391 |
|
|
|
|
The fair values were based on closing market prices (Level 1) or closing prices of comparable
instruments (Level 2). |
|
|
|
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: |
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
Three Months |
|
|
Ended |
|
Ended |
|
|
March 31, 2010 |
|
March 31, 2009 |
|
|
|
|
|
(in thousands) |
As reported shares |
|
|
822,526 |
|
|
|
779,858 |
|
Effect of options |
|
|
2,261 |
|
|
|
1,787 |
|
|
|
|
Diluted shares |
|
|
824,787 |
|
|
|
781,645 |
|
|
|
|
|
|
|
For the three months ended March 31, 2010 and March 31, 2009, there were 25 million and 38 million
stock options, respectively, 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 months ended
March 31, 2010 and March 31, 2009 would have increased by 2 million and 3 million shares,
respectively. |
127
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 |
|
|
|
|
Number of |
|
Common |
|
Preference |
|
Total |
|
|
Common Shares |
|
Stockholders |
|
Stock of |
|
Stockholders |
|
|
Issued |
|
Treasury |
|
Equity |
|
Subsidiaries |
|
Equity |
|
|
|
(in thousands)
|
|
(in millions)
|
Balance at December 31, 2009 |
|
|
820,152 |
|
|
|
(505 |
) |
|
$ |
14,878 |
|
|
$ |
707 |
|
|
$ |
15,585 |
|
Net income after dividends on
preferred and preference stock |
|
|
|
|
|
|
|
|
|
|
495 |
|
|
|
|
|
|
|
495 |
|
Other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
9 |
|
|
|
|
|
|
|
9 |
|
Stock issued |
|
|
4,872 |
|
|
|
|
|
|
|
171 |
|
|
|
|
|
|
|
171 |
|
Cash dividends on common stock |
|
|
|
|
|
|
|
|
|
|
(359 |
) |
|
|
|
|
|
|
(359 |
) |
Other |
|
|
|
|
|
|
17 |
|
|
|
1 |
|
|
|
|
|
|
|
1 |
|
|
Balance at March 31, 2010 |
|
|
825,024 |
|
|
|
(488 |
) |
|
$ |
15,195 |
|
|
$ |
707 |
|
|
$ |
15,902 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008 |
|
|
777,616 |
|
|
|
(424 |
) |
|
$ |
13,276 |
|
|
$ |
707 |
|
|
$ |
13,983 |
|
Net income after dividends on
preferred and preference stock |
|
|
|
|
|
|
|
|
|
|
126 |
|
|
|
|
|
|
|
126 |
|
Other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
8 |
|
|
|
|
|
|
|
8 |
|
Stock issued |
|
|
5,249 |
|
|
|
|
|
|
|
171 |
|
|
|
|
|
|
|
171 |
|
Cash dividends on common stock |
|
|
|
|
|
|
|
|
|
|
(327 |
) |
|
|
|
|
|
|
(327 |
) |
Other |
|
|
|
|
|
|
(8 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
(1 |
) |
|
Balance at March 31, 2009 |
|
|
782,865 |
|
|
|
(432 |
) |
|
$ |
13,253 |
|
|
$ |
707 |
|
|
$ |
13,960 |
|
|
|
|
|
Bank Credit Arrangements |
|
|
|
|
Bank credit arrangements provide liquidity support to the registrants commercial paper borrowings
and the traditional operating companies variable rate pollution control revenue bonds. 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. |
|
|
|
|
The following table outlines the credit arrangements by company as of March 31, 2010: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executable |
|
|
|
|
|
|
|
|
|
|
|
|
Term-Loans |
|
Expires |
|
|
|
|
|
|
|
|
|
|
One |
|
Two |
|
|
Company |
|
Total |
|
Unused |
|
Year |
|
Years |
|
2010 |
|
2011 |
|
2012 |
|
|
|
(in millions)
|
Southern
Company |
|
$ |
950 |
|
|
$ |
950 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
950 |
|
Alabama Power |
|
|
1,271 |
|
|
|
1,271 |
|
|
|
372 |
|
|
|
|
|
|
|
481 |
|
|
|
25 |
|
|
|
765 |
|
Georgia Power |
|
|
1,715 |
|
|
|
1,703 |
|
|
|
95 |
|
|
|
40 |
|
|
|
465 |
|
|
|
130 |
|
|
|
1,120 |
|
Gulf Power |
|
|
220 |
|
|
|
220 |
|
|
|
100 |
|
|
|
|
|
|
|
190 |
|
|
|
30 |
|
|
|
|
|
Mississippi Power |
|
|
156 |
|
|
|
156 |
|
|
|
65 |
|
|
|
41 |
|
|
|
106 |
|
|
|
50 |
|
|
|
|
|
Southern Power |
|
|
400 |
|
|
|
400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
400 |
|
Other |
|
|
60 |
|
|
|
60 |
|
|
|
60 |
|
|
|
|
|
|
|
60 |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
4,772 |
|
|
$ |
4,760 |
|
|
$ |
692 |
|
|
$ |
81 |
|
|
$ |
1,302 |
|
|
$ |
235 |
|
|
$ |
3,235 |
|
|
128
NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
Subsequent to March 31, 2010, Georgia Power renewed existing credit arrangements totaling $425
million and extended the expiration dates to 2011. Of these facilities, $125 million contain
provisions allowing one-year term loans executable at expiration.
