-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, T3Ud3gcHO0tir868fI0pYexDk2QCwLuy84UN373icKPn5xSIq2u80cf/rtiN+svm QIVIqgoBzaBQ1bleXANYCw== 0000092122-03-000099.txt : 20030515 0000092122-03-000099.hdr.sgml : 20030515 20030514211302 ACCESSION NUMBER: 0000092122-03-000099 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 23 CONFORMED PERIOD OF REPORT: 20030331 FILED AS OF DATE: 20030515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALABAMA POWER CO CENTRAL INDEX KEY: 0000003153 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 630004250 STATE OF INCORPORATION: AL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-03164 FILM NUMBER: 03700866 BUSINESS ADDRESS: STREET 1: 600 N 18TH ST STREET 2: P O BOX 2641 CITY: BIRMINGHAM STATE: AL ZIP: 35291 BUSINESS PHONE: 2052571000 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GEORGIA POWER CO CENTRAL INDEX KEY: 0000041091 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 580257110 STATE OF INCORPORATION: GA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-06468 FILM NUMBER: 03700865 BUSINESS ADDRESS: STREET 1: 241 RALPH MCGILL BOULEVARD CITY: ATLANTA STATE: GA ZIP: 30308 BUSINESS PHONE: 4045066526 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MISSISSIPPI POWER CO CENTRAL INDEX KEY: 0000066904 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 640205820 STATE OF INCORPORATION: MS FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-11229 FILM NUMBER: 03700863 BUSINESS ADDRESS: STREET 1: 2992 W BEACH CITY: GULFPORT STATE: MS ZIP: 39501 BUSINESS PHONE: 2288641211 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SAVANNAH ELECTRIC & POWER CO CENTRAL INDEX KEY: 0000086940 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 580418070 STATE OF INCORPORATION: GA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-05072 FILM NUMBER: 03700862 BUSINESS ADDRESS: STREET 1: 600 BAY ST EAST CITY: SAVANNAH STATE: GA ZIP: 31401 BUSINESS PHONE: 9122327171 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GULF POWER CO CENTRAL INDEX KEY: 0000044545 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 590276810 STATE OF INCORPORATION: ME FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-02429 FILM NUMBER: 03700864 BUSINESS ADDRESS: STREET 1: ONE ENERGY PLACE CITY: PENSACOLA STATE: FL ZIP: 32520-0102 BUSINESS PHONE: 8504446111 MAIL ADDRESS: STREET 1: ONE ENERGY PLACE CITY: PENSACOLA STATE: FL ZIP: 32520-0102 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SOUTHERN CO CENTRAL INDEX KEY: 0000092122 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 580690070 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-03526 FILM NUMBER: 03700860 BUSINESS ADDRESS: STREET 1: 270 PEACHTREE ST CITY: ATLANTA STATE: GA ZIP: 30303 BUSINESS PHONE: 4045065000 MAIL ADDRESS: STREET 1: 270 PEACHTREE STREET CITY: ATLANTA STATE: GA ZIP: 30303 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SOUTHERN POWER CO CENTRAL INDEX KEY: 0001160661 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 582598670 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-98553 FILM NUMBER: 03700861 BUSINESS ADDRESS: STREET 1: 600 N 18TH ST. CITY: BIRMINGHAM STATE: AL ZIP: 35291 BUSINESS PHONE: 4045067146 MAIL ADDRESS: STREET 1: 241 RALPH MCGILL BLVD STREET 2: NE BIN 10116 CITY: ATLANTA STATE: GA ZIP: 30308 10-Q 1 mar2003-10q.txt =============================================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _________________________ FORM 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended March 31, 2003 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from _____to_____ Commission Registrant, State of Incorporation, I.R.S. Employer File Number Address and Telephone Number Identification No. - ----------- ----------------------------------- ------------------ 1-3526 The Southern Company 58-0690070 (A Delaware Corporation) 270 Peachtree Street, N.W. Atlanta, Georgia 30303 (404) 506-5000 1-3164 Alabama Power Company 63-0004250 (An Alabama Corporation) 600 North 18th Street Birmingham, Alabama 35291 (205) 257-1000 1-6468 Georgia Power Company 58-0257110 (A Georgia Corporation) 241 Ralph McGill Boulevard, N.E. Atlanta, Georgia 30308 (404) 506-6526 0-2429 Gulf Power Company 59-0276810 (A Maine Corporation) One Energy Place Pensacola, Florida 32520 (850) 444-6111 001-11229 Mississippi Power Company 64-0205820 (A Mississippi Corporation) 2992 West Beach Gulfport, Mississippi 39501 (228) 864-1211 1-5072 Savannah Electric and Power Company 58-0418070 (A Georgia Corporation) 600 East Bay Street Savannah, Georgia 31401 (912) 644-7171 333-98553 Southern Power Company 58-2598670 (A Delaware Corporation) 270 Peachtree Street, N.W. Atlanta, Georgia 30303 (404) 506-5000 ==================== ========================================= ================ Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes X No____ Indicate by check mark whether the registrants are accelerated filers as defined by Rule 12b-2 of the Securities Exchange Act of 1934. Yes X (except for Southern Power Company) No ___
Description of Shares Outstanding Registrant Common Stock at April 30, 2003 The Southern Company Par Value $5 Per Share 721,737,312 Alabama Power Company Par Value $40 Per Share 6,312,500 Georgia Power Company No Par Value 7,761,500 Gulf Power Company No Par Value 992,717 Mississippi Power Company Without Par Value 1,121,000 Savannah Electric and Power Company Par Value $5 Per Share 10,844,635 Southern Power Company Par Value $0.01 Per Share 1,000
This combined Form 10-Q is separately filed by The Southern Company, Alabama Power Company, Georgia Power Company, Gulf Power Company, Mississippi Power Company, Savannah Electric and Power Company and Southern Power Company. Information contained herein relating to any individual company is filed by such company on its own behalf. Each company makes no representation as to information relating to the other companies. 2 INDEX TO QUARTERLY REPORT ON FORM 10-Q March 31, 2003
Page Number DEFINITIONS............................................................................................................... 5 PART I - FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition The Southern Company and Subsidiary Companies Condensed Consolidated Statements of Income........................................................ 8 Condensed Consolidated Statements of Cash Flows.................................................... 9 Condensed Consolidated Balance Sheets.............................................................. 10 Condensed Consolidated Statements of Comprehensive Income and Accumulated Other Comprehensive Income......................................................... 12 Management's Discussion and Analysis of Results of Operations and Financial Condition.............. 13 Alabama Power Company Condensed Statements of Income..................................................................... 22 Condensed Statements of Cash Flows................................................................. 23 Condensed Balance Sheets........................................................................... 24 Condensed Statements of Comprehensive Income and Accumulated Other Comprehensive Income......................................................... 26 Management's Discussion and Analysis of Results of Operations and Financial Condition.............. 27 Georgia Power Company Condensed Statements of Income..................................................................... 35 Condensed Statements of Cash Flows................................................................. 36 Condensed Balance Sheets........................................................................... 37 Condensed Statements of Comprehensive Income and Accumulated Other Comprehensive Income......................................................... 39 Management's Discussion and Analysis of Results of Operations and Financial Condition.............. 40 Gulf Power Company Condensed Statements of Income..................................................................... 48 Condensed Statements of Cash Flows................................................................. 49 Condensed Balance Sheets........................................................................... 50 Management's Discussion and Analysis of Results of Operations and Financial Condition.............. 52 Mississippi Power Company Condensed Statements of Income..................................................................... 59 Condensed Statements of Cash Flows................................................................. 60 Condensed Balance Sheets........................................................................... 61 Management's Discussion and Analysis of Results of Operations and Financial Condition.............. 63 Savannah Electric and Power Company Condensed Statements of Income..................................................................... 71 Condensed Statements of Cash Flows................................................................. 72 Condensed Balance Sheets........................................................................... 73 Management's Discussion and Analysis of Results of Operations and Financial Condition.............. 75 Southern Power Company Condensed Statements of Income..................................................................... 82 Condensed Statements of Cash Flows................................................................. 83 Condensed Balance Sheets........................................................................... 84 Condensed Statements of Comprehensive Income and Accumulated Other Comprehensive Income......................................................... 86 Management's Discussion and Analysis of Results of Operations and Financial Condition.............. 87 Notes to the Condensed Financial Statements........................................................... 94 Item 3. Quantitative and Qualitative Disclosures about Market Risk............................................ 20 Item 4. Controls and Procedures............................................................................... 20
3 INDEX TO QUARTERLY REPORT ON FORM 10-Q March 31, 2003
Number PART II - OTHER INFORMATION Item 1. Legal Proceedings......................................................................................... 102 Item 2. Changes in Securities and Use of Proceeds................................................................. Inapplicable Item 3. Defaults Upon Senior Securities........................................................................... Inapplicable Item 4. Submission of Matters to a Vote of Security Holders....................................................... Inapplicable Item 5. Other Information......................................................................................... Inapplicable Item 6. Exhibits and Reports on Form 8-K.......................................................................... 102 Signatures and Certifications............................................................................. 106
4 DEFINITIONS
TERM MEANING Alabama Power............................... Alabama Power Company Clean Air Act .............................. Clean Air Act Amendments of 1990 Dynegy...................................... Dynegy, Inc. ECO Plan.................................... Environmental Compliance Overview Plan Energy Act.................................. Energy Policy Act of 1992 EPA......................................... U. S. Environmental Protection Agency FASB........................................ Financial Accounting Standards Board FERC........................................ Federal Energy Regulatory Commission Form 10-K................................... Combined Annual Report on Form 10-K of Southern Company, Alabama Power, Georgia Power, Gulf Power, Mississippi Power, Savannah Electric and Southern Power for the year ended December 31, 2002 Georgia Power............................... Georgia Power Company Gulf Power.................................. Gulf Power Company IRS......................................... Internal Revenue Service Mirant...................................... Mirant Corporation Mississippi Power........................... Mississippi Power Company Mobile Energy............................... Mobile Energy Services Company, L.L.C. and Mobile Energy Services Holdings, Inc. Moody's..................................... Moody's Investors Service, Inc. operating companies......................... Alabama Power, Georgia Power, Gulf Power, Mississippi Power and Savannah Electric PEP......................................... Performance Evaluation Plan PPA......................................... Purchase Power Agreement PSC......................................... Public Service Commission RTO......................................... Regional Transmission Organization S&P......................................... Standard and Poor's, a division of The McGraw-Hill Companies Savannah Electric........................... Savannah Electric and Power Company SCS......................................... Southern Company Services, Inc. SEC......................................... Securities and Exchange Commission SeTrans..................................... A proposed regional transmission organization consisting of public and private companies, including Southern Company, located in eight southeastern states Southern Company............................ The Southern Company Southern Company GAS........................ Southern Company Gas LLC Southern Power.............................. Southern Power Company Southern Company system..................... Southern Company, the operating companies, Southern Power and other subsidiaries Super Southeast............................. Southern Company's traditional service territory, Alabama, Florida, Georgia and Mississippi plus the surrounding states of Kentucky, Louisiana, North Carolina, South Carolina, Tennessee and Virginia TVA......................................... Tennessee Valley Authority
5 CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION This Quarterly Report on Form 10-Q contains forward-looking and historical information. Forward-looking information includes, among other things, statements concerning the strategic goals for Southern Company's wholesale business, estimated construction expenditures and Southern Company's projections for energy sales and its goals for future generating capacity, dividend payout ratio, equity ratio, earnings per share and earnings growth. In some cases, forward-looking statements can be identified by terminology such as "may," "will," "could," "should," "expects," "plans," "anticipates," "believes," "estimates," "projects," "predicts," "potential" or "continue" or the negative of these terms or other comparable terminology. The registrants caution that there are various important factors that could cause actual results to differ materially from those indicated in the forward-looking statements; accordingly, there can be no assurance that such indicated results will be realized. These factors include the impact of recent and future federal and state regulatory change, including legislative and regulatory initiatives regarding deregulation and restructuring of the electric utility industry and also changes in environmental and other laws and regulations to which Southern Company and its subsidiaries are subject, as well as changes in application of existing laws and regulations; current and future litigation, including the pending EPA civil actions against certain Southern Company subsidiaries; the effects, extent and timing of the entry of additional competition in the markets in which Southern Company's subsidiaries operate; the impact of fluctuations in commodity prices, interest rates and customer demand; state and federal rate regulations; political, legal and economic conditions and developments in the United States; the performance of projects undertaken by the non-traditional business and the success of efforts to invest in and develop new opportunities; internal restructuring or other restructuring options that may be pursued; potential business strategies, including acquisitions or dispositions of assets or businesses, which cannot be assured to be completed or beneficial to Southern Company or its subsidiaries; the ability of counterparties of Southern Company and its subsidiaries to make payments as and when due; the effects of, and changes in, economic conditions in the areas in which Southern Company's subsidiaries operate, including the current soft economy; the direct or indirect effects on Southern Company's business resulting from the terrorist incidents on September 11, 2001, or any similar such incidents or responses to such incidents; financial market conditions and the results of financing efforts; the timing and acceptance of Southern Company's new product and service offerings; the ability of Southern Company and its subsidiaries to obtain additional generating capacity at competitive prices; weather and other natural phenomena; and other factors discussed elsewhere herein and in other reports (including the Form 10-K) filed from time to time with the SEC. 6 THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES 7
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) For the Three Months Ended March 31, 2003 2002 - ------------------------------------------------------------------------------------------------------------------- (in thousands) Operating Revenues: Retail sales $1,973,844 $1,843,719 Sales for resale 339,161 232,679 Other electric revenues 91,877 63,417 Other revenues 148,020 73,773 - ------------------------------------------------------------------------------------------------------------------- Total operating revenues 2,552,902 2,213,588 - ------------------------------------------------------------------------------------------------------------------- Operating Expenses: Fuel 710,327 574,193 Purchased power 137,102 67,617 Other operations 493,866 445,252 Maintenance 229,710 228,790 Depreciation and amortization 244,988 245,635 Taxes other than income taxes 148,826 139,847 - ------------------------------------------------------------------------------------------------------------------- Total operating expenses 1,964,819 1,701,334 - ------------------------------------------------------------------------------------------------------------------- Operating Income 588,083 512,254 Other Income and (Expense): Allowance for equity funds used during construction 7,851 7,087 Interest income 4,498 4,803 Equity in losses of unconsolidated subsidiaries (27,167) (15,904) Leveraged lease income 17,715 14,701 Interest expense, net of amounts capitalized (123,761) (120,553) Distributions on capital and preferred securities of subsidiaries (39,586) (42,527) Preferred dividends of subsidiaries (4,750) (4,381) Other income (expense), net (4,283) (20,056) - ------------------------------------------------------------------------------------------------------------------- Total other income and (expense) (169,483) (176,830) - ------------------------------------------------------------------------------------------------------------------- Earnings Before Income Taxes 418,600 335,424 - ------------------------------------------------------------------------------------------------------------------- Income taxes 121,168 111,138 - ------------------------------------------------------------------------------------------------------------------- Earnings Before Cumulative Effect of Accounting Change 297,432 224,286 - ------------------------------------------------------------------------------------------------------------------- Cumulative effect of accounting change -- less income taxes of $231 367 - - ------------------------------------------------------------------------------------------------------------------- Consolidated Net Income $297,799 $224,286 - -------------------------------------------------------------------------==================-=====================-- Common Stock Data: Consolidated basic earnings per share $0.41 $0.32 Consolidated diluted earnings per share $0.41 $0.32 Average number of basic shares of common stock outstanding (in thousands) 718,943 701,012 Average number of diluted shares of common stock outstanding (in thousands) 724,891 706,298 Cash dividends paid per share of common stock $0.343 $0.335
The accompanying notes as they relate to Southern Company are an integral part of these condensed financial statements. 8
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) For the Three Months Ended March 31, 2003 2002 - ---------------------------------------------------------------------------------------------------------------------------- (in thousands) Operating Activities: Consolidated net income $297,799 $224,286 Adjustments to reconcile consolidated net income to net cash provided from operating activities -- Depreciation and amortization 289,200 274,523 Deferred income taxes and investment tax credits 80,005 (15,910) Equity in losses of unconsolidated subsidiaries 27,167 15,904 Leveraged lease income (17,715) (14,701) Pension, postretirement, and other employee benefits 3,646 (6,345) Other, net 19,177 30,119 Changes in certain current assets and liabilities -- Receivables, net 181,153 197,256 Fossil fuel stock 6,831 (235) Materials and supplies (8,709) 6,779 Other current assets (127,995) (103,221) Accounts payable (203,267) (144,435) Taxes accrued (8,628) 32,884 Other current liabilities (178,548) (52,516) - ---------------------------------------------------------------------------------------------------------------------------- Net cash provided from operating activities 360,116 444,388 - ---------------------------------------------------------------------------------------------------------------------------- Investing Activities: Gross property additions (535,379) (677,550) Cost of removal net of salvage 2,253 (28,147) Other (67,531) (74,894) - ---------------------------------------------------------------------------------------------------------------------------- Net cash used for investing activities (600,657) (780,591) - ---------------------------------------------------------------------------------------------------------------------------- Financing Activities: Increase (decrease) in notes payable, net 533,363 (85,020) Proceeds -- Senior notes 1,085,000 125,000 Other long-term debt 19,870 718,119 Capital and preferred securities - 35,000 Preferred stock 125,000 - Common stock 121,661 125,882 Redemptions -- First mortgage bonds (33,350) (6,794) Long-term senior notes (875,905) (380,615) Other long-term debt (390,513) (16,607) Capital and preferred securities (40,000) - Payment of common stock dividends (245,745) (234,272) Other (22,455) (2,419) - ---------------------------------------------------------------------------------------------------------------------------- Net cash provided from financing activities 276,926 278,274 - ---------------------------------------------------------------------------------------------------------------------------- Net Change in Cash and Cash Equivalents 36,385 (57,929) - ---------------------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at Beginning of Period 273,010 354,015 - ---------------------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Period $ 309,395 $ 296,086 - ------------------------------------------------------------------------------================-=================------------ Supplemental Cash Flow Information: Cash paid during the period for -- Interest (net of $18,066 and $12,269 capitalized for 2003 and 2002, respectively) $117,458 $82,315 Income taxes (net of refunds) ($117) $58,204 The accompanying notes as they relate to Southern Company are an integral part of these condensed financial statements.
9
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) At March 31, At December 31, Assets 2003 2002 - ------------------------------------------------------------------------------------------------------------------ (in thousands) Current Assets: Cash and cash equivalents $ 309,395 $ 273,032 Receivables Customer accounts receivable 657,622 709,878 Unbilled revenues 215,754 277,105 Under recovered regulatory clause revenues 154,757 174,362 Other accounts and notes receivable 356,392 370,021 Accumulated provision for uncollectible accounts (30,798) (25,546) Fossil fuel stock, at average cost 292,124 298,955 Materials and supplies, at average cost 548,168 539,459 Other 418,202 349,936 - ------------------------------------------------------------------------------------------------------------------ Total current assets 2,921,616 2,967,202 - ------------------------------------------------------------------------------------------------------------------ Property, Plant, and Equipment: In service 38,308,286 37,485,853 Less accumulated depreciation 15,044,427 15,448,850 23,263,859 22,037,003 Nuclear fuel, at amortized cost 202,240 222,676 Construction work in progress 2,225,239 2,382,287 - ------------------------------------------------------------------------------------------------------------------ Total property, plant, and equipment 25,691,338 24,641,966 - ------------------------------------------------------------------------------------------------------------------ Other Property and Investments: Nuclear decommissioning trusts, at fair value 654,980 639,167 Leveraged leases 791,190 790,767 Other 223,683 243,353 - ------------------------------------------------------------------------------------------------------------------ Total other property and investments 1,669,853 1,673,287 - ------------------------------------------------------------------------------------------------------------------ Deferred Charges and Other Assets: Deferred charges related to income taxes 894,336 897,777 Prepaid pension costs 813,752 786,115 Unamortized debt issuance expense 129,359 121,008 Unamortized premium on reacquired debt 325,426 313,057 Other 404,744 398,581 - ------------------------------------------------------------------------------------------------------------------ Total deferred charges and other assets 2,567,617 2,516,538 - ------------------------------------------------------------------------------------------------------------------ Total Assets $32,850,424 $31,798,993 - ----------------------------------------------------------------------====================----===================- The accompanying notes as they relate to Southern Company are an integral part of these condensed financial statements.
10
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) At March 31, At December 31, Liabilities and Stockholders' Equity 2003 2002 - ---------------------------------------------------------------------------------------------------------------- (in thousands) Current Liabilities: Securities due within one year $ 1,440,623 $ 1,679,489 Notes payable 1,541,527 972,459 Accounts payable 717,949 985,660 Customer deposits 173,552 168,952 Taxes accrued -- Income taxes 117,405 112,765 Other 127,686 218,967 Interest accrued 163,209 158,196 Vacation pay accrued 127,648 130,015 Other 412,477 592,530 - ---------------------------------------------------------------------------------------------------------------- Total current liabilities 4,822,076 5,019,033 - ---------------------------------------------------------------------------------------------------------------- Long-term debt 8,703,516 8,692,962 - ---------------------------------------------------------------------------------------------------------------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes 4,305,410 4,214,471 Deferred credits related to income taxes 442,976 449,816 Accumulated deferred investment tax credits 599,926 606,779 Employee benefits provisions 634,955 614,239 Asset retirement obligations 791,154 - Other 876,458 813,464 - ---------------------------------------------------------------------------------------------------------------- Total deferred credits and other liabilities 7,650,879 6,698,769 - ---------------------------------------------------------------------------------------------------------------- Company or subsidiary obligated mandatorily redeemable capital and preferred securities 2,380,000 2,380,000 - ---------------------------------------------------------------------------------------------------------------- Cumulative preferred stock of subsidiaries 423,126 298,126 - ---------------------------------------------------------------------------------------------------------------- Common Stockholders' Equity: Common stock, par value $5 per share -- Authorized -- 1 billion shares Issued -- March 31, 2003: 721,108,761 shares; -- December 31, 2002: 716,548,526 shares 3,605,544 3,582,743 Paid-in capital 436,610 337,670 Treasury, at cost -- March 31, 2003: 151,582 shares; -- December 31, 2002: 147,021 shares (3,121) (2,815) Retained earnings 4,921,636 4,874,375 Accumulated other comprehensive loss (89,842) (81,870) - ---------------------------------------------------------------------------------------------------------------- Total common stockholders' equity 8,870,827 8,710,103 - ---------------------------------------------------------------------------------------------------------------- Total Liabilities and Stockholders' Equity $32,850,424 $31,798,993 - -------------------------------------------------------------------====================----===================-- The accompanying notes as they relate to Southern Company are an integral part of these condensed financial statements.
11
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) For the Three Months Ended March 31, - ------------------------------------------------------------------------------------------------------------------------ 2003 2002 - ------------------------------------------------------------------------------------------------------------------------ (in thousands) Consolidated Net Income $ 297,799 $ 224,286 Other comprehensive income (loss): Changes in fair value of marketable securities 112 (140) Changes in fair value of qualifying hedges, net of tax of (8,341) 6,249 $(5,504) and $4,045, respectively Less: Reclassification adjustment for amounts included in net 257 - income, net of tax of $166 - ------------------------------------------------------------------------------------------------------------------------- Total other comprehensive income (loss) $ (7,972) $ 6,109 - ------------------------------------------------------------------------------------------------------------------------- CONSOLIDATED COMPREHENSIVE INCOME $ 289,827 $ 230,395 =========================================================================================================================
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES CONDENSED CONSOLIDATED STATEMENTS OF ACCUMULATED OTHER COMPREHENSIVE LOSS (UNAUDITED) At March 31, At December 31, 2003 2002 - -------------------------------------------------------------------------- (in thousands) Balance at beginning of period $ (81,870) $ 7,148 Change in current period (7,972) (89,018) - ------------------------------------------------------------------------- BALANCE AT END OF PERIOD $ (89,842) $ (81,870) - ------------------------------------------------------------------------- The accompanying notes as they relate to Southern Company are an integral part of these condensed financial statements.
