File No. 70-8821
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1 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
333 Piedmont Avenue, N.E. SAVANNAH ELECTRIC AND POWER
Atlanta, Georgia 30308 COMPANY
600 Bay Street East
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
Southern Company Services, Inc. and Treasurer
270 Peachtree Street, N.W. Gulf Power Company
Atlanta, Georgia 30303 500 Bayfront Parkway
Pensacola, Florida 32501
Art P. Beattie, Vice President, Michael W. Southern, Vice
Secretary and Treasurer President, Secretary,
Alabama Power Company Treasurer and Chief
600 North 18th Street Financial Officer
Birmingham, Alabama 35291 Mississippi Power Company
2992 West Beach
Gulfport, Mississippi
39501
Judy M. Anderson, Vice President Kirby R. Willis, Vice
and Corporate Secretary President, Treasurer and
Georgia Power Company Chief Financial Officer
333 Piedmont Avenue, N.E. Savannah Electric and Power
Atlanta, Georgia 30308 Company
600 Bay Street East
Savannah, Georgia 31401
(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
<PAGE>
The Application or Declaration heretofore filed in this
proceeding is 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<PAGE>
business research and development activities, among other
authorized or exempt activities.
1.1 Background. The Applicants hereby request authority,
to the extent that it is needed, to engage in a variety of
electricity and energy commodity brokering and marketing
transactions which, insofar as they are not a part of the
integrated electric utility business of the Operating Companies,
are closely related thereto (as hereinafter further described,
the "Proposed Activities"). The Proposed Activities will
generally enable the Operating Companies to compete more
effectively for electricity purchases and sales, which will
benefit consumers and investors alike.
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 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
business buy and sell electricity at wholesale in transactions
involving other utility systems that are either directly
interconnected with one or more of the Operating Companies
(called "Tier 1" utilities) or utilities (called "Tier 2"
utilities) that are directly interconnected with Tier 1
1 See The Commonwealth & Southern Corporation, et al.,
Holding Co. Act Rel. No. 7615 (August 2, 1947).
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utilities.(2) The area in which the Operating Companies conduct
their franchised utility operations and in which they regularly
and in the ordinary course of business engage in wholesale power
transactions with non-affiliates is hereinafter referred to as
the "Sales Region." On occasion, where it is physically possible
and economic to do so, the Operating Companies may also engage in
wholesale power transactions with suppliers or customers outside
the Sales Region.(3)
During periods when the Operating Companies have generating
resources greater than needed to serve their respective retail
customers and other firm wholesale purchasers, SCS, as agent for
the Operating Companies, attempts to market such surplus to other
customers generally, but not always, located in the Sales Region.
In addition, to satisfy the obligation of the Operating Companies
to supply retail and firm wholesale customers on the most
economic terms, SCS, as agent for the Operating Companies, also
aggressively seeks out the most economic sources of electricity,
again, generally from suppliers within the Sales Region. These
transactions, which frequently involve base load capacity
purchases and sales, result in cost savings for the contracting
2 This group of Tier 1 and Tier 2 utilities includes all of
the member utilities of the Southeastern Electric Reliability
Council, the Entergy Corporation system, and certain other
utility systems generally to the west and northwest of the
Southern System.
3 For example, in the recent past, to address a short-term
deficit in system supplies during an extreme cold spell, the
Operating Companies contracted with off-system suppliers for
energy produced in Maine and Vermont.
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parties due, in large measure, to lower relative fuel charges.
In the course of this activity, SCS and the Operating Companies
have developed extensive knowledge about the loads and resources
of other utilities and other power suppliers throughout the
region. SCS has devoted substantial resources and effort to
develop a staff of professionals and software systems to manage a
wide variety of resources and requirements across the Sales
Region.(4)
As the Southeastern regional power supply market evolves, it
is apparent to SCS and the Operating Companies that there is a
need for related services, which SCS is also equipped to provide.
These Proposed Activities are described below.
The past 15 years have seen 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 recently: qualifying facilities, industrial self
generators, independent power producers, exempt wholesale
generators, and independent power marketers and brokers. In
addition, recent energy policy initiatives by the Federal Energy
Regulatory Commission ("FERC") are clearly intended to promote
4 Under the standard service agreement between SCS and each
of the Operating Companies, SCS provides bulk power supply
services, in connection with which SCS assists the Operating
Companies in negotiating and administering power purchase
contracts.
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competition among traditional utilities themselves by requiring
that they provide transmission access to competing buyers and
sellers.(5)
In 1994, the Commission itself took note of these trends in
its "Request for Comments on Modernization of the Regulation of
Public-Utility Holding Companies" (Holding Co. Act Rel. No.
