File No. 70-8715
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM U-1
Amendment No. 1
to
APPLICATION OR DECLARATION
under
The Public Utility Holding Company Act of 1935
THE SOUTHERN DEVELOPMENT AND INVESTMENT GROUP, INC.
64 Perimeter Center East
Atlanta, Georgia 30346
(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
The Southern Company
270 Peachtree Street, N.W.
Atlanta, Georgia 30303
(Name and address of agent for service)
The Commission is requested to mail signed copies of all
orders, notices and communications to:
W. L. Westbrook J. Kevin Fletcher
Financial Vice President President
The Southern Company The Southern Development and
270 Peachtreet Street, N.W. Investment Group, Inc.
Atlanta, Georgia 30303 64 Perimeter Center East
Atlanta, Georgia 30346
John D. McLanahan, Esq.
Troutman Sanders LLP
600 Peachtree Street, N.E.
Suite 5200
Atlanta, Georgia 30308-2216
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INFORMATION REQUIRED
The Application or Declaration heretofore filed in this
proceeding is amended as follows:
1. Item 1.4 - Purpose of Investment, is amended and
restated in its entirety to read as follows:
"Under the proposed arrangement, Development will have an
opportunity to acquire a small minority interest in ITC, and,
through a seat on ITC's board of directors, to participate in
ITC's corporate planning. However, because ITC's controlling
shareholders will continue to have the ability to elect a
substantial majority of the board members, Development's board
representation will not enable it to dominate or dictate the
business affairs of ITC.
ITC has a reputation for innovation, particularly in the
area of commercial communications services. For that reason, and
because of the close geographical overlap of Southern's utility
service area and ITC's telecommunications operations, ITC and
Southern (and their respective subsidiaries) have been able to
pursue a number of mutually beneficial joint development
activities. As Southern upgrades its operations in a more
communications intensive environment and as ITC expands its
commercial telecommunications services in the same area, joint
engineering and partnering will provide both companies with
significant opportunities to lower costs through shared
facilities and services, infrastructure and technology choices
made of the basis of aggregated demand, and elimination of
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overlapping and duplicative facilities. For example, Southern's
and ITC's subsidiaries have jointly constructed and share
responsibility for over 750 miles of OPGW. These joint
arrangements have saved Southern's subsidiaries significant
capital that they would otherwise have had to invest to construct
and maintain telecommunications infrastructure needed to support
their utility-related communications needs.
Southern Communications Services, Inc. ("Southern
Communications")1 has also entered into a long-term agreement
with a subsidiary of ITC pursuant to which the ITC subsidiary
will provide certain networking (e.g., switching, signaling and
call termination) services which will allow Southern
Communications' Enhanced Specialized Mobile Radio network to
access the public telephone network. The efficient and effective
planning and execution of this contract is essential not only to
Southern Communications' future plans, but also to maintaining
the reliability and viability of the wireless services that
Southern Communications will provide to the Operating Companies.
For its part, Development has been engaged in discussions
with ITC for some time regarding opportunities for joint
development and testing of technologies and equipment that would
be incorporated into the build-out of portions of the Prototype
Network, as well as into utility-related communications services
1 See The Southern Company, Holding Co. Act Release No.
26211 (Dec. 30, 1994).
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that Development is authorized to provide under the January 1995
Order, including but not limited to Energy/DSM Management
services. Among other objectives, these joint
development/testing efforts would be designed to determine
whether Development can utilize commercially available
communications infrastructure and capacities for Energy/DSM
Management applications, rather than duplicate such
infrastructure and capacities at its own cost.
As an outgrowth of these ongoing discussions, Development
and ITC have identified numerous potential benefits to be derived
from a strategic business alliance, and have concluded that
Development's investment in ITC and limited participation in
ITC's corporate planning processes would be an appropriate and
sensible way to structure that strategic alliance.
Development's overriding goal in this transaction is to
better understand the uses of the latest in telecommunications
technologies in modern utility-related applications, and to
facilitate the development and availability of such technologies.
Development's proposed investment in ITC will provide Development
with an opportunity to have input at the strategic planning level
as ITC formulates its plans for investment in modernization of
communications infrastructure in areas served by the Operating
Companies. Although Development's investment in ITC will not be
restricted in any way, it will in fact be used in furtherance of
projects within Georgia, Alabama and Florida to an overwhelming
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degree. Southern and the Operating Companies will clearly
benefit to the extent that Development's input into ITC's
strategic plans results in new investment in the kinds of
telecommunications facilities, services and features required by
Southern Communications and the Operating Companies. At the same
time, Development's participation in ITC's planning will provide
ITC with the informed insight of a major regional electric
utility as to its utility-related requirements and needs for the
future."
2. Item 2 - Fees, Commissions and Expenses, is amended and
restated to read as follows:
"The fees, commission or expenses paid or incurred in
connection with the proposed transaction are estimated not to
exceed $40,000, inclusive of the Commission's $2,000 filing fee
and the fees and expenses of counsel."