12 THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION FIRST QUARTER 2003 vs. FIRST QUARTER 2002 RESULTS OF OPERATIONS Southern Company is focusing on three main businesses in the Southeast: its traditional business, represented by its five operating companies providing regulated retail electric service in four states; a growing competitive generation business in the Super Southeast; and energy-related products and services for its retail customers. For additional information on these businesses, see Item 1 - BUSINESS - "Operating Companies," "Southern Power" and "Other Business" in the Form 10-K. Earnings Southern Company's first quarter 2003 earnings were $298 million ($0.41 per share) compared with $224 million ($0.32 per share) in the first quarter 2002. The increase in earnings for the first quarter 2003 is due to a number of positive factors, including increased demand for electricity, continued customer growth, solid performance by the competitive generation business and the overall impact of regulatory rate proceedings in Alabama and Florida, partially offset by the impact of higher operating expenses related to generating units that were placed in service in 2002. Lower than normal temperatures in the first quarter 2003 resulted in increased demand for energy when compared to the corresponding period in 2002. Significant income statement items appropriate for discussion include the following: Increase (Decrease) ------------------------------------- First Quarter ------------------------------------- (in thousands) % Retail sales.......................... $130,125 7.1 Sales for resale...................... 106,482 45.8 Other electric revenues............... 28,460 44.9 Other revenues........................ 74,247 100.6 Fuel expense.......................... 136,134 23.7 Purchased power expense............... 69,485 102.8 Other operation expense............... 48,614 10.9 Equity in losses of unconsolidated subsidiaries....................... 11,263 70.8 Leveraged lease income................ 3,014 20.5 Other income (expense), net........... 15,773 78.6 Retail sales. Excluding fuel revenues, which generally do not affect net income, retail sales revenue was up by $57.5 million, or 4.4%, in the first quarter 2003 when compared to the corresponding period in the prior year. Energy sales to residential, commercial and industrial customers for the first quarter 2003 increased by 4.3%, 1.1% and 4.0%, respectively, as compared to the same reporting period in 2002. Colder weather and customer growth significantly impacted energy sales to these customers in the first quarter 2003 when compared to the same period in the prior year. 13 THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Sales for resale. During the first quarter 2003, sales for resale increased due to increases in both the demand and price of energy sold when compared to the same period in 2002. Other electric revenues. During the first quarter 2003, other electric revenues increased primarily due to higher revenue from cogeneration steam facilities resulting from higher gas prices and demand, increased revenues from transmission to others and higher fees charged for connection, reconnection and collection. Since cogeneration steam revenues are generally offset by fuel expenses, these revenues do not have a significant impact on earnings. Other revenues. For the first quarter 2003, other revenues increased primarily due to revenues from Southern Company GAS, which began operations in August 2002. Fuel expense. The increase in fuel expense for the first quarter 2003 can be primarily attributed to fuel expenses at Southern Company GAS, increased generation to meet higher demand, the commercial operation of Southern Power's Plant Franklin Unit 1 and Plant Wansley Units 6 and 7 in June 2002, and an increase of over 100% in the unit cost for natural gas. Purchased power expense. The increase in purchased power expense during the first quarter 2003 was mainly the result of higher demand for energy and increased prices for these energy purchases when compared to the corresponding period in 2002. Other operations expense. During the first quarter 2003, the increase in other operations expense is attributed to a number of factors. Primary factors include higher administrative and general expenses, higher transmission and distribution expenses and expenses at Southern Company GAS, which began operations in August 2002. Equity in losses of subsidiaries. The increase in losses from unconsolidated subsidiaries in the first quarter 2003 as compared to the same period in 2002 related to higher operating losses from Southern Company's investments in alternative fuel partnerships. These losses are offset by income tax credits generated by such partnerships. Leveraged lease income. In the first quarter 2003, leveraged lease income increased mainly due to the effect of a new lease transaction involving a coal-fired electric generation facility in Mississippi that Southern Company completed in late December 2002. Other income (expense), net. The increase in this item during the first quarter 2003 when compared to the same period in 2002 is primarily due to mark to market adjustments for derivative electric contracts, a decrease in non-utility expenses at Alabama Power and higher income associated with a new electricity pricing program at Georgia Power. 14 THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Future Earnings Potential The results of operations discussed above are not necessarily indicative of future earnings potential. The level of future earnings depends on numerous factors. The two major factors are the ability of the operating companies to maintain a stable regulatory environment and achieve energy sales growth while containing costs and the profitability of the competitive market-based wholesale generating business. For additional information relating to these issues, see Item 1 - BUSINESS - "Risk Factors" and Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future Earnings Potential" of Southern Company in the Form 10-K. Reference is made to Note 11 to the financial statements of Southern Company in Item 8 and MANAGEMENT'S DISCUSSION AND ANALYSIS-"Future Earnings Potential" in Item 7 of the Form 10-K and to Note (B) to the Condensed Financial Statements herein for information relating to the spin-off of Mirant from Southern Company. Mirant recently filed its Annual Report on Form 10-K for the year ended December 31, 2002, which included its restated financial statements for the years ended December 31, 2001 and 2000. The effect of these restatements on Southern Company's financial statements, if any, cannot be determined until Mirant's 2001 revised quarterly financial statements are filed. However, Southern Company's management does not currently anticipate that a reaudit of Southern Company's 2000 or 2001 financial statements will be necessary. Southern Company's business activities are subject to extensive governmental regulation related to public health and the environment. Litigation over environmental issues and claims of various types, including property damage, personal injury and citizen enforcement of environmental requirements, has increased generally throughout the United States. In particular, personal injury claims for damages caused by alleged exposure to hazardous materials have become more frequent. The ultimate outcome of such litigation currently filed against Southern Company and its subsidiaries cannot be predicted at this time; however, after consultation with legal counsel, management does not anticipate that the liabilities, if any, arising from such proceedings would have a material adverse effect on Southern Company's financial position, results of operations or cash flows. Compliance costs related to the Clean Air Act could affect earnings if such costs cannot be recovered. For additional information about the Clean Air Act and other environmental issues, including the EPA litigation, see Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Environmental Matters" and Note 3 to the financial statements of Southern Company in Item 8 of the Form 10-K. On May 7, 2003, the U.S. District Court in Alabama extended the stay of the EPA litigation proceeding in Alabama until the earlier of August 5, 2003 or a ruling by the U.S. Court of Appeals for the Eleventh Circuit in the related litigation involving TVA. Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future Earnings Potential - FERC Matters" of Southern Company in the Form 10-K for information on the formation of an RTO as ordered by the FERC and the notice of proposed rulemaking regarding open access transmission service and standard electricity market design. In April 2003, the FERC issued a White Paper related to its proposed rulemaking regarding open access transmission service and standard electricity market design in an effort to respond to certain of the public comments received on the standard market design proposal. Evident in the White Paper are continuing differences in opinion between the FERC and various state regulatory commissions over questions of jurisdiction and protection of retail customers. Pending energy legislation may also impact these issues. Any impact of this proposal on Southern Company and its subsidiaries will depend on the form in which final rules may be ultimately adopted; however, Southern Company's revenues, expenses, assets and liabilities could be adversely affected by changes in the transmission regulatory structure in its regional power market. 15 THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Reference is made to Note (J) to the Condensed Financial Statements herein for information regarding the proposed terminations of three PPAs between subsidiaries of Dynegy and Mississippi Power and Southern Power. Reference is also made to Notes (C) through (G) to the Condensed Financial Statements herein for discussion of various contingencies and other matters which may affect future earnings potential. Accounting Policies Critical Policy Southern Company's significant accounting policies are described in Note 1 to the financial statements of Southern Company in Item 8 of the Form 10-K. Southern Company's only critical accounting policy involves rate regulation. The operating companies are subject to the provisions of FASB Statement No. 71, "Accounting for the Effects of Certain Types of Regulation." In the event that a portion of a company's operations is no longer subject to these provisions, the company would be required to write off related regulatory assets and liabilities that are not specifically recoverable and determine if any other assets, including plant, have been impaired. New Accounting Standards Reference is made to Note (H) to the Condensed Financial Statements herein for information regarding the adoption of FASB Statement No. 143, "Accounting for Asset Retirement Obligations" effective January 1, 2003. Statement No. 143 establishes new accounting and reporting standards for legal obligations associated with the ultimate cost of retiring long-lived assets. The present value of the ultimate costs for an asset's future retirement must be recorded in the period in which the liability is incurred. The cost must be capitalized as part of the related long-lived asset and depreciated over the asset's useful life. Additionally, Statement No. 143 does not permit non-regulated companies to continue accruing future retirement costs for long-lived assets that they do not have a legal obligation to retire. Prior to January 2003, Southern Company accrued for the ultimate cost of retiring most long-lived assets over the life of the related asset through depreciation expense. FINANCIAL CONDITION Overview Major changes in Southern Company's financial condition during the first three months of 2003 included $535 million used for gross property additions to utility plant. The funds for these additions and other capital requirements were primarily obtained from issuances of senior notes and other long-term debt. See Southern Company's Condensed Consolidated Statements of Cash Flows herein for further details. Off-Balance Sheet Financing Arrangements Reference is made to Note 9 to the financial statements of Southern Company in Item 8 of the Form 10-K and Note 8 to the financial statements of Mississippi Power in Item 8 of the Form 10-K for information regarding Mississippi Power's lease agreement with Escatawpa Funding, Limited Partnership ("Escatawpa"). Under this agreement, Escatawpa, a special purpose entity, is the owner-lessor of the combined-cycle generating units at Mississippi Power's Plant Daniel. 16 THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Mississippi Power is currently working to restructure this agreement so that it will continue to be accounted for as an operating lease. The restructured agreement should be completed in June 2003, prior to the required implementation date of FASB Interpretation No. 46, "Consolidation of Certain Special-Purpose Entities." If the agreement is not restructured, Interpretation No. 46 will require that Mississippi Power consolidate the assets and liabilities of Escatawpa effective July 1, 2003. Credit Rating Risk Southern Company and its subsidiaries do not have any credit agreements that would require material changes in payment schedules or terminations as a result of a credit rating downgrade. There are certain contracts that could require collateral -- but not accelerated payment -- in the event of a credit rating change to below investment grade. These contracts are primarily for physical electricity sales, fixed-price physical gas purchases and agreements covering interest rate swaps. At March 31, 2003, the maximum potential collateral requirements under the electricity sale contracts and financial instrument agreements were approximately $425 million. Generally, collateral may be provided for by a Southern Company guaranty, letter of credit or cash. At March 31, 2003, there were no material collateral requirements for the gas purchase contracts. Exposure to Market Risks Southern Company's market risk exposures relative to interest rate changes have not changed materially compared with the December 31, 2002 reporting period. In addition, Southern Company is not aware of any facts or circumstances that would significantly affect such exposures in the near term. Due to cost-based rate regulations, the operating companies have limited exposure to market volatility in interest rates, commodity fuel prices and prices of electricity. To mitigate residual risks relative to movements in electricity prices, the operating companies and Southern Power enter into fixed price contracts for the purchase and sale of electricity through the wholesale electricity market and, to a lesser extent, similar contracts for gas purchases. Also, the operating companies have each implemented fuel-hedging programs at the instruction of their respective PSCs. The fair value of derivative energy contracts at March 31, 2003 was as follows: First Quarter 2003 Changes --------------------------------------- ------------------------- Fair Value --------------------------------------- ------------------------- (in thousands) Contracts beginning of period $47,335 Contracts realized or settled (14,721) New contracts at inception - Changes in valuation techniques - Current period changes 14,614 --------------------------------------- ------------------------- Contracts at March 31, 2003 $47,228 ======================================= ========================= 17 THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Source of March 31, 2003 Valuation Prices -------------------------------- ------------ ---------------------------- Total Maturity ---------------------------- Fair Value Year 1 1-3 Years -------------------------------- ----------------------------------------- (in millions) Actively quoted $47.2 $53.2 $(6.0) External sources - - - Models and other methods - - - -------------------------------- ------------ ---------------------------- Contracts at March 31, 2003 $47.2 $53.2 $(6.0) ================================ ============ ============================ Unrealized gains and losses from mark to market adjustments on contracts related to the PSC-approved fuel hedging programs are recorded as regulatory assets and liabilities. Realized gains and losses from these programs are included in fuel expense and are recovered through the operating companies' fuel cost recovery clauses. In addition, unrealized gains and losses on electric and gas contracts used to hedge anticipated purchases and sales are deferred in Other Comprehensive Income. Gains and losses on contracts that do not represent hedges are recognized in the Statements of Income as incurred. At March 31, 2003, the fair value of derivative energy contracts reflected in the financial statements was as follows: Amounts --------------------------------------- ------------------------- (in thousands) Regulatory liabilities, net $42,265 Other comprehensive income 4,011 Net income 952 --------------------------------------- ------------------------- Total fair value $47,228 ======================================= ========================= For the quarters ended March 31, 2003 and 2002, approximately $0.5 million and $9.8 million, respectively, of losses were recognized in income. Southern Company is exposed to market price risk in the event of nonperformance by the parties to the derivative energy contracts. Southern Company's policy is to enter into agreements with counterparties that have investment grade credit ratings by Moody's and S&P; therefore Southern Company does not anticipate nonperformance by the counterparties. For additional information, reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - - "Market Price Risk" of Southern Company in the Form 10-K, Note 1 to the financial statements of Southern Company in Item 8 of the Form 10-K and Note (G) to the Condensed Financial Statements herein. Financing Activities During the first quarter 2003, Southern Company subsidiaries issued $1,085 million of senior notes and $14 million of pollution control revenue bonds. The issuances were used to refund $909 million of first mortgage bonds and long-term senior notes. The remainder was used to reduce short-term debt and fund ongoing construction programs. Reference is made to Southern Company's Condensed Consolidated Statements of Cash Flows herein for further details on financing activities during the first quarter 2003. The market price of Southern Company's common stock at March 31, 2003 was $28.44 per share and the book value was $12.30 per share, representing a market-to-book ratio of 231%, compared to $28.39, $12.16 and 233%, respectively, at the end of 2002. The dividend for the first quarter 2003 was $0.3425 per share compared to $0.335 per share in the first quarter of 2002. 18 THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Capital Requirements Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Capital Requirements for Construction," "Other Capital Requirements" and "Environmental Matters" of Southern Company in the Form 10-K for a description of the Southern Company system's capital requirements for its construction program, sinking fund requirements, maturing debt and environmental compliance efforts. Approximately $1.4 billion will be required by March 31, 2004 for redemptions and maturities of long-term debt. Also, Southern Company and its subsidiaries plan to continue, to the extent possible, a program to retire higher-cost debt and replace these securities with lower-cost capital. Sources of Capital In addition to the financing activities previously described, Southern Company may require additional equity capital over the next several years. The amounts and timing of additional equity capital to be raised will be contingent on Southern Company's investment opportunities. The operating companies and Southern Power plan to obtain the funds required for construction and other purposes from sources similar to those used in the past, which were primarily internal sources and the issuances of new debt and preferred equity securities, term loans and short-term borrowings. However, the amount, type and timing of any financings -- if needed -- will depend upon market conditions and regulatory approval. See Item 1 - BUSINESS - "Financing Programs" of Southern Company in the Form 10-K for additional information. Southern Company's current liabilities exceed current assets because of the continued use of short-term debt as a funding source to meet cash needs as well as scheduled maturities of long-term debt. To meet short-term cash needs and contingencies, the Southern Company system had at March 31, 2003 approximately $309 million of cash and cash equivalents and approximately $4.2 billion of unused credit arrangements with banks, of which $2.9 billion expire in 2003 and $1.25 billion expire in 2004 and beyond. Of the facilities maturing in 2003, $2.7 billion contain provisions allowing two-year term loans executable at the expiration date. These unused credit arrangements also provide liquidity support to variable rate pollution control bonds and commercial paper programs. Due to a reduction of commercial paper and variable rate pollution bonds requiring liquidity support, the Southern Company system plans to reduce its credit arrangements to $3.5 billion by the end of June 2003. The operating companies may also meet short-term cash needs through a Southern Company subsidiary organized to issue and sell commercial paper and extendible commercial notes at the request and for the benefit of each of the operating companies. At March 31, 2003, the Southern Company system had extendible commercial notes outstanding of $19.9 million, short-term notes payable outstanding of $20 million and commercial paper outstanding of $1.46 billion. Management believes that the need for working capital can be adequately met by utilizing lines of credit without maintaining large cash balances. 19 PART I Item 3. Quantitative And Qualitative Disclosures About Market Risk. Reference is made to MANAGEMENT'S DISCUSSION AND ANALYSIS - "Market Price Risk" herein for each registrant and Note 1 to the financial statements of each registrant in Item 8 of the Form 10-K. Reference is also made to Note (I) to the Condensed Financial Statements herein for information relating to derivative instruments. Item 4. Controls and Procedures. (a) Evaluation of disclosure controls and procedures. Within 90 days of the filing date of this quarterly report, Southern Company, the operating companies and Southern Power conducted separate evaluations under the supervision and with the participation of each company's management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the disclosure controls and procedures (as defined in Sections 13a-14(c) and 15d-14(c) of the Securities Exchange Act of 1934). Based upon those evaluations, the Chief Executive Officer and the Chief Financial Officer, in each case, concluded that the disclosure controls and procedures are effective in alerting them in a timely manner to material information relating to each company (including its consolidated subsidiaries) required to be included in periodic filings with the SEC. (b) Changes in internal controls. There have been no significant changes in Southern Company's, the operating companies' or Southern Power's internal controls or in other factors that could significantly affect these internal controls subsequent to the date each company carried out its evaluation. 20 ALABAMA POWER COMPANY 21
ALABAMA POWER COMPANY CONDENSED STATEMENTS OF INCOME (UNAUDITED) For the Three Months Ended March 31, 2003 2002 - ---------------------------------------------------------------------------------------------------------------- (in thousands) Operating Revenues: Retail sales $670,829 $631,897 Sales for resale -- Non-affiliates 123,722 94,623 Affiliates 61,987 54,677 Other revenues 38,023 21,052 - ---------------------------------------------------------------------------------------------------------------- Total operating revenues 894,561 802,249 - ---------------------------------------------------------------------------------------------------------------- Operating Expenses: Operation -- Fuel 239,744 210,297 Purchased power -- Non-affiliates 33,270 15,771 Affiliates 41,496 32,730 Other 134,543 120,062 Maintenance 74,575 76,814 Depreciation and amortization 100,211 98,275 Taxes other than income taxes 60,085 57,500 - ---------------------------------------------------------------------------------------------------------------- Total operating expenses 683,924 611,449 - ---------------------------------------------------------------------------------------------------------------- Operating Income 210,637 190,800 Other Income and (Expense): Allowance for equity funds used during construction 4,737 3,007 Interest income 3,276 3,162 Interest expense, net of amounts capitalized (54,573) (55,649) Distributions on preferred securities of subsidiary (3,441) (6,019) Other income (expense), net (5,719) (11,565) - ---------------------------------------------------------------------------------------------------------------- Total other income and (expense) (55,720) (67,064) - ---------------------------------------------------------------------------------------------------------------- Earnings Before Income Taxes 154,917 123,736 Income taxes 59,073 47,540 - ---------------------------------------------------------------------------------------------------------------- Net Income 95,844 76,196 Dividends on Preferred Stock 4,025 3,656 - ---------------------------------------------------------------------------------------------------------------- Net Income After Dividends on Preferred Stock $ 91,819 $ 72,540 - -------------------------------------------------------------------------------=================-=============== The accompanying notes as they relate to Alabama Power are an integral part of these condensed financial statements.
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ALABAMA POWER COMPANY CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) For the Three Months Ended March 31, 2003 2002 --------------- ------------- (in thousands) Operating Activities: Net income $ 95,844 $76,196 Adjustments to reconcile net income to net cash provided from operating activities -- Depreciation and amortization 117,031 116,006 Deferred income taxes and investment tax credits, net 14,105 (16,543) Pension, postretirement, and other employee benefits (4,201) (5,848) Other, net 9,111 24,605 Changes in certain current assets and liabilities -- Receivables, net 62,811 20,098 Fossil fuel stock (3,949) 4,351 Materials and supplies (2,087) 1,403 Other current assets (61,415) (63,522) Accounts payable (106,583) (67,620) Taxes accrued 60,108 60,256 Other current liabilities (13,860) 48,988 --------------- ------------- Net cash provided from operating activities 166,915 198,370 --------------- ------------- Investing Activities: Gross property additions (189,839) (173,817) Cost of removal net of salvage 10,865 (10,865) Other (12,928) 11,098 --------------- ------------- Net cash used for investing activities (191,902) (173,584) --------------- ------------- Financing Activities: Increase (decrease) in notes payable, net (36,991) 86,837 Proceeds -- Senior notes 620,000 - Preferred stock 125,000 - Capital contributions from parent company 4,195 1,468 Redemptions -- First mortgage bonds - (4,498) Senior notes (560,800) (364) Other long-term debt (236) (216) Payment of preferred stock dividends (3,200) (3,632) Payment of common stock dividends (107,550) (107,750) Other (9,513) (194) --------------- ------------- Net cash provided from (used for) financing activities 30,905 (28,349) --------------- ------------- Net Change in Cash and Cash Equivalents 5,918 (3,563) Cash and Cash Equivalents at Beginning of Period 22,685 35,756 --------------- ------------- Cash and Cash Equivalents at End of Period $ 28,603 $32,193 =============== ============= Supplemental Cash Flow Information: Cash paid during the period for -- Interest (net of $2,507 and $1,939 capitalized for 2003 and 2002, respectively) $31,313 $28,030 Income taxes (net of refunds) $ - $23,097 The accompanying notes as they relate to Alabama Power are an integral part of these condensed financial statements.
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ALABAMA POWER COMPANY CONDENSED BALANCE SHEETS (UNAUDITED) At March 31, At December 31, Assets 2003 2002 --------------------- -------------------- (in thousands) Current Assets: Cash and cash equivalents $ 28,603 $ 22,685 Receivables -- Customer accounts receivable 227,139 240,052 Unbilled revenues 69,906 89,336 Other accounts and notes receivable 38,598 47,535 Affiliated companies 52,569 74,099 Accumulated provision for uncollectible accounts (5,229) (4,827) Fossil fuel stock, at average cost 77,692 73,742 Materials and supplies, at average cost 189,683 187,596 Other 168,830 110,035 --------------------- -------------------- Total current assets 847,791 840,253 --------------------- -------------------- Property, Plant, and Equipment: In service 13,662,507 13,506,170 Less accumulated provision for depreciation 5,327,380 5,543,416 --------------------- -------------------- 8,335,127 7,962,754 Nuclear fuel, at amortized cost 92,993 103,088 Construction work in progress 564,672 478,652 --------------------- -------------------- Total property, plant, and equipment 8,992,792 8,544,494 --------------------- -------------------- Other Property and Investments: Equity investments in subsidiaries 45,916 45,553 Nuclear decommissioning trusts 300,072 292,297 Other 16,406 16,477 --------------------- -------------------- Total other property and investments 362,394 354,327 --------------------- -------------------- Deferred Charges and Other Assets: Deferred charges related to income taxes 327,651 327,276 Prepaid pension costs 402,781 389,793 Unamortized debt issuance expense 9,703 4,361 Unamortized premium on reacquired debt 112,466 103,819 Department of Energy assessments 17,144 17,144 Other 99,365 104,539 --------------------- -------------------- Total deferred charges and other assets 969,110 946,932 --------------------- -------------------- Total Assets $ 11,172,087 $ 10,686,006 ===================== ==================== The accompanying notes as they relate to Alabama Power are an integral part of these condensed financial statements.
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ALABAMA POWER COMPANY CONDENSED BALANCE SHEETS (UNAUDITED) At March 31, At December 31, Liabilities and Stockholder's Equity 2003 2002 --------------------- -------------------- (in thousands) Current Liabilities: Securities due within one year $ 947,158 $ 1,117,945 Notes payable - 36,991 Accounts payable -- Affiliated 83,637 109,790 Other 70,670 150,195 Customer deposits 45,322 44,410 Taxes accrued -- Income taxes 105,683 80,438 Other 39,896 20,561 Interest accrued 58,630 36,344 Vacation pay accrued 33,901 33,901 Other 81,274 114,870 --------------------- -------------------- Total current liabilities 1,466,171 1,745,445 --------------------- -------------------- Long-term debt 3,089,659 2,851,562 --------------------- -------------------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes 1,471,902 1,436,559 Deferred credits related to income taxes 171,825 177,205 Accumulated deferred investment tax credits 224,530 227,270 Employee benefits provisions 145,384 141,149 Deferred capacity revenues 31,578 33,924 Asset retirement obligations 306,144 - Asset retirement obligation regulatory liability 68,979 - Other 158,915 147,640 --------------------- -------------------- Total deferred credits and other liabilities 2,579,257 2,163,747 --------------------- -------------------- Company obligated mandatorily redeemable preferred securities of subsidiary trusts holding company junior subordinated notes 300,000 300,000 --------------------- -------------------- Cumulative preferred stock 372,512 247,512 --------------------- -------------------- Common stockholder's equity: Common stock, par value $40 per share -- Authorized - 6,000,000 shares Outstanding - 6,000,000 shares Par value 240,000 240,000 Paid-in capital 1,904,660 1,900,464 Premium on preferred stock 99 99 Retained earnings 1,233,218 1,250,594 Accumulated other comprehensive loss (13,489) (13,417) --------------------- -------------------- Total common stockholder's equity 3,364,488 3,377,740 --------------------- -------------------- Total Liabilities and Stockholder's Equity $ 11,172,087 $ 10,686,006 ===================== ==================== The accompanying notes as they relate to Alabama Power are an integral part of these condensed financial statements.
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ALABAMA POWER COMPANY CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) For the Three Months Ended March 31, - ----------------------------------------------------------------------------------------------------------- 2003 2002 - ----------------------------------------------------------------------------------------------------------- (in thousands) Net Income After Dividends on Preferred Stock $ 91,819 $ 72,540 - ----------------------------------------------------------------------------------------------------------- Other comprehensive loss: Changes in fair value of qualifying hedges, net of tax of $(44) (72) - - ----------------------------------------------------------------------------------------------------------- COMPREHENSIVE INCOME $ 91,747 $ 72,540 - ---------------------------------------------------------------------================-----==============---
ALABAMA POWER COMPANY CONDENSED STATEMENTS OF ACCUMULATED OTHER COMPREHENSIVE LOSS (UNAUDITED) At March 31, At December 31, 2003 2002 - ------------------------------------------------------------------------------- (in thousands) Balance at beginning of period $ (13,417) $ - - ------------------------------------------------------------------------------- Change in current period (72) (13,417) - -------------------------------------------------------------------------------- BALANCE AT END OF PERIOD $ (13,489) $ (13,417) ==============================================================================-- The accompanying notes as they relate to Alabama Power are an integral part of these condensed financial statements.