Subsequent to March 31, 2010, Gulf Power renewed existing credit arrangements totaling $75 million
and extended the expiration dates to 2011. All of these facilities contain provisions allowing
one-year term loans executable at expiration.
|
|
|
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, 2010. 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 net periodic benefit costs for the three months ended March 31, 2010 and 2009 are
as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Southern |
|
Alabama |
|
Georgia |
|
|
|
|
|
Mississippi |
PENSION PLANS |
|
Company |
|
Power |
|
Power |
|
Gulf Power |
|
Power |
|
|
|
(in millions)
|
Three Months Ended
March 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
43 |
|
|
$ |
10 |
|
|
$ |
14 |
|
|
$ |
2 |
|
|
$ |
2 |
|
Interest cost |
|
|
98 |
|
|
|
24 |
|
|
|
36 |
|
|
|
4 |
|
|
|
4 |
|
Expected return on plan assets |
|
|
(138 |
) |
|
|
(42 |
) |
|
|
(55 |
) |
|
|
(6 |
) |
|
|
(5 |
) |
Net amortization |
|
|
11 |
|
|
|
3 |
|
|
|
4 |
|
|
|
1 |
|
|
|
1 |
|
|
Net cost (income) |
|
$ |
14 |
|
|
$ |
(5 |
) |
|
$ |
(1 |
) |
|
$ |
1 |
|
|
$ |
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
36 |
|
|
$ |
8 |
|
|
$ |
12 |
|
|
$ |
2 |
|
|
$ |
2 |
|
Interest cost |
|
|
97 |
|
|
|
24 |
|
|
|
37 |
|
|
|
4 |
|
|
|
4 |
|
Expected return on plan assets |
|
|
(135 |
) |
|
|
(41 |
) |
|
|
(54 |
) |
|
|
(6 |
) |
|
|
(5 |
) |
Net amortization |
|
|
10 |
|
|
|
3 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
Net cost (income) |
|
$ |
8 |
|
|
$ |
(6 |
) |
|
$ |
(1 |
) |
|
$ |
|
|
|
$ |
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Southern |
|
Alabama |
|
Georgia |
|
|
|
|
|
Mississippi |
POSTRETIREMENT BENEFITS |
|
Company |
|
Power |
|
Power |
|
Gulf Power |
|
Power |
|
|
|
(in millions)
|
Three Months Ended
March 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
6 |
|
|
$ |
2 |
|
|
$ |
2 |
|
|
$ |
|
|
|
$ |
|
|
Interest cost |
|
|
25 |
|
|
|
6 |
|
|
|
11 |
|
|
|
1 |
|
|
|
1 |
|
Expected return on plan assets |
|
|
(16 |
) |
|
|
(6 |
) |
|
|
(8 |
) |
|
|
|
|
|
|
|
|
Net amortization |
|
|
5 |
|
|
|
2 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
Net cost (income) |
|
$ |
20 |
|
|
$ |
4 |
|
|
$ |
8 |
|
|
$ |
1 |
|
|
$ |
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
7 |
|
|
$ |
2 |
|
|
$ |
2 |
|
|
$ |
|
|
|
$ |
1 |
|
Interest cost |
|
|
28 |
|
|
|
7 |
|
|
|
13 |
|
|
|
1 |
|
|
|
1 |
|
Expected return on plan assets |
|
|
(15 |
) |
|
|
(6 |
) |
|
|
(8 |
) |
|
|
|
|
|
|
|
|
Net amortization |
|
|
7 |
|
|
|
2 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
Net cost (income) |
|
$ |
27 |
|
|
$ |
5 |
|
|
$ |
11 |
|
|
$ |
1 |
|
|
$ |
2 |
|
|
129
NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
|
(G) |
|
EFFECTIVE TAX RATE AND UNRECOGNIZED TAX BENEFITS |
|
|
|
Effective Tax Rate |
|
|
|
|
Southern Companys effective tax rate was 31.6% for the three months ended March 31, 2010, as
compared to 54.1% for the corresponding period in 2009. 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 decreased for the three months ended March 31, 2010 as
compared to March 31, 2009 primarily due to the $202 million charge for the MC Asset Recovery
litigation settlement, which occurred in the first quarter 2009. Southern Company is currently
evaluating potential recovery of the settlement payment through various means including insurance,
claims in U.S. Bankruptcy Court, and other avenues. The degree to which any recovery is realized
will determine, in part, the final income tax treatment of the settlement payment. Additionally, Georgia Powers effective tax rate decreased for the three months ended March 31, 2010 as compared to March 31, 2009
from 33.1% to 27.8%, primarily due to the recognition of additional Georgia state
tax credits and additional AFUDC equity, which is not taxable, in the first quarter 2010. |
|
|
|
|
Unrecognized Tax Benefits |
|
|
|
|
Changes during 2010 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, 2009 |
|
$ |
199 |
|
|
$ |
6 |
|
|
$ |
181 |
|
|
$ |
2 |
|
|
$ |
3 |
|
|
$ |
|
|
Tax positions from current periods |
|
|
11 |
|
|
|
|
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax positions from prior periods |
|
|
(23 |
) |
|
|
|
|
|
|