3. Item 3 - Applicable Statutory Provisions, is amended by
adding the following additional paragraphs at the end thereof:
"1. The Acquisition of the Shares Will Satisfy the
Standards of Section 10. Section 9(a)(1) of the Act requires
prior Commission approval under the standards of Section 10 for
the direct or indirect acquisition of an interest in a nonutility
business. Section 10(b)(3), which may be deemed applicable to
such a proposal, provides that the Commission shall approve the
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acquisition unless it finds that it "will be detrimental to the
public interest or the interest of investors or consumers or the
proper functioning of such holding company system."2 For
reasons discussed below, there is no basis for the Commission to
make such a finding in this case.
Of greater importance is Section 10(c)(1), which provides
that the Commission shall not approve an acquisition that would
be detrimental to the carrying out of the provisions of Section
11. Section 11(b)(1), in turn, limits the nonutility activities
of a registered holding company system to those that are
"reasonably incidental, or economically necessary or appropriate"
to the company's public utility operations if the Commission
finds such nonutility activities to be "necessary or appropriate
in the public interest or for the protection of investors of
consumers and are not detrimental to the proper functioning of
[the integrated] system."
In the past, the Commission has interpreted the "other
business" clauses of Section 11(b)(1), as applied to an
acquisition such as this through Section 10(c)(1), to require an
operating or functional relationship between the business of the
2 The standards of Section 10(b)(1) and (2) are concerned
with utility acquisitions and are therefore not relevant to
Development's proposed acquisition of the Shares.
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nonutility enterprise proposed to be acquired and the core
utility business of the registered holding company.3
In another line of cases, the Commission has approved small,
non-controlling, equity investments in independent nonutility
companies undertaken primarily to promote joint-planning and
research or commercialization of energy-related technologies,
rather than with a view to integrating the operations of the
nonutility company into the operations of the registered holding
company's core utility system.4 Development's acquisition of
3 See Michigan Consolidated Gas Co., 44 S.E.C. 361 (1970),
aff'd 444 F.2d 913 (D.C. Cir. 1971).
4 See, e.g., General Public Utilities Corp., Holding Co.
Act Release No. 15184 (Feb. 9, 1965) (acquisition of 50% of the
common stock and other securities of company organized to promote
manufacture and national marketing of electric equipment using
new type of fan); The Southern Co., Holding Co. Act Release Nos.
23888 (Oct. 31, 1985) (small investment in joint venture to
manufacture and sell photovoltaic cells) and 23440 (Oct. 1, 1984)
(equity investment in company developing two-way communications
technology combining energy management and other services for use
by residential and small commercial customers); New England
Electric System, et al., Holding Co. Act Release No. 26277 (Apr.
26, 1995) (investment in convertible preferred shares of
developer of process for separating unburned carbon from coal
ash); Mississippi Power Company, Holding Co. Act Release No.
24440 (Aug. 12, 1987) (purchase of 12.3% equity interest
(including 9.9% voting interest) in manufacturer of integrated
heat pumps utilizing acquiring company's patented technology);
Public Service Company of Oklahoma, Holding Co. Act Release No.
26016 (Mar. 31, 1994) (acquisition of securities (including
shares convertible into 4.99% of the voting stock) of developer
of energy management technology); American Electric Power
Company, Inc., et al., Holding Co. Act Release No. 25424 (Dec.
11, 1991) (acquisition of 9.9% of the common stock and other
securities of developer of electronic light bulb technology); and
Entergy Corporation, et al., Holding Co. Act Release Nos. 25718
(Dec. 28, 1992) (acquisition of 9.95% of the common stock of
developer and manufacturer of energy efficient lighting
technologies) and 25353 (July 25, 1991) (acquisition of up to
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the Shares falls squarely within the logic of these latter cases.
In most of these cases, the investment approved resulted in
the creation of an "affiliate" relationship with the company
whose shares were acquired; and in several of those cases, the
transaction documents included terms designed to preserve the
acquiring company's percentage stake. Neither factor is present
in the instant case. ITC will not, as a result of the purchase
of the Shares, become a statutory "affiliate" of Development.
Further, Development will have no protection from dilution of its
percentage interest in ITC.
In Item 1.4, Development has described various different
areas in which one or more of Southern's subsidiaries and certain
ITC subsidiaries are pursuing joint development or planning
efforts. Among other benefits, these joint efforts will aid
Development in its DSM/Energy Management business, enable the
Operating Companies to earn on existing utility infrastructure
through licensing and joint-use of existing facilities, and have
the potential to provide significant savings to Southern
Communications in the operation of its mobile radio system.
These are the purposes and objectives for the proposed
9.95% of the common stock of developer of patented communications
technology used in remote meter reading, interactive customer
communications and other energy-related applications).
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acquisition, and the standards of Section 10(c)(1) should be
addressed in those terms.5"
2. The Acquisition of the Shares is Economically
Appropriate and In the Interest of Consumers and Investors.