26 ALABAMA POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION FIRST QUARTER 2003 vs. FIRST QUARTER 2002 RESULTS OF OPERATIONS Earnings Alabama Power's net income after dividends on preferred stock for the first quarter 2003 was $91.8 million compared to $72.5 million for the corresponding period of 2002. Earnings in the first quarter 2003 increased by $19.3 million or 26.6% primarily due to increases in territorial sales, retail rates and other operating revenues. These increases in revenues were partially offset by increased non-fuel operating expenses in the first quarter 2003 when compared to the first quarter 2002. Significant income statement items appropriate for discussion include the following: Increase (Decrease) ------------------------------- First Quarter ------------------------------- (in thousands) % Retail sales................................ $38,932 6.2 Sales for resale - non-affiliates........... 29,099 30.8 Sales for resale - affiliates............... 7,310 13.4 Other revenues.............................. 16,971 80.6 Fuel expense................................ 29,447 14.0 Purchased power - non-affiliates............ 17,499 111.0 Purchased power - affiliates................ 8,766 26.8 Other operation expense..................... 14,481 12.1 Allowance for equity funds used during construction............................... 1,730 57.5 Distributions on preferred securities of subsidiary................................. (2,578) (42.8) Other income (expense), net................. (5,846) (50.5) Retail sales. Excluding energy cost recovery revenues, which generally do not affect net income, retail sales revenues were higher by $20.5 million, or 4.3%, for the first quarter 2003 when compared to the same period in 2002. Energy sales to residential, commercial and industrial customers increased by 2.3%, 4.8% and 3.5%, respectively, for the first quarter 2003 when compared to the corresponding period of 2002 primarily due to favorable weather conditions and slight sales growth. A 2 percent increase in retail base rates, effective April 2002, also increased retail sales revenues in the first quarter 2003. Sales for resale - non-affiliates. During the first quarter 2003, the revenues associated with sales for resale - non-affiliates increased due to a 20.3% increase in energy sold and an 8.7% increase in price when compared to the same period in 2002. Sales of energy will vary depending on demand, market based prices and the availability of system generation. 27 ALABAMA POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Sales for resale - affiliates and Purchased power - affiliates. Revenues from sales for resale to affiliated companies within the Southern Company system, as well as purchases of energy, will vary depending on demand and the availability and cost of generating resources at each company. These transactions did not have a significant impact on earnings. Other revenues. In the first quarter 2003, the increase in other revenues is primarily attributed to an $8.5 million increase in revenues from cogeneration steam facilities due to higher gas prices and demand, a $4.1 million increase in revenues from transmission to others and a $3.5 million increase in revenues from higher fees charged to customers for connection, reconnection and collection. Since cogeneration steam revenues are generally offset by fuel expenses, these revenues do not have a significant impact on earnings. Fuel expense. The increase in fuel expense during the first quarter 2003 when compared to the same period in 2002 was primarily attributed to a 6.7% increase in generation to meet higher demand for energy and a 131.7% increase in natural gas prices. Since energy expenses are generally offset by energy revenues, these expenses did not have a significant impact on earnings. Purchased power - non-affiliates. In the first quarter 2003, purchased power expense from non-affiliates increased due to a 139% increase in price even though overall purchases of energy decreased 11.7% when compared to the corresponding period in 2002. The purchase of energy decreased due to the increased utilization of electricity within the Southern Company system with the addition of 2,279 megawatts of generation placed into commercial operation during 2002. These expenses do not have a significant impact on earnings since energy expenses are generally offset by energy revenues through Alabama Power's energy cost recovery clause. Other operation expense. The increase in other operation expense is mainly a result of a $6.9 million increase in administrative and general expenses, a $1.0 million increase in distribution expense, a $1.0 million increase in customer accounts expense and a $1.0 million increase in sales expense during the first quarter 2003 when compared to the corresponding period in 2002. The increase in administrative and general expenses primarily relates to a $2.2 million increase in expense for property insurance and a $3.7 million increase in employee benefits. Allowance for equity funds used during construction. During the first quarter 2003, the allowance for equity funds used during construction increased primarily due to the construction of selective catalytic reduction facilities at Plant Miller. Distributions on preferred securities of subsidiary. During the first quarter 2003, the decrease in distributions on preferred securities of subsidiary is primarily attributed to the refinancing of higher distribution rate trust preferred securities in the fourth quarter of 2002. Other income (expense), net. The decrease in other expense for the first quarter 2003, when compared to the same period in 2002, is primarily due to a $3.2 million increase in an unrealized gain relating to mark to market adjustments for derivative electric contracts as required by FASB Statement No. 133 and a $1.8 million decrease in non-utility expenses when compared to the corresponding period in the prior year. See "Exposure to Market Risks" herein for additional information related to derivative energy contracts. 28 ALABAMA POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Future Earnings Potential The results of operations discussed above are not necessarily indicative of future earnings potential. The level of future earnings depends on numerous factors including Alabama Power's ability to achieve energy sales growth while containing costs and maintaining a stable regulatory environment. Growth in energy sales is subject to a number of factors. These factors include weather, competition, new short- and long-term contracts with neighboring utilities, energy conservation practiced by customers, the elasticity of demand and the rate of economic growth in Alabama Power's service area. For additional information relating to these issues, see Item 1 - BUSINESS - "Risk Factors" and Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future Earnings Potential" of Alabama Power in the Form 10-K. Alabama Power's business activities are subject to extensive governmental regulation related to public health and the environment. Litigation over environmental issues and claims of various types, including property damage, personal injury and citizen enforcement of environmental requirements, has increased generally throughout the United States. In particular, personal injury claims for damages caused by alleged exposure to hazardous materials have become more frequent. Even though the potential for such litigation exists, the possible outcome cannot be predicted at this time. Compliance costs related to the Clean Air Act could affect earnings if such costs cannot be recovered. For additional information about the Clean Air Act and other environmental issues, including the EPA litigation, see Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Environmental Matters" and Note 3 to the financial statements of Alabama Power in Item 8 of the Form 10-K. On May 7, 2003, the U.S. District Court in Alabama extended the stay of the EPA litigation proceeding in Alabama until the earlier of August 5, 2003 or a ruling by the U.S. Court of Appeals for the Eleventh Circuit in the related litigation involving TVA. Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "FERC Matters" of Alabama Power in the Form 10-K for information on the formation of an RTO as ordered by the FERC and the notice of proposed rulemaking regarding open access transmission service and standard electricity market design. In April 2003, the FERC issued a White Paper related to its proposed rulemaking regarding open access transmission service and standard electricity market design in an effort to respond to certain of the public comments received on the standard market design proposal. Evident in the White Paper are continuing differences in opinion between the FERC and various state regulatory commissions over questions of jurisdiction and protection of retail customers. Pending energy legislation may also impact these issues. Any impact of this proposal on Southern Company and its subsidiaries will depend on the form in which final rules may be ultimately adopted; however, Alabama Power's revenues, expenses, assets and liabilities could be adversely affected by changes in the transmission regulatory structure in its regional power market. Reference is also made to Notes (A), (E), (F) and (I) to the Condensed Financial Statements herein for discussion of various contingencies and other matters which may affect future earnings potential. 29 ALABAMA POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Accounting Policies Critical Policy Alabama Power's significant accounting policies are described in Note 1 to the financial statements of Alabama Power in Item 8 of the Form 10-K. Alabama Power's only critical accounting policy involves rate regulation. Alabama Power is subject to the provisions of FASB Statement No. 71, "Accounting for the Effects of Certain Types of Regulation." In the event that a portion of Alabama Power's operations is no longer subject to these provisions, Alabama Power would be required to write off related regulatory assets and liabilities that are not specifically recoverable and determine if any other assets, including plant, have been impaired. New Accounting Standards Reference is made to Note (H) to the Condensed Financial Statements herein for information regarding the adoption of FASB Statement No. 143, "Accounting for Asset Retirement Obligations" effective January 1, 2003. Statement No. 143 establishes new accounting and reporting standards for legal obligations associated with the ultimate cost of retiring long-lived assets. The present value of the ultimate costs for an asset's future retirement must be recorded in the period in which the liability is incurred. The cost must be capitalized as part of the related long-lived asset and depreciated over the asset's useful life. Additionally, Statement No. 143 does not permit non-regulated companies to continue accruing future retirement costs for long-lived assets that they do not have a legal obligation to retire. Prior to January 2003, Alabama Power accrued for the ultimate cost of retiring most long-lived assets over the life of the related asset through depreciation expense. There was no cumulative effect to net income resulting from the adoption of Statement No. 143. Alabama Power received an accounting order from the Alabama PSC to defer the transition adjustment; therefore, Alabama Power recorded a related regulatory liability of $71 million to reflect Alabama Power's regulatory treatment of these costs under Statement No. 71. The initial Statement No. 143 liability Alabama Power recognized was $301 million, of which $310 million was reclassified from the accumulated depreciation reserve. The amount capitalized to property, plant, and equipment was $63 million. Reference is made to Note 1 to the financial statements of Alabama Power under "Regulatory Assets and Liabilities" and "Depreciation and Nuclear Decommissioning" in Item 8 of the Form 10-K. FINANCIAL CONDITION Overview Major changes in Alabama Power's financial condition during the first three months of 2003 included the addition of approximately $190 million to utility plant. The funds for these additions and other capital requirements were derived primarily from operating activities. See Alabama Power's Condensed Statements of Cash Flows herein for further details. Credit Rating Risk Alabama Power does not have any credit agreements that would require material changes in payment schedules or terminations as a result of a credit rating downgrade. 30 ALABAMA POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Exposure to Market Risks Alabama Power's market risk exposures relative to interest rate changes have not changed materially compared with the December 31, 2002 reporting period. In addition, Alabama Power is not aware of any facts or circumstances that would significantly affect such exposures in the near term. Due to cost-based rate regulations, Alabama Power has limited exposure to market volatility in interest rates, commodity fuel prices and prices of electricity. To mitigate residual risks relative to movements in electricity prices, Alabama Power enters into fixed price contracts for the purchase and sale of electricity through the wholesale electricity market and, to a lesser extent, similar contracts for gas purchases. Alabama Power has also implemented a retail fuel hedging program at the instruction of the Alabama PSC. The fair value of derivative energy contracts at March 31, 2003 was as follows: First Quarter 2003 Changes --------------------------------------- ------------------------- Fair Value --------------------------------------- ------------------------- (in thousands) Contracts beginning of period $21,402 Contracts realized or settled (7,156) New contracts at inception - Changes in valuation techniques - Current period changes 10,030 --------------------------------------- ------------------------- Contracts at March 31, 2003 $24,276 ======================================= ========================= Source of March 31, 2003 Valuation Prices - --------------------------------------- ------------------------------------- Total Maturity ------------------------ Fair Value Year 1 1-3 Years - --------------------------------------- ------------------------------------- (in thousands) Actively quoted $24,276 $29,076 $(4,800) External sources - - - Models and other methods - - - - --------------------------------------- ------------ ------------------------ Contracts at March 31, 2003 $24,276 $29,076 $(4,800) ======================================= ============ ======================== Unrealized gains and losses from mark to market adjustments on contracts related to the retail fuel hedging programs are recorded as regulatory assets and liabilities. Realized gains and losses from these programs are included in fuel expense and are recovered through Alabama Power's fuel cost recovery clause. Gains and losses on contracts that do not represent hedges are recognized in the Statements of Income as incurred. At 31 ALABAMA POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION March 31, 2003, the fair value of derivative energy contracts reflected in the financial statements was as follows: Amounts --------------------------------------- ------------------------- (in thousands) Regulatory liabilities, net $24,386 Other comprehensive income - Net loss (110) --------------------------------------- ------------------------- Total fair value $24,276 ======================================= ========================= For the quarters ended March 31, 2003 and 2002, approximately $0.2 million and $3.4 million, respectively, of losses were recognized in income. For additional information, reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Exposure to Market Risk" of Alabama Power in the Form 10-K and Note 1 to the financial statements of Alabama Power in Item 8 of the Form 10-K and to Note (I) to the Condensed Financial Statements herein. Financing Activities In January 2003, Alabama Power redeemed $194 million of Series A 7 1/8% Senior Notes due December 1, 2047 from proceeds obtained from Alabama Power's December 2002 issuance of $200 million Series S 5 7/8% Senior Notes due December 1, 2022. In February 2003, Alabama Power issued 1,250 shares ($125 million aggregate stated capital) of Flexible Money Market Class A Preferred Stock (Series 2003A), cumulative, par value $1 per share (stated capital $100,000 per share). The proceeds from the sale were used to repay a portion of Alabama Power's outstanding short-term indebtedness and for other general corporate purposes, including Alabama Power's continuous construction program. Also in February 2003, Alabama Power issued $250 million in Series T 5.70% Senior Notes due February 15, 2033. The proceeds from the sale were used to redeem $200 million in aggregate principal amount of Series B 7% Senior Quarterly Interest Notes due December 31, 2047 and for other general corporate purposes, including Alabama Power's continuous construction program. Additionally, in February 2003, Alabama Power issued $170 million of Series U 2.65% Senior Notes due February 15, 2006. The proceeds from the sale were used to repay at maturity $167 million in aggregate principal amount of Series O Floating Rate Senior Notes due March 3, 2003 and for other general corporate purposes, including Alabama Power's continuous construction program. In March 2003, Alabama Power issued $200 million of Series V 5.60% Senior Notes due March 15, 2033. The proceeds from the sale were used to redeem in April 2003, $190 million in aggregate principal amount of Series C 7% Senior Notes due March 31, 2048 and for other general corporate purposes, including Alabama Power's continuous construction program. 32 ALABAMA POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION In April 2003, Alabama Power issued $195 million of Series W Floating Rate Extendible Senior Notes due April 23, 2006, the initial maturity date, unless the maturity of all or a portion of the principal amount is extended by investors to April 23, 2007. The proceeds from the sale were used by Alabama Power for general corporate purposes, including Alabama Power's continuous construction program. After approval of an increase in authorized shares of common stock by stockholders in April 2003, Alabama Power issued 312,500 shares of common stock to Southern Company at $40.00 a share ($12,500,000 aggregate purchase price). The proceeds from the sale will be used by Alabama Power for general corporate purposes. In May 2003, Alabama Power issued $250 million of Series X 3.125% Senior Notes due May 1, 2008. The proceeds from this sale will be used to repay at maturity, in May 2003, $250 million in aggregate principal amount of the Series M 7.85% Senior Notes due May 15, 2003. Alabama Power plans to continue, when economically feasible, a program to retire higher-cost debt and replace these obligations with lower-cost capital if market conditions permit. Capital RequirementsReference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS of Alabama Power under "Capital Requirements," "Other Capital Requirements" and "Environmental Matters" in the Form 10-K for a description of Alabama Power's capital requirements for its construction program, maturing debt and environmental compliance efforts.Sources of CapitalIn addition to the financing activities previously described herein, Alabama Power plans to obtain the funds required for construction and other purposes from sources similar to those used in the past. The amount, type and timing of any financings -- if needed -- will depend upon maintenance of adequate earnings, regulatory approval, prevailing market conditions and other factors. See Item 1 - BUSINESS - "Financing Programs" in the Form 10-K for additional information. Alabama Power's current liabilities exceed current assets because of scheduled maturities of long-term debt. To meet short-term cash needs and contingencies, Alabama Power had at March 31, 2003 approximately $28.6 million of cash and cash equivalents, unused committed lines of credit of approximately $923 million (including $454 million of such lines which are dedicated to funding purchase obligations relating to variable rate pollution control bonds) and an extendible commercial note program. Due to a reduction of commercial paper, Alabama Power plans to reduce committed lines of credit to approximately $800 million in June 2003. Of these lines of credit, unless extended, $533 million expire at various times in 2003 and $390 million expire in 2004. Alabama Power may also meet short-term cash needs through a Southern Company subsidiary organized to issue and sell commercial paper and extendible commercial notes at the request and for the benefit of Alabama Power and other Southern Company subsidiaries. Alabama Power has regulatory authority for up to $1.0 billion of short-term borrowings. At March 31, 2003, Alabama Power had no outstanding commercial paper or notes payable to banks. Management believes that the need for working capital can be adequately met by utilizing lines of credit without maintaining large cash balances. 33 GEORGIA POWER COMPANY 34
GEORGIA POWER COMPANY CONDENSED STATEMENTS OF INCOME (UNAUDITED) For the Three Months Ended March 31, 2003 2002 - -------------------------------------------------------------------------------- (in thousands) Operating Revenues: Retail sales $ 965,707 $ 904,914 Sales for resale -- Non-affiliates 73,986 50,050 Affiliates 47,486 16,507 Other revenues 39,259 35,292 - ------------------------------------------------------------------------------ Total operating revenues 1,126,438 1,006,763 - ------------------------------------------------------------------------------ Operating Expenses: Operation -- Fuel 242,503 227,377 Purchased power -- Non-affiliates 72,036 37,790 Affiliates 113,843 58,780 Other 185,990 173,820 Maintenance 110,944 103,854 Depreciation and amortization 85,742 95,797 Taxes other than income taxes 53,175 49,575 - ------------------------------------------------------------------------------ Total operating expenses 864,233 746,993 - ------------------------------------------------------------------------------ Operating Income 262,205 259,770 Other Income and (Expense): Interest expense, net of amounts capitalized (44,363) (40,595) Distributions on preferred securities of subsidiaries (14,919) (14,776) Other income (expense), net 5,983 (2,361) - ------------------------------------------------------------------------------ Total other income and (expense) (53,299) (57,732) - ------------------------------------------------------------------------------ Earnings Before Income Taxes 208,906 202,038 Income taxes 75,468 75,125 - ------------------------------------------------------------------------------ Net Income 133,438 126,913 Dividends on Preferred Stock 168 168 - ------------------------------------------------------------------------------ Net Income After Dividends on Preferred Stock $ 133,270 $ 126,745 - ------------------------------------------------------===========-============ The accompanying notes as they relate to Georgia Power are an integral part of these condensed financial statements.
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GEORGIA POWER COMPANY CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) For the Three Months Ended March 31, - ----------------------------------------------------------------------------------------------------------------- 2003 2002 - ----------------------------------------------------------------------------------------------------------------- (in thousands) Operating Activities: Net income $133,438 $ 126,913 Adjustments to reconcile net income to net cash provided from operating activities -- Depreciation and amortization 102,770 98,809 Deferred income taxes and investment tax credits, net 29,956 (1,817) Pension, postretirement, and other employee benefits (7,633) (12,620) Other, net (8,924) (213) Changes in certain current assets and liabilities -- Receivables, net 114,048 56,234 Fossil fuel stock (11,235) 1,609 Materials and supplies (2,166) 2,925 Other current assets 24,309 7,506 Accounts payable (189,719) (74,888) Taxes accrued (56,058) (16,490) Other current liabilities 413 69,396 - ----------------------------------------------------------------------------------------------------------------- Net cash provided from operating activities 129,199 257,364 - ----------------------------------------------------------------------------------------------------------------- Investing Activities: Gross property additions (190,895) (215,043) Cost of removal net of salvage (4,950) (10,793) Sales of property - 387,212 - ----------------------------------------------------------------------------------------------------------------- Other (46,597) (43,959) - ----------------------------------------------------------------------------------------------------------------- Net cash provided from (used for) investing activities (242,442) 117,417 - ----------------------------------------------------------------------------------------------------------------- Financing Activities: Increase in notes payable, net 171,742 290,949 Proceeds -- Senior notes 400,000 - Capital contributions from parent company 2,750 2,984 Redemptions -- First mortgage bonds - (1,860) Pollution control bonds - (7,800) Senior notes (315,000) (300,000) Capital distributions to parent company - (200,000) Payment of preferred stock dividends (175) (182) Payment of common stock dividends (141,450) (135,725) Other (8,196) (1,318) - ----------------------------------------------------------------------------------------------------------------- Net cash provided from (used for) financing activities 109,671 (352,952) - ----------------------------------------------------------------------------------------------------------------- Net Change in Cash and Cash Equivalents (3,572) 21,829 Cash and Cash Equivalents at Beginning of Period 16,873 23,260 - ----------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Period $ 13,301 $ 45,089 ================================================================================================================ Supplemental Cash Flow Information: Cash paid during the period for -- Interest (net of $1,846 and $3,102 capitalized for 2003 and 2002, respectively) $54,160 $30,324 Income taxes (net of refunds) ($3,896) $24,021 The accompanying notes as they relate to Georgia Power are an integral part of these condensed financial statements.
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GEORGIA POWER COMPANY CONDENSED BALANCE SHEETS (UNAUDITED) At March 31, At December 31, Assets 2003 2002 - ------------------------------------------------------------------------------------------------------------------------ (in thousands) Current Assets: Cash and cash equivalents $ 13,301 $ 16,873 Receivables -- Customer accounts receivable 255,681 302,995 Unbilled revenues 96,071 104,454 Under recovered regulatory clause revenues 107,690 117,580 Other accounts and notes receivable 81,446 122,585 Affiliated companies 24,838 40,501 Accumulated provision for uncollectible accounts (5,825) (5,825) Fossil fuel stock, at average cost 131,282 120,048 Materials and supplies, at average cost 265,530 263,364 Other 69,728 96,922 - ------------------------------------------------------------------------------------------------------------------------ Total current assets 1,039,742 1,179,497 - ------------------------------------------------------------------------------------------------------------------------ Property, Plant, and Equipment: In service 17,774,199 17,222,661 Less accumulated provision for depreciation 7,092,227 7,333,529 - ------------------------------------------------------------------------------------------------------------------------ 10,681,972 9,889,132 Nuclear fuel, at amortized cost 109,247 119,588 Construction work in progress 392,581 667,581 - ------------------------------------------------------------------------------------------------------------------------ Total property, plant, and equipment 11,183,800 10,676,301 - ------------------------------------------------------------------------------------------------------------------------ Other Property and Investments: Equity investments in unconsolidated subsidiaries 35,881 36,167 Nuclear decommissioning trusts 354,907 346,870 Other 28,646 28,612 - ------------------------------------------------------------------------------------------------------------------------ Total other property and investments 419,434 411,649 - ------------------------------------------------------------------------------------------------------------------------ Deferred Charges and Other Assets: Deferred charges related to income taxes 521,230 524,510 Prepaid pension costs 356,204 341,944 Unamortized debt issuance expense 70,017 67,362 Unamortized premium on reacquired debt 180,117 178,590 Asset retirement obligation regulatory asset 26,475 - Other 156,099 162,686 - ------------------------------------------------------------------------------------------------------------------------ Total deferred charges and other assets 1,310,142 1,275,092 - ------------------------------------------------------------------------------------------------------------------------ Total Assets $ 13,953,118 $ 13,542,539 - --------------------------------------------------------------------------=====================----===================== The accompanying notes as they relate to Georgia Power are an integral part of these condensed financial statements.
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GEORGIA POWER COMPANY CONDENSED BALANCE SHEETS (UNAUDITED) At March 31, At December 31, Liabilities and Stockholder's Equity 2003 2002 - ---------------------------------------------------------------------------------------------------------------------- (in thousands) Current Liabilities: Securities due within one year $ 152,170 $ 322,125 Notes payable 529,419 357,677 Accounts payable -- Affiliated 70,153 135,260 Other 258,807 445,220 Customer deposits 97,345 94,859 Taxes accrued -- Income taxes 46,156 20,245 Other 52,300 134,269 Interest accrued 60,719 59,608 Vacation pay accrued 40,844 42,442 Other 111,046 112,131 - ---------------------------------------------------------------------------------------------------------------------- Total current liabilities 1,418,959 1,723,836 - ---------------------------------------------------------------------------------------------------------------------- Long-term debt 3,364,047 3,109,619 - ---------------------------------------------------------------------------------------------------------------------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes 2,194,992 2,176,438 Deferred credits related to income taxes 204,616 208,410 Accumulated deferred investment tax credits 321,872 324,994 Employee benefits provisions 243,113 236,486 Asset retirement obligations 476,648 - Other 346,825 373,740 - ---------------------------------------------------------------------------------------------------------------------- Total deferred credits and other liabilities 3,788,066 3,320,068 - ---------------------------------------------------------------------------------------------------------------------- Company obligated mandatorily redeemable preferred securities of subsidiary trusts holding company junior subordinated notes 940,000 940,000 - ---------------------------------------------------------------------------------------------------------------------- Preferred stock 14,569 14,569 - ---------------------------------------------------------------------------------------------------------------------- Common Stockholder's Equity: Common stock, without par value-- Authorized - 15,000,000 shares Outstanding - 7,761,500 shares 344,250 344,250 - ---------------------------------------------------------------------------------------------------------------------- Paid-in capital 2,158,789 2,156,040 Premium on preferred stock 40 40 Retained earnings 1,937,340 1,945,520 Accumulated other comprehensive loss (12,942) (11,403) - ---------------------------------------------------------------------------------------------------------------------- Total common stockholder's equity 4,427,477 4,434,447 - ---------------------------------------------------------------------------------------------------------------------- Total Liabilities and Stockholder's Equity $ 13,953,118 $ 13,542,539 - -----------------------------------------------------------------------======================----===================== The accompanying notes as they relate to Georgia Power are an integral part of these condensed financial statements.
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GEORGIA POWER COMPANY CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) For the Three Months Ended March 31, - --------------------------------------------------------------------------------------------------------------------------------- 2003 2002 - --------------------------------------------------------------------------------------------------------------------------------- (in thousands) Net Income After Dividends on Preferred Stock $ 133,270 $ 126,745 Other comprehensive income (loss): Changes in fair value of qualifying hedges, net of tax of $(966) and $157, respectively (1,532) 248 Less: Reclassification adjustment for amounts included in net income, net of tax (7) - - --------------------------------------------------------------------------------------------------------------------------------- COMPREHENSIVE INCOME $ 131,731 $ 126,993 - --------------------------------------------------------------------------------------=====================-----=================
GEORGIA POWER COMPANY CONDENSED STATEMENTS OF ACCUMULATED OTHER COMPREHENSIVE LOSS (UNAUDITED) At March 31, At December 31, 2003 2002 - ------------------------------------------------------------------------------------------------------ (in thousands) Balance at beginning of period $ (11,403) $ (153) Change in current period (1,539) (11,250) - ------------------------------------------------------------------------------------------------------ BALANCE AT END OF PERIOD $ (12,942) $ (11,403) - -------------------------------------------------------=====================-----===================-- The accompanying notes as they relate to Georgia Power are an integral part of these condensed financial statements.
