File No. 70-8233
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
THE SOUTHERN COMPANY
64 Perimeter Center East
Atlanta, Georgia 30346
SOUTHERN COMPANY COMMUNICATIONS, 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
64 Perimeter Center East
Atlanta, Georgia 30346
(Name 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
The Southern Company 5200 NationsBank Plaza
64 Perimeter Center East, N.E 600 Peachtree Street, N.E.
Atlanta, Georgia 30346 Atlanta, Georgia 30308-2216
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INFORMATION REQUIRED
The foregoing Application-Declaration (the "Application")
is hereby amended and restated to read in its entirety as follows:
Item I. Description of Proposed Transactions.
1.1 Background.
The Southern Company ("Southern") is a registered holding
company under the Public Utility Holding Company Act of 1935 (the
"Act"). Its subsidiaries operate an integrated electric utility
system providing service to a contiguous 120,000 square mile area
comprising most of the states of Alabama and Georgia, southeastern
Mississippi, and the northwestern Florida (the "Southern Territory").
Among its subsidiaries are Alabama Power Company, Georgia Power
Company, Gulf Power Company, Mississippi Power Company and Savannah
Electric and Power Company, each conducting in its respective service
area the business of an operating electric utility company
(collectively, the "Operating Companies"), and Southern Company
Services, Inc. ("Services"), a subsidiary service company. Other
subsidiaries include Southern Nuclear Operating Company, Inc.
("Southern Nuclear"), Southern Development and Investment Group, Inc.
("Development"), and Southern Electric International, Inc. ("SEI").
(All subsidiaries of Southern are hereinafter referred to
collectively as the "Subsidiaries").
In order to operate a coordinated and integrated electric
utility system, Services and the Operating Companies necessarily have
developed substantial expertise in communications and substantial
investment in communications technology, systems, and equipment, the
net book value of which is approximately $300 million. The central
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role of communications to efficient electric utility service was
recognized by the Federal Power Commission:
The increased complexities of power systems and
extensive coordination of area and regional
networks have expanded the needs for the reliable
communications necessary for monitoring,
supervision, and control. Records indicate that
the annual investment in power system
communication facilities increased at a rate of
about 10 percent for the years before about 1952,
and about 15 percent for the years since. A
growth rate similar to that for the latter period
is expected for at least the next 15 to 20 years.
Power system communications involve a wide
variety of functions and many different types of
equipment. In addition to the voice
communication requirements, most systems now
utilize communication channels to transmit system
information to central control points; to connect
supervisory control terminals to their associated
remote stations; to operate teletype and related
information transfer facilities; and to
facilitate rapid signaling for high-speed
protective relay applications. Many larger
utilities utilize sophisticated communication
systems in the high-speed transfer of data for
computer systems that perform functions varying
from periodic monitoring and the annunciation of
unusual conditions to automatic control of some
operational functions. There has been an
increasing trend in the use of digital equipment
for both data transmission and computation, and a
number of utilities are now using digital
telemetering channels to transmit information.
Utilities use virtually all of the common
communication media, such as wire lines, cables,
radio, microwave, and carrier-current circuits.
Most utilities also make extensive use of mobile
radio for communication between control centers
and operations and maintenance personnel.
A sizeable increase is anticipated in intersystem
communications links, both for exchange of
information and for the control and operation of
interconnected systems. Improved reliability
through status monitoring and evaluation, real-
time or on-line simulation, and control methods
will require accompanying improvements in
communication facilities. ...
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Federal Power Commission 1970 National Power Survey, I-13-17-18.
Communications is integral to electric utility operations
because only through effective communications systems can customer
requirements be met efficiently, or even met at all. An individual
distribution circuit itself conveys the consumer's instantaneous
demand to the utility system; today, however, customers and utilities
need more information promptly (and increasingly on a real-time
basis) if consumers and utilities are to make optimal use of their
resources, such as through time-of-use rates, interruptible rates and
service, automatic load control, and coordination with customer
premises generation and demand-side equipment. In the increasingly
competitive environment of today, the need to minimize overtime, to
staff crews efficiently and to meet customer needs promptly has
intensified the need for effective utility communications systems.
The emphasis upon integration and coordination as the
elements that are essential to maintaining a utility holding company
system under Section 11(b) of the Act reflects the integral nature of
communications to efficient utility operations. In the order
approving formation of The Southern Company, the Securities and
Exchange Commission stated that "we have been moved to permit the
continuation of the proposed large combination of electric properties
under the common control of Southern, in the main so as not to
disturb their present and historical coordination and efficiency.
The Commonwealth and Southern Corp., 26 S.E.C. 646, 488 (1947). The
order noted specifically that there existed a "high degree of
coordination of the electric utility facilities" and particularly
central dispatch of generating plants from Birmingham, Alabama,
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dating from 1930." 26 S.E.C. at 477-479. A common thread in the
administration of the integration standards of the Act has been
actual coordination of planning and operations, coordination which
has necessitated investment in communications infrastructure. See
e.g. New England Electric System, 38 S.E.C. 193 (1958); Electric
Energy Inc., HCAR 13871 (1958) (including telemetering and microwave
systems).
Heretofore, each of the Operating Companies has generally been
responsible for its own communications systems, including mobile
radio systems. Mobile radio systems are typically used in connection
with interruptions in service or other "trouble", communication among
crews and dispatchers, with customers, with state and federal public
safety and emergency officers and officials, and for normal business
contact between offices and personnel operating on business outside
the office, particularly in connection with transmission and
distribution line construction, maintenance, and operations, and
other sales and service activities. The existing Operating Company
systems have been developed on a company by company basis, and
generally do not share compatible equipment or facilities.
Therefore, system personnel are not able to communicate with each
other over the same communication system. Thus, when an Alabama crew
goes to Georgia or a Georgia crew goes to Florida or a Florida crew
goes to Alabama in the wake of an emergency, they are not able to
communicate properly. Also, among the Operating Companies,
operational support concerning routine operations has grown in
frequency as the Southern electric system has striven to standardize
equipment and to use crews and control systems efficiently. In
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addition to the wireless communications fragmentation among Operating
Companies, there is a significant amount of fragmentation within
Operating Companies. For example, at Georgia Power, an 800 MHz
mobile radio system is in place within the Atlanta Metro Region,
whereas other portions of Georgia Power's system utilize a 450 MHz
system. Effective utility service has required redefining the
"Atlanta Metro" service boundary within Georgia Power on several
occasions, resulting in customer service and operating districts
having fragmented mobile communications. At the same time there has
been substantial centralization of the transmission and distribution
dispatching functions at Georgia, increasing the need for wide area
integrated wireless communications. These developments make
continued maintenance of a fragmented mobile radio system intolerable
from an operating standpoint. Compounding these problems is the fact
that the Federal Communications Commission ("FCC") has proposed that
frequencies now used in large measure for utility communications be
restructured for more efficient use, thus obsoleting existing
communications equipment and requiring utilities to "refarm" their
communications to other frequencies, such as 800 MHz.
Under these pressures, the Operating Companies of Southern have
begun a piecemeal transition to 800 MHz. Gulf Power Company has
temporarily deferred an otherwise imminent construction of an 800 MHz
radio system pending the decision to implement the project described
herein. Georgia Power Company also currently plans to implement a
statewide 800 Mhz radio system. Mississippi Power Company has
installed an analog, as opposed to digital, 800 Mhz system.
Dissatisfaction with the absence of a true interconnect to the
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telephone system has caused many Mississippi Power Company mobile
radio users to use a cellular telephone in addition to the radio.
Use of new digital technology will eliminate the need for this
duplication. Alabama Power Company currently operates a 450 MHz
system, suffers problems with congestion, and had planned to
implement a transition to 800 MHz. The current Savannah Electric and
Power Company 800 MHz system is incompatible with the existing
Georgia Power Company system. When a new mobile radio system is
installed, the equipment vendor will purchase the existing equipment
from each of the Operating Companies for the market value thereof and
give each one credit which they may use for purchases from the
vendor.