26153, dated November 2, 1994), which culminated in June 1995
with the presentation by the Division of Investment Management of
a series of proposals and recommendations designed generally to
reduce regulatory burdens on registered holding company systems
in order to enable them to compete more effectively with other
utilities and alternative energy suppliers in the increasingly
competitive energy markets. Similarly, the Commission has
recognized the changing nature and extent of services provided to
electric customers in its analysis and resultant easing of the
so-called "50% limitation" in connection with the proposed
expanded activities of an energy management and consulting
subsidiary of a registered holding company. See Eastern
Utilities Associates, et al., Holding Co. Act Rel. No. 26232
(February 14, 1995) (noting "significant changes in the utility
industry" since the applicants' original 1986 application and
5 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. 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.
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that energy management services, which are "closely related" to
the core utility business, have become an important complement to
the utility business).
1.2 Proposed Activities. The Proposed Activities
include (1) brokering of electricity sales by SCS, largely within
the Sales Region, between third-party sellers and buyers; (2)
marketing of electricity, largely within the Sales Region, in
transactions that do not involve Southern System generation
supply and/or use of Southern System-owned transmission; (3)
certain fuel-for-electricity transactions by the Operating
Companies, to the extent that the Commission believes that it may
have jurisdiction under the Act; and (4) marketing and brokering
of other forms of energy commodities by SCS or the Operating
Companies in conjunction with sales of electricity. These
activities are more fully described as follows:
Electricity Brokering Activities. 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 byproduct 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 ("Electricity
Brokering"). As SCS would neither buy nor sell power or energy
in an Electricity Brokering transaction, there would be no price
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exposure or significant financial risk. In addition, such
activity is not regulated as the sale of power under the Federal
Power Act or any state regulatory scheme, since SCS itself is
neither buying nor selling power or energy. Electricity
Brokering would be incidental to SCS's principal business of
providing centralized administrative and management services to
Southern System companies.
SCS anticipates that Electricity Brokering transactions
would be entered into with customers located largely within the
Sales Region. Electricity 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. Revenues (chiefly fees and commissions) derived from
Electricity Brokering will be credited entirely to reduce SCS's
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.
Electricity Marketing Activities. In certain instances, a
prospective customer will have needs that the Operating Companies
cannot fill, either in whole or in part, from system-owned
resources, and Electricity Brokering, for any number of practical
reasons, may not be a feasible alternative. Such a situation
could arise, for example, if a prospective customer is not
located within the franchised service territory of the Operating
Companies and/or the supply of electricity needed to serve such
customer is unavailable from system-owned resources.
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Nevertheless, SCS may still have the opportunity to serve this
customer's requirements from third-party sources.
In many cases, where the energy or capacity to be sold is
procured from generating sources (other than system supply)
within the Sales Region, it is likely to be commingled with power
and energy derived from system-owned generating stations and/or
to have passed over Southern System transmission lines by the
time it reaches the customer. SCS believes that its
participation in such a transaction would accordingly constitute
a part of the operations of Southern's integrated electric
utility system, and therefore not require any approval by the
Commission.(6)
In other cases, however, it is possible that none of the
capacity or energy needed to serve a potential off-system
customer would be available from Southern System-owned generation
facilities or would flow over Southern System-owned transmission
lines. Under these circumstances, it may still be advantageous
for SCS to act as a power marketer by entering into separate
contracts with prospective power suppliers and customers. In
these transactions ("Electricity Marketing"), SCS would merely
act as agent for one or more of the Operating Companies; it would
not take title to electricity and would not itself be exposed
financially to the inherent risks of the transaction. SCS states
that Electricity Marketing would be largely confined to
6 See Northeast Utilities Service Co., et al., Holding Co.
Act Rel. No. 26359 (August 18, 1995).
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transactions in which either the buyer or seller, or both the
buyer and seller, are located within the Sales Region
(recognizing that the extent of the Sales Region may and likely
will be expanded in time as the FERC "Open Access NOPR" is
implemented).
