SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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
333 Piedmont Avenue, N.E. POWER COMPANY
Atlanta, Georgia 30308 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 and
Southern Company Services, Inc. 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 President,
Secretary and Treasurer Secretary, Treasurer and Chief
Alabama Power Company Financial Officer
600 North 18th Street Mississippi Power Company
Birmingham, Alabama 35291 2992 West Beach
Gulfport, Mississippi 39501
Judy M. Anderson, Vice President Kirby R. Willis, Vice President,
and Corporate Secretary Treasurer and Chief Financial Officer
Georgia Power Company Savannah Electric and Power Company
333 Piedmont Avenue, N.E. 600 Bay Street East
Atlanta, Georgia 30308 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
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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."
1.1 Background. The Applicants intend, and, to the extent
jurisdictional under the Act, hereby request authority, to engage in a variety
of electricity and energy commodity brokering and marketing transactions which
are either a part of the integrated electric utility business of the Operating
Companies, or 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
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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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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 buy and sell
electricity at wholesale in transactions involving other investor-owned
utilities that are members of the Southeastern Electric Reliability Council
("SERC"), as well as certain other interconnected utilities that are not a part
of SERC.2
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.
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2 Certain Operating Companies are directly interconnected with Mississippi Power
& Light Company, Louisiana Power & Light Company, and the Tennessee Valley
Authority, none of which are members of SERC.
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As indicated, the Operating Companies currently engage in a variety of
wholesale electric sales transactions with other interconnected utilities
located primarily in SERC. Most of these sales are provided on a "firm," or
uninterruptible (in the absence of circumstances beyond the Operating Companies'
control), basis, but the Operating Companies also provide non-firm capacity and
energy as well. From time to time, the generating resources of the Operating
Companies may be greater than needed to serve their respective retail customers
and other committed wholesale purchasers. During such periods, SCS, as agent for
the Operating Companies, attempts to market any generating surplus to other
customers, both inside SERC and in adjoining areas. In addition, to satisfy the
obligation of the Operating Companies to supply retail and wholesale customers
on the most economic terms, SCS, as agent for the Operating Companies,
aggressively seeks out the most economic sources of electricity in SERC and
adjoining regions. These transactions, which frequently involve base load
capacity purchases and sales, result in cost savings for the contracting 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
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of professionals and software systems to manage a wide variety of
resources and requirements across the region.3
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 are clearly intended to
promote competition among traditional utilities themselves by requiring that
they provide transmission access to competing buyers and sellers.4
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3 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.
4 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, 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).
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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 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 two Proposed Activities
consist of Brokering and Marketing services to be provided to
customers other than the Operating Companies. Initially, the
Applicants anticipate that such activities would be conducted
primarily within the service territories of the member companies
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of SERC5 and adjoining interconnected utility systems. The
Proposed Activities are described in more detail below.
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 a customer the Operating Companies cannot supply, whose
respective supply and need 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 (i.e., "Brokering"). As SCS would
neither buy nor sell power or energy 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 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. SCS now seeks authority to engage in
Brokering to the extent that the Commission deems such activity
to be an interest in another business under Sections 9 and 10 of
the Act.
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5 The States which are included in whole or in part within SERC include, in
addition to Georgia, Alabama, Florida and Mississippi, North and South Carolina,
Virginia, Tennessee and Kentucky.
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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
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.
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 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. Nevertheless, SCS may still
have the opportunity to serve this customer's requirements from third-party
sources. Although it is expected that most such purchases and sales will be made
within SERC, some sales and purchases may be made outside of such region.
Where the source of electric supply to be sold arises within SERC, or
has to travel through SERC to reach the ultimate buyer, 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
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customer. In fact, because the Operating Companies constitute a significant part
of the overall SERC membership, it is likely that every segment of energy
shipped into or out of the Southeast contains at the point of consumption some
electrons generated at a Southern System generating plant and/or which have
flowed over transmission facilities owned by an Operating Company. SCS's
participation in such a transaction ("SERC Marketing") would accordingly
constitute a part of the operations of Southern's integrated electric utility
system.6
In addition, circumstances may arise where SCS is unable to fulfill all
of a customer's power needs from system-owned or controlled power resources, and
would therefore need to contract with third party suppliers to supplement
system-owned capabilities. In other instances, it is possible that none of the
power and energy needed by SCS to serve a potential customer would be available
from Southern System-owned generation facilities or would flow over Southern
System transmission lines ("Non-SERC Marketing"). Under these circumstances, it
may still be advantageous for SCS to contract with the prospective buyer and
seller, as agent for one or more of the Operating Companies.7
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6 See Northeast Utilities Service Co., et al., Holding Co. Act Rel. No. 26359
(August 18, 1995). 7 It should be noted that Southern, through other non-
utility subsidiaries, is currently engaged in (or authorized to engage in) the
business of brokering and marketing electricity to unaffiliated third parties.
