File No. 70-8733
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 11
(Post-Effective Amendment No. 8)
to
APPLICATION OR DECLARATION
on
FORM U-1
APPLICATION OR DECLARATION
under
The Public Utility Holding Company Act of 1935
THE SOUTHERN COMPANY SOUTHERN ENERGY, INC. MOBILE ENERGY SERVICES
270 Peachtree Street, N.W. 900 Ashwood Parkway HOLDINGS, INC.
Atlanta, Georgia 30303 Suite 500 900 Ashwood Parkway
Atlanta, Georgia 30338 Suite 450
Atlanta, Georgia 30338
SOUTHERN ENERGY, SOUTHERN ENERGY MOBILE ENERGY SERVICES
RESOURCES, INC. NORTH AMERICA, INC. COMPANY, L.L.C.
900 Ashwood Parkway 900 Ashwood Parkway 900 Ashwood Parkway
Suite 500 Suite 500 Suite 500
Atlanta. Georgia 30338 Atlanta, Georgia 30338 Atlanta, Georgia 30338
(Name of company or companies filing this statement
and addresses of principal executive offices)
THE SOUTHERN COMPANY
(Name of top registered holding company parent of each
applicant or declarant)
Tommy Chisholm, Secretary Thomas G. Boren, President
The Southern Company SEI Holdings, Inc.
270 Peachtree Street, N.W. 900 Ashwood Parkway
Atlanta, Georgia 30303 Suite 500
Atlanta, Georgia 30338
(Names and addresses of agents for service)
The Commission is requested to mail signed copies of all orders,
notices and communications to:
W. L. Westbrook Thomas G. Boren, President
Financial Vice-President SEI Holdings, 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
<PAGE>
INFORMATION REQUIRED
The Applications and Declarations heretofore filed in File No.
70-8733, as amended, are hereby amended on a post-effective basis to provide the
additional authority requested below. This Amendment 11 (Post-Effective
Amendment No. 8) wholly supersedes Amendment 10 (Post-Effective Amendment No.
7).
Item 1. Description Of Proposed Transaction
1.1 Identity of Applicants.
The Applicants are the same legal entities shown on Amendment No. 10.
Effective January 1, 1998 SEI Holdings, Inc., changed its corporate name to
Southern Energy, Inc. ("Southern Energy") in order to support domestic and
international market awareness of The Southern Company ("Southern"). Southern
Energy is a wholly owned subsidiary of Southern, a holding company registered
pursuant to the Public Utility Holding Company Act of 1935 (the "Act"). Pursuant
to authority conferred by HCAR No. 26468 (February 2, 1996), Southern Energy
holds Southern's interests in Exempt Wholesale Generators ("EWGs") and Foreign
Utility Companies ("FUCOs") and certain other energy-related projects enumerated
by HCAR No. 26468.
Effective January 1, 1998 Southern Energy, Inc., changed its corporate
name to Southern Energy Resources, Inc. ("SERI") in order to reflect the project
development and technical services role authorized for SERI and the other
Special Purpose Subsidiaries of Southern Energy authorized by HCAR No. 26468
(February 2, 1996). SERI is the corporate successor to Southern Electric
International, Inc. authorized pursuant to HCAR No. 26212 (December 30, 1994).
Pursuant to authority conferred by HCAR No. 26468 (February 2, 1996), SERI is a
wholly-owned subsidiary of Southern Energy.
1.2 The Proposed Transaction.
Applicants propose to restructure the Southern system ownership of
Mobile Energy Services Company, L.L.C. ( "MESC"), an Alabama limited liability
company which owns and operates the Mobile Energy cogeneration project ("Mobile
Energy Project"). Specifically, MESC will bifurcate the limited liability
company membership interests issued by it into (i) voting membership interests
through which control is exercised and (ii) nonvoting economic interests which
exercise no control over MESC or the Mobile Energy Project. Under this
restructuring of the MESC ownership, Mobile Energy Services Holdings, Inc.
