File No. 70-8821
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 2 to
FORM U-1
APPLICATION OR DECLARATION
under
The Public Utility Holding Company Act of 1935
SOUTHERN COMPANY SERVICES, INC. GULF POWER COMPANY
64 Perimeter Center East 500 Bayfront Parkway
Atlanta, Georgia 30346 Pensacola, Florida 32501
ALABAMA POWER COMPANY MISSISSIPPI POWER COMPANY
600 North 18th Street 2992 West Beach
Birmingham, Alabama 35291 Gulfport, Mississippi 39501
GEORGIA POWER COMPANY SAVANNAH ELECTRIC AND POWER COMPANY
333 Piedmont Avenue, N.E. 600 Bay Street East
Atlanta, Georgia 30308 Savannah, Georgia 31401
(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 Warren E. Tate, Secretary and Treasurer
Southern Company Services, Inc. Gulf Power Company
270 Peachtree Street, N.W. 500 Bayfront Parkway
Atlanta, Georgia 30303 Pensacola, Florida 32501
Michael W. Southern, Vice President,
Art P. Beattie, Vice President, Secretary, Treasurer and
Secretary and Treasurer Chief Financial Officer
Alabama Power Company Mississippi Power Company
600 North 18th Street 2992 West Beach
Birmingham, Alabama 35291 Gulfport, Mississippi 39501
Kirby R. Willis, Vice President,
Judy M. Anderson, Vice President Treasurer and Chief Financial Officer
and Corporate Secretary Savannah Electric and Power Company
Georgia Power Company 600 Bay Street East
333 Piedmont Avenue, N.E. Savannah, Georgia 31401
Atlanta, Georgia 30308
(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 John D. McLanahan, Esq.
Financial Vice President Troutman Sanders LLP
The Southern Company 600 Peachtree Street, N.E.
270 Peachtree Street, N.W. Suite 5200
Atlanta, Georgia 30303 Atlanta, Georgia 30308-2216
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The Application or Declaration, as heretofore amended and restated by
Amendment No. 1, is now further amended and restated in its entirety to read as
follows:
Item 1. Description of Proposed Transactions.
Alabama Power Company ("Alabama"), Georgia Power Company ("Georgia"),
Gulf Power Company ("Gulf"), Mississippi Power Company ("Mississippi") and
Savannah Electric and Power Company ("Savannah") (collectively, the "Operating
Companies") are wholly-owned subsidiaries of The Southern Company ("Southern"),
a registered holding company under the Public Utility Holding Company Act of
1935, as amended (the "Act"). Southern Company Services, Inc. ("SCS") is a
wholly-owned subsidiary service company of Southern. The Operating Companies and
SCS are sometimes referred to herein collectively as the "Applicants."
Other Southern subsidiaries include Southern Electric Generating
Company, a generating subsidiary company of Alabama and Georgia; Mobile Energy
Services Company, L.L.C., an indirect, wholly-owned, special purpose subsidiary
of Southern which provides steam, electricity and chemical recovery services to
a large paper and pulp mill in Alabama; Southern Nuclear Operating Company,
which provides services to certain of the Operating Companies' nuclear power
plants; and several wholly-owned non-utility subsidiaries, including Southern
Electric International, Inc. and The Southern Development and Investment Group,
Inc., which engage in non-traditional power production activities, foreign
utility ownership, energy management services, and new business research and
development activities, among other authorized or exempt activities.
1.1 Background. Southern and its subsidiaries (the "Southern System")
have been an integrated electric public-utility system since 1947.1 Through the
five Operating Companies, Southern provides retail electric service in
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1 See The Commonwealth & Southern Corporation, et al., Holding Co. Act Rel.
No. 7615 (August 2, 1947).
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substantially all of Georgia and Alabama, and contiguous parts of Florida and
Mississippi, and firm wholesale service to various municipalities and rural
electric cooperatives within the territory served by the Operating Companies.
The Operating Companies also regularly and in the ordinary course of their
business as regulated public utilities and as power marketers buy, sell and
trade electricity in transactions involving other utility systems, independent
power producers, and power marketers.2 SCS acts as agent for the Operating
Companies pursuant to the terms of service agreements that have been approved by
the Commission in connection with arranging bulk power purchases and sales of
electricity and procuring fuel.