(23 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Reductions due to settlements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reductions due to expired
statute of limitations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of March 31, 2010 |
|
$ |
187 |
|
|
$ |
6 |
|
|
$ |
169 |
|
|
$ |
2 |
|
|
$ |
3 |
|
|
$ |
|
|
|
|
|
|
All of the unrecognized tax benefits as of March 31, 2010 and December 31, 2009 would impact
the effective tax rate of Southern Company and its subsidiaries if recognized. The tax positions
increase from current periods relates primarily to the Georgia state tax credits litigation and
other miscellaneous uncertain tax positions. The tax positions decrease from prior periods relates
to the Georgia state tax credits litigation. See Note (B) under Income Tax Matters Georgia
State Income Tax Credits herein for additional information. |
|
|
|
|
Accrued interest for unrecognized tax benefits was as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of |
|
As of |
|
|
Georgia |
|
Other |
|
March 31, |
|
December 31, |
|
|
Power |
|
Registrants |
|
2010 |
|
2009 |
|
|
|
(in millions)
|
Interest accrued as of December 31, 2009 |
|
$ |
20 |
|
|
$ |
1 |
|
|
$ |
21 |
|
|
$ |
21 |
|
Interest reclassified due to settlements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest accrued during the period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of March 31, 2010 |
|
$ |
20 |
|
|
$ |
1 |
|
|
$ |
21 |
|
|
$ |
21 |
|
|
|
|
|
None of the registrants accrued any penalties on uncertain tax positions. |
|
|
|
|
It is reasonably possible that the amount of the unrecognized tax benefits associated with a
majority of Southern Companys and Georgia Powers unrecognized tax positions will significantly
increase or decrease within the next 12 months. The resolution of the Georgia state tax credits
litigation would substantially reduce the balances. The conclusion or settlement of state audits
could also impact the balances significantly. At this time, an estimate of the range of reasonably
possible outcomes cannot be determined. |
130
NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
|
|
|
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 each companys policies in areas such as counterparty exposure and risk management
practices. Each companys 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
balance sheets as either assets or liabilities. |
|
|
|
|
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 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 traditional operating
companies and Southern Power may 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 traditional operating companies and Southern Power
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 the statements of 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. |
131
NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
|
|
|
At March 31, 2010, 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 |
|
|
Net Sold |
|
Hedge |
|
Non-Hedge |
|
Purchased |
|
Hedge |
|
Non-Hedge |
As of March 31, 2010: |
|
MWH |
|
Date |
|
Date |
|
mmBtu |
|
Date |
|
Date |
|
|
|
(in millions) |
|
|
|
|
|
|
|
|
|
(in millions) |
|
|
|
|
|
|
|
|
Southern Company |
|
|
1.8 |
|
|
|
2010 |
|
|
|
2010 |
|
|
|
141 |
* |
|
|
2014 |
|
|
|
2014 |
|
Alabama Power |
|
|
0.2 |
|
|
|
2010 |
|
|
|
|
|
|
|
32 |
|
|
|
2014 |
|
|
|
|
|
Georgia Power |
|
|
0.3 |
|
|
|
2010 |
|
|
|
|
|
|
|
68 |
|
|
|
2014 |
|
|
|
|
|
Gulf Power |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10 |
|
|
|
2014 |
|
|
|
|
|
Mississippi Power |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23 |
|
|
|
2014 |
|
|
|
|
|
Southern Power |
|
|
1.3 |
|
|
|
2010 |
|
|
|
2010 |
|
|
|
8 |
* |
|
|
2012 |
|
|
|
2014 |
|
|
|
|
|
* |
|
Includes location basis of 1.2 million British thermal units (mmBtu). |
|
|
|
In addition to the volumes discussed in the above table, the traditional operating companies
and Southern Power enter into physical natural gas supply contracts that provide the option to sell
back excess gas due to operational constraints. The maximum expected volume of natural gas subject
to such a feature is 8 million mmbtu for Southern Company and 6 million mmbtu for Georgia Power and
less than 1 million mmbtu for each of the other companies. |