39 GEORGIA POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS AND FINANCIAL CONDITION FIRST QUARTER 2003 vs. FIRST QUARTER 2002 RESULTS OF OPERATIONS EarningsGeorgia Power's net income after dividends on preferred stock for the first quarter 2003 was $133.3 million compared to $126.7 million for the corresponding period in 2002. Earnings in the first quarter 2003 increased by $6.6 million, or 5.2%, primarily due to increased operating revenues which were partially offset by increased non-fuel operating expenses. Significant income statement items appropriate for discussion include the following: Increase (Decrease) --------------------------------- First Quarter --------------------------------- (in thousands) % Retail sales........................... $60,793 6.7 Sales for resale - non-affiliates...... 23,936 47.8 Sales for resale - affiliates.......... 30,979 187.7 Fuel expense........................... 15,126 6.7 Purchased power - non-affiliates....... 34,246 90.6 Purchased power - affiliates........... 55,063 93.7 Other operation expense................ 12,170 7.0 Maintenance expense.................... 7,090 6.8 Depreciation and amortization.......... (10,055) (10.5) Other income (expense), net............ 8,344 353.4 Retail sales. Excluding fuel revenues, which generally do not affect net income, retail sales revenue increased in the first quarter 2003 by $22.7 million, or 3.5%, when compared to the corresponding period in 2002. Colder weather is the primary reason for the increase in retail sales revenues. Energy sales to residential customers increased 7.6% in the first quarter 2003 when compared to the same period in 2002. Energy sales to commercial customers declined by 0.8%, while energy sales to the industrial sector rose by 5.1%, compared to the first quarter 2002. Sales for resale - non-affiliates. Energy sales for resale to non-affiliates increased 43.5% during the first quarter 2003 as a direct result of increased demand for energy by these non-affiliates. These transactions did not have a significant impact on earnings since the energy is usually sold at variable cost. Sales for resale - affiliates. Revenues from sales for resale to affiliated companies within the Southern Company system will vary depending on demand and the availability and cost of generating resources at each company. Energy sales increased 160.3% when compared to the first quarter 2002. These transactions did not have a significant impact on earnings. 40 GEORGIA POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS AND FINANCIAL CONDITION Fuel expense. The first quarter 2003 increase is mainly due to increased generation related to the higher demand for energy when compared to the same period in the prior year and an increase of approximately 129% in the average cost of natural gas. These expenses do not have a significant impact on earnings since energy expenses are generally offset by energy revenues through Georgia Power's fuel cost recovery clause. Purchased power - non-affiliates. In the first quarter 2003, purchased power from non-affiliates increased primarily due to higher gas prices and an 18.2% increase in the demand for energy. These expenses do not have a significant impact on earnings since energy expenses are generally offset by energy revenues through Georgia Power's fuel cost recovery clause. Purchased power - affiliates. The increase in the first quarter 2003 is principally attributed to the PPAs between Georgia Power and Southern Power that began in June 2002. The capacity component of these transactions totaled $23.6 million in the first quarter 2003. The energy component of power purchased from affiliated companies within the Southern Company system will vary depending on demand and the availability and cost of generating resources at each company and will have no significant impact on earnings since energy expenses are generally offset by energy revenues through Georgia Power's fuel cost recovery clause. Other operation expense. During the first quarter 2003, other operation expense increased from the same period in 2002 mainly due to increases of $3.2 million in transmission and distribution, $2.6 million in fossil power generation, $1.7 million in customer accounting expenses and $2.1 million in property insurance. Maintenance expense. In the first quarter 2003, maintenance expense was higher than the amount recorded in the first quarter of 2002, principally due to increased scheduled work on steam generating facilities and distribution facilities. Depreciation and amortization. The decrease in this item for the first quarter 2003 is primarily due to lower regulatory charges necessary to levelize purchased power costs under the terms of the retail rate order effective January 1, 2002. The decrease is offset by an increase in purchased power costs discussed above. All purchased power costs will be reflected in rates evenly over the next three years under the retail rate order effective January 1, 2002. Other income (expense), net. The first quarter 2003 increase in this item when compared to the same period in 2002 is partially the result of both higher income associated with a new electricity pricing program and mark to market adjustments for derivative energy contracts. See "Exposure to Market Risks" herein for additional information related to derivative energy contracts. Future Earnings Potential The results of operations discussed above are not necessarily indicative of future earnings potential. The level of future earnings depends on numerous factors including regulatory matters and the effect of weather and the economy on energy sales. For additional information relating to these issues, see Item 1 - - BUSINESS - "Risk Factors" and Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future Earnings Potential" of Georgia Power in the Form 10-K. 41 GEORGIA POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION In January 2002, Georgia Power began operating under a three-year retail rate order. Under the terms of the order, earnings will be evaluated annually against a retail return on common equity range of 10 percent to 12.95 percent. Two-thirds of any earnings above the 12.95 percent return will be applied to rate refunds, with the remaining one-third retained by Georgia Power. Retail rates were decreased by $118 million effective January 1, 2002. Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future Earnings Potential" and Note 3 to the financial statements of Georgia Power in Item 8 of the Form 10-K for additional information. Beginning in June 2002, Georgia Power began purchases under PPAs with Southern Power which will result in higher capacity and operating and maintenance payments. Purchases under PPAs will be reflected in rates evenly over the next three years under the retail rate order effective January 1, 2002. Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future Earnings Potential - FERC Matters" of Georgia Power in the Form 10-K for information on the formation of an RTO as ordered by the FERC and the notice of proposed rulemaking regarding open access transmission service and standard electricity market design. In April 2003, the FERC issued a White Paper related to its proposed rulemaking regarding open access transmission service and standard electricity market design in an effort to respond to certain of the public comments received on the standard market design proposal. Evident in the White Paper are continuing differences in opinion between the FERC and various state regulatory commissions over questions of jurisdiction and protection of retail customers. Pending energy legislation may also impact these issues. Any impact of this proposal on Southern Company and its subsidiaries will depend on the form in which final rules may be ultimately adopted; however, Georgia Power's revenues, expenses, assets and liabilities could be adversely affected by changes in the transmission regulatory structure in its regional power market. In June 2002, Georgia Power entered into a fifteen-year PPA beginning in June 2005 with Southern Power to purchase 1,040 megawatts of capacity from the planned combined-cycle plant at Plant McIntosh to be built and owned by Southern Power. The annual capacity cost is expected to be approximately $72 million. Reference is made to Note (L) to the Condensed Financial Statements for information regarding the FERC approval process for this PPA. Additionally, Georgia Power has entered into a seven-year PPA beginning in June 2005 with Duke Energy Trading & Marketing to purchase 620 megawatts with an average annual capacity cost of approximately $48 million. Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future Earnings Potential" and Note 4 under "Purchased Power Commitments" to the financial statements of Georgia Power in Item 8 of the Form 10-K. Compliance costs related to the Clean Air Act and other environmental issues could affect earnings if such costs cannot be recovered. For additional information, including information on the EPA litigation, see Item 7 - MANAGEMENT'S DISCUSSION AND Analysis - "Environmental Matters" of Georgia Power and Note 3 to the financial statements of Georgia Power in Item 8 of the Form 10-K. 42 GEORGIA POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Georgia Power's business activities are subject to extensive governmental regulation related to public health and the environment. Litigation over environmental issues and claims of various types, including property damage, personal injury and citizen enforcement of environmental requirements, has increased generally throughout the United States. In particular, personal injury claims for damages caused by alleged exposure to hazardous materials have become more frequent. The ultimate outcome of such litigation currently filed against Georgia Power cannot be predicted at this time; however, after consultation with legal counsel, management does not anticipate that the liabilities, if any, arising from such proceedings would have a material adverse effect on Georgia Power's financial statements. Reference is made to Notes (A), (E) through (G), (I), (K) and (L) to the Condensed Financial Statements herein for discussion of various contingencies and other matters which may affect future earnings potential. Accounting Policies Critical Policy Georgia Power's significant accounting policies are described in Note 1 to the financial statements of Georgia Power in Item 8 of the Form 10-K. Georgia Power's only critical accounting policy involves rate regulation. Georgia Power is subject to the provisions of FASB Statement No. 71, "Accounting for the Effects of Certain Types of Regulation." In the event that a portion of Georgia Power's operations is no longer subject to these provisions, Georgia Power would be required to write off related regulatory assets and liabilities that are not specifically recoverable and determine if any other assets, including plant, have been impaired. New Accounting Standards Reference is made to Note (H) to the Condensed Financial Statements herein for information regarding the adoption of FASB Statement No. 143, "Accounting for Asset Retirement Obligations" effective January 1, 2003. Statement No. 143 establishes new accounting and reporting standards for legal obligations associated with the ultimate cost of retiring long-lived assets. The present value of the ultimate costs for an asset's future retirement must be recorded in the period in which the liability is incurred. The cost must be capitalized as part of the related long-lived asset and depreciated over the asset's useful life. Additionally, Statement No. 143 does not permit non-regulated companies to continue accruing future retirement costs for long-lived assets that they do not have a legal obligation to retire. Prior to January 2003, Georgia Power accrued for the ultimate cost of retiring most long-lived assets over the life of the related asset through depreciation expense. There was no cumulative effect adjustment to net income resulting from the adoption of Statement No. 143. Georgia Power received permission from the Georgia PSC to defer the transition adjustment; therefore, Georgia Power recorded a related regulatory asset of $21 million to reflect the regulatory treatment of these costs under Statement No. 71 as of January 2003. The initial Statement No. 143 liability Georgia Power recognized was $469 million, of which $332 million was removed from the accumulated depreciation reserve. The amount capitalized to property, plant, and equipment was $116 million. 43 GEORGIA POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION FINANCIAL CONDITION Overview The major change in Georgia Power's financial condition during the first three months of 2003 was the addition of approximately $191 million to utility plant. The funds for these additions and other capital requirements were derived primarily from operations. See Georgia Power's Condensed Statements of Cash Flows herein for further details. Credit Rating Risk Georgia Power does not have any credit agreements that would require material changes in payment schedules or terminations as a result of a credit rating downgrade. There are certain physical electricity sales contracts that could require collateral -- but not termination -- in the event of a credit rating change to below investment grade. Generally, collateral may be provided for by a Southern Company guaranty, letter of credit or cash. At March 31, 2003, the maximum potential collateral requirements were approximately $228 million. Exposure to Market Risks Georgia Power's market risk exposures relative to interest rate changes have not changed materially compared with the December 31, 2002 reporting period. In addition, Georgia Power is not aware of any facts or circumstances that would significantly affect such exposures in the near term. Due to cost-based rate regulations, Georgia Power has limited exposure to market volatility in interest rates, commodity fuel prices and prices of electricity. To mitigate residual risks relative to movements in electricity prices, Georgia Power enters into fixed price contracts for the purchase and sale of electricity through the wholesale electricity market and, to a lesser extent, similar contracts for gas purchases. Georgia Power has also implemented a retail fuel hedging program at the instruction of the Georgia PSC. The fair value of derivative energy contracts at March 31, 2003 was as follows: First Quarter 2003 Changes --------------------------------------- ------------------------- Fair Value --------------------------------------- ------------------------- (in thousands) Contracts beginning of period $ 89 Contracts realized or settled - New contracts at inception - Changes in valuation techniques - Current period changes (928) --------------------------------------- ------------------------- Contracts at March 31, 2003 $(839) ======================================= ========================= All of these contracts are actively quoted and mature within one year. 44 GEORGIA POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION At March 31, 2003, the fair value of derivative energy contracts reflected in the financial statements was as follows: Amounts --------------------------------------- ------------------------- (in thousands) Regulatory assets, net $(705) Other comprehensive income - Net loss (134) --------------------------------------- ------------------------- Total fair value $(839) ======================================= ========================= Realized gains and losses are recognized in the Statements of Income as incurred. For the quarters ended March 31, 2003 and 2002, approximately $0.2 million and $2.5 million, respectively, of losses were recognized in income. For additional information, reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Exposure to Market Risks" of Georgia Power in the Form 10-K and Note 1 to the financial statements of Georgia Power in Item 8 of the Form 10-K. Financing Activities In February 2003, Georgia Power issued $250 million of Series L Floating Rate Senior Notes due February 18, 2005. The proceeds from this issuance were used to repay a portion of Georgia Power's outstanding short-term indebtedness. Also in February 2003, Georgia Power issued $150 million of Series M 5.40% Senior Insured Quarterly Notes due March 1, 2033. A portion of the proceeds were used to redeem in March 2003 the $145 million outstanding principal amount of Georgia Power's Series A 6 7/8% Senior Public Income Notes due December 31, 2047 and the balance of the proceeds was used to repay a portion of Georgia Power's outstanding short-term indebtedness. During March 2003, Georgia Power elected to change the interest rate mode on $316 million of variable rate pollution control bonds. Georgia Power changed $255 million of the bonds from the "daily rate mode", which required backup bank credit facilities, to the "auction rate mode." In addition, Georgia Power changed $61 million of the bonds from the "daily rate mode" to the "long-term interest rate mode." In April 2003, Georgia Power issued $100 million of Series N 5.750% Senior Notes due April 15, 2023. The proceeds from this sale were used to repay a portion of Georgia Power's outstanding short-term indebtedness. In addition, in April 2003, Georgia Power issued $150 million of Series O 5.90% Senior Notes due April 15, 2033. The proceeds from this sale were used to repay at maturity all of Georgia Power's Series I 5.25% Senior Notes due May 8, 2003. Further, in April 2003, Georgia Power issued $50 million of Series P Floating Rate Senior Notes due April 15, 2005. The proceeds from this sale were used to repay a portion of Georgia Power's outstanding short-term indebtedness. Georgia Power plans to continue, when economically feasible, a program to retire higher-cost debt and replace these obligations with lower-cost capital if market conditions permit. 45 GEORGIA POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Capital Requirements Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS of Georgia Power under "Financing Activities", "Liquidity and Capital Requirements" and "Environmental Matters" in the Form 10-K for a description of Georgia Power's capital requirements for its construction program, maturing debt and environmental compliance efforts. Sources of Capital Georgia Power plans to obtain the funds required for construction and other purposes from sources similar to those used in the past. The amount, type and timing of any financings -- if needed -- will depend upon maintenance of adequate earnings, regulatory approval, prevailing market conditions and other factors. See Item 1 - BUSINESS - "Financing Programs" in the Form 10-K for additional information. Georgia Power's current liabilities exceed current assets because of the continued use of short-term debt as a funding source to meet cash needs. To meet short-term cash needs and contingencies, Georgia Power had at March 31, 2003 approximately $13.3 million of cash and cash equivalents and approximately $1.175 billion of unused credit arrangements with banks. These credit arrangements expire in 2003 and contain provisions allowing two-year term loans executable at the expiration date. The credit arrangements provide liquidity support to Georgia Power's obligations with respect to variable rate pollution control bonds and commercial paper. Due to a reduction of commercial paper and variable rate pollution control bonds requiring liquidity support as outlined in "Financing Activities" above, Georgia Power plans to reduce its credit arrangements to $700 million in June 2003. Georgia Power may also meet short-term cash needs through a Southern Company subsidiary organized to issue and sell commercial paper and extendible commercial notes at the request and for the benefit of Georgia Power and other Southern Company subsidiaries. At March 31, 2003, Georgia Power had outstanding $521 million of commercial paper and $7.9 million of extendible commercial notes. Management believes that the need for working capital can be adequately met by utilizing lines of credit without maintaining large cash balances. 46 GULF POWER COMPANY 47
GULF POWER COMPANY CONDENSED STATEMENTS OF INCOME (UNAUDITED) For the Three Months Ended March 31, 2003 2002 - -------------------------------------------------------------------------------------------------------------- (in thousands) Operating Revenues: Retail sales $159,793 $133,494 Sales for resale -- Non-affiliates 18,725 17,434 Affiliates 10,217 2,581 Other revenues 9,103 7,424 - -------------------------------------------------------------------------------------------------------------- Total operating revenues 197,838 160,933 - -------------------------------------------------------------------------------------------------------------- Operating Expenses: Operation -- Fuel 63,267 36,755 Purchased power -- Non-affiliates 5,956 5,804 Affiliates 12,587 17,061 Other 30,011 26,925 Maintenance 16,580 18,189 Depreciation and amortization 20,252 17,291 Taxes other than income taxes 16,388 14,415 - -------------------------------------------------------------------------------------------------------------- Total operating expenses 165,041 136,440 - -------------------------------------------------------------------------------------------------------------- Operating Income 32,797 24,493 Other Income and (Expense): Allowance for equity funds used during construction 43 2,374 Interest expense, net of amounts capitalized (8,055) (6,986) Distributions on preferred securities of subsidiary (2,028) (2,103) Other income (expense), net (466) (598) - -------------------------------------------------------------------------------------------------------------- Total other income and (expense) (10,506) (7,313) - -------------------------------------------------------------------------------------------------------------- Earnings Before Income Taxes 22,291 17,180 Income taxes 8,265 5,409 - -------------------------------------------------------------------------------------------------------------- Net Income 14,026 11,771 Dividends on Preferred Stock 54 54 - -------------------------------------------------------------------------------------------------------------- Net Income After Dividends on Preferred Stock $ 13,972 $11,717 - ---------------------------------------------------------------------------------==============--============= The accompanying notes as they relate to Gulf Power are an integral part of these condensed financial statements.
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GULF POWER COMPANY CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) For the Three Months Ended March 31, 2003 2002 - --------------------------------------------------------------------------------------------------------------- (in thousands) Operating Activities: Net income $ 14,026 $ 11,771 Adjustments to reconcile net income to net cash provided from operating activities -- Depreciation and amortization 21,589 18,474 Deferred income taxes 1,621 (4,442) Other, net 5,934 (7,448) Changes in certain current assets and liabilities -- Receivables, net 15,315 4,137 Fossil fuel stock (3,127) (8,048) Materials and supplies (1,451) 58 Other current assets 1,938 6,478 Accounts payable (15,065) 799 Taxes accrued (684) 4,501 Other current liabilities 6,726 5,045 - --------------------------------------------------------------------------------------------------------------- Net cash provided from operating activities 46,822 31,325 - --------------------------------------------------------------------------------------------------------------- Investing Activities: - --------------------------------------------------------------------------------------------------------------- Gross property additions (22,070) (39,801) - --------------------------------------------------------------------------------------------------------------- Cost of removal net of salvage (2,366) (2,326) - --------------------------------------------------------------------------------------------------------------- Other (5,563) (12,573) - --------------------------------------------------------------------------------------------------------------- Net cash used for investing activities (29,999) (54,700) - --------------------------------------------------------------------------------------------------------------- Financing Activities: Decrease in notes payable, net (489) (41,652) Proceeds -- Senior Notes 65,000 45,000 Capital contributions from parent company 10,943 37,259 Redemptions -- Senior notes (32) (147) Preferred securities (40,000) - Payment of preferred stock dividends (54) (54) Payment of common stock dividends (17,550) (16,375) Other (3,729) (575) - --------------------------------------------------------------------------------------------------------------- Net cash provided from financing activities 14,089 23,456 - --------------------------------------------------------------------------------------------------------------- Net Change in Cash and Cash Equivalents 30,912 81 Cash and Cash Equivalents at Beginning of Period 13,278 2,244 - --------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Period $ 44,190 $ 2,325 =============================================================================================================== Supplemental Cash Flow Information: Cash paid during the period for -- Interest (net of $20 and $1,109 capitalized for 2003 and 2002, respectively) $9,957 $11,808 Income taxes (net of refunds) ($21) ($1,467) The accompanying notes as they relate to Gulf Power are an integral part of these condensed financial statements.
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GULF POWER COMPANY CONDENSED BALANCE SHEETS (UNAUDITED) At March 31, At December 31, Assets 2003 2002 - --------------------------------------------------------------------------------------------------------------------------------- (in thousands) Current Assets: Cash and cash equivalents $ 44,190 $ 13,278 Receivables -- Customer accounts receivable 40,948 48,609 Unbilled revenues 23,363 28,077 Under recovered regulatory clause revenues 31,236 29,549 Other accounts and notes receivable 5,263 6,618 Affiliated companies 4,512 8,678 Accumulated provision for uncollectible accounts (901) (889) Fossil fuel stock, at average cost 40,318 37,191 Materials and supplies, at average cost 36,291 34,840 Prepaid taxes 6,844 12,704 Other 18,058 14,134 - --------------------------------------------------------------------------------------------------------------------------------- Total current assets 250,122 232,789 - --------------------------------------------------------------------------------------------------------------------------------- Property, Plant, and Equipment: In service 2,263,848 2,248,156 Less accumulated provision for depreciation 957,067 946,408 - --------------------------------------------------------------------------------------------------------------------------------- 1,306,781 1,301,748 Construction work in progress 33,261 35,708 - --------------------------------------------------------------------------------------------------------------------------------- Total property, plant, and equipment 1,340,042 1,337,456 - --------------------------------------------------------------------------------------------------------------------------------- Other Property and Investments 11,292 10,157 - --------------------------------------------------------------------------------------------------------------------------------- Deferred Charges and Other Assets: Deferred charges related to income taxes 18,490 18,798 Prepaid pension costs 37,543 36,298 Unamortized debt issuance expense 5,190 3,900 Unamortized premium on reacquired debt 14,898 14,052 Other 20,099 20,379 - --------------------------------------------------------------------------------------------------------------------------------- Total deferred charges and other assets 96,220 93,427 - --------------------------------------------------------------------------------------------------------------------------------- Total Assets $ 1,697,676 $ 1,673,829 - ------------------------------------------------------------------------------------=====================---===================== The accompanying notes as they relate to Gulf Power are an integral part of these condensed financial statements.
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GULF POWER COMPANY CONDENSED BALANCE SHEETS (UNAUDITED) At March 31, At December 31, Liabilities and Stockholder's Equity 2003 2002 - --------------------------------------------------------------------------------------------------------------------------------- (in thousands) Current Liabilities: Securities due within one year $ 80,000 $ 100,000 Notes payable 27,991 28,479 Accounts payable -- Affiliated 22,524 26,395 Other 24,038 39,685 Customer deposits 16,755 16,047 Taxes accrued -- Income taxes 11,453 10,718 Other 8,487 9,170 Interest accrued 7,273 7,875 Vacation pay accrued 5,044 5,044 Other 6,421 3,933 - --------------------------------------------------------------------------------------------------------------------------------- Total current liabilities 209,986 247,346 - --------------------------------------------------------------------------------------------------------------------------------- Long-term debt 496,115 452,040 - --------------------------------------------------------------------------------------------------------------------------------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes 169,208 167,689 Deferred credits related to income taxes 28,750 29,692 Accumulated deferred investment tax credits 21,798 22,289 Employee benefits provisions 40,920 39,656 Other 54,793 46,376 - --------------------------------------------------------------------------------------------------------------------------------- Total deferred credits and other liabilities 315,469 305,702 - --------------------------------------------------------------------------------------------------------------------------------- Company obligated mandatorily redeemable preferred securities of subsidiary trusts holding company junior subordinated notes 115,000 115,000 - --------------------------------------------------------------------------------------------------------------------------------- Preferred stock 4,236 4,236 - --------------------------------------------------------------------------------------------------------------------------------- Common Stockholder's Equity: Common stock, without par value-- Authorized - 992,717 shares Outstanding - 992,717 shares 38,060 38,060 Paid-in capital 360,712 349,769 Premium on preferred stock 12 12 Retained earnings 158,820 162,398 Accumulated other comprehensive loss (734) (734) - --------------------------------------------------------------------------------------------------------------------------------- Total common stockholder's equity 556,870 549,505 - --------------------------------------------------------------------------------------------------------------------------------- Total Liabilities and Stockholder's Equity $ 1,697,676 $ 1,673,829 ================================================================================================================================= The accompanying notes as they relate to Gulf Power are an integral part of these condensed financial statements.
51 GULF POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION FIRST QUARTER 2003 vs. FIRST QUARTER 2002 RESULTS OF OPERATIONS Earnings Gulf Power's net income after dividends on preferred stock for the first quarter 2003 was $14 million compared to $11.7 million for the corresponding period in 2002. First quarter 2003 earnings increased by $2.3 million, or 19.2%, primarily due to higher operating revenues when compared to the same period in 2002. Significant income statement items appropriate for discussion include the following: Increase (Decrease) ---------------------------------- First Quarter ---------------------------------- (in thousands) % Retail sales............................... $26,299 19.7 Sales for resale - non-affiliates.......... 1,291 7.4 Sales for resale - affiliates.............. 7,636 295.9 Other revenues............................. 1,679 22.6 Fuel expense............................... 26,512 72.1 Purchased power - affiliates............... (4,474) (26.2) Other operations expense................... 3,086 11.5 Maintenance expense........................ (1,609) (8.8) Depreciation and amortization.............. 2,961 17.1 Taxes other than income taxes.............. 1,973 13.7 Allowances for equity funds used during construction............................. (2,331) (98.2) Retail sales. Excluding the recovery of fuel expense and certain other expenses that do not affect net income, retail sales increased by $13 million, or 16.4%, for the first quarter 2003 when compared to the same period in 2002. Energy sales to commercial and industrial customers were higher by 2.5% and 8.3%, respectively, in the first quarter 2003 as compared to the same period in 2002. However, residential energy sales were slightly down by 0.9% in the first quarter 2003 from the first quarter of the prior year. Associated revenues for residential, commercial and industrial customers increased by 18.4%, 18% and 29.2%, due mainly to the retail rate increase that became effective in June 2002 and growth in the number of customers served in Gulf Power's service area. Sales for resale - non-affiliates. Sales for resale to non-affiliates increased for the first quarter 2003 when compared to the corresponding period in 2002 mainly due to a 10% increase in energy sales to these customers. These transactions do not have a significant impact on earnings since the energy is usually sold at variable cost. Sales for resale - affiliates and Purchased power - affiliates. Revenues from sales for resale to affiliated companies and purchases of energy within the Southern Company system will vary depending on demand and the availability and cost of generating resources at each company. Gulf Power increased its generating resources with commercial operation of Plant Smith in April 2002 and thus had greater generation resources to sell to affiliates. These transactions do not have a significant impact on earnings. 52 GULF POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Other revenues. During the first quarter 2003, other revenues were higher than the same period in 2002 primarily due to an increase of $622 thousand in miscellaneous service revenues and an increase of $752 thousand in franchise fees resulting from the retail rate increase that became effective in June 2002. Fuel expense. In the first quarter 2003, fuel expense was higher than the same period in 2002 due primarily to the commercial operation of Plant Smith Unit 3 in April 2002 coupled with a 53.4% increase in natural gas prices as well as increased generation to meet additional demand for energy. Since energy expenses are generally offset by energy revenues through Gulf Power's fuel cost recovery mechanism, these expenses do not have a significant impact on net income. Other operation expense. The increase in other operation expense during the first quarter 2003 is primarily attributed to a $712 thousand increase in customer accounts expenses and a $1,652 thousand increase in administrative and general expenses. Maintenance expense. The first quarter 2003 decrease in maintenance expense from the same period in the prior year reflects more scheduled production maintenance performed in 2002 than in the first quarter 2003. Depreciation and amortization. The increase in utility plant in service since the first quarter 2002 is the main cause of the increase in depreciation and amortization in the first quarter 2003 as compared to the first quarter 2002. Taxes other than income taxes. Taxes other than income taxes increased in the first quarter 2003 due primarily to property taxes on Plant Smith Unit 3 and revenue taxes related to the 2002 base rate increase. Allowance for equity funds used construction. The decrease in this item in the first quarter 2003 as compared to the same period in 2002 reflects the completion of construction of Plant Smith Unit 3 in 2002. Future Earnings Potential The results of operations discussed above are not necessarily indicative of future earnings potential. The level of future earnings depends on numerous factors. The major factors include regulatory matters and the ability to achieve energy sales growth. For additional information relating to these issues, see Item 1 - BUSINESS - "Risk Factors" and Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future Earnings Potential" of Gulf Power in the Form 10-K. Gulf Power is subject to certain claims and legal actions arising in the ordinary course of business. Gulf Power's business activities are subject to extensive governmental regulation related to public health and the environment. Litigation over environmental issues and claims of various types, including property damage, personal injury and citizen enforcement of environmental requirements, has increased generally throughout the United States. In particular, personal injury claims for damages caused by alleged exposure to hazardous materials have become more frequent. The ultimate outcome of such litigation currently filed against Gulf Power cannot be predicted at this time; however after consultation with legal counsel, management does not anticipate that the liabilities, if any, arising from such proceedings would have a material adverse effect on Gulf Power's financial statements. 53 GULF POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Compliance costs related to the Clean Air Act could affect earnings if such costs are not fully recovered through Gulf Power's Environmental Cost Recovery Clause. For additional information about the Clean Air Act and other environmental issues, including the EPA litigation, see Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Environmental Matters" and Note 3 to the financial statements of Gulf Power in the Form 10-K. In 2002 the Florida PSC approved an annual base rate increase for Gulf Power of $53.2 million which became effective in June 2002. Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future Earnings Potential" of Gulf Power in the Form 10-K for additional information. Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future Earnings Potential - FERC Matters" of Gulf Power in the Form 10-K for information on the formation of an RTO as ordered by the FERC and the notice of proposed rulemaking regarding open access transmission service and standard electricity market design. In April 2003, the FERC issued a White Paper related to its proposed rulemaking regarding open access transmission service and standard electricity market design in an effort to respond to certain of the public comments received on the standard market design proposal. Evident in the White Paper are continuing differences in opinion between the FERC and various state regulatory commissions over questions of jurisdiction and protection of retail customers. Pending energy legislation may also impact these issues. Any impact of this proposal on Southern Company and its subsidiaries will depend on the form in which final rules may be ultimately adopted; however, Gulf Power's revenues, expenses, assets and liabilities could be adversely affected by changes in the transmission regulatory structure in its regional power market. Reference is made to Notes (A) and (E) through (G) to the Condensed Financial Statements herein for discussion of various contingencies and other matters which may affect future earnings potential. Reference is also made to Part II - Item 1 - "Legal Proceedings" herein. Accounting Policies Critical Policy Gulf Power's significant accounting policies are described in Note 1 to the financial statements of Gulf Power in Item 8 of the Form 10-K. Gulf Power's only critical accounting policy involves rate regulation. Gulf Power is subject to the provisions of FASB Statement No. 71, "Accounting for the Effects of Certain Types of Regulation." In the event that a portion of Gulf Power's operations is no longer subject to these provisions, Gulf Power would be required to write off related regulatory assets and liabilities that are not specifically recoverable and determine if any other assets, including plant, have been impaired. New Accounting Standards Reference is made to Note (H) to the Condensed Financial Statements herein for information regarding the adoption of FASB Statement No. 143, "Accounting for Asset Retirement Obligations" effective January 1, 2003. Statement No. 143 establishes new accounting and reporting standards for legal obligations associated with the ultimate cost of retiring long-lived assets. The present value of the ultimate costs for an asset's future retirement must be recorded in the period in which the liability is incurred. The cost must be capitalized as part of the related long-lived asset and depreciated over the asset's useful life. Additionally, Statement No. 143 does not permit non-regulated companies to continue accruing future retirement costs for long-lived assets that they do not have a legal obligation to retire. Prior to January 2003, Gulf Power 54 GULF POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION accrued for the ultimate cost of retiring most long-lived assets over the life of the related asset through depreciation expense. FINANCIAL CONDITION Overview Major changes in Gulf Power's financial condition during the first three months of 2003 included the addition of approximately $22.1 million to utility plant. The funds for these additions and other capital requirements were derived primarily from operations. See Gulf Power's Condensed Statements of Cash Flows herein for further details. Credit Rating Risk Gulf Power does not have any credit agreements that would require material changes in payment schedules or terminations as a result of a credit rating downgrade. Exposure to Market Risks Gulf Power's market risk exposures relative to interest rate changes have not changed materially compared with the December 31, 2002 reporting period. In addition, Gulf Power is not aware of any facts or circumstances that would significantly affect such exposures in the near term. Due to cost-based rate regulations, Gulf Power has limited exposure to market volatility in interest rates, commodity fuel prices and prices of electricity. To mitigate residual risks relative to movements in electricity prices, Gulf Power enters into fixed price contracts for the purchase and sale of electricity through the wholesale electricity market and, to a lesser extent, similar contracts for gas purchases. Gulf Power has received approval from the Florida PSC to recover prudently incurred costs related to its fuel hedging program through the fuel cost recovery mechanism. The fair value of derivative energy contracts at March 31, 2003 was as follows: First Quarter 2003 Changes --------------------------------------- ---------------------- Fair Value --------------------------------------- ---------------------- (in thousands) Contracts beginning of period $2,336 Contracts realized or settled (491) New contracts at inception - Changes in valuation techniques - Current period changes 2,110 --------------------------------------- ---------------------- Contracts at March 31, 2003 $3,955 ======================================= ====================== 55 GULF POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Source of March 31, 2003 Valuation Prices ------------------------------- --------------- ----------------------- Total Maturity ----------------------- Fair Value Year 1 1-3 Years ------------------------------- --------------------------------------- (in thousands) Actively quoted $3,955 $4,795 $(840) External sources - - - Models and other methods - - - ------------------------------- --------------- ----------------------- Contracts at March 31, 2003 $3,955 $4,795 $(840) =============================== =============== ======================= Unrealized gains and losses from mark to market adjustments on contracts related to fuel hedging programs are recorded as regulatory assets and liabilities. Realized gains and losses from these programs are included in fuel expense and are recovered through Gulf Power's fuel cost recovery clause. Gains and losses on contracts that do not represent hedges are recognized in the income statement as incurred. At March 31, 2003, the fair value of derivative energy contracts was reflected in the financial statements as follows: Amounts - ----------------------------------------------------------------------------- (in thousands) Regulatory liabilities, net $3,977 Other comprehensive income - Net income (22) - ----------------------------------------------------------------------------- Total fair value $3,955 ============================================================================= There were no material realized gains or losses recognized in income for the quarters ended March 31, 2003 and 2002. Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Exposure to Market Risks" of Gulf Power in the Form 10-K and Note 1 to the financial statements of Gulf Power in Item 8 of the Form 10-K for additional information. Financing Activities In January 2003, Gulf Power redeemed $40 million of 7.625% trust preferred securities using the proceeds of $40 million in trust preferred securities issued in December 2002 at a five-year initial fixed rate of 5.60%. In March 2003, Gulf Power issued $65 million of Series F Senior Insured Quarterly Notes due April 1, 2033. The proceeds from this issue were used to redeem in April 2003, the $20 million Series B 7.50% Junior Subordinated Notes due June 30, 2037. In May 2003, the $45 million of Series E Senior Notes due January 30, 2012 will also be redeemed. 56 GULF POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION In April 2003, Gulf Power sold through public authorities $29.075 million of variable rate pollution control revenue refunding bonds due February 1, 2026. The proceeds were used to redeem (1) $7.875 million aggregate principal amount of water pollution control revenue refunding bonds, Series 1993 and (2) $21.2 million of pollution control revenue refunding bonds, Series 1996. Also in April 2003, Gulf Power sold through public authorities $32.55 million of variable rate pollution control revenue bonds due June 1, 2023. The proceeds were used to redeem the outstanding amount of pollution control revenue refunding bonds, Series 1993. Both pollution control bonds issued in April 2003 will bear interest at a rate to be determined by the auction rate process and will not require backup bank credit facilities. Gulf Power plans to continue, to the extent possible, a program to retire higher-cost securities and replace these obligations with lower-cost capital if market conditions permit. Capital Requirements Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS of Gulf Power under "Capital Requirements for Construction," "Other Capital Requirements" and "Environmental Matters" in the Form 10-K for a description of Gulf Power's capital requirements for its construction program, maturing debt and environmental compliance efforts. Sources of Capital In addition to the financing activities previously described herein, Gulf Power plans to obtain the funds required for construction and other purposes from sources similar to those used in the past. The amount, type and timing of any financings -- if needed -- will depend upon maintenance of adequate earnings, regulatory approval, prevailing market conditions and other factors. See Item 1 - - BUSINESS - "Financing Programs" in the Form 10-K for additional information. To meet short-term cash needs and contingencies, Gulf Power had at March 31, 2003 approximately $44.2 million of cash and cash equivalents and $66.3 million of unused committed lines of credit with banks that expire in 2003. The credit arrangements provide liquidity support to Gulf Power's obligations with respect to variable rate pollution control bonds and commercial paper. Gulf Power may also meet short-term cash needs through a Southern Company subsidiary organized to issue and sell commercial paper and extendible commercial notes at the request and for the benefit of Gulf Power and other Southern Company subsidiaries. At March 31, 2003, Gulf Power had outstanding $20 million of notes payable and $7.9 million of commercial paper. Management believes that the need for working capital can be adequately met by utilizing lines of credit without maintaining large cash balances. 57 MISSISSIPPI POWER COMPANY 58
MISSISSIPPI POWER COMPANY CONDENSED STATEMENTS OF INCOME (UNAUDITED) For the Three Months Ended March 31, 2003 2002 - ------------------------------------------------------------------------------------------------------------- (in thousands) Operating Revenues: Retail sales $113,970 $118,467 Sales for resale -- Non-affiliates 70,425 52,152 Affiliates 6,223 9,613 Other revenues 3,268 2,826 - ------------------------------------------------------------------------------------------------------------- Total operating revenues 193,886 183,058 - ------------------------------------------------------------------------------------------------------------- Operating Expenses: Operation -- Fuel 51,124 60,202 Purchased power -- Non-affiliates 6,817 2,841 Affiliates 20,332 7,406 Other 35,163 35,361 Maintenance 14,260 20,671 Depreciation and amortization 13,073 14,512 Taxes other than income taxes 13,367 13,192 - ------------------------------------------------------------------------------------------------------------- Total operating expenses 154,136 154,185 - ------------------------------------------------------------------------------------------------------------- Operating Income 39,750 28,873 Other Income and (Expense): Interest expense (3,770) (5,046) Distributions on preferred securities of subsidiary (630) (748) Other income (expense), net 12 193 - ------------------------------------------------------------------------------------------------------------- Total other income and (expense) (4,388) (5,601) - ------------------------------------------------------------------------------------------------------------- Earnings Before Income Taxes 35,362 23,272 Income taxes 13,463 8,787 - ------------------------------------------------------------------------------------------------------------- Net Income 21,899 14,485 Dividends on Preferred Stock 503 503 - ------------------------------------------------------------------------------------------------------------- Net Income After Dividends on Preferred Stock $ 21,396 $13,982 ============================================================================================================= The accompanying notes as they relate to Mississippi Power are an integral part of these condensed financial statements.