The past 15 years have witnessed dramatic changes in the electric
utility industry with an accelerating tendency towards deregulation in the name
of enhanced competition, lower cost and better service. Today, traditional
utilities must compete for new load (as well as to retain existing load) with a
variety of legislatively or administratively created entities not known until
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2 In the ordinary course of their current power marketing activities, the
Operating Companies (or SCS as their agent) also frequently purchase, sell
and trade energy commodities-based derivatives products (e.g., exchange
traded futures contracts, options, and swaps) for the purpose of hedging
(or off-setting) positions under contracts calling for physical delivery of
electricity, as well as for the purpose of taking a position at a later
time in a physical market, for example, to lock in the price of a block of
electricity or fuel that is expected to be needed at such later time. The
Operating Companies will also continue to use other appropriate hedging
measures, such as entering into offsetting physical delivery contracts and
balancing their overall portfolio positions through an appropriate mix of
short-term and long-term contracts. Reference is made to the
Application-Declaration of SEI Holdings, Inc. in File No. 70-8823 and to
the Commission's order approving same for a fuller description of hedging
measures that are typically used by power and energy commodity marketers).
See SEI Holdings, Inc., Holding Co. Act Rel. No. 26581 (September 26,
1996).
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recently, including "qualifying facilities," as defined under the Public Utility
Regulatory Policies Act of 1978, as amended, "exempt wholesale generators," as
defined in Section 32 of the Act, and power marketers, many of which are
affiliated with integrated gas companies and electric utilities that serve other
parts of the U.S. In addition, recent energy policy initiatives by the Federal
Energy Regulatory Commission ("FERC") are clearly intended to promote
competition among traditional utilities themselves by requiring that they
provide transmission access to competing buyers and sellers.3
Moreover, as the Commission recently noted in Consolidated Natural Gas
Company, et al., Holding Co. Act Rel. No. 26512 (April 30, 1996) ("Consolidated
Natural Gas"), electric and gas companies are rapidly being integrated into a
market that trades on Btu (British thermal unit) values rather than discrete
quantities of electricity or gas. In that case, the Commission approved a
registered gas utility holding company's proposal to acquire an interest in the
business of a power marketer. In its order, the Commission took note of the
"increasing integration of energy markets" and observed that "the restructuring
of the electric industry now underway will dramatically affect all United States
energy markets as a result of the growing interdependence of natural gas
transmission and electric generation, and the interchangeability of different
forms of energy, particularly gas and electricity."4
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3 See "Promoting Wholesale Competition Through Open Access Non-discriminatory
Transmission Services by Public Utilities and Recovery of Stranded Costs by
Public Utilities and Transmitting Utilities," Notice of Proposed Rulemaking
and Supplemental Notice of Proposed Rulemaking (the "Open Access NOPR"), IV
FERC Stats. & Regs. P. 32,514, 60 Fed. Reg. 17,662 (April 7, 1995); Energy
Policy Act of 1992, Pub. L. No. 102-486, 106 Stat. 2776 (1992); adopted
April 24, 1996 as Order 888.
4 Consolidated Natural Gas at pp. 11 - 12.
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1.2 Proposed Activities. The Applicants propose to engage in the
following activities (the "Proposed Activities") which are closely-related to
the electric utility operations of the Southern System: (1) SCS proposes to act
as a broker of electricity and other energy commodities, such as gas and oil, in
transactions between third-party sellers and buyers; and (2) the Operating
Companies (and SCS as their agent) propose to make sales of gas, oil and other
forms of energy in conjunction with sales of electricity.
The Proposed Activities will generally enable SCS to utilize existing
systems and personnel who are regularly involved in making bulk power purchases
and sales of electricity and bulk purchases of fuel on behalf of the Operating
Companies to generate an additional source of revenues from unaffiliated
third-parties in brokering transactions, and the Operating Companies to compete
more effectively for electricity sales by being able to offer electricity
customers total energy services, including fuel switching and sole-source energy
options. The Proposed Activities will benefit Southern's electric utility
customers and investors alike.
Brokering. As SCS seeks customers for off-system power sales and/or
purchases of electricity to serve the Operating Companies' needs, it often
obtains information concerning sources of supply that the Operating Companies
cannot use or of customers the Operating Companies cannot supply, whose
respective supply and needs may match. Such information is a by-product of SCS's
day-to-day system-related activities and can give rise to an opportunity to earn
a brokerage fee for bringing the two parties together ("Brokering"). As SCS
would neither buy nor sell power or other energy commodities in a Brokering
transaction, there would be no price exposure or significant financial risk. In
addition, such activity is not regulated as the sale of power under the Federal
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Power Act or any state regulatory scheme, since SCS itself is neither buying nor
selling power or energy. Brokering would be incidental to SCS's principal
business of providing centralized administrative and management services to
Southern System companies.
