File No. 70-8725
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Amendment No. 4
to
FORM U-1
APPLICATION OR DECLARATION
under
The Public Utility Holding Company Act of 1935
THE SOUTHERN COMPANY
270 Peachtree Street, N.W.
Atlanta, Georgia 30303
(Name of company or companies filing this statement
and addresses of principal executive offices)
THE SOUTHERN COMPANY
(Name of top registered holding company parent
of each applicant or declarant)
Tommy Chisholm, Secretary
The Southern Company
270 Peachtree Street, N.W.
Atlanta, Georgia 30303
(Names and addresses of agents for service)
The Commission is requested to mail signed copies of all orders,
notices and communications to:
W. L. Westbrook Thomas G. Boren, President
Financial Vice President Southern Electric International, Inc.
The Southern Company 900 Ashwood Parkway
270 Peachtree Street, N.W. Suite 500
Atlanta, Georgia 30303 Atlanta, Georgia 30338
John D. McLanahan, Esq.
Troutman Sanders LLP
600 Peachtree Street, N.E.
Suite 5200
Atlanta, Georgia 30308-2216
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INFORMATION REQUIRED
The Application or Declaration filed in this proceeding, as amended by
Amendment Nos. 1, 2 and 3, is hereby amended and restated in its entirety to
update financial information and other developments since the date of filing of
the Application or Declaration and to address other questions raised by the
Division of Investment Management. As so amended and restated, the Application
or Declaration reads as follows:
Item 1. Description of Proposed Transaction.
1.1 Background. The Southern Company ("Southern") is a registered
holding company under the Public Utility Holding Company Act of 1935, as amended
(the "Act"). Since 1987, Southern's wholly-owned subsidiary, Southern Electric
International, Inc. ("Southern Electric"), has engaged in preliminary
development activities related to potential investments by Southern in
"qualifying facilities" ("QFs"), as defined under the Public Utility Regulatory
Policies Act of 1978, as amended, "exempt wholesale generators" ("EWGs") and
"foreign utility companies" ("FUCOs"), as defined in Sections 32 and 33 of the
Act, respectively, and other non-exempt power projects which constitute a part
of Southern's integrated electric utility system; and in providing project
management, operations and maintenance, construction, fuel management and other
similar
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kinds of services to associate project companies and to non-
associates.1
Southern is currently authorized under the terms of four separate
orders (the "Financing Orders") to finance the operations of its subsidiaries by
issuing and selling additional authorized shares of its common stock, par value
$5 per share, by issuing guaranties of the securities of certain subsidiaries,
and by issuing notes evidencing short-term and term loan borrowings and/or
commercial paper. Southern's authorization under the Financing Orders may be
summarized as follows:
o File No. 70-8277 (Holding Co. Act Rel. No. 26349, dated
August 3, 1995). Southern may issue and sell in one or more
transactions from time to time through December 31, 1999, up to
25 million additional shares of its authorized common stock (as
such number may be adjusted for any subsequent share split). As
of February 29, 1996, none of these authorized shares of common
stock had been sold by Southern.
o File No. 70-8733 (Holding Co. Act Rel. No. 26468,
dated February 2, 1996). Southern may guaranty from time to time
through December 31, 2000, the securities of one or more EWGs or
FUCOs (collectively, "Exempt Projects") or of certain other
subsidiaries which directly or indirectly hold interests in
Exempt Projects in an aggregate amount at any one time
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1 See Holding Co. Act Rel. No. 26212, dated December 30,
1994.
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outstanding not to exceed $1.2 billion (hereafter referred to as
the "Guaranties").
o File No. 70-8435 (Holding Co. Act Rel. No. 26347, dated
August 2, 1995). Southern may issue and sell in one or more
transactions from time to time through December 31, 1999,
additional shares of its authorized common stock pursuant to
Southern's dividend reinvestment, employee savings and stock
ownership plans (collectively, the "Plans"). The authorization
under this order covers the remainder of 37 million shares of
common stock (as such number may be adjusted for any subsequent
share split) that Southern was previously authorized to sell
pursuant to the Plans. At February 29, 1996, there were about
20.5 million shares of common stock remaining unsold under the
Plans.
o File No. 70-8789 (Holding Co. Act Rel. No. 26489, dated
March 13, 1996). Southern may issue and sell in one or more
transactions from time to time through March 31, 2001, notes
evidencing short-term and term loan borrowings and/or commercial
paper in an aggregate principal amount at any one time
outstanding not to exceed $2 billion.
Under the terms of each of the Financing Orders, Southern may use the
proceeds of common stock sales and borrowings to, among other things, finance
the acquisition of the securities of or other interest in one or more Exempt
Projects (or of certain intermediate subsidiaries organized to facilitate such
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acquisitions2), and may issue Guaranties in respect of the securities of such
Exempt Projects (or such intermediate subsidiaries), provided that the sum of
the Guaranties at any time outstanding and the net proceeds of common stock
sales and borrowings by Southern that may at any time be used by Southern to
fund investments in Exempt Projects (or in such intermediate subsidiaries) shall
not, when added to Southern's "aggregate investment," as defined in Rule 53(a),
in all such entities, exceed 50% of Southern's "consolidated retained earnings."
The term "consolidated retained earnings," also defined in Rule 53(a), is the
average of consolidated retained earnings for the previous four quarters, as
reported on Form 10-K and Form 10-Q. For Southern, "consolidated retained
earnings" at December 31, 1995, was approximately $3.365 billion.
1.2 Description of Exempt Projects Currently Owned by
Southern.
Since passage of the Energy Policy Act of 1992, which added Sections 32
and 33 to the Act, Southern has invested or committed to invest directly (or
indirectly through intermediate subsidiaries) an aggregate of approximately
$1.211 billion at February 29, 1996, in Exempt Projects, or about 36% of
Southern's "consolidated retained earnings" for the four quarters ended December
31, 1995. Additional funds required to purchase the securities of and/or finance
construction costs of the facilities
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2 See File No. 70-8733 (Holding Co. Act Rel. No. 26468,
dated February 2, 1996).
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owned by these entities have been obtained from lenders on a non-recourse basis;
that is, from loans that are secured solely by the assets and revenues of a
particular Exempt Project and which are not recourse directly or indirectly to
Southern or any associate company (other than another Exempt Project), except to
the extent of any currently effective Guaranties, which are included in
Southern's "aggregate investment" for purposes of Rule 53(a). Southern's current
holdings of Exempt Projects are as follows:
o South Western Electricity plc ("SWEB") - Southern purchased
substantially all of the ordinary share capital of SWEB on October 9, 1995, and
acquired all of the remaining shares prior to year end 1995. SWEB, which is a
FUCO, serves approximately 1.3 million customers in the southwestern part of
England. It was one of the 12 regional electricity companies created in 1990 by
the British government as a part of the privatization of the electric utility
industry in England and Wales. SWEB is primarily a distribution company,
purchasing most of its electricity requirements from third-party generators.
