File No. 70-8173
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1
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
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
64 Perimeter Center East
Atlanta, Georgia 30346
(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 John F. Young
Financial Vice President Vice President
The Southern Company Southern Company Services, Inc.
64 Perimeter Center East One Wall Street, 42nd Floor
Atlanta, Georgia 30346 New York, New York 10005
John D. McLanahan, Esq.
Troutman Sanders
600 Peachtree Street, N.E.
Suite 5200
NationsBank Plaza
Atlanta, Georgia 30308-2216
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INFORMATION REQUIRED
The Application or Declaration as filed in this proceeding
is amended and restated in its entirety as follows:
Item 1. 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"). 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.
Southern also owns all of the common stock of two non-
utility subsidiaries, Southern Electric International, Inc.
("SEI") and The Southern Development and Investment Group, Inc.
("Development"). In accordance with its original authorization
(Holding Company Act Release Nos. 22132 and 22315A, dated July 17
and December, 18, 1981, respectively) (the "Original SEI
Orders"), SEI provides technical services to industrial and
commercial concerns, unaffiliated utilities and foreign
governments in both domestic and international markets, and
markets "Intellectual Property" (as defined in such orders),
acquired or created by Southern System companies to unaffiliated
third parties. Pursuant to authorization granted in 1987, SEI
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also engages in the development of independent power projects,
including investments therein, and provides construction,
operating and other services to associate project entities
(Holding Company Act Release No. 24476, dated October 20, 1987)
(the "1987 Order").
In accordance with its original authorization (Holding
Company Act Release No. 23440, dated October 1, 1984) (the "1984
Order"), Development (formerly Southern Investments Group, Inc.)
engages in the preliminary study, investigation, research and
development of new business or investment opportunities and the
direction, coordination and conduct of such activities. Under
the 1984 Order, Southern was also authorized to purchase up to
75,000 shares of the outstanding common stock of Integrated
Communications Systems, Inc. ("ICS"), a company that was
organized for the purpose of financing and developing computer
software and hardware for a two-way communications system over
local telephone lines with a capability of providing a wide range
of energy-related services in the residential and small
commercial markets.
As a part of a plan to reorganize and redirect the focus of
certain of Southern's non-utility business activities along
functional lines, Southern and SEI are proposing in a separate
proceeding to restate SEI's operational and financing authority.
(See File No. 70-7932). Generally, it is proposed that SEI's
businesses will be limited to domestic and foreign power project
development activities, including making investments therein,
rendering services related to such activities, and to certain
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other related activities. It is proposed in this proceeding
that certain businesses and activities currently conducted by
SEI pursuant to the Original SEI Orders will be assumed by
Development, and that, in conjunction therewith, the operational
and financing authority of Development will also be restated in
its entirety in order to include other new activities and
business functions in which neither SEI nor Development is
currently engaged.
1.2 Summary of Requested Authorization.
In this Application, Southern and Development are requesting
authority for Development to engage in the following activities
and businesses:
a. Research and Development Activities
b. Commercialization of and Investments in POWERcall(TM)
Technology
c. Investments in a Prototype Energy Management System
d. Providing Other Energy Management and Efficiency
Services
e. Technical Consulting Activities
f. Licensing of Intellectual Property to Non-Affiliates
g. Development of/Investments in Energy Recovery
Facilities
In connection with the foregoing activities and businesses,
Southern is proposing herein to make additional investments in
Development of up to $275 million from time to time through
December 31, 1998. Such additional investments are required for
the following purposes: (i) to enable Development to develop,
construct, and acquire the energy management prototype network
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described below; (ii) to fund the estimated costs of
commercializing the POWERcall(TM) technology; (iii) to finance
the costs of equipment and/or provide customer financing of
equipment in connection with energy management and efficiency
services provided by Development; (iv) to pay predevelopment
costs associated with potential investments in other energy
management facilities and energy recovery facilities, as
described below; and (v) to provide Development with necessary
working capital in connection with its research and development
and technical consulting activities, as well as to pay other
general and administrative expenses.
It is proposed that the Commission's order approving the
transactions proposed in this Application replace and supersede
the authority heretofore granted in the 1984 Order and relevant
portions of the Original SEI Orders.
1.3 Development's Proposed Business Activities.
(a) Research and Development. It is proposed herein that
Development will continue to engage in the activities authorized
under the 1984 Order, namely, the preliminary study,
investigation, research and development of new business or
investment opportunities and the direction, coordination and
conduct of such activities. The kinds of new business
opportunities that Development will explore may include, among
others, new ventures utilizing new communications technologies,
including but not limited to continuing efforts to develop the
ICS system and new technologies and equipment related to the
efficient use, conservation, production, transmission and
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distribution of energy.
Development is now studying and being called upon by
associate companies in the Southern System to support preliminary
evaluation and development activities relating to several
technologies, such as computerized utility information systems,
remote meter reading, power usage monitoring and other rapidly
developing technologies. For example, Development has
participated in a pilot test to determine the commercial
potential for a utility customer service, referred to as
POWERcall(TM), which would involve the installation of a device
at a customer's premises which would monitor and automatically
report power outages to a utility's operations center. This
pilot test is now underway in two localities in Alabama Power
Company's Birmingham service division, and was designed and
implemented with a view to determining the capabilities and
limitations of the equipment and associated software and the
potential for POWERcall(TM), by itself or in combination with
other features, as a commercial venture. The POWERcall(TM)
technology and Development's proposal to make certain investments
therein to commercialize it are discussed in greater detail in
Item 1.3(b), below.
Development is also continuing to study and test numerous
potential business opportunities, particularly in the areas of
communications, load management, and information systems.
Specifically, Development will continue to fund research and
development of remote meter reading technologies and
communications modes which facilitate utility-related
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technologies, energy efficiency, conservation and demand
reduction technologies, and uses of optical fiber cables.
Ultimately, it is Southern's intention to concentrate in
Development all of the new business research and development
activities of the Southern System companies in these areas.