However, under the terms of separate "Codes of Conduct" filed with the Federal
Energy Regulatory Commission ("FERC"), one of which is applicable to SCS and the
Operating Companies and the other to all of Southern's other subsidiaries, SCS
and the Operating Companies are prohibited from, among other things, providing
to any subsidiary of Southern (other than SCS or the Operating Companies)
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. 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 P. 61,324 (1995), order on reh'g, 74 FERC P. 61,141 (1996). 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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Non-SERC Marketing activities would be beneficial to the Southern
System from a number of perspectives: the Southern System's presence in its
principal wholesale market would be maintained or enhanced, customers' needs
could be satisfied where the Operating Companies could not otherwise provide
service, the wholesale power market in SERC and adjacent areas will become more
competitive, SCS's personnel would gain and enhance needed market expertise, and
profits would accrue to the benefit of the Southern System's investors and
customers.
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
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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 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 such 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.
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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.
All Marketing activities, including the Marketing activities conducted
wholly outside of SERC, and the fuel-for-electricity and fuel brokering and
marketing 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. SCS, in turn, will be acting 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
Marketing. In all such cases the Operating Companies will be acting as
principals and will take
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title to the power and energy which is the subject matter of the
arrangement.8
SCS personnel engaged in Marketing activities and Brokering 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 Marketing activities
for their own account, either individually or in cooperation with other
Operating Companies with or without the assistance of SCS. Revenues from
Marketing will be paid or credited entirely to the affected Operating Companies,
with resulting benefits to consumers and investors.
As indicated, the Applicants believe that many of the Proposed
Activities described above, including, in particular, all SERC Marketing and
fuel-for-electricity activities, constitute a part of the Operating Companies'
integrated utility operations and therefore do not require separate approval by
the Commission. To the extent the Commission does not deem the proposed Non-SERC
Marketing activities or fuel brokering and marketing component of the Proposed
Activities wherever conducted
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8 SCS envisions that every marketing opportunity, even those involving Non-SERC
Marketing, 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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to be the conduct of an integrated electric utility business, the Applicants
herein request approval therefor as an acquisition of an interest in a
non-utility business under Sections 9 and 10.
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. 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 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.
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1.4 Other Matters. SCS will file a summary of its expenses and
activities in engaging in the jurisdictional actions contemplated in this
Application-Declaration (i) on a quarterly basis, within 60 days after the end
of each calendar quarter, 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.
A statement of the fees, commissions and expenses estimated to be
incurred in connection with the proposed transactions will be supplied by
amendment.
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 Brokering
activities by SCS and to the Non-SERC Marketing and fuel brokering and marketing
component of the Proposed Activities, but do not consider that other
transactions described herein require approval by the Commission.
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"
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which is a subsidiary of a registered holding company if the requirements of
Rule 53(a), (b) and (c) are satisfied. In this regard, the Applicants represent
that each of the conditions of Rule 53(a) are met (and hence Rule 53(c) is
inapplicable),9 and none of the circumstances described in Rule 53(b) has
occurred.
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 the Marketing aspect of the Proposed Activities,10 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
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9 In a separate, pending, proceeding (File No. 70-8725), Southern is seeking
relief which, if granted, would allow Southern to issue securities (including
guaranties) in order to finance investments in "exempt wholesale generators" (as
well as "foreign utility companies") in amounts which would exceed the
limitation in Rule 53(a)(1). The Applicants' representation regarding compliance
with Rule 54 is therefore expressly subject to the Commission's action in File
No. 70-8725. 10 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 95-976-000.
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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 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.
(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: March 15, 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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EXHIBIT G
FORM OF FEDERAL REGISTER NOTICE
Southern Company Services, Inc. ("SCS"), of Atlanta Georgia, a
wholly-owned subsidiary service company of The Southern Company ("Southern"), a
registered holding company, also of Atlanta, Georgia, and Southern's five
electric utility subsidiary companies, Alabama Power Company, Birmingham,
Alabama; Georgia Power Company, Atlanta, Georgia; Gulf Power Company, Pensacola,
Florida; Mississippi Power Company, Gulfport, Mississippi; and Savannah Electric
and Power Company, Savannah, Georgia (together, the "Operating Companies"), have
filed an application under Sections 9(a) and 10 of the Public Utility Holding
Company Act of 1935, as amended (the "Act"), and Rule 54 thereunder, seeking
authorization to engage in certain electric power and fuel brokering and
marketing activities.
Southern, through the Operating Companies provides retail electric
service in substantially all of Georgia and Alabama and contiguous areas of
Florida and Mississippi. The Operating Companies also engage in purchases and
sales of electricity at wholesale with utilities and municipalities throughout
the Southeastern Electric Reliability Council ("SERC") and with certain other
interconnected utilities that are not a part of SERC. SCS acts as agent for and
provides centralized services to the Operating Companies in connection with
these transactions.
