File No. 70-8173
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 3
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 Robert E. Jones
Financial Vice President President
The Southern Company Southern Development
64 Perimeter Center East & Investment Group
Atlanta, Georgia 30346 64 Perimeter Center East
Atlanta, Georgia 30346
John D. McLanahan, Esq.
Troutman Sanders
600 Peachtree Street, N.E.
Suite 5200 - NationsBank Plaza
Atlanta, Georgia 30308-2216
<PAGE>
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 and Southern Nuclear Operating Company,
Inc. (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
<PAGE>
third parties. Pursuant to authorization granted in 1987, SEI
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. The investment by Southern in ICS will be
unaffected by this filing.
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
-2-
<PAGE>
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
other related activities. It is proposed in this proceeding
that technical consulting activities of the type formerly
conducted by SEI will be performed 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
These are hereinafter referred to collectively as "Business
Lines."
-3-
<PAGE>
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 equity investments are
required for the following purposes: (i) to enable Development to
develop, construct, and/or acquire the energy management
prototype network 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 development 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 (other than
the investment in ICS) 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 its research and
development activities, namely, the preliminary study,
-4-
<PAGE>
investigation, research and development of new business or
investment opportunities and the direction, coordination and
conduct of such activities. Development cannot fully anticipate
the types or kinds of inventions or ideas that others will
generate in the future which bear upon the generation,
transmission and distribution of electricity, reductions in
demand, new uses of electricity, alternative technologies, and
technologies and systems bearing upon or affecting the business
of providing electric utility service. Any new business
opportunity related to the foregoing may be the subject of
research and development by Development. Development will
explore and conduct market, technical and financial tests and
studies of technology, systems, and businesses affecting the
environment; information systems and computer software and
applications thereof; energy management technologies, programs
and systems; energy recovery facilities, projects, equipment and
technologies; electrotechnologies; communications equipment,
technologies and systems; waste to energy projects and biomass
technology applications; environmental systems and equipment;
alternative fuels; improved fuel utilization; and alternative
energy technologies. The kinds of new business opportunities
that Development will explore will include new ventures utilizing
new communications technologies, including but not limited to
continuing efforts to develop the ICS system described below.
Where Development expends money in connection with its
research and development and aids in the development of new
-5-
<PAGE>
technologies or intellectual properties as described in this
Section 1.3, it may receive a license to use, or sublicense, the
property or technology developed.
Development will not acquire any existing business entity or
form any new business entity for the purpose of researching or
developing any business line unless specifically authorized
pursuant to Sections 9 and 10 of the Act. It may, however, co-
fund research and development with other parties, if such co-
funding does not create such an entity. Development will not
engage in any research and development ventures producing
revenues to it unless otherwise specifically authorized herein or
in future authorizations by the Commission. Development does
anticipate the use of technologies and intellectual properties
which have been the subject of its research and development
activities in connection with the commercialization of an
investment in POWERcall(tm), the operation of the prototype
energy management system, the provision of energy management and
efficiency services, the technical consulting activities, the
licensing of intellectual property to non-affiliates and the
development of and investments in energy recovery facilities, all
as described specifically herein. Moreover, nothing contained
herein shall affect the permissible business activities of the
Operating Companies as authorized by the Commission or applicable
law.
-6-
<PAGE>
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
-7-
<PAGE>
technologies, energy 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.
Development will continue to monitor the progress of ICS and
its system, as well as inventions competitive therewith. ICS is
currently developing a system, including computer software and
hardware, for two-way communications to provide a wide range of
energy-related services in the residential and small commercial
markets. Such services include: (a) an energy optimization
program, permitting the consumer to optimize the operation of
major energy-using appliances; (b) load management; (c) remote
meter reading; (d) rate design; and (e) remote connection or
disconnection of service. While such utility applications will
predominate, other providers could offer certain other services
through the ICS system including: (a) home security; (b)
entertainment (e.g., pay-per-view cable television and electronic
games); (c) information (e.g., financial and commercial data
bases, education or home study programs, and electronic mail);
and (d) transactions (e.g., electronic banking, home shopping,
and automatic billing). The foregoing functions are the
functions which have been disclosed to the Commission from the
inception of Southern's investment in ICS. Advancements in
technology call for continuing evaluation. As an example, the
ICS system may work in conjunction with a variety of thermostats
-8-
<PAGE>
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
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
-9-
<PAGE>
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
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
-10-
<PAGE>
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
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
-11-
<PAGE>
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
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 and
-12-
<PAGE>
reporting feature, extreme temperature variation warning, smoke
and fire alarm, health emergency alarm and intrusion alarm.
These can be provided without modification of the POWERcall(tm)
device. 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
not make any associated investment in the POWERcall(tm) business
line, will not provide any warranties or agree to assume any
liabilities in connection with the quality or performance of the
-13-
<PAGE>
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)
through insurance.
Development requests authorization herein to undertake
development activities, advertising and marketing studies,
additional pilot tests, testing of various manufacturers'
equipment, and purchases of equipment and software enhancements
with a view to commercializing POWERcall(tm) and monitoring and
reporting services employing the device and similar devices
throughout Alabama and Georgia and in the Gulf region of
Mississippi and Florida. Specifically, Development will offer
the POWERcall(tm) service within the Southern electric system
service territories of Mississippi Power and Gulf Power in
Mississippi and Florida. It will offer these services throughout
the states of Alabama and Georgia. With respect to Georgia,
Savannah Electric and Georgia Power collectively serve 156 of the
159 counties in Georgia and have interconnections with other
utilities throughout the state. Georgia Power is party to
ownership in an integrated transmission system with other
utilities throughout the state. Moreover, the state of Georgia
by law allows customer choice throughout the state which is a
one-time selection of the preferred electric supplier by certain
classes of customers. For all those reasons, it is considered
that the entire state of Georgia is part of the integrated
Southern electric system. With reference to Alabama, Alabama
-14-
<PAGE>
Power serves all of the state except extreme northern Alabama and
maintains relationships and interconnections with the utilities
serving other portions of the state. Development also requests
authority to enter into agreements with utilities located in
Mississippi, Louisiana, Georgia, Alabama, Florida, Tennessee and
the Carolinas that are interconnected with Southern System
companies pursuant to which Development would offer POWERcall(tm)
and monitoring and reporting services employing the device or
similar devices to the customers of such non-affiliated
utilities. Revenues derived from POWERcall's(tm) service outside
of the service territories of the Operating Companies of the
Southern electric system will not exceed those derived from
within the territory and Applicants consent to a restriction to
that effect. 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
Prototype System. Development also requests authority to
develop, purchase, construct, own and operate a prototype energy
management communications network at various locations within the
-15-
<PAGE>
Southern System. Utilizing this prototype 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. An activity
is defined as utility or utility related if it is used or useful
in connection with or incidental to the business of the
generation, transmission, distribution, marketing, sale or
conservation of electric energy, improvement of environmental
impacts associated therewith, energy or demand side management,
industrial development activities of an electric utility, and
community service activities of an electric utility. It includes
communications in connection with the authorized business of the
holding company system. While the primary purpose of these
utility services is for electric service, in order to achieve
economies of scale and consumer acceptance of such items as new
billing programs and automated billing the information and
interactive services would, where desired by the consumers and
other providers, include automated billing for other utilities
such as providers of water or gas. The network may also be used
for internal system communication of voice and data. Development
will sell communications services of the type described to
-16-
<PAGE>
Services and the Operating Companies on an "at cost" basis in
compliance with Rules 90 and 91, or, where rates are normally
subject to State Commission or F.C.C. regulation, pursuant to
Rule 81. Sales of such services directly to customers will be
charged at fair market value or tariff as provided by Rule 81.
The term "communications based programs" means programs
dependent upon a communications link which facilitate activities
of the integrated electric utility system in connection with the
generation, transmission, marketing, sale, and distribution of
electric energy, the improvement of environmental impacts
associated with such activities, energy or demand-side management
or the enhancement of industrial development and community based
activities. The Southern electric system presently broadcasts
current energy news via video to many of its business locations.
These broadcasts consist of wire service type information, as
well as video of major company and industry conferences and
public statements. They may be transmitted in the future to
customers, as well as to company employees.
Distance learning is the process by which persons may learn
through interactive communication at some distance through
television or personal computer networking. It includes the
viewing of educational programs offered by accredited high
schools, colleges and universities. It also includes such
programs offered by vocational institutions. It may involve a
single course or a curriculum of courses leading to an award of a
degree. The university system of the state of Georgia,
-17-
<PAGE>
educational officers of the state of Alabama, Georgia State
University, the Medical College of Georgia, Emory University,
Georgia Tech, and representatives of a satellite based
educational institution have all requested inclusion in fiber
optic communications by the Southern electric system.
The internal communication of voice and data would apply to
transmission of voice and data between and among Southern system
personnel and between and among those personnel, facilities and
equipment of the Southern electric system, on the one hand, and,
on the other, retail and wholesale customers of the Southern
electric system.
This 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 telecommunications facilities and
equipment. For reasons of economy, in some areas, communication
links may be provided by digital microwave or other digital
wireless communications, particularly in the 800 MHz, 900 MHz,
and 1.8 gHZ bands in lieu of fiber optic lines. Initially,
-18-
<PAGE>
Development contemplates that the networks would be constructed
at up to eight locations, including Pensacola, Panama City and
Gulfport, 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. The specific
estimated budget is attached as Exhibit B-3. Studies explaining
use of the system on which the estimate is based are enclosed as
Exhibit B-4.
Because the capacities associated with certain
communications mediums, particularly optical fiber, are so great,
the capacity of the prototype 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 by it, Services, the Operating Companies, and
the proposed affiliate Southern Communications, at least 50% of
-19-
<PAGE>
the bandwidth1 of the fiber optic communications network
exclusively for such utility and utility-related applications.
The utility and utility related applications have been described
and defined in the first four paragraphs of Item 1.3(c) above as
explained in Exhibits B-4(a), (b) and (c). 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
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
1 The fiber optic communications network will be composed
of cable containing fiber optic strands or lines, as well as non-
fiber optic coaxial cable. The use of the term "band width"
describes the amount of communications transmission capacity.
Thus, if 36 fibers are included in a cable, the 50% applicable
would relate to 18 fibers generally, but to the extent that the
fibers are electrically subdivided for use, a portion of the
fiber may count as being used for utility applications and a
portion of the fiber may be counted as being used for non-utility
communications. In connection with coaxial cable, the capacity
of the cable can be electronically measured to determine the
portions of the communications capacity used for each
application.
-20-
<PAGE>
communications providers on the same basis, where feasible. It
is anticipated that many leases, particularly those in the early
development of the prototype energy management system, will be
for experimental purposes and of indeterminate or short-term
duration. It would simply not be feasible or practical either
from the standpoint of time or cost to require lease by lease
approval by the Commission for leases of that type. Indeed,
requiring lease by lease approval of shorter term leases would
unduly inhibit potential innovation and experimentation.
Accordingly, Development proposes to enter into leases with
unaffiliated third parties having a term of one year or less,
without further Commission approval. Renewals of such leases
beyond one year and leases having a term of more than one year
would be the subject of future applications.
The Commission is presently considering the appropriate
scope of regulation and the possibility of relaxed regulation in
it Concept Release, File No. S7-32-94, "Request for Comments on
Modernization of the Regulation of Public-Utility Holding
Companies". Additionally, Congress is considering amending the
Act so as to eliminate or relax regulatory barriers to the
participation of electric utilities in telecommunications
generally, and in the deployment of the National Information
Infrastructure, in particular. Legislation easing or eliminating
the jurisdiction of the Commission over electric utility entry
into the telecommunications business is anticipated this year.
In the light of these developments, Development requests that the
-21-
<PAGE>
Commission reservejurisdiction over lease approval and over the
50% band width limitation so as to adjust these regulatory
provisions in the future in the light of subsequent events,
including changes in law or regulation and so that Development,
by a post-effective amendment, may seek modification or
elimination of these conditions in the light of subsequent
events.