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MISSISSIPPI POWER COMPANY CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) For the Three Months Ended March 31, 2003 2002 - ----------------------------------------------------------------------------------------------------------------- (in thousands) Operating Activities: Net income $ 21,899 $ 14,485 Adjustments to reconcile net income to net cash provided from operating activities -- Depreciation and amortization 15,910 15,531 Deferred income taxes and investment tax credits, net (1,267) (5,429) Other, net (1,102) 3,063 Changes in certain current assets and liabilities -- Receivables, net 26,326 15,279 Fossil fuel stock 2,204 (310) Materials and supplies (529) (989) Other current assets (4,940) (6,039) Accounts payable (38,725) (8,184) Taxes accrued (18,080) (15,079) Other current liabilities (7,883) 515 - ----------------------------------------------------------------------------------------------------------------- Net cash provided from (used for) operating activities (6,187) 12,843 - ----------------------------------------------------------------------------------------------------------------- Investing Activities: Gross property additions (11,806) (18,687) Other 296 (6,807) - ----------------------------------------------------------------------------------------------------------------- Net cash used for investing activities (11,510) (25,494) - ----------------------------------------------------------------------------------------------------------------- Financing Activities: Increase in notes payable, net 19,975 19,958 Proceeds -- Senior notes - 80,000 Preferred securities - 35,000 Capital contributions from parent company 606 220 Redemptions -- First mortgage bonds (33,350) - Pollution control bonds (850) - Senior notes (73) (80,104) Payment of preferred stock dividends (503) (503) Payment of common stock dividends (16,500) (15,875) Other (1,178) - - ----------------------------------------------------------------------------------------------------------------- Net cash provided from (used for) financing activities (31,873) 38,696 - ----------------------------------------------------------------------------------------------------------------- Net Change in Cash and Cash Equivalents (49,570) 26,045 - ----------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at Beginning of Period 62,695 18,950 Cash and Cash Equivalents at End of Period $ 13,125 $ 44,995 ================================================================================================================= Supplemental Cash Flow Information: Cash paid during the period for -- Interest $2,612 $2,233 Income taxes (net of refunds) ($226) $6,502 The accompanying notes as they relate to Mississippi Power are an integral part of these condensed financial statements.
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MISSISSIPPI POWER COMPANY CONDENSED BALANCE SHEETS (UNAUDITED) At March 31, At December 31, Assets 2003 2002 - ----------------------------------------------------------------------------------------------------------------------- (in thousands) Current Assets: Cash and cash equivalents $ 13,125 $ 62,695 Receivables -- Customer accounts receivable 28,427 31,136 Unbilled revenues 15,616 18,434 Under recovered regulatory clause revenues 15,830 27,233 Other accounts and notes receivable 6,784 8,056 Affiliated companies 11,225 20,674 Accumulated provision for uncollectible accounts (695) (718) Fossil fuel stock, at average cost 25,099 27,303 Materials and supplies, at average cost 22,592 22,063 Assets from risk management activities 13,728 13,061 Deferred income tax assets 19,652 18,675 Other 11,843 7,469 - ----------------------------------------------------------------------------------------------------------------------- Total current assets 183,226 256,081 - ----------------------------------------------------------------------------------------------------------------------- Property, Plant, and Equipment: In service 1,797,523 1,786,378 Less accumulated provision for depreciation 732,809 722,231 - ----------------------------------------------------------------------------------------------------------------------- 1,064,714 1,064,147 Construction work in progress 31,860 34,065 - ----------------------------------------------------------------------------------------------------------------------- Total property, plant, and equipment 1,096,574 1,098,212 - ----------------------------------------------------------------------------------------------------------------------- Other Property and Investments 1,797 1,768 - ----------------------------------------------------------------------------------------------------------------------- Deferred Charges and Other Assets: Deferred charges related to income taxes 12,514 12,617 Prepaid pension costs 15,618 14,993 Unamortized debt issuance expense 4,149 4,304 Unamortized premium on reacquired debt 9,226 7,776 Other 18,885 16,415 - ----------------------------------------------------------------------------------------------------------------------- Total deferred charges and other assets 60,392 56,105 - ----------------------------------------------------------------------------------------------------------------------- Total Assets $ 1,341,989 $ 1,412,166 ======================================================================================================================= The accompanying notes as they relate to Mississippi Power are an integral part of these condensed financial statements.
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MISSISSIPPI POWER COMPANY CONDENSED BALANCE SHEETS (UNAUDITED) At March 31, At December 31, Liabilities and Stockholder's Equity 2003 2002 - -------------------------------------------------------------------------------------------------------------- (in thousands) Current Liabilities: Securities due within one year $ 166,555 $ 69,200 Notes payable 19,975 - Accounts payable -- Affiliated 14,582 22,396 Other 61,529 91,710 Customer deposits 7,339 6,855 Taxes accrued -- Income taxes 22,298 12,042 Other 13,128 41,464 Interest accrued 7,645 6,562 Vacation pay accrued 5,782 5,782 Regulatory clauses over recovery 26,911 35,680 Other 8,647 8,504 - -------------------------------------------------------------------------------------------------------------- Total current liabilities 354,391 300,195 - -------------------------------------------------------------------------------------------------------------- Long-term debt 112,481 243,715 - -------------------------------------------------------------------------------------------------------------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes 146,184 146,631 Deferred credits related to income taxes 24,865 20,798 Accumulated deferred investment tax credits 20,751 21,054 Employee benefits provisions 50,715 49,869 Other 42,338 45,142 - -------------------------------------------------------------------------------------------------------------- Total deferred credits and other liabilities 284,853 283,494 - -------------------------------------------------------------------------------------------------------------- Company obligated mandatorily redeemable preferred securities of subsidiary trust holding company junior subordinated notes 35,000 35,000 - -------------------------------------------------------------------------------------------------------------- Preferred stock 31,809 31,809 - -------------------------------------------------------------------------------------------------------------- Common Stockholder's Equity: Common stock equity -- Authorized - 1,130,000 shares Outstanding - 1,121,000 shares Par value 37,691 37,691 Paid-in capital 285,886 285,280 Premium on preferred stock 326 326 Retained earnings 200,816 195,920 Accumulated other comprehensive loss (1,264) (1,264) - -------------------------------------------------------------------------------------------------------------- Total common stockholder's equity 523,455 517,953 - -------------------------------------------------------------------------------------------------------------- Total Liabilities and Stockholder's Equity $ 1,341,989 $ 1,412,166 - -------------------------------------------------------------------===================----==================== The accompanying notes as they relate to Mississippi Power are an integral part of these condensed financial statements.
62 MISSISSIPPI POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION FIRST QUARTER 2003 vs. FIRST QUARTER 2002 RESULTS OF OPERATIONS Earnings Mississippi Power's net income after dividends on preferred stock for the first quarter 2003 was $21.4 million, compared to $14.0 million for the corresponding period of 2002. Earnings increased by $7.4 million, or 52.9%, in the first quarter 2003 due primarily to higher operating revenues as compared to the same period in 2002. Significant income statement items appropriate for discussion include the following: Increase (Decrease) ------------------------------------- First Quarter ------------------------------------- (in thousands) % Retail sales.......................... (4,497) (3.8) Sales for resale - non-affiliates..... 18,273 35.0 Sales for resale - affiliates......... (3,390) (35.3) Fuel expense.......................... (9,078) (15.1) Purchased power - non-affiliates...... 3,976 140.0 Purchased power - affiliates.......... 12,926 174.5 Maintenance expense................... (6,411) (31.0) Depreciation and amortization......... (1,439) (9.9) Retail sales. Excluding fuel revenues, which generally do not affect net income, retail sales revenue decreased by $1.4 million, or 1.9%, in the first quarter 2003 when compared to the same period in 2002. Retail sales revenues were lower in the first quarter 2003 primarily due to a decrease in energy sales to residential, commercial and industrial customers of 3%, 0.3% and 5.1%, respectively, when compared to the same period in 2002. Energy sales were lower as a direct result of milder weather in Mississippi Power's service area and the continued economic slowdown in Mississippi Power's service area. Sales for resale - non-affiliates. During the first quarter 2003, sales for resale to non-affiliates were higher when compared to the same period in 2002. This increase is primarily attributed to a 23.7% increase in wholesale prices and, to a lesser extent, a 12.9% increase in energy sales as compared to the same period in 2002. Sales for resale - affiliates and Purchased power - affiliates. Revenues from sales for resale to affiliated companies, as well as purchases of energy, within the Southern Company system will vary depending on demand and the availability and cost of generating resources at each company. These transactions do not have a significant impact on earnings. Fuel expense. The decrease in fuel expense in the first quarter 2003 compared to the same period in 2002 is principally due to opportunities to purchase some power more economically than to self-generate. Since energy expenses are generally offset by energy revenues through Mississippi Power's retail and wholesale fuel cost recovery clauses, these expenses do not have a significant impact on earnings. 63 MISSISSIPPI POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Purchased power - non-affiliates. In the first quarter 2003, purchased power from non-affiliates was higher when compared to the first quarter 2002 primarily because Mississippi Power had opportunities to purchase some power at a lower cost than the cost of self-generation. Generally, these purchased power transactions do not have a significant impact on net income since energy expenses are generally offset by energy revenues through Mississippi Power's retail and wholesale fuel cost recovery clauses. Maintenance expense. This expense was lower in the first quarter 2003 as compared to the same period in the prior year, due to scheduled maintenance performed at Plant Watson and Plant Daniel in the first quarter 2002. Depreciation and amortization. The first quarter 2003 decrease is a result of a credit to amortization of environmental expenses recorded in early 2003 based on Mississippi Power's latest ECO Plan filing with the Mississippi PSC when compared to the same period in 2002. Future Earnings Potential The results of operations discussed above are not necessarily indicative of future earnings potential. The level of future earnings depends on numerous factors including regulatory matters and the effect of weather and the economy on energy sales. For additional information relating to these issues, see Item 1 - - BUSINESS - "Risk Factors" and Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future Earnings Potential" of Mississippi Power in the Form 10-K. Mississippi Power's business activities are subject to extensive governmental regulation related to public health and the environment. Litigation over environmental issues and claims of various types, including property damage, personal injury and citizen enforcement of environmental requirements, has increased generally throughout the United States. In particular, personal injury claims for damages caused by alleged exposure to hazardous materials have become more frequent. The ultimate outcome of such litigation currently filed against Mississippi Power cannot be predicted at this time; however, after consultation with legal counsel, management does not anticipate that the liabilities, if any, arising from such proceedings would have a material adverse effect on Mississippi Power's financial statements. Mississippi Power's 2003 ECO Plan filing was approved, as filed, by the Mississippi PSC on March 18, 2003 and resulted in a slight increase in rates. Compliance costs related to the Clean Air Act could affect earnings if such costs cannot continue to be recovered. For additional information about the Clean Air Act and other environmental issues, including the EPA litigation, see Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Environmental Matters" and Note 3 to the financial statements of Mississippi Power in the Form 10-K. Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future Earnings Potential - FERC Matters" of Mississippi Power in the Form 10-K for information on the formation of an RTO as ordered by the FERC and the notice of proposed rulemaking regarding open access transmission service and standard electricity market design. In April 2003, the FERC issued a White Paper related to its proposed rulemaking regarding open access transmission service and standard electricity market design in an effort to respond to certain of the public comments received on the standard market design proposal. Evident in the 64 MISSISSIPPI POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION White Paper are continuing differences in opinion between the FERC and various state regulatory commissions over questions of jurisdiction and protection of retail customers. Pending energy legislation may also impact these issues. Any impact of this proposal on Southern Company and its subsidiaries will depend on the form in which final rules may be ultimately adopted; however, Mississippi Power's revenues, expenses, assets and liabilities could be adversely affected by changes in the transmission regulatory structure in its regional power market. Reference is made to Note (J) in the "Notes to the Condensed Financial Statements" herein for information regarding the proposed termination of a PPA between a subsidiary of Dynegy and Mississippi Power. Reference is also made to Note (M) to the Condensed Financial Statements herein for information on a proposed settlement in the FERC investigation of Mississippi Power's transmission facilities agreement with Entergy Corporation. Reference is made to Notes (A), (F) and (J) to the Condensed Financial Statements herein for discussion of various contingencies and other matters which may affect future earnings potential. Accounting Policies Critical Policies Mississippi Power's significant accounting policies are described in Note 1 to the financial statements of Mississippi Power in Item 8 of the Form 10-K. Mississippi Power's critical accounting policies involve rate regulation and lease accounting. Mississippi Power is subject to the provisions of FASB Statement No. 71, "Accounting for the Effects of Certain Types of Regulation." In the event that a portion of Mississippi Power's operations is no longer subject to these provisions, Mississippi Power would be required to write off related regulatory assets and liabilities that are not specifically recoverable and determine if any other assets, including plant, have been impaired. Additionally, Mississippi Power accounts for its lease agreement with Escatawpa Funding, Limited Partnership ("Escatawpa"), as an operating lease. Under this agreement, Escatawpa, a special purpose entity, is owner-lessor of the combined-cycle generating units at Mississippi Power's Plant Daniel. Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Accounting Policies - Critical Policies" of Mississippi Power in the Form 10-K for additional information regarding this lease agreement. Mississippi Power is currently working to restructure this agreement so that it will continue to be accounted for as an operating lease. The restructured agreement should be completed in June 2003, prior to the required implementation date of FASB Interpretation No. 46, "Consolidation of Certain Special-Purpose Entities." If the agreement is not restructured, FASB Interpretation No. 46 will require that Mississippi Power consolidate the assets and liabilities of Escatawpa effective July 1, 2003. Consolidation of these assets and liabilities could require Mississippi Power to seek additional regulatory review. 65 MISSISSIPPI POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION New Accounting Standards Reference is made to Note (H) to the Condensed Financial Statements herein for information regarding the adoption of FASB Statement No. 143, "Accounting for Asset Retirement Obligations" effective January 1, 2003. Statement No. 143 establishes new accounting and reporting standards for legal obligations associated with the ultimate cost of retiring long-lived assets. The present value of the ultimate costs for an asset's future retirement must be recorded in the period in which the liability is incurred. The cost must be capitalized as part of the related long-lived asset and depreciated over the asset's useful life. Additionally, Statement No. 143 does not permit non-regulated companies to continue accruing future retirement costs for long-lived assets that they do not have a legal obligation to retire. Prior to January 2003, Mississippi Power accrued for the ultimate cost of retiring most long-lived assets over the life of the related asset through depreciation expense. FINANCIAL CONDITION Overview Major changes in Mississippi Power's financial condition during the first three months of 2003 included the addition of approximately $11.8 million to utility plant. The funds for these additions and other capital requirements were derived primarily from cash and cash equivalents. See Mississippi Power's Condensed Statements of Cash Flows herein for further details. Off-Balance Sheet Financing Arrangements In May 2001, Mississippi Power began the initial 10-year term of an operating lease agreement with Escatawpa, a special purpose entity, to use a combined-cycle generating facility located at Mississippi Power's Plant Daniel. The facility cost approximately $370 million. The lease provides for a residual value guarantee -- approximately 71 percent of the completion cost -- by Mississippi Power that is due upon termination of the lease in certain circumstances. Reference is made to Note 8 to the financial statements of Mississippi Power in Item 8 of the Form 10-K under "Lease Agreements" and to "Critical Policies" above for additional information. Credit Rating Risk Mississippi Power does not have any credit agreements that would require material changes in payment schedules or terminations as a result of a credit rating downgrade. There are certain fixed-price physical gas purchase contracts that could require collateral -- but not accelerated payment -- in the event of a credit rating change to below investment grade; however, at March 31, 2003, this exposure was immaterial. 66 MISSISSIPPI POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Exposure to Market Risks Mississippi Power's market risk exposures relative to interest rate changes have not changed materially compared with the December 31, 2002 reporting period. In addition, Mississippi Power is not aware of any facts or circumstances that would significantly affect such exposures in the near term. Due to cost-based rate regulations, Mississippi Power has limited exposure to market volatility in interest rates, commodity fuel prices and prices of electricity. To mitigate residual risks relative to movements in electricity prices, Mississippi Power enters into fixed price contracts for the purchase and sale of electricity through the wholesale electricity market and, to a lesser extent, similar contracts for gas purchases. Mississippi Power has also implemented retail fuel hedging programs at the instruction of its PSC and wholesale fuel hedging programs under agreements with wholesale customers. The fair value of derivative, fuel and energy contracts was as follows: First Quarter 2003 Changes --------------------------------------- ------------------------- Fair Value --------------------------------------- ------------------------ (in thousands) Contracts beginning of period $12,864 Contracts realized or settled (4,151) New contracts at inception - Changes in valuation techniques - Current period changes 4,593 --------------------------------------- ------------------------- Contracts at March 31, 2003 $13,306 ======================================= ========================= All of these contracts are actively quoted and mature within one year. Source of March 31, 2003 Valuation Prices ------------------------------ --------------- --------------------------- Total Maturity --------------------------- Fair Value Year 1 1-3 Years ------------------------------ ------------------------------------------- (in thousands) Actively quoted $13,306 $13,306 $- External sources - - - Models and other methods - - - ------------------------------ --------------- --------------------------- Contracts at March 31, 2003 $13,306 $13,306 $- ============================== =============== =========================== Unrealized gains and losses from mark to market adjustments on contracts related to the retail and wholesale fuel hedging programs are recorded as regulatory assets and liabilities. Realized gains and losses from these programs are included in fuel expense and are recovered through Mississippi Power's energy cost management clauses. Reference is made to Note 1 to the financial statements of Mississippi Power in Item 8 of the Form 10-K regarding the respective approvals of the retail and wholesale energy cost management clauses. 67 MISSISSIPPI POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Gains and losses on contracts that do not represent hedges are recognized in the Statements of Income as incurred. At March 31, 2003, the fair value of derivative energy contracts reflected in the financial statements was as follows: Amounts --------------------------------------- ------------------------- --------------------------------------- ------------------------- (in thousands) Regulatory liabilities, net $13,329 Other comprehensive income - Net loss (23) --------------------------------------- ------------------------- Total fair value $13,306 ======================================= ========================= For the quarters ended March 31, 2003 and 2002, amounts recognized in income were immaterial. For additional information, reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Market Price Risk" of Mississippi Power in the Form 10-K and Note 1 to the financial statements of Mississippi Power in Item 8 of the Form 10-K. Financing Activities In April 2003, Mississippi Power issued $90 million of Series E 5-5/8% Senior Notes due May 1, 2033. The proceeds from this sale will be used to repay at maturity $35 million of Mississippi Power's Series B 6.05% Senior Notes due May 1, 2003, to redeem the $51.55 million outstanding principal amount of Mississippi Power's Series A 6.75% Senior Insured Quarterly Notes due June 30, 2038 and to repay a portion of Mississippi Power's outstanding short-term indebtedness. Mississippi Power plans to continue, to the extent possible, a program to retire higher-cost debt and replace these securities with lower-cost capital. Capital Requirements Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS of Mississippi Power under "Capital Requirements for Construction," "Environmental Matters" and "Other Capital Requirements" and Note 3 to the financial statements in the Form 10-K for a description of Mississippi Power's capital requirements for its construction program, environmental compliance efforts and maturities of long-term debt. Sources of Capital In addition to the financing activities previously described herein, Mississippi Power plans to obtain the funds required for construction and other purposes from sources similar to those used in the past. The amount, type and timing of any financings -- if needed -- will depend upon maintenance of adequate earnings, regulatory approval, prevailing market conditions and other factors. See Item 1 - BUSINESS - "Financing Programs" in the Form 10-K for additional information. Mississippi Power's current liabilities exceed current assets because of the continued use of short-term debt as a funding source to meet cash needs as well as scheduled maturities of long-term debt. 68 MISSISSIPPI POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION To meet short-term cash needs and contingencies, Mississippi Power had at March 31, 2003 approximately $13.1 million of cash and cash equivalents and $79.5 million of unused committed credit arrangements with banks that expire in 2003. Some of these credit arrangements, approximately $35 million, contain provisions allowing two-year term loans executable at expiration date. The credit arrangements provide liquidity support to Mississippi Power's obligations with respect to variable rate pollution control bonds and commercial paper. Mississippi Power may also meet short-term cash needs through a Southern Company subsidiary organized to issue and sell commercial paper and extendible commercial notes at the request and for the benefit of Mississippi Power and other Southern Company subsidiaries. At March 31, 2003, Mississippi Power had approximately $20 million of outstanding commercial paper. Management believes that the need for working capital can be adequately met by utilizing lines of credit without maintaining large cash balances. 69 SAVANNAH ELECTRIC AND POWER COMPANY 70
SAVANNAH ELECTRIC AND POWER COMPANY CONDENSED STATEMENTS OF INCOME (UNAUDITED) For the Three Months Ended March 31, 2003 2002 - ------------------------------------------------------------------------------------------------------------------ (in thousands) Operating Revenues: Retail sales $63,546 $54,947 Sales for resale -- Non-affiliates 2,034 933 Affiliates 2,324 898 Other revenues 1,078 600 - ------------------------------------------------------------------------------------------------------------------ Total operating revenues 68,982 57,378 - ------------------------------------------------------------------------------------------------------------------ Operating Expenses: Operation -- Fuel 11,425 8,928 Purchased power -- Non-affiliates 2,012 1,067 Affiliates 19,013 12,127 Other 13,099 13,072 Maintenance 5,910 5,325 Depreciation and amortization 5,061 6,509 Taxes other than income taxes 3,447 3,485 - ------------------------------------------------------------------------------------------------------------------ Total operating expenses 59,967 50,513 - ------------------------------------------------------------------------------------------------------------------ Operating Income 9,015 6,865 Other Income and (Expense): Interest expense, net of amounts capitalized (2,621) (2,769) Distributions on preferred securities of subsidiary (685) (685) Other income (expense), net (209) (626) - ------------------------------------------------------------------------------------------------------------------ Total other income and (expense) (3,515) (4,080) - ------------------------------------------------------------------------------------------------------------------ Earnings Before Income Taxes 5,500 2,785 Income taxes 1,991 983 - ------------------------------------------------------------------------------------------------------------------ Net Income $ 3,509 $ 1,802 ================================================================================================================== The accompanying notes as they relate to Savannah Electric are an integral part of these condensed financial statements.
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SAVANNAH ELECTRIC AND POWER COMPANY CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) For the Three Months Ended March 31, 2003 2002 - ---------------------------------------------------------------------------------------------------------------------- (in thousands) Operating Activities: Net income $ 3,509 $ 1,802 Adjustments to reconcile net income to net cash provided from operating activities -- Depreciation and amortization 5,582 6,419 Deferred income taxes and investment tax credits, net (439) (4,453) Pension, postretirement, and other employee benefits 1,670 1,723 Other, net 2,143 (1,979) Changes in certain current assets and liabilities -- Receivables, net 5,284 8,986 Fossil fuel stock (1,620) 1,869 Materials and supplies 16 3,294 Other current assets (65) (1,581) Accounts payable (5,347) (156) Taxes accrued (46) (300) Other current liabilities (1,559) (1,589) - ---------------------------------------------------------------------------------------------------------------------- Net cash provided from operating activities 9,128 14,035 - ---------------------------------------------------------------------------------------------------------------------- Investing Activities: Gross property additions (10,798) (9,565) Other 3,342 (15) - ---------------------------------------------------------------------------------------------------------------------- Net cash used for investing activities (7,456) (9,580) - ---------------------------------------------------------------------------------------------------------------------- Financing Activities: Decrease in notes payable, net (2,897) (91) Proceeds -- Pollution control bonds 13,870 - Other long-term debt - 356 Capital contributions from parent company 5,101 822 Redemptions -- First mortgage bonds - (436) Pollution control bonds (13,870) - Other long-term debt (225) - Payment of common stock dividends (5,750) (5,675) Other (71) - - ---------------------------------------------------------------------------------------------------------------------- Net cash used for financing activities (3,842) (5,024) - ---------------------------------------------------------------------------------------------------------------------- Net Change in Cash and Cash Equivalents (2,170) (569) Cash and Cash Equivalents at Beginning of Period 3,978 2,391 - ---------------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Period $ 1,808 $ 1,822 - -----------------------------------------------------------------------------------------==============-============== Supplemental Cash Flow Information: Cash paid during the period for -- Interest (net of $27 and $32 capitalized for 2003 and 2002, respectively) $1,724 $1,556 Income taxes (net of refunds) $ - $6,806 The accompanying notes as they relate to Savannah Electric are an integral part of these condensed financial statements.
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SAVANNAH ELECTRIC AND POWER COMPANY CONDENSED BALANCE SHEETS (UNAUDITED) At March 31, At December 31, Assets 2003 2002 - --------------------------------------------------------------------------------------------------------------------- (in thousands) Current Assets: Cash and cash equivalents $ 1,808 $ 3,978 Receivables -- Customer accounts receivable 18,584 22,631 Unbilled revenues 10,798 11,531 Other accounts and notes receivable 2,455 2,937 Affiliated companies 1,097 1,102 Accumulated provision for uncollectible accounts (698) (682) Fossil fuel stock, at average cost 9,949 8,328 Materials and supplies, at average cost 9,570 9,586 Prepaid taxes 21,782 20,422 Other 6,121 6,058 - --------------------------------------------------------------------------------------------------------------------- Total current assets 81,466 85,891 - --------------------------------------------------------------------------------------------------------------------- Property, Plant, and Equipment: In service 886,076 880,604 Less accumulated provision for depreciation 422,334 416,232 - --------------------------------------------------------------------------------------------------------------------- 463,742 464,372 Construction work in progress 12,111 6,082 - --------------------------------------------------------------------------------------------------------------------- Total property, plant, and equipment 475,853 470,454 - --------------------------------------------------------------------------------------------------------------------- Other Property and Investments 2,084 3,648 - --------------------------------------------------------------------------------------------------------------------- Deferred Charges and Other Assets: Deferred charges related to income taxes 11,289 11,692 Cash surrender value of life insurance for deferred compensation plans 22,045 21,943 Unamortized debt issuance expense 3,755 3,757 Unamortized premium on reacquired debt 8,018 8,103 Other 14,129 11,717 - --------------------------------------------------------------------------------------------------------------------- Total deferred charges and other assets 59,236 57,212 - --------------------------------------------------------------------------------------------------------------------- Total Assets $ 618,639 $ 617,205 - -----------------------------------------------------------------------------==================----================== The accompanying notes as they relate to Savannah Electric are an integral part of these condensed financial statements.