The existing radio systems have coverage areas scattered
throughout the Operating Companies' service areas and in areas where
Operating Company personnel have frequent need to travel, including
along transmission corridors and within the service areas of
interconnected utilities. All of these mobile radio systems were
built and are being used in connection with the construction,
operation, maintenance and use of the electric generation,
transmission and distribution facilities of the Operating Companies,
and for other related purposes in connection with the Operating
Companies' electric utility operations, including communication and
coordination of operations with governmental units and other
utilities. The personnel of the Subsidiaries utilize mobile radio
communications for the full range of business requirements that any
electric utility, and indeed, any business would have. Thus, the
mobile radio systems are used for communication with repairmen,
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linemen, and other operating personnel; they are used for safety and
operating programs and practices concerning generation facilities,
including nuclear generation facilities; they are used by sales and
marketing personnel; they are used for evaluation of remote meter
reading technologies and other energy management programs; they are
used by personnel for industrial development activities; and they are
used generally by persons having need to be away from their
headquarters or base of operations for communication with other
personnel and with headquarters or bases of operation.
As utility and customer data applications continue to develop,
other related purposes will include more extensive remote meter
reading, real time pricing, load control and coordination, demand-
side management, transmission of data between service vehicles and
home offices, and other similar uses. Particularly as retail
customers rely more on time of use, energy management, and demand
side programs that are responsive to system (and market) marginal
costs, field access to data has become essential to effective
customer service. Efficient field operations also require wireless
access to data, including automated mapping and facilities
management. Wireless data access will meet a critical emerging need
within all levels of electric utility operations. However, in order
to make practical use of wireless data transmission on a mobile
basis, digital technology must be employed.
These developments pertaining to conventional mobile
communications and mobile wireless data transmission coincide with
the separate rapid growth of internal wireless two-way communications
within Southern Company through thousands of analog cellular
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telephone units. All of these developments reflect the growing
importance of mobile communications within the 120,000 square mile
Southern Territory.
Southern has concluded, based upon the foregoing factors and the
increased need for intercompany coordination, as well as equipment
obsolescence, that the Operating Companies' existing mobile radio
systems are unsuited to their needs and need to be modernized,
updated and replaced. More modern digital technology needs to be
employed. Moreover, experience in connection with ice storms,
hurricanes, and other emergencies have pointed toward an increased
need to establish a radio communications system which is also
compatible with public safety and emergency agencies and which
provides for effective communications between those agencies and the
Operating Companies.
These pressures coincide with the emergence of commercially
available digital multiplexed 800 MHz mobile radio technology that
will enable Southern to meet these communications needs through a
wireless system that performs the functions of two-way voice,
dispatch and data transfer on a seamless, integrated basis. Thus, it
has been concluded that the separate mobile radio systems will be
replaced with a fully integrated system-wide digital 800 MHz radio
system and related communications services.
Accordingly, Southern has initiated the license application
process at the FCC to obtain the necessary frequencies and has
contracted to obtain the necessary equipment and technology. The
frequency applications have included Industrial Land Transportation
("ILT"), General Category and Specialized Mobile Radio (SMR) 800 MHz
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frequencies. There are not sufficient ILT and General Category
frequencies available to meet Southern's needs in congested markets,
such as Atlanta. Southern, however, will be able to use its ILT and
General Category licenses to supplement the SMR frequencies it
obtains through intercategory sharing procedures. The licenses are
currently being issued by the FCC in the name of Southern and will be
transferred to Communications upon approval of this application. Its
contract with Motorola Corporation, negotiated following evaluation
of competing proposals, provides for a fair market value credit for
the exchange of existing system 800 MHz analog equipment. The new
system will consist of towers, transmitters, telecommunications
network facilities, associated vehicular and portable mobile user
equipment, and control stations spaced to provide coverage throughout
Georgia, Alabama, northern Florida, on or north of Florida Highway 40
(to cover the general service areas of Gulf Power Company,
transmission corridors to interconnected utilities including
Southern's largest wholesale customers and a corridor to Tallahassee,
the state capital), Southern Mississippi (to cover the general
service area of Mississippi Power Company) and a corridor to the
state capital in Jackson, Mississippi (the "Expanded Southern
Territory"). This area is designed to provide coverage throughout
the Operating Companies' service area and in adjacent areas such as
along transmission corridors between the Southern system and
interconnected utilities corridors, to include state capitols, and to
include areas in which operating personnel are often dispatched to
restore service following storms and other emergencies.
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The actual design of the system will not be completed until mid-
1994, and the final design will entail significant payments to third
parties. Exhibit "A" to this Application shows the approximate
locations of the cell sites to be constructed. Southern anticipates
that it will utilize approximately 230 cell sites at existing and new
sites. The minimum cost of a cell site is approximately $500,000.
The average cost is $650,000. Sites in urban areas are more
expensive due to higher land costs and zoning constraints. Generally
speaking, the need for towers is reduced by frequency assigned.
Taking technology and economics into account, the minimum number of
frequencies required in urban areas is 42 frequencies. Southern
anticipates that it will have between 42 and 50 frequency pairs
across its system. Southern will seek additional frequency channel
pairs in order to optimize use of the system it is building, but can
meet its needs with the currently obtainable frequencies. Additional
frequencies may reduce operational and infrastructure costs by
reducing the number of required towers and are therefore being
acquired.
The system to be constructed will reflect the high service
requirements of utility grade systems. Unlike typical commercial
systems, the Southern network will be equipped with backup power such
as large batteries to enable use for up to eight hours in the event
of power failure. These and other features make the Southern system
"utility grade." Southern intends to build its system out promptly
and transfer its existing wireless traffic to the system as it
becomes operational. Southern currently uses 13,000 mobile radios
and an indeterminate number of cellular telephones, believed to be in
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the thousands. Rapid build-out on a systemwide basis is necessary in
order to obtain construction and procurement efficiencies, to provide
the benefits of integration, and to meet the pressing needs of the
Operating Companies. Federal Communications Commission regulations
also require the prompt build-out and utilization of systems and
frequencies. Failure to build-out the system would risk losing
access to needed frequencies. Particularly due to the newly emerging
nature of data applications, Southern's use of the capacity of its
system will increase greatly in subsequent years.
The system Southern is installing is the minimum system that
will allow it to meet its internal wireless communication needs in an
integrated fashion and permit it to control its wireless
communications costs over the life of any new investment while
optimizing the use of wireless communications for current wireless
operations and emerging utility applications. Other technologies
(i.e., analog) would rapidly lose value and usefulness due to
technological obsolescence. This system will lead to faster routine
restoration of service, faster restoration of service in response to
storms, reduced transmission and distribution outages, and improved
safety though improved and direct communications between system and
district (or trouble) dispatchers and crews and improved coordination
with public safety agencies and other users of public rights-of-way.
The telephone interconnects will permit direct communications between
customers and field personnel and quick access to information by
field personnel. The data transfer benefits for system operations
are enormous because the wireless system can serve as infrastructure
to support distribution automation, demand-side management, remote
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meter reading, automatic vehicle location, and field access to local
area networks, wide area networks, and the automated mapping and
facilities management system.
As noted above, this system is the minimum system that can
provide these needed utility service features to the Southern
electric system. However, due to the digital technology and
associated electronics, the system will inherently have the capacity
and ability to serve others having similar needs without interfering
with utility use. State and local government public safety and
related functions have field communications needs that closely
parallel those of Southern. In addition, these entities have an
ongoing need to coordinate emergency operations with Southern and
Southern's coordination with them would benefit from sharing
compatible systems. The upcoming 1996 Olympic Games illustrates the
need for improved wide area coverage, with venues being utilized in
Atlanta, Augusta, and Savannah, Georgia, and Birmingham, Alabama.
