File No. 70-8823
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 3
(Post-Effective Amendment No. 1)
to
FORM U-1
APPLICATION OR DECLARATION
under
The Public Utility Holding Company Act of 1935
SEI HOLDINGS, INC.
900 Ashwood Parkway
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)
Thomas G. Boren, President
SEI Holdings, Inc.
900 Ashwood Parkway
Suite 500
Atlanta, Georgia 30338
(Name and address of agent 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 SEI Holdings, 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
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Item 1. Description of Proposed Transactions.
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 Public Utility Holding Company Act of 1935, as amended
(the "Act"). By order dated September 26, 1996 (the "September 1996 Order"), the
Commission authorized Holdings, through one or more subsidiaries referred to as
"Marketing Subsidiaries," to broker or market electricity and other forms of
energy commodities, including natural gas, oil and coal, within the United
States, and to provide incidental related services to customers, subject to
certain qualifications and limitations as regards retail sales of electricity
and natural gas. Under the September 1996 Order, the Commission reserved
jurisdiction over activities by Marketing Subsidiaries outside the United States
pending completion of the record.
Holdings now requests that the Commission release jurisdiction
heretofore reserved over activities by Marketing Subsidiaries in Mexico and
Canada. Holdings is not herein requesting any other modification to the terms or
conditions of the September 1996 Order, and requests that the Commission
continue to reserve jurisdiction over activities by Marketing Subsidiaries
outside the United States, Canada and Mexico.
Holdings submits that approval of this request is appropriate in that
(i) the North American energy market has already evolved into an integrated
market in terms of both physical interconnection and the volume of cross-border
electricity and gas sales; (ii) such approval would enable Marketing
Subsidiaries of Holdings to compete with other large independent power and gas
marketers that have already established a presence in the Canadian and Mexican
markets with resulting benefits for both consumers and investors; (iii) such
approval would enable Holdings to establish a presence in the Canadian and
Mexican markets without the need to invest significant sums in sources of
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production or supply in those countries; and (iv) legislative and administrative
actions by Congress and other U.S. regulatory bodies, including the Energy
Policy Act of 1992 ("EPAct"), the North American Free Trade Agreement ("NAFTA"),
the sharp increase in export licenses granted by the Department of Energy
("DOE"), and recent rulings by the Federal Energy Regulatory Commission ("FERC")
ordering the transmission of power to Mexico and conditioning market rate orders
granted to power marketing affiliates of Canadian utilities upon the existence
of open access to the transmission systems of such Canadian utilities, all
underscore the importance of promoting free and unfettered competition in the
North American energy market as a national goal. Finally, Holdings believes that
considerations underlying the recent orders of the Commission authorizing
subsidiaries of registered holding companies to engage in demand-side management
and energy efficiency activities in Canada are equally applicable to the
proposal contained herein.
1.2 The North American Energy Market Constitutes a Single Market. There
are few if any remaining physical barriers to electricity and gas transactions
across the U.S.-Canada and U.S.-Mexico borders. The electricity transmission
grids in Canada and the United States are interconnected at many points. Certain
U.S. and Canadian utility systems have been operated synchronously for decades
and coordinate operations and planning through membership in regional
reliability councils. Although electrical interconnections into Mexico are less
well developed, several projects are under way to add or strengthen
interconnections between U.S. utilities and the Mexican state-owned utility,
Comision Federal de Electricidad ("CFE").1
1 There are currently at least seven major (69 kV and above) interconnections
between San Diego, California and El Paso, Texas, and at least five between
Presidio, Texas and Brownsville, Texas. These ties connect CFE to the power
grids of the Western Systems Coordinating Council and the Electric Reliability
Council of Texas.
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Likewise, there are several large natural gas pipelines between the U.S. and
Canada, and several projects underway
at points along the U.S.-Mexico border that will greatly expand Mexico's ability
to export gas into southwestern U.S. markets.2
The Western Systems Power Pool ("WSPP") is one of the best examples of
the increasingly integrated, international nature of the North American
electricity market. The WSPP functions as a marketplace where members can trade
electricity under favorable regulatory conditions. The organization began in
1987 as an experiment involving 15 utilities in or near California. Since then,
it has grown to include over 140 members located throughout the United States
and including Canadian entities such as Edmonton Power, Powerex (an affiliate of
B.C. Hydro), TransAlta Utilities Corp., TransCanada Power Corp. and West
Kootenay Power.3 Southern Energy Trading and Marketing, Inc. (formerly Southern
Energy Marketing, Inc.) ("SETMI"), an indirect, wholly-owned, Marketing
Subsidiary of Holdings, is also a member of WSPP.