Among its activities in this area, Development will continue
to monitor the progress of ICS and its system, as well as
inventions competitive therewith. Advancements in technology
call for continuing evaluation. As an example, the ICS system
may work in conjunction with a variety of thermostats useful in
home heating. Thus, Development must constantly evaluate new
generations of thermostats that become available. In addition,
an ICS-like system may be useful in connection with remote or
automated meter reading. In consequence, Development has been
called upon from time to time to participate in the evaluation of
a wide range of remote or automated meter reading devices, in
some cases in connection with local telephone companies that have
systems which are complementary to, or exclusive of, the ICS
system, and in other instances in connection with radio or
wireless control automated meter reading devices, or technologies
which incorporate use of fiber optic connections. Development
has also studied solutions utilizing radio in conjunction with
vehicles traveling along the streets.
Another question relating to the ICS-type system is the
extent to which advancements in communications technologies will
or are likely to affect the potential use or obsolescence of the
twisted pair copper wire telephone system now in place, the
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potential use of fiber optics for communication in conjunction
with the ICS system or comparable technologies, or the use of
satellite or radio technologies. All of these are the subject
of continuous development, frequent new proposals to Southern,
and the need for coordinated study and evaluation.
Development has also participated in the development of a
computer software program known as Enerlink, which would enable
consumers of electric energy to monitor time-of-use pricing of
electricity and plan their operations based upon time-of-use
pricing. SEI is currently attempting to license this energy
optimization program to some commercial accounts within the
Southern System, and has licensed the program to Boston Edison
for use in a test to evaluate its efficacy and market acceptance.
It is anticipated that Enerlink will prove commercially viable
and will become the basis of a commercial venture to be
undertaken by Development. The software may also be licensed to
third parties as Intellectual Property in accordance with the
proposed authorization of Development discussed in Item 1.3(f)
hereof.
Development is also evaluating a variety of other new and
existing communications technologies for possible use in utility
related applications. For example, it has examined and
considered competing equipment and systems for radio
communications in the 800 MHz band, as well as a variety of
devices that would enhance the use of fiber optic and coaxial
cables, such as technologies developed or in the process of
development by First Pacific Networks, AT&T, BellSouth and
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Scientific Atlanta, as examples. Finally, Development is
examining and conducting investigation and research with respect
to the potential use of waste as fuels (biomass) and technologies
associated therewith.
(b) Commercialization of POWERcall(TM) The device that
has been utilized in the POWERcall(TM) pilot test in the
Birmingham area, as discussed above, is essentially off-the-shelf
equipment incorporating certain design specifications required by
Alabama Power Company. It was selected for the Birmingham pilot
test primarily because of the ease with which it can be
integrated with Alabama Power Company's existing computerized
interactive voice response units. The device plugs directly into
a standard telephone jack on the customer's premises, and a
transformer/power supply cord which is connected to the device
plugs into a standard duplex outlet. The device will sense any
loss of power at the location and, after a delay, dial a
preprogrammed telephone number which will be answered by Alabama
Power Company's computerized interactive voice response units.
The device and technology are adaptable to the interactive voice
response units of other utilities, including those of the other
Operating Companies.
POWERcall(TM) provides utility customers with the assurance
that power outages are reported automatically to their serving
electric utility, whether or not a customer is at home.
Development believes that if a sufficient number of such devices
are deployed within an area, the utility will be better able to
determine the locations of problems that are causing outages and
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will thus be able to improve the promptness, efficiency and
safety of the service restoration process. Realization of this
operational improvement is, however, heavily dependent upon a
sufficiently large number of customers in an area subscribing to
POWERcall(TM).
Development's market studies, which have been confirmed in
the Birmingham area pilot test, indicate that residential and
other utility customers would be interested in POWERcall(TM) but
that the demand for this service by itself is not sufficiently
large to realize the operational improvements desired by the
Operating Companies or to generate an adequate revenue stream.
In order to increase customer usage and acceptance, therefore,
Development is investigating the additional capabilities of the
monitoring device and its related software to determine the
commercial feasibility of providing certain monitoring services
in addition to POWERcall(TM). Such additional services would
include both energy-related services, such as automated meter
reading and temperature monitoring, and other services, such as
fire, intrusion and health alarm monitoring services. The off-
the-shelf device which met Alabama Power Company's specifications
is already capable of performing many of these functions and will
provide some of them with its existing capability unless they are
deactivated.
In this regard, Development believes that multi-functional
equipment similar to that used in the Birmingham area pilot test
is available or, with minor modifications, can be obtained on
commercially reasonable terms. The equipment may utilize
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existing telephone lines at a customer location, as in the pilot
program, or it may be designed to communicate over television
cables, other dedicated cables, or via radio channels. It is
contemplated that POWERcall(TM) would be offered to customers for
a standard monthly charge that would cover a basic package of
information services, including the power outage monitoring
feature, but that customers may subscribe to one or more
additional services. In any case, the objective will be to
design equipment and related software programs that incorporate
as much functionality and flexibility as possible, subject only
to cost and technology constraints.
Development contemplates that the POWERcall(TM) equipment
would be installed in a subscribing customer's home or business
for a charge and that the monthly monitoring and service fee
would be collected as an add-on to the customer's electric bill.
Although neither the equipment nor the installation service will
involve a significant investment, Development anticipates the
need to make and warehouse volume purchases of the POWERcall(TM)
device in order to obtain available manufacturer discounts.
Development will contract with its associate companies in the
Southern System or with interconnected utilities, as the case may
be, to perform the actual installation, servicing, monitoring and
customer billing functions. Development will also utilize
independent contractors extensively for the installation of the
equipment. Development will reimburse any associate Operating
Company currently for the full cost of such services in
accordance with Rules 90 and 91. The Operating Companies will
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not make any associated investment in the POWERcall(TM) devices,
will not provide any warranties or agree to assume any
liabilities in connection with the quality or performance of the
POWERcall(TM) devices and related programs offered, and will be
indemnified by Development for all costs, liabilities, or other
claims of third parties relating in any way to POWERcall(TM).