Brokering will be carried on by personnel employed by SCS who engage in
the day-to-day power marketing/system supply activities on behalf of the
Operating Companies. SCS does not anticipate the need to hire any additional
employees or make any material investment in other resources in order to engage
in Brokering activities. Revenues (chiefly fees and commissions) derived from
Brokering will be credited entirely to reduce overall SCS cost of operation,
which will, in turn, reduce SCS's cost of service to the Operating Companies and
Southern's other subsidiaries with resulting benefits to customers and
investors.
Sales of Other Energy Commodities. In connection with the sale of
electricity, the Operating Companies frequently have the opportunity to supply
the other energy needs of their customers, whether from fuel resources owned by
the Operating Companies or from supplies procured from third-party suppliers. In
particular, large industrial and commercial customers are increasingly seeking
proposals for their combined energy requirements. For example, a large
industrial customer may want the ability to switch between energy resources
(electricity and gas) in order to achieve overall savings, or may want to
"outsource" the total energy procurement function to a single supplier in order
to reduce the costs associated with administering multiple contracts, as well as
to coordinate purchases of various different energy commodities other than
electricity. An electricity supplier who is unable or unwilling to serve such
customers' needs may be uncompetitive with other energy suppliers, including the
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growing number of power marketers. The Applicants represent that they will not
seek to broker or market other energy commodities to a customer except in
conjunction with making electricity sales, and will not, without the further
order of the Commission, invest in any assets the ownership of which would
result in any Operating Company becoming a "gas utility company," as defined
under the Act.
The Proposed Activities described above will be carried on by personnel
employed by SCS and the Operating Companies who engage in the day-to-day power
marketing and fuel procurement activities of the Southern System. In the case of
Brokering, SCS will be acting for its own account, and will credit any revenues
from such activity to reduce its overall cost of service. SCS personnel engaged
in the Proposed Activities will account for their time through the Southern
System's regular time accounting system by charging to specific "activity codes"
established for the affected Southern System companies. Overheads and ancillary
expenses will be similarly charged.
1.3 Relationship to Other Authorizations. SCS, as agent for the
Operating Companies, has been authorized by FERC to sell electricity at
wholesale to unaffiliated entities at market-based rates.5 Southern Energy
Marketing, Inc. ("Southern Energy"), an indirect subsidiary of Southern and an
"exempt wholesale generator" within the meaning of Section 32 of the Act,6 has
also been authorized by FERC to sell electricity at wholesale at market-based
rates.7 As a consequence, there may be occasions when Southern Energy (or
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5 See Southern Company Services, Inc., 75 FERCP. 61,130 (1996).
6 See Southern Energy Marketing, Inc., 71 FERCP. 61,376 (1995).
7 See Southern Company Services, Inc., et al., 72 FERCP. 61,324 (1995), order
on reh'g, 74 FERCP. 61,141 (1996).
6
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another subsidiary of SEI Holdings, Inc.)8 will compete with SCS and the
Operating Companies for wholesale electricity customers. However, such
competition is the inevitable consequence of limitations that are embodied in
certain "Codes of Conduct" that were filed with FERC as a part of the separate
market-rate applications of SCS and of Southern Energy.9 In general, the Codes
of Conduct, which apply to all of Southern's subsidiaries, prohibit SCS and the
Operating Companies from disclosing to any other subsidiary of Southern
non-public information known to them concerning the identity of any actual or
potential wholesale customer, or the terms under which the Operating Companies
have sold or offered to sell power to any such customers. In order to compete
effectively in all wholesale markets, therefore, Southern is committed to
developing a marketing capability on each side of this FERC-imposed information
barrier.
1.4 Financial Risk. As indicated, in connection with Brokering
transactions, SCS will not assume any significant risks, as it will neither
invest in nor hold title to energy commodities. Further, as a broker-agent
representing third parties in purchase or sale transactions, SCS will attempt to
limit its liability for non-performance by its principal through appropriate
contract provisions, including indemnities.
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8 SEI Holdings, Inc., a direct non-utility subsidiary of Southern and the
indirect parent company of Southern Energy, has been authorized by the
Commission in a separate proceeding to organize one or more power and
energy commodity marketing subsidiaries that would not be "exempt wholesale
generators." See SEI Holdings, Inc., supra n. 2.
9 The Codes of Conduct were originally filed with FERC as a part of Southern
Energy's market-rate application. Southern Energy proposed two Codes of
Conduct, one applicable to SCS and the Operating Companies and the other
applicable to Southern Energy and to all other subsidiaries of Southern
other than SCS and the Operating Companies. The Codes of Conduct have been
revised several times, most recently as a part of a compliance filing to
the market-rate order issued April 30, 1996 to SCS and the Operating
Companies. See Southern Company Services, Inc., supra n. 5.