Power is delivered to SWEB by The National Grid Company plc, which operates the
electric transmission system in England and Wales. At the time it was acquired,
SWEB indirectly owned 6.3% of the shares of The National Grid Company plc.3 At
February 29,
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3 These shares were sold to the public in an underwritten offering in December
1995 and January 1996 for approximately (pound)212 million (or $324 million at
the then current exchange rate).
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1996, Southern's "aggregate investment" in SWEB was approximately
$782 million.
Initially, a portion of the purchase price for the SWEB shares was
financed by the sale of non-recourse notes by Southern Investments UK plc, a
wholly-owned indirect subsidiary of Southern.4
In addition to providing Southern with a relatively stable source of
income in the future, the SWEB acquisition is particularly attractive to
Southern for other reasons. First, Southern believes that it can add value to
its investment in SWEB's shares, primarily through implementation of cost
savings measures. Under the British regulatory system, the benefits of these
cost savings will accrue primarily to Southern, as SWEB's shareholder. Second,
SWEB competes as a power marketer in a market in which retail customers with a
maximum annual peak demand of 100 kW or more can choose their electricity
supplier. The experience that Southern will gain in operating a utility in such
a competitive environment is expected to be highly valuable to Southern in
connection with its power marketing efforts in the U.S. And third, Southern's
purchase of SWEB is the first in a series of anticipated events that will lead
to a rationalization,
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4 This acquisition indebtedness was subsequently reduced in January and February
1996 to approximately (pound)352.3 million (approximately $539 million at the
then current exchange rate) using the proceeds generated from SWEB's sale of its
6.3% interest in The National Grid Company plc. Reference is made to the Current
Report on Form 8-K of The Southern Company, dated October 3, 1995 (File No.
1-3526), for additional information on SWEB and the status of Southern's offer
to acquire SWEB's shares.
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possibly through further consolidations, of the electricity sector in the U.K.,
a process that in itself will likely produce attractive returns for investors.
By acquiring SWEB, Southern has achieved early entry into that market and
therefore is positioned to earn an attractive return on its investment.
o Hidroelectrica Alicura, S.A. ("Alicura") - Southern indirectly owns a
55% interest in Alicura, a FUCO which, in 1993, acquired from the Argentine
government a 30-year concession to a four-unit 1000 MW hydroelectric generating
facility located on the Limay River. Southern Electric manages the concession
company and oversees the operations and maintenance of the facilities. Alicura
sells its power into a highly competitive market either on the basis of
negotiated contracts or hourly prices of the national power pool. The experience
of operating Alicura has been extremely valuable to Southern in terms of gaining
knowledge on the dynamics of a competitive electricity market.
Southern acquired its interest in Alicura for approximately $188
million. In 1994, Southern Electric arranged a $170 million Eurobond offering by
Alicura pursuant to Rule 144A. The net proceeds of that offering were used to
pay maturing short-term debt and other existing obligations of Alicura. At
February 29, 1996, Southern's "aggregate investment" in Alicura was $196.0
million.
o Empresa Electrica del Norte Grande S.A. ("EDELNOR")
Southern indirectly owns a 65% interest in EDELNOR, a FUCO which
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serves most of Northern Chile. At the time it was acquired, EDELNOR owned and
operated 96 MW of generating capacity; it has since completed the first of two
new generating facilities, the 160 MW coal-fired Mejillones I plant. Electricity
demand in EDELNOR's service territory has been so buoyant that EDELNOR in
October 1995 commenced construction of a second 160 MW coal-fired plant at the
Mejillones site (Mejillones II). Currently, Southern Electric is arranging a
$250 million offering by EDELNOR pursuant to Rule 144A, the net proceeds of
which will be used to pay maturing short-term debt incurred to finance
construction of the Mejillones I plant and to provide, together with other
internally generated cash, funds for construction of the Mejillones II plant.
EDELNOR also operates the transmission grid for northern Chile, serving
a rapidly expanding copper mining industry. Half of EDELNOR's electricity is
sold to mining companies under contract, and half is sold to electric
distribution companies.
Southern originally invested $153 million to acquire its 65% stake in
EDELNOR. Subsequently, $40.8 million of the original investment was refinanced
with non-recourse debt. At February 29, 1996, Southern's "aggregate investment"
in EDELNOR was $116.1 million. Southern acquired the EDELNOR shares at an
average per share price of $1.0267. The shares not owned by Southern are
publicly-held and traded on the Santiago stock exchange. Those shares have
traded at an average weekly share price of $1.55 over the past six months.
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o Freeport Power Company ("Freeport Power") - In early 1993, Southern
indirectly purchased 50% of the common stock of Freeport Power, a privately-held
company which provides electric service to about 16,000 customers on the Island
of Grand Bahama in the Bahamas. Freeport Power's facilities include five oil and
distillate-fired generating plants with a combined installed capacity of about
113 MW, as well as a transmission and distribution network that serves the
entire island of Grand Bahama. At February 29, 1996, Southern's "aggregate
investment" in Freeport Power was $35.9 million.
o Power Generation Company of Trinidad and Tobago Ltd. ("PowerGen") -
Southern indirectly owns a 39% interest in PowerGen, a joint-venture company
formed in 1994 to purchase and operate the existing electrical generation
facilities on the island of Trinidad and Tobago. These facilities consist of
three gas-fired generating stations having a combined generating capacity of
1,178 MW. The electrical output of these facilities is purchased by the Trinidad
and Tobago Electricity Commission ("T&TEC"), the state-owned electric utility
which owns and operates the island's transmission and distribution system. T&TEC
serves approximately 300,000 customers on the island. Southern Electric's
relationship with T&TEC began in the early 1980's, when Southern Electric was
engaged to assist T&TEC in improving the efficiency of certain of T&TEC's
electric utility operations. Southern acquired its interest in PowerGen in
December 1994 for $85.6 million. Subsequently, in August 1995,
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Southern Electric successfully arranged for the sale of $71 million principal
amount of non-recourse bonds, a portion of the proceeds of which was applied to
reduce Southern's investment in PowerGen. At February 29, 1996, Southern's
"aggregate investment" in the company was $33.9 million.
o Birchwood Power Partners, L.P. ("Birchwood") - Southern indirectly
owns 50% of the general and limited partnership interests in Birchwood, an EWG
that is constructing a 220 MW coal-fired cogeneration facility in King George
County, Virginia. The Birchwood facility, which is also a QF, is scheduled to be
placed into commercial operation on-time and on-budget in November 1996.