Development requests authorization herein to undertake
activities, including advertising and marketing studies,
additional pilot tests, testing of various manufacturers'
equipment, and purchases of equipment and software enhancements,
among other activities, with a view to commercializing
POWERcall(TM) and related customer services throughout Alabama
and Georgia and in the Gulf region of Mississippi and Florida.
Development also requests authority to enter into agreements with
utilities that are interconnected with Southern System companies
pursuant to which Development would offer POWERcall(TM) and
related services to the customers of such non-affiliated
utilities. Development estimates the need to expend up to $10
million in connection with these activities. Development states
that, to the extent POWERcall(TM) is offered to customers of
affiliated or non-affiliated utilities with enhancements enabling
monitoring of home security systems, Development will maintain a
list of approved independent contractors. This would permit a
utility customer to arrange for a contractor of the customer's
choice to provide and install sensors or other related equipment
and services.
(c) Development and Investment in Energy Management
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Prototype System. Development also requests authority to
develop, purchase, construct, own and operate a prototype energy
management communications network at various locations within the
Southern System. Utilizing this communications network,
Development proposes to offer to customers power usage and outage
monitoring services (including POWERcall(TM)), two-way
customer/utility communications, automated billing, energy and
conservation information, including "Good Cents" messages and
information, and communications-based programs, such as "distance
learning," that may be offered in conjunction with a utility's
industrial development activities, among other potential utility
and utility-related interactive communications services. The
network may also be used for internal system communication of
voice and data. Development will sell communications services of
the type described to Services and the Operating Companies on an
"at cost" basis in compliance with Rules 90 and 91, or to the
extent applicable, based upon tariffs normally subject to public
regulation pursuant to Rule 81. Sales of such services directly
to customers will be charged at fair market value or tariff.
This communications network will incorporate technologies
developed by Development under its existing development
arrangements with ICS, technologies acquired from or developed
with First Pacific Network, and other available interactive
technologies, such as those under development by Scientific
Atlanta, Microsoft and AT&T. The prototype network would consist
of fiber optic lines, coaxial cables, computers, software and
other intellectual properties and other related
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telecommunications facilities and equipment. Initially,
Development contemplates that the networks would be constructed
at up to eight locations, including Gulfport, Panama City and
Pensacola, where Development has already conducted certain
preliminary studies, Birmingham, metropolitan Atlanta, Augusta
and Savannah.
Development estimates that its equity investment in the
prototype systems, which would cover design and marketing costs
and the costs of building, purchasing, or leasing fiber and
coaxial cable lines and related equipment, facilities and
properties, will be approximately $175 million.
Because the capacities associated with certain
communications mediums, particularly optical fiber, are so great,
the capacity of the communications network described herein will
be significantly greater than necessary for the utility and
utility-related applications described above. In this regard,
however, Development states that it intends to utilize or reserve
for future utilization at least 50% of the bandwidth of the fiber
optic communications network exclusively for such utility and
utility-related applications. Development proposes to make
available the balance of the bandwidth capacity to other
communications providers of voice, data, and video services, such
as cable television companies, local and long distance telephone
companies, computer networkers, commercial merchants (e.g., home
shopping networks), or large private users, such as banks,
pursuant to leases, network sharing agreements or licensing
transactions negotiated at arms' length for varying terms at
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market values. In connection with the foregoing, Development
will provide the necessary system operations and maintenance
services and will charge third party communications providers the
fair market value of such services based on their level of use of
the system. Access to and use of Development's equipment and
facilities will likewise be negotiated with third party
communications providers on the same basis, where feasible.
(d) Other Energy Management/Efficiency Services.
Development also proposes to offer to utility customers directly,
or indirectly through public utility companies, a broader range
of energy management services, including demand-side management
("DSM") measures, and, in connection therewith, proposes to
invest in energy management equipment and/or provide customer
financing for the purchase of equipment from third party vendors
and suppliers. Development believes that there is a significant
demand for energy management services in the Southern System
service territory, and states that certain of the Operating
Companies have adopted a range of DSM programs, including energy
audits of customer sites, design review of new construction and
major renovations, direct installation of energy conservation
equipment at customer sites and subsidies for the installation of
energy conservation equipment. Energy management measures would
include evaluation of energy conservation measures and evaluation
of the efficiency of various programs. Accurate monitoring and
knowledgeable evaluation of installed energy conservation
measures and devices are essential components to achieving cost-
effective conservation. Development's technical and management
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experience in designing and implementing DSM programs is directly
applicable to monitoring and evaluating installed measures.
Such services would also include evaluation of the potential
impact of energy conservation measures on the use of other
resources in a customer's process or facility (e.g., water,
labor, maintenance, materials). For example, in the provision of
energy management services, there is often an economic trade-off
between conserving energy and conserving water in a customer's
process or facility. Since the costs of water and sewer services
are rising sharply in many areas, energy management services
firms must also address these costs in their work in order to
minimize the customer's total costs and identify the most
economically efficient approach. An example of one such
conservation measure is the recovery of heat from waste hot
water.
In auditing a facility and implementing a conservation
program, the energy management services firm acquires in-depth
knowledge of the customer's systems and operation. This
knowledge enables the energy management firm to solve systems and
process design issues more creatively and effectively than other
outside firms. Therefore, effective energy management services
means taking an integrated approach that addresses all resources
used in a process or by a facility.
Based on its evaluation of the market for energy management
services and its experience and skills in related fields,
Development requests that its authorization include all of the
following specific services:
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1. Energy Management Services including: (i) the
identification of energy and other resource (water,
labor, maintenance, materials) cost reduction
opportunities; (ii) design of facility and process
modifications and/or enhancements to realize such
opportunities; (iii) design of new and retrofit
heating, ventilating and air conditioning, electrical
and power systems, motors, pumps, lighting, water and
plumbing systems and related structures to realize
energy and other resource efficiency; (iv) the
management or direct installation of energy
conservation equipment; (v) performance contracts,
i.e., contracts under which Development is paid for its
services and the equipment it installs based on the
energy savings that result from such services and
equipment; (vi) assistance in identifying and arranging
third-party financing for energy conservation programs;
(vii) training of client personnel in the operation of
equipment; (viii) system commissioning, i.e., observing
the operation of the installed system to insure that it
meets design specifications; and (ix) reporting of
system results.