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SCS will be fully indemnified by the Operating Companies for any claim
or loss resulting from its involvement (as agent for the Operating Companies) in
electricity or energy commodity marketing transactions. These indemnities are
included in the existing Southern System service agreements.
1.5 Other Matters. The Operating Companies will supply the
Commission copies of their respective FERC Form 1 annual reports.
Item 2. Fees, Commissions and Expenses.
The fees, commissions and expenses to be incurred in connection with
the filing of this Application or Declaration are estimated not to exceed
$28,000, inclusive of the Commission's $2,000 filing fee.
Item 3. Applicable Statutory Provisions.
Sections 9(a) and 10 of the Act and Rules 23 and 54 thereunder are
applicable to the Proposed Activities. The Applicants state that the Proposed
Activities satisfy all of the applicable standards of Section 10 and of Section
11(b), to which Section 10(c) refers, as interpreted in other recent decisions.
Section 10 Analysis: For purposes of Sections 9(a)(1) and 10 of the
Act, the Proposed Activities constitute an acquisition of an interest in a
non-utility business.10 In order to approve the Application-Declaration, the
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10 See Consolidated Natural Gas, page 8.
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Commission must find that the applicable standards of Section 10(b) are
satisfied. Further, the Commission may not approve the proposal if it finds,
pursuant to Section 10(c)(1) of the Act, that the acquisition "is detrimental to
the carrying out of the provisions of section 11" of the Act.
The Commission has previously approved pursuant to the standards of
Sections 10 and 11(b) proposals by registered holding companies to engage
through non-utility subsidiaries in a variety of electricity and energy
commodity marketing and brokering activities as a non-utility business that is
incidental and ancillary to the principal business of a registered holding
company system.11 The Commission has also included "the brokering and marketing
of energy commodities, including but not limited to electricity or natural gas"
among the permitted activities of "energy-related companies" in which a
registered holding company may conditionally invest under proposed Rule 58,
predicated upon such case-by-case approvals.12
Recently, in UNITIL Corporation, et al. ("UNITIL"), Holding Co. Act Rel.
No. 26527 (May 31, 1996), the Commission authorized an affiliate of an electric
utility holding company to broker and market gas and other fuels, as well as
electricity, holding that the applicant's proposal was consistent with the
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11 See Entergy Corp., Holding Co. Act Rel. No. 25848 (July 8, 1993)
(authorizing sale of consulting services to non-affiliates, including
expertise relating to brokering of power resources); UNITIL Corp., Holding
Co. Act Rel. No. 25816 (May 24, 1993) (authorizing organization of a new
subsidiary to serve as a power brokering agent); and The Southern Company,
et al., Holding Co. Act Rel. No. 26468 (February 2, 1996) (authorizing
investments in one more "Energy-Related Companies," including among others
power marketing subsidiaries, subject to a geographic limitation).
12 See Notice of Proposed Rulemaking, Holding Co. Act Rel. No. 26313 (June 20,
1995) ("Exemption of Acquisition By Registered Public-Utility Holding
Companies of Securities of Nonutility Companies Engaged in Certain
Energy-Related and Gas-Related Businesses"), 59 SEC Docket at 1490.
Proposed Rule 58 would conditionally exempt pursuant to Section 9(c)(3) of
the Act certain acquisitions of securities of non-utility companies from
the pre-approval requirements of Section 10. If adopted, acquisitions
permitted under proposed Rule 58 would be considered to be "appropriate in
the ordinary course of business" within the meaning of Section 9(c)(3). Id.
at 1494.
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precedent established in Consolidated Natural Gas, supra.13 The Applicants
submit that UNITIL, Consolidated Natural Gas and other orders cited in those
decisions are sound precedent for approving the Proposed Activities described in
this Application or Declaration.14
Rule 54 Analysis: The proposed transactions are also subject to Rule
54, which provides that, in determining whether to approve an application which
does not relate to any "exempt wholesale generator" ("EWG") or "foreign utility
company" ("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 conditions of Rule 53(a). At August
31, 1996, Southern's "aggregate investment," as defined in Rule 53(a)(1), in
EWGs and FUCOs was approximately $864,800,000, or about 24.6% of Southern's
"consolidated retained earnings," also as defined in Rule 53(a)(1), for the four
quarters ended June 30, 1996 ($3,523.2 million). In addition, 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 Operating
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. Accordingly, since the requirements
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13 See too SEI Holdings, Inc., supra n. 2.
