SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
APPLICATION OR DECLARATION
on
FORM U-1
under
The Public Utility Holding Company Act of 1935
SEI BIRCHWOOD, INC. BIRCHWOOD POWER PARTNERS, L.P.
900 Ashwood Parkway c/o SEI Birchwood, Inc.
Suite 500 900 Ashwood Parkway
Atlanta, Georgia 30338 Suite 500
Atlanta, Georgia 30338
(Name of company or companies filing this statement
and addresses of principal executive offices)
THE SOUTHERN COMPANY
(Name of top registered holding company parent of each applicant or declarant)
Tommy Chisholm, Secretary Thomas G. Boren, President
The Southern Company Southern Energy, Inc.
270 Peachtree Street, N.W. 900 Ashwood Parkway
Atlanta, Georgia 30303 Suite 500
Atlanta, Georgia 30338
(Names and addresses of agents for service)
The Commission is requested to mail signed copies of all orders,
notices and communications to:
W.L. Westbrook Thomas G. Boren, President
Financial Vice-President Southern Energy, Inc.
The Southern Company 900 Ashwood Parkway
270 Peachtree Street, N.W. Suite 500
Atlanta, Georgia 30303 Atlanta, Georgia 30338
John D. McLanahan, Esq.
Troutman Sanders LLP
600 Peachtree Street, N.E.
Suite 5200
Atlanta, Georgia 30308-2216
<PAGE>
INFORMATION REQUIRED
Item 1. Description of Proposed Transaction.
1.1 Background. SEI Holdings, Inc. ("Holdings") is a wholly-owned
non-utility subsidiary of The Southern Company ("Southern"), a registered
holding company under the Act. Through Southern Energy, Inc. (formerly Southern
Electric International, Inc.) ("Southern Energy"), Holdings engages in the
business of developing, managing and rendering services to associate companies
that are "exempt wholesale generators" and "foreign utility companies," as
defined in Sections 32 and 33, respectively, of the Act, and certain
special-purpose subsidiaries (called "Energy-Related Companies") which derive or
will derive substantially all of their revenues from the ownership and/or
operation of specified categories of non-utility businesses, including, among
others, "qualifying facilities," as defined in the Public Utility Regulatory
Policies Act of 1978, as amended ("PURPA").1
In 1994, Southern Energy successfully developed and arranged
construction and permanent financing for the Birchwood cogeneration project,
which is located near Fredericksburg, Virginia. The Birchwood project consists
of a 237 MW bituminous coal-fired cogeneration facility that is scheduled to be
placed in commercial operation in November 1996 and will commence delivering
power at wholesale to Virginia Electric and Power Company under a 25-year
wholesale power contract. The cogeneration facility will also produce and
deliver useful thermal energy in the form of steam to a 36-acre greenhouse
complex (the "Greenhouse Facility") that was constructed on a site that is
adjacent to the power complex. The Greenhouse Facility was planned and
constructed, in stages, as an integral part of the overall Birchwood project. As
each stage of the Greenhouse Facility was completed, it was placed in commercial
production. The Greenhouse Facility has been producing and selling agricultural
and horticultural products (chiefly bedding and other seasonal plants) since
1995.
____________
1 See The Southern Company, et al., Holding Co. Act Rel. No.26212 (December
30, 1994) and SEI Holdings, Inc., Holding Co. Act Rel. No. 26468 (February
2, 1996).
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The cogeneration facility is owned by Birchwood Power Partners, L.P.
("BPP"), a Delaware limited partnership. Southern's interest in BPP is held
through an indirect wholly-owned subsidiary of Holdings, SEI Birchwood, Inc.
("SEI Birchwood"). SEI Birchwood and Cogentrix/Birchwood Two, L.P. ("Cogentrix
Two"), a subsidiary of Cogentrix Energy, Inc., each hold 2% general partnership
and 48% limited partnership interests in BPP.
SEI Birchwood and BPP were determined by the Federal Energy Regulatory
Commission ("FERC") to be "exempt wholesale generators" ("EWGs") in 1993.2
Subsequently, the Birchwood cogeneration facility was certified as a "qualifying
facility" ("QF") under PURPA, based on its intended use in producing, in a
sequential process, both electricity and thermal energy in the form of steam to
be used in the Greenhouse Facility for space heating and cooling, irrigation
water heating, and water pasteurization.3
Prior to closing on the construction financing for the Birchwood
project in May 1994, it was determined that the Greenhouse Facility should be
owned and operated by an unaffiliated third party, rather than by BPP or SEI
Birchwood, notwithstanding that substantially all of the funds needed to
construct the Greenhouse Facility were to be provided on a non-recourse basis by
the same lender group financing construction of the cogeneration facility. Under
Section 32 of the Act, an EWG must be engaged "exclusively" in the business of
owning and operating an "eligible facility" and selling electricity at
wholesale. The decision to place the Greenhouse Facility under separate
ownership was intended to avoid any possible question that the ownership thereof
by BPP or SEI Birchwood would be inconsistent with the "exclusivity" requirement
of Section 32.