2. DSM services including: (i) design of energy
conservation programs; (ii) implementation of energy
conservation programs; (iii) performance contracts for
DSM work; and (iv) monitoring and/or evaluation of DSM
programs, including metering and site inspections.
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Development requests authority to provide the energy
management and DSM services described above to customers, without
limitation, located in the Southern System service territory and
to provide limited services outside this area, with the
restriction that revenues attributable to customers outside of
the Southern System service territory do not exceed the revenues
attributable to customers inside this region (the "50% Revenue
Restriction"). The 50% Revenue Restriction would assure that
Development's energy management and DSM activities will primarily
serve the Southern System by helping to maximize (through
conservation and load management) existing generating and
transmission resources, thereby delaying the future need for
additional generating and transmission capacity. Subject to the
50% Revenue Restriction, Development would provide energy
management and DSM services outside the Southern System service
territory to fully utilize its resources and skills and to profit
from attractive opportunities to employ its excess resources.
See e.g., Jersey Central Power & Light Company Order Authorizing
Licensing of Computer Programs, HCA Rel No. 35-24348 (March 18,
1987).
In addition, Development requests authority to use up to $50
million of the funds provided by Southern, as discussed in Item
1.4(b), below, to make investments in energy efficiency and
conservation assets and/or loans to customers to enable such
customers to finance the purchase of such assets. Such assets
would consist of, among other things, manufactured energy savings
and conservation products and other facilities and equipment
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directed at the efficient use of energy. The assets so acquired
may be leased or sold to customers at prices to be negotiated
based upon the fair market value thereof. Such assets would also
be used by Development in connection with providing energy
conservation and efficiency services to the Operating Companies
in accordance with Rules 90 and 91, or in connection with
services to non-affiliated entities, including industrial and
retail customers of the Operating Companies, at prices based on
the fair market value thereof. Development may retain title to
the facilities and equipment it uses to engage in these
activities.
Customer financing in conjunction with its energy management
services business will enable Development's customers to purchase
goods and services from third party vendors and suppliers of
their own choosing on terms and conditions negotiated directly by
them. Loans to customers for this purpose will be evidenced by
the customers' promissory notes.
(e) Consulting Services.
Southern and Development also request authority for
Development to provide the following general types of technical
consulting services (the "Consulting Services") to non-affiliated
entities, including utilities, industrial and commercial concerns
and governments: management expertise, such as strategic
planning, finance, feasibility studies, organization, energy
efficiency, safety, environmental and conservation matters,
policy matters and management services; technical services and
expertise, such as design, engineering, procurement, construction
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supervision, information systems and services, environmental and
conservation planning, auditing, engineering and construction,
engineering and construction planning and procedures, data
processing, system planning and operational planning; training
expertise, including training in the area of operation, equipment
repair, and maintenance; and technical and procedural resources
and systems, such as are embedded in computer, information, and
communications systems, programs or manuals developed or acquired
by Southern System companies. Contracts for such services will
be negotiated and entered into on an arms' length basis.
The Consulting Services described also include certain
services that SEI now provides in accordance with the Original
SEI Orders to public utility companies and others having need for
the procurement of materials, machinery, equipment, services and
supplies used in the generation, transmission, and distribution
of electric power and the maintenance of inventories of spare
parts, such as through joint procurement organizations (e.g.
"PIMS,"or Pooled Inventory Management Services), which may
include, as members, participants, or shareholders, companies
that are subsidiaries of Southern. Development seeks authority
to render such Consulting Services in the future and to assume
SEI's obligations under existing contracts to the extent that
they can be assigned.
Consulting Services offered by Development, as proposed
herein, will generally be different in type and character from
the services that SEI is proposing to offer in File No. 70-7932,
although both SEI and Development may render services to similar
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kinds of clients or customers (e.g., unaffiliated utilities).
However, while SEI's proposed consulting activities will
generally be limited to providing services and expertise in
connection with power plant design, construction and operations,
independent power project development, and utility system
transmission and distribution, among others, Development will
pursue consulting opportunities in other, primarily non-utility,
fields, such as in communications, resource recovery, and energy
efficiency and management. Accordingly, Southern and Development
believe that there will be very few, if any, instances in which
Development and SEI would engage in consulting activities that
are in direct competition with each other. Further, Development
and SEI intend to coordinate their respective business
development activities to avoid or minimize any such competition,
including taking appropriate steps to screen potential business
opportunities for possible referral to one another. Development
will not, without obtaining the prior approval of the Commission
in a separate proceeding, render services to any associate
company that is an "exempt wholesale generator" or "foreign
utility company" within the meaning of Sections 32 and 33 of the
Act, respectively.
(f) Marketing of Intellectual Property. Under the
Original SEI Orders, SEI is authorized to resell or license to
third parties "Intellectual Property," defined therein as "any
process, program or technique which is protected by the
copyright, patent or trademark laws, or as a trade secret, and
which has been specifically and knowingly incorporated into,
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exhibited in, or reduced to a tangible writing, drawing, manual,
computer program, product or similar manifestation or thing." If
Intellectual Property is sold or licensed to a third party and,
as a result thereof, it is no longer available to Services or the
Operating Company providing it, then such company is entitled to
receive seventy percent (70%) of the net profits therefrom (after
deducting marketing and other applicable expenses) and SEI is
entitled to receive 30% of the net profits as a commission. If
such Intellectual Property is made available for disposition or
licensing to third parties but use thereof is retained by the
associate company providing it, SEI is obligated to reimburse its
associate company only for the actual expenses incurred.1
Development, Services and the Operating Companies propose to
continue these arrangements for the use and disposition of
Intellectual Property, subject to the following changes. First,
in the event that an Operating Company invests in the development
of Intellectual Property which is not ultimately used by it,
resulting in a disallowance of any associated development costs
by state regulatory authorities having jurisdiction, and such
Intellectual Property is thereafter sublicensed by Development to
third parties, Development will pay a royalty of thirty percent
(30%) of net sublicense revenues (after deduction of costs and
expenses of Development) until the development costs have been
1The existing Service Agreement between Development and
Services contains an identical definition of "Intellectual
Property," and the terms approved in the 1984 Order for
compensating other Southern System companies which have developed
such Intellectual Property are also identical.
