File No. 70-8505
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1
to
APPLICATION OR DECLARATION on FORM U-1
under
The Public Utility Holding Company Act of 1935
THE SOUTHERN COMPANY
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 Thomas G. Boren, President
The Southern Company Southern Electric International,
64 Perimeter Center East Inc.
Atlanta, Georgia 30346 900 Ashwood Parkway, Suite 500
Atlanta, Georgia 30338
(Names and addresses of agents for service)
The Commission is requested to mail signed copies of all orders,
notices and communications to:
W.L. Westbrook John 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
Thomas G. Boren John D. McLanahan, Esq.
President Troutman Sanders
Southern Electric 600 Peachtree Street, N.E.
International, Inc. Suite 5200
900 Ashwood Parkway Atlanta, Georgia 30308-2216
Suite 500
Atlanta, Georgia 30338
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The Application or Declaration heretofore filed in this
proceeding is hereby amended as follows:
1. Item 1.5(b) - Tax Exempt Bonds, is amended by deleting
the third paragraph thereof any substituting the following new
paragraph in lieu thereof:
"Under the terms of the Trust Indenture, Scott may cause the
interest rate on the Tax Exempt Bonds to be fixed for various
periods of time ranging from one day up to the entire term of the
bonds. (Trust Indenture, Article IV). Currently, the Tax Exempt
Bonds bear interest at a rate which is reset weekly by the
Remarketing Agent (Goldman, Sachs & Co.), pursuant to a
Remarketing Agreement, dated as of October 30, 1987 (the
"Remarketing Agreement"), among the Board, Scott and Goldman,
Sachs & Co. The interest rate so established is a rate that,
considering relevant market conditions, is calculated to cause
the Tax Exempt Bonds to sell at par. Each bondholder has the
right to tender its Tax Exempt Bonds for purchase upon seven
days' notice. If Tax Exempt Bonds are tendered, the Remarketing
Agent attempts to remarket such bonds to another purchaser. The
Remarketing Agent is entitled to a fee from Scott equal to 1/8th
of 1% per annum of the outstanding principal amount of the Tax
Exempt Bonds. At Closing, Mobile Energy will assume Scott's
obligations under the Remarketing Agreement."
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2. Item 1.5 is amended by restating paragraph (d) thereof
in its entirety, as follows:.
"(d) Interest Rate Swap Agreements. At Closing, Mobile
Energy will enter into separate interest rate swap agreements in
order to hedge against adverse movements in long-term interest
rates between Closing and the date on which the Notes are sold,
and between Closing and the date (not earlier than six months
after Closing) on which the Tax Exempt Bonds are either converted
to a fixed rate or redeemed with the proceeds of new Tax Exempt
Bonds issued by the Board. In each case, the counterparty to the
swap instrument would be a financial institution rated above "A"
by Standard & Poor's Corporation and above "A2" by Moody's
Investors Services, Inc. Southern proposes to guaranty
absolutely and unconditionally Mobile Energy's obligations under
the interest rate swap agreements.
The interest rate swap with respect to the Notes will be a
"forward" swap under which Mobile Energy would in effect lock in
the fixed rate at the time of Closing, although the exchange in
interest rates would not be scheduled to occur until the
anticipated financial closing date, which would be not later than
June 30, 1995. Since Southern anticipates that Mobile Energy
will reverse this interest rate swap when the Notes are sold,
however, it is unlikely that there would ever be an actual
exchange of coupons. The notional principal amount of the swap
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would be not more than $230 million, and the term of the swap and
amortization schedule would match the anticipated maturities and
amortization schedule of the Notes, as described above.
The interest rate swap with respect to the $85 million
principal amount of Tax Exempt Bonds would hedge the conversion
or redemption of the bonds from the current weekly variable rate
to a long-term fixed rate. The exchange of coupons would be
scheduled to commence six months after Closing. However, since
Southern contemplates that Mobile Energy will reverse the swap at
the time of converting or redeeming the existing Tax Exempt
Bonds, it is unlikely that there would ever be an actual exchange
of coupons. The term of the swap and amortization schedule would
match the anticipated maturity and amortization of the converted
or new Tax Exempt Bonds, as described above."
3. Item 1.7 - Operations and Maintenance Services, is
hereby amended by adding the following new sentences at the end
thereof:
"The Operating Companies will not provide any services directly
to Mobile Energy. In addition to usual and customary plant
operations and maintenance services, SEI will also prepare and
maintain the books and records and financial and regulatory
reports of Mobile Energy, provide capital improvements services,
administer all project and financing contracts to which Mobile
Energy is a party, and provide fuel and materials procurement,
waste handling, and used part disposition services, among other
services that Mobile Energy may request."