|
|
|
|
For the next 12-month period ending March 31, 2011, Southern Company and Southern Power expect to
reclassify $11 million in gains from OCI to revenue and $8 million in losses from OCI to fuel
expense with respect to cash flow hedges. Such amounts are immaterial for all other 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. Derivatives related to existing fixed rate securities are accounted for as fair value
hedges. The derivatives employed as hedging instruments are structured to minimize
ineffectiveness. |
|
|
|
|
For cash flow hedges, the derivatives fair value gains or losses are recorded in OCI and are
reclassified into earnings at the same time the hedged transactions affect earnings. For fair
value hedges, the derivatives fair value gains or losses and hedged items fair value gains or
losses are both recorded in earnings at the same time, providing an offset with any difference
representing ineffectiveness. |
|
|
|
|
At March 31, 2010, the following interest rate derivatives were outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value |
|
|
|
|
|
|
|
|
|
|
|
|
Hedge |
|
Gain (Loss) |
|
|
Notional |
|
Interest Rate |
|
Interest Rate |
|
Maturity |
|
March 31, |
|
|
Amount |
|
Received |
|
Paid |
|
Date |
|
2010 |
|
|
|
(in millions) |
|
|
|
|
|
|
|
|
|
(in millions) |
Cash flow hedges of existing debt |
|
|
|
|
|
|
|
|
|
|
|
|
Southern Company |
|
$ |
300 |
|
|
3-month LIBOR + 0.40% spread |
|
|
1.24 |
%* |
|
October 2011 |
|
$ |
|
|
Georgia Power |
|
|
300 |
|
|
1-month LIBOR |
|
|
2.43 |
%* |
|
April 2010 |
|
|
(1 |
) |
Cash flow hedges on forecasted debt |
|
|
|
|
|
|
|
|
|
|
|
|
Gulf Power |
|
|
100 |
|
|
3-month LIBOR |
|
|
3.79 |
%* |
|
April 2020 |
|
|
|
|
Fair value hedges of existing debt |
|
|
|
|
|
|
|
|
|
|
|
|
Southern Company |
|
|
350 |
|
|
4.15% |
|
3-month LIBOR + 1.96%* spread |
|
May 2014 |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,050 |
|
|
|
|
|
|
|
|
|
|
$ |
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
132
NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
|
|
|
Subsequent to March 31, 2010, Gulf Power settled $100 million of interest rate hedges related
to the Series 2010A Senior Note issuance at a gain of approximately $1.5 million. The gain will be
amortized to interest expense over 10 years. |
|
|
|
|
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 March 31, 2011, 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 |
|
March 31, 2011 |
|
Amortized Through |
|
|
|
(in millions) |
|
|
|
|
Southern Company |
|
$ |
(23 |
) |
|
|
2037 |
|
Alabama Power |
|
|
1 |
|
|
|
2035 |
|
Georgia Power |
|
|
(11 |
) |
|
|
2037 |
|
Gulf Power |
|
|
(1 |
) |
|
|
2020 |
|
Southern Power |
|
|
(11 |
) |
|
|
2016 |
|
|
|
|
|
Derivative Financial Statement Presentation and Amounts |
|
|
|
|
At March 31, 2010, the fair value of energy-related derivatives and interest rate derivatives was
reflected in the balance sheets as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives at March 31, 2010 |
|
|
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 in cash flow and fair value
hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy-related derivatives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other current assets* |
|
$ |
12 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Assets from risk management activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 |
|
Interest rate derivatives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other current assets |
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
Other deferred charges and assets |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives designated as hedging
instruments in cash flow and fair value
hedges |
|
$ |
18 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1 |
|
|
$ |
|
|
|
$ |
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging
instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy-related derivatives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other current assets* |
|
$ |
4 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Assets from risk management activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4 |
|
|
Total derivatives not designated as