Southern Electric developed this project, arranged for construction financing,
and is constructing the facility under a fixed-price turn-key contract. Southern
Electric will also operate the plant under a cost reimbursement/incentive-based
operations and maintenance agreement. When complete, all of the electrical
output of the Birchwood facility will be sold to Virginia Electric and Power
Company under a long-term power purchase agreement, and steam
will be sold to a local agricultural user. Funding for
construction of the Birchwood facility is being provided on a
non-recourse basis by a group of banks and insurance companies. Southern has not
actually made any cash investment in Birchwood at this time; its "aggregate
investment" in the partnership consists of its guaranty of 50% of the forward
equity commitment (about $43.7 million), which will be invested when the plant
is
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completed. Southern sold a 50% general and limited partnership interest in the
partnership to a non-associate company in December, 1994, in order to satisfy
the limitations under the PURPA regulations on utility ownership of a QF, and
realized a profit of approximately $28 million on the sale.
o Kalaeloa Power Partners, L.P. ("Kalaeloa") - Southern indirectly
through its ownership of an EWG holds a 33-1/3% limited partnership interest in
Kalaeloa, which owns and operates a 180 MW oil-fired combined-cycle cogeneration
plant on the island of Oahu, Hawaii. The plant produces power for sale to
Hawaiian Electric Co. under a long-term contract and steam for sale to an
adjacent refinery. The facility, which was placed in service in 1990 and 1991,
is also certified as a QF. Southern has recovered its original investment in
Kalaeloa through partnership distributions, but continues to be obligated under
the terms of its guaranty of a $2.5 million contingent equity funding
commitment, which is included in "aggregate investment."
o Investments in Other Exempt Projects - As of February
29, 1996, Southern had invested an aggregate of $.8 million in
several other Exempt Projects which are developing or which
operate (but do not own) other facilities or foreign utility
systems; and in Southern Energy Marketing, Inc., a power marketer
which has been designated an EWG by the Federal Energy Regulatory
Commission ("FERC").5
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5 Southern Electric also structured and arranged for the financing of Southern's
purchase through a wholly-owned subsidiary, Mobile Energy Services Company,
L.L.C. ("Mobile Energy"), of the integrated energy and recovery complex inside a
large pulp, paper and tissue mill in Mobile, Alabama. (See File No. 70-8505,
Holding Co. Act Rel. Nos. 26185 and 26339, dated December 13, 1994 and July 13,
1995, respectively). The facility, which includes generating capacity of
approximately 110 MW, was acquired by Southern in December 1994 for a purchase
price of $350 million, which included assumption of certain existing tax-exempt
debt. Southern Electric operates and manages the Mobile Energy facility. In
August 1995, Mobile Energy sold approximately $255 million of first mortgage
bonds in a registered public offering and refinanced $85 million principal
amount of tax-exempt bonds, in each case on a fully non-recourse basis. A
portion of the proceeds of the first mortgage bonds ($190 million) was used to
repay a bridge loan provided by Southern at the time of the purchase. Reference
is made to the Registration Statement on Form S-1 of Mobile Energy (File No. 33-
92776) for a fuller description of the project and of the non-recourse
financing. Mobile Energy is not an Exempt Project.
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1.3 Risk Profile of Southern's Investments in Exempt Projects.
Investments in independent power production facilities and foreign utility
systems involve a variety of risks that are not necessarily present in the
traditional, regulated, electric utility industry. Southern Electric has
established comprehensive procedures to identify and address (i.e., limit and/or
mitigate) these risks.
The Project Review Process. Every potential project investment
opportunity developed by Southern Electric is subjected to a series of formal
reviews to ensure the project's soundness. The process begins with an annual
strategic plan which surveys independent power opportunities throughout the
world. This survey leads to the identification of projects and countries where
Southern Electric intends to pursue project development efforts and results in
budgeted levels of expenditure on those projects. Before Southern makes any
investment in a
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foreign country, an analysis of that country is presented to the board of
directors of Southern Electric and subsequently to the Finance Committee of
Southern's board of directors. The analysis focuses on political and economic
stability of a particular country, the government's commitment to private power,
the legal and regulatory framework for private investment in electricity
facilities, and whether local business practices will support long-term
investment of private capital. Both boards must approve foreign countries as
acceptable for investment. This careful planning and budgeting process helps to
mitigate an important risk of the independent power business: the expenditure of
development funds without a realistic expectation of success in terms of both
making investments in projects and in obtaining appropriate levels of
non-recourse financing on commercially reasonable terms.
Once development of a project is undertaken, milestones are established
to ensure that continuing expenditures on development are producing acceptable
results. In addition, project teams are required to identify the major
technical, financial, commercial and legal risks associated with their
particular project and whether and how those risks have been mitigated. In
addition, the members of the project team are responsible for the due diligence
investigation of risks that have been identified and must secure the concurrence
of an officer of Southern Electric with functional oversight over the relevant
subject matter for their conclusion.
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Finally, every project is subjected to increasing levels of management
review. Depending on the amount of Southern's anticipated financial exposure to
a particular project, the proposed investment must be approved successively by
the board of directors of Southern Electric, the Finance Committee of Southern's
board of directors (which is comprised entirely of outside directors), and
finally, by the full board of directors of Southern.
Significantly, the final project review process is to a large extent
replicated by the lenders who agree to provide construction or permanent debt
financing on a non-recourse basis, since repayment of that debt will depend
solely upon the success of the project. Project debt maturities are often
long-term (e.g., 15 or more years), meaning that the lenders' exposure to the
risks of a project extends for many years after closing or completion of
construction. Typically, project debt documents require the establishment of
plant overhaul, debt service and other funded reserves, all of which are
designed to preserve the asset and protect the financial performance of the
project against interruptions in revenues and other contingencies. Southern
Electric's success in arranging appropriate levels of non-recourse financing for
its exempt and non-exempt projects in effect serves as a validation of the
project review process described above.
Risk Mitigation of Independent Power Projects. Southern
Electric carefully evaluates the potential risks of an
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independent power project or foreign utility system before Southern's funds are
committed.
o Operating risks are typically addressed in a number of ways. Southern
Electric has generally limited its project development efforts to technologies
with which it has existing competencies in coal, gas, oil, or hydroelectric
generation. Due diligence of operating assumptions is carried out by Southern
Electric's engineers with experience in the technology being evaluated and by
outside technical consultants. The risk of changes in fuel price is often passed
through to the purchaser of electricity under the negotiated terms of a
long-term power sales agreement. Other operating risks can be covered by
equipment warranties and by casualty, business interruption and other forms of
insurance. Further, when Southern Electric or an affiliate is responsible for
managing the day-to-day operations of the facilities owned by Exempt Projects,
its ability to address and correct operating problems is far greater than would
be the case if operating control were in the hands of a third party.
o Construction risks are typically addressed under fixed-price
contracts with milestones and performance guarantees (e.g., guaranteed heat
rates, availability factors), backed by appropriate levels of liquidated
damages. The credit-worthiness and "track record" of the construction contractor
is a very important consideration in this regard. In those cases where Southern
Electric serves as its own general construction contractor, as is the case in
the Birchwood project, it looks to
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pre-negotiated damage provisions from sub-contractors to protect against cost
over-runs and schedule delays.
o Commercial risks. Many independent power projects rely on the
"off-take" commitment of a single power purchaser, usually but not always the
local utility company, to eliminate all or most of the risk of variation in
revenues. In such cases, Southern Electric makes an assessment of the
credit-worthiness of the power purchaser over the life of the project and/or
seeks to have a fall-back plan in place in case the off-taker defaults.