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fully reimbursed to such Operating Company. And second, where
Development and Services or one or more of its associate
Operating Companies agree to jointly develop or acquire
Intellectual Property with the specific understanding that such
Intellectual Property would be both used by Services or such
Operating Company and remarketed to third parties by Development,
Development will pay for fifty percent (50%) of the cost of the
acquisition or development thereof, but shall have no further
financial obligation to Services or such Operating Company, as
the case may be. Subject to the foregoing modifications,
Development requests authorization to continue to offer to third
parties Intellectual Property created or acquired by its
associate companies within the Southern System. The terms of
such arrangements regarding the use and disposition of
Intellectual Property are contained in the proposed form of
amended Service Agreements filed herewith as Exhibits B-1 and B-
2, as applicable.
g. Development of and Investments in Energy and Resource
Recovery Facilities. Development also proposes to undertake
preliminary development activities with respect to potential
investments in energy and resource recovery facilities and
technologies, including but not limited to coal gasification
facilities and other synthetic fuels technologies, landfill gas
recovery, refuse derived fuels, and other alternative fuels
technologies. Initially, Development's activities would be
limited to design and concept review, engineering, siting and
environmental studies, negotiation of various "off-take" or joint
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venture contracts with potential users, financial modeling and
feasibility studies, due diligence, and other similar kinds of
activities incidental to the development and financing of such
facilities.
Fuels or other energy sources produced using any of the
foregoing technologies may be sold to utilities (including any of
the Operating Companies) for power generation and to industrial
users as boiler fuel. Development will seek to maximize the use
of available income tax credits that may be available for
investments in such facilities.
Development proposes that not more than 50% of its
investments in energy and resource recovery facilities of the
types described above shall be located outside the four state
area served by the Operating Companies. Development will not
make any capital investment in any such facility exceeding $1
million individually or $10 million in the aggregate, except in
accordance with an order of the Commission in a separate
proceeding.
1.4 Requested Financing Authority.
Southern hereby requests authority to commit up to an
aggregate of $275,000,000 outstanding at any one time through
December 31, 1998 through any combination of purchases of
Development's common stock, cash capital contributions or loans
to Development, conversions of any such loans to equity
investments, guarantees of loans to Development by banks or other
lending institutions, or guarantees by Southern of other recourse
liabilities (e.g., payments under leases or installment purchase
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obligations) of Development. To the extent such investments
involve loans from Southern to Development, such loans will be
made from time to time prior to December 31, 1998, with
maturities no later than December 31, 2003. Such loans will bear
an interest rate equal to a rate not to exceed the prime rate in
effect on the date of the loan at a bank designated by Southern.
Where non-affiliate loans to Development are involved, the loans
will be made with maturities of no later than December 31, 2003
and with an interest rate not to exceed 3% over the lender bank's
prime rate.
It is anticipated that any notes sold to a lender other than
Southern may be guaranteed by Southern as to principal, premium,
if any, and interest. In connection with any such sale, a
commitment fee may be paid in an amount not greater than 1/2 of
1% of the principal amount of any note. The name or names of the
lender or lenders other than Southern, principal amounts and
terms of other notes will be filed quarterly as a part of
Development's quarterly certificates under Rule 24, as more fully
described in Item 1.9, below.
Based upon the current prime rate of 6%, notes issued to
Southern would bear a rate not exceeding 6% and notes issued to
lenders other than Southern would bear a rate not exceeding 9%.
It is further proposed that any notes issued to Southern
hereunder may, at the option of Southern, be converted to capital
contributions to Development through Southern's forgiveness of
the debt represented thereby.
Investments by Southern in Development would be utilized by
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Development in order to fund its authorized investments and
activities, as follows:
(a) Investments Relating to Energy Management Prototype
Network. Southern and Development anticipate that up to $175
million will be required by Development from time to time through
December 31, 1998, in order to develop, design, engineer, acquire
and construct the proposed energy management prototype network,
as described in Item 1.3(c) hereof.
(b) Investments in or Financing of Other Energy Management
Measures. Investments by Southern will also be utilized by
Development to purchase energy conservation and efficiency
equipment and/or to provide customer financing. Southern
anticipates that the aggregate amount of loans and other advances
to Development for such purposes would not exceed $50 million at
any one time outstanding.
Notes issued to Southern to enable Development to provide
customer financing in connection with the sale of energy
management services may be unsecured, or secured by Development's
customer contracts. Further, Development may assign evidences of
customer indebtedness to Southern in consideration of a reduction
in the amount of outstanding notes, in which case the aggregate
amount of outstanding customer indebtedness held by Southern
would be added to the aggregate amount of outstanding notes
issued by Development and held by Southern for purposes of the
proposed $50 million limit.
(c) Working Capital Authority. Southern estimates
that aggregate investments of up to $50 million at any time
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outstanding will be required in order to enable Development to
finance the estimated costs associated with commercializing
POWERcall(TM) (estimated at $10 million) and predevelopment costs
associated with potential investments in other energy management
and recovery facilities; to permit Development to invest in
energy and resource recovery facilities not exceeding $1 million
in an individual project and $10 million in the aggregate; to
provide Development with working capital needed in connection
with Development's consulting and energy management services
activities; and to pay certain ongoing general and administrative
costs, including personnel, accounting, marketing, engineering,
legal, financial and other necessary support functions, required
in connection with developing and administering its business
lines.
1.5 Indemnifications and Guarantees. Southern also
proposes, from time to time, to guarantee or to act as surety
itself on bonds, indebtedness and performance and other
obligations issued or undertaken by Development in connection
with its business. In the ordinary course of its business, it is
anticipated that Development will be required to furnish various
types of bonds including bid bonds, performance bonds, and
material and payment bonds, and must provide commercial sureties
for its obligations under certain of such bonds. The proposed
indemnification by Southern of such sureties will facilitate
Development in obtaining the necessary bonds when needed and at
more favorable rates than if such obligations were not
guaranteed.