hedging instruments |
|
$ |
4 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total asset derivatives |
|
$ |
22 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1 |
|
|
$ |
|
|
|
$ |
16 |
|
|
|
|
|
* |
|
Southern Company includes Assets from risk management activities in Other current
assets where applicable. |
133
NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability Derivatives at March 31, 2010 |
|
|
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 |
|
$ |
164 |
|
|
$ |
49 |
|
|
$ |
71 |
|
|
$ |
14 |
|
|
$ |
30 |
|
|
|
|
|
Other deferred credits and liabilities |
|
|
108 |
|
|
|
18 |
|
|
|
54 |
|
|
|
7 |
|
|
|
29 |
|
|
|
|
|
|
Total derivatives designated as hedging
instruments for regulatory purposes |
|
$ |
272 |
|
|
$ |
67 |
|
|
$ |
125 |
|
|
$ |
21 |
|
|
$ |
59 |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives designated as hedging instruments
in cash flow and fair value hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy-related derivatives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities from risk management activities |
|
$ |
9 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
9 |
|
Other deferred charges and assets |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Interest rate derivatives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities from risk management activities |
|
|
2 |
|
|
|
|
|
|
|
1 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
Other deferred charges and assets |
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives designated as hedging
instruments in cash flow and fair value hedges |
|
$ |
18 |
|
|
$ |
|
|
|
$ |
1 |
|
|
$ |
1 |
|
|
$ |
|
|
|
$ |
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging
instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy-related derivatives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities from risk management activities |
|
$ |
6 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
6 |
|
|
Total liability derivatives |
|
$ |
296 |
|
|
$ |
67 |
|
|
$ |
126 |
|
|
$ |
22 |
|
|
$ |
59 |
|
|
$ |
16 |
|
|
|
|
|
All derivative instruments are measured at fair value. See Note (C) herein for additional
information.
|
|
|
|
At March 31, 2010, 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 sheet 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 |
|
$ |
(164 |
) |
|
$ |
(49 |
) |
|
$ |
(71 |
) |
|
$ |
(14 |
) |
|
$ |
(30 |
) |
Other regulatory assets, deferred |
|
|
(108 |
) |
|
|
(18 |
) |
|
|
(54 |
) |
|
|
(7 |
) |
|
|
(29 |
) |
|
Total energy-related derivative gains (losses) |
|
$ |
(272 |
) |
|
$ |
(67 |
) |
|
$ |
(125 |
) |
|
$ |
(21 |
) |
|
$ |
(59 |
) |
|
134
NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
|
|
|
For the three months ended March 31, 2010, the pre-tax effect of interest rate derivatives
designated as fair value hedging instruments on Southern Companys statements of income were
immaterial. |
|
|
|
|
For the three months ended March 31, 2010 and March 31, 2009, 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 |
|
|
|
2010 |
|
2009 |
|
|
|
2010 |
|
2009 |
|
|
|
(in millions) |
|
|
|
(in millions) |
Southern Company |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy-related derivatives |
|
$ |
5 |
|
|
$ |
1 |
|
|
Fuel |
|
$ |
|
|
|
$ |
|
|
Interest rate derivatives |
|
|
(3 |
) |
|
|
1 |
|
|
Interest expense |
|
|
(9 |
) |
|
|
(10 |
) |
|
Total |
|
$ |
2 |
|
|
$ |
2 |
|
|
|
|
$ |
(9 |
) |
|
$ |
(10 |
) |
|
Alabama Power |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate derivatives |
|
$ |
|
|
|
$ |
(2 |
) |
|
Interest expense |
|
$ |
(2 |
) |
|
$ |
(3 |
) |
|
Georgia Power |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate derivatives |
|
$ |
|
|
|
$ |
3 |
|
|
Interest expense |
|
$ |
(5 |
) |
|
$ |
(5 |
) |
|
Gulf Power |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate derivatives |
|
$ |
(2 |
) |
|
$ |
|
|
|
Interest expense |
|
$ |
|
|
|
$ |
|
|
|
Southern Power |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy-related derivatives |
|
$ |
4 |
|
|
$ |
1 |
|
|
Fuel |
|
$ |
|
|
|
$ |
|
|
Interest rate derivatives |
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(3 |
) |
|
|
(2 |
) |
|
Total |
|
$ |
4 |
|
|
$ |
1 |
|
|
|
|
$ |
(3 |
) |
|
$ |
(2 |
) |