With other projects, particularly in competitive power markets outside
the U.S., long-term off-take contracts are generally not available and
electricity prices are determined by supply and demand. Southern Electric
conducts extensive investigations of the electricity markets in these
environments. Further, Southern Electric seeks to ensure that a project will be
capable of producing electricity at or below long-run marginal costs in the
region, thus providing that the project will be a competitive supplier. Examples
are the Alicura hydroelectric project in Argentina and the two new coal-fired
Mejillones plants, the first of which was recently completed, to serve the
market in northern Chile.
o Financial risks. Southern Electric addresses the
financial risks of its projects in a variety of ways. First and
foremost, the permanent debt financing for Southern Electric's
projects is, by its express terms, non-recourse to Southern or
any associate company (other than other Exempt Projects or
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intermediate subsidiaries organized to acquire and hold Southern's interests in
Exempt Projects), except to the extent that project debt may be expressly
guaranteed by Southern. This means that the debt of each project or foreign
utility system is secured solely by its assets and revenues, and creditors have
no ability to seek repayment upon default from Southern. This method of
financing ensures that Southern's exposure to any independent power project is
limited to the amount of its equity commitment (which would include the amount
of any limited guaranty Southern may agree to provide) and that Southern's
domestic public utility subsidiaries (the "Operating Companies") and their
customers bear no risk of a project's failure or financial distress.
As indicated, from time-to-time, Southern may agree to provide limited
guarantees (i.e., limited in amount or duration, or both) or other forms of
credit support in connection with non-recourse financings, but these financial
supports are carefully monitored and treated as a part of Southern's equity
commitment for regulatory reporting and internal control purposes.6 To
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6 The purposes of such limited guarantees and the inclusion
thereof as a part of Southern's committed equity has previously
been considered by the Commission. See The Southern Company, et
al., Holding Co. Act Rel. No. 26339, dated July 13, 1995
(approving financing and related limited guarantees in connection
with Southern Electric's Mobile Energy project, which is not an
Exempt Project).
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date, Southern has never been called upon to fund its obligation
under any such guaranty.7
In addition to the essentially non-recourse nature of project debt
financing, project debt is carefully structured to meet, or match, the
characteristics of the particular project. For example, when the value of a
project depends on a long-term, fixed price, off-take contract (i.e., a power
purchase contract), the project debt is typically designed to be of a similar
term, with scheduled debt payments usually covered by fixed charges (usually the
capacity payment component in the contract). On the other hand, where there is
no long-term, fixed source of revenue, the percentage of non-recourse debt
financing is typically smaller, so that financial risk is not induced by
excessive debt levels. Thus, while projects with long-term off-take contracts,
such as the Birchwood project, have debt capitalization levels in the 70% to 80%
range, Southern Electric's other projects are leveraged at (or often below) the
level of U.S. regulated utilities.
Another financing risk is the potential variability of
interest rates. This risk is addressed, in part, by borrowing,
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7 At February 29, 1996, Southern's "aggregate investment" in Exempt Projects
included approximately $67.5 million of financial guaranties (i.e., guaranties
by Southern of the securities of Exempt Projects and certain intermediate
subsidiaries), including Southern's guaranty of a subsidiary's $43.7 million
forward equity commitment to the Birchwood project (which is expected to be cash
funded in November 1996 when the Birchwood facility is placed in commercial
operation), and a $17 million guaranty of a promissory note due March 1999
issued by SEI Holdings, Inc., a wholly-owned subsidiary of Southern which now
indirectly holds Southern's interests in all Exempt Projects.
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to the extent possible, on a long-term, fixed-rate basis. After contractual
terms for a project have been agreed but before financial closing, Southern
Electric is also exposed to interest rate variability. This risk can be
mitigated by purchasing financial instruments which provide hedges against
interest rate volatility. The use of these instruments is monitored on a daily
basis by the senior financial officers of Southern Electric to ensure they are
used properly.
o Foreign currency exchange risk. There are several ways in which
Southern Electric has addressed this risk element, depending on the status of
the host country. In countries which do not have a history of stability in the
management of their exchange policy, part or all of the revenue from a project
is payable in or indexed to hard currency (almost invariably U.S. dollars). In
addition, Southern Electric has negotiated back-up guarantees or other
undertakings by the central government to ensure that the U.S. dollar payments
due under an off-take contract are actually made available by the central bank
or ministry of finance.
In some countries, the source of revenues is tied in other ways to the
U.S. dollar. For example, the capacity charge element of revenues derived by the
Alicura and EDELNOR projects is tied to the cost of new capacity measured in
U.S. dollars. In addition, in Chile, part of EDELNOR's revenues is expressed in
a unit of account (i.e., a notional monetary unit) which adjusts
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for any inflation of the Chilean peso, thereby protecting EDELNOR
against depreciation of the currency.8
In other cases (SWEB, for example), the non-recourse project debt is
borrowed in the same currency as the project's revenues, thereby ensuring a
match between debt service obligations and operating income. In addition, in
more developed countries, long-term currency swaps are available to provide
further hedging for the equity component of the investment.
o Legal risks. Legal risks are addressed by careful
review of any investment by legal counsel, including local and
international counsel where foreign projects are concerned. Such
legal reviews address regulatory and permitting risks, environmental risks, the
adequacy and enforceability of guarantees or other contractual undertakings of
third parties, the status of title to utility property, and the obligations
inherent in the financing arrangements.
In addition to the specific risks mentioned above, investing outside
the U.S. can entail country-specific risks related to political or economic
performance. As indicated above, Southern Electric evaluates country risk at the
outset of any project development effort and attempts to mitigate this risk
through a number of measures. Most important, the country review
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8 Specifically, the equivalent of approximately $1.2 million per year of
EDELNOR's revenues are paid (or expressed as) a "unit of account." A "unit of
account" essentially adjusts payment obligations under a contract to reflect
changes in the price level due to inflation. In effect, the revenues under such
a contract have a built-in "cost-of-living" adjustment.