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In the past, Southern has been called upon from time to time
to provide performance guarantees and to undertake other
contractual obligations with respect to the performance and other
obligations of SEI under contracts and bids involving consulting
activities. Similarly, Southern believes that the inability of
Development to provide such parent guarantees of Development's
performance and other obligations in the future would prevent
Development in many cases from participating in projects, or
make its participation more costly. Thus, Southern believes that
it will be necessary to provide guarantees of Development's
performance and other obligations under contracts and bids with
third parties in order to facilitate Development in obtaining
such contracts and to enhance the competitiveness of Development
in the marketplace.
In addition, in order to maintain this competitiveness in
the marketplace, Development must have the ability to bid on or
otherwise pursue multiple contracts or bids on a simultaneous
basis and to provide evidence of its authority to provide the
proposed guarantees or indemnifications of sureties by Southern
at the time of contract negotiation or bid. Southern's
theoretical exposure on such guarantees and indemnifications of
sureties will be limited by the fact that many of these
guarantees provided at the time of bid will not be activated
unless and until Development actually receives a contract award
and by the relatively low likelihood that Development will be
awarded contracts on all bids. Southern's exposure will also be
limited to the extent that Development may participate in any
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particular project through a joint venture arrangement with third
parties in which the partners share the responsibility of such
guarantees and indemnifications of sureties.
These forms of credit enhancement or assurance are typical
in the marketplace. As an example, preliminary bids or proposals
often must be accompanied by bid bonds so as to evidence the
seriousness and financial responsibility of the bidder. In the
case of such bids by Development, the bid may be conditioned upon
governmental approval, including any approval that may be
required under the Act, as well as other business and legal
conditions. A bid bond merely assures that the bidder, if
successful, will act in accordance with the terms of the bid or
forfeit the bond. However, the warranties and degree of credit
support are the result of arms' length bargaining and are usually
subject to limitations as to duration and amount and normally
exclude consequential damages. It is often the case that the
amount of liability is related to all or a portion of the
consulting contract price or stipulated liquidated damages,
rather than the value of the project.
Despite the fact that Southern has guaranteed or agreed to
act as surety or indemnitor on SEI's behalf pursuant to long-
standing Commission authorization under the 1987 Order, there has
not been a single claim against any bonds, guarantees or
suretyships which have been issued. They exist, nevertheless, as
a necessary commercial practice, particularly with reference to
engineering, design, construction and operational assurances
which are required in the commercial marketplace.
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It is therefore proposed that Southern have the authority
under this Item 1.5 to provide such guarantees of and similar
provisions and arrangements concerning Development's performance
and undertaking of other obligations, in an aggregate amount
outstanding at any one time of $200,000,000 through December 31,
2003; provided, that any guarantees or indemnifications
outstanding at December 31, 2003 shall continue until expiration
or termination in accordance with their terms. For purposes of
computing the above limitations, neither Southern's agreements to
provide guarantees or indemnifications of sureties of Development
which have not actually been issued, nor the respective shares of
any such obligations or indemnification of sureties held by any
joint venture partner of Development, will be counted. It is
further proposed that, because Development's need for such
Southern guarantees and indemnifications cover a range of
contracts too broad to describe all of their natures at this
time, Southern and Development have the flexibility to negotiate
specific guarantees and similar provisions and arrangements with
third parties, and indemnifications of sureties, as the need to
do so arises, without further Commission authorization.
1.6 Authorization of Transactions with Associate Companies.
Development will maintain its staff of employees who will deal
primarily with the management, marketing, development, accounting
and administrative functions of the corporation.2 Utilizing a
2 Upon receipt of the Commission's order in this proceeding,
approximately 30 of the 200 current employees of SEI will be
transferred to Development.
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work order procedure, this staff will request the Operating
Companies and Services to provide such personnel and other
resources as are needed, from time to time, to consult and assist
in marketing, engineering and other required functions in
connection with Development authorized business activities.
Additional required personnel and resources not then obtainable
from within the Southern System will be obtained or hired from
external sources. Development proposes to enter into new
service agreements (the "Service Agreements") with Services and
each of the Operating Companies that will be substantially
identical to the existing agreements between Development and
Services, with the changes discussed elsewhere in this filing.
Drafts of these agreements are attached hereto as Exhibits B-1
and B-2.
Selection of the Southern System personnel to be utilized in
connection with Development's activities will be based upon
projected personnel availability for the duration of an activity,
expertise in the type of work involved and access to resources
within the Southern System needed to perform the work. However,
the Service Agreements will provide that any Southern System
company may, in its absolute discretion, elect not to
participate, either through personnel or other resources, in any
of Development's projects.
Services will also continue to provide assistance in
connection with financial, accounting, and internal auditing
functions for Development, utilizing those accounting systems
which are economically justifiable under the circumstances. The
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accounts of Development will continue to be subject to audit by
the independent accountants of Southern.
The use of available expertise and personnel of the Southern
System to support Development's authorized business activities
will enable Southern to optimize the efficient and economic
utilization of existing human resources and other capabilities.
It will also enable affiliates to have the benefit of knowledge
and experience gained by Development from its outside activities.
An important result of this efficient allocation of technical
resources within the Southern System is that it will keep such
expertise and capabilities available to the Operating Companies,
as well as enabling Southern and Development to earn a profit on
and minimize the cost of maintaining such resources which are
considered necessary to the adequate servicing of existing
Southern System plants and capacity.
Under the terms of the existing Service Agreement between
Development and Services, Development is obligated to make any
"Intellectual Property" developed in the course of its business
available for utilization by Services without charge, except for
the actual expenses incurred in making the same available, to the
extent that Development has or retains proprietary rights
therein. Likewise, Development has the reciprocal right to
receive from Services without charge any such Intellectual
Property, except for the actual expenses incurred in making the
same available.
This system of compensation and reciprocal availability of
Intellectual Property has existed for many years. It provides a
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benefit to the Operating Companies and consumers as well as to
Development and ensures that there is no subsidization of
Development at the expense of the Operating Companies.