Coordination of public safety and public utilities will require
extensive and well coordinated wide area wireless communications.
Recent storm experience has also illustrated the need for improved
wide area wireless communications in order to coordinate public
safety and emergency management agencies and utilities. Among
potential commercial customers, public utility companies with
extensive rights-of-way, and with which Southern has a communications
need in the ordinary course of operations, represent a significant
subgroup. The Southern electric system wireless communication system
will not represent entry into the general mass market
telecommunications market because it is tailored to the multiple
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functions required by utility operations and its multiple functions
are not required in that broader market. Public safety and other
government agencies and businesses whose needs are parallel to those
of Southern can provide a source of revenues to amortize the cost of
the system marketing "excess capacity" (discussed herein), spreading
recovery of the infrastructure cost over a wider usage base, thereby
taking advantages of economies of scale and reducing the costs to be
borne by Operating Companies and electric utility customers.
Where all or most 800 MHz Specialized Mobile Radio ("SMR")
frequencies have already been licensed to third parties, the process
by which Southern would acquire the required number of channels will
be through a negotiated purchase of such channels from third parties,
together with any related facilities that such third parties may
already have constructed. In addition, independent holders of
frequency licenses may give Southern's network access to such
frequencies by permitting the frequencies to be used in the system
and contracting for services in operating the frequencies with
Southern's new subsidiary in accordance with FCC rules. To permit
system-wide coverage and interconnection with the public switch
telephone network, the 800 MHz fixed transmitter stations will be
networked together, employing microwave and landline
telecommunications facilities (such facilities will either be
installed by Communications or leased from others, where available).
Southern's investment in the infrastructure for a system,
confined solely to its service territory, would be approximately $
132 million. Such a limited system, however, would not cover areas
where Operating Company personnel and vehicles regularly travel to
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conduct business such as along transmission line corridors and along
highways often used in the course of business including the Florida
and Mississippi state capitols.
In order to build out a system which includes necessary coverage
of interconnected utilities and which enables federal, state and
local government agencies to participate on the network with
compatible communications, an incremental investment of approximately
$25 million in additional funds would be necessary. In addition,
Southern anticipates requiring $22 million for frequency acquisition
and working capital. The overall infrastructure investment to
provide a complete Base Service necessary for operation of the
integrated utility system is estimated at $179 million. The system
would be primarily offered to associate public utility companies and
to the industrial, commercial and other retail and wholesale
customers of the associate companies, including interconnected
utilities, as well as federal, state and local public safety, law
enforcement, and emergency management governmental agencies, as well
as other agencies of the governments of the states of Georgia,
Alabama, Mississippi and Florida (the "Base Service"). Base Service
would also include service to other affiliates and subsidiaries of
Southern, to the extent they are located within the Expanded Southern
Territory. The Base Service would enable communication on a modern
technological basis and would enable radio transmission of both voice
and data within the Expanded Southern Territory.
1.2 Organization of Communications as Subsidiary Company.
In order to facilitate the development, ownership and financing
of the mobile radio communications network, as well as future
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development of additional communications services which are
integrated and compatible for the Southern electric system, Southern
proposes to form a new communications subsidiary company, Southern
Communications Services, Inc. ("Communications"), and to acquire all
of its authorized capital stock directly. The authorized capital
stock is 1,000 shares, having a par value of One Dollar per share.
Communications will provide the following services ("Communications
Services") it will design, construct, finance, maintain and operate
the Southern Electric System's future communications systems,
including a mobile radio network that, when complete, will provide
contiguous or "seamless," mobile radio service throughout the
Expanded Southern Territory; it will also manage all equipment
procurement and inventory maintenance activities, represent the
Southern system in any necessary licensing activities before the FCC
and become the FCC licensee of the 800 MHz mobile radio system and
acquire and hold any other rights or interests in property (e.g.,
leases of transmitter towers) necessary for the construction,
networking together, and efficient operation of this network; and it
will also provide operations, maintenance, management and technical
services for frequency licensees in connection with frequencies which
third parties own which are used in connection with the 800 MHz
system of Communications. Communications will offer the Base Service
within the Southern Territory on a modern technological basis which
would enable transmission of both voice and data. Any excess
capacity beyond the Base Service would be marketed to others.
In connection with a mobile radio system, the definition of
excess capacity is not a simple matter. Unlike fiber optic cable
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where separate individual strands of fiber are easily identified,
trunked radio operations dynamically reallocate frequency spectrum
through the air on a call by call basis. Technology and time of use,
as well as extent of use and patterns of use, all cause variation in
excess capacity. The term excess capacity, therefore, in the context
used for the mobile radio system, means the capacity which does not
interfere with or preclude the communications necessary for operation
of the Base Service. As an example, in connection with the rendition
of service for state public service agencies and emergency services
of municipalities and other governments, it is anticipated that a
portion of such classes of users and other holders of radio frequency
licenses may place their own radio frequencies within the system and
have Communications manage the frequencies so that they can be
integrated on a compatible basis and operated in the overall service,
but they would be reserved for emergency communications with the
ability to "spill over" to other frequencies when necessary. While
this is not the exclusive means by which governmental agencies will
be served, it indicates one of the predominant methods by which the
public's need for coordinated communication would be met without
interfering with either Southern's private needs or those of other
emergency agencies. At the same time, however, such an approach
affords Southern the ability to recover the cost of its system in
part from parties other than the Operating Companies. The terms and
conditions of marketing excess capacity are being developed in
conjunction with the implementation of the system. It is expected
that users will be charged a monthly service fee in addition to a
charge based on the actual use of the system through assessed charges
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for times of use. The monthly service fee and the time of use
charges will be based upon competitive fair market value pricing.
1.3 Transactions Between Affiliates.
The Operating Companies will be charged the cost of providing
Communication Services to them in accordance with Rules 81, 90 and
91. Under the applicable law, 47 U.S.C. section 332(c)(1), the
provision of mobile radio service here involved is subject to rate
regulation by the F.C.C. (and by states to the extent they can
establish that competition does not ensure reasonable rates and the
protection of consumers). Another provision, 47 U.S.C. section 262,
requires that the rates, terms and conditions be just and reasonable
and non-discriminatory, giving the F.C.C. explicit regulatory
jurisdiction to pass upon all charges and practices. Still another
provision, 47 U.S.C. Section 203 may require the filing of tariffs.
Although current F.C.C. policy does not require such tariffs for
SMR's, the right to impose such a requirement on a case-by-case basis
is retained by the F.C.C. In any event, the provisions of 47 U.S.C.
section 208 give the F.C.C. the duty to pass upon the lawfulness and
reasonableness of S.M.R. rates in a complaint brought by any other
person or party, including State Commissions. Accordingly, the rates
involved are completely and normally subject to public regulation by
the F.C.C. and may also be subject to state regulation. Thus, the
provision of mobile radio service will be charged to associate
companies in the Southern Electric System on the basis of market
prices in accordance with Rule 81 -- the transactions will be on
terms which are comparable to those offered to non-associate
customers having due regard to any differences of quality or
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quantity. It is estimated that this will result in an annual
reduction in costs to the Operating Companies of $6,000,000 per year
as compared to fully allocated costs. The operating expenses such as
general and administrative expenses and overheads will be spread
evenly over all users, regardless of class. The Operating Companies
and their ratepayers will be the beneficiaries of economies of scale
because their proportionate share of overheads and general and
administrative expenses and non-variable expenses will be reduced as
a result of the participation of other customers. All other
transactions between Communications and associate companies which are
not subject to F.C.C. and/or state rate regulation will be "at cost"
in compliance with Rules 90 and 91. Rule 92 is not applicable
because it relates to the sale of goods produced by the Seller, which
is not anticipated.