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process described above ensures that the political and economic stability of any
country has been reviewed at several decisional levels up to and including
Southern's board of directors before any investment occurs. In addition to a
general review, the country analysis focuses specifically on the country's
electric sector and on the government's support for private ownership in that
sector.
Also at the outset of development work in a foreign country, Southern
Electric seeks local partners who are experienced in doing business in the host
country.9 Local partners are a very important element in mitigating the risk of
future expropriation or unfair regulatory treatment. An additional mitigating
factor is the participation of official or multilateral agencies in a project.10
When funds for the project are supplied by government-sponsored export credit
agencies or other governments or institutions, such as the World Bank through
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9 For example, in connection with the Alicura project investment, Southern
teamed with Bemberg Investments S.A., a diversified Argentinean industrial group
with interests in electric distribution, and the governments of two of Chile's
provinces. Southern's partner in the PowerGen project is T&TEC, the state-owned
utility company and the purchaser of PowerGen's output. The 50% interest in
Freeport Power not held by Southern is owned by International Diversified
Utilities, a Bahamian company with other interests in the Freeport area. 10 As
examples, the International Finance Corporation (a unit of the World Bank)
served as financial advisor to the government of Trinidad and Tobago in
connection with the PowerGen project; a Spanish export credit agency provided
the non-recourse debt to EDELNOR; and Southern Electric is currently working
with various export credit agencies, including the U.S. Export-Import Bank, to
secure financial backing for a "green field" power project in Indonesia.
<PAGE>
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its International Finance Corporation affiliate, the host country has strong
incentives not to take actions which would harm a project's viability. In
addition, political risk can often be addressed through political risk insurance
obtained from the Overseas Private Investment Corporation ("OPIC"), a U.S.
agency, or the Multilateral Investment Guaranty Agency ("MIGA"), a World Bank
affiliate, or in the commercial insurance market.11
Portfolio Diversification. Apart from the detailed and
comprehensive approach to the specific risks described above, Southern
Electric's fundamental view is that the best long-term approach to managing the
risk of investing in the independent power business is through diversifying both
the type and the location of projects. In this regard, Southern Electric
recognizes that the risk inherent in any investment cannot be eliminated
entirely, even by the most careful approach to project development.
Consequently, Southern Electric is committed to diversifying its investments
across countries and regions of the
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11 Political risk insurance is available to insure the project debt or the
return of an investor's equity. One can also insure against outright
expropriation, acts of civil violence, or even "creeping" nationalization
brought about by punitive regulation. As examples of political risk insurance,
Southern Electric has negotiated an Indonesian government "support letter"
backing the obligation of the national utility, which will be the wholesale
power purchaser from a project currently under development in Indonesia; a
similar "implementation agreement" with the government of Trinidad and Tobago
which backs the obligation of T&TEC under the power purchase agreement; and, in
connection with another project which is under development in Pakistan, a
"facilitation agreement" with the government of Pakistan guaranteeing the power
purchaser's obligations, as well as the convertibility of project revenues to
U.S. dollars and repatriation of income.
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world. Southern Electric's strategy has been to invest in North America (outside
the core regulated business of Southern), Latin America (including the
Caribbean), Europe and Asia. Substantial investments have been made in the first
three regions, and extensive development efforts are underway in Asia.
Regional diversification is important since economic and political
instability, when they have occurred historically, have tended to involve
multiple countries in a region. Accordingly, Southern's board of directors may
set limits on investment in specific countries which vary according to an
assessment of the country's stability.
Another element of Southern Electric's diversification policy is to
achieve a balance between so-called "green-field" projects and acquisitions of
existing facilities and power systems. Green-field projects are those that
involve completely new development and construction of electric facilities,
principally generating stations. Green-field projects involve a higher degree of
risk since they entail a lengthy process of development and construction. Funds
are expended during the early years of such projects; return on investment is
not earned until the project is in operation. Nevertheless, while these projects
have higher levels of risk and deferred returns, they are important to Southern
Electric because they generally produce higher rates of return on investment
than investments in existing assets and they lay the foundation for continued
earnings growth for Southern after the turn of the century.
<PAGE>
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To balance these green-field project development efforts, Southern has
also purchased assets that are already in operation, either from existing
private owners (e.g., SWEB; Freeport Power) or through privatizations (e.g.,
Alicura, EDELNOR, PowerGen). These acquisitions reduce the risk of Southern's
overall business by producing near-term earnings without significant development
or construction risk.
The result of this balanced portfolio strategy is that Southern is not
dependent on any single country, regulatory environment, or type of asset for
its earnings from independent power projects and foreign utility investments. In
addition, while Southern Electric has successfully developed significant
investments in projects which are expected to produce long-term results, it has
also ensured that Southern's portfolio of projects will add cash flow and
earnings for Southern shareholders in the immediate future, thereby supporting
share value and dividend growth.
1.4 Potential Investments in Additional Exempt Projects. Southern
Electric is currently investigating, alone and in conjunction with others,
investment opportunities in several additional domestic and foreign power
projects and existing foreign utility systems. Most of these ventures are
expected to qualify as either EWGs or FUCOs. In particular, several foreign
countries, such as Hungary and Jamaica, are now privatizing state-owned utility
systems. Other countries, such as Korea,
<PAGE>
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Taiwan and Indonesia, are promoting private investment to construct, own and
operate generating plants.
Southern is committed to making additional, substantial,
investments in Exempt Projects, primarily for the following reasons:
There has been since 1988, and is projected for at least the
next ten years to be, little or no need for Southern to make any significant new
equity investment in any of the Operating Companies. Thus, acquisitions of
Exempt Projects present Southern with the opportunity to continue to grow
through reinvestment of retained earnings in an industry sector that Southern
has decades of experience in, while at the same time diversifying overall asset
risk.
Second, Southern Electric has purposely pursued investments in utility
systems in countries, such as England, Argentina and Chile, which have moved
much further than the United States towards deregulation and full competition in
both wholesale and retail electricity markets. Southern believes that the
creation and maintenance of value for its shareholders will depend critically on
its ability to operate its core business in the southeastern U.S. successfully
as that business becomes subject to increasing competition. Southern Electric's
experience in markets that are already largely deregulated and its investment in
power marketing in the U.S. will be critical to the long-term success in the
core business. Moreover, the lessons learned from these markets provide Southern
with insights about the features
<PAGE>
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of market structures that produce efficient and equitable results for consumers
and shareholders. These insights will allow Southern to play a role in shaping
the evolution of the electric sector in the U.S.