Southern System companies providing services to Development
will be reimbursed promptly for their costs incurred in
connection therewith. The accounting procedures previously
approved in the Original SEI Orders will be utilized by
Development. For its part, each Southern System company
providing services for or material to Development will utilize
cost accounting procedures designed to identify promptly all
direct and indirect costs, including overheads, which are
applicable to the work being performed by or with such Southern
System company personnel, material or other assets. Services
will account for, allocate and charge its costs to Development,
using procedures permitted under Rules 90 and 91 and currently
applicable methods of allocation.
All transactions between Development and any other Southern
System company (except as noted below in the case of projects
which are co-owed by Southern or an associate of Southern and
unaffiliated parties) will be at cost in compliance with
Section 13 and Rules 90 and 91.
1.7 Accounting for Transactions with Non-Associate
Companies. Fees for Consulting Services and Energy Management
and Efficiency Services provided by Development to clients or
customers who are not affiliated with Southern or which are co-
owners or investors in projects with Southern or its associate
companies (other than any of the Operating Companies), will be
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calculated to reimburse all applicable costs, including
overheads, plus produce a profit for Development.
All of Development's costs will be identified and expensed
promptly. Development will continue to use portions of systems
also employed by Services to account for those costs and
segregate them by project and Southern System company performing
the services. Development will retain such earnings as remain
after reimbursement to the Southern System companies of these
costs and payment or funding of other costs, liabilities, fees or
charges. These retained earnings will then be used to offset
capital needs of Development or will be paid to Southern.
1.8 Other Matters. The consolidated federal income tax
liability of the Southern System is allocated among the members
of the consolidated group in accordance with the provisions of
subparagraph (a)(1) of Section 1552 of the Internal Revenue Code
of 1986, as amended, and the applicable requirements of Rule
45(c), as modified by certain orders of the Commission.
Development will continue to be allocated a portion of the
consolidated federal income tax liability based upon those
provisions.
1.9 Reporting Obligations. Southern and Development agree
that the Commission's order to be issued in connection with this
filing shall be subject to the terms and conditions prescribed in
Rule 24 promulgated under the Act, except that it is proposed
that certificates regarding the activities of Development
required to be filed thereunder may continue to be filed on a
quarterly basis, not later than 30 days after the end of each
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quarterly period. Such certificates shall include the following:
(1) Amounts and forms of investments by
Development, and obligations of each project
undertaken in furtherance of Development's
authorized activities;
(2) Amounts and forms of: (i) guarantees and similar
provisions and arrangements concerning
Development's performance and undertaking of other
obligations; and (ii) indemnifications of and with
respect to persons acting as sureties on bonds or
other obligations on behalf of Development which
Southern has agreed to grant in the event a bid by
Development is accepted; and
(3) Amounts and forms of: (i) guarantees and
similar provisions and arrangements
concerning Development's performance and
undertaking of other obligations, which
Southern has granted and are currently
effective; and (ii) indemnifications of and
with respect to persons acting as sureties on
bonds or other obligations on behalf of
Development which Southern has granted and
are currently effective.
In addition, Southern will file on behalf of Development an
annual report on Form U-13-60 (as modified), in the form
heretofore filed on behalf of SEI, as an exhibit to Southern's
annual report on Form U5S.
Item 2. Fees, Commissions and Expenses.
Fees, commissions and expenses expected to be incurred by
Development in connection with the Application are as follows:
Holding Company Act filing fee ......... $ 2,000
Counsel fees:
Troutman Sanders .................. $15,000*
Miscellaneous and incidental expenses .. $ 1,000*
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*Estimated amount
Total $18,000
Item 3. Applicable Statutory Provisions.
The issuance and sale by Development of common stock and
notes is subject to Sections 6 and 7 of the Act, and the
acquisition thereof by Southern is subject to Sections 9(a) and
10. The making of cash capital contributions by Southern to
Development and the proposed guaranty by Southern of notes issued
by or other recourse liabilities of Development to third parties
are subject to Section 12(b) and Rule 45 thereunder. The
issuance by Development of notes will be excepted from the
competitive bidding requirements of Rule 50 pursuant to
paragraphs (a)(2) or (a)(3) thereof, as applicable. The
conversion of borrowings by Development from Southern to capital
contributions is also considered subject to Section 12(b) of the
Act and Rule 45.
The proposals by Development to engage in the various
different lines of business summarized in this filing are subject
to Sections 9(a) and 10 of the Act.
The acquisition by Development of promissory notes
evidencing the indebtedness of customers in connection with
financing energy management and efficiency equipment is subject
to Sections 9(a)(1) and 10, but may be exempted therefrom
pursuant to Rule 40(a)(4) under the Act.
The rendering of services and other contemplated
transactions between Development, on the one hand, and Services
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and the Operating Companies, on the other, at cost or subject to
tariff, is subject to Sections 13(b) and Rules 81, 87, 90 and 91
thereunder.
The proposed transactions will be carried out in accordance
with the procedures specified in Rule 24 of the Act and pursuant
to an order of the Commission with respect thereto.
Item 4. Regulatory Approval.
The proposed transactions are not subject to the
jurisdiction of any state commission or of any federal commission
other than the Commission.
Item 5. Procedure.
Development and Southern request that the Commission's order
be issued as soon as the rules allow, and that there be no
thirty-day waiting period between the issuance of the
Commission's order and the date on which it is to become
effective. Development and Southern hereby waive a recommended
decision by a hearing officer or other responsible officer of the
Commission and hereby consent that the Division of Investment
Management may assist in the preparation of the Commission's
decision and/or order in the matter unless such Division opposes
the matters covered hereby.
Item 6. Exhibits.
Exhibits.
A - Form of Note from Development to Southern.
(To be filed by amendment).
B-1 - Form of Service Agreement between Development
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and Services. (To be filed by amendment).
B-2 - Form of Service Agreement between Development
and an Operating Company. (To be filed by
amendment).
C - None.
D - None.
E - None.
F - Opinion of Troutman Sanders. (To be filed by
amendment).