("MESH"), a direct wholly-owned subsidiary of Southern , will continue to own
99% of the voting membership interests of MESC and will continue to control
MESC, which in turn owns and operates the Mobile Energy Project. MESH will also
continue to own a 1% non-voting economic interest in MESC. Under the proposed
arrangement, a new special purpose subsidiary ("SE Mobile"), a direct or
indirect wholly-owned subsidiary of Southern Energy (formerly SEI Holdings,
Inc.) or Southern Energy North America, Inc., (a wholly owned subsidiary of
Southern Energy), will acquire from MESH non-voting securities in the form of
economic membership interests representing 98% of the economic interest in MESC.
SE Mobile will also acquire the remaining 1% voting interest in MESC and 1%
economic interest in MESC, currently held by SERI (formerly Southern Energy,
Inc., the successor to Southern Electric International, Inc.), a wholly-owned
subsidiary of Southern Energy. Ultimately, SE Mobile will hold 99% of the
nonvoting economic interest in MESC and 1% of the voting interest in MESC, and
MESH will hold 1% of the nonvoting economic interest and 99% of the voting
interest in MESC. The transfers of interests is anticipated to occur in at least
two stages, separated by twelve or more months.
Authority to complete the transfer is requested through June 30,
2000, coterminous with certain authority conferred in HCAR No. 26738 (July 2,
1997). Southern anticipates treating the transfer of the economic interest for
book accounting purposes as a dividend transfer of shares to Southern by MESH
and a contribution of the same shares by Southern to SE Mobile through
intermediate subsidiaries. The Commission previously authorized in HCAR No.
26468 (February 2, 1996) the issuance of a new class of non-voting preferred
stock by MESH to Southern and the transfer of that stock to Southern Energy and
to Southern Energy North America, Inc. (identified in HCAR No. 26468 as
"Domestic Holdings") in order "to direct some or all of the cash flow and income
from Mobile Energy to support the operations and future financings of Holdings
[Southern Energy] and Domestic Holdings [Southern Energy North America, Inc.]."
HCAR No. 26468 at fn. 5. [Emphasis Added]. The preferred stock transfer
authority was extended in HCAR No. 26543 (July 17, 1996) until June 30, 1997.
Southern, however, was unable to structure a capital-efficient and tax-efficient
public debt or equity offering by Southern Energy or any of its subsidiaries
within that time frame. Pursuant to HCAR No. 26738 (July 2, 1997), the preferred
stock authority was extended until June 30, 1998, and the authority to pay
dividends out of unearned surplus was extended until June 30, 2000. It now
appears that a transfer of economic interests would provide a source of support
for external financing preferable to the previously authorized transfer of
preferred stock. Applicants propose to retain the preferred stock transfer
authority extended by HCAR No. 29738 through June 30, 2000, but to surrender
that authority upon exercising the authority sought herein. In the event
Applicants determine that a preferred stock transfer will prove sufficient
support for external financing, upon the exercise of such authority, Applicants
will surrender the authority sought herein. 1.3. Background
By order dated February 2, 1996 (HCAR No. 26468) ( the "Initial
Order") Southern Energy (formerly SEI Holdings) was authorized, among other
things, to acquire the securities of one or more special-purpose subsidiaries
(called "Intermediate Subsidiaries") organized exclusively for the purpose of
acquiring and holding one or more EWGs or FUCOs or subsidiaries which derive or
will derive substantially all of their revenues from the ownership or operation,
or both, of certain categories of non-utility businesses, namely qualifying
facilities (as defined in the Public Utility Regulatory Policies Act of 1978);
steam production, conversion and distribution; and brokering and marketing of
electricity and other energy commodities. The Initial Order authorized the
formation of "Domestic Holdings" (now Southern Energy North America, Inc.) as an
umbrella organization for Southern Energy's domestic operations. Southern Energy
was also authorized to acquire from Southern the shares of SERI. (formerly
Southern Energy, Inc., successor to Southern Electric International, Inc.). The
Initial Order also authorized the issuance by MESC to Southern of a series of
preferred stock and contribution thereof by Southern to Southern Energy.