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4. Item 3 - Applicable Statutory Provisions, is hereby
amended by adding the following at the end thereof:
"Analysis of Section 10 Issues.
As set forth more fully below, the transactions described in
this Application or Declaration will satisfy all of the
applicable provisions of Section 10 of the Act and should be
approved by the Commission.
Section 10(b) of the Act provides that, if the requirements
of Section 10(f) are satisfied, the Commission shall approve an
acquisition under Section 9(a) unless the Commission finds that:
(1) such acquisition will tend towards interlocking
relations or the concentration of control of public utility
companies, of a kind or to an extent detrimental to the
public interest or the interest of investors or consumers;
(2) in case of the acquisition of securities or utility
assets, the consideration, including all fees, commissions,
and other remuneration, to whomsoever paid, to be given
directly or indirectly, in connection with such acquisition
is not reasonable or does not bear a fair relation to the
sums invested in or the earning capacity of the utility
assets to be acquired or the utility assets underlying the
securities to be acquired; or
(3) such acquisition will unduly complicate the capital
structure of the holding company system of the applicant or
will be detrimental to the public interest or the interest
of investors or consumers or the proper functioning of such
holding company system.
There is no basis for the Commission to make any adverse
findings under Section 10(b).
Interlocking Relationships. Mobile Energy will be a
wholly-owned subsidiary of Southern and its board of directors
will consist of members of the Southern system's current
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management.1 The Commission has held in numerous cases that
having common directors among companies in the same holding
company system is not inappropriate; that, in fact, an integrated
holding company system presupposes, in the interest of efficiency
and economy, the existence of interlocking officers and
directors.2
Concentration of Control. As the Commission has stated,
Section 10(b)(1) was intended to prevent utility acquisitions
that would result in "huge, complex and irrational holding
company systems at which the Act was primarily aimed." American
Electric Power Co.,Inc., 46 SEC 1299, 1307 (1978). The
acquisition of Mobile Energy, in contrast, will have a negligible
impact on the size of the Southern system. On a pro forma basis,
the net book value of Southern's consolidated utility plant in
service (electric and steam heat plant) will increase by less
than 2% as a result of Mobile Energy's investment in the Energy
Complex and certain planned improvements.3 Furthermore,
Southern's anticipated equity investment, which will not exceed
$105 million, will amount to only 1.3% of Southern's common
shareholder equity, 0.6% of total capitalization, and 3.5% of
1 Initially, the sole director of Mobile Energy will be a
vice president of SEI.
2 See, e.g., Entergy Corporation, et al., HCAR No. 25136
(August 27, 1990); American Natural Gas Co., HCAR No. 12992
(September 20, 1955).
3 At June 30, 1994, consolidated net utility plant in
service was $20,102,814,000.
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consolidated retained earnings.4 Finally, the acquisition will
not expand or extend the service area of the Southern system into
geographic areas not already served.
Competitive Effects. There is no basis in the record for
the Commission to conclude that the acquisition of the Energy
Complex by Mobile Energy will have any anti-competitive effects.
Scott and Southern have each filed notifications pursuant to the
Hart-Scott-Rodino Antitrust Improvements Act with the Department
of Justice and the Federal Trade Commission describing the
effects of the transaction on competition in the relevant market,
and the expiration of the waiting period provided thereunder is a
condition precedent to Closing. Southern undertakes to notify
the Commission of any adverse action or request for additional
information by the Department of Justice or Federal Trade
Commission.
Fairness of Consideration. In order to disapprove an
acquisition, Section 10(b)(2) requires that the Commission find
that the consideration, including all fees, commissions and other
remuneration, to be given directly or indirectly in connection
with the transaction is not reasonable or does not bear a fair
relation to the investment in and earning capacity of the utility
assets underlying the securities being acquired. In this case,
4 At June 30, 1994, Southern's common shareholder equity,
total capitalization, and consolidated retained earnings were
$7,822 million, $16,702 million, and $2,984 million,
respectively.
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because Mobile Energy will be a single purpose project
subsidiary, it is appropriate to analyze the reasonableness of
Southern's investment in Mobile Energy in terms of Mobile
Energy's investment in the Energy Complex and its projected
earnings under the terms of the Energy Services Agreements.
In the course of its due diligence effort, SEI and its
outside consultants were given access to Scott's books and
records, including confidential and proprietary production data.
Using this information, as well as manufacturer quotes on the
costs of replacement equipment, SEI was able to verify that the
purchase price negotiated with Scott bears a fair relation to
Scott's depreciated cost and estimated replacement cost.
