File No. 70-9035
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 2
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 John D. McLanahan, Esq.
Financial Vice President Troutman Sanders LLP
The Southern Company 600 Peachtree Street, N.E.
270 Peachtree Street, N.W. Suite 5200
Atlanta, Georgia 30303 Atlanta, Georgia 30308-2216
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5
INFORMATION REQUIRED
Item 1. Description of Proposed Transactions
The first paragraph of Item 1 is hereby amended and restated as follows:
"1.1 The Southern Company ("Southern"), a corporation organized and
existing under the laws of the State of Delaware and a registered holding
company under the Public Utility Holding Company Act of 1935, as amended (the
"Act"), proposes, from time to time through February 17, 2007, to grant
Incentive Stock Options, Nonqualified Stock Options, Stock Appreciation Rights
and Restricted Stock, and to issue shares of its common stock, par value $5.00
per share ("Common Stock"), pursuant to the Southern Company Performance Stock
Plan (the "Plan"), as described herein."
The last paragraph of Item 1 is hereby amended and restated as follows:
"Approval of the Plan requires the affirmative vote of the holders of a
majority of the shares of Common Stock represented in person or by proxy at the
annual meeting. Such approval was obtained at the annual meeting of the
shareholders of Southern held May 28, 1997."
Item 3. Applicable Statutory Provisions
Item 3 is hereby amended by deleting the addition made in Amendment No.
1 and replacing it with the following:
"Rule 53 Analysis: The proposed transactions are subject to Rule 53, which
provides that, in determining whether to approve the issue or sale of a security
for purposes of financing the acquisition of an exempt wholesale generator
("EWG") or "foreign utility company" ("FUCO"), the Commission shall not make
certain adverse findings if the conditions set forth in Rule 53(a)(1) through
(a)(4) are met, and are not otherwise made inapplicable by reason of the
existence of any of the circumstances described in Rule 53(b).
Southern currently meets all of the conditions of Rule 53(a), except for
clause (1). At June 30, 2000, Southern's "aggregate investment," as defined in
Rule 53(a)(1), in EWGs and FUCOs was approximately $2.746 billion, or about
63.84% of Southern's "consolidated retained earnings," also as defined in Rule
53(a)(1), for the four quarters ended June 30, 2000 ($4.302 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. 26501, 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 domestic utility subsidiary 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 would be 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 would not, by itself, or even
considered in conjunction with the effect of the capitalization and earnings of
Southern's EWGs and FUCOs, have a material adverse effect on 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). Southern's
consolidated capitalization as of June 30, 2000 was 39.8% equity, 60.2% debt
including all non-recourse debt, and 54.3% equity and 45.7% debt excluding all
non-recourse debt. On a pro forma basis, taking into consideration the
transactions contemplated hereby, such ratios are 42.2% and 57.8%, respectively,
for equity and debt. The common equity component of Southern's pro forma
consolidated capitalization represents 33.3% of total capitalization at June 30,
2000.
Since the date of the Rule 53(c) Order, there has been a reduction in
Southern's consolidated equity capitalization ratio; however, it remains within
acceptable ranges and limits of rating agencies for strong investment grade
corporate credit ratings. In addition, the affiliated operating companies, which
have a significant influence on the Southern corporate rating, continue to show
strong financial statistics as measured by the rating agencies. The following
table presents the senior secured ratings history for each as rated by S&P,
Moody's and Fitch:
<TABLE>
<CAPTION>
-------------------- --------------------- ------------- ------------- -------------- ------------- -------------
Company Agency 1995 1996 1997 1998 19991
-------------------- --------------------- ------------- ------------- -------------- ------------- -------------
-------------------- --------------------- ------------- ------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Alabama S&P A+ A+ A+ A+ A+
Moody's A1 A1 A1 A1 A1
Fitch A+ AA- AA- AA- AA-
-------------------- --------------------- ------------- ------------- -------------- ------------- -------------
-------------------- --------------------- ------------- ------------- -------------- ------------- -------------
Georgia S&P A+ A+ A+ A+ A+
Moody's A1 A1 A1 A1 A1
Fitch AA- AA- AA- AA- AA-
-------------------- --------------------- ------------- ------------- -------------- ------------- -------------
-------------------- --------------------- ------------- ------------- -------------- ------------- -------------
Gulf S&P A+ A+ AA- AA- AA-
Moody's A1 A1 A1 A1 A1
Fitch A+ AA- AA- AA- AA-
-------------------- --------------------- ------------- ------------- -------------- ------------- -------------
-------------------- --------------------- ------------- ------------- -------------- ------------- -------------
Mississippi S&P A+ A+ AA- AA- AA-
Moody's Aa3 Aa3 Aa3 Aa3 Aa3
Fitch AA- AA- AA- AA- AA-
-------------------- --------------------- ------------- ------------- -------------- ------------- -------------
-------------------- --------------------- ------------- ------------- -------------- ------------- -------------
Savannah S&P A+ A+ AA- AA- AA-
Moody's A1 A1 A1 A1 A1
Fitch Not rated Not rated Not rated Not rated Not rated
-------------------- --------------------- ------------- ------------- -------------- ------------- -------------
</TABLE>
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1 In April 2000, Moody's and Duff & Phelps (now known as Fitch) reaffirmed their
ratings; however, S&P placed the ratings of Southern and its affiliates on
credit watch with negative implications.
Southern's consolidated retained earnings grew on average approximately
5.9% per year over the last five years. Excluding the $111 million one-time
windfall profits tax imposed on South Western Electricity plc ("SWEB") in 1997,
the $221 million write down of assets in 1998, the $69 million write down of the
Mobile Energy investment in 1999 and the $78 million gain on the sale of the
SWEB supply business in 1999, the average growth would be 7.4%. In 1999,
consolidated retained earnings increased $354 million, or 9.1%. Southern's
interests in EWGs and FUCOs have made a positive contribution to earnings over
the four calendar years ending after the Rule 53(c) Order.
Accordingly, since the date of the Rule 53(c) Order, the capitalization and
earnings attributable to Southern's investments in EWGs and FUCOs have not had
an adverse impact on Southern's financial integrity.
SIGNATURE
Pursuant to the requirements of the Public Utility Holding Company Act of
1935, the undersigned company has duly caused this amendment to be signed on its
behalf by the undersigned thereunto duly authorized.
Dated: October 10, 2000 THE SOUTHERN COMPANY
By: /s/Tommy Chisholm
Tommy Chisholm
Secretary