(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-
-22-
<PAGE>
effective conservation. Development's technical and management
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,
-23-
<PAGE>
Development requests that its authorization include all of the
following specific services:
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
-24-
<PAGE>
conservation programs; (iii) performance contracts for
DSM work; and (iv) monitoring and/or evaluation of DSM
programs, including metering and site inspections.
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 $35
million of the funds provided by Southern, as discussed in Item
1.4(b), below, to make equity investments in energy efficiency
-25-
<PAGE>
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
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.
The actual form of customer financing arrangements will vary
from customer to customer and situation to situation. As an
example, there are private and state supported university
institutions which are desirous of obtaining energy efficiency
equipment and services, and which are eligible for tax exempt
-26-
<PAGE>
financing. Other anticipated arrangements will involve providing
equipment pursuant to capitalized leases. Depending upon the
useful life of the equipment which is the subject of the
capitalized lease, the term of the lease will vary. Other
customers will seek operating leases to achieve off-balance sheet
financing. Again, the terms and conditions of such arrangements
and their duration will be dependent upon the application of
generally accepted accounting principles, the anticipated useful
life of the particular equipment involved, and the facts and
circumstances surrounding each specific transaction. Still other
customers will purchase equipment pursuant to conditional sales
contracts. Thus, Development will employ forms of financing
including capitalized leases, operating leases, tax exempt
financings, promissory notes, and conditional sales contracts.
The term and duration of such arrangements will vary from one
year to thirty years. All such arrangements will be priced at
the fair market value, including the cost of the equipment, the
interest rates and cost of capital prevailing at the time of the
transaction, and Development's assessment of the credit
worthiness of the particular customer and arrangement involved.
All such arrangements will be designed to provide Development
with a rate of return at least equal to the authorized rates of
returns for the Operating Companies, and all such transactions
will be undertaken with the intent of profit. All such
arrangements will be negotiated and entered into on an arm's
length basis.
-27-
<PAGE>
(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
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 services that
SEI now provides 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
-28-
<PAGE>
(e.g. "PIMS,"or Pooled Inventory Management Services), which may
include, as members, participants, or shareholders, companies
that are subsidiaries of Southern. Those services involve
management and implementation of joint procurement programs and
organizations. 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
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
-29-
<PAGE>
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,
exhibited in, or reduced to a tangible writing, drawing, manual,
computer program, product or similar manifestation or thing." If
Intellectual Property developed by an Operating Company 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
-30-
<PAGE>
the actual expenses incurred.2
Development, Services and the Operating Companies propose to
essentially continue these arrangements for the use and
disposition of Intellectual Property. Development will license
intellectual property which is owned or licensed to it, the
Service Company and the Operating Companies to third parties.
Specifically, the Operating Companies and the Service Company
will make available to Development for utilization by Development
in connection with its authorized business activities all
intellectual property heretofore or hereafter developed or
obtained by the Service Company or the Operating Company without
charge (except for the actual expenses incurred in making the
same available), provided, however, that such availability shall
be dependent upon and subject to any contractual commitments of
the Service Company and the Operating Companies to non-
affiliates, applicable laws and regulations, and the legal rights
and entitlements of others. Likewise, Development will make
available to the Service Company and the Operating Companies for
utilization by them in connection with their authorized business
activities, all intellectual property heretofore or hereafter
developed or obtained by Development without charge (except for
the actual expenses incurred in making the same available),
2 The 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.
-31-
<PAGE>
provided, however, that such availability shall be dependent upon
and subject to any contractual commitments of Development to non-
affiliates, applicable laws and regulations, and the legal rights
and entitlements of others.
In connection with making intellectual property available to
each other, the Companies will also endeavor to provide at cost
such additional related services, such as software support and
instruction on software applications and usage, as is reasonably
necessary to enable the other party to utilize such intellectual
property in its operations.
These terms 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
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, biomass derived fuels and other alternative fuels
technologies. Development's development activities ("Preliminary
Activities") would be limited to (i) design and concept review,
(ii) engineering, siting and environmental studies, (ii)
negotiation of various fuel and energy purchase and joint venture
contracts with potential users and suppliers, (iv) site
-32-
<PAGE>
acquisition, (v) financial modeling and feasibility studies, (vi)
negotiation of financing structures and terms, (vii) due
diligence, (viii) technology and equipment research, development
and procurement and (ix) other similar kinds of activities
incidental to the development and financing of such facilities.
Development will not acquire any existing business entity or
form any new business entity for the purpose of engaging in waste
to energy projects without further Commission authorization, or
issue or acquire any securities without such authorization.
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 equity
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. All waste to energy
projects will be located in states included within the territory
of the Southeastern Electric Reliability Council ("S.E.R.C."):
Mississippi, Tennessee, Alabama, Florida, Georgia, North
Carolina, South Carolina and Virginia.
There are several business forces which would require
Southern, as an integrated electric system, to develop energy
resource and recovery facilities, technologies and projects, and
-33-
<PAGE>
to have expertise with respect thereto. First, there is the
legal compulsion and the agreement with the Clinton
Administration (the Southern electric system has entered into
President Clinton's Climate Challenge Program for the Southern
electric system to develop technologies and applications to
reduce CO2 and other greenhouse emissions. To the extent that
projects can be developed using biomass, in whole or in part, for
the production of electric energy at generating plants, this will
assist compliance. Several of these projects with existing
Southern electric system generating plants are now under study.
Reduction of such emissions by industrial accounts in the same
locale or reduction in energy demand as a result of biomass
technologies will also enhance system generation compliance by
reducing emissions in the area, and therefore improve air
quality. Where such reductions are achieved in the general
geographic area of system operations, even if achieved at a non-
affiliate plant location, they may reduce, eliminate, or postpone
the need for more expensive or stringent measures at system
generating plants, thereby benefitting ratepayers. Environmental
effects and air quality are not constrained by geographic and
political boundaries or service territories. Thus, regional
reductions in conventional energy consumption have beneficial
effects on bulk power markets, need for generation, and the
environment. Projects located within S.E.R.C. directly benefit
Southern system operations, economies, and air quality
compliance. The degree of air quality regulation and compliance
-34-
<PAGE>
requirements in metropolitan Atlanta, as an example, is affected
by particles found in its air, no matter where those particles
were emitted. Second, there is a customer industrial development
and economic driver for these technologies and projects. To the
extent that the electric utility can assist an industrial account
in the utilization of biomass technologies for the reduction of
emissions or the reduction of electric energy usage, such
industries may be retained as customers (rather than being forced
to close or curtail operations in the territory) or new
industries may be attracted to the service territory. Third,
because the availability of Section 29 alternative fuel federal
tax credits is limited to situations where the entity producing
the biomass gas is not the entity which purchases the gas,
Development, in conjunction with customers, may assist operating
utilities and customers in gaining the economic advantage of the
tax credits. Because all of the activities cited will be related
either to generation facilities of the Southern electric system,
demand-side and environmental activities of customers having an
impact on the utility, or industrial development activities of
the utility, all of the activities described are reasonably
incidental, economically necessary and appropriate to the
operation of the integrated utility system and in fact, in most
instances, are directly functionally related to the operation of
the integrated utility system.
In order to qualify for the Section 29 credits, partnerships
will have to be created, contracts entered into, and individual
-35-
<PAGE>
biomass gasification facilities designed, all to be completed
prior to January 1, 1996. The facilities must be in service
prior to January 1, 1997.
There are two basic types of projects now under active
planning.
The first type of project concerns gasification of waste
materials such as wood waste with the use of the gas produced at
Operating Company generating plant sites within the Southern
electric system. The gas produced would displace a portion of
the coal now used to generate electricity, thereby reducing coal
emissions for compliance with the Clean Air Act and the Clinton
Challenge. The first such project will be undertaken at Alabama
Power's Plant Barry. Five other generating plants within the
Southern electric system, at a minimum, will be identified. In
each instance the gasification project will be owned by a
partnership composed of Development and an unaffiliated third
party. The names and locations of each partnership have not as
yet been determined. Development will own no more than fifty
percent of each partnership and expects to own fifty percent of
each partnership. Development will have the operation and
maintenance responsibility for the partnership. It will render
such operation and maintenance services on behalf of the
partnership and be reimbursed by the partnership for its costs on
a fully allocated basis. The partnerships will sell the gases to
the generating plants on the basis of Rule 92 for fair market
value, not to exceed system marginal fuel costs. Fair market
-36-
<PAGE>
value sales are required to comply with Section 29 requirements.
In no event would the price charged exceed the fair market value
of the gas produced. This complies with Rule 92 and the
partnership will not sell the gas to the system generating plants
and Operating Companies at a price which exceeds the price at
which the purchaser might reasonably be expected to obtain
comparable goods elsewhere having due regard to quality,
quantity, regularity of supply and other factors entering into
the calculation of a fair price.
The other type of transaction and project which is
contemplated is closely related to the objectives of the first,
which is to achieve reductions in emissions in the general area
of system operations. A generating utility must be mindful of
emissions not only caused by it, but caused by others within the
same vicinity. Only through such a total and coordinated
response can the objectives of the Clean Air Act and the Climate
Challenge be truly achieved and further, more stringent and more
expensive limitations on generating plant activities avoided.
Several manufacturers of paper and paper products, forest
products and chemicals have requested that Development assist
them in reduction of their consumption of conventional energy,
and in their reduction of regulated emissions through the
installation of electrotechnology and biomass gasification. The
biomass gasification projects for third parties would be
conducted within S.E.R.C. Applicants will engage in Preliminary
Activities for all such projects. Activities beyond Preliminary
-37-
<PAGE>
Activities for any projects, including formation of partnerships,
will require further Commission authorization. In order to
assure Section 29 compliance and eligibility for the tax credit,
if partnerships are formed, Development will have a fifty percent
or greater interest, not to exceed ninety-nine percent in each
partnership. Except for one project, the locations of the
projects have not been specifically identified and the partners,
partnerships and third party investors involved have not as yet
been identified. Without a partnership, Development will own one
hundred percent of the project. Development would provide
operation and maintenance services for the partnership in the
operation of the gasification project, and would charge the
partnership on the basis of the fair market value of the services
rendered with the intent of profit for such services. The gas
would be sold to the host third party industrial account on the
basis of the fair market value of the gas arrived at through
arm's length negotiation. All investments in these projects or
partnerships beyond development of the projects (other than Small
Projects) will be the subject of additional filings with the
Commission, as will permanent financings and related matters.
The first project at a non-generating plant location will be
built at a manufacturing location near Albany, GA. Development
will own 100% of the gasification project and total cost will be
$2,500,000. The gasifier will be completed by the third quarter
of 1995 and will gasify wood waste, thereby achieving the
emission reduction and energy conservation goals.
-38-
<PAGE>
Sales of the fuels identified in this Item g will not be
made to other utilities except to the extent that they are co-
owners with Southern electric system Operating Companies of
common facilities.
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
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, 2013
and with an interest rate not to exceed the greater of 12% per
annum or 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, lender
-39-
<PAGE>
fees such as underwriting and commitment fees may be paid in an
amount not greater than 3% 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 12%.
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
Development in order to fund its authorized investments and
activities, as follows:
(a) Research and Development Activities. Development will
utilize up to $20 million of Southern's investment in Development
from time to time through December 31, 1998, in order to conduct
the activities described in Item 1.2(a) hereof.
(b) Commercialization of and Investments in POWERcall(tm)
Technology. Development will utilize up to $20 million in
investments by Southern from time to time through December 31,
1998 in order to conduct the activities described in Item 1.3(b)
hereof.
(c) Investments in a Prototype Energy Management.
-40-
<PAGE>
Development will utilize up to $175 million in investments by
Southern from time to time through December 31, 1998 in order to
conduct the activities described in Item 1.3(c) hereof.
(d) Other Energy Management and Efficiency Services.
Development will utilize up to $40 million of the sums invested
by Southern from time to time through December 31, 1998 in order
to conduct the activities set forth in Item 1.3(d) hereof.