1.5 Proposed Increase in Financing of Exempt Projects. For the reasons
stated above, Southern hereby requests that the Commission exempt Southern from
the requirements of Rule 53(a)(1) such that Southern may use the net proceeds of
currently and subsequently authorized financing and issue Guaranties in an
aggregate amount at any time outstanding which, when added to Southern's direct
and indirect "aggregate investment" in all Exempt Projects, would not at any
time exceed Southern's "consolidated retained earnings." Based on Southern's
"aggregate investment" in all Exempt Projects (approximately $1.211 billion at
February 29, 1996) and "consolidated retained earnings" at December 31, 1995
(approximately $3.365 billion), such limitation would allow financing of
additional investments in Exempt Projects of approximately $2.154 billion.
Southern is not herein requesting any authority to issue and sell any
additional common stock, notes evidencing borrowings, or Guaranties, or any
other modification to any other terms or conditions of the Financing Orders.
Item 2. Fees, Commissions and Expenses.
The fees, commissions, and expenses paid or to be paid or incurred in
connection with the filing of this Application or
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Declaration are estimated not to exceed $75,000, including the Commission's
$2,000 filing fee and fees of Southern's counsel, estimated at $70,000.
Item 3. Applicable Statutory Provisions.
3.1 General Provisions. The proposal herein is subject to Sections
6(a), 7, 12(b), 32 and 33 of the Act and Rules 45, 53, 54 and 100(a) thereunder.
Rule 53 provides that, if each of the conditions of paragraph (a) thereof is
met, and none of the conditions of paragraph (b) thereof is applicable, then the
Commission may not make certain adverse findings under Sections 7 and 12 of the
Act in determining whether to approve a proposal by a registered holding company
to issue securities in order to finance an investment in any EWG or to guaranty
the securities of any EWG. Giving effect to the proposals contained herein,
Southern will satisfy all of the conditions of Rule 53(a) except for clause (1)
thereof, since Southern is proposing herein that Southern's "aggregate
investment" may exceed 50% of Southern's "consolidated retained earnings." None
of the conditions specified in Rule 53(b) is or will be applicable.
3.2 Analysis of Rule 53(c) Issues. Rule 53(c) states that, in
connection with a proposal to issue and sell securities to finance an investment
in any EWG, or to guarantee the securities of any EWG, a registered holding
company that is unable to satisfy the requirements of paragraph (a) or (b) of
Rule 53 must "affirmatively demonstrate" that such proposal:
<PAGE>
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(i) will not have a substantial adverse impact upon the financial
integrity of the registered holding company system; and (ii) will not
have an adverse impact on any utility subsidiary of the registered
holding company, or its customers, or on the ability of State
commissions to protect such subsidiary or customers.
Southern addresses each of these requirements as follows:
1. The use of common stock proceeds, borrowings and
Guaranties to make investments in EWGs (as well as in FUCOs) in
amounts of up to Southern's "consolidated retained earnings" will
not have a "substantial adverse impact" on the financial
integrity of the Southern System.
The lack of any "substantial adverse impact" on Southern's financial
integrity as a result of increased levels of investments in Exempt Projects can
be demonstrated in several ways, including by analyses of historic trends in
Southern's consolidated capitalization ratios and retained earnings, the market
view of Southern's securities, and Southern's proven success in obtaining
appropriate levels of non-recourse debt financing and third-party equity for its
associate Exempt Projects. Consideration of these and other relevant factors
supports the conclusion that the issuance of securities by Southern to finance
investments in Exempt Projects exceeding the
<PAGE>
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50% consolidated retained earnings limitation in Rule 53(a)(1) will not have any
"substantial adverse impact" on the financial integrity of the Southern System.
o Aggregate investments in Exempt Projects in amounts up to 100% of
Southern's "consolidated retained earnings" would still represent a relatively
small commitment of capital for a company the size of Southern, based on various
key financial ratios at December 31, 1995. For example, investments in this
amount would be equal to only 16.3% of Southern's total capitalization ($20.7
billion), 15.4% of consolidated net utility plant ($21.8 billion), 11.0% of
total consolidated assets ($30.6 billion), and 20.4% of the market value of
Southern's outstanding common stock ($16.5 billion).
o Southern's consolidated retained earnings has grown on average
approximately 8.7% per year over each of the previous 5 years. Consolidated
retained earnings increased $292 million from 1994 to 1995, a 9% increase.
o Southern's consolidated capitalization ratios at December 31, 1995
(55% equity, 45% debt) (excluding non-recourse project debt) are well within
industry norms and within the limits set by the independent rating agencies for
"A" rated companies.
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Projected 1996 Capitalization Ratios:
(Excluding Non-Recourse Project Debt)
Equity 55% (common - 47%; preferred - 8%)
Debt 45%
'A' Industry Benchmark
Average* 'A'*
Equity 52% 48%
Debt 48% 52%
*(Source: 'A' Industry average - Regulatory Research Associates, Inc.,
January 17, 1996 (includes A-, A, A+); Benchmark 'A' - Standard &
Poor's, Creditweek, October 27, 1993)
o There is no indication that Southern's ability to raise common equity
has been adversely affected by investments in Exempt Projects. In fact, just the
opposite appears to be true, relative to the rest of the industry. Southern has
completed two recent public offerings of common stock, in January 1994 and
January 1995, both by competitive bids. In each case, the net price per share
paid to Southern was greater than the last sales price before the underwriting
agreement was executed. Net proceeds of the January 1995 sale ($20.56 per share)
compares favorably to the then per share net book value for Southern's common
stock ($12.47), resulting in a market-to-book ratio of 165%. The market's
assessment of Southern's future growth and earnings also compared favorably to
other electric utility
<PAGE>
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issuers in the 1994 - 1995 time frame. This can be shown by comparison of
price/earnings and market-to-book ratios, both of which were above the electric
utility industry average in that period. These measures indicate investor
confidence in Southern's ability to deliver shareholder value.
1992 1993 1994 Current
---- ---- ---- -------
P/E Ratio
Southern 12.7 14 13.2 14.8 (as of 12/31/95)
Electric Industry* 14.8 15.1 11.8 12.2 (as of 9/29/95)
Market-to-Book
Ratio:
Southern 168% 184% 160% 188% (as of 12/31/95)
Electric Industry* 160% 161% 133% 147% (as of 9/29/95)
*(Source: Historical - Compustat Electric Utilities Database; Current -
Utility Focus, Regulatory Research Associates, Inc., January 1996)
o In recent years, Southern has been more conservative than the
industry as a whole in its dividend payout policy. This can be shown by
Southern's dividend payout ratio (percentage of earnings paid out in dividends),
which has been significantly below the electric utility industry average. The
implication of a conservative payout policy is that Southern's earnings are more
than adequate to cover current dividend levels and to support the growth in
dividend levels needed to attract common stock
<PAGE>
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investors, while continuing to strengthen the equity base through retained
earnings growth.