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SAVANNAH ELECTRIC AND POWER COMPANY CONDENSED BALANCE SHEETS (UNAUDITED) At March 31, At December 31, Liabilities and Stockholder's Equity 2003 2002 - ------------------------------------------------------------------------------------------------------------------ (in thousands) Current Liabilities: Securities due within one year $ 20,879 $ 20,892 Notes payable - 2,897 Accounts payable -- Affiliated 9,758 7,889 Other 10,196 15,769 Customer deposits 6,791 6,781 Taxes accrued -- Income taxes 777 311 Other 2,805 3,317 Interest accrued 4,531 3,268 Vacation pay accrued 2,454 2,427 Other 12,375 15,233 - ------------------------------------------------------------------------------------------------------------- Total current liabilities 70,566 78,784 - ------------------------------------------------------------------------------------------------------------- Long-term debt 167,841 168,052 - ------------------------------------------------------------------------------------------------------------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes 80,163 78,970 Deferred credits related to income taxes 11,769 12,445 Accumulated deferred investment tax credits 9,123 9,289 Employee benefits provisions 35,289 33,619 Other 21,224 16,242 - ------------------------------------------------------------------------------------------------------------- Total deferred credits and other liabilities 157,568 150,565 - ------------------------------------------------------------------------------------------------------------- Company obligated mandatorily redeemable preferred securities of subsidiary trusts holding company junior subordinated notes 40,000 40,000 - ------------------------------------------------------------------------------------------------------------- Common Stockholder's Equity: Common stock, par value $5 per share -- Authorized - 16,000,000 shares Outstanding - 10,844,635 shares Par value 54,223 54,223 Paid-in capital 21,878 16,776 Retained earnings 107,807 110,049 Accumulated other comprehensive loss (1,244) (1,244) - ------------------------------------------------------------------------------------------------------------- Total common stockholder's equity 182,664 179,804 - ------------------------------------------------------------------------------------------------------------- Total Liabilities and Stockholder's Equity $ 618,639 $ 617,205 - ------------------------------------------------------------------------===============----================== The accompanying notes as they relate to Savannah Electric are an integral part of these condensed financial statements.
74 SAVANNAH ELECTRIC AND POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION FIRST QUARTER 2003 vs. FIRST QUARTER 2002 RESULTS OF OPERATIONS Earnings Savannah Electric's net income for the first quarter 2003 was $3.5 million as compared to $1.8 million for the corresponding period of 2002. Earnings for the first quarter 2003 increased by $1.7 million or 94.7% due primarily to higher operating revenues. Significant income statement items appropriate for discussion include the following: Increase (Decrease) -------------------------------- First Quarter -------------------------------- (in thousands) % Retail sales.............................. $8,599 15.6 Sales for resale - non-affiliates......... 1,101 118.0 Sales for resale - affiliates............. 1,426 158.8 Fuel expense.............................. 2,497 28.0 Purchased power - non-affiliates.......... 945 88.6 Purchased power - affiliates.............. 6,886 56.8 Maintenance expense....................... 585 11.0 Depreciation and amortization............. (1,448) (22.2) Retail sales. Excluding fuel revenues, which do not affect net income, retail sales revenue increased by $2.7 million, or 7.7%, for the first quarter 2003 when compared to the corresponding period in 2002. Energy sales to residential and commercial customers were higher by 10.4% and 2.1%, respectively, due mainly to colder weather and growth in the number of customers when compared to the same period in 2002. Energy sales to industrial customers were higher by 16.8% in the first quarter 2003 compared to the first quarter 2002 primarily due to increased usage by one industrial customer. Retail sales revenues also reflect the base rate increase that took effect in June 2002. Sales for resale - non-affiliates. Sales for resale to non-affiliates during the first quarter 2003 increased when compared to the same period in 2002 primarily due to increased demand for energy by non-affiliates. These transactions do not have a significant impact on earnings since the energy is usually sold at cost. Sales for resale - affiliates. Revenues from sales for resale to affiliated companies within the Southern Company system will vary depending on demand and the availability and cost of generating resources at each company. These transactions do not have a significant impact on earnings since the energy is sold at cost. Fuel expense. Fuel expense increased in the first quarter 2003 due primarily to increased generation related to the higher demand for energy. 75 SAVANNAH ELECTRIC AND POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Purchased power - non-affiliates. The increase in purchased power from non-affiliates is primarily due to the opportunity to purchase this energy at a cost lower than self-generation in the first quarter 2003 as compared to the same period in 2002. Non-affiliated transactions are primarily energy and do not have a significant impact on earnings, as energy costs are generally recovered through Savannah Electric's fuel cost recovery clause. Purchased power - affiliates. The increase in purchased power from affiliates in the first quarter 2003 was directly related to the new PPA with Southern Power which became effective June 2002. The annual capacity costs of this PPA are approximately $14.0 million. Capacity costs of purchased power are generally recovered through base rates and the energy component is recovered through the fuel cost recovery clause. Purchased power from affiliates also includes energy purchases which will vary depending on demand and cost of generation resources at each company. These energy costs are recovered through the fuel cost recovery clause and have no significant impact on earnings. Maintenance expense. Maintenance expense in the first quarter 2003 increased when compared to the same period in the prior year due primarily to scheduled maintenance on steam generating facilities. Depreciation and amortization. The decrease in this item during the first quarter 2003 is primarily due to discontinued accelerated depreciation and the amortization of the related regulatory liability that began in June 2002, in accordance with the 2002 base rate order. Future Earnings Potential The results of operations discussed above are not necessarily indicative of future earnings potential. The level of future earnings depends on numerous factors which include maintaining a stable regulatory environment and achieving energy sales growth while containing costs. For additional information relating to these issues, reference is made to Item 1 - BUSINESS - "Risks Factors" and Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future Earnings Potential" of Savannah Electric in the Form 10-K. Savannah Electric's business activities are subject to extensive governmental regulation related to public health and the environment. Litigation over environmental issues and claims of various types, including property damage, personal injury and citizen enforcement of environmental requirements, has increased generally throughout the United States. In particular, personal injury claims for damages caused by alleged exposure to hazardous materials have become more frequent. The ultimate outcome of such litigation currently filed against Savannah Electric cannot be predicted at this time; after consultation with legal counsel, management does not anticipate that the liabilities, if any, arising from such proceedings would have a material adverse effect on Savannah Electric's financial position, results of operations or cash flows. Compliance costs related to the Clean Air Act and other environmental issues could affect earnings if such costs cannot be recovered. For additional information about the Clean Air Act and other environmental issues, including the EPA litigation, see Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Environmental Matters" and Note 3 to the financial statements of Savannah Electric in the Form 10-K. 76 SAVANNAH ELECTRIC AND POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future Earnings Potential - FERC Matters" of Savannah Electric in the Form 10-K for information on the formation of an RTO as ordered by the FERC and the notice of proposed rulemaking regarding open access transmission service and standard electricity market design. In April 2003, the FERC issued a White Paper related to its proposed rulemaking regarding open access transmission service and standard electricity market design in an effort to respond to certain of the public comments received on the standard market design proposal. Evident in the White Paper are continuing differences in opinion between the FERC and various state regulatory commissions over questions of jurisdiction and protection of retail customers. Pending energy legislation may also impact these issues. Any impact of this proposal on Southern Company and its subsidiaries will depend on the form in which final rules may be ultimately adopted; however, Savannah Electric's revenues, expenses, assets, and liabilities could be adversely affected by changes in the transmission regulatory structure in its regional power market. Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future Earnings Potential" of Savannah Electric in the Form 10-K for information on plans to retire a 102 megawatt peaking facility in May 2005 and a fifteen-year PPA with Southern Power to purchase 200 megawatts of capacity beginning in June 2005 from the planned combined-cycle plant at Plant McIntosh to be built and owned by Southern Power. The annual capacity cost is expected to be approximately $14.5 million. Reference is made to Note (L) to the Condensed Financial Statements herein for information regarding the FERC approval process for this PPA. Reference is made to Notes (A), (E), (F) and (L) to the Condensed Financial Statements herein for discussion of various contingencies and other matters which may affect future earnings potential. Accounting Policies Critical Policy Savannah Electric's significant accounting policies are described in Note 1 to the financial statements of Savannah Electric in Item 8 of the Form 10-K. Savannah Electric's only critical accounting policy involves rate regulation. Savannah Electric is subject to the provisions of FASB Statement No. 71, "Accounting for the Effects of Certain Types of Regulation." In the event that a portion of Savannah Electric's operations is no longer subject to these provisions, Savannah Electric would be required to write off related regulatory assets and liabilities that are not specifically recoverable and determine if any other assets have been impaired. New Accounting Standards Reference is made to Note (H) to the Condensed Financial Statements herein for information regarding the adoption of FASB Statement No. 143, "Accounting for Asset Retirement Obligations" effective January 1, 2003. Statement No. 143 establishes new accounting and reporting standards for legal obligations associated with the ultimate cost of retiring long-lived assets. The present value of the ultimate costs for an asset's future retirement must be recorded in the period in which the liability is incurred. The cost must be capitalized as part of the related long-lived asset and depreciated over the asset's useful life. Additionally, Statement No. 143 does not permit non-regulated companies to 77 SAVANNAH ELECTRIC AND POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION continue accruing future retirement costs for long-lived assets that they do not have a legal obligation to retire. Prior to January 2003, Savannah Electric accrued for the ultimate cost of retiring most long-lived assets over the life of the related asset through depreciation expense. FINANCIAL CONDITION Overview Major changes in Savannah Electric's financial condition during the first three months of 2003 included the addition of approximately $10.8 million to utility plant. The funds for these additions and other capital requirements were derived primarily from operations and the issuance of securities. See Savannah Electric's Condensed Statements of Cash Flows herein for further details. Credit Rating Risk Savannah Electric does not have any credit agreements that would require material changes in payment schedules or terminations as a result of a credit rating downgrade. Exposure to Market Risks Savannah Electric's market risk exposures relative to interest rate changes have not changed materially compared with the December 31, 2002 reporting period. In addition, Savannah Electric is not aware of any facts or circumstances that would significantly affect such exposures in the near term. Due to cost-based rate regulations, Savannah Electric has limited exposure to market volatility in interest rates, commodity fuel prices and prices of electricity. To mitigate residual risks relative to movements in electricity prices, Savannah Electric enters into fixed price contracts for the purchase and sale of electricity through the wholesale electricity market and, to a lesser extent, similar contracts for gas purchases. Savannah Electric has also implemented a retail fuel hedging program at the instruction of its PSC. The fair value of derivative energy contracts at March 31, 2003 was as follows: First Quarter 2003 Changes --------------------------------------- ------------------------- Fair Value --------------------------------------- ------------------------- (in thousands) Contracts beginning of period $626 Contracts realized or settled - New contracts at inception - Changes in valuation techniques - Current period changes 644 --------------------------------------- ------------------------- Contracts at March 31, 2003 $1,270 ======================================= ========================= 78 SAVANNAH ELECTRIC AND POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Source of March 31, 2003 Valuation Prices ------------------------------ ------------------------------------------- Total Maturity ----------------------------- Fair Value Year 1 1-3 Years ------------------------------ ------------------------------------------- (in thousands) Actively quoted $1,270 $1,630 $(360) External sources - - - Models and other methods - - - ------------------------------ ------------- ----------------------------- Contracts at March 31, 2003 $1,270 $1,630 $(360) ============================== ============= ============================= Unrealized gains and losses from mark to market adjustments on contracts related to the retail fuel hedging programs are recorded as regulatory assets and liabilities. At March 31, 2003, Savannah Electric had approximately $1.3 million in regulatory liabilities related to unrealized gains on mark to market derivative contracts associated with its fuel hedging programs. Realized gains and losses from these programs are included in fuel expense and are recovered through Savannah Electric's fuel cost recovery clause. Gains and losses on contracts that do not represent hedges are recognized in the Statements of Income as incurred. For the quarters ended March 31, 2003 and 2002, these amounts were not material. For additional information, reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Exposure to Market Risks" of Savannah Electric in the Form 10-K and Note 1 to the financial statements of Savannah Electric in Item 8 of the Form 10-K. Financing Activities In February 2003, Savannah Electric sold through public authorities an aggregate principal amount of $13.87 million of variable rate Pollution Control Revenue Bonds, Series 2003 due February 1, 2038. The proceeds from this sale, together with any investment proceeds and other moneys of Savannah Electric, were used to redeem $13.87 million aggregate principal amount of Development Authority of Effingham County Pollution Control Revenue Bonds, Series 1997. The 2003 bonds will bear interest at a rate to be determined by the auction rate process. Unlike the redeemed bonds, the 2003 bonds will not require backup bank credit facilities. Savannah Electric plans to continue, to the extent possible, a program to retire higher-cost debt and replace these securities with lower-cost capital. Capital Requirements Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS of Savannah Electric under "Capital Requirements for Construction," "Other Capital Requirements" and "Environmental Matters" in the Form 10-K for a description of Savannah Electric's capital requirements for its construction program, maturing debt and environmental compliance efforts. 79 SAVANNAH ELECTRIC AND POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Sources of Capital Savannah Electric plans to obtain the funds required for construction and other purposes from sources similar to those used in the past. The amount, type and timing of any financings -- if needed -- will depend upon maintenance of adequate earnings, regulatory approval, prevailing market conditions and other factors. See Item 1 - BUSINESS - "Financing Programs" in the Form 10-K for additional information. To meet short-term cash needs and contingencies, Savannah Electric had at March 31, 2003 approximately $1.8 million of cash and cash equivalents and $55 million of unused committed credit arrangements with banks, of which $40 million expires in 2003 and $15 million expires in 2004 and beyond. The credit arrangements provide liquidity support to some of Savannah Electric's obligations with respect to its variable rate debt and its commercial paper. Savannah Electric may also meet short-term cash needs through a Southern Company subsidiary organized to issue and sell commercial paper and extendible commercial notes at the request and for the benefit of Savannah Electric and other Southern Company subsidiaries. At March 31, 2003, Savannah Electric had no outstanding notes payable or commercial paper. Since Savannah Electric has no major generating plants under construction, management believes that the need for working capital can be adequately met by utilizing lines of credit. 80 SOUTHERN POWER COMPANY 81
SOUTHERN POWER COMPANY CONDENSED STATEMENTS OF INCOME (UNAUDITED) For the Three Months Ended March 31, 2003 2002 - ---------------------------------------------------------------------------------------------------------------- (in thousands) Operating Revenues: Sales for resale -- Non-affiliates $ 50,269 $ 17,487 Affiliates 55,290 1,810 Other revenues 1,880 2 - ---------------------------------------------------------------------------------------------------------------- Total Operating Revenues 107,439 19,299 - ---------------------------------------------------------------------------------------------------------------- Operating Expenses: Operation -- Fuel 20,038 1,992 Purchased power -- Non-affiliates 15,323 3,114 Affiliates 17,932 1,370 Other 5,908 2,189 Maintenance 2,177 70 Depreciation and amortization 6,544 2,001 Taxes other than income taxes 1,300 701 - ---------------------------------------------------------------------------------------------------------------- Total operating expenses 69,222 11,437 - ---------------------------------------------------------------------------------------------------------------- Operating Income 38,217 7,862 Other Income and (Expense): Interest expense, net of amounts capitalized (1,399) - Other income (expense), net 303 (596) - ---------------------------------------------------------------------------------------------------------------- Total other income and (expense) (1,096) (596) - ---------------------------------------------------------------------------------------------------------------- Earnings Before Income Taxes 37,121 7,266 Income taxes 14,363 2,811 - ---------------------------------------------------------------------------------------------------------------- Earnings Before Cumulative Effect of Accounting Change 22,758 4,455 Cumulative effect of accounting change -- less income taxes of $231 thousand 367 - - ---------------------------------------------------------------------------------------------------------------- Net Income $ 23,125 $4,455 - -----------------------------------------------------------------------------================--================= The accompanying notes as they relate to Southern Power are an integral part of these condensed financial statements.
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SOUTHERN POWER COMPANY CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) For the Three Months Ended March 31, 2003 2002 - ------------------------------------------------------------------------------------------------------------------- (in thousands) Operating Activities: Net income $ 23,125 $ 4,455 Adjustments to reconcile net income to net cash provided from operating activities -- Depreciation and amortization 6,544 2,001 Deferred income taxes and investment tax credits, net 9,062 (1,294) Deferred capacity revenues (12,389) (1,707) Other, net 841 875 Changes in certain current assets and liabilities -- Receivables, net (1,857) (3,435) Fossil fuel stock 7,917 294 Materials and supplies (79) - Other current assets (1,544) 50 Accounts payable (10,629) 1,715 Taxes accrued 1,764 5,357 Interest accrued (12,618) - - ------------------------------------------------------------------------------------------------------------------- Net cash provided from operating activities 10,137 8,311 - ------------------------------------------------------------------------------------------------------------------- Investing Activities: Gross property additions (103,974) (585,947) Increase in construction related payables (8,042) (5,899) Other 239 (1,498) - ------------------------------------------------------------------------------------------------------------------- Net cash used for investing activities (111,777) (593,344) - ------------------------------------------------------------------------------------------------------------------- Financing Activities: Increase in notes payable, net 458,435 88,892 Proceeds -- Other long-term debt - 287,000 Capital contributions from parent company 154 244,410 Redemptions -- Other long-term debt (373,979) - Other 234 405 - ------------------------------------------------------------------------------------------------------------------- Net cash provided from financing activities 84,844 620,707 - ------------------------------------------------------------------------------------------------------------------- Net Change in Cash and Cash Equivalents (16,796) 35,674 Cash and Cash Equivalents at Beginning of Period 19,474 3,711 - ------------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Period $ 2,678 $ 39,385 - ---------------------------------------------------------------------------------=================-================ Supplemental Cash Flow Information: Cash paid during the period for -- Interest (net of $13,526 and $4,973 capitalized for 2003 and 2002, respectively) $12,767 $ - Income taxes (net of refunds) $4,018 ($389) The accompanying notes as they relate to Southern Power are an integral part of these condensed financial statements.
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SOUTHERN POWER COMPANY CONDENSED BALANCE SHEETS (UNAUDITED) At March 31, At December 31, Assets 2003 2002 - ------------------------------------------------------------------------------------------------------------------------ (in thousands) Current Assets: Cash and cash equivalents $ 2,678 $ 19,474 Receivables -- Customer accounts receivable 5,324 6,609 Affiliated companies 14,697 11,555 Accumulated provision for uncollectible accounts (350) (350) Fossil fuel stock, at average cost 3,113 11,031 Materials and supplies, at average cost 6,633 6,553 Prepayments 11,623 8,796 Other 10,033 9,954 - ------------------------------------------------------------------------------------------------------------------------ Total current assets 53,751 73,622 - ------------------------------------------------------------------------------------------------------------------------ Property, Plant, and Equipment: In service 923,940 896,163 Less accumulated provision for depreciation 27,461 21,590 - ------------------------------------------------------------------------------------------------------------------------ 896,479 874,573 - ------------------------------------------------------------------------------------------------------------------------ Construction work in progress 1,159,850 1,082,987 - ------------------------------------------------------------------------------------------------------------------------ Total property, plant, and equipment 2,056,329 1,957,560 - ------------------------------------------------------------------------------------------------------------------------ Deferred Charges and Other Assets: Accumulated deferred income taxes 32,594 38,591 Unamortized debt issuance expense 11,708 12,177 Other 3,914 4,026 - ------------------------------------------------------------------------------------------------------------------------ Total deferred charges and other assets 48,216 54,794 - ------------------------------------------------------------------------------------------------------------------------ Total Assets $ 2,158,296 $ 2,085,976 - ------------------------------------------------------------------------------====================---=================== The accompanying notes as they relate to Southern Power are an integral part of these condensed financial statements.
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SOUTHERN POWER COMPANY CONDENSED BALANCE SHEETS (UNAUDITED) At March 31, At December 31, Liabilities and Stockholder's Equity 2003 2002 - --------------------------------------------------------------------------------------------------------------------------- (in thousands) Current Liabilities: Securities due within one year $ 200 $ 200 Notes payable 446,485 - Notes payable to parent 32,438 210,488 Accounts payable -- Affiliated 18,787 37,748 Other 4,813 4,522 Taxes accrued -- Income taxes 5,383 3,915 Other 4,609 4,313 Interest accrued 8,095 20,713 Other 7,816 3,484 - --------------------------------------------------------------------------------------------------------------------------- Total current liabilities 528,626 285,383 - --------------------------------------------------------------------------------------------------------------------------- Long-Term Debt: Senior notes 575,000 575,000 Other long-term debt 8,090 382,089 Unamortized debt (discount) premium, net (1,190) (1,210) - --------------------------------------------------------------------------------------------------------------------------- Long-term debt 581,900 955,879 - --------------------------------------------------------------------------------------------------------------------------- Deferred Credits and Other Liabilities: Obligations under risk management activities 69,295 63,191 Deferred capacity revenues-- Affiliated 2,939 13,075 Other 1,248 3,147 Other-- Affiliated 15,407 15,644 Other 2,568 3,053 - --------------------------------------------------------------------------------------------------------------------------- Total deferred credits and other liabilities 91,457 98,110 - --------------------------------------------------------------------------------------------------------------------------- Common Stockholder's Equity: Common stock, par value $.01 per share -- Authorized - 1,000,000 shares Outstanding - 1,000 shares - - Paid-in capital 921,383 731,230 Retained earnings 85,602 62,477 Accumulated other comprehensive loss (50,672) (47,103) - --------------------------------------------------------------------------------------------------------------------------- Total common stockholder's equity 956,313 746,604 - --------------------------------------------------------------------------------------------------------------------------- Total Liabilities and Stockholder's Equity $ 2,158,296 $ 2,085,976 - ---------------------------------------------------------------------------------====================---=================== The accompanying notes as they relate to Southern Power are an integral part of these condensed financial statements.
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SOUTHERN POWER COMPANY CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) For the Three Months Ended March 31, 2003 2002 - ---------------------------------------------------------------------------------------------------------- (in thousands) Net Income $ 23,125 $ 4,455 Other comprehensive income (loss): Changes in fair value of qualifying hedges, net of tax of $(2,400) and $3,888, respectively (3,833) 6,002 Less: Reclassification adjustment for amounts included in net income, net of tax of $166 264 - - ----------------------------------------------------------------------------------------------------------- COMPREHENSIVE INCOME $ 19,556 $ 10,457 ===========================================================================================================
SOUTHERN POWER COMPANY CONDENSED STATEMENTS OF ACCUMULATED OTHER COMPREHENSIVE LOSS (UNAUDITED) At March 31, At December 31, 2003 2002 - ----------------------------------------------------------------------------------------------------------------- (in thousands) Balance at beginning of period $ (47,103) $ 6,689 Change in current period (3,569) (53,792) - ----------------------------------------------------------------------------------------------------------------- BALANCE AT END OF PERIOD $ (50,672) $ (47,103) - -------------------------------------------------------------=====================-------====================---- The accompanying notes as they relate to Southern Power are an integral part of these condensed financial statements.