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 $40 million limit.
(e) Technical Consulting Activities. Development will
utilize up to $5 million of the investment by Southern from time
to time through December 31, 1998 in order to conduct the
activities set forth in Item 1.3(e) hereof.
(f) Licensing of Intellectual Property to Non-Affiliates.
Development will utilize up to $5 million of the investment by
Southern from time to time through December 31, 1998 in order to
conduct the activities specified in Item 1.3(f) hereof.
(g) Investments in Energy and Resource Recovery Facilities.
-41-
<PAGE>
Development will utilize up to $10 million of the investment by
Southern from time to time through December 31, 1998 in order to
conduct the activities set forth in Item 1.3(g) hereof.
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.
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
-42-
<PAGE>
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
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
-43-
<PAGE>
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.
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 (including all commitments that could
be called) 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
-44-
<PAGE>
accordance with their terms, but in no event shall such guarantee
or indemnification continue beyond December 31, 2018. This
authority is in addition to the $275,000,000 financing authority
set forth in Item 1.4 above. 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.3 Utilizing a
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
3 Upon receipt of the Commission's order in this
proceeding, approximately 30 of the 200 current
employees of SEI will be transferred to Development.
-45-
<PAGE>
in marketing, engineering and other required functions in
connection with Development authorized business activities.
Development will not use at any time outstanding more than one
percent (1%) of the total number of the personnel of Southern
Services and the Operating Companies for the rendition of
services on behalf of Development. 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
-46-
<PAGE>
which are economically justifiable under the circumstances. The
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.
-47-
<PAGE>
This system of compensation and reciprocal availability of
Intellectual Property has existed for many years. It provides a
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. All accounting procedures previously
employed will be utilized by Development. They are described in
Exhibit B-5. 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, 91 and 92.
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
-48-
<PAGE>
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
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 reporting requirement set forth
-49-
<PAGE>
below:
a. Development will file a modified Form U-13-60 Annual
Report on or before May 1st for the previous fiscal
year.
b. Development will file the following within 45 days of
the end of each calendar quarter for the previous
quarter ended --
(i) a statement of income,
(ii) a balance sheet, and
(iii) a cash flow statement.
c. Development will file the following within 45 days of
the end of each calendar quarter --
(i) A narrative report of activities undertaken
during the previous quarter in each of the
following areas:
(a) research and development activities;
(b) POWERcall(tm);
(c) Prototype Energy Management System;
(d) other Energy Management and Efficiency
Services;
(e) Technical Consulting Services;
(f) Licensing of Intellectual Property;
(g) Energy Recovery Facilities; and,
(h) any other activities not identified above.
(ii) A project-by-project table, covering both the
previous quarter and the time period that has
-50-
<PAGE>
elapsed since the date of the Commission's
order for this filing, for each of
Development's business activities comparing -
-
(a) the amount of the Commission's authorization
for such business activity,
(b) the amount of Development's budget for such
business activity, and
(c) the actual investment expended on such
business activity.
(iii) A description of any services received by
Development from Southern Company Services
and from each of the Southern operating
utilities. This description should contain
the dollar value of the services by company
and the number and type of personnel used to
render the services.
(iv) A description of any services rendered by
Development to any associate company within
the Southern System. Development will
include a statement as to whether the
services rendered were at cost.
(v) A description of customer financing provided
by or through Development, including --
(a) the amount of such financing by type of
energy conservation and efficiency equipment,
-51-
<PAGE>
(b) the accumulative amount of financing
outstanding by customer classification,
(c) bad debt write-off incurred during the
quarter, and
(d) disclosure of the material terms and
conditions applying to such financing.
(vi) Amounts and forms of currently effective
guarantees of, and similar provisions and
arrangements concerning, performance and
undertaking of other obligations by
Development.
(vii) Amounts and forms of currently effective
indemnifications of, and sureties on, bonds
or other obligations issued on behalf of
Development.
(viii) Amounts and forms of guarantees of, and
similar provisions and arrangements
concerning, performance and undertaking of
other obligations by Development.
(ix) Amounts and forms of indemnifications of, and
sureties on, bonds or other obligations
issued on behalf of Development.
A draft form of the modified U-13-60 is attached as Exhibit C.
1.10 Legal Discussion. Each of the Business Lines sought
to be authorized by Southern and Development in this
Application/Declaration is consistent with the Act and is
-52-
<PAGE>
reasonably necessary, incidental or appropriate for the operation
of the Southern integrated electric utility system. The
authorizations requested herein comply with Section 13 of the Act
as construed by the Commission.
We will proceed to an item by item examination of these
Business Lines.
The research and development activities proposed to be
conducted by Development are neither new nor novel. Research and
development is at the heart of the evolving character of any
electric utility. It provides the basis for improved service,
reduced costs, advances in technology and other direct utility
and consumer benefits. By having a separate subsidiary which
focuses on technological developments, Southern is able to
effectively reduce costs, confusion and duplication of efforts.
Prior Commission precedent, such as the 1984 order itself,
evidences that research and development activities are vital to
the operation of an integrated utility system and are clearly
permissible.
Similarly, the rendition of technical consulting activities
is a traditional and valuable part of electric utility
operations. These types of activities began in the 1930's, if
not before. In those days, electric utilities employed persons
who did everything from go to the home to demonstrate residential
uses of electric appliances to the factory, industry and
commercial account to demonstrate and devise systems which used
electricity. The interest of electric utilities today is much
-53-
<PAGE>
broader, relating as much to the conservation of energy as to its
use. But the thrust remains the same. A consulting arm of an
electric utility enables it to hone its skills and to apply its
expertise. Over the years, we have found that experts in
particular areas of engineering or technology who were valuable
to the system did not, at times, have sufficient work to justify
their retention on a full-time basis. Consulting activities
enabled the utility to maintain the cadre of experts by finding
other work and other applications for them. Moreover, by
employing them outside of the system operating territory, the
electric utility became exposed to problems and solutions which
it would have to confront in the future within its territory.
Over the years, the consulting activities of the Southern
electric system have benefitted hundreds of utilities, agencies
of the United States of America itself such as the Department of
Energy, industries, and even the electric utility operations of
other nations. These consulting activities have been undertaken
and provided by the Southern electric system without depriving
the core business of required expertise and competencies. They
have enabled system personnel to become familiar with a host of
technologies and issues relating to everything from cogeneration
to internal utility communication, even before operating
circumstances indicated a requirement in the South. In other
words, the consulting activities outside of the Southern electric
system often enable the system to acquire, in advance, the
expertise, knowledge and experience which they ultimately
-54-
<PAGE>
require.
For all of these reasons, the formation of a consulting
subsidiary was long ago found to be legally permissible and
desirable under the Act, and nearly all registered electric
utility holding companies are now authorized to conduct such
activities through separate subsidiaries. The original SEI
orders constitute but one example of Commission precedent
recognizing these values and affirming the appropriateness of
such subsidiaries.
The licensing of intellectual property to non-affiliates is
a related but somewhat different matter. Historically, as
evidenced by the Original SEI Orders, consulting subsidiaries
have been permitted by the Commission to license intellectual
property to non-affiliates. The Southern electric system has
engaged in licensing activities through a separate subsidiary
since the Original SEI Orders were issued in 1981. These
activities were based upon so-called reciprocal licensing in
which the separate subsidiary received the license from the
Operating Companies for their intellectual properties which could
be sub-licensed to others and, in turn, provided the Operating
Companies with intellectual properties developed by the
subsidiary. This had many beneficial impacts upon the Operating
Companies. It also had public interest beneficial effects. Some
of the better examples are as follows. The "Good Cents" program,
an energy conservation and environmental program, was made
available to hundreds of member utilities throughout the United
-55-
<PAGE>
States. This promoted energy efficiency and conservation and
environmental benefits throughout the nation. As other utilities
sought updates and new approaches, through SEI's consulting and
licensing programs, the "Good Cents" program was continuously
modernized and updated. The updated and modernized programs were
then, in turn, provided to the Operating Companies at no cost.
Another example has been Enerlink. Enerlink is a computer
software program which enables a utility to offer highly
effective time of use price models for industrial and commercial
accounts and enables the industrial and commercial accounts to
plan their energy consumption based upon access to real time
energy pricing information. Originally, Georgia Power
experimented with an early development of similar software, but
abandoned that software. Development and SEI conducted research
and development activities which led to the development of the
Enerlink software program. The program was then licensed by SEI
to Boston Edison and several other utilities are considering its
adoption because of industrial and commercial customer demand for
the program. In turn, the enhanced software which is represented
by Enerlink has now been provided back to Georgia Power at no
cost, except for the actual cost of making customized changes
requested by Georgia Power to meet its specific requirements. In
short, The Southern Company, not ratepayers, took the major
portion of technological development risk and the license fees
from transactions with third parties will pay for that cost,
providing the Operating Companies and their ratepayers with an
-56-
<PAGE>
enhanced and modern intellectual property at no cost. Had there
been no mechanism for licensing of Enerlink to third parties
through a separate subsidiary, the Operating Companies and their
ratepayers would either have been deprived of the development of
this technology, or they would have had to bear the full cost,
without obtaining offsetting revenues from third parties. And,
in part, the knowledge of consultants obtained by dealing with
other utilities which were experimenting with real time pricing,
allowed Southern to become aware of the need for, and opportunity
with respect to, time of use pricing, communications-based
software programs. Since this reciprocal licensing arrangement
has worked well, it will continue.
The POWERcall(tm) system was developed specifically with the
needs of the operating utilities and their customers in mind.
While area-wide power outages and their cause are often not too
difficult to identify and correct, there are aspects of power
outage which have proven difficult and expensive to detect and
correct. In the case of natural events such as hurricanes, ice
storms, and snow storms, two particular phenomena prove
vexatious. One of these is that customer reports made by a
conventional telephone are inadequate. They either overwhelm the
telephone company's central switch, or the customer gets a busy
signal when reaching the customer service number. The other
problem is that causes of general wide area outages may be
identified and fixed, but a specific home in that area may be
overlooked and its outage may be due to a downed tree or power
-57-
<PAGE>
line affecting only that residence or street. POWERcall(tm)
pinpoints the problem house by house. If sufficient
POWERcall(tm) devices are installed, it will also identify the
patterns of wider disruptions. It provides for automatic
computerized notification to the power company, thereby
eliminating the problem of the "busy signal." Hence the basic
device and its installation is clearly part and parcel of the
rendition of electric service and its restoration and
maintenance. However, the device has other functionality. Some
of that functionality is also helpful or necessary in the
rendition of electric utility service. If a customer chooses to
install temperature sensors to interface with the device, the
device will notify the power company of extreme temperature
variance which, in the winter, will indicate possible electric
failure due to extreme cold, and, in the summer, electric failure
through the presence of extreme heat. It will do so even if the
home or business is unoccupied. Similarly, if the customer
chooses to interface smoke and fire sensors with the device, the
power company will be automatically notified of the presence of
fire or smoke. This is extremely helpful to electric utilities
because the knowledge that a power outage is associated with a
fire requires a different electric utility response and will
enable the electric utility to coordinate its activities with
police, fire and other emergency services. Thus, power
monitoring, temperature monitoring and fire and smoke alarm
monitoring are all related directly and importantly to service,
-58-
<PAGE>
maintenance and restoration. The other functions, such as
intrusion, require no additional utility investment, but will
appreciably increase the amount of customer penetration and
acceptance of the device. The more widespread the deployment of
the device, the more accurately the power company can monitor and
react to outage situations, particularly in storms and other
natural calamities. Since the device has all of this
functionality at no additional investment to the utility, the use
of the complete functionality would help defray costs of
implementation of the system and will enhance the degree of
deployment. Moreover, it offers a wide-spread public benefit of
offering an expensive means by which the public can avail itself
of these services.