1992 1993 1994 1995
---- ---- ---- ----
Payout Ratio (%):
Southern 72.9 72.4 77.5 73.5
Electric Industry* 84.3 78.6 81.4 77
*(Source: Historical - Compustat Electric Utilities Database; 1995 -
Regulatory Research Associates, Inc., December 1995 (for 12 months ended
September 30, 1995))
o The market's assessment of the overall quality of Southern Electric's
portfolio of projects (Exempt Projects and Mobile Energy) is demonstrated by the
success that Southern Electric has had in obtaining appropriate levels of
non-recourse debt to finance and refinance the operations of these entities, and
in selling down portions of its equity investments in such projects. For
example, Southern Electric recently arranged a $71 million non-recourse
refinancing of a portion of Southern's investment in the Power Generation
Company of Trinidad and Tobago, a $35.3 million non-recourse refinancing of a
portion of Southern's investment in the EDELNOR project, and a sale to a third
party of a 50% interest in the Birchwood project at a $28
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million profit.12 At December 31, 1995, non-recourse debt for all Exempt
Projects (including debt of intermediate subsidiaries) totalled $1,685 million,
or approximately 53.4% of capitalization of those entities.13 Included as
Exhibit H hereto is a table showing the breakdown in Exempt Project non-recourse
debt.
o As previously described, Southern's portfolio of Exempt Projects is
well diversified, by country, project type, and stage of development (i.e., most
are in operation or nearing completion).
o Revenues and income from Exempt Projects have made a
modest but important contribution to Southern's consolidated
revenues and consolidated earnings.14
o Prior to making its first investment in a foreign Exempt Project in
mid-1993, Southern Electric projected that, for a number of years, returns on
equity for the project portfolio would be below that earned by Southern on its
domestic public utility operations. Southern Electric also projected that the
project portfolio would provide a negative contribution to
- --------
12 As indicated above, fn. 5, Southern Electric also recently completed a public
offering by Mobile Energy of approximately $255 million of first mortgage bonds
and $85 million of tax-exempt bonds. 13 Debt capitalization of Southern
Electric's project portfolio as a whole (i.e., including the Mobile Energy
project, which is not an Exempt Project) is about 57.3%. 14 Filed herewith as
Financeial Statements, pursuant to Rule 104, is a table showing the breakdown in
revenues and earnings of each of the Exempt Projects (as well as of Mobile
Energy, which is not an Exempt Project) for the 12 months ended December 31,
1994 and December 31, 1995.
<PAGE>
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earnings per share in the early years, because initial project investments would
not contribute sufficient earnings relative to the shares of common stock issued
by Southern to finance such investments and related development expenses. At the
same time, due to the higher growth in the independent/foreign power industry as
a whole, Southern Electric projected that the project portfolio would make a
positive contribution to earnings after the turn of the century. Southern
Electric now projects that the project portfolio will earn a return on
Southern's associated investment of approximately ["P"]% in 1996, which is
somewhat higher than previously forecast.
The project portfolio's performance is reviewed annually by comparing
the estimated value of Southern's total project investments (which is audited by
Arthur Andersen) to the amount of equity Southern has invested in those projects
plus a return thereon at a rate equal to Southern's cost of equity capital.
These amounts are currently approximately equal.
o None of the conditions described in paragraph (b) of Rule 53 is
applicable. Specifically, (a) there has been no bankruptcy of a Southern
associate company, (b) Southern's consolidated retained earnings, as previously
indicated, has increased in recent years, and (c) Southern has never reported an
"operating loss" attributable to its Exempt Projects. Further, with the
completion of the purchase of the capital shares of SWEB, and with the Birchwood
project scheduled to go into commercial operation in November 1996 and EDELNOR's
Mejillones I
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Plant in December 1995, it is reasonable to expect a positive impact on the
"operating income" of Southern's Exempt Projects as a group. Finally, no
associate Exempt Project has ever defaulted under the terms of any financing
document.
2. The proposed increased use of financing proceeds to invest in Exempt
Projects will not have an "adverse impact" on any utility subsidiary of
Southern, or its customers, or on the ability of the four State commissions to
protect such customers.
The conclusion that the Operating Companies and their customers will
not be adversely impacted by increased levels of investment by Southern in
Exempt Projects is well supported by analyses of the Operating Companies'
financial integrity (including ability of the Operating Companies to issue
senior securities), lack of current and anticipated need for any significant
amount of equity capital from Southern, continuing compliance with other
applicable requirements of Rule 53(a), and the proven effectiveness of State
commission oversight.
o All of Southern's investments in EWGs (as well as in
FUCOs) are segregated from the Operating Companies. No Operating
Company has extended credit or sold or pledged its assets
directly or indirectly to any Exempt Project,15 and the
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15 It should be noted that Section 33(f), with a minor exception, prohibits
State regulated public utilities from financing investments in FUCOs, and
Section 33(g) prohibits outright any pledge or encumbrance of utility assets by
a State regulated public utility for the benefit of any associate FUCO.
<PAGE>
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indebtedness of the Exempt Projects is not otherwise recourse to any Operating
Company. Southern represents that it will not seek recovery through higher rates
to the Operating Companies' utility customers in order to compensate Southern
for any possible losses that it may sustain on investments in Exempt Projects or
for any inadequate returns on such investments.
o Debt (including short-term debt) ratios of the Operating Companies
are generally below (i.e., better than) industry averages for 'A'-rated electric
utilities. The current industry average for 'A'-rated electric utilities is
48%.*
Debt as % of 1991 1992 1993 1994 1995
- ------------ ---- ---- ---- ---- ----
Capitalization
- --------------
Alabama 47% 46% 45% 46% 48%
Georgia 52% 51% 49% 47% 43%
Gulf 52% 48% 45% 45% 45%
Mississippi 51% 44% 44% 44% 44%
Savannah 40% 40% 46% 45% 44%
*(Source: 'A' industry average-Calculated using Regulatory Research Associates,
Inc., January 17, 1996) Debt levels of the Operating Companies are projected to
steadily decline, moving to the 40-45% range by the year 2000. The reduction in
debt levels is attributable largely to projected growth in retained earnings.
o Additional investments in Exempt Projects will not have any negative
impact on the Operating Companies' ability to fund operations and growth since
the Operating Companies are not "competing" for Southern's capital. Over the
past 5 years, the
<PAGE>
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Operating Companies have funded substantially all of their construction
expenditures from internal sources of cash and from sales of senior securities
and other borrowings. The last significant equity infusion by Southern in the
Operating Companies was made in 1988 (approximately $280 million).16 Current
projections indicate that Southern will not have to make any significant equity
investment in any Operating Company for at least the next 10 years.