14 Of course, the cited cases are distinguishable in the sense that the sale
of electricity by the Operating Companies in power marketing transactions
is not an "other business" for which approval is required; it is the
business of the Operating Companies.
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of Rule 53(a) are currently met and none of the circumstances described in Rule
53(b) has occurred, the provisions of Rule 53(c) are currently inapplicable.
Moreover, even if the effect of the capitalization and earnings of EWGs
and FUCOs in which Southern has an ownership interest upon the Southern 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 (viz. approval for certain activities that are
very closely related to the Southern's subsidiary electric utility operations)
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 Applicants believe that approval of the proposal contained in this
Application or Declaration would have a modest beneficial effect on the Southern
System, because it will enable the Operating Companies to remain competitive
with other energy suppliers and generate an additional source of revenues from
activities that are, if anything, even more closely related to Southern's core
utility business than the operations of associate EWGs and FUCOs.
Item 4. Regulatory Approval.
The approval of FERC under Section 205 of the Federal Power Act is
required as to rates and charges imposed in any domestic wholesale electric
power sales contracts or tariffs entered into by the Operating Companies that
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are subject to the FERC's jurisdiction. The status of current FERC approvals
affecting SCS and the Operating Companies is discussed in Item 1.3, above.
Retail sales of electricity or gas (to the extent allowed under applicable state
law) and, in certain instances, wholesale sales of electricity or gas that are
not subject to FERC jurisdiction, may be subject to regulation by the
appropriate State public utilities commission. The public service commissions of
Georgia, Alabama, Mississippi and Florida may regulate the accounting for any
revenues derived by their jurisdictional utilities from the proposed energy
commodity marketing activities. With these exceptions, no other State or Federal
commission (other than this Commission) has jurisdiction over the proposed
transactions.
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 this matter unless such Division
opposes the matters covered hereby.
Item 6. Exhibits and Financial Statements.
(a) Exhibits.
Exhibit F - Opinion of Counsel.
Exhibit G - Form of Federal Register Notice (Previously filed).
(b) Financial Statements.
(Not Applicable)
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Item 7. Information as to Environmental Effects.
In view 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. No
other federal agency has prepared or is preparing an environmental impact
statement with regard to the proposed transactions.
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 3, 1996 SOUTHERN COMPANY SERVICES, INC.
By: /s/Wayne Boston________________________
Wayne Boston
Assistant Secretary
(Signatures continued on next page)
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ALABAMA POWER COMPANY
By: /s/Wayne Boston_________________________
Wayne Boston
Assistant Secretary
GEORGIA POWER COMPANY
By: /s/Wayne Boston_________________________
Wayne Boston
Assistant Secretary
GULF POWER COMPANY
By: /s/Wayne Boston_________________________
Wayne Boston
Assistant Secretary
MISSISSIPPI POWER COMPANY
By: /s/Wayne Boston_________________________
Wayne Boston
Assistant Secretary
SAVANNAH ELECTRIC AND POWER COMPANY
By: /s/Wayne Boston_________________________
Wayne Boston
Assistant Secretary
Exhibit F
Troutman Sanders LLP
600 Peachtree Street
Suite 5200
Atlanta GA 30308
404-885-3000
October 3, 1996
Securities and Exchange Commission
Washington, D.C. 20549
Re: The Southern Company - Application or
Declaration on Form U-1 (File No. 70-8821)
Ladies and Gentlemen:
We are familiar with the statement on Form U-1 filed by Southern
Company Services, Inc. ("SCS") and the five operating electric utility
subsidiaries (the "Operating Companies") of The Southern Company, a registered
holding company, in the above-referenced proceeding, as it has been amended, and
are furnishing this opinion with respect to the actions requested therein,
which, if granted, would authorize SCS and the Operating Companies to engage in
certain energy commodity brokering and marketing transactions.
We are of the opinion that SCS and the Operating Companies are each
validly organized and duly existing corporation under the laws of the respective
State of their incorporation and that, upon the issuance of your order or orders
herein, and that, in the event the proposed transactions are carried out in
accordance with the terms of such statement on Form U-1, as amended, and your
order or orders:
(a) all state laws applicable to the proposed transactions
will have been complied with; and
(b) the consummation of the proposed transactions will not
violate the legal rights of the holders of any securities issued by SCS, the
Operating Companies or any associate company of SCS or the Operating Companies.
We hereby consent to the use of this opinion in connection with the
filing of such statement on Form U-1.
Very truly yours,
/s/Troutman Sanders LLP
Troutman Sanders LLP