In CSW Credit, Inc. and Central and Southwest Corporation,
HCAR No. 25995 (March 2, 1994) (hereinafter "CSW Credit"), the
Commission articulated criteria with respect to the Section 13(b)
issue. The functional relationship of the basic POWERcall(tm)
device is so obvious that it should not be at issue. The
Commission at page 7 of CSW Credit stated as follows:
"Jersey Central addressed a line of cases that,
although similar to and philosophically consistent with
the excess capacity line of decisions and the
functionality related test, differed factually because
the non-affiliated business exceeded the affiliated
business. That analysis should be limited to factual
situations similar to those cited in Jersey Central.
-59-
<PAGE>
In such cases, the approved businesses involved the
sale or lease of products or skills of some complexity
developed by the holding company at considerable
expense for the benefit of its utility subsidiaries and
not readily available to the rest of the public from
other sources. Moreover, these endeavors generally
required little or no further investment by the holding
company, and permitting the proposed activities would
permit amortization of product development expenses
with little or no risk. Thus, Jersey Central
identified a specific fact situation where, because of
the direct benefit to the utility or amortizing the
costs of developing a business over a larger customer
base, and because of the negligible risks to the
holding company in pursuing the endeavor, the business
could be said to be 'primarily' devoted to the
operation of the utility system even though it failed
the mathematical application of the 50% test.
Furthermore, in such a situation, the public interest
is served by making available skills or products that,
due to the difficulty and expense involved in their
development, might not otherwise be as available to the
public." (Emphasis supplied).
One gleans from CSW Credit four elements critical to an
analysis of the acquisition of an interest in another business
and whether that business is functionally related. These are (1)
-60-
<PAGE>
whether the product was developed at considerable cost for the
benefit of the Operating Companies; (2) whether the product is
not readily available to the public from other sources; (3)
whether there is little or no incremental investment in non-
utility activities; and (4) whether authorizing the activity will
enable the efficient amortization of investment.
Here, the POWERcall(tm) system is designed specifically for
utility use. It is for the clear benefit of the Operating
Companies and its customers, and it has been developed at
considerable cost. No other entity offers POWERcall(tm) within
the Southern electric system. Computerized automatic
notification of the power company is not available from any other
source, nor does any other source offer a reporting and
monitoring service where they interface between the customer and
the utility. There is absolutely no incremental investment
required to utilize the functionality of POWERcall(tm) for the
various monitoring and notification services. Most of them have
a clear nexus to utility need, and those that don't, such as
intrusion or health emergency, would nevertheless serve a public
benefit and would enhance deployment of the system which is the
objective and goal of the utilities. The more they are deployed,
the more effective, from a utility point of view, they become in
service restoration.
Finally, authorizing the activity to the fullest extent
requested enables the efficient amortization of investment.
The investment in the prototype energy management
-61-
<PAGE>
communications system is plain and unambiguous. It is driven by
the need of the Southern electric system for the completion of a
fiber optic backbone, the installation of metropolitan area
network rings of fiber optic communication around the cities of
Atlanta and Birmingham, and experimental energy conservation and
management systems for residential customers in approximately
eight cities. The analysis provided as an exhibit shows that
Southern has a present and foreseeable future need for 24 to 30
fibers to achieve its communication objectives. These
communications objectives are directly related to the operation
of an integrated utility system. Southern has operated an
extensive internal communications system for over 40 years
without any thought of outside commercial endeavor. It currently
operates fiber optics, microwave, mobile radio, video, data and
other systems and networks. All of these have been installed
purely for the utility. Indeed, they are at the heart of the
ability to integrate a utility system. Thus, the proposal at
issue here is not in any sense overreaching. Southern proposes
to install a fiber optic system using 36 to 48 fibers, of which
it has a present and foreseeable need for 24 to 30 fibers. The
economics of installation are such that it is cheaper to install
36 to 48 fiber networks and lease out 50% of them than it is to
install a system of 24 fibers or 30 fibers restricted solely to
utility usage. These benefits are outlined in Exhibit B-4.
Thus, the proposal meets the criteria of Section 13(b), satisfies
the guidelines of CSW Credit, and is consistent with the recent
-62-
<PAGE>
decision in Central and Southwest Corporation, HCAR No. 35-26061
(June 3, 1994) wherein Central and Southwest was authorized to
create a specialized communications subsidiary for the
installation of a fiber optic line and allowing CSW to 50 percent
of the capacity to third parties.
The provision of other energy management and efficiency
services and investment in equipment to achieve energy management
and efficiency, including the financing of customer purchase or
lease of such equipment, is not a new or revolutionary idea.
This Commission has previously authorized Northeast Utilities,
Entergy and other registered holding company systems to form
subsidiaries and engage in such activities. The applicants
propose that such activities be subject to a 50 percent revenue
restriction. These activities are necessary from a utility
perspective for a number of reasons. The integrated electric
utility system is required by State Commissions to offer and
foster such programs. Moreover, such programs are consistent
with national goals for reductions in the cost and use of energy
and the enhancement of the environment. That other registered
systems have been authorized and now operate energy service
companies within the Southern electric system territory only
evidences the need. Entergy, as an example, actively uses its
subsidiary in the Mississippi Power territory and in the Georgia
Power territory as well. Thus, for competitive reasons, it is
necessary to have a service offering through a separate
subsidiary which is comparable to that provided by affiliates of
-63-
<PAGE>
other registered holding companies within Southern's own
operating territory. Since the proposed activities are
consistent with, if not virtually identical to, activities
authorized to be engaged in by other registered holding
companies, no valid Section 11 obstacle is perceived. Southern
has agreed to a 50 percent revenue restriction so that the
activities can be presumed, consistent with CSW Credit, to be
primarily for the integrated electric utility system.
Finally, the proposal to develop and invest in energy
resource and recovery facilities, particularly biomass
gasification projects, is primarily directed at system needs.
These projects will enhance Clean Air Act and Clinton Climate
Challenge initiatives and requirements. They will have
beneficial impacts on the environment and reduce the need for
more costly and more stringent restrictions on generation. Since
the burden of law and public policy is on electric utilities to
effect cleaner air and cleaner water, this Commission should not
hold that such activities are in any way unrelated to the
operation of an integrated electric utility system. A separate
subsidiary, authorized to engage in partnerships on a limited
basis, is necessary to achieve compliance with the tax credit
requirements of Section 29. Thus, the proposal is a response to
tax policies of the federal government and environmental policies
of the federal government. In no sense is this intended to be
"another business"; rather, it is the preferred means of
achieving a need of the primary business. Again, to avoid any
-64-
<PAGE>
misunderstanding on that point, Southern has agreed to a 50
percent revenue restriction. Accordingly, it should be presumed
that the Business Line proposed complies with Section 11.
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*
*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
conversion of borrowings by Development from Southern to capital
contributions is also considered subject to Section 12(b) of the
Act and Rule 45.
-65-
<PAGE>
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
and the Operating Companies, on the other, at cost or subject to
tariff, is subject to Sections 13(b) and Rules 81, 87, 90, 91 and
92 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.
-66-
<PAGE>
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.
A - Form of Note from Development to Southern.
(Previously Filed.)
B-1 - Form of Service Agreement between Development
and Services.
B-2 - Form of Service Agreement between Development
and an Operating Company.
B-3 - Estimated Budget. (Filed pursuant to request
for confidential treatment/Rule 104)
(Previously Filed.)
B-4(a) - Survey of Communications Needs/Studies. Fiber
Optic Usage. (Previously Filed.)
B-4(b) - Survey of Communications Needs/Studies.
Telecommunications Networks - Opportunities for
the Present. (Previously Filed.)
B-4(c) - Survey of Communications Needs/Studies.
Defining Southern's Core Business Strategy for
Energy Information and Communication Services
(Filed pursuant to request for confidential
treatment/Rule 104) (Previously Filed.)
-67-
<PAGE>
B-5 - Accounting Procedures to be Utilized by
Development. (Previously Filed.)
C - Draft form of Modified U-13-60. (To be filed
by Amendment.)
D - None.
E - None.
F - Opinion of Troutman Sanders. (To be filed by
amendment).
G - Form of Notice. (Previously Filed.)
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.
SIGNATURE
Pursuant to the requirements of the Public Utility Holding
Company Act of 1935, the undersigned companies have duly caused
this Amendment to be signed on their behalf by the undersigned
thereunto duly authorized.
Dated: January 17, 1995 THE SOUTHERN COMPANY
By: /s/Tommy Chisholm
-68-
<PAGE>
Tommy Chisholm
Secretary
THE SOUTHERN DEVELOPMENT AND
INVESTMENT GROUP, INC.
By: /s/Tommy Chisholm
Tommy Chisholm
Vice President and Secretary
-69-
<PAGE>
AGREEMENT BETWEEN EXHIBIT B-1
SOUTHERN COMPANY SERVICES, INC. and
SOUTHERN DEVELOPMENT AND INVESTMENT GROUP, INC.
THIS AGREEMENT, made and entered into as of July 17, 1981 by
and between SOUTHERN COMPANY SERVICES, INC., a corporation
organized under the laws of the State of Delaware, party of the
first part (hereinafter sometimes referred to as "SCS") and
SOUTHERN DEVELOPMENT AND INVESTMENT GROUP, INC., a corporation
organized under the laws of Georgia, party of the second part
(hereinafter sometimes referred to as "Client Company"),
W I T N E S S E T H:
WHEREAS, SCS and Client Company are both direct subsidiaries
of The Southern Company ("Southern") and, together with
Southern's other operating subsidiaries, Southern Electric
International, Inc., Southern Company Services, Inc. and
Southern, form the Southern electric system; and
WHEREAS, SCS is organized, staffed and equipped and is
authorized by the Securities and Exchange Commission (the
"Commission") to render to Client Company services as herein
provided; and
WHEREAS, in the course of its operations, SCS has acquired
and will acquire certain,properties and other resources; and
WHEREAS, Client Company is authorized by order of the
Commission dated _______________________ (the "Order") to utilize
those services, properties and resources of SCS, as well as those
provided by other members of the Southern electric system, to
<PAGE>
sell management, technical and training services and expertise to
non-affiliate companies, agencies and other business concerns,
including domestic and foreign governmental agencies, public
utilities, industrial concerns, or entities owning, operating or
performing services for any of them as well as conduct other
activities as permitted by the Order; and
WHEREAS, economies and increased efficiencies will result
from the performance by SCS of services for Client Company and
the provision of certain property and resources to Client Company
as herein provided as well as the performance by Client of
services for SCS; and
WHEREAS, subject to the terms and conditions herein
described, the parties hereto are willing, upon request by each
other, to render such services and provide such property and
resources to each other at cost, determined in accordance with
applicable rules, regulations and orders of the Commission,
taking into consideration the fulfillment of SCS's utility
responsibilities;
NOW, THEREFORE, in consideration of the premises and of the
mutual agreements herein, the parties hereto hereby agree as
follows:
-2-
<PAGE>
1. Definitions
As used hereinafter, the following terms, in addition
to those elsewhere defined in this Agreement, shall have the
following meanings unless the context otherwise requires:
A. "Services" shall mean those services described in
Articles 3, 4 and 5 hereof.
B. "Non-Affiliate" means any corporation, company,
agency, government, business, entity or person other than
Southern, a direct or indirect subsidiary of Southern, or a
person employed by Southern or any of such subsidiaries.
C. "Intellectual Property" means 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, exhibited in,
or reduced to a tangible writing, drawing, manual, computer
program, product or similar manifestation or thing.
2. Agreement to Furnish Service
A. Upon its receipt of a work order or other request
therefor from a party hereto, the other party hereto will,
if it has or can have available the personnel and resources
needed to fill the work order on request, furnish to the
requesting party upon the terms and conditions hereinafter
set forth such of the Services, at such times, for such
periods and in such manner as the party may from time to
time request; provided, however, that the determination of
whether SCS has the available personnel and resources to
-3-
<PAGE>
perform in accordance with the work order or request will be
entirely within the discretion of SCS, and SCS may at its
option elect not to perform any requested Service, except
that, once having agreed to perform pursuant to a work order
or request, SCS cannot withdraw or depart from such
performance without the consent of Client Company, which
consent will not be unreasonably withheld.