The Mobile Energy Project is a cogeneration facility. MESH currently
holds 99% of the membership interests in MESC. The remaining 1% in MESC is held
by SERI (formerly Southern Energy, Inc.). But for 100% ownership by Southern,
the Mobile Energy Project would constitute a qualifying facility under the
Public Utility Regulatory Policies Act of 1978. Because the Southern electric
system owns 100% of MESC, MESC is an "electric utility company" as defined by
Section 2(a) (3) of the Act. The Mobile Energy Project, however, is not a
"public utility" under either applicable Alabama law or the Federal Power Act.
Under the proposed arrangement Southern's economic interest in the Mobile Energy
project will be owned within the same group of companies which own Southern's
other interests in independent energy projects. That economic ownership,
however, would be passive in nature. Control of MESC, which is a public utility
under the Act, would continue to be exercised through MESH, a direct subsidiary
of Southern. The proposed issuance of securities by MESC and acquisitions of
securities by SE Mobile will result in no increase in investment in the Mobile
Energy Project and in no change in either the operation of the Mobile Energy
Project or the control of the Mobile Energy Project. Southern's realignment of
its ownership interest in this independent energy project places the economic
ownership with the ownership group of Southern's other independent energy
projects and will facilitate the evaluation of the performance of Southern's
independent energy portfolio by all interested parties, including the investment
community.
As stated in Southern's October 31, 1995, application in file No.
70-8733 the "primary objective for the reorganization of Southern's ownership in
Projects is to facilitate Holdings' [Southern Energy's] access to external
sources of debt and equity capital." This goal was to have been furthered
through the authority to transfer all cash flow and income from the Mobile
Energy Project to Southern Energy and its subsidiaries through the issuance and
transfer to them of a special class of preferred stock. Applicants anticipate
that the proposed transfer of economic ownership interests will serve the same
purpose more economically.
<PAGE>
1.4 Corporate Structure Under Applicable Alabama Law.
The Alabama Limited Liability Act (the "Alabama Act"), pursuant to
which MESC is organized, specifically provides for the bifurcation of securities
issued by Alabama limited liability companies into "financial rights,"
encompassing the right to share in profits and losses under Section 10-12-2(d)
of the Alabama Act and "governance rights" under Section 10-12-2(f) of the
Alabama Act. "Governance rights" are defined therein as wholly distinct from
"financial rights." Governance rights include all rights to manage the limited
liability company. Section 10-12-22 expressly allows the membership of an
Alabama limited liability company to restrict or enlarge the management rights
and duties of any class of persons, thus allowing for the bifurcation of
interests. Pursuant to the authority requested herein, MESC will amend its
operating agreement to make a clear distinction between voting (governance)
rights and non-voting economic (financial) interests. The Alabama Act, however,
does not permit a one member limited liability company. Thus, a second entity in
addition to MESH must be a member of MESC. Currently, SERI (formerly named
Southern Energy, Inc.) provides the required second member. Under this
post-effective amendment, SE Mobile would become the second member.
Item 2. Fees, Commission and Expenses.
The fees, commissions and expenses paid or incurred and to be paid or
incurred in connection with the proposals contained herein are estimated not to
exceed $5,000.
Item 3. Applicable Statutory Provisions.