Various subsidiaries of Southern now own or operate landline
telecommunications facilities (fiber optic and conventional metallic
cables), supplemented by landline cables leased from communications
common carriers. The Operating Companies and Services have also
constructed and are now operating microwave facilities (microwave
facilities jointly owned with others will not be affected by the
proposed system). This telecommunications system is being used, and
has been used for a number of years, for internal communications
among companies in the Southern electric system and interconnected
utilities for electric utility-related purposes. These
telecommunications facilities are used to transmit both voice and
data traffic, including signals that control the coordinated
operation of the system's electric generating plants and electric
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transmission grid. To the extent permitted by existing contractual
arrangements with third parties, and subject to capacity and
regulatory constraints, where they exist, it is possible that wholly
owned facilities of the Operating Companies such as towers or tower
sites or landline connections could be used to provide network
interconnections of the mobile radio system through lease. Existing
fiber optic capacity held by other Southern subsidiaries may be
transferred to Communications on an "at cost" basis or leased to it,
so as to link the transmitter stations, switches, computers, etc., as
described in 1.1 above. The purpose of the use of fiber optic cable
is to link the computers, switches and towers for operation of the
system, including billing and central functions. To the extent any
state public service commission has jurisdiction over such transfers,
the appropriate Operating Companies will obtain approval by their
respective state public service commissions.
In conjunction with the development of the new system-wide
approach to communications, Southern has determined that it would be
desirable from an operational and management standpoint to coordinate
under Communications all or substantially all of the communications
related activities of the Southern system, including ownership and
maintenance of existing and future microwave and landline
telecommunications facilities to the extent they are not already co-
owned with other utilities. Other than as may occur as set forth in
the paragraph immediately above, no transfer of these facilities will
take place without a further application to the Commission and its
subsequent approval, as well as the approval of state commissions to
the extent of their jurisdiction.
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In anticipation of the development of the radio system, Southern
has acquired and is acquiring radio frequency licenses in the 800 MHz
band from the Federal Communications Commission ("Licenses").
Certain of the Operating Companies (particularly Georgia, Mississippi
and Savannah) may also hold a small number of such Licenses. It is
intended that these Licenses will be transferred to Communications
directly by Southern or, in the case of the Operating Companies,
indirectly through Southern. The Operating Companies will be
reimbursed by Communications for their costs incurred in obtaining
the transferred license. Communications will bear all costs of
transfer.
Accordingly, existing communications facilities of the type
described may in the future be transferred to Communications from
other affiliated companies or leased to Communications by other
affiliated companies and we ask that the Commission reserve
jurisdiction with respect thereto. All such transactions will be
conducted at cost in compliance with Rules 90 and 91. Provision of
services by the Operating Companies to Communications or by
Communications to the Operating Companies will be charged on the
basis of "at cost" in compliance with Rules 90 and 91.
Various Southern affiliates are parties to a previously approved
"Southern Electric System Telecommunications Network Agreement" dated
as of October 1, 1985. This Agreement provides "at cost"
arrangements for telecommunications use of facilities.
Communications will be added as a party and the agreement will
govern, to the extent applicable. The Agreement is attached as
Exhibit C.
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1.4 Benefits of a Communications Subsidiary.
Southern believes that the creation and maintenance of a system
communications subsidiary will provide cost efficiencies, economies
of scale and other efficiencies, in that it will:
- facilitate the design and development of all
communications services on a system-wide basis,
leading to greater standardization of
equipment, the elimination of redundant and
incompatible capabilities, pooling of
substantial telecommunications expertise and
experience among system employees, and greater
operating efficiencies;
- facilitate the financing of these facilities
by, among other things, enabling Southern to
centralize purchases and to access sources of
capital (including vendor financing) better
suited to communications equipment, as well as
enable Southern system companies to avoid
restrictive mortgage covenants;
- simplify accounting and other administrative
functions;
- facilitate quicker and more orderly
restorations of electric service following
storm-related outages and other disturbances in
Southern's service area; and
- enhance Southern's ability to assist the
Operating Companies, interconnected utilities,
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industrial and wholesale customers, and
governmental public safety and emergency
management agencies following storm-related
outages and other disturbances.
- Provide in the most economical fashion the internal
telecommunications needs on an integrated basis of
Southern for operations and customer service.
Ultimately, Southern contemplates that Communications will be
staffed on a full-time basis by communications engineers and other
specialists in the communications field who are now employed
elsewhere in the Southern system and by persons hired specifically
for this purpose. Initially, a small management staff of
approximately five (5) to ten (10) persons will be transferred to
Communications. It is contemplated that Services will provide
financial, accounting, data processing, and internal auditing
services to Communications in accordance with the methods and
accounts previously approved by this Commission. In addition,
pending the full development of Communications' work force, personnel
from the Operating Companies and Southern Development and Investment
Group will provide necessary services to Communications on a full
cost reimbursement basis utilizing a work order procedure.
1.5 Investments in Communications.
Southern contemplates that Communications' business will be
financed with equity investments by Southern and loans obtained from
external sources, including vendor financing, if available.
Initially, Southern proposes to invest up to $179,000,000 from time
to time through December 31, 1998, for purchases of Communications'
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<PAGE>
capital stock, loans and capital contributions to Communications, or
guarantees of obligations of Communications, or any combination
thereof. Southern believes that this amount is sufficient to finance
Communications' operations through the frequency licensing and/or
acquisition process, the completion of the design of the system and
evaluation of equipment, and the construction of facilities and
purchase of equipment in connection with the mobile radio system.
This amount includes the cost of a two year operations and
maintenance contract by the system's vendor.
Investments in Communications will be made by Southern utilizing
any combination of internally generated funds (chiefly dividends from
subsidiaries), borrowings under its short term debt/commercial paper
program (File No. 70-7937) and proceeds of common stock sales
currently authorized (File Nos. 70-7527 and 70-7513), together with
the proceeds of such other securities as Southern is hereafter
authorized to sell (to the extent so authorized).
To the extent capital contributions involve loans from Southern,
such loans will be made from time to time prior to September 30, 1998
with maturities no later than September 30, 2003. They will bear an
interest rate equal to Southern's comparable cost of capital or, if
no such comparability exists, a rate not to exceed the greater of the
prime rate in effect on the date of the loan at a bank designated by
Southern plus three (3%) percent or 12 percent per annum. To the
extent loans are made by third parties within the overall $179
million capitalization of Communications (other than credit extended
by equipment vendors), such loans will be evidenced by notes issued
by Communications and will have a term of from 5 to 20 years, with an
23
<PAGE>
interest rate not to exceed the greater of the prime rate of interest
plus three percentage points per annum, or 12 percent per annum.
Such loans may be guaranteed by Southern. The interest rates stated
above are reasonable and consistent with expected rates giving due
consideration to conditions and expected terms.
1.6 Discussion
Communications seeks to serve the affiliated Southern electric
system subsidiaries and those segments of the public who are truly
"reasonably incidental, or economically necessary or appropriate" to
its business. As is illustrated by the Federal Power Commission's
1970 National Power Survey and the administration of the integration
standards of the Act, integrated and coordinated utility operations
inherently require substantial investment in communications
infrastructure. The need to have a state-of-the-art system that will
support voice and new data applications is also apparent from the
explosive growth of applications involving energy management, real-
time pricing and coordination of utility and customer resources,
utility service needs that have grown greatly following the enactment
of the Public Utility Regulatory Policies Act of 1978, which
encouraged customer generation, marginal cost pricing, and time-of-
use pricing. Southern's undertaking to create a modern wireless
system to support its needs is also driven by its specific need to
replace and integrate its existing fragmented system. This
application therefore does not represent entry by Southern into a new
business line. The capital requirements of a modern, integrated
system that will support emerging utility data and voice
applications, however, dictate that Southern should maximize the use
24
<PAGE>
of its system through spreading its infrastructure cost by providing
services to communications customers whose needs are similar to those
of Southern. As discussed above, serving these customers and sharing
its system with those customers does not entail mass market personal
communications. This customer base itself is one which is
"reasonably incidental, or economically necessary or appropriate" to
Southern's business.