B. The provision of Services by a party hereto
pursuant to this Agreement shall in all cases and
notwithstanding anything herein contained to the contrary be
subject to any limitations contained in authorizations,
rules or regulations of those governmental agencies, if any,
having jurisdiction over SCS, Client Company, or such
provision of Services.
3. Description of Services
The Services to be provided hereunder are described as
follows:
A. General Engineering. Perform general engineering
work, including system production and transmission studies;
prepare and analyze electrical apparatus specifications,
distribution studies and standards, civil engineering and
hydraulic studies and problems, fuel supply studies, advice
and assistance in connection with analyses of operations and
operating and construction budgets. Each party's personnel
will routinely keep informed as to improvements and
developments in the art of generation, transmission and
-4-
<PAGE>
distribution of electricity through frequent contacts with
the manufacturers of electrical equipment, through
membership in the various national and regional engineering
societies and through participation in the committee work of
such societies and the trade associations of the utility
industry. Each party will make available to the other the
information thus gained with respect to such developments.
B. Design Engineering. Perform detailed design work
for steam plants, hydro plants, transmission and
distribution lines and substations and otherwise as
requested by a party hereto; make available to and for the
use of a party as required, the services of a specialist or
specialists on various phases of plant operation and
maintenance; and also make available, as required,
inspection and supervision personnel for generating plant,
transmission line and substation and other construction,
maintenance and operation.
C. Accounting and Statistical. Advise and assist a
party in connection with the installation of accounting
systems and similar problems, requirements of regulatory
bodies with respect to accounting, studies of accounting
procedures, and practices to improve efficiency, book
entries resulting from unusual financial transactions,
internal audits, employment of independent auditors,
preparation and analyses of financial and operating reports
and other statistical matters relating to customers of
-5-
<PAGE>
Client Company, preparation of annual reports to
stockholders, regulatory commissions, insurance companies
and others, standardization of accounting and statistical
forms in the interest of economy, and other accounting and
statistical matters.
D. Rates. Advise a party on matters relating to
rates and valuation, the design of new and improved rate
schedules, and their effect upon revenues, the cost of
competitive services, earnings trends, the desirability of
rate changes, rate audits, service rules and regulations,
commodity and tax clauses, minimum charges, metering
problems, special industrial contracts, resale rates and
rural extension plans; and assist in the preparation of
petitions and applications required in connection with rate
changes.
E. Budgeting. Advise and assist a party in matters
involving the preparation and development of construction
and operating budgets, cash and cost forecasts, and
budgetary controls.
F. Business Promotion and Public Relations. Advise
and assist a party in the development of marketing and sales
programs, in the preparation and use of advertising and
sales materials, and in the determination and carrying out
of promotional programs.
-6-
<PAGE>
G. Systems and Procedures. Advise and assist a party
in the formation of good operating practices and methods of
procedure, the standardization of forms, the purchase,
rental and use of mechanical and electronic data processing,
computing and communications equipment, in conducting
economic research and planning and in the development of
special economic studies.
H. Access to and Use Of Facilities. Subject to those
conditions set forth in Article 5B, make available to a
party and/or its customers access to, use of, or rights in
all facilities, products, processes, techniques, computer
hardware and software, technical information, training aids
and properties, Intellectual Property, vehicles, equipment,
machines and other property, whether owned, leased, licensed
or otherwise by a party hereto.
I. Training. Assist a party in providing training to
personnel of the other party or of Non-Affiliates; develop
and make available training procedures, materials and
facilities, and provide instructors.
J. General. Make available services in the areas of
construction planning and supervision, design, management
programs, quality assurance, licensing matters, research and
development, and communications systems and procedures.
K. Other Services. Render advice and assistance in
connection with such other matters as either party may
-7-
<PAGE>
request and which the parties may be able to perform with
respect to their respective business and operations.
4. Provision of Personnel
Where specifically requested by one party hereto, the
other party will loan its employees to the requesting party. In
that event, such loaned employees will be under the sole
supervision and control of the party borrowing the employee for
such period or periods of time as are necessary to complete the
work to be performed by such employees. Such employees may be
withdrawn by the loaning party from tasks assigned by the
borrowing party only with the consent of the lender, which
consent will not be unreasonably withheld. The borrower Company
will be responsible for the actions and activities of such
employees while engaged in the performance of the work to the
same degree as though such persons were employees of the borrower
Company. However, as part of Services, the lender during periods
when such employees are loaned to the borrower will continue to
provide to, and with respect to such employees those same
payroll, pension, savings, tax withholding, unemployment,
bookkeeping and other personnel support services then being
utilized by such party in connection with compensating and
benefiting such employees.
5. Exchange of Intellectual Property
A. Should Client Company in the course of its
business develop Intellectual Property, it will make such
Intellectual Property available for utilization by SCS
-8-
<PAGE>
without charge (except the actual expenses incurred by
Client company in connection with making such new
Intellectual Property so available), provided, however, that
such availability shall be dependent upon and subject to any
contractual.commitments of Client Company to Non-Affiliates,
applicable laws and regulations, and the legal rights and
entitlements of others.
B. As part of the Services, SCS will make available
to Client Company for use or for re-sale or licensing to
Non-Affiliates all Intellectual Property heretofore or
hereafter developed or obtained by SCS without charge
(except for the actual expenses incurred in making the same
available, and except as otherwise provided in Article 8
below), provided, however, that such availability shall be
dependent and subject to any contractual commitments of SCS
to Non-Affiliates, applicable laws and regulations, and the
legal rights and entitlements of others, and provided
further that if, as a result of resale or licensing to a
third party by Client Company, the Intellectual Property is
no longer available to SCS, then SCS shall receive seventy
percent (70%) of the net profits derived from such resale or
licensing (after deduction of marketing and other applicable
expenses) and Client Company shall receive thirty percent
(30%) as a commission.
-9-
<PAGE>
6. Compensation of SCS
As compensation for services actually requested by one
party and rendered to it by the other, the parties hereby agree
to reimburse each other respectively for all Costs properly
chargeable or allocable thereto, as controlled through a work
order procedure. Such Costs shall be determined in accordance
with subparagraphs 6A, 6B and 6C below and as outlined on
Exhibit A attached hereto and incorporated herein by reference:
A. Direct Cost. Direct Cost consists of Direct Labor
Costs, Direct Labor Benefits, Material, Vehicle and
Equipment Usage, and Meals, Lodging and Miscellaneous
Expenses. Direct Labor Costs shall be based on the wage
rates of assigned employees and the actual number of hours
devoted to providing the Service. Direct Labor Benefits
include the costs of paid, excused absences, such as
vacations and holidays, and shall be based on a recovery
factor applied to the Direct Labor Costs. Material which is
withdrawn from a party's inventory shall be billed by that
party on the same basis as SCS uses to charge such costs to
its utility customers, plus a stores handling expense.
Material purchased directly from vendors for use on a
particular project shall be billed at invoice cost. Vehicle
and Equipment Usage shall be billed at the appropriate cost
thereof by vehicle class, which costs shall provide for the
allocation of all direct and indirect costs associated with
-10-
<PAGE>
SCS's fleet operation. Meals, Lodging, Transportation and
Miscellaneous Expenses shall be billed at actual cost.
B. Indirect Cost. Indirect Cost consists of Indirect
Labor Cost, Engineering and Supervision, and Administrative
and General Expenses. Indirect Labor Costs include pension
costs, insurance, payroll taxes, employee savings plan, and
similar payroll items. Where applicable, Engineering and
Supervision shall be determined by asset classification
based on SCS's total engineering and supervision expenses
and total direct costs. Administrative and General Expenses
shall be based on each party's administrative and general
expenses and total applicable costs. Each type of Indirect
Costs shall be applied to Direct Labor Costs and Direct
Labor Benefits to the extent reasonably allocable thereto.
There shall be no duplication of Direct Costs and Indirect
Costs.
C. Cost of Funds Advanced. For the recovery of the
cost of funds advanced for Services provided, each party
will be charged a cost of funds based on the actual time
period from billing date of such costs to date of receipt of
payment. The costs of funds shall be the annual rate
associated with the higher of the costs to the party of its
most recent first mortgage bond issue or its most recent
short-term borrowings. The costs of funds factor shall be
applied to each monthly billing to a party after receipt of
payment by the other party; provided, however, that the last
-11-
<PAGE>
monthly billing to a party for a project shall include a
cost of funds amount based on an assumed thirty (30) day
time period.
7. Work Orders
The Services will be performed in accordance with work
orders or requests issued or made by or on behalf of one party
and accepted by the other, and all Services will be assigned an
applicable work order number to enable specific work to be
properly allocated by project or other appropriate basis. Work
orders shall be as specific as practicable in defining the
Services requested to be performed. A party shall have the right
from time to time to amend, alter or rescind any work order,
provided that (i) any such amendment or alteration which results
in a material change in the scope of the work to be performed or
equipment to be provided is agreed to by the party performing, or
to perform the work; (ii) the costs for the Services covered by
the work order will include any expense incurred as a direct
result of such amendment, alteration or rescission of the work
order, and (iii) no amendment, alteration or rescission of a work
order will release any party from liability for all costs already
incurred or contracted for by the other party pursuant to the
work order, regardless of whether the work associated with such
costs discontinued by such amendment, alteration or rescission.
8. Disposition of Intellectual Property. In the event
Client Company sells or licenses to Non-Affiliates Intellectual
Property heretofore or hereafter developed by SCS for its own
-12-
<PAGE>
use, and as a result of such sale or license such Intellectual
Property is no longer available for use by SCS, Client Company
shall receive, as and when received from such Non-Affiliates, a
commission of thirty percent (30%) of all net profits (after
deducting marketing and any other applicable expenses incurred by
Client Company) earned from such sale or licensing, and SCS shall
receive seventy percent (70%) of such net profits.
9. Responsibility for Work; Limitation of Liability;
Indemnification:
A. In performing Services under Articles 4 and 5(B)
hereof (i.e., the provision of personnel and making
available to Client Company of Intellectual Property),
neither party, their agents, servants and employees shall
have no responsibility whatsoever to the other for any
claims, liabilities, injuries, damages or other
consequences of providing such Services under any theory of
liability, whether in contract, in tort (including
negligence and strict liability) or otherwise, it being
understood and agreed that (1) with respect to loaned
employees such employees are furnished without warranty as
to their suitability or expertise; (2) with respect to the
making available of Intellectual Property, such property is
made available by SCS "as is" and "where is" without
warranty of any type including warranty of title, without
indemnity against patent or copyright infringement, and
without warranty or representation that transfer of the
Intellectual Property does not constitute a violation of a
-13-
<PAGE>
trade secret, proprietary right or contract right of a third
party.
B. In performing Services under Article 3 hereof, the
parties hereto will exercise due care to perform the
Services in a workmanlike manner and in accordance with the
specifications set forth in the applicable work order or
request. A party's sole and exclusive responsibility for
deficiencies in such Services shall be limited to the
correction, on a reimbursable basis so that the Services are
performed in a workmanlike manner.
C. WITH RESPECT TO ALL SERVICES, INCLUDING ANY
TRANSFER OF PROPERTY, THE PARTIES HERETO MAKE NO WARRANTY OR
REPRESENTATION OTHER THAN AS SET FORTH ABOVE, AND THE
PARTIES HEREBY AGREE THAT NO OTHER WARRANTY, WHETHER
STATUTORY, EXPRESS OR IMPLIED (INCLUDING, BUT NOT LIMITED
TO, ALL WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE AND WARRANTIES ARISING FROM COURSE OF
DEALING OR USAGE OF TRADE) SHALL BE APPLICABLE TO THE
SERVICES PERFORMED BY A PARTY HEREUNDER.*
D. Client Company shall and does hereby agree to save
harmless and defend SCS, its agents, servants and employees,
and employees of SCS loaned to Client Company under Article
4, from the payment of any sum or sums of money on account
* The remedies stated herein are exclusive and shall
constitute the sole and exclusive remedy of a party for
a failure by the other party to comply with its
warranty obligations.