In recent years, the volume of cross-border gas and electricity sales
has grown dramatically and is projected to grow well into the future. In 1995,
the U.S. imported (mostly from Canada) 12.4% of its total gas consumption, which
is expected to increase to 14% by 2015 as additional pipeline capacity is
constructed.4 Canadian exports of gas to the U.S. in 1994 amounted to
2 See "International Energy Outlook 1996," Dept. of Energy, Energy Information
Admin. - 0484(96) (May 1996), p. 40.
3 See Western System Power Pool Transmission and Ancillary Services Tariff and
Revisions to WSPP Agreement to Unbundle Transmission from Sales Prices Filed
with the Federal Energy Regulatory Commission, Dec. 30, 1996, F.E.R.C. Docket
No. OA97-220-000.
4 See "Annual Energy Outlook 1997," Dept. of Energy, Energy Information Admin. -
0383(97) (December 1996), p. 59.
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approximately 50% of Canada's total domestic production, up from 28% a decade
ago.5 In 1995, the U.S. imported 48.3 billion kWhs of electricity (again, mostly
from Canada) and exported 10.6 billion kWhs. While imports are not projected to
grow, exports are expected to double by 2015.6
1.3 Other Energy Marketers With Which Holdings Competes Have Already
Established a Presence in Canadian and Mexican Markets. Many U.S. power
producers and marketers have already sought and obtained export authorizations
from the Department of Energy ("DOE") under Section 202(e) of the Federal Power
Act. For example, within the past year, North American Energy Conservation, U.S.
Generating Company, CNG Energy Services, Inc., Destec Power Services, Inc. and
NorAm Energy Services, Inc. have all sought and obtained licenses to export
power at specified interconnection points.7 Recently, DOE granted, with
conditions, Enron Power Marketing, Inc.'s request for "blanket" authority to
export power across all interconnection points into Canada.8
Of course, power marketing does not simply involve exporting U.S.
produced power into Canada and Mexico. Marketers also need the flexibility to
purchase sources of supply within Canada and Mexico, either for import into the
United States or for resale to customers in Canada or Mexico. Although Marketing
Subsidiaries of Holdings may, consistent with the terms of the September 1996
5 "International Energy Outlook 1996," supra, n. 2., p. 40.
6 "Annual Energy Outlook 1997," supra, n. 4, p. 139. Mexico is projected to lead
the growth in electricity demand in North America at 4.7% per year through 2015.
"International Energy Outlook 1996," supra, n. 2, p. 76.
7 SETMI has also joined in WSPP's existing license to export electricity to WSPP
members in western Canada.
8 See Enron Power Marketing, Inc., Order No. EA-115 (September 26, 1996).
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Order, purchase energy supplies in Mexico or Canada for resale in the United
States, and may sell U.S. produced power and gas at either border, they are
restricted under the September 1996 Order from making sales in Canada or Mexico.
This restriction will place Marketing Subsidiaries of Holdings at a competitive
disadvantage vis-a-vis other marketers, especially as deregulation of energy
markets in Canada and Mexico evolves. For example, the restriction in the
September 1996 Order would presumably prevent Marketing Subsidiaries from
selling U.S. produced power to a customer in Canada if the delivery point (viz.,
the point where title typically passes) is on the Canadian side of the border,
and would preclude Marketing Subsidiaries from agreeing to supply all of the
facilities of a "national account" customer (e.g., a supermarket chain) if some
of those facilities are located outside the U.S.
1.4 Energy Marketing Would Enable Holdings to Participate in the North
American Energy Markets Without Having to Make any Significant Foreign
Investment in Facilities. Holdings could, even without the need for further
approval by this Commission (except for any financing approval that may be
required by Southern), make sales of electricity and gas in Canada and Mexico
through an "exempt wholesale generator" ("EWG") or exempt "foreign utility
company" ("FUCO"), and, in fact, Holdings has in the past investigated
investment opportunities in both Mexico and Canada.9 A significant consideration
to Holdings in being able to engage in energy marketing in Canada and Mexico is
that it may obviate the need to make any capital investment in facilities in
either of those countries solely for the purpose of establishing a "presence."
9 In the past, Holdings has submitted proposals to build and operate power
plants in Mexico in response to requests for proposals issued by CFE. See SEI
Holdings VIII, Inc., 67 F.E.R.C. P. 61,345 (1994); Energia de Nuevo Leon, S.A.
de C.V., 67 F.E.R.C. P. 61,343 (1994).