Electricity Marketing activities involving unaffiliated
suppliers and purchasers would be beneficial to the Southern
System from a number of perspectives: the Southern System's
presence in the Sales Region would be maintained or enhanced,
customers' needs could be satisfied where the Operating Companies
could not otherwise provide service, the wholesale power market
in the Sales Region and adjacent areas will become more
competitive, SCS's personnel will gain and enhance needed market
expertise, and profits would accrue to the benefit of the
Southern System's investors and customers.(7)
7 In this regard, although Southern, through Southern
Energy Marketing, Inc., an "exempt wholesale generator," is
currently engaged in wholesale power marketing to unaffiliated
third parties, and is also authorized by order dated February 2,
1996 (Holding Co. Act Rel. No. 26468) to engage through other
indirect subsidiaries in power marketing and brokering
transactions, SCS and the Operating Companies may not provide to
Southern's other marketing subsidiaries non-public information
concerning the identity of an actual or potential wholesale
customer, or the price or other terms under which they have sold
or offered to sell power to any such wholesale customer. This
prohibition is a part of the terms of separate "Codes of Conduct"
filed with FERC, one of which is applicable to SCS and the
Operating Companies and the other of which is applicable to all
of Southern's other subsidiaries. These Codes of Conduct were
filed with FERC as a part of the market-based wholesale rate
application of Southern Energy Marketing, Inc., an indirect
wholly-owned subsidiary of Southern and an "exempt wholesale
generator." See Southern Company Services, Inc., et al., 72 FERC
61,324 (1995), order on reh'g, 74 FERC 61,141 (1996).
(continued...)
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Fuel-for-Electricity Swaps. In addition, under certain
circumstances, it may be necessary or economically efficient to
substitute other sources of energy for electricity generated by
an Operating Company. For example, if electricity is being sold
across a transmission interface and the interface becomes
constrained such that an Operating Company is precluded from
transmitting the power to the purchasing utility, the Operating
Company may be able to transfer some of its fuel supply to the
purchasing utility in order to allow the utility to generate a
like amount of power itself. In this way, the Operating Company
would be able to substitute one source of energy for another in a
transaction that is equivalent to a sale of electricity.
Similarly, if local environmental constraints preclude the
Operating Company from generating a certain amount of electricity
for a particular customer, and the customer is not subject to a
similar constraint, the Operating Company may be able to transfer
some of its fuel supply to the purchasing utility in order to
allow the utility to generate a like amount of power itself in an
environmentally acceptable manner. In addition, if the marginal
cost of the Operating Company's generation were to make it
uneconomic for the purchasing utility to buy a certain amount of
power from that Operating Company, it may still be economic for
7(...continued)
Because of the restriction on information sharing under the Codes
of Conduct, if SCS and the Operating Companies were unable to
exploit a wholesale power marketing opportunity involving third
party buyers and sellers, which is known to them but not to
Southern's other subsidiaries, the opportunity would effectively
be lost entirely by the Southern System to other power suppliers.
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that utility to purchase fuel from the Operating Company and
generate the power itself. Once again, the Operating Company may
be able to transfer some of its fuel supplies to the purchasing
utility in order to allow the utility to generate economically a
like amount of power itself.
To the extent required, SCS and the Operating Companies
request authority to engage in fuel-for-electricity (or
"tolling") activities. In no circumstances would such
transactions involve inter-affiliate transfers of fuel supplies
in violation of any applicable law or be disadvantageous to any
franchise area customer.
Marketing and Brokering of Other Energy Commodities.
Finally, there may be instances in which the Applicants, in
connection with the sale of electricity, may also be asked by a
customer to serve as a single source supplier of gas, oil or
coal, as well as of electricity. Large volume energy purchasers
are increasingly seeking proposals for their total energy needs
in order to reduce the costs associated with administering
multiple contracts, as well as to coordinate purchases of various
different energy commodities (whether owned by the Operating
Companies or acquired from third parties) other than electricity.
An electricity supplier who is unable or unwilling to serve the
customer's other needs may be uncompetitive with other energy
suppliers. The Applicants represent that they will not seek to
broker or market other energy commodities to a customer except in
conjunction with making an electricity sale.
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All of the Proposed Activities described above will be
carried on by personnel employed by SCS who engage in the day-to-
day power marketing and fuel procurement activities of the
Southern System. Except in the case of Electricity Brokering,
SCS will be acting solely as agent for the account of those
Operating Companies as are directly related to the customer
involved and will therefore have no beneficial interest in the
revenues from the Proposed Activities. In such cases, the
Operating Companies will be acting as principals and will hold
the beneficial interest in the power and energy which is the
subject matter of the arrangement.(8)
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. The
Operating Companies may also, and they hereby seek permission (to
the extent required) to, engage directly in the Proposed
Activities for their own account, either individually or in
cooperation with other Operating Companies, with or without the
assistance of SCS.
8 SCS envisions, for example, that every Electricity
Marketing opportunity, even those involving power suppliers and
customers outside the Sales Region, can be associated with one or
more of the Operating Companies. The appropriate Operating
Company(ies) will therefore be credited with all revenues from
and will bear all costs and risks associated with such
transactions.
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1.3 Financial Matters. The Operating Companies have
independent financial standing and do not anticipate needing
financing support from Southern or independent sources of capital
or financing to engage in the Proposed Activities. As indicated,
except in connection with Electricity Brokering, SCS will act
solely as agent for the Operating Companies and assume no
independent financial obligations in effecting the Proposed
Activities. 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 the Proposed
Activities.