-14-
<PAGE>
of, or resulting from, claims or suits growing out of (a)
injuries to or the death of any person, (b) damage to or
loss of any property, and/or (c) other damages which are in
any way attributable to or arise out of the performance and
prosecution of any project or work performed by or on behalf
of Client Company for Non-Affiliates or Services rendered by
SCS to Client Company, whether or not the same results from
or is contributed to by (i) the claimed or actual active,
passive, affirmative, sole or concurrent negligence or
strict liability on the part of SCS, its agents, servants or
employees, or of employees of SCS loaned to Client Company
under Article 4, (ii) the breach of any duty owed by an
employee of SCS loaned to Client Company hereunder to his
co-employee, (iii) the breach of any statutory duty (whether
non-delegable or otherwise) on the part of SCS, its agents,
servants or employees, or of an employee of SCS loaned to
Client Company hereunder, (iv) liability imputed as a matter
of law to SCS, its agents, servants, or employees, or an
employee of SCS loaned to Client Company hereunder, (v) the
failure of, or any condition in property, or faulty
workmanship furnished by SCS, its agents, servants or
employees or an employee loaned by SCS to Client Company
hereunder, or (vi) any breach of warranty or contract by
SCS, its agents, servants or employees, or employees of SCS
loaned to Client Company hereunder. Further, Client Company
shall and does hereby indemnify and agree to save harmless
-15-
<PAGE>
and defend SCS (a) from any and all liens, garnishments,
attachments, claims, suits, costs, attorneys' fees, cost of
investigation and of defense resulting from, incurred in
connection with, or relating to any such claims,. (b) from
the payment of any such sum or sums of money, and (c) from
the payment of any penalties, fines, damages, suits or
claims (and any liens or attachments asserted in connection
therewith) arising out of (i) any alleged or actual
violation of law, court order, or governmental agency rule
or regulation committed by or existing with respect to
Client Company or its employees, agents or subcontractors
(including SCS when such payments relate to performing
Services hereunder), or (ii) any alleged or actual breaches
of contract by Client company, or (iii) any claims made by
or on account of any employee, agent or subcontractor of
Client Company associated with work being performed for Non-
Affiliates, or for (iv) services or labor performed,
materials, provisions or supplies furnished or board of men
which have been purchased or allegedly contracted for, by or
on behalf of the Client Company, its employees, agents or
subcontractors (except SCS when not performing services
hereunder).
E. SCS shall within five (5) business days after it
receives notice of any claims, action, damages or liability
against which it will expect to be indemnified pursuant to
Article 9D, notify Client Company of such claims, actions,
-16-
<PAGE>
damages or liabilities. Thereafter, Client Company may at
its own expense, upon notice to SCS, defend or participate
in the defense of such action or claim or any negotiation
for settlement of such action or claim, provided that unless
Client Company proceeds promptly and in good faith to pay or
defend such action or claim, then operating Company shall
have the right (but not the obligation), in good faith, upon
ten (10) days' notice to Client Company, to pay, settle,
compromise or proceed to defend any such action or claim
without the further participation by Client Company. Client
Company will immediately pay (or reimburse SCS, as the case
may be) any payments, settlements, compromises, judgments,
costs or expenses made or incurred by SCS in or resulting
from the pursuit by SCS of such right. If any judgment is
rendered against SCS and any such action defended by Client
Company or from which SCS is otherwise entitled to
indemnification under Article 9D, or any lien attaches to
the assets of SCS in connection therewith, Client Company
immediately upon such entry or attachment shall pay the
judgment in full or discharge any such lien unless, at its
expense and direction, appeal shall be taken under which the
execution of the judgment or satisfaction of the lien is
stayed. If and when a final and unappealable judgment is
rendered against SCS in any such action, Client Company
shall forthwith pay such judgment or discharge such lien
prior to the time that SCS would be legally held to do so.
-17-
<PAGE>
F. Client Company shall maintain at all time adequate
levels of insurance to discharge financially its obligations
under this Article 9 and all such policies of insurance
shall name SCS as additional insured.
10. Miscellaneous
This Agreement shall be binding upon the successors
and assigns of the parties hereto, provided that operating
Company shall not be entitled to assign or subcontract out any of
its obligations under this Agreement or under any purchase order
or work order issued hereunder without the prior written approval
of Client Company. This Agreement may not be modified or amended
in any respect except in writing executed by the parties hereto.
This Agreement shall be construed and enforced under and in
accordance with the laws of the State of Georgia. This Agreement
may be executed in counterparts, each one of which when fully
executed shall be deemed to have the same dignity, force and
effect as if the original. No provision of this Agreement shall
be deemed waived nor breach of this Agreement consented to unless
such waiver or consent is set forth in writing and executed by
the party hereto making such waiver or consent.
IN WITNESS WHEREOF, the parties hereto have caused this
agreement to be executed in their respective corporate names by
their respective Presidents or one of their respective Vice-
Presidents and their respective seals to be hereunto affixed and
attested by their respective Secretaries or one of their
-18-
<PAGE>
respective Assistant Secretaries as of the day and year first
above written.
SOUTHERN COMPANY SERVICES, INC.
(SCS)
ATTEST:
__________________________
By:________________________________
Secretary President
Date Executed: ____________________
SOUTHERN DEVELOPMENT AND INVESTMENT
GROUP, INC.
(Client Company)
ATTEST:
__________________________
By:________________________________
Secretary President
Date Executed: ____________________
-19-
<PAGE>
EXHIBIT "A"
SAMPLE ACCOUNTING AND BILLING PROCEDURE TO BE
EMPLOYED BY SYSTEM OPERATING COMPANIES IN BILLING
COSTS OF WORK PERFORMED FOR NEW SUBSIDIARY
I. INTRODUCTION
The purpose of this procedure is to establish guidelines which
provide uniform and consistent methods of billing for services
rendered to "New Subsidiary" by The Southern Company System
Operating companies. These billings include direct costs related
to services provided and indirect costs that are normally
incurred by the operating company in its operations. Revenues
and costs related to these billings will be recorded in the
accounting records of the Operating company in accordance with
Generally 0 Accepted Accounting Principles and FERC (Federal
Energy Regulatory Commission) guidelines.
II. METHOD OF BILLING
Each separate service provided by The Southern Company System
operating companies to New Subsidiary is accounted for and billed
on a job order account. Charges to each project are made to the
designated job order through the appropriate source documents or
source system. Charges for these projects are billed on a
monthly basis.
III. CALCULATION OF BILLS
The costs of services provided to New Subsidiary are calculated
and billed, based on individual projects or jobs, in accordance
with the guidelines set forth in this section.'
A. Labor
Labor costs billed for services provided to New
Subsidiary include salaries and related indirect labor
costs for employees on both fixed and variable salary
distributions.
1. Direct Labor Costs
Direct labor costs are based on the wage rates of
assigned employees and the actual number of hours
that are charged to The Job Order Account on the
Payroll Time Report.
-20-
<PAGE>
2. Indirect Labor Costs
a. Directly Loaded Costs
Certain indirect labor costs are developed
mechanically on a monthly basis relative to
each indirect labor cost. These indirect
payroll loadings include:
(1) Pension Costs
(2) Insurance
(3) Federal and State Payroll Taxes
(4) Employee savings Plan
(5) Non-productive Time
(a) Vacation and holidays
(b) Inclement weather
(c) Sick leave and occupational injury
(d) Payroll clearing, other (jury duty,
civic activities, etc.)
b. Indirectly Loaded Costs
Certain indirect labor costs are developed
manually on an annual basis relative to each
indirect labor cost. These Indirect Payroll
loadings include:
(1) Employee Stock option Plan
(2) Miscellaneous (Service awards,
educational assistance program, etc.)
B. Material
Material withdrawn from a Southern Company System
Operating company's inventory is billed at the
average commodity price plus a stores handling
expense. Material purchased directly from vendors
for use on a particular project is billed at
invoice cost.
C. Vehicle and Equipment Usage
Usage of fleet vehicles and equipment is recorded
on the monthly Vehicle and Equipment Usage Report.
Vehicle and equipment usage is billed at the cost
provided by the Transportation Source System.
This cost is based on an absorption rate
calculated monthly by vehicle class. The
absorption rate provides for the allocation of all
direct and indirect costs associated with fleet
operations.
-21-
<PAGE>
D. Meals, Lodging and Miscellaneous Expenses
Meals, lodging and miscellaneous expenses are
billed at actual cost. Vehicles and equipment not
included in the operating company's fleet will be
billed at actual cost under this expense category.
E. Engineering, Supervision and Administrative
Expenses
Engineering, supervision and administrative
expenses are defined as those expenses for project
support services which cannot be identified with
or directly charged to a specific project. These
expenses are allocable to the total cost of each
project based upon an allocation factor developed
in the following manner:
1. Engineering and Supervision
Engineering and supervision expenses are
recorded for the following asset classifica-
tions:
Major generating projects
Minor generating projects
Transmission lines
Transmission and distribution
substations
Distribution lines
An annual allocation factor is developed by
dividing total annual engineering and
supervision expense for these asset
classifications by the total annual direct
cost charged to work orders for these asset
classifications.
2. Administrative and General Expenses
An annual allocation factor for
administrative and general expenses
calculated by dividing total applicable
annual administrative and general expenses by
the total applicable annual costs.
Applicable administrative and general
expenses for purposes of this procedure are
generally identified as follows:
-22-
<PAGE>
FERC ACCOUNT TITLE
920 A & G Salaries
921 A & G Office Supplied
923 Outside Services employed
924 Property Insurance
925 Injuries and Damages
931 Rents
932 Maintenance of General
Plant
3. Cost of Funds Advanced
A factor for the recovery of the cost of
funds advanced for services provided is
calculated as a proration of the annual rate
associated with the higher of the cost to the
Company of its most recent first mortgage
bond issue or its most recent short-term
borrowings. The New Subsidiary will be
charged an appropriate cost of funds based on
the actual time period from date of
incurrence of such cost to date of receipt of
payment from New Subsidiary.
Annual Rate
360 Days x No. of days = factor
-23-
<PAGE>
AGREEMENT BETWEEN EXHIBIT B-2
OPERATING COMPANY and
SOUTHERN DEVELOPMENT AND INVESTMENT GROUP, INC.
THIS AGREEMENT, made and entered into as of July 17, 1981 by
and between _______________________________________________, a
corporation organized under the laws of the State of
____________, party of the first part (hereinafter sometimes
referred to as "Operating Company") and SOUTHERN DEVELOPMENT AND
INVESTMENT GROUP, INC., a corporation organized under the laws of
Georgia, party of the second part (hereinafter sometimes referred
to as "Client Company"),
W I T N E S S E T H:
WHEREAS, Operating Company and Client Company are both
direct subsidiaries of The Southern Company ("Southern") and,
together with Southern's other operating subsidiaries, Southern
Electric International, Inc., Southern Company Services, Inc. and
Southern, form the Southern electric system; and
WHEREAS, Operating Company is organized, staffed and
equipped and is authorized by the Securities and Exchange
Commission (the "Commission") to render to Client Company
services as herein provided; and
WHEREAS, in the course of its operations, Operating Company
has acquired and will acquire certain,properties and other
resources; and
WHEREAS, Client Company is authorized by order of the
Commission dated _______________________ (the "Order") to utilize
<PAGE>
those services, properties and resources of Operating Company, as
well as those provided by other members of the Southern electric
system, to sell management, technical and training services and
expertise to non-affiliate companies, agencies and other business
concerns, including domestic and foreign governmental agencies,
public utilities, industrial concerns, or entities owning,
operating or performing services for any of them as well as
conduct other activities as permitted by the Order; and
WHEREAS, economies and increased efficiencies will result
from the performance by Operating Company of services for Client
Company and the provision of certain property and resources to
Client Company as herein provided as well as the performance by
Client of services for the Operating Company; and
WHEREAS, subject to the terms and conditions herein
described, the parties hereto are willing, upon request by each
other, to render such services and provide such property and
resources to each other at cost, determined in accordance with
applicable rules, regulations and orders of the Commission,
taking into consideration the fulfillment of Operating Company's
utility responsibilities;
NOW, THEREFORE, in consideration of the premises and of the
mutual agreements herein, the parties hereto hereby agree as
follows:
-2-
<PAGE>
1. Definitions
As used hereinafter, the following terms, in addition
to those elsewhere defined in this Agreement, shall have the
following meanings unless the context otherwise requires:
A. "Services" shall mean those services described in
Articles 3, 4 and 5 hereof.