Following the issuance of the Notes and repayment of the
Interim Note with the proceeds thereof, and the release of
Southern's guaranty of the Tax Exempt Bond obligations,
Southern's expected equity investment in Mobile Energy will be no
greater than $105 million. Southern is providing herewith
financial projections (see Item 6(b)(iv))5 that demonstrate that
the anticipated revenues of Mobile Energy will support the
servicing of Mobile Energy's debt and lease obligations and
provide a return on equity that is substantially in excess of
Southern's authorized return on its investment in its regulated
operating utility subsidiaries, which currently ranges from about
5 The financial projections are being filed separately,
pursuant to Rule 104, as a part of Item 6(b) - Financial
Statements.
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11% to 14.5%. The higher return is commensurate with the greater
risks involved in this investment, which are discussed below.
As described in Item 1.6, Mobile Energy's revenues will be
derived under three separate 25-year Energy Services Agreements
that Mobile Energy and each of the Mill owners will enter into at
Closing. These revenues will consist of both demand and usage
charges for steam and electricity processing services and, in the
case of the Pulp Mill, black liquor processing services as well.
Projected expenses are based on confidential and proprietary
production cost data provided by Scott. The demand charges are
based upon specified peak levels of demand for steam, electricity
and liquor processing. The projections assume that, during the
term of the Energy Services Agreements, the Mill will reach these
levels of demand. SEI has confirmed through its inspection of
operating data provided by Scott that the specified peak levels
are consistent with those typically reached in the current
operations of the three mills. The financial projections
demonstrate that Southern will recover its equity investment, and
earn an acceptable return thereon, through the demand charges
that the Mill owners will be contractually bound to pay. The
demand and usage charge structure under the Energy Services
Agreements is described in greater detail in Exhibit B-6(e),
which has been filed separately pursuant to Rule 104.
The principal risk associated with Southern's investment in
the Energy Complex is the risk of a Mill closure or sustained
curtailments in production (the "Mill Risk"). Such events could
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occur, for example, if either the U.S. pulp and paper industry as
a whole or Scott's Mobile operations in particular experienced a
decline in competitiveness, due to plant obsolescence, shrinking
markets, interruptions in the supply of necessary raw materials,
environmental constraints, or otherwise. However, since
Southern's projections indicate that it will recover its
investment in Mobile Energy over a period of years that is
substantially shorter than the 25-year term of the Energy
Services Agreements, the Mill Risk becomes less critical in the
later years. Further, the contractual demand charge structure
will tend to insulate Mobile Energy from the effects of
production cutbacks during the early years.
SEI's analysis of the Mill Risk has focused on the financial
health of the paper and pulp industry as a whole, Scott's
competitive position in the industry, and the competitiveness of
the Mobile facility in particular. To assist in its due
diligence, SEI engaged Jaakko Poyry Consulting, Inc. ("Jaakko
Poyry"), an internationally recognized pulp and paper industry
consulting firm, to prepare a study of the Mill Risk.6 Scott
agreed to provide Jaakko Poyry with highly confidential
production and raw material cost data, current plans for capital
improvements to the Mill, and product marketing strategies, among
other information.
6 SEI also engaged Rust Engineering Company and Southern
Company Services, Inc. to conduct a technical review of the
Energy Complex.
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Jaakko Poyry has prepared a preliminary draft of a
confidential report which addresses the Mill Risk on various
levels, including viability of wood supply, the competitiveness
of the Pulp Mill, and the integrity of current and planned
environmental systems. The draft report also assesses the
competitive position of both Scott and S.D. Warren relative to
other tissue and paper product suppliers worldwide.
In its draft report, Jaakko Poyry has concluded that the
Mill's access to wood fiber compares favorably with the industry
in the area, due primarily to Scott's large captive timberlands
operations in the Southeast, from which it supplies substantially
all of the pine fiber requirements of the Mill, and Scott's cost
effective marine-based transportation network. Further, Jaakko
Poyry concluded that, although the market for hardwood pulpwood
is expected to become tighter in the southern U.S., Scott again
enjoys certain competitive advantages, including the location of
its pulping operations and the existence of certain exclusive
contracts between Scott and independent producers for hardwood
chips which could possibly provide an additional source of
hardwood fiber to the Mill in the future.
Jaakko Poyry also found that the Pulp Mill is a competitive
supplier of fiber to Scott's worldwide operations, and should
remain so if planned investments in the fiber lines are made.
Specifically, Jaakko Poyry concluded that the investment options
identified by Scott to meet tighter environmental regulations
that will go into effect are realistic and will assure the
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technical and economic viability of the Pulp Mill. Jaakko Poyry
found that Scott's record on waste treatment and environmental
compliance compared favorably with the industry. Specifically,
environmental testing disclosed toxicity levels lower than
allowable limits. Further, Jaakko Poyry confirmed that Scott's
current available landfill space is adequate and that test
results for particulate emissions into the air have been
favorable.