As to the risks to which the Operating Companies may be
exposed in connection with any purchase or sales obligations, it
is anticipated that in the ordinary course of business the
Operating Companies would take appropriate steps to hedge risk
through the purchase of options, puts, futures and other similar
risk hedging measures. Further, the Operating Companies may
offset price risk exposure under a purchase or sale contract by
taking an opposite position to that purchase or sale. Similarly,
in a portfolio of purchase and sales contracts, risk could also
be limited through an appropriate mix of long-term and short-term
contracts. SCS, as agent for the Operating Companies, would
negotiate the terms of any such instruments and manage overall
portfolio risk.
1.4 Other Matters. SCS proposes to file a summary of
expenses and activities in engaging in the Proposed Activities
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(i) on a quarterly basis, pursuant to Rule 24, within 60 days
after the end of each of the first three calendar quarters, and
(ii) on an annual basis, as part of its Form U-13-60, within 120
days after the end of each calendar year. The Operating
Companies will also file copies of such portions of their
respective FERC Form 1 annual reports as indicate off-system
marketing activities.
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 $10,000, inclusive of the Commission's
$2,000 filing fee.
Item 3. Applicable Statutory Provisions.
The Applicants consider that Sections 9(a) and 10 of the Act
and Rules 23 and 54 thereunder may be applicable to the proposed
Electricity Brokering activities of SCS, to the fuel brokering
and marketing activities, and to Electricity Marketing activities
not involving system supply or the use of system-owned
transmission. The Applicants consider other Proposed Activities,
including, in particular, Electricity Marketing involving system
supply or the use of system-owned transmission and the fuel-for-
electricity (or "tolling") transactions described above, to be a
part of the Operating Companies' integrated utility operations
and therefore do not believe that such activities require
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separate approval by the Commission. To the extent that the
Commission believes that it has jurisdiction over any of the
Proposed Activities, the Applicants herein request approval
therefor as an acquisition of an interest in a non-utility
business under Sections 9 and 10.
Rule 54 provides that, in determining whether to approve an
application which does not relate to any "exempt wholesale
generator" or "foreign utility company," the Commission shall not
consider the effect of the capitalization or earnings of any such
"exempt wholesale generator" or "foreign utility company" 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 March 31, 1996, Southern's "aggregate investment," as
defined in Rule 53(a)(1), in "exempt wholesale generators" and
"foreign utility companies" was approximately $933,800,000, or
about 27.75% of Southern's "consolidated retained earnings," also
as defined in Rule 53(a)(1), for the four quarters ended December
31, 1996. Furthermore, 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 "exempt wholesale
generators" and "foreign utility companies," 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 of Rule 53(a) are currently
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met and none of the circumstances described in Rule 53(b) has
occurred, the provisions of Rule 53(c) are currently
inapplicable.
Item 4. Regulatory Approval.
No other federal regulatory authority has jurisdiction over
the proposed transactions. The approval of FERC is required as
to rates and charges imposed in any wholesale electric power
sales contracts or tariffs entered into in connection with
Electricity Marketing,(9) and may be required with respect to
other activities that would affect the rates and charges under
existing wholesale electric power sales contracts or tariffs
(such as fuel-for-electricity swaps described herein). The
Applicants do not currently intend to act as retail sellers of
power and energy outside their present service areas but may
qualify to do business if required by the laws of any State where
they carry on the Proposed Activities. No State regulatory
commission or any other federal commission (other than the
Commission) has jurisdiction over the Applicants' participation
in the Proposed Activities. However, the public service
commissions of Georgia, Alabama, Mississippi and Florida may
9 The Operating Companies, and SCS as agent for the
Operating Companies, have filed a market-based rate power sales
tariff with FERC in respect of proposed long-term and short-term
wholesale electricity sales to unaffiliated entities. See FERC
Docket No. ER 96-780-000 (61 Fed. Reg. 3927, dated February 2,
1996).
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regulate the accounting for any revenues derived by their
jurisdictional utilities from the Proposed Activities.
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 (To be filed by
amendment).
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.
SIGNATURE
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: April 26, 1996 SOUTHERN COMPANY SERVICES, INC.
By:/s/Wayne Boston
Wayne Boston
Assistant Secretary
ALABAMA POWER COMPANY
By:/s/Wayne Boston
Wayne Boston
Assistant Secretary
GEORGIA POWER COMPANY
By:/s/Wayne Boston
Wayne Boston
Assistant Secretary
[Signatures Continued on Next Page]
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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
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