|
|
|
|
There was no material ineffectiveness recorded in earnings for any registrant for any period
presented. |
|
|
|
|
For the three months ended March 31, 2010 and March 31, 2009, the pre-tax effect of energy-related
derivatives not designated as hedging instruments on the statements of income were as follows: |
|
|
|
|
|
|
|
|
|
|
|
Derivatives not Designated |
|
|
as Hedging Instruments |
|
Unrealized Gain (Loss) Recognized in Income |
|
|
|
Statements of Income Location |
|
Amount |
|
|
|
|
|
2010 |
|
2009 |
|
|
|
|
|
|
(in millions)
|
|
Southern Company |
|
|
|
|
|
|
|
|
|
|
Energy-related derivatives |
|
Wholesale revenues |
|
$ |
1 |
|
|
$ |
4 |
|
|
|
Fuel |
|
|
(1 |
) |
|
|
(4 |
) |
|
|
Purchased power |
|
|
(1 |
) |
|
|
(1 |
) |
|
Total |
|
|
|
$ |
(1 |
) |
|
$ |
(1 |
) |
|
Southern Power |
|
|
|
|
|
|
|
|
|
|
Energy-related derivatives |
|
Wholesale revenues |
|
$ |
1 |
|
|
$ |
4 |
|
|
|
Fuel |
|
|
(1 |
) |
|
|
(4 |
) |
|
|
Purchased power |
|
|
(1 |
) |
|
|
(1 |
) |
|
Total |
|
|
|
$ |
(1 |
) |
|
$ |
(1 |
) |
|
135
NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
|
|
|
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 March 31, 2010, the fair value of derivative
liabilities with contingent features, by registrant, is as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Southern |
|
Alabama |
|
Georgia |
|
Gulf |
|
Mississippi |
|
Southern |
|
|
|
|
|
|
Company |
|
Power |
|
Power |
|
Power |
|
Power |
|
Power |
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Derivative liabilities |
|
$ |
55 |
|
|
$ |
9 |
|
|
$ |
34 |
|
|
$ |
5 |
|
|
$ |
6 |
|
|
$ |
1 |
|
|
|
|
|
|
|
|
At March 31, 2010, 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 $55 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. |
|
(I) |
|
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. Revenues from sales by Southern Power to
the traditional operating companies were $102 million and $135 million for the three months ended
March 31, 2010 and March 31, 2009, 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, renewable energy projects, 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 March 31,
2010: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues |
|
$ |
4,005 |
|
|
$ |
256 |
|
|
$ |
(125 |
) |
|
$ |
4,136 |
|
|
$ |
41 |
|
|
$ |
(20 |
) |
|
$ |
4,157 |
|
Segment net income (loss) * |
|
|
481 |
|
|
|
15 |
|
|
|
|
|
|
|
496 |
|
|
|
|
|
|
|
(1 |
) |
|
|
495 |
|
Total assets at March 31, 2010 |
|
$ |
49,047 |
|
|
$ |
3,088 |
|
|
$ |
(99 |
) |
|
$ |
52,036 |
|
|
$ |
1,073 |
|
|
$ |
(529 |
) |
|
$ |
52,580 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
2009: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues |
|
$ |
3,557 |
|
|
$ |
232 |
|
|
$ |
(150 |
) |
|
$ |
3,639 |
|
|
$ |
44 |
|
|
$ |
(17 |
) |
|
$ |
3,666 |
|
Segment net income (loss)* |
|
|
302 |
|
|
|
28 |
|
|
|
|
|
|
|
330 |
|
|
|
(205 |
) |
|
|
1 |
|
|
|
126 |
|
Total assets at December 31, 2009 |
|
$ |
48,403 |
|
|
$ |
3,043 |
|
|
$ |
(143 |
) |
|
$ |
51,303 |
|
|
$ |
1,223 |
|
|
$ |
(480 |
) |
|
$ |
52,046 |
|
|
|
|
|
* |
|
After dividends on preferred and preference stock of subsidiaries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electric Utilities Revenues |
Period |
|
Retail |
|
Wholesale |
|
Other |
|
Total |
|
|
|
(in millions)
|
Three Months Ended March 31, 2010 |
|
$ |
3,459 |
|
|
$ |
542 |
|
|
$ |
135 |
|
|
$ |
4,136 |
|
Three Months Ended March 31, 2009 |
|
$ |
3,065 |
|
|
$ |
451 |
|
|
$ |
123 |
|
|
$ |
3,639 |
|
|
136
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. |
|
|
|
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. |
137
|
|
|
|
|
(4) Instruments Describing Rights of Security Holders, Including Indentures |
|
|
|
|
|
Georgia Power |
|
|
|
|
|
(c)1
|
|
-
|
|
Fortieth Supplemental Indenture to
Senior Note Indenture dated as of
March 16, 2010, providing for the
issuance of the Series 2010A Floating
Rate Senior Notes due March 15, 2013.
(Designated in Form 8-K dated March
9, 2010, File No. 1-6468, as Exhibit
4.2.) |
|
|
|
|
|
Gulf Power |
|
|
|
|
|
(d)1
|
|
-
|
|
Sixteenth Supplemental Indenture to
Senior Note Indenture dated as of
April 13, 2010, providing for the
issuance of the Series 2010A 4.75%
Senior Notes due April 15, 2020.