____________
2 See SEI Hawaiian Cogenerators, Inc., et al., 63 FERCP. 61,261 (1993).
3 See Birchwood Power Partners, L.P., 65 FERC P. 62,048 (1993). Among other
things, the FERC determined that the facility would satisfy the operating
standards established for cogeneration QFs under its rules and regulations,
18 C.F.R. ss. 292.205, based on the information provided by BPP. The
facility was recertified as a QF to reflect the change in ownership upon
admission of Cogentrix Two as a general and limited partner. See Birchwood
Power Partners, L.P., 72 FERC P. 62,007 (1995).
<PAGE>
Accordingly, under the financing and ownership arrangements put in
place, a special-purpose Delaware corporation, Greenhost, Inc. ("Greenhost") was
organized and its shares were acquired by an indirect subsidiary of CT
Corporation, an independent corporate and financial services company. On or
prior to closing on the construction financing, several other contracts relating
to the construction and operation of the Greenhouse Facility were also executed
and delivered. These included a long-term site lease between BPP and Greenhost
pursuant to which BPP has leased to Greenhost the land on which the Greenhouse
Facility is constructed, and a long-term steam sales agreement, pursuant to
which Greenhost is obligated to accept and use specified minimum quantities and
pressures of steam produced and delivered by BPP.4 Concurrently, Greenhost
entered into a long-term facility lease and site sublease (the "Facility Lease")
with an unaffiliated third-party commercial greenhouse operator (the "Lessee").
Under the terms of the Facility Lease, the Lessee is obligated to make payments
of rent in amounts required to enable Greenhost to pay the principal of and
interest on the non-recourse indebtedness incurred to construct the Greenhouse
Facility. The Facility Lease also obligates the Lessee to perform all of
Greenhost's material obligations under the steam sales agreement and the site
lease, including, among others, the obligation to accept and use steam supplied
by BPP. The Lessee sells substantially all of the horticultural output of the
Greenhouse Facility to large mass merchandisers, grocery store chains, garden
centers, and home improvement stores.
As a part of the overall transaction, and as security for their
respective obligations under the steam sales agreement, the site lease and the
Facility Lease, Greenhost and the Lessee granted various rights and security
interests to BPP, which BPP, in turn, collaterally assigned to the project
lenders. Among other rights and remedies granted BPP, following certain defaults
by Greenhost and/or the Lessee, BPP has the right to step in and take control of
the Greenhouse Facility, to terminate the Facility Lease, and/or acquire the
stock of Greenhost through exercise of rights under certain security or pledge
agreements. Such rights were deemed to be important and valuable by both BPP and
the non-recourse project lenders in order to assure that BPP could take
appropriate action to protect the QF status of the cogeneration facility in the
event of defaults relating to the Greenhouse Facility operations.
___________
4 Under the steam sales agreement, Greenhost is required to take and use such
minimum quantities of steam as will enable BPP to satisfy the operating
standards established by FERC under its regulations for cogeneration QFs.
<PAGE>
In early 1996, the Lessee sustained significant financial losses and
permanent impairment of its working capital. As a direct consequence, the Lessee
has given notice that it is not able to make certain future scheduled rent
payments under the Facility Lease. BPP has also given written notice to the
Lessee asserting defaults by the Lessee of other ongoing financial obligations
under the Facility Lease. Greenhost, the Lessee, the Lessee's principal
shareholder and an affiliate of the Lessee have had ongoing discussions in an
effort to restructure the relationships among such parties. As a result thereof,
the parties have entered into a forbearance and workout agreement that provides,
among other things, for the termination of the Facility Lease in consideration
of the mutual release and discharge of all parties from claims or potential
claims arising out of defaults under the Facility Lease and related agreements.
As indicated, the obligation of the Lessee to pay rent under the
Facility Lease is essentially the sole source of support for debt service
payments by Greenhost in respect of the non-recourse debt incurred to finance
the Greenhouse Facility. For that reason, the financing documents provide that
the Lessee's default under the Facility Lease also constitutes a default by
Greenhost under its loan and related security agreements. Accordingly, upon
termination of the Facility Lease, SEI Birchwood and Cogentrix Two propose to
exercise rights to acquire the shares of Greenhost. Alternatively, the shares of
Greenhost may be acquired by BPP. Greenhost's existing indebtedness will remain
in place.