Jaakko Poyry also concluded that Scott has a leading
position worldwide in tissue production, and that, due to its
scale, proximity to the growing Southeastern market, and secure
source of wood fiber, the Mobile Tissue Mill will tend over time
to become even more closely integrated into Scott's worldwide
tissue operations. Tissue Mill technology was considered
competitive. The Paper Mill is also regarded as a leading U.S.
producer in certain categories (free-sheet papers), although the
paper operations of the Mill are dependent upon the success of
S.D. Warren's marketing strategy.
Overall, Jaakko Poyry concluded that the risk of significant
production curtailments at the Mill are relatively small.
Reasonableness of Fees. The fees, commissions and
expenses incurred and to be incurred in connection with the
acquisition of Mobile Energy's common shares and the transactions
contemplated under the Asset Purchase Agreement are expected not
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to exceed $4 million, or roughly 1% of the negotiated purchase
price for the Energy Complex.7 Southern believes that this
amount is reasonable and fair in light of the size and complexity
of the transaction relative to other similar transactions.
Capital Structure. To disapprove an acquisition,
Section 10(b)(3) requires the Commission to find that the
transaction will unduly complicate the capital structure of the
holding company system or will be detrimental to the public
interest, the interest of investors or consumers or the proper
functioning of the holding company system. Southern's
consolidated capital structure will not be unduly complicated by
Mobile Energy's issuance and sale of common stock and Interim
Note to Southern at Closing or by its assumption or issuance of
long-term secured obligations. There will be no other class of
stock of Mobile Energy outstanding, and its funded senior debt
will be ranked equally.
The pro forma 75% debt - 25% equity capitalization ratio of
Mobile Energy will be comparable to the more leveraged
capitalization ratios that the Commission has approved in other
cases involving single purpose independent power producers,8 and
will have a negligible effect on the pro forma consolidated
7 It should be noted that the expenses paid to third
parties for legal and financial advisory services, and to other
consultants in connection with SEI's due diligence review, were
incurred by SEI as project development expenses in accordance
with its authorization under HCAR No. 24476 (October 20, 1987).
8 See Sierra Pacific Resources, HCAR No. 24566 (January 28,
1988), aff'd sub nom. Environmental Action, Inc. v. Securities
and Exchange Commission, 895 F.2d 1255 (9th Cir. 1990).
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capital structure of Southern. Assuming that the transaction had
closed June 30, 1994, an investment in Mobile Energy's common
equity of $105 million, and long-term debt of $315 million, the
pro forma effect of the transactions would reduce Southern's
consolidated common equity as a percentage of total
capitalization from 46.8% to 46.3% and increase long-term debt
from 45.2% to 45.9%. These pro forma capitalization ratios are
well within acceptable industry standards.
Section 10(c) of the Act provides that, notwithstanding the
provisions of Section 10(b), the Commission shall not approve:
(1) an acquisition of securities or utility assets, or of
any other interest, which is unlawful under the provisions
of Section 8 or is detrimental to the carrying out of the
provisions of Section 11; or
(2) the acquisition of securities or utility assets of a
public utility or holding company unless the Commission
finds that such acquisition will serve the public interest
by tending towards the economical and the efficient
development of an integrated public utility system . . ..
Provisions of Section 11. Section 11(b)(1) generally
requires a registered holding company system to limit its
operations "to a single integrated public utility system, and to
such other businesses as are reasonably incidental, or
economically necessary or appropriate to the operations of such
integrated public utility system." Section 11(b)(2) directs the
Commission "to ensure that the corporate structure or continued
existence of any company in the holding company system does not
unduly or unnecessarily complicate the structure, or unfairly or
inequitably distribute voting power among security holders, of
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such holding company system."
The Southern System is an integrated public utility system9
and will not cease to be such as a consequence of the
transactions proposed herein. The Energy Complex is located
inside the retail electric service territory of Alabama Power,
and the generating units comprising the Energy Complex are
already physically interconnected with the facilities of Alabama
Power and will remain so. Over these interconnections, Alabama
Power will continue to provide back-up and supplemental electric
service to the Energy Complex and Mill at rates set by the
Alabama Public Service Commission.
Components of the Energy Complex used to produce and deliver
steam and to process black liquor, which is one of the primary
sources of fuel for the Energy Complex, may be regarded as
interests in "other businesses" within the meaning of Section 11.
Under cases interpreting Section 11(b)(1), an interest in an
"other business" is retainable, and hence may be acquired under
the standards of Section 10(c)(1), if there is an operating or
"functional relationship" between the utility system and such
other business interests.10 The Commission has approved
numerous applications involving acquisitions of interests in fuel
9 See The Commonwealth & Southern Corporation, et al.,
HCAR No. 7615 (August 2, 1947).