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1.5 Actions to Promote Energy Competition in the North American Energy
Market. Several Canadian provinces have taken deregulation actions that will
open provincial electric markets to competition by U.S. and other suppliers and
enable Canadian producers and marketers to sell directly to industrial customers
in the U.S.10 In turn, marketers affiliated with Canadian utilities have sought
approval from the FERC to charge market-based rates in connection with their
wholesale sales of electricity in the United States. In Energy Alliance
Partnership, 73 F.E.R.C. P. 61,019 (1995), FERC, in its review of a market-based
rate application filed by a power marketer affiliated with a Canadian utility
(Hydro-Quebec), determined that it was appropriate to apply the same general
standards that are applied in similar cases to a marketer affiliated with a U.S.
utility. These standards include proof that the applicant does not have, or has
adequately mitigated, market power in generation and transmission and may not
impose other barriers to market entry. In Energy Alliance, the applicant argued
that its affiliation with a Canadian utility with an extensive transmission
network located exclusively in Canada should be ignored for purposes of this
analysis since the FERC would have no jurisdiction over the affiliate in any
event. FERC rejected this argument, although acknowledging that it would be
powerless to order open access to the Canadian utility's transmission grid. The
policy objective, as FERC stated, is not to open Canadian transmission in order
to serve Canadian load; rather, it is to ensure that other potential suppliers
to the U.S. market would have non-discriminatory access to the Canadian
affiliate's transmission. 73 F.E.R.C. at 61,030-31. On the facts of the case,
FERC was not satisfied that such non-discriminatory access to Hydro-Quebec's
transmission grid existed.
10 B. C. Hydro, Canada's third largest
utility, has already granted open access to its transmission network and it and
the Bonneville Power Administration are using each other's transmission network
in pursuing large direct sales accounts. See Energy Economist, November 1996
(The Financial Times Limited).
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Subsequently, FERC granted a similar market-based rate request to a
marketer affiliated with another Canadian utility (TransAlta Utilities
Corporation, located in Alberta) upon finding that transmission grid access
arrangements existing in Alberta were sufficient to enable all potential
competitors to use that transmission system subject to the same rates, terms and
conditions in order to reach loads in the United States. See TransAlta
Enterprises Corporation, 75 F.E.R.C. P. 61,268 (1996). In addition, FERC
indicated that a further consideration in its analysis of such foreign marketer
cases is whether the affiliate's transmission arrangements in Canada are such as
to allow power sellers in the United States to use the transmission system in
order to reach potential markets in Canada on a reciprocal basis.11
The clear implication of these market-based rate orders is that FERC
strongly favors competition on a reciprocal basis in cross-border transactions,
and that it does not believe that relevant power markets in North America are
defined by the international boundaries.12
In another recent case, Enron Power Marketing, Inc. v. El Paso Electric
Company, 77 F.E.R.C. P. 61,013 (1996), FERC ordered El Paso Electric Company to
comply with its open access tariff by agreeing to provide transmission service
to Enron Power Marketing, Inc. to two substations on the U.S. side of the
11 In British Columbia Power Exchange Corporation, 78 F.E.R.C. P. 61,024 (1997),
FERC again rejected a market-based rate application filed by a power marketer
affiliated with a Canadian utility (British Columbia Hydro and Power Authority)
because it was not satisfied that the utility affiliate's tariffs satisfied
FERC's non-discriminatory transmission access requirements. FERC reiterated
that, in its review of these filings, it will also seek to assure reciprocal
service into and out of Canada.
12 Both Hydro-Quebec and the marketing affiliate of Ontario Hydro now have
pending applications for market-based rate authority and have apparently
determined to open their transmission systems to third-party access in order to
obtain such market rate approvals. See Electric Power Daily, December 20, 1996
(McGraw-Hill Companies, Inc.), page 3.
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U.S.-Mexico border in order to accommodate sales of electricity by Enron Power
Marketing to CFE. El Paso had refused service for several reasons, including its
contention that FERC lacks authority under Sections 205 and 206 of the Federal
Power Act to order transmission of electricity that is intended for consumption
in a foreign country. Although FERC rejected El Paso's argument on the narrow
ground that all of the El Paso facilities involved were on the U.S. side of the
border and hence were in "interstate commerce," it also indicated that it did
not regard the fact that the power transmitted was intended for sale outside the
United States to be controlling. On the latter question, FERC stated:
"This Commission firmly believes that the cross-border
electric trade ought to be subject to the same principles of comparable
open access and non-discrimination that apply to the interstate
electric industry. Even if we do not have jurisdiction over
transmission facilities used solely for the export of power across the
international border, it would be inconsistent with Order No. 888 and
contrary to the principles of non-discrimination contained in the
Federal Power Act if the owners of these facilities are able to block
access for competitors to the cross-border trade." 77 F.E.R.C.