In order to accomplish this transaction, MESC will exchange
outstanding MESC securities for two classes of membership interests, one
representing voting interests and the other nonvoting economic interests. SERI
must be authorized to transfer its resulting interest (1% voting/1% economic) to
SE Mobile. MESH must be authorized to transfer its nonvoting economic interests
( 98%) to SE Mobile. SE Mobile must be authorized to acquire these interests. SE
Mobile requests authority to acquire its economic interests cumulatively in two
transactions over a period of at least twelve months. These transactions are
subject to sections 6(a), 7, 9(a), 10, 12(b), 12(c) , 12(d), and 12(f) of the
Act and Rules 43 and 45 thereunder. Applicants submit that the applicable
standards of the Act have been met for the following reasons: the proposal makes
no change in the control of MESC, Southern does not incur any new financial
obligations by virtue of the proposed reorganization, the proposal makes no
change in the operation of the Mobile Energy Project, the proposal results in
substantially similar alignment of economic rights as previously authorize in
HCAR No. 26468 February 2, 1996), and the proposal results in an alignment of
the economic rights and risks associated with the Mobile Energy Project along
with the economic rights and risks of other independent energy projects within
Southern's corporate structure while retaining ownership of voting control in a
direct subsidiary of Southern.
Rule 54 Analysis: Rule 54 provides that, in determining whether to
approve an application which does not relate to any "exempt wholesale generator"
("EWG") or "foreign utility company" ("FUCO"), the Commission shall not consider
the effect of the capitalization or earnings of any such EWG or FUCO which is a
subsidiary of a registered holding company if the requirements of Rule 53(a),
(b) and (c) are satisfied.
Southern currently meets all of the conditions of Rule 53(a), except
for clause (1). At March 31, 1998, Southern's "aggregate investment," as defined
in Rule 53(a)(1), in EWGs and FUCOs was approximately $2.947 billion, or about
77.1% of Southern's "consolidated retained earnings," also as defined in Rule
53(a)(1), for the four quarters ended March 31, 1998 ($3.823 billion). With
respect to Rule 53(a)(1), however, the Commission has determined that Southern's
financing of investments in EWGs and FUCOs in an amount greater than the amount
that would otherwise be allowed by Rule 53(a)(1) would not have either of the
adverse effects set forth in Rule 53(c). See The Southern Company, Holding
Company Act Release No. 16501, dated April 1, 1996 (the "Rule 53(c) Order"); and
Holding Company Act Release No. 26646, dated January 15, 1997 (order denying
request for reconsideration and motion to stay).
In addition, Southern has complied and will continue to comply with
the record-keeping requirements of Rule 53(a)(2), the limitation under Rule
53(a)(3) on the use of Operating Company personnel to render services to EWGs
and FUCOs, and the requirements of Rule 53(a)(4) concerning the submission of
copies of certain filings under the Act to retail rate regulatory commissions.
Further, none of the circumstances described in Rule 53(b) has occurred.
Moreover, even if the effect of the capitalization and earnings of
EWGs and FUCOs in which Southern has an ownership interest upon the Southern
holding company system were considered, there is no basis for the Commission to
withhold or deny approval for the proposal made in this Application-Declaration.
The action requested in the instant filing does not have any effect upon
Southern's capitalization or the financial integrity of the Southern system, or
an adverse impact on Southern's public-utility subsidiaries, their customers, or
the ability of State commissions to protect such public-utility customers.