B. "Non-Affiliate" means any corporation, company,
agency, government, business, entity or person other than
Southern, a direct or indirect subsidiary of Southern, or a
person employed by Southern or any of such subsidiaries.
C. "Intellectual Property" means 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, exhibited in,
or reduced to a tangible writing, drawing, manual, computer
program, product or similar manifestation or thing.
2. Agreement to Furnish Service
A. Upon its receipt of a work order or other request
therefor from a party hereto, the other party hereto will,
if it has or can have available the personnel and resources
needed to fill the work order on request, furnish to the
requesting party upon the terms and conditions hereinafter
set forth such of the Services, at such times, for such
periods and in such manner as the party may from time to
time request; provided, however, that the determination of
whether Operating Company has the available personnel and
-3-
<PAGE>
resources to perform in accordance with the work order or
request will be entirely within the discretion of Operating
Company, and Operating Company may at its option elect not
to perform any requested Service, except that, once having
agreed to perform pursuant to a work order or request,
Operating Company cannot withdraw or depart from such
performance without the consent of Client Company, which
consent will not be unreasonably withheld.
B. The provision of Services by a party hereto
pursuant to this Agreement shall in all cases and
notwithstanding anything herein contained to the contrary be
subject to any limitations contained in authorizations,
rules or regulations of those governmental agencies, if any,
having jurisdiction over Operating Company, Client Company,
or such provision of Services.
3. Description of Services
The Services to be provided hereunder are described as
follows:
A. General Engineering. Perform general engineering
work, including system production and transmission studies;
prepare and analyze electrical apparatus specifications,
distribution studies and standards, civil engineering and
hydraulic studies and problems, fuel supply studies, advice
and assistance in connection with analyses of operations and
operating and construction budgets. Each party's personnel
will routinely keep informed as to improvements and
-4-
<PAGE>
developments in the art of generation, transmission and
distribution of electricity through frequent contacts with
the manufacturers of electrical equipment, through
membership in the various national and regional engineering
societies and through participation in the committee work of
such societies and the trade associations of the utility
industry. Each party will make available to the other the
information thus gained with respect to such developments.
B. Design Engineering. Perform detailed design work
for steam plants, hydro plants, transmission and
distribution lines and substations and otherwise as
requested by a party hereto; make available to and for the
use of a party as required, the services of a specialist or
specialists on various phases of plant operation and
maintenance; and also make available, as required,
inspection and supervision personnel for generating plant,
transmission line and substation and other construction,
maintenance and operation.
C. Accounting and Statistical. Advise and assist a
party in connection with the installation of accounting
systems and similar problems, requirements of regulatory
bodies with respect to accounting, studies of accounting
procedures, and practices to improve efficiency, book
entries resulting from unusual financial transactions,
internal audits, employment of independent auditors,
preparation and analyses of financial and operating reports
-5-
<PAGE>
and other statistical matters relating to customers of
Client Company, preparation of annual reports to
stockholders, regulatory commissions, insurance companies
and others, standardization of accounting and statistical
forms in the interest of economy, and other accounting and
statistical matters.
D. Rates. Advise a party on matters relating to
rates and valuation, the design of new and improved rate
schedules, and their effect upon revenues, the cost of
competitive services, earnings trends, the desirability of
rate changes, rate audits, service rules and regulations,
commodity and tax clauses, minimum charges, metering
problems, special industrial contracts, resale rates and
rural extension plans; and assist in the preparation of
petitions and applications required in connection with rate
changes.
E. Budgeting. Advise and assist a party in matters
involving the preparation and development of construction
and operating budgets, cash and cost forecasts, and
budgetary controls.
F. Business Promotion and Public Relations. Advise
and assist a party in the development of marketing and sales
programs, in the preparation and use of advertising and
sales materials, and in the determination and carrying out
of promotional programs.
-6-
<PAGE>
G. Systems and Procedures. Advise and assist a party
in the formation of good operating practices and methods of
procedure, the standardization of forms, the purchase,
rental and use of mechanical and electronic data processing,
computing and communications equipment, in conducting
economic research and planning and in the development of
special economic studies.
H. Access to and Use Of Facilities. Subject to those
conditions set forth in Article 5B, make available to a
party and/or its customers access to, use of, or rights in
all facilities, products, processes, techniques, computer
hardware and software, technical information, training aids
and properties, Intellectual Property, vehicles, equipment,
machines and other property, whether owned, leased, licensed
or otherwise by a party hereto.
I. Training. Assist a party in providing training to
personnel of the other party or of Non-Affiliates; develop
and make available training procedures, materials and
facilities, and provide instructors.
J. General. Make available services in the areas of
construction planning and supervision, design, management
programs, quality assurance, licensing matters, research and
development, and communications systems and procedures.
K. Other Services. Render advice and assistance in
connection with such other matters as either party may
-7-
<PAGE>
request and which the parties may be able to perform with
respect to their respective business and operations.
4. Provision of Personnel
Where specifically requested by one party hereto, the
other party will loan its employees to the requesting party. In
that event, such loaned employees will be under the sole
supervision and control of the party borrowing the employee for
such period or periods of time as are necessary to complete the
work to be performed by such employees. Such employees may be
withdrawn by the loaning party from tasks assigned by the
borrowing party only with the consent of the lender, which
consent will not be unreasonably withheld. The borrower Company
will be responsible for the actions and activities of such
employees while engaged in the performance of the work to the
same degree as though such persons were employees of the borrower
Company. However, as part of Services, the lender during periods
when such employees are loaned to the borrower will continue to
provide to, and with respect to such employees those same
payroll, pension, savings, tax withholding, unemployment,
bookkeeping and other personnel support services then being
utilized by such party in connection with compensating and
benefiting such employees.
5. Exchange of Intellectual Property
A. Should Client Company in the course of its
business develop Intellectual Property, it will make such
Intellectual Property available for utilization by Operating
-8-
<PAGE>
Company without charge (except the actual expenses incurred
by Client company in connection with making such new
Intellectual Property so available), provided, however, that
such availability shall be dependent upon and subject to any
contractual.commitments of Client Company to Non-Affiliates,
applicable laws and regulations, and the legal rights and
entitlements of others.
B. As part of the Services, Operating Company will
make available to Client Company for use or for re-sale or
licensing to Non-Affiliates all Intellectual Property
heretofore or hereafter developed or obtained by Operating
Company without charge (except for the actual expenses
incurred in making the same available, and except as
otherwise provided in Article 8 below), provided, however,
that such availability shall be dependent and subject to any
contractual commitments of Operating Company to Non--
Affiliates, applicable laws and regulations, and the legal
rights and entitlements of others and provided further that
if, as a result of resale or licensing to a third party by
Client Company, the Intellectual Property is no longer
available to the Operating Company, then the Operating
Company shall receive seventy percent (70%) of the net
profits derived from such resale or licensing (after
deduction of marketing and other applicable expenses) and
Client Company shall receive thirty percent (30%) as a
commission.
-9-
<PAGE>
6. Compensation of Operating Company
As compensation for services actually requested by one
party and rendered to it by the other, the parties hereby agree
to reimburse each other respectively for all Costs properly
chargeable or allocable thereto, as controlled through a work
order procedure. Such Costs shall be determined in accordance
with subparagraphs 6A, 6B and 6C below and as outlined on
Exhibit A attached hereto and incorporated herein by reference:
A. Direct Cost. Direct Cost consists of Direct Labor
Costs, Direct Labor Benefits, Material, Vehicle and
Equipment Usage, and Meals, Lodging and Miscellaneous
Expenses. Direct Labor Costs shall be based on the wage
rates of assigned employees and the actual number of hours
devoted to providing the Service. Direct Labor Benefits
include the costs of paid, excused absences, such as
vacations and holidays, and shall be based on a recovery
factor applied to the Direct Labor Costs. Material which is
withdrawn from a party's inventory shall be billed by that
party on the same basis as Operating Company uses to charge
such costs to its utility customers, plus a stores handling
expense. Material purchased directly from vendors for use
on a particular project shall be billed at invoice cost.
Vehicle and Equipment Usage shall be billed at the
appropriate cost thereof by vehicle class, which costs shall
provide for the allocation of all direct and indirect costs
associated with Operating Company's fleet operation. Meals,
-10-
<PAGE>
Lodging, Transportation and Miscellaneous Expenses shall be
billed at actual cost.
B. Indirect Cost. Indirect Cost consists of Indirect
Labor Cost, Engineering and Supervision, and Administrative
and General Expenses. Indirect Labor Costs include pension
costs, insurance, payroll taxes, employee savings plan, and
similar payroll items. Where applicable, Engineering and
Supervision shall be determined by asset classification
based on Operating Company's total engineering and
supervision expenses and total direct costs. Administrative
and General Expenses shall be based on each party's
administrative and general expenses and total applicable
costs. Each type of Indirect Costs shall be applied to
Direct Labor Costs and Direct Labor Benefits to the extent
reasonably allocable thereto. There shall be no duplication
of Direct Costs and Indirect Costs.
C. Cost of Funds Advanced. For the recovery of the
cost of funds advanced for Services provided, each party
will be charged a cost of funds based on the actual time
period from billing date of such costs to date of receipt of
payment. The costs of funds shall be the annual rate
associated with the higher of the costs to the party of its
most recent first mortgage bond issue or its most recent
short-term borrowings. The costs of funds factor shall be
applied to each monthly billing to a party after receipt of
payment by the other party; provided, however, that the last
-11-
<PAGE>
monthly billing to a party for a project shall include a
cost of funds amount based on an assumed thirty (30) day
time period.
7. Work Orders
The Services will be performed in accordance with work
orders or requests issued or made by or on behalf of one party
and accepted by the other, and all Services will be assigned an
applicable work order number to enable specific work to be
properly allocated by project or other appropriate basis. Work
orders shall be as specific as practicable in defining the
Services requested to be performed. A party shall have the right
from time to time to amend, alter or rescind any work order,
provided that (i) any such amendment or alteration which results
in a material change in the scope of the work to be performed or
equipment to be provided is agreed to by the party performing, or
to perform the work; (ii) the costs for the Services covered by
the work order will include any expense incurred as a direct
result of such amendment, alteration or rescission of the work
order, and (iii) no amendment, alteration or rescission of a work
order will release any party from liability for all costs already
incurred or contracted for by the other party pursuant to the
work order, regardless of whether the work associated with such
costs discontinued by such amendment, alteration or rescission.
8. Disposition of Intellectual Property. In the event
Client Company sells or licenses to Non-Affiliates Intellectual
Property heretofore or hereafter developed by Operating Company
-12-
<PAGE>
for its own use, and as a result of such sale or license such
Intellectual Property is no longer available for use by Operating
Company, Client Company shall receive, as and when received from
such Non-Affiliates, a commission of thirty percent (30%) of all
net profits (after deducting marketing and any other applicable
expenses incurred by Client Company) earned from such sale or
licensing, and Operating Company shall receive seventy percent
(70%) of such net profits.
9. Responsibility for Work; Limitation of Liability;
Indemnification:
A. In performing Services under Articles 4 and 5(B)
hereof (i.e., the provision of personnel and making
available to Client Company of Intellectual Property),
neither party, their agents, servants and employees shall
have no responsibility whatsoever to the other for any
claims, liabilities, injuries, damages or other
consequences of providing such Services under any theory of
liability, whether in contract, in tort (including
negligence and strict liability) or otherwise, it being
understood and agreed that (1) with respect to loaned
employees such employees are furnished without warranty as
to their suitability or expertise; (2) with respect to the
making available of Intellectual Property, such property is
made available by Operating Company "as is" and "where is"
without warranty of any type including warranty of title,
without indemnity against patent or copyright infringement,
and without warranty or representation that transfer of the
-13-
<PAGE>
Intellectual Property does not constitute a violation of a
trade secret, proprietary right or contract right of a third
party.