Operating Companies - Construction Expenditures:
Actual and projected expenditures, net of AFUDC ($million)*:
1991 1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ---- ----
1110 1096 1432 1524 1396 1116 1045
*(Source: Historical - Southern Company Financial & Statistical Review
1984-1994; Projections - Internal)
Percent internally generated:
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
107% 119% 106% 88% 108%
Southern currently estimates that for 1996 and 1997 the percentage of
construction funded from internal sources will range from 100% to 130%.
o The Operating Companies' ability to issue first mortgage bonds and
preferred stock in the future depends upon earnings
- --------
16 Southern contributed $25 million to Mississippi Power Company in 1994 and $30
million in 1993. There have been no other capital contributions to any Operating
Company since 1988.
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coverages at the time such securities are issued; that is, the Operating
Companies must comply with certain coverage requirements designated in their
respective mortgage bond indentures and corporate charters. Currently, the
Operating Companies anticipate having more than adequate earnings coverages for
financing requirements in the foreseeable future.17
o The senior securities of each of the Operating Companies are
currently rated 'A+' by Standard & Poor's and have all experienced upgrades in
the last 5 years. The Operating Companies' coverages have generally been within
the 'A' and 'AA' ranges set by the major rating agencies in recent years. The
Operating Companies continue to show strong financial statistics as measured by
the rating agencies (pre-tax interest coverage, debt ratio, funds from
operations to debt, funds from operations interest coverage, and net cash flow
to capital expenditures).
Bond Rating: 1991 1992 1993 1994 1995(Current)
- ------------ ---- ---- ---- ---- -------------
Alabama A A A A+ A+
Georgia A- A- A- A A+
Gulf A A A A A+
Mississippi A+ A+ A+ A+* A+
Savannah A A A A+ A+
* (Mississippi Power was upgraded by Moody's to Aa3 from A1 in 1994).
- --------
17 Indenture earnings coverages for the Operating Companies have recently ranged
from about 4.92x to 6.69x, and charter earnings coverages have ranged from about
2.5x to 3.17x, in each case well above the required coverages of 2x and 1.5x,
respectively.
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o Southern has complied and will continue to comply with the
requirements of Rule 53(a)(2) regarding preparation and making available of
books and records and financial reports regarding Exempt Projects.
o Southern has complied and will continue to comply with the
requirements of Rule 53(a)(3) regarding limitation on use of
Operating Company employees in connection with providing services
to Exempt Projects. Increased levels of investment in Exempt
Projects are not expected to have any impact on utilization of
Operating Company employees.18 The Operating Companies have not
and will not increase staffing levels or acquire other resources to
support the operations of Exempt Projects. In this regard, the
vast majority of the operational employees of the Exempt Projects
are hired or contracted locally. This is true even where Southern
Electric is the operator. Project development, management, and
home office support functions for the Exempt Projects are largely
performed by Southern Electric, which has approximately 411 full
time employees, and by outside consultants (e.g., engineers,
investment advisors, accountants and attorneys) engaged by Southern
Electric. Accordingly, Southern Electric's need for the support of
personnel provided by the Operating Companies has been and is
projected to remain relatively modest.
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18 On average, since January, 1993, no more than 1/2 of 1% of the employees of
the Operating Companies and Southern Company Services have been used at any one
time to render services directly or indirectly to Exempt Projects.
<PAGE>
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o There is no evidence that the four State commissions have been or
will be unable to protect utility customers. The State commissions have not
raised objections to Southern's investments in Exempt Projects.19 Southern,
through Operating Company contacts, has consulted frequently with State
commission staffs in regard to its financing and acquisition proposals. Certain
State commission staffs (and FERC staff) have participated with the SEC audit
teams in connection with audits of Southern Electric and Freeport Power, and it
is assumed that some or all will so participate in future audits. Audits by the
SEC have not raised "significant" questions.
Item 4. Regulatory Approval.
The issuance and sale of securities by Southern and the use of the
proceeds thereof to acquire or guaranty the securities of any Exempt Project are
not subject to the jurisdiction of any State commission or of any federal
commission other than this Commission. Southern has complied with the
requirements of Rule 53(a)(4) by submitting a copy of this Application or
Declaration to the public utility commissions in Georgia, Alabama, Mississippi
and Florida.
Item 5. Procedure.
For the reasons stated above, Southern hereby requests that the
Commission exempt Southern from the requirements of Rule
- --------
19 Section 33(c)(2) provides that the State commissions may make recommendations
to the SEC regarding a registered holding company's relationship to FUCOs, and
that the SEC shall "reasonably and fully consider" such recommendations.
<PAGE>
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53(a)(1) such that Southern may use the net proceeds of common stock sales,
borrowings and Guaranties under the Financing Orders in an aggregate amount at
any time outstanding which, when added to Southern's direct and indirect
"aggregate investment" in all Exempt Projects, would not at any time exceed
Southern's "consolidated retained earnings." Based on Southern's current
"aggregate investment" in all Exempt Projects (approximately $1.211 billion at
February 29, 1996) and "consolidated retained earnings" (approximately $3.365
billion at December 31, 1995), such limitation would allow financing of
additional investments in Exempt Projects of approximately $2.154 billion.
Item 6. Exhibits and Financial Statements.
(a) Exhibits.
F - Opinion of Counsel. (To be filed by
Amendment.)
G - Form of Federal Register Notice.
(Previously filed).
H - Non-Recourse Debt of Exempt Projects and
certain intermediate subsidiaries at
December 31, 1995.
(b) Financial Statements.
Breakdown of revenues and net income of each of
Southern's Exempt Projects for the 12-month periods
ended December 31, 1994 and December 31, 1995. (Filed
separately pursuant to Rule 103). "P" (17 CFR
ss.232.101(c)(1)(i)).
Item 7. Information as to Environmental Effects.
(a) In light of the nature of the proposed transactions, as
described in Item 1 hereof, the Commission's action in this matter
<PAGE>
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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 company has duly caused this statement to be signed on
its behalf by the undersigned thereunto duly authorized.
Dated: March 19, 1995 THE SOUTHERN COMPANY
By: /s/Tommy Chisholm
Tommy Chisholm, Secretary
Exhibit H
Non-Recourse Exempt Project Debt at December 31, 1995*
(In Thousands)
SWEB $ 263,313
SWEB - Intermediate Subsidiary 993,522 (1)
Alicura 172,800
EDELNOR 130,641
EDELNOR - Intermediate Subsidiary 40,780
Freeport Power 234
Freeport Power - Intermediate Subsidiary 12,679
PowerGen - Intermediate Subsidiary 71,000
----------
Total Consolidated Non-Recourse Debt $1,684,969
*Exempt Project Debt is stated at 100%
(1)Partially retired in January and February 1996 from proceeds of sale of
National Grid Company shares.