Although Development believes that its proposed investment in ITC
will satisfy the standards of Sections 10(c)(1) and 11(b)(1) of
the Act, as applied in other similar cases involving small equity
investments in independent nonutility companies, the Commission
may also approve Development's investment in the Shares upon the
alternative ground that it is economically appropriate and in the
public interest regardless of whether ITC's principal nonutility
businesses are ancillary to Southern's core electric utility
operations. In this connection, reference is made to the June
1995 report of the Division of Investment Management ("Division")
entitled "The Regulation of Public-Utility Holding Companies"
(the "Report") in which the Division has recommended, among other
things, that the Commission adopt a "more flexible interpretation
of the provisions of the Act concerning diversification."6
5 There is support for the view that the standards of
Section 10(c) should be interpreted in light of the purposes and
objectives for which an acquisition is proposed. Thus, in Atlee
M. Kohl, Holding Co. Act Release No. 22440 (Apr. 1, 1982), a case
involving a small equity investment in a utility, the Commission
held that the substantive standards of Section 10(c)(2) (i.e.,
integration of utility operations, which, in that particular
case, would not result) had to be interpreted in light of the
applicant's purposes and objectives in making the acquisition,
which did not include the exercise of control.
6 Report, at page 91.
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Development's investment in ITC may be considered
"economically appropriate" on several levels. First and
foremost, the consideration to be paid for the Shares
($6,195,000) is extremely small relative to the size of Southern,
representing about .03% of Southern's consolidated capitalization
at September 30, 1995 ($18.6 billion). Thus, Development's
investment in ITC will not expose Southern or its investors to
any significant financial risk of loss. Further, the Operating
Companies and their respective customers will be fully insulated
from any possible adverse effects of the investment in the
Shares.7 Finally, there is no basis for any finding that the
price to be paid for the Shares is unreasonable or excessive in
light of the value of ITC's underlying assets and earnings
potential.8
The public interest standard for approval is satisfied for
the reasons which have already been stated above. Specifically,
the potential to reduce capital expenditures through joint-
planning and construction of certain telecommunications
facilities, to achieve operating savings through the close
7 See Entergy Corporation, et al., Holding Co. Act Release
No. 25718 (Dec. 28, 1992) in which the Commission noted the
importance of using separate subsidiaries to "insulate core
utility operations from the performance and financial
consequences of [a registered holding company's] nonutility
activities." 53 SEC Docket at 355.
8 ITC's financials, which have been made available to
Development on a confidential basis, disclose a history of stable
earnings and growth.
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coordination of vital telecommunications services (e.g.,
switching services, maintenance and testing of telecommunications
links, etc.), and to maximize the Operating Companies' return on
capital already invested in certain utility assets (e.g., towers,
rights-of-way, etc.), all tend to indicate that Development's
investment is likely to produce tangible benefits to investors
and utility customers alike.9
Finally, a finding that Development's investment in the
Shares would be "economically appropriate" and in the public
interest would, by implication, preclude any negative findings
under Section 10(b)(3)."
4. Item 6 - Exhibits and Financial Statements, is completed
with the filing of the following exhibit:
Exhibit F - Opinion of Troutman Sanders LLP
9 Neither the standards of Section 11(b)(1) or Section
10(c)(1), as applied to a proposed acquisition of an interest in
a nonutility business, call for the Commission to make a finding
or prediction that the intended purposes of the acquisition will
be realized. See Public Service Company of Oklahoma, Holding Co.
Act Release No. 19090 (July 17, 1975), 45 S.E.C. 878.
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SIGNATURE
Pursuant to the requirements of the Public Utility Holding
Company Act of 1935, the undersigned company has duly caused this
statement to be signed on its behalf by the undersigned thereunto
duly authorized.
Dated: November 21, 1995
THE SOUTHERN DEVELOPMENT AND INVESTMENT
GROUP, INC.
By: /s/Tommy Chisholm
Tommy Chisholm, Vice President and
Secretary
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Exhibit F
Troutman Sanders LLP
600 Peachtree Street - Suite 5200
Atlanta, GA 30308
404-885-3000
November 21, 1995
Securities and Exchange Commission
Washington, D.C. 20549
Re: The Southern Development and Investment Group, Inc. -
Form U-1 Application or Declaration (File No. 70-8715)
Ladies and Gentlemen:
We are familiar with the statement on Form U-1 referred to
above, as amended, and are furnishing this opinion with respect
to the transaction described therein, pursuant to which The
Southern Development and Investment Group, Inc. ("Development"),
a wholly-owned nonutility subsidiary of The Southern Company
("Southern"), a registered holding company, proposes to purchase
250,000 shares of the common stock (the "Shares") of ITC Holding
Co., Inc., a Delaware corporation ("ITC").
We are of the opinion that Development is a validly
organized and duly existing corporation under the laws of the
state in which it is organized, and that, upon the issuance of
your order herein, and in the event that the proposed transaction
is consummated in accordance with such statement on Form U-1 and
your order:
(a) all state laws applicable to the proposed
transaction will have been complied with;
(b) assuming that the Shares are legally issued in
compliance with all applicable requirements of law and the
governing instruments of ITC, then Development will be
entitled to all of the rights and privileges of a common
stockholder of ITC;
(c) the consummation of the transaction described
above will not violate the legal rights of the holders of
any securities issued by Development or any associate
company thereof.
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Securities and Exchange Commission
November 21, 1995
Page 2
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
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