B. In performing Services under Article 3 hereof, the
parties hereto will exercise due care to perform the
Services in a workmanlike manner and in accordance with the
specifications set forth in the applicable work order or
request. A party's sole and exclusive responsibility for
deficiencies in such Services shall be limited to the
correction, on a reimbursable basis so that the Services are
performed in a workmanlike manner.
C. WITH RESPECT TO ALL SERVICES, INCLUDING ANY
TRANSFER OF PROPERTY, THE PARTIES HERETO MAKE NO WARRANTY OR
REPRESENTATION OTHER THAN AS SET FORTH ABOVE, AND THE
PARTIES HEREBY AGREE THAT NO OTHER WARRANTY, WHETHER
STATUTORY, EXPRESS OR IMPLIED (INCLUDING, BUT NOT LIMITED
TO, ALL WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE AND WARRANTIES ARISING FROM COURSE OF
DEALING OR USAGE OF TRADE) SHALL BE APPLICABLE TO THE
SERVICES PERFORMED BY A PARTY HEREUNDER.*
D. Client Company shall and does hereby agree to save
harmless and defend Operating Company, its agents, servants
and employees, and employees of Operating Company loaned to
* The remedies stated herein are exclusive and shall
constitute the sole and exclusive remedy of a party for
a failure by the other party to comply with its
warranty obligations.
-14-
<PAGE>
Client Company under Article 4, from the payment of any sum
or sums of money on account of, or resulting from, claims or
suits growing out of (a) injuries to or the death of any
person, (b) damage to or loss of any property, and/or (c)
other damages which are in any way attributable to or arise
out of the performance and prosecution of any project or
work performed by or on behalf of Client Company for Non-
Affiliates or Services rendered by Operating Company to
Client Company, whether or not the same results from or is
contributed to by (i) the claimed or actual active, passive,
affirmative, sole or concurrent negligence or strict
liability on the part of Operating Company, its agents,
servants or employees, or of employees of Operating Company
loaned to Client Company under Article 4, (ii) the breach of
any duty owed by an employee of Operating Company loaned to
Client Company hereunder to his co-employee, (iii) the
breach of any statutory duty (whether non-delegable or
otherwise) on the part of Operating Company, its agents,
servants or employees, or of an employee of Operating
Company loaned to Client Company hereunder, (iv) liability
imputed as a matter of law to the Operating Company, its
agents, servants, or employees, or an employee of Operating
Company loaned to Client Company hereunder, (v) the failure
of, or any condition in property, or faulty workmanship
furnished by Operating Company, its agents, servants or
employees or an employee loaned by Operating Company to
-15-
<PAGE>
Client Company hereunder, or (vi) any breach of warranty or
contract by Operating Company, its agents, servants or
employees, or employees of Operating Company loaned to
Client Company hereunder. Further, Client Company shall and
does hereby indemnify and agree to save harmless and defend
Operating Company (a) from any and all liens, garnishments,
attachments, claims, suits, costs, attorneys' fees, cost of
investigation and of defense resulting from, incurred in
connection with, or relating to any such claims,. (b) from
the payment of any such sum or sums of money, and (c) from
the payment of any penalties, fines, damages, suits or
claims (and any liens or attachments asserted in connection
therewith) arising out of (i) any alleged or actual
violation of law, court order, or governmental agency rule
or regulation committed by or existing with respect to
Client Company or its employees, agents or subcontractors
(including Operating Company when such payments relate to
performing Services hereunder), or (ii) any alleged or
actual breaches of contract by Client company, or (iii) any
claims made by or on account of any employee, agent or
subcontractor of Client Company associated with work being
performed for Non-Affiliates, or for (iv) services or labor
performed, materials, provisions or supplies furnished or
board of men which have been purchased or allegedly
contracted for, by or on behalf of the Client Company, its
-16-
<PAGE>
employees, agents or subcontractors (except Operating
Company when not performing services hereunder).
E. The Operating Company shall within five (5)
business days after it receives notice of any claims,
action, damages or liability against which it will expect to
be indemnified pursuant to Article 9D, notify Client Company
of such claims, actions, damages or liabilities.
Thereafter, Client Company may at its own expense, upon
notice to Operating Company, defend or participate in the
defense of such action or claim or any negotiation for
settlement of such action or claim, provided that unless
Client Company proceeds promptly and in good faith to pay or
defend such action or claim, then operating Company shall
have the right (but not the obligation), in good faith, upon
ten (10) days' notice to Client Company, to pay, settle,
compromise or proceed to defend any such action or claim
without the further participation by Client Company. Client
Company will immediately pay (or reimburse Operating
Company, as the case may be) any payments, settlements,
compromises, judgments, costs or expenses made or incurred
by Operating Company in or resulting from the pursuit by
Operating Company of such right. If any judgment is
rendered against Operating Company and any such action
defended by Client Company or from which Operating Company
is otherwise entitled to indemnification under Article 9D,
or any lien attaches to the assets of Operating Company in
-17-
<PAGE>
connection therewith, Client Company immediately upon such
entry or attachment shall pay the judgment in full or
discharge any such lien unless, at its expense and
direction, appeal shall be taken under which the execution
of the judgment or satisfaction of the lien is stayed. If
and when a final and unappealable judgment is rendered
against Operating Company in any such action, Client Company
shall forthwith pay such judgment or discharge such lien
prior to the time that Operating Company would be legally
held to do so.
F. Client Company shall maintain at all time adequate
levels of insurance to discharge financially its obligations
under this Article 9 and all such policies of insurance
shall name Operating Company as additional insured.
10. Miscellaneous
This Agreement shall be binding upon the successors
and assigns of the parties hereto, provided that operating
Company shall not be entitled to assign or subcontract out any of
its obligations under this Agreement or under any purchase order
or work order issued hereunder without the prior written approval
of Client Company. This Agreement may not be modified or amended
in any respect except in writing executed by the parties hereto.
This Agreement shall be construed and enforced under and in
accordance with the laws of the State of Georgia. This Agreement
may be executed in counterparts, each one of which when fully
executed shall be deemed to have the same dignity, force and
-18-
<PAGE>
effect as if the original. No provision of this Agreement shall
be deemed waived nor breach of this Agreement consented to unless
such waiver or consent is set forth in writing and executed by
the party hereto making such waiver or consent.
IN WITNESS WHEREOF, the parties hereto have caused this
agreement to be executed in their respective corporate names by
their respective Presidents or one of their respective Vice-
Presidents and their respective seals to be hereunto affixed and
attested by their respective Secretaries or one of their
respective Assistant Secretaries as of the day and year first
above written.
___________________________________
(Operating Company)
ATTEST:
__________________________
By:________________________________
Secretary President
Date Executed: ____________________
SOUTHERN DEVELOPMENT AND INVESTMENT
GROUP, INC.
(Client Company)
ATTEST:
__________________________
By:________________________________
Secretary President
Date Executed: ____________________
-19-
<PAGE>
EXHIBIT "A"
SAMPLE ACCOUNTING AND BILLING PROCEDURE TO BE
EMPLOYED BY SYSTEM OPERATING COMPANIES IN BILLING
COSTS OF WORK PERFORMED FOR NEW SUBSIDIARY
I. INTRODUCTION
The purpose of this procedure is to establish guidelines which
provide uniform and consistent methods of billing for services
rendered to "New Subsidiary" by The Southern Company System
Operating companies. These billings include direct costs related
to services provided and indirect costs that are normally
incurred by the operating company in its operations. Revenues
and costs related to these billings will be recorded in the
accounting records of the Operating company in accordance with
Generally 0 Accepted Accounting Principles and FERC (Federal
Energy Regulatory Commission) guidelines.
II. METHOD OF BILLING
Each separate service provided by The Southern Company System
operating companies to New Subsidiary is accounted for and billed
on a job order account. Charges to each project are made to the
designated job order through the appropriate source documents or
source system. Charges for these projects are billed on a
monthly basis.
III. CALCULATION OF BILLS
The costs of services provided to New Subsidiary are calculated
and billed, based on individual projects or jobs, in accordance
with the guidelines set forth in this section.'
A. Labor
Labor costs billed for services provided to New
Subsidiary include salaries and related indirect labor
costs for employees on both fixed and variable salary
distributions.
1. Direct Labor Costs
Direct labor costs are based on the wage rates of
assigned employees and the actual number of hours
that are charged to The Job Order Account on the
Payroll Time Report.
-20-
<PAGE>
2. Indirect Labor Costs
a. Directly Loaded Costs
Certain indirect labor costs are developed
mechanically on a monthly basis relative to
each indirect labor cost. These indirect
payroll loadings include:
(1) Pension Costs
(2) Insurance
(3) Federal and State Payroll Taxes
(4) Employee savings Plan
(5) Non-productive Time
(a) Vacation and holidays
(b) Inclement weather
(c) Sick leave and occupational injury
(d) Payroll clearing, other (jury duty,
civic activities, etc.)
b. Indirectly Loaded Costs
Certain indirect labor costs are developed
manually on an annual basis relative to each
indirect labor cost. These Indirect Payroll
loadings include:
(1) Employee Stock option Plan
(2) Miscellaneous (Service awards,
educational assistance program, etc.)
B. Material
Material withdrawn from a Southern Company System
Operating company's inventory is billed at the
average commodity price plus a stores handling
expense. Material purchased directly from vendors
for use on a particular project is billed at
invoice cost.
C. Vehicle and Equipment Usage
Usage of fleet vehicles and equipment is recorded
on the monthly Vehicle and Equipment Usage Report.
Vehicle and equipment usage is billed at the cost
provided by the Transportation Source System.
This cost is based on an absorption rate
calculated monthly by vehicle class. The
absorption rate provides for the allocation of all
direct and indirect costs associated with fleet
operations.
-21-
<PAGE>
D. Meals, Lodging and Miscellaneous Expenses
Meals, lodging and miscellaneous expenses are
billed at actual cost. Vehicles and equipment not
included in the operating company's fleet will be
billed at actual cost under this expense category.
E. Engineering, Supervision and Administrative
Expenses
Engineering, supervision and administrative
expenses are defined as those expenses for project
support services which cannot be identified with
or directly charged to a specific project. These
expenses are allocable to the total cost of each
project based upon an allocation factor developed
in the following manner:
1. Engineering and Supervision
Engineering and supervision expenses are
recorded for the following asset classifica-
tions:
Major generating projects
Minor generating projects
Transmission lines
Transmission and distribution
substations
Distribution lines
An annual allocation factor is developed by
dividing total annual engineering and
supervision expense for these asset
classifications by the total annual direct
cost charged to work orders for these asset
classifications.
2. Administrative and General Expenses
An annual allocation factor for
administrative and general expenses
calculated by dividing total applicable
annual administrative and general expenses by
the total applicable annual costs.
Applicable administrative and general
expenses for purposes of this procedure are
generally identified as follows:
-22-
<PAGE>
FERC ACCOUNT TITLE
920 A & G Salaries
921 A & G Office Supplied
923 Outside Services employed
924 Property Insurance
925 Injuries and Damages
931 Rents
932 Maintenance of General
Plant
3. Cost of Funds Advanced
A factor for the recovery of the cost of
funds advanced for services provided is
calculated as a proration of the annual rate
associated with the higher of the cost to the
Company of its most recent first mortgage
bond issue or its most recent short-term
borrowings. The New Subsidiary will be
charged an appropriate cost of funds based on
the actual time period from date of
incurrence of such cost to date of receipt of
payment from New Subsidiary.
Annual Rate
360 Days x No. of days = factor
-23-
<PAGE>