10 See CSW Credit, Inc. et al., HCAR No. 25995 (March 2,
1994).
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related assets,11 and the steam business has historically been
recognized as an appropriate adjunct of the electric utility
business.12
As to Section 11(b)(2), the Commission has consistently
recognized that the creation of a direct subsidiary of a
registered holding company does not per se unduly or
unnecessarily complicate a system's capital structure.13
Further, the Commission has previously approved of acquisitions
of special purpose subsidiaries organized to produce and sell
power to a single customer.14 In this case, the organization of
Mobile Energy serves a useful purpose in that it insulates
Southern's other operating utility subsidiaries from the unique
project related risks associated with the Energy Complex.
Efficiencies and Economies. The transactions will produce
economies and efficiencies more than sufficient to satisfy the
standards of Section 10(c)(2) of the Act. In this regard, it is
reasonable to anticipate that Scott (and its successors), will
achieve savings and other benefits over the long run from the
11 See e.g., Public Service Company of Oklahoma, HCAR No.
19090 (July 17, 1975), and cases cited therein.
12 In many cases, the Commission permitted holding
companies to retain an interest in the steam business upon a
showing of a close operating relationship between the steam and
electric departments of a utility subsidiary. See e.g., North
American Co., 11 S.E.C. 194 (1942); Engineers Public Service
Company, et al., 12 S.E.C. 41 (1942).
13 See Entergy Corporation et al., HCAR No. 25136 (August
27, 1990); Sierra Pacific Resources, supra, note 8.
14 See Electric Energy, Inc., 38 SEC 658 (1958);
Mississippi Valley Generating Company, 36 SEC 159 (1955).
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applied efficiencies and economies brought to it by integration
of the Energy Complex into the much larger Southern system,
especially in the areas of operations and maintenance and access
to personnel and resources.15 Presumably, Scott will also
achieve significant capital savings by being able to redeploy its
capital investment in the Energy Complex to its core industrial
operations. Finally, Scott will achieve savings in labor costs
through the transfer of approximately 130 current employees to
SEI.
Section 10(c)(2) does not call for a precise dollar forecast
of anticipated savings and efficiencies in a case such as
this.16 Scott is not a utility. Its decision to sell the
Energy Complex is not subject to review for fairness or adequacy
of consideration by any regulatory authority, nor are the rates
that Scott (and its successors) will pay for the processing
services. We presume that Scott carefully evaluated the economic
trade-offs involved in continued ownership of the Energy Complex,
on the one hand, with a sale of the facility to a third party
15 In cases involving combinations of a very small utility
systems with much larger utility systems, the Commission has
tended to focus on the potential for these kinds of savings to
the customers of the acquired system, recognizing that the
potential for savings to the acquiring company may be
inconsequential or difficult to quantify. See e.g., New England
Electric System, et al., HCAR No. 22699 (November 8, 1982); Ohio
Edison Company, HCAR No. 17842 (January 5, 1973).
16 As the Commission has stated in other cases in respect
of Section 10(c)(2), "specific dollar forecasts of future savings
are not necessarily required; a demonstrated potential for
economies will suffice even when these are not precisely
quantifiable." Centerior Energy Corporation, HCAR No. 24073
(April 29, 1986).
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coupled with a long-term obligation to purchase the Mill's
requirements for electricity, steam and liquor processing.
Integrated Public Utility System. As applied to electric
utility companies, the term "integrated public utility system" is
defined in Section 2(a)(29)(A) of the Act as:
a system consisting of one or more units of
generating plants and/or transmission lines
and/or distributing facilities, whose utility
assets, whether owned by one or more electric
utility companies, are physically
interconnected or capable of physical
interconnection and which under normal
conditions may be economically operated as a
single interconnected and coordinated system
confined in its operation to a single area or
region, in one or more states, not so large
as to impair (considering the state of the
art and the area or region affected) the
advantages of localized management efficient
operation, and the effectiveness of
regulation.
The Commission has held that the definition of an integrated
electric system in Section 2(a)(29)(A) is a four-part test, each
part of which must be satisfied.17 First, the utility assets of
the system must be physically interconnected or capable of
physical interconnection. Second, the utility assets, under
normal conditions, may be economically operated as a single
interconnected and coordinated system. Third, the system must be
confined in its operations to a single area or region. And
fourth, the system must not be so large as to impair (considering
the state of the art and the area or region affected) the
17 See Environmental Action, Inc. v. Securities and
Exchange Commission, 895 F.2d 1255, 1263 (9th Cir. 1990) (citing
Electric Energy, Inc., 38 SEC 658, 668 (1958)).
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advantages of localized management, efficient operation, and the
effectiveness of regulation.