P. 61,013 at 61,049.
As these actions demonstrate, FERC has taken a strong stand (within the
limits of its jurisdiction) to promote wholesale electric competition in
cross-border transactions. The underlying premise in all of these actions, of
course, is that the U.S., Canadian and Mexican markets cannot be divorced from
each other and that the public interest will be served by actions designed to
promote competition on both sides of the two borders.
1.6 The Relevance of other Legal Developments Promoting Competition in
the North American Energy Markets. EPAct, which amended the Act by adding new
Sections 32 (regarding investments in EWGs) and 33 (regarding investments in
FUCOs), expresses a clear Congressional intent to eliminate the Act as an
artificial restraint in the development of international energy markets in the
name of promoting competition in the U.S. wholesale electric market and
facilitating export of U.S. expertise in the electric and gas utility
industries. Thus, a foreign corporation can now acquire and own a wholesale
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electric generating subsidiary in the United States without being subject to
unnecessary regulation as a holding company under the Act, and U.S. companies
(including registered holding companies) may acquire and hold electric and gas
utility subsidiaries which operate outside the United States.
Private ownership of electric generation facilities is permitted under
certain circumstances in both Canada and Mexico. In fact, shortly after EPAct
was signed into law in 1992, the Mexican government issued its Decree Amending
the Law on the Public Service of Electric Power. This decree instituted reforms
that now permit authorized domestic and foreign companies to generate power for
private consumption, for sale to CFE, and for export.13
The action requested herein would also be consistent with the goals of
increased trade between the United States and Canada and Mexico as expressed in
NAFTA. The public policy enunciated in NAFTA encourages the reduction of
barriers to trade and the enhancement of investment opportunities between the
United States, Canada and Mexico, to the betterment of consumers in all three
countries.14
1.7 The Rationale Articulated in the Commission's Recent Orders on
D.S.M./Energy Efficiency Activities in Canada Is Equally Applicable to Holdings
Request. The SEC itself has previously recognized the appropriateness of
permitting a registered holding company to engage in certain energy-related
activities outside the United States. Specifically, by orders dated September
13 For general background on the 1992 initiatives in Mexico, see J. Mathis and
M. Escobedo, "Mexico's Open Door to Cogeneration and Independent Power," 14
Energy Law Journal 285 (1993); and A. Gandara, "United States-Mexico Electricity
Transfers: of Alien Electrons and the Migration of Undocumented Environmental
Burdens," 16 Energy Law Journal 1, 23 - 28 (1995).
14 Interestingly, little consideration was given to whether NAFTA would have a
significant direct impact on electricity transfers between the U.S. and Canada
and Mexico for the simple reason that electricity transfers were already largely
free of trade impediments. See A. Gandara, "United States-Mexico Electricity
Transfers, supra, n. 12, at 29 - 31.
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30, 1994 (Holding Company Act Release No. 26135) and February 15, 1995 (Holding
Company Act Release No. 26232), the SEC authorized EUA Cogenex Corporation, a
subsidiary of Eastern Utilities Associates, to engage in demand-side management
activities in Canada. Similar approval was granted to HEC, Inc., a subsidiary of
Northeast Utilities (Holding Company Act Release Nos. 26108 and 26335, dated
August 19, 1994 and July 19, 1995, respectively). In the second EUA order, which
eliminated a revenues-based restriction on the amount of such activities that
EUA could engage in outside its sales area, the Commission held that the
provision of energy management services in Canada, including conservation and
demand-side management services, is "closely related" to EUA's core utility
business, and that Congress, through EPAct and other legislation, had stated
that there is a "strong national interest in promoting energy conservation and
efficiency." Such benefits, which the SEC concluded should not be denied to
registered holding companies, would include reduced emissions of pollutants,
improved balance of payments, and expanded jobs. (Holding Company Act Release
No. 26232, n. 13). Further, the Commission found that such activities would not
require significant investment or expose EUA to significant risks.