The applicants state that the Operating Companies from time to time
have generating capacity greater than that needed to serve their retail
customers and committed sales. During those
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periods, SCS, on behalf of the Operating Companies, actively seeks additional
markets for such generating surplus. In addition, to satisfy the obligations to
supply customers on the most economical terms, SCS has developed relationships
across the region with other utilities and power suppliers, and has devoted
substantial resources and efforts to building a staff of professionals and
systems to manage a wide variety of regional resources and requirements. The
proposed activities are intended to serve the needs of the evolving regional
power supply market.
Specifically, the applicants propose that SCS will engage in brokering
and marketing transactions with non-associate companies, largely within the
principal electric supply market of the members of SERC and certain
interconnected utility systems. For a brokerage fee, SCS will match electric
power supplies with customers that the Operating Companies are unable to supply.
These activities will be incidental to SCS's activities on behalf of the
Operating Companies.1 SCS will neither buy nor sell power or energy in a
brokering transaction.2
In addition, SCS requests authority, to the extent needed, to engage in
electric power marketing transactions, generally in
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1The applicants explain that as SCS seeks new wholesale customers and power
supplies for the Operating Companies' own needs, it occasionally learns of a
source it cannot use and a customer the Operating Companies cannot supply.
Bringing the two parties together could result in a brokerage fee. 2Thus, there
would be no price exposure or significant financial risk. The applicants state
that such activity is not regulated as a sale of power under the Federal Power
Act or any state regulatory framework.
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the area defined by SERC and certain other utilities with which the Operating
Companies are interconnected. The applicants state that marketing will enable
SCS (on behalf of the Operating Companies) to satisfy needs that it could not
otherwise meet. In certain circumstances, for example, a prospective customer
has needs that SCS cannot serve, either in whole or in part, from Southern
system-owned resources, and brokering is not feasible for practical reasons. If
the customer is located outside the service territories of the Operating
Companies and the supply is not available from Southern-owned resources, the
only way to satisfy the customer's requirements is from other third-party power
suppliers. In some cases, circumstances may arise in which it is unlikely that
any power and energy supplied by the Operating Companies would flow from system
generation facilities or over system transmission lines (hereafter referred to
as "Non- SERC Marketing").
Finally, the applicants state that it may be necessary or economically
efficient under certain circumstances to substitute other sources of energy for
electricity generated by the Operating Companies, and/or offer to supply or
manage a customer's requirements for fuel. For example, if electricity is being
sold across a transmission interface which becomes constrained, in such a way
that the Operating Companies are precluded from transmitting the power to the
purchasing utility, the Operating Companies may be able to substitute some of
its fuel supplies to enable the utility to generate a like amount of
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power itself. In this way, the Operating Companies would be able to substitute
one source of energy for another to effect the sale of electricity. Similarly,
if local environmental constraints preclude an Operating Company from generating
a certain amount of electricity for a wholesale customer that is not subject to
a similar constraint, the Operating Company may be able to substitute some of
its fuel supplies to enable the purchasing utility to generate a like amount of
power itself in an environmentally acceptable manner. Again, if the marginal
cost of an Operating Company's generation makes it uneconomical for the
purchasing utility to buy a certain amount of power from that Operating Company,
whereas it would be economical for that utility to purchase fuel from the
Operating Company and generate the power itself, a fuel-for-energy transaction
could be appropriate.3
Finally, the applicants state that there may be occasions in which, in
connection with making sales of electricity, they may be asked by an electricity
customer to serve as a single-source supplier of other energy commodities, such
as gas or oil, and request authority to do so.
In its marketing activities, including those conducted wholly outside
of SERC and the fuel-for-energy activities described above, SCS would merely act
as agent for one or more of
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3The applicants state that under no circumstances would such fuel-for-energy
activities involve inter-affiliate transfers of fuel supplies in violation of
any applicable law or be disadvantageous to any franchise area customer.
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the Operating Companies. The proposed brokering and marketing activities will be
carried on by SCS personnel engaged in day-to-day system power marketing
activities on behalf of the Operating Companies.4 SCS will assume no independent
financial obligations in effecting the proposed activities. All revenues from
brokering will be credited to reduce SCS's cost of operating, which will, in
turn, reduce SCS's cost of service to the Operating Companies and other
subsidiary companies of Southern. With respect to marketing activities, SCS will
act as agent for the account of the Operating Companies directly related to the
customers involved and, as such, will have no beneficial interest in the
resulting revenues or any corresponding liability. Instead, revenues from
marketing activities will be credited entirely to reduce the affected Operating
Companies' cost of operation.
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4Personnel will account for their time through the regular time accounting
system of the Southern system by charges to specific activity codes established
for the affected Southern system companies. Overheads and ancillary expenses
will be similarly charged.
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