86 SOUTHERN POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION FIRST QUARTER 2003 vs. FIRST QUARTER 2002 RESULTS OF OPERATIONS Earnings Southern Power's net income for first quarter 2003 was $23.1 million compared to $4.4 million for the corresponding period of 2002. The increase in earnings of $18.7 million is primarily due to the sale of wholesale capacity and energy to affiliated and non-affiliated companies. The majority of this income is attributed to the commercial operation of Plant Wansley Units 6 and 7 and Plant Franklin Unit 1 beginning in June 2002 along with the initiation of PPAs for those units with Georgia Power and Savannah Electric. During the first quarter 2002, Southern Power had only one plant (Plant Dahlberg) in commercial operation. Significant income statement items appropriate for discussion include the following: Increase (Decrease) ------------------------------- First Quarter ------------------------------- (in thousands) % Sales for resale - non-affiliates............... $32,782 187.5 Sales for resale - affiliates................... 53,480 N/M Fuel expense.................................... 18,046 N/M Purchased power - non-affiliates................ 12,209 N/M Purchased power - affiliates.................... 16,562 N/M Other operation expense......................... 3,719 169.9 Maintenance expense............................. 2,107 N/M Depreciation and amortization................... 4,543 227.0 Interest expense, net of amounts capitalized.... 1,399 - Other income (expense), net..................... 899 150.8 N/M Not meaningful. Sales for resale to non-affiliates. During the first quarter 2003, these sales were higher as a result of wholesale capacity and energy sales to non-affiliates that increased with commercial operation of Plant Franklin Unit 1 and Plant Wansley Units 6 and 7, as well as additional available capacity arising from new units not yet in commercial operation. The additional generation provided by the new units that was not required by Georgia Power and Savannah Electric under long-term PPAs was available for sales to non-affiliates. The colder than normal weather experienced early in the first quarter of 2003 contributed to increased demand throughout the Super Southeast. Sales for resale to affiliates. Energy and capacity sales through the new PPAs with Georgia Power and Savannah Electric accounted for most of this increase from first quarter 2002. Revenues from sales to affiliated companies through the Southern Company system power pool ("Southern Pool") that are not covered by PPAs and energy sales under PPAs will vary depending on demand and the availability and cost of generating resources at each company within the Southern Pool. These transactions do not have a significant impact on earnings, since the energy is generally sold at variable cost. 87 SOUTHERN POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Fuel expense. This increase during the first quarter 2003 is mainly associated with commercial operation of units at Plant Wansley and Plant Franklin in June 2002 as compared to the first quarter of 2002, when Southern Power had only Plant Dahlberg in commercial operation. Plant Dahlberg is primarily utilized for peak-load conditions, which primarily occur during the summer months. Purchased power from non-affiliates. Purchased power from non-affiliates increased in the first quarter 2003 to serve the increased requirements under new PPAs with power purchased at prices lower than Southern Power's self-generation. Purchased power from affiliates. During the first quarter 2003, Southern Power purchased more power from affiliates mainly due to the availability of power at prices lower than Southern Power's self-generation. Expenses from purchased power transactions will vary depending on demand, availability and the cost of generating resources accessible throughout the Southern Company system. Other operation expense. The first quarter 2003 increase in other operation expense is related to production expenses and administrative and general expenses resulting from the commercial operation in June 2002 of Plant Wansley Units 6 and 7 and Plant Franklin Unit 1 when compared to the same period in the prior year. Maintenance expense. The increase in the first quarter 2003 is attributed to commercial operation of Plant Wansley Units 6 and 7 and Plant Franklin Unit 1 in June 2002. Depreciation and amortization. The additional generating units placed into service in June 2002 are the cause of the increase in depreciation and amortization during the first quarter 2003 when compared to the corresponding period in 2002. Interest expense, net of amounts capitalized. The increase in interest expense, net of amounts capitalized during the first quarter 2003 from the same period in 2002 is primarily related to a decline in the percentage of total interest expense being capitalized as Southern Power has shifted from construction mode into construction and operation mode. Other income (expense), net. This increase in other income (expense), net for the first quarter 2003 is attributed to gains on derivative energy contracts. See "Exposure to Market Risks" below for more information related to these contracts. Effects of Inflation Southern Power is subject to long-term contracts and income tax laws that are based on the recovery of historical costs. While the inflation rate has been relatively low in recent years, it continues to have an adverse effect on Southern Power because of the large investment in generating facilities with long economic lives. Conventional accounting for historical cost does not recognize this economic loss nor the partially offsetting gain that arises through financing facilities with fixed-money obligations such as long-term debt. 88 SOUTHERN POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Future Earnings Potential The results of operations are not necessarily indicative of future earnings. The level of future earnings depends on numerous factors including completion of construction on new generating facilities, regulatory matters, energy sales, creditworthiness of customers, total generating capacity available in the Super Southeast and the remarketing of capacity. For additional information relating to these issues, see Item 1 - BUSINESS - "Risk Factors" and Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future Earnings Potential" of Southern Power in the Form 10-K. Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future Earnings Potential - General" and to Note 5 to the financial statements of Southern Power in Item 8 of the Form 10-K for additional information on long-term power sales agreements and PPAs. Southern Power's PPAs with non-affiliated counterparties have provisions that require the posting of collateral or an acceptable substitute guarantee in the event that S&P or Moody's downgrades the credit ratings of such counterparty to below-investment grade, or, if the counterparty is not rated, fails to maintain a minimum coverage ratio. The PPAs are expected to provide Southern Power with a stable source of revenue during their respective terms. In 2003, Southern Power expects Plant Franklin Unit 2, Plant Harris Units 1 and 2 and Plant Stanton A to be completed and placed into commercial operation. In 2004, Southern Power's PPA with Georgia Power will begin for Plant Harris Unit 2. PPAs for the other units become effective upon commercial operation. Southern Power also has Plant Franklin Unit 3 and Plant McIntosh Units 10 and 11 under construction. Reference is made to Note (J) to the Condensed Financial Statements herein for information regarding the proposed termination of Southern Power's PPAs with Dynegy. Because of the proposed termination of these PPAs, Southern Power is exploring several options for its existing capacity and is also evaluating its construction schedule for Plant Franklin Unit 3 and may determine to defer or cancel further construction based on forecasted capacity needs. Reference is also made to Note (L) to the Condensed Financial Statements herein for information regarding the FERC approval process for Southern Power's PPAs with Georgia Power and Savannah Electric for Plant McIntosh Units 10 and 11. The final outcome of these matters cannot now be determined. Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Environmental Matters" of Southern Power in the Form 10-K for information on the development by federal and state environmental regulatory agencies of additional control strategies for emission of air pollution from all major sources of air pollution, particularly electric generating facilities. Compliance costs related to current and future environmental laws and regulations could affect earnings if such costs are not fully recovered. Southern Power's business activities are subject to extensive governmental regulation related to public health and the environment. Litigation over environmental issues and claims of various types, including property damage, personal injury and citizen enforcement of environmental requirements, has increased generally throughout the United States; in particular, personal injury claims for damages caused by alleged exposure to hazardous materials have become more frequent. 89 SOUTHERN POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future Earnings Potential - FERC Matters" of Southern Power in the Form 10-K for information on the formation of an RTO as ordered by the FERC and the notice of proposed rulemaking regarding open access transmission service and standard electricity market design. In April 2003, the FERC issued a White Paper related to its proposed rulemaking regarding open access transmission service and standard electricity market design in an effort to respond to certain of the public comments received on the standard market design proposal. Evident in the White Paper are continuing differences in opinion between the FERC and various state regulatory commissions over questions of jurisdiction and protection of retail customers. Pending energy legislation may also impact these issues. Any impact of this proposal on Southern Company and its subsidiaries will depend on the form in which final rules may be ultimately adopted. Reference is also made to Notes (A), (E) and (I) through (L) to the Condensed Financial Statements herein for discussion of various contingencies and other matters which may affect future earnings potential. Accounting Policies Critical Policies Southern Power's significant accounting policies are described in Note 1 to the financial statements of Southern Power in Item 8 of the Form 10-K. Southern Power has three critical accounting policies that require a significant amount of judgment and are considered to be the most important to the presentation of Southern Power's financial position and results of operations. The first critical policy is the recognition of capacity revenues from long-term contracts at the lesser of the levelized basis or the cash collected over the contract periods. Second, Southern Power designates qualifying derivative instruments as cash flow or fair value hedges and marks such derivative instruments to market based primarily on quoted market prices. The unrealized changes in fair value of qualifying cash flow hedges are deferred in other comprehensive income. Any ineffectiveness in those hedges and changes in non-qualifying positions are reported as a component of current period income. Finally, Southern Power uses flow-through accounting for state manufacturer's tax credits. This means that Southern Power recognizes the credit as a reduction of tax expense when it is more likely than not to be allowed by the Georgia Department of Revenue. New Accounting Standards Reference is made to Note (H) to the Condensed Financial Statements herein for information regarding the adoption of FASB Statement No. 143, "Accounting for Asset Retirement Obligations" effective January 1, 2003. Southern Power has no liability for asset retirement obligations. Upon adoption, Southern Power recorded a cumulative effect of change in accounting principle of $0.6 million, representing previously accrued removal costs. 90 SOUTHERN POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION FINANCIAL CONDITION Overview The major change in Southern Power's financial condition during the first three months of 2003 was the addition of approximately $104 million to utility plant related to on-going construction of Southern Power's combined-cycle units. The funds for these additions were provided by Southern Power's credit facility, commercial paper program and subordinated loans from Southern Company. See Southern Power's Condensed Statements of Cash Flows herein for further details. Credit Rating Risk Southern Power does not have any credit agreements that would require material changes in payment schedules or terminations as a result of a credit rating downgrade. There are certain physical electricity sale contracts, fixed-price physical gas purchases and agreements covering interest rate swaps and currency swaps that could require collateral -- but not accelerated payment -- in the event of a credit rating change to below investment grade. Generally, collateral may be provided for by a Southern Company guaranty, letter of credit or cash. At March 31, 2003, the maximum potential collateral requirements under the electricity sale contracts and financial instrument agreements were approximately $197 million. At March 31, 2003, there were no material collateral requirements for the gas purchase contracts. Exposure to Market Risks Southern Power is exposed to market risks, including changes in interest rates, currency exchange rates and certain commodity prices. To manage the volatility attributable to these exposures, Southern Power nets the exposure to take advantage of natural offsets and enters into various derivative transactions for the remaining exposure pursuant to approved risk management policies in areas such as counterparty exposure and hedging practices. Southern Power's policy is that derivatives are to be used primarily for hedging purposes. Derivative positions are monitored using techniques that include market valuation and sensitivity analysis. Southern Power has no outstanding variable rate long-term debt. To mitigate Southern Power's exposure to interest rates, it has entered into interest rate swaps that were designated as cash flow hedges of 2003 planned debt issuances. Changes in the fair values of these swaps are deferred in Other Comprehensive Income. The swaps will settle upon the issuance of the debt and will be amortized to expense over the appropriate periods. (See Note (I) to the Condensed Financial Statements herein for additional information.) Based on Southern Power's overall interest rate exposure at March 31, 2003, including derivative and other interest-rate sensitive instruments, a near-term 100 basis-point change in interest rates would not materially affect Southern Power's financial statements. In addition, Southern Power is not aware of any facts or circumstances that would significantly affect such exposures in the near term. 91 SOUTHERN POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Because energy from Southern Power's facilities is primarily sold under long-term contracts with tolling agreements and provisions shifting substantially all of the responsibility for fuel cost to the PPA counterparties, Southern Power's exposure to market volatility in commodity fuel prices and prices of electricity is limited. To mitigate residual risks in those areas, Southern Power enters into fixed-price contracts for the purchase or sale of fuel and electricity. In connection with the transfers of Plant Franklin in 2001 and Plant Wansley in 2002 to Southern Power, Georgia Power transferred approximately $5.6 million and $1.6 million, respectively, in derivative assets relating to electric and gas forward contracts in effect at the date of the transfers. These contracts were recorded at fair value on the date of the transfer, which was equal to Georgia Power's carrying amount. Following the transfer, these contracts are marked to market through income until realized and settled. Southern Power has firm purchase commitments that require payment in Euros. As a hedge against fluctuations in the exchange rate for Euros, Southern Power entered into forward contracts to purchase Euros and has designated these contracts as fair value hedges of an unrecognized firm commitment. Since the terms of these Euro contracts mirror the purchase commitment terms, there is no ineffectiveness recognized in income. At March 31, 2003, Southern Power had outstanding contracts covering a notional amount of $1.6 million in commitments through May 2003. Unrealized gains and losses on electric and gas contracts used to hedge anticipated purchases and sales are deferred in Other Comprehensive Income. Gains and losses on contracts that do not represent hedges are recognized in the Statements of Income as incurred. The fair values of derivative energy contracts at March 31, 2003 were as follows: First Quarter 2003 Changes --------------------------------------- ------------------------- Fair Value --------------------------------------- ------------------------- (in thousands) Contracts beginning of period $3,864 Contracts realized or settled (665) New contracts at inception - Changes in valuation techniques - Current period changes (1,324) --------------------------------------- ------------------------- Contracts at March 31, 2003 $1,875 ======================================= ========================= At March 31, 2003, all of these contracts are based on actively quoted market prices. Realized gains and losses on hedged transactions are recognized in revenues and/or fuel expense in the Statements of Income as incurred. For the three month periods ended March 31, 2003 and 2002, approximately $0.3 million of gains and $1.3 million of losses, respectively, were recognized in Other Income in the Statements of Income. 92 SOUTHERN POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Financing Activities During the first three months of 2003, Southern Company made subordinated loans to Southern Power of approximately $12 million. In March 2003, $190 million of notes payable to Southern Company were converted to a capital contribution from Southern Company. Equity contributions and subordinated loans from Southern Company are projected to total approximately $813 million to Southern Power by the end of 2003. No dividends are projected to be paid in 2003. These projections are contingent upon FERC approval of the Plant McIntosh PPAs. Reference is also made to Note (L) to the Condensed Financial Statements herein for information regarding the FERC approval process for Southern Power's PPAs with Georgia Power and Savannah Electric for Plant McIntosh Units 10 and 11. Capital Requirements Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Capital Requirements for Construction" and "Other Capital Requirements" of Southern Power in the Form 10-K for a description of Southern Power's capital requirements for its construction program, maturing debt, purchase commitments and long-term service agreements. Sources of Capital To meet short-term cash needs and contingencies, Southern Power had at March 31, 2003 approximately $2.7 million of cash and cash equivalents. To meet liquidity and capital resource requirements, Southern Power had at March 31, 2003 approximately $850 million of unused committed credit arrangements with banks expiring in 2004. Effective April 2003, the credit facility for Southern Power was reduced to $650 million to reflect lower short-term borrowing needs. The facility was extended to April 2006. This line also provides liquidity support for Southern Power's commercial paper program (as discussed below). Amounts drawn under the arrangements are used to finance acquisition and construction costs related to gas-fired electric generating facilities and for general corporate purposes, subject to borrowing limitations for each generating facility. The arrangements permit Southern Power to fund construction of future generating facilities upon meeting certain requirements. Southern Power's current liabilities exceed current assets because of the continued use of short-term debt as a funding source to meet cash needs. In February 2003, Southern Power initiated a commercial paper program to fund a portion of the construction costs of new generating facilities. Southern Power's strategy is to refinance most of such short-term borrowings with long-term securities following commercial operation. The amount of commercial paper will initially represent about 45% of total debt, but is forecasted to decline to about 7% at year-end 2005 as more construction projects are completed and refinanced with long-term securities. At March 31, 2003, Southern Power had outstanding $446.5 million in commercial paper. Reference is made to Note 7 to the financial statements of Southern Power in Item 8 of the Form 10-K for additional information relating to the commercial paper program. 93 NOTES TO THE CONDENSED FINANCIAL STATEMENTS FOR THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES ALABAMA POWER COMPANY GEORGIA POWER COMPANY GULF POWER COMPANY MISSISSIPPI POWER COMPANY SAVANNAH ELECTRIC AND POWER COMPANY SOUTHERN POWER COMPANY INDEX TO APPLICABLE NOTES TO FINANCIAL STATEMENTS BY REGISTRANT Registrant Applicable Notes Southern Company A, B, C, D, E, F, G, H, I, J, N Alabama Power A, E, F, H, I Georgia Power A, E, F, G, H, I, K, L Gulf Power A, E, F, G, H Mississippi Power A, E, F, G, H, J, M Savannah Electric A, E, F, H, L Southern Power A, E, H, I, J, K, L 94 THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES ALABAMA POWER COMPANY GEORGIA POWER COMPANY GULF POWER COMPANY MISSISSIPPI POWER COMPANY SAVANNAH ELECTRIC AND POWER COMPANY SOUTHERN POWER COMPANY NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (A) The condensed financial statements of the registrants included herein have been prepared by each registrant, without audit, pursuant to the rules and regulations of the SEC. In the opinion of each registrant's management, the information regarding such registrant furnished herein reflects all adjustments necessary to present fairly the results of operations for the periods ended March 31, 2003 and 2002. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations, although each registrant believes that the disclosures regarding such registrant are adequate to make the information presented not misleading. Disclosure which would substantially duplicate the disclosure in the Form 10-K and details which have not changed significantly in amount or composition since the filing of the Form 10-K are omitted from this Form 10-Q. Therefore, it is suggested that these condensed financial statements be read in conjunction with the financial statements and the notes thereto included in the Form 10-K. Certain prior period amounts have been reclassified to conform to current period presentation. Due to seasonal variations in the demand for energy, operating results for the periods presented do not necessarily indicate operating results for the entire year. (B) Reference is made to Note 11 to the financial statements of Southern Company in Item 8 and MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future Earnings Potential - General" of Southern Company in Item 7 of the Form 10-K for information on the spin off of Mirant from Southern Company. On April 30, 2003, Mirant filed its Annual Report on Form 10-K for the year ended December 31, 2002. This filing included Mirant's restated financial statements for the years ended December 31, 2001 and 2000. Mirant's restated net income for 2001 and 2000 decreased by $159 million and $29 million, respectively. Mirant also announced that it is preparing revised quarterly financial statements for 2001 and expects to provide the quarterly results as soon as possible. Southern Company owned 100% of Mirant through September 2000 and 80% between October 2000 and April 2, 2001. Due to Southern Company's spin-off of Mirant on April 2, 2001, Southern Company's financial statements reflect its share of Mirant's net income as discontinued operations. The effect of these restatements on Southern Company's financial statements, if any, cannot be determined until Mirant's 2001 revised quarterly financial statements are filed. (C) Reference is made to Note 1 "Leveraged Leases" and Note 6 to the financial statements of Southern Company in Item 8 and MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future Earnings Potential - General" in Item 7 of the Form 10-K. As a large corporate taxpayer, Southern Company undergoes audits by the IRS for each of its tax years. The IRS has completed its audits of Southern Company's consolidated federal income tax returns for all years through 1999. As part of the audit for the 1996-1999 tax years, the IRS reviewed Southern Company's four international leveraged lease transactions. Based on its review, the IRS proposed to 95 NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued) disallow the tax losses associated with one of these transactions, resulting in an additional tax payment of approximately $30 million, including interest, to the IRS. To finalize the audit and eliminate any additional interest charges, Southern Company made this payment to the IRS in May 2003 and intends to pursue a refund claim for this amount. Notwithstanding the position taken by the IRS, Southern Company continues to believe that the transaction remains a valid lease for U.S. tax purposes and, accordingly, will vigorously contest the proposed disallowance. Southern Company has accounted for the payment as a deposit. If Southern Company is not successful in its defense of the tax treatment for this transaction, it would also affect the timing of the related revenue recognition for book purposes. A cumulative effect adjustment would be required to reduce net income based on the revised cash flows as a result of the changes in the allowed tax deductions. The IRS did not disallow any tax losses or make any other adjustments for the 1996-1999 period with respect to any of Southern Company's other lease transactions. However, there can be no assurance that subsequent IRS audits would not raise similar disallowance issues. The ultimate outcome of these matters cannot now be determined. (D) Reference is made to Note 9 under "Guarantees" to the financial statements of Southern Company in Item 8 of the Form 10-K for information regarding Southern Company's guarantees of contractual commitments made by Mirant's trading and marketing subsidiaries. At March 31, 2003, the total notional amount of guarantees was $29 million, all of which will expire by 2007. The estimated fair value of net contractual commitments outstanding was approximately $16.4 million at March 31, 2003. Southern Company's potential exposure under these contractual commitments is not expected to materially differ from the estimated fair value. (E) Reference is made to Note 3 to the financial statements of Southern Company, the operating companies and Southern Power in Item 8 and to "Legal Proceedings" in Item 3 of the Form 10-K for information relating to various lawsuits. On April 17, 2003, a retired employee of Mirant filed a complaint in the United States District Court for the Northern District of Georgia alleging violations of the Employee Retirement Income Security Act and naming as defendants Mirant, Southern Company, several current and former directors and officers of Mirant and/or Southern Company, and "Unknown Fiduciary Defendants 1-100." The plaintiff seeks to represent a purported class consisting of individuals who were participants in or beneficiaries of two Mirant employee plans and their predecessor plans (the "Plans") at any time between January 1, 2000 and the filing of the complaint whose plan accounts included investments in Mirant common stock or the "Mirant Corporation Stock Fund." The complaint alleges that the defendants misled participants in the Plans by concealing Mirant's alleged "participation in the illegal manipulation of energy prices in California during 2000 and 2001 as well as other irregular and unlawful accounting manipulations tied to energy trading." The complaint does not contain any specific allegations of wrongdoing with respect to Southern Company. Southern Company denies any wrongdoing and intends vigorously to defend this action. The final outcome of this matter cannot now be determined. 96 NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued) Reference is made to Note 3 under "Race Discrimination Litigation" of Southern Company and Georgia Power in Item 8 of the Form 10-K. On March 31, 2003, the United States District Court for the Northern District of Georgia granted summary judgment in favor of the defendants on all claims raised by all seven of the named plaintiffs. On April 28, 2003, plaintiffs filed an appeal to the United States Court of Appeals for the Eleventh Circuit challenging these adverse summary judgment rulings, as well as the court's October 2001 ruling denying class certification. In addition, plaintiffs appealed some adverse rulings on discovery issues. The court has not yet set a briefing schedule on the appeal. The final outcome of the case cannot now be determined. (F) Reference is made to Note 1 under "Regulatory Assets and Liabilities" to the financial statements of Southern Company and each of the operating companies in Item 8 of the Form 10-K. The operating companies are subject to the provisions of FASB Statement No. 71, "Accounting for the Effects of Certain Types of Regulation." In the event that a portion of a company's operations is no longer subject to these provisions, the company would be required to write off related regulatory assets and liabilities that are not specifically recoverable and determine if any other assets have been impaired. (G) Reference is made to Note 9, Note 4 and Note 4 under "Guarantees" to the financial statements of Southern Company, Georgia Power and Gulf Power, respectively, in Item 8 of the Form 10-K for information regarding guarantees of loans to residential customers for heat pump purchases. As of March 31, 2003, the total outstanding loans guaranteed by all of the operating companies were $16.1 million, of which Georgia Power is responsible for $13.0 million and Gulf Power is responsible for $1.0 million. Total loan loss reserves of $3.6 million ($2.8 million for Georgia Power and $0.2 million for Gulf Power) have been recorded. (H) Effective January 1, 2003, Southern Company adopted FASB Statement No. 143, "Accounting for Asset Retirement Obligations". Statement No. 143 establishes new accounting and reporting standards for legal obligations associated with the ultimate cost of retiring long-lived assets. The ultimate costs for an asset's future retirement must be recorded in the period in which the liability is incurred. The cost must be capitalized as part of the related long-lived asset and depreciated over the asset's useful life. Additionally, Statement No. 143 does not permit the continued accrual of future retirement costs for long-lived assets in which the company does not have a legal obligation to retire. However, the operating companies have discussed the financial statement impacts of Statement No. 143 with their respective PSCs and will continue to recognize the accumulated removal costs for other obligations as part of the accumulated depreciation and amortization reserve. As of March 31, 2003, amounts recorded in Accumulated Depreciation that represent regulatory liabilities related to such removal costs totaled $1.2 billion consisting of $554 million, $417 million, $144 million, $73 million and $33 million for Alabama Power, Georgia Power, Gulf Power, Mississippi Power and Savannah Electric, respectively. The operating companies had no cumulative effect to net income resulting from the adoption of Statement No. 143. As a result, Alabama Power, Georgia Power, Gulf Power, Mississippi Power and Savannah Electric recorded regulatory assets (liabilities) of $(71) million, $21 million, $0.9 million, $0.6 million and $2.4 million, respectively, as of January 1, 2003. At March 31, 2003, the regulatory liability for Alabama Power is reflected in the balance sheets under "Asset retirement obligation regulatory liability." The regulatory assets of the other operating companies are reflected in the balance sheets under either "Asset retirement obligation regulatory asset" or in "Other" under "Deferred Charges and Other Assets." Southern Power recorded a cumulative effect adjustment to income upon adoption of $0.6 million, representing removal costs previously accrued. 97 NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued) The liability recognized to retire long-lived assets primarily relates to Southern Company's nuclear facilities, which include Alabama Power's Plant Farley and Georgia Power's ownership interests in Plants Hatch and Vogtle. The fair value of assets legally restricted for settling retirement obligations related to these assets is $300 million, $355 million and $655 million for Alabama Power, Georgia Power and Southern Company, respectively. In addition, the operating companies have retirement obligations related to various landfill sites, ash ponds and underground storage tanks. The operating companies have also identified retirement obligations related to certain transmission and distribution facilities. However, liabilities for the removal of these transmission and distribution assets will not be recorded because no reasonable estimate can be made regarding the timing of the obligations. The operating companies will continue to recognize in the income statement their ultimate removal costs in accordance with each company's respective regulatory treatment. Any difference between costs recognized under Statement No. 143 and those reflected in rates will be recognized as either a regulatory asset or liability. The following table reflects the details of the Asset Retirement Obligations included in the balance sheets.