Governmental Entities. The integration of public emergency
response is a common sense goal reasonably tied to the electric
utility business. Fire, police and other agencies interface with
power companies daily with respect to automobile accidents affecting
utility poles, fires, downed power lines, storms, accidents and other
public emergencies. Being on a common system materially enhances the
ability of the utility to do its job in serving its customers and
maintaining and restoring service. It cannot be expected that
governmental agencies and entities would participate in an integrated
and coordinated wireless communication system of the type described
in this filing solely for the purpose of communicating with the
Southern electric system and operating a different system for
communicating with others. Such an approach would require that
governmental vehicles be equipped with two radios rather than one and
would double the investment required for governments rather than
reducing the cost which will be the impact of the scale economies
realized by the proposed system. Moreover, most, if not all, of the
governmental agencies and entities proposed to be served will
actually own their own frequencies and will merely integrate these
frequencies into the Southern system and contribute towards the cost
25
<PAGE>
of the overall system. Their frequencies will be partitioned to
their own governmental uses which will include close communication
with the utility involved but which cannot exclude internal
government communications or communications by the government with
others.
Interconnected Utilities. This is another class of proposed
customer which clearly meets on its face the "reasonably incidental
or economically necessary or appropriate" test. In Georgia, as an
example, Georgia Power is part owner of an integrated transmission
system serving over ninety municipalities and rural electric
cooperatives in Georgia. There is daily and hourly need for
communication between utilities, and the use of a common
communications system clearly facilitates this communication.
Nevertheless, an interconnected utility cannot be expected to invest
in the cost of units and services which enable it merely to
communicate with Georgia Power, as an example, and not communicate
internally or with the outside world. Again, many of these
interconnected utilities have their own frequencies and some now
participate in common ownership of telecommunications assets at the
operating company level.
Utility Customers. The right, duty and need of a utility to
install and operate modalities which permit communication between the
utility and its customers is self-evident. Use of the proposed
system in this context will be multi-faceted. Power usage
monitoring, including automated meter reading, energy management
applications, power outage observation, and a host of future data
applications, all have a large actual and potential role in future
26
<PAGE>
use of the proposed system. Many large industrial and commercial
accounts, such as other "right-of-way" companies, will be tied into
the proposed system in virtually the same manner as governmental
entities, and will have similar needs and requirements. Paper and
forest products companies will have the ability to notify the
utilities as to downed power lines in the forest lands which they own
on a much more expedited basis through use of the proposed system.
Industrial and commercial accounts would be integrated in the
proposed system so as to permit use of the system for communication
of time of use pricing information, service restoration coordination
and many other utility related applications. It is anticipated that
about half of industrial and commercial concerns using the system
will integrate their own frequencies into the overall system and
allow Southern to operate and maintain the overall system with their
frequencies virtually dedicated to their own uses. Of course, they
would be reluctant to participate in such a system if they had to
maintain still another communication system for talking with others
when this system is fully capable of meeting their mobile radio
communications needs. Moreover, they would be unwilling to integrate
their frequencies into the proposed system if by doing so they were
then deprived of the use of those frequencies for internal
communications or other necessary business communications of the
commercial or industrial customer.
The installation of a wireless digital communications system is
part of the communications revolution for the 21st century. As Vice-
President Gore observed in his remarks delivered at Royce Hall,
U.C.L.A., Los Angeles, California January 11, 1994:
27
<PAGE>
"I join you to outline not only this
Administration's vision of the national
information infrastructure, but our proposals
for creating it.
* * *
We've all become used to stumbling over cliches
in our efforts to describe the enormity of
change now under way and the incredible speed
with which it is taking place. Often we call
it a revolution -- the digital revolution.
* * *
To take one example of what competition means,
cable companies, long distance companies and
electric utilities must be free to offer two-
way communications and local telephone service.
* * *
Preserving the free flow of information
requires open access, our third basic
principle.
How can you sell your ideas, your information,
your programs, if an intermediary who is also
your competitor has the means to unfairly block
your access to customers? We can't subject the
free flow of content to artificial constraints
at the hands of either government regulators or
would-be monopolists.
We must also guard against unreasonable
technical obstacles.
* * *
Accordingly, our legislative package will
contain provisions designed to ensure that each
telephone carrier's network will be readily
accessible to other users. We will create an
affirmative obligation to interconnect and to
afford non-discriminatory access to network
facilities, services, functions and
information. We must explore the future of
non-commercial broadcasting; there must be
public access to the information superhighway.
These measures will preserve the future within
the context of our present regulatory
structures. But that is not enough. We must
28
<PAGE>
move towards a regulatory approach that
encourages investment, promotes competition and
secures open access. And one that is not just
a patch-work quilt of old approaches, but an
approach necessary to promote fair competition
in the future.
* * *
As different services are grouped within a
single corporate structure, we must ensure that
these new, combined entities are not caught in
a cross-fire of conflicting and duplicative
regulatory burdensome standards. This
Administration will not let existing regulatory
structures impede or distort the evolution of
the communications industry.
In the information marketplace of the future,
we will obtain our goals of investment,
competition and open access only if regulation
matches the marketplace. That requires a
flexible, adaptable regulatory regime that
encourages the widespread provision of broad
band, interactive digital services."
The "reasonably incidental, or economically necessary or
appropriate" tests of the Act should facilitate the deployment of
wireless digital communications by electric utilities because
communications functions are critical to integrated utility
operations and efficient utility customer service. Such an approach
is fully consistent with the position of the Clinton Administration
and the policy enunciated by the Vice-President. On the other hand,
restrictions on the use of the proposed communications system which
impede Southern's ability to communicate with governmental entities,
interconnected utilities and utility customers, or which have the
effect of prohibiting those classes from utilizing such a
communications network for their communications needs, is
inconsistent, not only with the requirements of economical integrated
and coordinated electric utility operations, but also with the limits
29
<PAGE>
on government regulation imposed by the First Amendment as is
illustrated by the recent decision holding unconstitutional the
common carrier quarantine provisions of the Cable Communications
Policy Act of 1984. The Chesapeake & Potomac Telephone Company of
Virginia v. United States, 830 F. Supp. 909 (E.D. Va. 1993).
Item II. Fees, Commission and Expenses.
The estimated fees and expenses paid or incurred, directly or
indirectly in connection with the proposed transactions will be filed
by amendment.
Item III. Applicable Statutory Provisions.
Applicable Statutory
Transaction Provisions or Rules
Acquisition by Southern of Sections 9(a)(1) and 10
shares of Communications
Issuance by Communications of Sections 6(a) and 7;
capital stock to Southern and Rule 50
Notes to Third Party Lenders
Capital contributions by Southern Section 12(b); Rule 45
to Communications and guaranties
by Southern of Communications'
obligations
Transfer by Operating Companies Section 13(b); Rules 90 and
to Communications of existing and 91
communications equipment
Business transactions between Section 13; Rules 81, 90,
Communications and affiliated 91, 93 and 94
public utility companies
Performance of services Section 13(b); Rule 87(a)(3)
by Operating Companies to and (b)
Communications
30
<PAGE>
Sale of Communications Sections 9(a)(1) and 10
Services to Non-Affiliates
of Southern
Item IV. Regulatory Approval.
The Federal Communications Commission ("FCC") has regulatory
jurisdiction over mobile radio systems operated by the Operating
Companies and their affiliates. With the possible exception of the
Federal Aviation Administration, which may need to approve
construction of towers over permitted heights, no federal agency
other than the Commission and the FCC has jurisdiction over the
proposed transactions. No state commission has jurisdiction over the
proposed transactions, except to the extent transfer of utility
assets may be deemed by them to occur. All state commissions having
regulatory jurisdiction over the Southern Electric system have been
advised of this matter and all such commissions have received or are
in the process of receiving a copy of this amended filing.