G - Form of Notice.
Item 7. Information as to Environmental Effects.
(a) In view of the nature of the proposed transactions as
described in Item 1 hereof, the Commission's action in this
matter will not constitute any major federal action significantly
affecting the quality of the human environment.
(b) No other federal agency has prepared or is preparing an
environmental impact statement with regard to the proposed
transactions.
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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: May 6, 1994 THE SOUTHERN COMPANY
By:/s/ Tommy Chisholm
Tommy Chisholm
Secretary
THE SOUTHERN DEVELOPMENT AND
INVESTMENT GROUP, INC.
By:/s/Tommy Chisholm
Tommy Chisholm
Vice President and Secretary
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EXHIBIT G
FORM OF NOTICE
The Southern Company, The Southern Development and Investment
Group, Inc. (70-8173)
The Southern Company ("Southern"), 64 Perimeter Center East,
Atlanta, Georgia 30346 and its wholly owned subsidiary, The
Southern Development and Investment Group, Inc. ("Development"),
64 Perimeter Center East, Atlanta, Georgia 30346 have filed an
application-declaration citing Sections 6, 7, 9, 10, 12, 13 of
the Act and Rules 40, 45, 50, 87, 90 and 91 thereunder as
applicable thereto.
Since 1984, Development has engaged in the preliminary
study, investigation, research and development of new business or
investment opportunities. Southern and Development are now
proposing to restate Development's operational authority to
include, in addition to such preliminary study, investigation,
research and development activities, the following activities:
providing certain technical consulting services to non-
affiliates; providing energy management and efficiency services,
including sales of energy management equipment and customer
financing in connection therewith; development, ownership,
operation and servicing of an energy management communications
network; marketing of a remote power outage monitoring device and
related services; licensing of intellectual property; and
development of and investments in certain energy recovery
facilities.
The sale of technical consulting services, as described in
<PAGE>
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the application, would include the provision of such services to
unaffiliated parties for a fee to be based upon the fair market
value thereof. Such services would involve use of existing
expertise and resources within the Southern System, including
management expertise, in areas such as strategic planning,
organizational planning, policy matters and management services;
technical expertise, such as design, engineering, procurement,
construction supervision, engineering and construction planning
and procedures, system planning and operational planning;
training expertise; and technical and procedural resources, such
as are embedded in computer, information and communication
systems, programs or manuals. Development would also engage in
the resale or licensing of intellectual property acquired or
created by other Southern System companies. Such consulting
services and marketing of intellectual property are businesses
that have heretofore been engaged in by Southern Electric
International, Inc. ("SEI"), an associate company.
Development proposes to invest in, market and service
monitoring devices that would be installed in utility customers'
homes and businesses for the purpose of monitoring and
automatically reporting to the utility serving them any loss of
electric service. The device would also have the capability of
providing other kinds of energy-related services, such as
automated meter reading, supervisory control and data acquisition
for distribution automation, safety and fire and intrusion
monitoring services, among other potential uses. Development
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anticipates the need to expend up to $10 million in this venture.
Development is also proposing to invest up to $175 million
to develop, design, acquire, construct and manage prototype
energy management communications networks, initially at up to
eight locations in Southern's service area. The network would be
used to offer customers electricity usage and outage monitoring
services, automated billing, and energy conservation and
management information. The network would consist of various
different communications mediums, including optical fiber and
coaxial cable lines, and would incorporate technologies developed
by Development and third parties. Development proposes to sell
or lease to non-affiliates excess capacity associated with the
communications networks.
Development proposes to provide energy management and
efficiency services, including demand side measures, for a
charge, and to lease or sell manufactured energy savings and
conservation products, and other facilities and equipment
directed at the efficient use of energy. Development proposes to
invest up to $50 million in such assets and/or in customer
financing of such assets purchased from third parties.
Development would generally retain title to the facilities and
equipment it uses to engage in these activities.
Finally, Development is proposing to develop energy recovery
facilities, such as synthetic fuels facilities, refuse derived
fuels, and landfill gas production facilities. Any acquisitions
of such facilities and any related financing would be the subject
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of separate filings, except to the extent such investments do not
exceed $1 million individually and $10 million in the aggregate.
Development and its associate companies will reimburse each
other for the full cost of all services, personnel and facilities
provided to Development for its business, determined in
accordance with Rules 90 and 91 of the Act as well as other
applicable rules and regulations. The reimbursed cost of
services identified through a work order system shall include all
direct changes and a pro rata share of Southern's service
company, Southern Company Services, Inc., and its other costs
based upon an allocation formula filed with the Commission.
Southern proposes to make investments of up to $275 million
in Development from time to time through December 31, 1998 to
enable Development to fund its authorized business activities and
to pay general and administrative costs and expenses required to
support Development's business lines. Such investments would be
made through any combination of purchases of Development's common
stock, cash capital contributions or loans to Development, or
guarantees of third party loans to Development.
Notes sold to Southern shall bear interest at a rate
equal to the prime rate in effect on the date of the loan at a
bank designated by Southern. Where non-affiliate loans to
Development are involved, the notes would bear interest at a rate
not to exceed 3% over the lending bank's prime rate. It is also
proposed that notes issued to Southern may, at the option of
Southern, be converted to capital contributions to Development
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through Southern's forgiveness of the debt represented thereby.
Southern proposes to provide Development such guarantees of
and similar provisions and arrangements concerning Development's
performance and undertaking of other obligations relating to
authorized activities of Development, and to provide such
indemnifications of and with respect to persons acting as surety
on bonds or other obligations relating to authorized activities
of Development on behalf of Development, all as described above,
in an aggregate amount outstanding at any one time of $200
million through December 31, 2003, provided that any guarantees
or indemnifications outstanding at December 31, 2003 shall
continue until expiration or termination in accordance with their
terms. For purposes of computing the above limitation, neither
Southern's agreements to provide guarantees or indemnifications
of sureties of Development which have not actually been issued,
nor Development's joint venture partner's respective shares of
any joint venture obligations or indemnification of sureties of
the joint venture, shall be counted.
<PAGE>