(Designated in Form 8-K dated April
6, 2010, File No. 0-2429, as Exhibit
4.2.) |
|
|
|
|
|
(10) Material Contracts |
|
|
|
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Georgia Power |
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(c)1
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-
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Amendment No. 2, dated as of
January 15, 2010, to the Engineering,
Procurement and Construction
Agreement, dated as of April 8, 2008,
between Georgia Power, for itself and
as agent for Oglethorpe Power
Corporation, Municipal Electric
Authority of Georgia, and Dalton
Utilities, as owners, and a
consortium consisting of Westinghouse
and Stone & Webster, as contractor,
for Units 3 & 4 at the Vogtle
Electric Generating Plant Site.
(Georgia Power has requested
confidential treatment for certain
portions of this document pursuant to
an application for confidential
treatment sent to the SEC. Georgia
Power has omitted such portions from
the filing and filed them separately
with the SEC.) |
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(c)2
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-
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Amendment No. 3, dated as of
February 23, 2010, to the
Engineering, Procurement and
Construction Agreement, dated as of
April 8, 2008, between Georgia Power,
for itself and as agent for
Oglethorpe Power Corporation,
Municipal Electric Authority of
Georgia, and Dalton Utilities, as
owners, and a consortium consisting
of Westinghouse and Stone & Webster,
as contractor, for Units 3 & 4 at the
Vogtle Electric Generating Plant
Site. (Georgia Power has requested
confidential treatment for certain
portions of this document pursuant to
an application for confidential
treatment sent to the SEC. Georgia
Power has omitted such portions from
the filing and filed them separately
with the SEC.) |
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(c)3
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-
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Retention and Restricted Stock
Unit Award Agreement between Joseph
A. (Buzz) Miller and Southern
Nuclear. |
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(24) Power of Attorney
and Resolutions |
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Southern Company |
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(a)1
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-
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Power of Attorney and resolution.
(Designated in the Form 10-K for the
year ended December 31, 2009, File
No. 1-3526 as Exhibit 24(a) and
incorporated herein by reference.) |
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Alabama Power |
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(b)1
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-
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Power of Attorney and resolution.
(Designated in the Form 10-K for the
year ended December 31, 2009, File
No. 1-3164 as Exhibit 24(b) and
incorporated herein by reference.) |
138
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Georgia Power |
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(c)1
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-
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Power of Attorney and resolution. (Designated in the
Form 10-K for the year ended December 31, 2009, File No.
1-6468 as Exhibit 24(c) and incorporated herein by
reference.) |
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Gulf Power |
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(d)1
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-
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Power of Attorney and resolution. (Designated in the
Form 10-K for the year ended December 31, 2009, File No.
0-2429 as Exhibit 24(d) and incorporated herein by
reference.) |
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Mississippi
Power |
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(e)1
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-
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Power of Attorney and resolution. (Designated in the
Form 10-K for the year ended December 31, 2009, File No.
001-11229 as Exhibit 24(e) and incorporated herein by
reference.) |
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Southern Power |
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(f)1
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-
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Power of Attorney and resolution. (Designated in the
Form 10-K for the year ended December 31, 2009, File No.