The Rule 53(c) Order was predicated, in part, upon an assessment of
Southern's overall financial condition which took into account, among other
factors, Southern's consolidated capitalization ratio and the recent growth
trend in Southern's retained earnings. As of December 31, 1995, the most recent
fiscal year preceding the Rule 53(c) Order, Southern's consolidated
capitalization consisted of 49.3% equity (including mandatorily redeemable
preferred securities) and 50.7% debt (including $1.68 billion of long-term,
non-recourse debt and short-term debt related to EWGs and FUCOs). As of year-end
1997, that ratio was 47.5% equity and 52.5% debt (including $4.593 billion of
long-term, non-recourse debt and short-term debt related to EWGs and FUCOs). The
proposed transaction will have no effect on consolidated capitalization. The
common equity component of Southern's pro forma consolidated capitalization
represents 35.1% of total capitalization at December 31, 1997. Since the date of
the Rule 53(c) Order, there has been no material change in Southern's
consolidated capitalization ratio, which remains within acceptable ranges and
limits of rating agencies as evident by the continued "A" corporate credit
rating of Southern Company. Specifically, in January 1997 Standard & Poor's
assigned Southern Company its corporate credit rating of "A" which was
consistent with the implied corporate rating previously held by Southern. This
implied rating had been in effect since May 1995. Therefore, since the April
1996 issue of the Rule 53(c) Order, the Southern consolidated credit rating has
remained at "A" thereby demonstrating Southern's continued strong financial
integrity. In addition, the underlying ratings of the affiliated operating
companies, which have a strong influence on the Southern Company corporate
rating, are all "A+". As a point of reference, the pro forma percentage of debt
in the total capital structure of the Southern domestic operating utility
companies is 45.1%, which is at the median total debt ratio of the Standard &
Poor's "A" rated vertically integrated utilities.1
Southern's consolidated retained earnings grew on average
approximately 8.6% per year from 1992 through 1996. In 1997, consolidated
retained earnings increased $78,148,000, or slightly more than 2%. The reduction
in the rate of earnings growth was primarily due to a $111 million windfall
profits tax assessed against South Western Electricity in the United Kingdom.
The total windfall profits tax for South Western Electricity was $148 million;
however, the $111 million reflects only Southern's 75% ownership. Excluding the
impact of such tax, earnings attributable to Southern's investment in EWGs and
FUCOs continue to contribute modestly to consolidated retained earnings.
Accordingly, since the date of the Rule 53(c) Order, the
capitalization and earnings attributable to Southern's investments in EWGs and
FUCOs has not had any adverse impact on Southern's financial integrity.
- --------
1 Currently, capitalization ratios, including short-term debt, for "A" rated
vertically integrated electric utilities have a median total debt to total
capital ratio of 45% as noted by Standard & Poor's in May 1997 for companies
rated both publicly and confidentially. Prior to issuing this rating standard,
the Standard & Poor's total debt to total capital benchmark for an "A" rated
vertically integrated investor-owned-utility having an average business position
was 47%.
<PAGE>
Item 4. Regulatory Approval.
No state or federal regulatory approval is required other than that
of the Commission. The Mobile Energy Project is not a "public utility" under
either Alabama law or the Federal Power Act.
<PAGE>
Item 5. Procedure.
Applicants 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 be effective.
Applicants 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 the Division opposes the matters covered
hereby.
Item 6. Exhibits and Financial Statements.
(a) Exhibits
A - Revised Exhibits A-2 and A-3 (To be filed by amendment)
B - Revised Exhibit B-6(d) (To be filed by amendment)
G - Form of Federal Register Notice
Item 7. Environmental Effects.
No other agency is preparing an environmental impact statement with
respect to this matter. This reorganization will not affect the operations
previously authorized and the issuance of the requested authority will not
constitute any major federal action significantly affecting the quality of the
human environment.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Public Utility Holding Company Act
of 1935, each of the undersigned companies has duly caused this statement to be
signed on its behalf by the undersigned thereunto duly authorized.
Dated: July 24, 1998
THE SOUTHERN COMPANY
By: /s/Tommy Chisholm
Tommy Chisholm
Secretary
MOBILE ENERGY SERVICES HOLDINGS, INC.
By: /s/Tommy Chisholm
Tommy Chisholm
Secretary
SOUTHERN ENERGY, INC.
By: /s/Tommy Chisholm
Tommy Chisholm
Vice President and Secretary
SOUTHERN ENERGY RESOURCES, INC.
By: /s/Tommy Chisholm
Tommy Chisholm
Secretary
<PAGE>
SOUTHERN ENERGY NORTH AMERICA, INC.
By: /s/Tommy Chisholm
Tommy Chisholm
Secretary
MOBILE ENERGY SERVICES COMPANY, L.L.C.