<PAGE>
1.2 Approval Requested. SEI Birchwood proposes to acquire, for a nominal
cash consideration, 50 of the 100 issued and outstanding shares of the common
stock, no par value, of Greenhost. (Cogentrix Two (or an affiliate) will acquire
the other 50% of Greenhost's shares). Alternatively, approval is requested for
BPP to acquire 100% of the shares of Greenhost.5
There will be no changes involved in the operation or use of the
Greenhouse Facility following the acquisition of Greenhost's shares. The steam
sales agreement and site lease, as it may be amended, between BPP and Greenhost
will remain in place, and the Greenhouse Facility will continue to be operated
in accordance with the terms of such agreements in such a way as to enable BPP
to satisfy the operating standards applicable to cogeneration QFs under the
PURPA regulations. The Applicants contemplate that Greenhost will contract with
a third party to manage the Greenhouse Facility and market the agricultural and
horticultural produce.
Item 2. Fees, Commissions and Expenses.
The fees, commissions and expenses to be paid or incurred in connection
with this Application or Declaration are estimated not to exceed $6,000.
_____________
5 The Applicants anticipate that Greenhost may require additional funds for
working capital purposes. Such funds may be borrowed by Greenhost from SEI
Birchwood or BPP or from third party lenders pursuant to Rule 52(b), or
contributed to Greenhost by BPP or SEI Birchwood or BPP in reliance upon
the exemption afforded under Rule 46(b).
<PAGE>
Item 3. Applicable Statutory Provisions.
Sections 9(a)(1) and 10 of the Act and Rules 23 and 54 thereunder are
applicable to the proposed transaction. The Commission has previously approved
the acquisition of interests in QFs that have also included integrated
greenhouse operations,6 as well as other types of ancillary facilities. Further,
under the Commission's proposed Rule 58,7 the ownership of a dedicated thermal
host facility by a company owning a QF would be allowed. In fact, the Applicants
believe that this Application or Declaration would be unnecessary if Rule 58, as
proposed, were currently in effect.
Rule 54 Analysis: Rule 54 provides that, in determining whether to
approve a proposed transaction by a registered holding company or subsidiary
thereof other than with respect to an EWG or FUCO, the Commission shall not
consider the effect of the capitalization or earnings of any subsidiary that is
an EWG or FUCO upon the registered holding company system if the requirements of
Rule 53(a), (b) and (c) are satisfied. In this regard, the Applicants represent
that (i) Southern is currently in compliance with all conditions of Rule 53(a),
and (ii) none of the circumstances described in Rule 53(b) that would render
Rule 53(a) inapplicable has occurred or exists.
With respect to Rule 53(a), the Applicants represent that, at September
30, 1996, Southern's "aggregate investment" in all EWGs and FUCOs was
approximately $889.5 million, or about 25% of Southern's "consolidated retained
earnings" for the four consecutive quarters ended June 30, 1996 ($3.523
billion). Further, Southern has complied and will continue to comply with the
other requirements of Rule 53(a) regarding the maintenance of books and records,
use of employees of domestic utility subsidiaries to render services to
associate EWGs and FUCOs, and submission of certain filings under the Act with
the appropriate retail rate regulatory commissions.
___________
6 See Central and South West Corp., Holding Co. Act Rel. No. 25399 (November
1, 1991).
7 See Notice of Proposed Rulemaking, "Exemption of Acquisition of Securities
of Companies Engaged in Energy-Related and Gas-Related Businesses," Holding
Co. Act Rel. No. 26313 (June 20, 1995).
<PAGE>
Furthermore, even if the effect of the capitalization and earnings of
EWGs and FUCOs in which Southern has an ownership interest upon the Southern
holding company system were considered, there is no basis for the Commission to
withhold or deny approval for the proposal made in this Application or
Declaration. The action requested in the instant filing would not, by itself, or
even considered in conjunction with the effect of the capitalization and
earnings of Southern's EWGs and FUCOs, have a material adverse effect on the
financial integrity of the Southern system, or an adverse impact on Southern's
public-utility subsidiaries, their customers, or the ability of state
commissions to protect such public-utility customers. On the contrary, the
transaction contemplated herein merely involves the prudent exercise of rights
and remedies that will enable BPP to preserve its status as a QF.
Item 4. Regulatory Approval.
No state commission, and no federal commission, other than this
Commission, has jurisdiction over the transaction proposed herein.
Item 5. Procedure.
The Applicants request that the Commission's order be issued as soon as
the rules allow, and that there be no thirty-day waiting period between the
issuance of the Commission's order and the date on which it is to become
effective. The Applicants hereby waive a recommended decision by a hearing
officer or other responsible officer of the Commission and hereby consent that
the Division of Investment Management may assist in the preparation of the
Commission's decision and/or order in the matter unless such Division opposes
the matters covered hereby.
Item 6. Exhibits and Financial Statements.
(a) Exhibits:
F - Opinion of Counsel. (To be supplied by amendment).
G - Form of Federal Register Notice.
(b) Financial Statements.
Not applicable.
Item 7. Information as to Environmental Effects.