333-98553 as Exhibit 24(f) and incorporated herein by
reference.) |
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(31) Section
302
Certifications |
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Southern
Company |
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(a)1
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-
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Certificate of Southern Companys Chief Executive
Officer required by Section 302 of the Sarbanes-Oxley Act
of 2002. |
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(a)2
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-
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Certificate of Southern Companys Chief Financial
Officer required by Section 302 of the Sarbanes-Oxley Act
of 2002. |
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Alabama Power |
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(b)1
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-
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Certificate of Alabama Powers Chief Executive Officer
required by Section 302 of the Sarbanes-Oxley Act of
2002. |
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(b)2
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-
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Certificate of Alabama Powers Chief Financial Officer
required by Section 302 of the Sarbanes-Oxley Act of
2002. |
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Georgia Power |
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(c)1
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-
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Certificate of Georgia Powers Chief Executive Officer
required by Section 302 of the Sarbanes-Oxley Act of
2002. |
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(c)2
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-
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Certificate of Georgia Powers Chief Financial Officer
required by Section 302 of the Sarbanes-Oxley Act of
2002. |
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Gulf Power |
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(d)1
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-
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Certificate of Gulf Powers Chief Executive Officer
required by Section 302 of the Sarbanes-Oxley Act of
2002. |
139
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(d)2
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-
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Certificate of Gulf Powers Chief Financial
Officer required by Section 302 of the
Sarbanes-Oxley Act of 2002. |
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Mississippi Power |
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(e)1
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-
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Certificate of Mississippi Powers Chief
Executive Officer required by Section 302 of
the Sarbanes-Oxley Act of 2002. |
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(e)2
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-
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Certificate of Mississippi Powers Chief
Financial Officer required by Section 302 of
the Sarbanes-Oxley Act of 2002. |
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Southern Power |
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(f)1
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-
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Certificate of Southern Powers Chief
Executive Officer required by Section 302 of
the Sarbanes-Oxley Act of 2002. |
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(f)2
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-
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Certificate of Southern Powers Chief
Financial Officer required by Section 302 of
the Sarbanes-Oxley Act of 2002. |
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(32) Section 906
Certifications |
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Southern Company |
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(a)
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-
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Certificate of Southern Companys Chief
Executive Officer and Chief Financial Officer
required by Section 906 of the Sarbanes-Oxley
Act of 2002. |
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Alabama Power |
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(b)
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-
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Certificate of Alabama Powers Chief
Executive Officer and Chief Financial Officer
required by Section 906 of the Sarbanes-Oxley
Act of 2002. |
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Georgia Power |
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(c)
|
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-
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Certificate of Georgia Powers Chief Executive Officer and
Chief Financial Officer required by Section 906 of the
Sarbanes-Oxley Act of 2002. |
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Gulf Power |
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(d)
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-
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Certificate of Gulf Powers Chief Executive Officer and
Chief Financial Officer required by Section 906 of the
Sarbanes-Oxley Act of 2002. |
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Mississippi Power |
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(e)
|
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-
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Certificate of Mississippi Powers Chief
Executive Officer and Chief Financial Officer
required by Section 906 of the Sarbanes-Oxley
Act of 2002. |
140
|
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Southern
Power |
(f)
|
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-
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|
Certificate of Southern Powers Chief Executive Officer and
Chief Financial Officer required by Section 906 of the
Sarbanes-Oxley Act of 2002. |
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(101) XBRL Related Documents |
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Southern
Company |
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INS |
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XBRL Instance Document |
SCH |
|
XBRL Taxonomy Extension Schema Document |
CAL |
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XBRL Taxonomy Calculation Linkbase Document |
LAB |
|
XBRL Taxonomy Label Linkbase Document |
PRE |
|
XBRL Taxonomy Presentation Linkbase Document |
141
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.
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THE SOUTHERN COMPANY |
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By
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David M. Ratcliffe |
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Chairman, President, and Chief Executive Officer
(Principal Executive Officer) |
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By
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W. Paul Bowers |
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Executive Vice President and Chief Financial Officer
(Principal Financial Officer) |
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By
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/s/ Melissa K. Caen
(Melissa K. Caen, Attorney-in-fact)
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Date: May 7, 2010
142
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.
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ALABAMA POWER COMPANY |
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By
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Charles D. McCrary
President and Chief Executive Officer
(Principal Executive Officer) |
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By
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Art P. Beattie
Executive Vice President, Chief Financial Officer, and Treasurer
(Principal Financial Officer) |
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By
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/s/ Melissa K. Caen
(Melissa K. Caen, Attorney-in-fact)
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Date: May 7, 2010
143
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.
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GEORGIA POWER COMPANY |
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By
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Michael D. Garrett
President and Chief Executive Officer
(Principal Executive Officer) |
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By
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Ronnie R. Labrato
Executive Vice President, Chief Financial Officer, and Treasurer
(Principal Financial Officer) |
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By
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/s/ Melissa K. Caen
(Melissa K. Caen, Attorney-in-fact)
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Date: May 7, 2010
144
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.
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GULF POWER COMPANY |
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By
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Susan N. Story
President and Chief Executive Officer
(Principal Executive Officer) |
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By
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Philip C. Raymond
Vice President and Chief Financial Officer
(Principal Financial Officer) |
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By
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/s/ Melissa K. Caen
(Melissa K. Caen, Attorney-in-fact)
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Date: May 7, 2010
145
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
President and Chief Executive Officer
(Principal Executive Officer) |
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By
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Frances Turnage
Vice President, Treasurer, and Chief Financial Officer
(Principal Financial Officer) |
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By
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/s/ Melissa K. Caen
(Melissa K. Caen, Attorney-in-fact)
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Date: May 7, 2010
146
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
President and Chief Executive Officer
(Principal Executive Officer) |
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By
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Michael W. Southern
Senior Vice President, Treasurer, and Chief Financial Officer
(Principal Financial Officer) |
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By
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/s/ Melissa K. Caen
(Melissa K. Caen, Attorney-in-fact)
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Date: May 7, 2010
147