A similar analysis would lead to the conclusion that energy marketing
activities of affiliates of a registered holding company should also be allowed
in Canada and Mexico (subject to complying with applicable laws of those
jurisdictions). First, the Commission has already determined in the September
1996 Order that power and energy marketing and brokering activities of a
registered holding company are closely-related to its core utility business,
even when conducted outside its service territory, and that the risks of the
business can be managed through appropriate hedging mechanisms. See also
Consolidated Natural Gas Co., Holding Company Act Release No. 26512 (April 30,
1995). Second, important national goals expressed in EPAct and NAFTA would be
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served by allowing marketing activities in Canada and Mexico, including the
promotion of competition in wholesale electric markets, and the expansion of
markets for U.S. produced electricity, some of which may be excess to the needs
of the U.S., which will contribute towards the positive balance of payments. And
third, marketers outside of registered holding company systems are largely free
from U.S. imposed regulatory constraints on energy transactions in Mexico and
Canada. No public interest would be served by an interpretation of the Act that
would create or impose an artificial barrier on the full participation in the
North American energy market solely by registered holding companies.
Item 2. Fees, Commissions and Expenses.
The fees, commissions and expenses paid or to be paid in connection
with the proposed transaction are estimated not to exceed $10,000.
Item 3. Applicable Statutory Provisions.
Sections 9(a) and 10 of the Act and Rules 23 and 54 thereunder are
applicable to the proposed transactions and activities of Marketing
Subsidiaries. The Commission has previously determined in the September 1996
Order that energy marketing activities by Holdings satisfy the standards of
Section 10 and Section 11, to which Section 10(c) refers, even in the absence of
any direct nexus between such marketing activities and Southern's core electric
utility operations. This Post-Effective Amendment, if granted, would simply
enable Holdings to engage in the same marketing activities outside the United
States. In this regard, however, neither Section 11 nor any other provision of
the Act limits the non-utility activities of a registered holding company to the
United States.
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Rule 54 Analysis: The proposed transaction is also subject to Rule 54,
which provides that, in determining whether to approve an application which does
not relate to any EWG or FUCO, the Commission shall not consider the effect of
the capitalization or earnings of any such EWG or FUCO which is a subsidiary of
a registered holding company if the requirements of Rule 53(a), (b) and (c) are
satisfied.
Southern currently meets all of the criteria of Rule 53(a), except for
clause (1). At March 31, 1997, Southern's "aggregate investment," as defined in
Rule 53(a)(1), in EWGs and FUCOs was approximately $2.48 billion, or about
66.55% of Southern's "consolidated retained earnings," also as defined in Rule
53(a)(1), for the four quarters ended December 31, 1996 ($3.671 billion). With
respect to Rule 53(a)(1), however, the Commission has determined that Southern's
financing of investments in EWGs and FUCOs in an amount greater than the amount
that would otherwise be allowed by Rule 53(a)(1) would not have either of the
adverse effects set forth in Rule 53(c). See The Southern Company, Holding
Company Act Release Nos. 26501 and 26646, dated April 1, 1996 and January 15,
1997, respectively.
Southern has complied and will continue to comply with the
record-keeping requirements of Rule 53(a)(2), the limitation under Rule 53(a)(3)
on the use of domestic utility subsidiary company personnel to render services
to EWGs and FUCOs, and the requirements of Rule 53(a)(4) concerning the
submission of copies of certain filings under the Act to retail rate regulatory
commissions. Further, Southern states that none of the circumstances described
in Rule 53(b) has occurred.
Moreover, 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 would be no basis for the Commission to
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withhold or deny approval for the proposal made in this Post-Effective
Amendment. The action requested in the instant filing (viz. permission for
Holdings to conduct certain non-utility activities that are very closely-related
to Southern's core utility operations in Canada and Mexico, in addition to the
U.S.) 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, Holdings believes that approval of the proposal contained in this
Post-Effective Amendment would have a modest beneficial effect on the Southern
system, because it will enable Holdings and its associate companies to remain
competitive with other energy suppliers and generate an additional source of
revenues from activities that are closely related to Southern's core utility
business.
Item 4. Regulatory Approval.
No State or Federal commission (other than this Commission) has
jurisdiction over the proposed activities of Marketing Subsidiaries that are
conducted exclusively in Mexico and Canada. As indicated elsewhere, the export
of power and gas to Canada and Mexico requires approval by DOE.
Item 5. Procedure.
Holdings requests 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.
Holdings hereby waives a recommended decision by a hearing officer or other
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responsible officer of the Commission and hereby consents 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.
(No additional Exhibits provided)
(b) Financial Statements.
(Not applicable)
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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.
Pursuant to the requirements of the Public Utility Holding Company Act
of 1935, the undersigned company has duly caused this statement to be signed on
its behalf by the undersigned thereunto duly authorized.
Dated: April 25, 1997
SEI HOLDINGS, INC.
By: /s/ Tommy Chisholm
Tommy Chisholm
Secretary
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