Item V. Procedure.
Southern requests that the Commission's order be issued as soon
as the rules allow, and that there be no thirty-day waiting period
between the issuance of the Commission's order and the date on which
it is to become effective. Southern hereby waives a recommended
decision by a hearing officer or other responsible officer of the
Commission and hereby consents that the Division of Investment
Management may assist in the preparation of the Commission's decision
and/or order in this matter unless such Division opposes the matters
covered hereby.
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<PAGE>
Southern agrees that the Commission's order issued in connection
with this filing shall be subject to the terms and conditions
prescribed in Rule 24 promulgated under the Act.
Item VI. Exhibits and Financial Statements.
(1) Exhibits.
A-1 - Proposed Articles of Incorporation of Southern
Company Communications, Inc. (To be filed by
amendment).
A-2 - Proposed Bylaws of Southern Communications
Services, Inc. (To be filed by amendment).
B - Proposed form of communications services
agreement between Southern Communications
Services, Inc. and other subsidiaries of The
Southern Company. (To be filed by amendment).
C - Existing Southern Electric System
Telecommunications Network Agreement.
D - None.
E - None.
F - Opinion of Troutman Sanders. (To be filed by
amendment.)
G - Form of Notice.
(2) Financial Statements.
- Balance sheets of The Southern Company,
corporate and consolidated, and Southern Company
Communications, Inc., giving effect to the
transaction contemplated herein (To be filed by
amendment).
32
<PAGE>
Item VII. Information as to Environmental Effects.
(1) In light of the transactions proposed in this application
and declaration, 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.
(2) No other federal agency has prepared or is preparing an
environmental impact statement with regard to the proposed
transactions.
33
<PAGE>
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: February 25, 1994
THE SOUTHERN COMPANY
By: /s/ Tommy Chisholm
Tommy Chisholm, Secretary
SOUTHERN COMPANY COMMUNICATIONS, INC.
By: /s/ Tommy Chisholm
Tommy Chisholm, Secretary
34
<PAGE>
Exhibit C
SOUTHERN ELECTRIC SYSTEM
TELECOMMUNICATIONS NETWORK AGREEMENT
This AGREEMENT made effective as of October 1, 1985, by and
among ALABAMA POWER COMPANY, a corporation organized under the
laws of the State of Alabama ("ALABAMA"), GEORGIA POWER COM-
PANY, a corporation organized under the laws of the State of
Georgia ("GEORGIA"), GULF POWER COMPANY, a corporation organ-
ized under the laws of the State of Maine ("GULF"),
MISSISSIPPI POWER COMPANY, a corporation organized under the
laws of the State of Mississippi ("MISSISSIPPI"), and SOUTHERN
COMPANY SERVICES, INC., a corporation organized under the laws
of the State of Alabama ("SERVICES"),
WITNESSETH:
WHEREAS: ALABAMA, GEORGIA, GULF, MISSISSIPPI, and SERVICES
are affiliated companies ("affiliated companies") of The
Southern Company, a registered holding company under the Pub-
lic Utility Holding Company Act of 1935. ALABAMA, GEORGIA,
GULF, and MISSISSIPPI ("operating companies") are principally
engaged in the business of operating electric utility compa-
nies and SERVICES is the system service organization of The
Southern Company providing specialized engineering, financial
and other management services for all system companies at
cost; and
WHEREAS each of the affiliated companies, incidental to their
business as operating electric utility companies, has acquired
through purchase, construction, lease or any combination
thereof, or in the future may acquire, a telecommunications
system, which is, or will be, operated by employees with skill
and expertise in such operations, and which can be used in
part to meet the needs of the Southern electric system; and
WHEREAS, the parties have determined that it will be of advan-
tage according to convenience, economy and reliability for
each party hereto to share, through prearrangement, from time
to time portions of each operating company's telecommuni-
cations system. Each telecommunications system is comprised
of microwave, fiber optics, multiplexers, communications con-
trollers, and other facilities, including hardware and soft-
ware, required to provide telecommunications functions such as
network access and transporting and routing of information;
and
WHEREAS, the parties agree that the use and maintenance of
said facilities will carry the highest priority for maintain-
ing reliable power system operations; and
<PAGE>
Page 2
WHEREAS, the parties have determined that it will be of advan-
tage to provide means for equitably distributing costs associ-
ated therewith; and
WHEREAS, it has been determined that an agreement is necessary
to establish the methods and means for such use and to provide
for SERVICES to be responsible for accounting and allocating
the costs of the respective operating companies telecommuni-
cations facilities.
NOW, THEREFORE, in consideration of the premises and the mu-
tual undertakings herein set forth, the parties hereby agree
as follows:
1. Service Requests
From time to time any party hereto may request
telecommunications service from any other party hereto or
leased telecommunications service connecting two or more
parties hereto. Such requests shall be through SERVICES and
shall state, among other things, the proposed use for the
requested service. The party or parties being asked to
supply such service may, or may not, in its or their sole
discretion, provide the requested service. SERVICES shall
maintain a list of pertinent information on all
telecommunications circuits or facilities assigned hereunder.
Such list or inventory shall be subject to audit at the
request of any party hereto.
2. Costs of and Payments for Telecommunications Services
The cost of telecommunications services hereunder shall be
determined in accordance with Exhibit A as such exhibit may
be revised from time to time by the Telecommunications
Coordination Group (TCG).
3. Planning and Design Consideration
To insure compatible design, installation schedules and
continuity of operation of the telecommunications systems of
the parties, the TCG shall establish from time to time the
telecommunications requirements for the Southern electric
system and incorporate such requirements in Exhibit B hereto.
4. Administration
The TCG shall administer the requirements of this agreement,
be responsible for monitoring the methods and procedures, and
recommend any revisions to the IREC for consideration.
<PAGE>
Page 3
5. Liability Responsibility
In the event injury or death of persons, or damage to
property arises directly out of the furnishing of
telecommunications service hereunder, the liability therefor
is placed on the operating company owning the
telecommunications facilities which are involved, the
intention of the parties concerning liability therefor, in
the event such liability would not have been sustained except
for the fact that a party hereto requested the loan of
telecommunications circuits or service under this agreement,
is the following:
a. In the event workmen's compensation or employer's
liability is involved: In this situation the liability
of the company owning the telecommunications facilities
to its employees (regarding any federal or state
workmen's compensation law) so arising out of the
performance of the work covered by this agreement, will
be satisfied by the company owning the facilities and
billed at cost to the company utilizing the services.
Such liability of the using company to its employees
shall be satisfied by the using company.
b. In the event public liability and property damages are
involved: In this situation the company utilizing the
telecommunications facilities agrees to indemnify and
hold harmless the company owning the telecommunications
facilities against any liability for damage to persons
or property so arising out of the performance of the
work covered by this agreement, regardless of the
claimed or actual negligence or fault of the own ing
company.
c. Items reimbursed under paragraph 5 shall embrace an
appropriate allocation of the owning company's cost of
claim administration, including (without limitation)
administrative overhead, investigation expenses,
attorney's fees, etc.
6. Agreement Compliance
This agreement shall be revised to any extent that
performance thereof may conflict with any rule, regulation or
order of any properly constituted regulatory authority,
including the Securities and Exchange Commission, adopted
before or after the making of this agreement. On being
informed of any such conflict, the parties agree to promptly
negotiate appropriate amendatory provisions to carry out to
the extent feasible the intent of the agreement.
<PAGE>
Page 4
7. Agreement Cancellation
This agreement supercedes the Communications Agreement of
1972 as amended and shall be effective until canceled by any
party hereto on the giving of sixty day's advance written
notice specifying the date of such termination.