(a) In light of the nature of the proposed transactions, as described
in Item 1 hereof, the Commission's action in this matter will not constitute any
major federal action significantly affecting the quality of the human
environment.
(b) No other federal agency has prepared or is preparing an
environmental impact statement with regard to the proposed transactions.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Public Utility Holding Company Act of
1935, the undersigned companies have duly caused this statement to be signed on
their behalf by the undersigned thereunto duly authorized.
Dated: October 18, 1996
SEI BIRCHWOOD, INC.
By: /s/Tommy Chisholm
Tommy Chisholm
Secretary
BIRCHWOOD POWER PARTNERS, L.P.
by SEI BIRCHWOOD, INC., a general partner
By: /s/Tommy Chisholm
Tommy Chisholm
Secretary
- --------
Exhibit G
FORM OF FEDERAL REGISTER NOTICE
SEI Birchwood, Inc. ("SEI Birchwood"), a Delaware corporation, 900
Ashwood Parkway, Suite 500, Atlanta, GA 30338, and Birchwood Power Partners,
L.P. ("BPP"), a Delaware limited partnership, have filed a joint application
pursuant to Sections 9(a)(1) and 10 of the Act and Rules 23 and 54 thereunder.
SEI Birchwood, a wholly-owned indirect subsidiary of The Southern Company, a
registered holding company, holds a 2% general and 48% limited partnership
interest in BPP. The remaining partnership interests are held by an unaffiliated
third party. BPP owns a 237 MW coal-fired cogeneration power plant in Virginia.
The facility produces electricity for sale at wholesale to Virginia Electric and
Power Company under a long-term contract. The facility also produces and
delivers steam to a 36-acre greenhouse complex (the "Greenhouse Facility")
located on a site that is adjacent to the cogeneration facility. The
cogeneration facility and greenhouse were constructed as integrated parts of a
single project that was intended to qualify as a cogeneration "qualifying
facility" (or "QF") under the Public Utility Regulatory Policies Act of 1978, as
amended ("PURPA"), based on, among other factors, the intended use of steam
produced by BPP in the Greenhouse Facility operations in minimum quantities
required to satisfy the operating standards applicable to cogeneration QFs under
the PURPA regulations. The Greenhouse Facility is used to grow agricultural and
horticultural produce.
The Federal Energy Regulatory Commission ("FERC") has certified the
Birchwood cogeneration facility as a QF. In addition, BPP and SEI Birchwood have
each been determined by FERC to be an "exempt wholesale generator" (or "EWG")
within the meaning:" of Section 32 of the Act. The applicants state that, prior
to commencement of construction of the cogeneration facility in 1993, it was
determined that the Greenhouse Facility should be owned and operated by an
unrelated third party (rather than SEI Birchwood or BPP), in order to avoid any
possible question that ownership of such a facility would be inconsistent with
the "exclusivity" requirement of Section 32. Accordingly, the transaction was
structured by placing ownership of the Greenhouse Facility in a special purpose
company, Greenhost, Inc. ("Greenhost"), whose shares are currently held by a
corporate and financial services company. Greenhost incurred debt to finance the
cost of constructing the facility, and entered into a site lease and steam sales
agreement with BPP. In turn, Greenhost has leased the facility to an independent
commercial greenhouse operator. Lease payments under the facility lease are
designed to match payments of principal of and interest on Greenhost's
indebtedness. In addition, under the terms of the facility lease, the lessee is
responsible for the performance of all of Greenhost's material obligations under
the site lease and steam sales agreement, including, without limitation, the
obligation to take and use minimum quantities of steam. As a part of these
interrelated transactions, BPP negotiated certain rights and security interests
which enable BPP to terminate the facility lease, take possession of the
Greenhouse Facility, and/or acquire the shares of Greenhost in the event of
defaults by the lessee and Greenhost.
<PAGE>
The applicants state that the lessee has recently experienced financial
losses and that, as a result thereof, certain defaults have occurred under the
facility lease and related security instruments. The parties to these agreements
have entered into a settlement agreement with respect to all claims and asserted
claims pursuant to which, among other things, the facility lease will be
terminated. In conjunction therewith, the applicants intend to exercise rights
to acquire the shares of Greenhost for a nominal consideration . Greenhost's
outstanding indebtedness will remain in place, and the Greenhouse Facility will
continue to be used for the purposes for which it was built.
Under the settlement, SEI Birchwood and the other 50% partner of BPP
would each acquire 50% the shares of Greenhost. Alternatively, BPP may acquire
100% of Greenhost's shares and hold it as a subsidiary. The applicants cite
instances in which the Commission has previously authorized subsidiaries of
registered holding companies to acquire interests in QFs, including ancillary
facilities (such as a greenhouse) that are intended to enable the QF to meet the
minimum operating standards for cogeneration QFs under the FERC regulations.