The transaction proposed herein satisfies all four of these
requirements:
First, as previously shown, the facilities of Alabama Power
and the Energy Complex are already physically interconnected and
are operated synchronously in parallel, and Alabama Power
provides and will continue to provide back-up and supplemental
electric service to the Mill and Energy Complex.
Second, the facilities of Mobile Energy will be economically
operated with those of Southern's other operating subsidiaries as
a single interconnected and coordinated system. This is not to
suggest that Energy Complex will be dispatched from a central
dispatch point with all other generating plants in the Southern
system. The Energy Complex was designed and constructed by Scott
to satisfy its own needs, and with rare exceptions, Scott's
requirements for electricity exceed the electrical generating
capacity of the Energy Complex.
As a customer of Mobile Energy, Scott's requirements for
steam, electricity and liquor processing services will continue
to control the dispatch of the Energy Complex. However, this is
not incompatible with the requirements of Section 2(a)(29)(A).
On the contrary, there is no requirement in the Act that approval
under Section 10 must be conditioned on a showing that a
generating unit that is to be added to a system must be available
to supply the needs of any existing customers. As the Commission
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has stated: "when a generating plant is added to existing plants
in a traditional integrated electric system, the electricity
produced by the new plant need not be dedicated in full or even
in part for distribution to existing retail or wholesale
customers." Sierra Pacific Resources, supra, note 8.
Further, although central economic dispatch of all of the
generating units of utility systems may be dispositive of
operational integration, it is not per se a requirement of
Section 2(a)(29(A). In this case, the Energy Complex is
integrated into Scott's industrial operation, and the amount of
electric energy produced is a function of Scott's demand for
process steam, liquor processing, and other related products.
Further, the economics of the plant are heavily dependent upon a
supply of by-products from its pulp and paper manufacturing
process, which, in turn, consume the electricity and steam
produced. It would not be economical to dispatch the Energy
Complex generators for any sustained period using conventional
fuels rather than the waste streams made available from the Mill
and without a customer for the steam produced.
This Commission has recognized that dedicated, on-site (or
"inside the fence") cogeneration operations are an appropriate
component of an integrated system. In fact, the Energy Complex
will not be the first stand-alone cogenerating facility dedicated
to a single customer in the Southern system. Mississippi Power
Company, an operating utility subsidiary of Southern, has owned
and operated such dedicated facilities at Chevron Oil Company's
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Pascagoula refinery since 1967. (See Mississippi Power Company,
HCAR No. 16791 (July 19, 1970), approving acquisition and leasing
of certain assets.)18 Like the Energy Complex, steam and
electrical production at that facility is dictated by Chevron's
requirements for steam and electricity.
Third, the acquisition of the Energy Complex will not
enlarge the area or region served by Southern's operating
subsidiaries. The Energy Complex is located in Alabama, inside
the retail electric service territory served by Alabama Power. In
fact, until the early 1960s, Alabama Power supplied all of the
Mill's electrical needs.
Fourth, the system is not so large as to impair the
advantages of localized management, efficient operations, and the
effectiveness of regulation. The Energy Complex is now a
"qualifying facility" under PURPA that is exempt from state laws
respecting the rates and service of public utilities and from
most provisions of the Federal Power Act. Following its
acquisition, Mobile Energy will not be a public utility under the
Federal Power Act, because it will not be engaged in making sales
of power for resale, and will not be a public utility under
18 The Pascagoula plant was recently expanded with the
addition by Mississippi Power of a new 78 MW cogeneration unit at
the refinery, which increased Mississippi Power's total
generation inside the refinery to 150 MW and steam production to
952,000 lbs./hour. As in the case of the Energy Complex,
Mississippi Power receives the fuel supply (process gas) needed
to operate these facilities from the refinery. On-site controls
are designed to balance, or match, the output of the facility
with Chevron's demand for electricity and steam.
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Alabama law. Thus, the transactions described herein will have
no impact at all on the effectiveness of regulation."
5. The following items listed in Item 6 - Exhibits and
Financial Statements, are included with this amendment.
a. Exhibits.
A-1 - Articles of Incorporation of Mobile
Energy.
B-2 - Form of Interim Note evidencing interim
loan by Southern to Mobile Energy.
B-3 - Tax Exempt Bond Documents
(a) Lease and Agreement between the
Industrial Development Board of the City
of Mobile, Alabama and Scott, dated as
of December 1, 1984. ("P")
(b) Trust Indenture between the Industrial
Development Board and Chemical Bank, as
Trustee, dated as of December 1, 1984,
and First Supplement thereto, dated as
of January 1, 1985. ("P")
(c) Letters of Credit issued by Morgan
Guaranty Trust Company of New York and
Swiss Bank Corporation in favor of the
Industrial Development Board, including
amendments thereto. ("P")
(d) Reimbursement Agreements between Scott
Paper Company and each of Morgan
Guaranty Trust Company of New York and
Swiss Bank Corporation, as issuing banks
under the Letters of Credit, including
amendments thereto. ("P")
B-6 - Operating Contracts.