Attest: ALABAMA POWER COMPANY
___________________________ By_________________________
Secretary Its
Attest: GEORGIA POWER COMPANY
___________________________ By_________________________
Secretary Its
Attest: GULF POWER COMPANY
___________________________ By_________________________
Secretary Its
Attest: MISSISSIPPI POWER COMPANY
___________________________ By_________________________
Secretary Its
Attest: SOUTHERN COMPANY SERVICES, INC.
___________________________ By_________________________
Secretary Its
<PAGE>
SOUTHERN ELECTRIC SYSTEM
TELECOMMUNICATIONS NETWORK AGREEMENT
EXHIBIT A
DETERMINATION OF COSTS OF AND
PAYMENT FOR TELECOMMUNICATIONS SERVICES
Determination of the cost of providing telecommunications ser-
vices under the Southern electric system Telecommunications
Network Agreement (Agreement) and the payment therefor shall
be as set forth herein. In computing the actual cost of fur-
nishing telecommunications services or service under the
agreement to which this exhibit is a part, the following
items, together with all other pertinent expenses, shall be
considered, but in no event shall the actual cost exceed a
fair and equitable allocation of expenses plus reasonable com-
pensation for necessary capital obtained through the issuance
of capital stock and otherwise.
1. Direct Costs. Actual payroll labor plus prorated share of
nonproductive time, fringe benefits, and overhead costs
associated with direct labor charges at percentages computed
on previous year's experience; transportation and equipment
at current rates charged by owning company; materials
furnished at cost from stores, including stores handling
charge at the same rate normally charged; actual cost of
materials, tools, equipment, or services purchased directly
from suppliers; the actual cost of materials, lodging,
telephone toll calls, etc.; actual cost of work done under
special contracts; actual cost of claims or claim settlements
(which are not specifically and separately calculated under
paragraph 4 of the document to which this exhibit is attached
as Exhibit A). Nonproductive time consists principally of
the following items: vacations, sick leave, holidays, jury
duty, company-union meetings, residency moves, death in
immediate family, voting, rest period provision, safety
meetings, severe weather and occupational injury. Fringe
benefits consist principally of these items: pension, group
life insurance, group medical insurance, state unemployment
tax, federal unemployment tax, federal old age benefits tax,
personal tools subsidy, foul weather gear, military duty,
separation pay, occupational injury medical expense,
residency moving expense. The principal overhead items are:
building service costs, telephone service, furniture,
equipment and supplies.
2. Other elements of Cost. Fixed Charges on Owning Company's
Investment. In addition to the direct charges provided for
above, a fair and equitable allocation of other elements of
cost, including taxes, interest, other overhead, compensation
for the use of capital obtained by the issuance of capital
stock and interest on borrowed capital, shall be charged by
the owning company where reasonably necessary for the owning
company's performance of its obligations under the Agreement.
<PAGE>
Page 2
3. Telecommunications Expense Computation Method
a. The cost of telecommunications services provided on
company owned and maintained (COAM) facilities shall be
determined as follows (except that, in addition, any
cost as set forth in paragraph 5 of the Agreement, upon
concurrence and verification, will be calculated
separately where feasible):
Annually in accordance with Standard Accounting Methods,
SERVICES shall determine, by generally accepted
accounting principles consistently applied from year to
year, the full cost to each individual operating company
of owning and operating its telecommunications system.
In so doing, SERVICES shall first ascertain the current
net book value of each company's telecommunications
system (from each operating company's accounting
department where the net book value of
telecommunications equipment in service is maintained
and audited) and, after giving consideration and effect
to all other relevant and pertinent telecommunications
expenditures (including all operating, maintenance,
fixed, and other costs, including those set out herein
above) incurred during the preceding twelve (12) months
and theretofore, derive the full costs associated with
each company's telecommunications system for the year
just ended. Such annual costs shall be divided by
twelve to determine monthly cost. The monthly cost
shall then be translated into a percentage of the
current net book value of each telecommunications
system. For each of the ensuing twelve (12) months, the
derived percentage figure shall be multiplied by the
current net book value of each company's
telecommunications system to obtain the full current
monthly cost associated with each telecommunications
system. Next, to derive the full cost associated with
each telecommunications service, the total channel miles
then in service in each company's telecommunications
system (which information shall be furnished by each
operating company's telecommunications department) shall
be divided into the full current monthly cost of such
system. Annually, actual costs will be compared to
estimated and discrepancies will be corrected through a
true-up process as referenced in the Standard Accounting
Policies and Procedures for Telecommunications
Equipment.
b. The cost of leased telecommunications service is the
lease charge, payable monthly, plus any applicable
direct or indirect costs associated therewith. SERVICES
<PAGE>
Page 3
shall have the responsibility of paying, initially, for
leased telecommunications facilities serving two or more
parties hereto.
c. Each party hereto which uses, on request, the
telecommunications facilities of another party hereto
shall have the responsibility of paying monthly (based
on full current operating cost per service as so
ascertained) the usage of telecommunications facilities
be longing to and/or contracted by other affiliated
companies.
d. All payments made hereunder shall be made through
SERVICES and the responsibility for accounting for such
charges and payments is SERVICES with appropriate
concurrence (under the principles hereof and as set out
in Paragraph 4 below), of the operating companies.
Insofar as possible balances owed by the various parties
hereto shall be netted against each other. Balances
that have not been netted shall be eliminated each three
months by parties making payments for any deficit
balances.
4. Definitions
a. As used herein, a channel mile is one-twelfth of a group
of microwave bandwidth, as defined in CCITT standards,
when used separately, being carried over the existing
microwave path for a distance of one mile. The methods
used to calculate the cost of digital circuits will be
same as analog circuits. Digital equivalents to analog
channels are defined in the following paragraphs based
on throughput capability.
1) A broadband circuit (a entire group) is counted as two
channels. Thus, one broadband circuit carried over the
existing microwave path for a distance of one mile is
two channel miles.
2) Digital channels providing a throughput of less than
19.2 Kbps and voice channels will be billed the same as
one analog microwave channel.
3) Digital channels providing a throughput of 19.2 Kbps
to 64 Kbps will be billed the same as an analog group
circuit (2 channels).
4) Circuits with a throughput of greater than 64 Kbps will
be billed in multiples of a 64 Kbps circuit.
(Example: A 256 Kbps circuit should be billed the sum
of four 64 Kbps circuits.)
<PAGE>
Page 4
b. As used herein, a leased telecommunications service is
services provided by companies outside the the Southern
electric system.
5. Ultimate Allocation of Costs
Formula for Ultimate Allocation of Costs for
Telecommunications Services are Identified in Paragraphs B,
C, D, and E below. Allocation formulas are based on the
premise that costs are distributed on a channel/mile or
equivalents usage, however, certain considerations are given
to minimize any penalties to a particular user because of
system topology. In any event, ultimate allocations are
based on Standard Accounting Methods for Telecommunications
Expenses as approved by the Telecommunications Coordination
Group (TCG).
a. Allocation Methods
"Annual Territorial Load Ratio Basis," "Salary Basis,"
"Charges in Connection with Other Services" and other
allocation methods that may be used are defined in the
SCS Cost Accountability and Control Manual established
by Agreements between "Service Company" and the four
"Client Companies" dated January 1, 1963, as amended and
restated January 1, 1984.
b. Operating Services
Power Management System telecommunications services are
allocated on the Annual Territorial Load Basis. Costs
for these include circuits from the Southern electric
system Coordination Center (SESCC) to Division Control
Center (DCC) and company dispatch centers and circuits
that facilitate the operation of the Power Coordination
Center. Fan circuits, that connect PMS remote terminals
to division control centers, (where data is multiplexed
for retransmission to the SESCC), costs are to be paid
by the owning operating company.
c. Administrative Services
Telecommunications services allocated on a salary ratio
include services that are of mutual benefit to all
affiliated companies and required to conduct day-to-day
business. The intercompany dial trunks are an example
of services allocated on this basis.
d. Direct Services
Many telecommunications services are for the benefit of
one or more, but not all, affiliated companies and
<PAGE>
Page 5
the costs of such services can be more equitably
distributed based on direct usage methods. Direct costs
for telecommunications services will, therefore, be
allocated by one of the methods outlined below depending
on each application. Specific methods are defined in
the Standard Accounting Method Procedures for
Telecommunications Expenses for each application and are
approved by the TCG.