By: /s/Tommy Chisholm
Tommy Chisholm
Secretary
EXHIBIT G
FORM OF NOTICE
Notice is hereby given that the following filing(s) has/have been made with the
Commission pursuant to provisions of the Act and rules promulgated thereunder.
All interested persons are referred to the application(s) and/or declaration(s)
for complete statements of the proposed transaction(s) summarized below. The
application(s) and/or declaration(s) and any amendments thereto is/are available
for public inspection through the Commission's Office of Public Reference.
Interested persons wishing to comment or request a hearing on the application
and/or declaration should submit their views in writing by ______________, 1998
to the Secretary, Securities and Exchange Commission, Washington, D.C. 20549,
and serve a copy on the relevant applicants or declarants at the addresses
specified below. Proof of service (by affidavit or, in case of an attorney at
law, by certificate) should be filed with the request. Any request for hearing
shall identify specifically the issues of fact or law that are disputed. A
person who so requests will be notified of any hearing, if ordered, and will
receive a copy of any notice or order issued in the matter. After said date, the
application or declarations, as filed or as amended, may be granted and/or
permitted to become effective. The Southern Company (70-8733)
The Southern Company ("Southern"), 270 Peachtree Street, N.W., Atlanta, Georgia
30346, a registered holding company, and its subsidiaries, Mobile Energy
Services Holdings, Inc. ("Mobile Energy"), Southern Energy, Inc. ("Southern
Energy"), Southern Energy Resources, Inc., Southern Energy North America, Inc.
and Mobile Energy Services, L.L.C, each of 900 Ashwood Parkway, Atlanta, Georgia
30338, have filed an application-declaration under sections 6(a), 7, 9(a), 10,
12(b), 12(f), 13, 32 and 33 of the Act and rules 43 and 45 thereunder.
Applicants propose to restructure the Southern system ownership of
Mobile Energy Services Company, L.L.C. ("MESC"), an Alabama limited
liability company which owns and operates the Mobile Energy
cogeneration project. Specifically, MESC will bifurcate the limited
liability company membership interests issued by it into (i) voting
membership interests through which control is exercised and (ii)
nonvoting economic interests which exercise no control over MESC or the
project. Under this restructuring of the MESC ownership, Mobile Energy,
a direct wholly-owned subsidiary of Southern , will continue to own 99%
of the voting membership interests of MESC and will continue to control
MESC, which in turn owns and operates the project. Under this
arrangement Mobile Energy will acquire the securities of a new special
purpose subsidiary ("SE Mobile"). Mobile Energy will contribute to SE
Mobile non-voting securities in the form of economic membership
interests representing 98% of the economic interest in MESC. SE Mobile
will also acquire the remaining 1% voting interest in MESC and 1%
economic interest in MESC, currently held by Southern Energy Resources,
Inc., a wholly-owned subsidiary of Southern Energy, Inc. Ultimately, SE
Mobile will hold 99% of the nonvoting economic interest in MESC and 1%
of the voting interest in MESC, and Mobile Energy will hold 1% of the
nonvoting economic interest and 99% of the voting interest in MESC. The
transfers of interests is anticipated to occur in at least two stages,
separated by twelve or more months. No change in the level of Southern
system investment authority is sought and the requested authority will
have no effect upon the consolidated capitalization of Southern. The
purpose of the reorganization is to align Southern's economic ownership
of the Mobile Energy Project with its economic ownership of other
independent power and cogeneration projects while retaining voting
control through a direct subsidiary of Southern. No change in
operations is contemplated as a result of the requested reorganization.
Reporting
The applicants propose to continue to make a single consolidated quarterly
report be filed by Southern and Southern Energy pursuant to rule 24 with respect
to all activities of Southern Energy and its subsidiaries authorized in this
file.
For the Commission, by the Division of Investment Management, pursuant to
delegated authority.