(a) Pulp Mill Energy Services Agreement
between Mobile Energy and Scott.
(Filed separately pursuant to Rule 104).
("P")
22
<PAGE>
(d) Master Operating Agreement between
Mobile Energy and Scott in its capacity
as the Pulp Mill owner, the Paper Mill
owner, and the Tissue Mill owner.
(Filed separately pursuant to Rule 104).
("P")
E-2 - Schematic diagram depicting bus bar
interconnections between Alabama Power
and Energy Complex and Mill facilities.
("P")
b. Financial Statements.
(i) Balance sheets of The Southern Company and
subsidiary companies at June 30, 1994.
(Designated in The Southern Company's Form
10-Q for the quarter ended June 30, 1994,
File No. 1-3526).
(ii) Journal entry reflecting pro forma effect of
proposed transactions on The Southern Company
and subsidiaries consolidated at June 30,
1994.
(iii) Statement of initial sources and uses of
funds.
(iv) Mobile Energy Services Company, Inc. -
Financial Projections. (Filed separately
pursuant to Rule 104). ("P")
SIGNATURE
Pursuant to the requirements of the Public Utility Holding
Company Act of 1935, the undersigned company has duly caused this
Amendment No. 1 to be signed on its behalf by the undersigned
thereunto duly authorized.
Dated: November 9, 1994 THE SOUTHERN COMPANY
By: /s/ Tommy Chisholm
Tommy Chisholm
Secretary
23
<PAGE>
Exhibit A-1
ARTICLES OF INCORPORATION
OF
MOBILE ENERGY SERVICES COMPANY, INC.
I.
The name of the corporation is MOBILE ENERGY SERVICES
COMPANY, INC. (the "Corporation").
II.
The Corporation shall have perpetual duration.
III.
The nature of the business of the Corporation and its
objects, purposes and powers are:
(a) To own and operate electric generation facilities,
steam processing facilities and such ancillary facilities as the
Corporation may determine necessary or beneficial from time to
time;
(b) To manage, purchase or acquire by assignment, transfer
or otherwise, and hold, mortgage or otherwise pledge, and to
sell, exchange, transfer, deal in and in any manner dispose of,
real or personal property of any kind, class, interest, or type,
wheresoever situated, and to exercise, carry out and enjoy any
licenses, power, authority, concession, right or privilege which
any corporation may make or grant in connection therewith;
(c) To subscribe for, acquire, hold, sell, assign,
transfer, mortgage, pledge, or in any manner dispose of shares of
stock, bonds or other evidences of indebtedness or securities
issued or created by any other corporation of Alabama or any
other state or any foreign country and, while the owner thereof,
to exercise the rights, privileges and powers of ownership,
including the rights to vote thereon, to the same extent as a
natural person may do, subject to the limitations, if any, on
such rights now or hereafter provided by the laws of Alabama;
(d) To acquire the goodwill, rights, assets and properties,
and to undertake the whole or any part of the liabilities, of any
person, firm, association or corporation; to pay for the same in
cash, the stock or other securities of the Corporation, or
otherwise, to hold, or in any manner, dispose of, the whole or
any part of the property so acquired; to conduct in any lawful
manner the whole or any part of the business so acquired; and to
<PAGE>
exercise all the powers necessary or convenient in and about the
conduct and management of such business; and
(e) In general, to carry on any other lawful business
whatsoever in connection with the foregoing or which is
calculated, directly or indirectly, to promote the interest of
the Corporation or to enhance the value of its properties.
The enumeration herein of the powers, objects and purposes of the
Corporation shall not be deemed to exclude or in any way limit by
inference any powers, objects or purposes which the Corporation
is empowered to exercise, whether expressly by purpose or by any
of the laws of the State of Alabama or any reasonable
construction of such laws.
IV.
The Corporation shall be authorized to issue One Thousand
(1,000) shares of One Dollar ($1.00) par value capital stock, all
of which shall be designated "Common Stock." The shares of
Common Stock shall have unlimited voting rights and shall be
entitled to receive all of the net assets of the Corporation upon
dissolution or liquidation.
V.
The Board of Directors of the Corporation shall have the
power to adopt, amend and repeal the By-Laws of the Corporation.
VI.