1) Costs of facilities for the benefit of one company, not
otherwise specifically addressed, will be allocated in
its entirety to the benefitting company.
2) Costs of facilities that benefit more than one company
will be allocated to each of the benefitting companies
on a equal basis or any percentage ratio agreed to by
the affiliated companies.
3) Telecommunications facilities that support remote
access or operation locations (such as remote job entry)
will be billed on an average circuit cost basis.
4) Facility costs will be allocated to users on a usage
sensitive prorated basis when appropriate and usage
criteria is available. An example of this is
timesharing circuit costs.
5) Facilities that support real-time, or on-line, types of
applications will be allocated by averaging the circuit
costs per terminal. Examples include customer
accounting and weather radar.
6) Intracompany services, circuits that use only owning
company facilities and only benefit owning companies,
will be ordered by the respective company and the cost
will be borne directly by that operating company.
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SOUTHERN ELECTRIC SYSTEM
TELECOMMUNICATIONS NETWORK AGREEMENT
EXHIBIT B
TELECOMMUNICATIONS REQUIREMENTS
1. General - The telecommunications system will operate as a
single system with coordination of management and
administration performed through the Telecommunications
Coordination Group (TCG). Continuity of operation, and
setting of repair priorities will be coordinated through the
Southern electric system Telecommunications Control Center
(TCC) under general guidelines established by the TCG. The
system will be maintained by the operating companies
according to standards approved by the TCG.
2. Design and Installation - The design and installation of the
telecommunications system will be carried out in accordance
with overall standards and plans established for the Southern
electric system in the Telecommunications Network Handbook as
amended by the Network Engineering Team (NET) and approved by
the TCG.
3. Operation - The operations of the telecommunications system
will be carried out in accordance with overall standards and
plans established for the Southern electric system in the
Telecommunications Network Handbook as amended by the NET and
approved by the TCG.
a. The Southern electric system Coordination Center
(SESCC), the Power Pool and the operating companies will
cooperate to insure reliable telecommunications service
for all uses, with highest priority being given to power
system operations. The TCC has the best knowledge of
telecommunications status, the Power Pool the best
knowledge of power system operations, and the operating
companies the best knowledge of local conditions.
b. When it is determined by the TCC that repairs to the
telecommunications system are necessary, the Power Pool
or the SESCC (depending on operating company practice)
will notify the appropriate company or companies and
agree on a priority for repair. This is not to preclude
direct contact between the TCC and the operating
companies on trouble symptoms or repair techniques.
c. Each company will consider the effects on the network
before doing work on telecommunications facilities.
Each company will clear any planned outage of its system
through the TCC (who in any case will promptly consult
users) before taking part of the system out of service.
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Page 2
4. Maintenance - Each operating company will maintain its
respective telecommunications facilities according to stand
ards approved by the TCG. An audit of a representative
sample of each company's telecommunications system will be
made by SCS Internal Auditing or an outside auditing group as
requested by the TCG and conducted under the direction of
Services Telecommunications Department. Generally,
telecommunications equipment at the TCC will be maintained by
Services Telecommunications Department or as otherwise agreed
to by the TCG. Various equipment associated with the PMS
and located at the SESCC will be maintained by SCS Operating
Services personnel.
5. The affiliated companies will provide the necessary staff and
equipment to operate and maintain the telecommunications
system so as to meet the standards established by the TCG.
6. Telecommunications Control Center (TCC) - The TCC,
established in Birmingham, will be operated in accordance
with SESCC requirements and manned 24 hours per day.
7. Telecommunications Network Engineering Team (NET) - The NET
is responsible to the TCG and is established to prepare and
update functional specifications and standards for design,
installation, operation and maintenance of the
telecommunications system including facilities leased from
non-affiliated suppliers. The NET is composed of one
representative from each of the operating companies and one
from Services Telecommunications Department. These
representatives are selected on a basis of their technical
knowledge of telecommunications and related control
techniques.
8. Telecommunications Coordination Group (TCG) - The TCG is to
coordinate the management of system telecommunications
services and facilities. The group functions as a steering
group for intercompany telecommunications planning,
implementation, and operations encompassing all aspects of
telecommunications and related affairs of interest to the
Southern electric system and its subsidiaries. The TCG is
responsible to the IREC, which will determine its membership.
In view of the nature of responsibility assigned to the TCG,
its members will be selected based on knowledge of overall
telecommunications services in their respective companies.
<PAGE>
EXHIBIT G
FORM OF NOTICE
The Southern Company ("Southern"), 64 Perimeter Center East,
Atlanta, Georgia 30346 has filed application-declaration citing
Sections 6(a), 7, 9(a), 10, 12(b) and 13 of the Act and Rules 45,
50, 81, 87, 90, 91, 93 and 94 thereunder.
Southern proposes to establish a new subsidiary
("Communications") which will design, construct, finance,
maintain and operate the Southern Electric System's
communications systems, including a mobile radio network that,
when complete, will provide contiguous mobile radio service
throughout the service area of the Southern Electric System and
in adjacent areas such as along transmission corridors between
The Southern System and interconnected utilities, and in areas in
which operating personnel are often dispatched to restore service
or otherwise travel in the conduct of business generally
throughout Georgia, Alabama, Mississippi and points in Florida.
Communications would sell communications services to affiliates
of Southern and to their industrial, commercial and other retail
and wholesale customers including interconnected utilities, as
well as federal, state and local public safety, law enforcement
and emergency management governmental agencies, as well as other
agencies of the governments of the states of Georgia, Alabama,
Mississippi and Florida (the "Base Service"). It would also
offer communications services beyond the Base Service but within
the states of Georgia, Alabama, Northern Florida and Southern
<PAGE>
Mississippi. Sales to non-affiliates will be offered on a
private contract basis with non-affiliates charged on the basis
of the fair market value of the services to be provided.
Initially, Communications will install, construct and
operate a mobile radio system within the Southern Territory and
will acquire radio frequencies by application to the Federal
Communications Commission ("F.C.C.") or by purchase.
Existing communications facilities, including fiber optic
capacity and access to microwave towers, may be acquired through
lease from affiliated companies or third parties. All
transactions between Communications and other affiliated
companies will be undertaken at cost in compliance with Rules 90
and 91, or subject to prices comparable to those offered to the
public and subject to F.C.C. or other public regulation, pursuant
to Rule 81.
Southern proposes to invest up to $179 million from time to
time through December 31, 1998, through purchases of
Communications' capital stock, loans and capital contributions to
Communications, or guaranties of obligations of Communications or
a combination thereof. Communications may issue notes to third
party lenders having a term of 5 to 20 years which may be
guaranteed by Southern.
Applicant states that the formation of the new subsidiary is
necessary to replace outmoded communications systems and to
facilitate the design and development of communications services
on a system-wide basis leading to greater standardization of
equipment, the elimination of redundant and incompatible
<PAGE>
capabilities and greater operating efficiencies, and to
facilitate quicker and more orderly restorations of electric
service following storm related outages and other disturbances,
as well as to enhance Southern's ability to assist its operating
companies, interconnected utilities, industrial and wholesale
customers, and governmental public safety and emergency
management agencies following such storm related outages and
other disturbances.
<PAGE>