To the fullest extent that the General Corporation Law of
Alabama, as it exists on the date hereof or as it may hereafter
be amended, permits the limitation or elimination of the
liability of directors, no director of the Corporation shall be
personally liable to the Corporation or its stockholders for
monetary damages for breach of duty of care or other duty as a
director. No amendment to or repeal of this Article shall apply
to or have any effect on the liability or alleged liability of
any director of the Corporation for or with respect to any acts
or omissions of such director occurring prior to such amendment
or repeal.
-2-
<PAGE>
VII.
The initial registered office of the Corporation in the
State of Alabama shall be located at 60 Commerce Street,
Montgomery, Montgomery Co., Alabama 36104. The initial
registered agent of the Corporation at such address shall be The
Corporation Company.
VIII.
The affairs of the Corporation shall be managed by a Board
of Directors and as otherwise provided in the By-Laws of the
Corporation. The initial Board of Directors of the corporation
shall consist of one (1) member, whose name and corresponding
mailing address is:
Raymond D. Hill
c/o Southern Electric International,
Inc.
900 Ashwood Parkway
Suite 500
Atlanta, Georgia 30338
IX.
The name and address of the Incorporator of the Corporation
are Elizabeth B. Chandler, NationsBank Plaza, 600 Peachtree
Street, N.E., Suite 5200, Atlanta, Georgia 30308-2216.
__________________________________________
Elizabeth B. Chandler, Incorporator
-3-
<PAGE>
Exhibit B-2
INTERIM NOTE
$[___________] Dated: [_________]
FOR VALUE RECEIVED, the undersigned, MOBILE ENERGY SERVICES
COMPANY, INC., an Alabama corporation ("Maker"), promises to pay
to THE SOUTHERN COMPANY, a Delaware corporation (hereinafter
referred to, together with any subsequent holder or transferee
hereof, as "Holder"), the principal sum of [____________________]
and No/100 Dollars ($[___________]) (the "Principal") together
with interest on so much thereof as from time to time shall be
outstanding and unpaid, accruing on and after the date hereof at
the prime lending rate as in effect at [_______________________],
expressed in simple interest terms and computed on a three hundred
sixty-five (365) day year. Principal and interest accrued thereon
shall be due and payable on June 30, 1995.
Maker shall be entitled, at any time and from time to time,
without the consent of Holder and without paying any penalty or
premium therefor, to prepay all or any portion or portions of the
outstanding Principal and accrued interest thereon.
No delay or omission on the part of Holder in exercising any
right hereunder shall operate as a waiver of such right or any
other right under this Note. A waiver of any right or remedy on
any one occasion shall not be construed as a bar to or waiver of
any right or remedy on any future occasion.
Maker hereby waives presentment, demand for payment, notice
or dishonor and all other notices or demands in connection with
the delivery, acceptance, performance, default or endorsement of
this Note.
IN WITNESS WHEREOF, the undersigned has caused its duly
authorized representative to execute this Note to be effective as
of the day and year first above written.
"Maker"
MOBILE ENERGY SERVICES COMPANY, INC.
By: ____________________________________
Vice President
<PAGE>
Journal Entry Reflecting Proforma Effect on SOCO Item 6(b)(ii)
Selected Statistical Disclosures
<TABLE>
SOCO SOCO
Consolidated Mill Proforma
At 6-30-94 Transaction 6-30-94
<S> <C> <C> <C> <C> <C> <C> <C>
Common Stock 41.44% 3,241,733 3,241,733 40.90%
Paid In Capital 20.39% 1,595,140 105,000 1,700,140 21.45%
Premium on Preferred Stock 0.01% 1,012 1,012 0.01%
Retained Earnings 38.15% 2,983,973 2,983,973 37.64%
Common Equity 46.83% 100.00% 7,821,858 105,000 7,926,858 100.00% 46.30%
Preferred Stock 7.98% 1,332,203 1,332,203 7.78%
Preferred Stock - Red 0.00% 500 500 0.00%
Long Term Debt 45.19% 7,546,946 315,000 7,861,946 45.92%
Total Capitalization 100.00% 16,701,507 420,000 17,121,507 100.00%
</TABLE>
Item 6(b)(iii)
********************************************************
Southern Electric International Mill Project
Base Case
*********09:22 AM
********************************************************
INITIAL SOURCES & USES ($000's)
1994$ % of Capital
SOURCES
144A Bond - First Tranche 231,127 55.0%
144A Bond - Second Tranche 0 0.0%
144A Bond - Third Tranche 0 0.0%
Optional Bank Tranche 0 0.0%
Tax Exempt Bonds 85,000 20.2%
Equity 103,975 24.8%
Total 420,102
USES
Cash Paid to Scott 350,000
Financing Costs 9,478
Development Costs 3,675
Start-Up Costs 625
Capital Expenditures 10,324
Reserves 46,000
Other 0
Total 420,102