Balance at Liabilities Liabilities Cash Flow Balance at 12/31/02 Incurred Settled Accretion Revisions 3/31/03 -------- -------- ------- --------- --------- ------- (in millions) Alabama Power $ - $301.0 $ - $ 5.2 $ - $306.2 Georgia Power - 469.1 - 7.6 - 476.7 Gulf Power - 4.0 - .1 - 4.1 Mississippi Power - 1.0 - - - 1.0 Savannah Electric - 3.2 - .1 - 3.3 Southern Company $ - $778.3 $ - $13.0 $ - $791.3
The following table represents pro-forma asset retirement obligations as if Statement No. 143 had been adopted on January 1, 2002. At December 31, ----------------------------------- 2002 2001 ---- ---- (in millions) Alabama Power $301.0 $281.3 Georgia Power 469.1 440.1 Gulf Power 4.0 3.7 Mississippi Power 1.0 .9 Savannah Electric 3.2 2.7 Southern Company $778.3 $728.7 The adoption of FASB Statement No. 143 has been treated as a non-cash transaction for purposes of the Statements of Cash Flows. 98 NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued) (I) In addition to the fixed price electric and gas contracts used to mitigate exposure to volatile energy prices (see "Exposure to Market Risks" in MANAGEMENT'S DISCUSSION AND ANALYSIS herein), Southern Company and certain of its subsidiaries enter into interest rate swaps to hedge exposure to interest rate changes. Swaps related to fixed rate securities are accounted for as fair value hedges; swaps related to variable rate securities or forecasted transactions are accounted for as cash flow hedges. The swaps are generally structured to mirror the terms of the hedged debt instruments; therefore, no material ineffectiveness has been recorded in earnings. As of March 31, 2003, the following swaps were outstanding:
Fair Value Hedges --------------- -------------- ------------------ ---------------- -------------------------- Notional Fixed Rate Variable Rate Maturity Fair Value Amount Received Paid Date March 31, 2003 ------------------------ --------------- -------------- ------------------ ---------------- -------------------------- Southern Company $400 million 5.3% 6-month LIBOR February 2007 $35.3 million less 0.103% Cash Flow Hedges ---------------- -------------- ------------------ ----------------- -------------------- Weighted Variable Average Notional Rate Fixed Rate Maturity Fair Value Amount Received Paid Date March 31, 2003 ----------------------- ---------------- -------------- ------------------ ----------------- -------------------- Southern Company $400 million; 1-month LIBOR June 2003; $ (5.4 million) $200 million 3.1975% June 2004 Alabama Power $350 million 3-month 3.015% December 2003 $ (4.5 million) LIBOR plus 0.12% Alabama Power $486 million BMA Index 1.6254% January 2004 $ (2.0 million) Alabama Power $250 million 3-month LIBOR 3.967% May 2008 $ (8.5 million) Georgia Power $250 million 3-month LIBOR 4.762% May 2013 $ (8.3 million) Georgia Power $250 million 3-month 1.96% February 2005 $ (0.9 million) LIBOR plus 0.125% Southern Power $350 million 1-month LIBOR 6.2348% June 2013 $(54.4 million) Southern Power $150 million 1-month LIBOR 5.4792% June 2008 $(14.9 million)
(J) Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future Earnings Potential - General" and to Note 5 to the financial statements in Item 8 of the Form 10-K for Southern Company, Mississippi Power and Southern Power for information regarding PPAs between subsidiaries of Dynegy and Mississippi Power and Southern Power and related letters of credit. The Dynegy letter of credit in favor of Mississippi Power related to Plant Daniel was extended to June 20, 2003. The Dynegy letter of credit in favor of Southern Power related to Plant Dahlberg was extended to June 20, 2003 and those related to Plant Franklin were extended to April 28, 2004. 99 NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued) On April 21, 2003, Mississippi Power and Southern Power entered into a letter agreement with Dynegy (the "Letter Agreement") to resolve all outstanding matters related to Dynegy and the PPAs. Under the terms of the Letter Agreement, (1) Dynegy would make a one-time cash payment of $75 million to Mississippi Power and $80 million to Southern Power upon the execution of a definitive agreement and related documentation (the "Closing"); (2) the PPAs between Southern Power and Dynegy relating to Plant Dahlberg and Plant Franklin would be terminated upon the Closing, with no party to have any remaining obligations under such PPAs after the Closing; (3) at the Closing, Dynegy and Mississippi Power would amend the PPA relating to Plant Daniel so that the capacity payments due from Dynegy to Mississippi Power would be reduced to zero for each month from June 2003 through October 2003 (but other obligations and payments by Dynegy under such PPA would not be affected during such time) and such PPA would terminate effective October 31, 2003, with neither party having any remaining obligations under such PPA after October 31, 2003; and (4) at the Closing, upon receipt of the cash payment from Dynegy, Southern Power would return the existing letters of credit in favor of Southern Power in support of Dynegy's obligations under the PPAs relating to Plant Dahlberg and Plant Franklin. The parties have also agreed that a letter of credit in support of Dynegy's continuing obligations under the PPA related to Plant Daniel would be maintained for any amounts owed by Dynegy to Mississippi Power under the PPA related to Plant Daniel. Mississippi Power, Southern Power and Dynegy agreed to use their best efforts to complete and execute definitive documentation reflecting the terms of the Letter Agreement by May 30, 2003. The termination payments from Dynegy would result in a one-time gain upon the Closing to Southern Company of approximately $88 million after tax ($38 million for Mississippi Power and $50 million for Southern Power). Additionally, Mississippi Power would recognize capacity revenues totaling approximately $8.8 million for the period from June through October. Under the original terms of the PPAs, Mississippi Power and Southern Power would have recognized revenue of approximately $1.8 million and $5.9 million, respectively, for the remaining period of 2003 following the proposed terminations. Because of the proposed termination of these PPAs, Mississippi Power and Southern Power are exploring several options for their existing capacity and Southern Power is evaluating its construction schedule for Plant Franklin Unit 3 and may determine to defer or cancel further construction based on forecasted capacity needs. The final outcome of these matters cannot now be determined. (K) Reference is made to Note 3 to the financial statements under "Construction Program" of Southern Power and to Note 4 to the financial statements under "Construction Program" of Georgia Power in Item 8 of the Form 10-K for information regarding Southern Company keep-wells covering the transfer of specific vendor contracts from Georgia Power to Southern Power for the operation of Plant Dahlberg and construction at the Plant Franklin and Plant Stanton sites. As of March 31, 2003, Southern Power has no remaining purchase obligations to equipment vendors under these contracts. 100 NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued) (L) Reference is made to MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future Earnings Potential - General" in Item 7 and Note 4 under "Purchased Power Commitments" and "Fuel and Purchased Power Commitments" to the financial statements of Georgia Power and Savannah Electric, respectively, and Note 5 to the financial statements of Southern Power in Item 8 of the Form 10-K for information regarding PPAs between Southern Power and Georgia Power and Savannah Electric for Plant McIntosh capacity. Such PPAs were certified by the Georgia PSC in December 2002. In April 2003, Southern Power applied for FERC approval of these PPAs. The Electric Power Supply Association and Calpine Corporation have made filings in this proceeding in opposition to the FERC's acceptance of the PPAs, alleging that the PPAs do not meet the applicable standards for PPAs between affiliates. Management believes the allegations are without merit and that the PPAs should be approved by the FERC;however, the ultimate outcome of this matter cannot now be determined. (M) Reference is made to MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future Earnings Potential - FERC Matters" in Item 7 and Note 3 under "Transmission Facilities Agreement" to the financial statements of Mississippi Power in Item 8 of the Form 10-K for information regarding the FERC's investigation related to a transmission facilities agreement with Entergy Corp. On April 30, 2003, Mississippi Power filed an offer of settlement with the FERC. The proposed settlement, which is pending approval by the FERC, would have no material impact on Mississippi Power's financial statements; however, the ultimate outcome of this matter cannot now be determined. (N) Southern Company's reportable business segment is the sale of electricity in the Southeast by the operating companies and Southern Power. The All Other category includes parent Southern Company, which does not allocate operating expenses to business segments, and segments below the quantitative threshold for separate disclosure. These segments include telecommunications, energy products and services, and leasing and financing services. Intersegment revenues are not material. Financial data for business segments for the periods covered in the Form 10-Q are as follows:
Electric All Reconciling Utilities Other Eliminations Consolidated --------------------------------------------------- -------------------------------------------------------------- (in millions) Three Months Ended March 31, 2003: Operating revenues $ 2,405 $ 153 $ (5) $ 2,553 Segment net income (loss) 287 11 - 298 Total assets at March 31, 2003 $31,401 $ 1,809 $ (360) $32,850 --------------------------------------------------- ------------- ------------- ---------------- ----------------- Three Months Ended March 31, 2002: Operating revenues $ 2,140 $ 77 $ (3) $ 2,214 Segment net income (loss) 232 (8) - 224 Total assets at December 31, 2002 $30,409 $1,881 $ (491) $31,799 --------------------------------------------------- ------------- ------------- ---------------- -----------------
101 PART II -OTHER INFORMATION Item 1. Legal Proceedings. Reference is made to the "Notes to the Condensed Financial Statements" herein for information regarding certain legal and administrative proceedings in which Southern Company and its reporting subsidiaries are involved. Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits. -------- (3) Articles of Incorporation and By-Laws Alabama Power (b) 1 - Amendment to Charter of Alabama Power dated April 25, 2003. (b) 2 - By-Laws of Alabama Power as amended effective April 25, 2003, and as presently in effect. (10) Material Contracts Southern Company (a) 1 - Amended and Restated Credit Agreement among Southern Power, Citibank N.A., as the administrative agent, and the lenders listed therein dated as of April 17, 2003. (a) 2 - Letter Amendment No. 1 to Completion Guarantee among Southern Company, Southern Power and Citibank, N.A. in its capacity as agent for the Lenders under the Credit Facility dated as of April 17, 2003. (a) 3 - Letter Amendment No. 1 to Equity Contribution Agreement among Southern Company, Southern Power and Citibank, N.A. in its capacity as agent for the Lenders under the Credit Facility dated as of April 17, 2003. Alabama Power (b) 1 - Deferred Compensation Agreement between Alabama Power and William B. Hutchins III dated April 11, 2003. Southern Power (a) 1 - Amended and Restated Credit Agreement among Southern Power, Citibank N.A., as the administrative agent, and the lenders listed therein dated as of April 17, 2003. (See Exhibit 10(a)1 herein) 102 Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits. (Continued) -------- (a) 2 - Letter Amendment No. 1 to Completion Guarantee among Southern Company, Southern Power and Citibank, N.A. in its capacity as agent for the Lenders under the Credit Facility dated as of April 17, 2003. (See Exhibit 10(a)2 herein) (a) 3 - Letter Amendment No. 1 to Equity Contribution Agreement among Southern Company, Southern Power and Citibank, N.A. in its capacity as agent for the Lenders under the Credit Facility dated as of April 17, 2003. (See Exhibit 10(a)3 herein) (24) Power of Attorney and Resolutions Southern Company (a) 1 - Power of Attorney and resolution. (Designated in the Form 10-K for the year ended December 31, 2002, File No. 1-3526 as Exhibit 24(a) and incorporated herein by reference.) (a) 2 - Power of Attorney for Thomas A. Fanning. Alabama Power (b) 1 - Power of Attorney and resolution. (Designated in the Form 10-K for the year ended December 31, 2002, File No. 1-3164 as Exhibit 24(b) and incorporated herein by reference.) Georgia Power (c) 1 - Power of Attorney and resolution. (Designated in the Form 10-K for the year ended December 31, 2002, File No. 1-6468 as Exhibit 24(c) and incorporated herein by reference.) Gulf Power (d) 1 - Power of Attorney and resolution. (Designated in the Form 10-K for the year ended December 31, 2002, File No. 0-2429 as Exhibit 24(d) and incorporated herein by reference.) (d) 2 - Power of Attorney for Susan N. Story. Mississippi Power (e) 1 - Power of Attorney and resolution. (Designated in the Form 10-K for the year ended December 31, 2002, File No. 001-11229 as Exhibit 24(e) and incorporated herein by reference.) 103 Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits. (Continued) -------- Savannah Electric (f) 1 - Power of Attorney and resolution. (Designated in the Form 10-K for the year ended December 31, 2002, File No. 1-5072 as Exhibit 24(f) and incorporated herein by reference.) Southern Power (g) 1 - Power of Attorney and resolution. (Designated in the Form 10-K for the year ended December 31, 2002, File No. 333-98553 as Exhibit 24(g) and incorporated herein by reference.) (99) Section 906 Certifications Southern Company (a) 1 - Certificate of Southern Company's Chief Executive Officer required by Section 906 of the Sarbanes-Oxley Act of 2002. (a) 2 - Certificate of Southern Company's Chief Financial Officer required by Section 906 of the Sarbanes-Oxley Act of 2002. Alabama Power (b) 1 - Certificate of Alabama Power's Chief Executive Officer required by Section 906 of the Sarbanes-Oxley Act of 2002. (b) 2 - Certificate of Alabama Power's Chief Financial Officer required by Section 906 of the Sarbanes-Oxley Act of 2002. Georgia Power (c) 1 - Certificate of Georgia Power's Chief Executive Officer required by Section 906 of the Sarbanes-Oxley Act of 2002. (c) 2 - Certificate of Georgia Power's Chief Financial Officer required by Section 906 of the Sarbanes-Oxley Act of 2002. Gulf Power (d) 1 - Certificate of Gulf Power's Chief Executive Officer required by Section 906 of the Sarbanes-Oxley Act of 2002. 104 Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits. (Continued) -------- (d) 2 - Certificate of Gulf Power's Chief Financial Officer required by Section 906 of the Sarbanes-Oxley Act of 2002. Mississippi Power (e) 1 - Certificate of Mississippi Power's Chief Executive Officer required by Section 906 of the Sarbanes-Oxley Act of 2002. (e) 2 - Certificate of Mississippi Power's Chief Financial Officer required by Section 906 of the Sarbanes-Oxley Act of 2002. Savannah Electric (f) 1 - Certificate of Savannah Electric's Chief Executive Officer required by Section 906 of the Sarbanes-Oxley Act of 2002. (f) 2 - Certificate of Savannah Electric's Chief Financial Officer required by Section 906 of the Sarbanes-Oxley Act of 2002. Southern Power (g) 1 - Certificate of Southern Power's Chief Executive Officer required by Section 906 of the Sarbanes-Oxley Act of 2002. (g) 2 - Certificate of Southern Power's Chief Financial Officer required by Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K. ------------------- Alabama Power filed Current Reports on Form 8-K dated February 5, 2003, February 11, 2003 and March 12, 2003: Item reported: Items 5 and 7 Financial statements filed: None Georgia Power filed Current Reports on Form 8-K dated February 13, 2003 and February 21, 2003: Item reported: Items 5 and 7 Financial statements filed: None Gulf Power filed a Current Report on Form 8-K dated March 21, 2003: Item reported: Items 5 and 7 Financial statements filed: None 105 THE SOUTHERN COMPANY SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof. THE SOUTHERN COMPANY By Allen Franklin Chairman and Chief Executive Officer (Principal Executive Officer) By Thomas A. Fanning Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer) By /s/ Wayne Boston (Wayne Boston, Attorney-in-fact) Date: May 13, 2003 106 THE SOUTHERN COMPANY Certification Of Chief Executive Officer Per Section 302 Of The Sarbanes-Oxley Act I, Allen Franklin, certify that: 1. I have reviewed this quarterly report on Form 10-Q of The Southern Company; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 13, 2003 /s/ H. Allen Franklin Allen Franklin Chairman and Chief Executive Officer 107 THE SOUTHERN COMPANY Certification Of Chief Financial Officer Per Section 302 Of The Sarbanes-Oxley Act I, Thomas A. Fanning, certify that: 1. I have reviewed this quarterly report on Form 10-Q of The Southern Company; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 13, 2003 /s/ Thomas A. Fanning Thomas A. Fanning Executive Vice President, Chief Financial Officer and Treasurer 108 ALABAMA POWER COMPANY SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof. ALABAMA POWER COMPANY By Charles D. McCrary President and Chief Executive Officer (Principal Executive Officer) By William B. Hutchins, III Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer) By /s/ Wayne Boston (Wayne Boston, Attorney-in-fact) Date: May 13, 2003 109 ALABAMA POWER COMPANY Certification Of Chief Executive Officer Per Section 302 Of The Sarbanes-Oxley Act I, Charles D. McCrary, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Alabama Power Company; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 13, 2003 /s/ Charles D. McCrary ------------------------------------- Charles D. McCrary President and Chief Executive Officer 110 ALABAMA POWER COMPANY Certification Of Chief Financial Officer Per Section 302 Of The Sarbanes-Oxley Act I, William B. Hutchins, III, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Alabama Power Company; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 13, 2003 /s/ William B. Hutchins, III --------------------------------------------- William B. Hutchins, III Executive Vice President, Chief Financial Officer and Treasurer 111 GEORGIA POWER COMPANY SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof. GEORGIA POWER COMPANY By David M. Ratcliffe President and Chief Executive Officer (Principal Executive Officer) By Allen L. Leverett Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer) By /s/ Wayne Boston (Wayne Boston, Attorney-in-fact) Date: May 13, 2003 112 GEORGIA POWER COMPANY Certification Of Chief Executive Officer Per Section 302 Of The Sarbanes-Oxley Act I, David M. Ratcliffe, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Georgia Power Company; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 13, 2003 /s/ David M. Ratcliffe David M. Ratcliffe President and Chief Executive Officer 113 GEORGIA POWER COMPANY Certification Of Chief Financial Officer Per Section 302 Of The Sarbanes-Oxley Act I, Allen L. Leverett, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Georgia Power Company; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 13, 2003 /s/ Allen L. Leverett Allen L. Leverett Executive Vice President, Chief Financial Officer and Treasurer 114 GULF POWER COMPANY SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof. GULF POWER COMPANY By Susan N. Story President and Chief Executive Officer (Principal Executive Officer) By Ronnie R. Labrato Vice President, Chief Financial Officer and Comptroller (Principal Financial and Accounting Officer) By /s/ Wayne Boston (Wayne Boston, Attorney-in-fact) Date: May 13, 2003 115 GULF POWER COMPANY Certification Of Chief Executive Officer Per Section 302 Of The Sarbanes-Oxley Act I, Susan N. Story, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Gulf Power Company; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 13, 2003 /s/ Susan N. Story ----------------------------- Susan N. Story President and Chief Executive Officer 116 GULF POWER COMPANY Certification Of Chief Financial Officer Per Section 302 Of The Sarbanes-Oxley Act I, Ronnie R. Labrato, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Gulf Power Company; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 13, 2003 /s/ Ronnie R. Labrato Ronnie R. Labrato Vice President, Chief Financial Officer and Comptroller 117 MISSISSIPPI POWER COMPANY SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof. MISSISSIPPI POWER COMPANY By Michael D. Garrett President and Chief Executive Officer (Principal Executive Officer) By Michael W. Southern Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) By /s/ Wayne Boston (Wayne Boston, Attorney-in-fact) Date: May 13, 2003 118 MISSISSIPPI POWER COMPANY Certification Of Chief Executive Officer Per Section 302 Of The Sarbanes-Oxley Act I, Michael D. Garrett, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Mississippi Power Company; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 13, 2003 /s/ Michael D. Garrett Michael D. Garrett President and Chief Executive Officer 119 MISSISSIPPI POWER COMPANY Certification Of Chief Financial Officer Per Section 302 Of The Sarbanes-Oxley Act I, Michael W. Southern, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Mississippi Power Company; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 13, 2003 /s/ Michael W. Southern Michael W. Southern Vice President, Chief Financial Officer and Treasurer 120 SAVANNAH ELECTRIC AND POWER COMPANY SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof. SAVANNAH ELECTRIC AND POWER COMPANY By A. R. James President and Chief Executive Officer (Principal Executive Officer) By Kirby R. Willis Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) By /s/ Wayne Boston (Wayne Boston, Attorney-in-fact) Date: May 13, 2003 121 SAVANNAH ELECTRIC AND POWER COMPANY Certification Of Chief Executive Officer Per Section 302 Of The Sarbanes-Oxley Act I, A. R. James, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Savannah Electric and Power Company; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 13, 2003 /s/ A. R. James A. R. James President and Chief Executive Officer 122 SAVANNAH ELECTRIC AND POWER COMPANY Certification Of Chief Financial Officer Per Section 302 Of The Sarbanes-Oxley Act I, Kirby R. Willis, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Savannah Electric and Power Company; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 13, 2003 /s/ Kirby R. Willis Kirby R. Willis Vice President, Chief Financial Officer and Treasurer 123 SOUTHERN POWER COMPANY SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof. SOUTHERN POWER COMPANY By William P. Bowers President and Chief Executive Officer (Principal Executive Officer) By Cliff S. Thrasher Senior Vice President, Comptroller and Chief Financial Officer (Principal Financial and Accounting Officer) Date: May 13, 2003 124 SOUTHERN POWER COMPANY Certification Of Chief Executive Officer Per Section 302 Of The Sarbanes-Oxley Act I, William P. Bowers, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Southern Power Company; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 13, 2003 /s/ William Paul Bowers William P. Bowers President and Chief Executive Officer 125 SOUTHERN POWER COMPANY Certification Of Chief Financial Officer Per Section 302 Of The Sarbanes-Oxley Act I, Cliff S. Thrasher, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Southern Power Company; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 13, 2003 /s/ Cliff S. Thrasher Cliff S. Thrasher Senior Vice President, Comptroller and Chief Financial Officer 126 EX-3.B.1 3 x3b1.txt Exhibit 3(b)1 ARTICLES OF AMENDMENT to the ARTICLES OF INCORPORATION of ALABAMA POWER COMPANY Pursuant to, and with the effect provided in, Sections 10-2B-10.03 through 10-2B-10.06 of the Code of Alabama, 1975, as amended (the "Code"), the undersigned company adopts the following Articles of Amendment to its Articles of Incorporation: FIRST: The name of the company is "Alabama Power Company" (the "Company"). SECOND: An amendment be made in the joint agreement between Alabama Power Company and Birmingham Electric Company prescribing the terms and conditions of the merger of Birmingham Electric Company into and with Alabama Power Company, as heretofore amended, providing for, the increase of capital stock of the Company by 9,000,000 shares of common stock by amending Article IX of such joint agreement to read as follows, which was duly adopted in the manner provided by the Code by the Company's Board of Directors and shareholders at a meeting held on April 25, 2003: "Article IX Capital Stock The corporation is authorized to issue three classes of shares of capital stock to be designated, respectively, "common stock", "preferred stock" and "Class A preferred stock". The total number of shares of stock which the corporation shall have authority to issue shall be 46,350,000 shares, of which 15,000,000 shares shall be common stock with a par value of $40 per share, 3,850,000 shares shall be preferred stock with a par value of $100 per share and 27,500,000 shares shall be Class A preferred stock with a par value of $1 per share. The designations, preferences, voting powers or restrictions or qualifications thereof, the rights of redemption, retirement and conversion of the shares of capital stock of the corporation, and the general provisions with respect thereto, shall be as hereinafter set forth; provided, however, that the preferred stock and Class A preferred stock may be divided into and issued from time to time in one or more series, each such series being hereinafter for convenience referred to as a "class" of preferred stock or Class A preferred stock, as the case may be, and all such series being hereinafter for convenience collectively referred to as "classes" of preferred stock or Class A preferred stock, as the case may be. The board of directors shall have, and is hereby granted the power and authority to divide the unissued shares of preferred stock and Class A preferred stock into series (including the power and authority to reclassify, in the manner provided by law, all or any number of the unissued shares of preferred stock authorized at the time of the adoption of the joint agreement between Alabama Power Company and Birmingham Electric Company prescribing the terms and conditions of the merger of Birmingham Electric Company into and with Alabama Power Company) and to fix and determine the following relative rights and preferences of any such series of preferred stock and Class A preferred stock, and the number of shares constituting any such series and the designation thereof, or any of them: (1) dividend rate, (2) the dividend payment dates, (3) the redemption price thereof, (4) the amount payable in event of liquidation, voluntary and involuntary and (5) the sinking fund provisions, if any, for the redemption or purchase of shares; and to increase or decrease the number of shares of any such series subsequent to the issue of shares of that series, but not below the number of shares of such series then outstanding. In case the number of shares of any series shall be so decreased, the shares constituting such decrease shall assume the status of authorized but unissued shares of preferred stock or Class A preferred stock, as the case may be. The board of directors may issue and sell such shares of preferred stock and Class A preferred stock in series and any other authorized shares provided for in this Article IX. Upon the issuance of shares of Class A preferred stock, there shall be transferred to stated capital represented by each such share of Class A preferred stock an amount equal to the excess of the consideration received over the par value thereof (up to an amount which, when added to such par value, shall not exceed such share's preferential claim in the event of involuntary liquidation) and the stated capital represented by each share so determined shall be equal to such share's preferential claim in the event of involuntary liquidation." THIRD: The proposed amendment to the general provisions of capital stock require the affirmative vote of the holders of the larger amount in total value of all of the capital stock of the Company. The Company considers that the favorable vote of the holders of all of the outstanding common stock will be sufficient for the adoption of such amendment. FOURTH: At the close of business on March 10, 2003, the record date, the Company had 6,000,000 shares of common stock issued and outstanding, 475,115 shares of preferred stock, par value $100 per share, issued and outstanding and 8,001,250 shares of Class A preferred stock, par value $1 per share, issued and outstanding. All of the 6,000,000 shares of common stock voted affirmatively for the adoption of the amendment. Of the total shares of preferred stock issued and outstanding, no shares voted affirmatively for the adoption of the amendment, no shares voted against the amendment and no shares abstained, and of the total shares of Class A preferred stock issued and outstanding, no shares voted affirmatively for the adoption of the amendment, no shares voted against the amendment and no shares abstained, such affirmative votes being sufficient for the adoption of the foregoing amendment. IN WITNESS WHEREOF, the undersigned officers of the Company, do hereby set their hand and the seal of the Company on the day of April, 2003. ALABAMA POWER COMPANY Charles D. McCrary President and Chief Executive Officer William E. Zales, Jr. Vice President, Corporate Secretary and Assistant Treasurer EX-3.B.2 4 x3b2.txt Exhibit 3(b)2 ALABAMA POWER COMPANY AMENDED AND RESTATED BY-LAWS -------- ARTICLE I NAME, DURATION, PURPOSE AND LOCATION OF CORPORATION Section 1. The name of this corporation is ALABAMA POWER COMPANY. Its duration is perpetual. Its purposes are expressed in the original certificate of incorporation of Alabama Power Company and the additions thereto and the amendments and changes which have been or which may be made therein from time to time; in the certificate of incorporation and the several amendments thereto of the corporations which have been or may hereafter be merged into or consolidated with this corporation; and the joint agreements of merger or consolidation heretofore made or which may hereafter be made with this corporation (the "Charter"). Its principal office and place of business shall be in Birmingham, Jefferson County, Alabama; but the corporation may also have offices in other counties, cities and towns in the State of Alabama, and in the City of New York, and in such other places beyond the State of Alabama as the board of directors may from time to time appoint, or the business of the corporation may require. ARTICLE II STOCKHOLDERS' MEETINGS Place of Meeting Section 1. All meetings of the stockholders shall be held, either within or without the State of Alabama, at such place designated in the call for or notice of the meeting. Annual Meeting Section 2. The annual meeting of the stockholders shall be held on the fourth Friday in April in each year, if not a legal holiday, and if a legal holiday, then on the following Friday, when the stockholders entitled to vote shall elect by ballot a board of twenty-five directors to serve until the next annual meeting of the stockholders and until their successors are elected or chosen and qualified and shall transact such other business as may come before the meeting. Special Meetings Section 3. Special meetings of stockholders for any purpose or purposes, unless otherwise prescribed by statute or by the Charter, may be called by (i) the president or the board of directors; (ii) the holders of not less than ten percent (10%) of all the votes entitled to be cast on any issue proposed to be considered at the proposed special meeting or if such holders sign, date and deliver to the corporation's president or secretary one or more written demands for the meeting describing the purpose or purposes for which it is to be held, who shall, within 21 days of the receipt of such demand, cause notice to be given of the meeting to be held within the minimum time following the notice prescribed in Section 4 below; or (iii) the holders of not less than ten percent (10%) of the votes entitled to be cast at the special meeting who signed a demand under clause (ii) above if notice was not given within the 21 days after such demand or the special meeting was not held in accordance with the notice. Notice of Meeting Section 4. Written notice of the time and place of holding all meetings shall, unless waived, be given to each stockholder entitled to vote not less than ten or more than sixty days before the date of the meeting, either personally or by mail, to such address as appears on the books of the corporation, unless by statute other or further notice is required, and in this event the required statutory notice shall be given; and, in the case of special meetings, the purpose thereof shall be stated in the notice. The capital stock or bonded indebtedness of the corporation shall not be increased at the annual meeting unless thirty (30) days' notice has been given before the date of the meeting, or pursuant to such lesser or greater requirements of Section 234 of the Constitution of Alabama as the same may be amended from time to time. Stockholder List Section 5. After fixing a record date for a meeting, the officer having charge of the stock transfer books of the corporation shall prepare an alphabetical list of the names of all its stockholders who are entitled to notice of a stockholders' meeting. The list must be arranged by voting group (and within each voting group by class or series of shares) and show the address of and number of shares held by each stockholder. The stockholders' list must be available for inspection by any stockholder, beginning two business days after notice of the meeting is given for which the list was prepared and continuing through the meeting, at the corporation's principal office. A stockholder, or his or her agent or attorney, is entitled on written demand to inspect and, for a proper purpose, to copy the list, during regular hours and at its expense, during the period it is available for inspection. The corporation shall make the list available at the meeting, and any stockholder, or his or her agent or attorney, is entitled to inspect the list at any time during the meeting or any adjournment thereof. The stock transfer records of the corporation shall be prima facie evidence as to who are the stockholders entitled to examine the stockholders' list or transfer records or to vote at any meeting of stockholders. Voting Section 6. The voting rights of the stockholders shall be set forth in the Charter. Any stockholder entitled to vote may vote in person or by proxy appointed by an instrument in writing subscribed by such stockholder. The proxy holder need not be a stockholder. All elections shall be had and, subject to the provisions of the Charter, all questions decided by a majority vote of the stock voting at the meeting in person or by proxy and entitled to vote thereat. Quorum Section 7. Subject to the provisions of the Charter, the holders of a majority of the stock issued and outstanding and entitled to vote at the meeting, present in person or represented by proxy, shall be requisite to constitute a quorum at all meetings of the stockholders for the transaction of business. If, however, such majority shall not be present or represented at any meeting, the stockholders present in person or by proxy and so entitled to vote, shall have power to adjourn the meeting until the requisite amount of stock shall be represented; and at such adjourned meeting any business may be transacted as at the original meeting. Every meeting of the stockholders may be adjourned from time to time until its business is completed. Action Without a Meeting Section 8. Any action required or permitted to be taken at any meeting of the stockholders may be taken without a meeting, if the action is taken by all stockholders entitled to vote on the action and evidenced by one or more consents in writing, setting forth the action so taken, signed by all stockholders entitled to vote on the action and delivered to the corporation for inclusion in the minutes for filing with the corporate records. Action taken is effective when the last stockholder signs the consent, unless the consent specifies a different effective date. Such consent shall have the same effect as a unanimous vote. ARTICLE III DIRECTORS Election Of Section 1. The property and business of the corporation shall be managed by its board of directors, the members of which shall be elected by the stockholders as aforesaid. Eligibility Section 2. Directors shall be natural persons of the age of at least nineteen (19) but need not be residents of the State of Alabama or stockholders of the corporation. A person being a full time executive employee of the corporation or its parent company or any affiliated company when first elected a director of the corporation (hereinafter sometimes referred to as an "employee-director") shall not be eligible for election as a director when he ceases to be an executive employee; whether by reason of resignation, retirement or other cause. Any employee-director shall resign as a director effective on the date he ceases to be an executive employee. A person not an employee-director shall not be eligible for election or re-election as a director of the corporation (1) after his 70th birthday, (2) after permanent separation from the business or professional organization with which he was primarily associated when first elected a director, (3) after other material change in his primary occupation or executive position from that which he pursued or held when first elected a director, or (4) after moving his principal residence outside the state in which he was a resident when first elected a director, whichever event first occurs. The application to an individual of any provision of this paragraph may be waived by the board of directors. Any such waiver shall only be effective on a year to year basis. Compensation Section 3. Directors, other than "employee-directors", shall receive directors' fees in the amounts and by the method fixed by the board of directors. All directors shall be reimbursed for actual expenses incurred in connection with their attendance of meetings of the board of directors. Nothing herein contained shall be construed to preclude any director from serving the corporation in any other capacity and receiving compensation therefor. ARTICLE IV BOARD OF DIRECTORS Meetings of the Board Section 1. The directors may hold their meetings either within or outside the State of Alabama at such places as they may from time to time determine and as authorized by the laws of the State of Alabama. Annual Meeting Section 2. The annual meeting of the board of directors shall be held as soon as practicable after the annual meeting of the stockholders, for the purpose of electing officers and for the transaction of such other business as may come before the meeting; at least three days' notice of the time and place of holding the meeting to be given to each member of the board. Regular Meetings Section 3. Regular meetings of the board may be held without notice at such time and place as may from time to time be appointed by the board. Special Meetings Section 4. Special meetings of the board may be called by the president, on two day's notice to each director, by delivered letter, by mail or by telegram or by personal communication either over the telephone or otherwise. Special meetings shall be called by the secretary in like manner and on like notice, on the written request of one-third of the directors for the time being in office. Quorum Section 5. At all meetings of the board of directors, a majority of the directors in office shall be necessary and sufficient to constitute a quorum for the transaction of business, except as otherwise provided in Section 15 of this Article IV, and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the board of directors, except as may be otherwise specifically permitted or provided by statute or by the Charter or by these by-laws. A director is, unless established to the contrary, presumed present for quorum purposes for the remainder of the meeting at which he has been present for any purpose. A director who is present at a meeting of the board or any committee of the board when corporate action is taken is deemed to assent to the action taken place unless (i) he objects at the beginning of the meeting (or promptly upon arrival) to holding it or transacting business at the meeting or, as to a matter required under the Charter or these by-laws to be included in the notice of the purpose of the meeting, he objects before action is taken on the matter; (ii) his dissent or abstention from action taken is entered in the minutes of the meeting; or (iii) he delivers written notice of his dissent or abstention to the presiding officer of the meeting before its adjournment or to the corporation immediately after adjournment of the meeting. The right of dissent or abstention is not available to a director who votes in favor of the action taken. If at any meeting of the board there shall be less than a quorum present, a majority of those present may adjourn the meeting from time to time until a quorum is obtained and no further notice thereof need be given other than by announcement at the meeting which shall be so adjourned. Meetings by Conference Telephone, etc Section 6. Meetings of the board of directors and of any committee thereof may be held by means of a conference telephone or other communication by which all directors participating may simultaneously hear each other during the meeting. Participation by such means shall constitute presence in person at any such meeting. Action Without a Meeting Section 7. Any action required or permitted to be taken at any meeting of the board of directors or of any committee thereof may be taken without a meeting, if the action is taken by all members of the board and evidenced by one or more consents in writing, setting forth the action so taken, shall be signed by each member of the board or committee, as the case may be, and included in the minutes or filed with the corporate records reflecting the action taken. Action taken is effective when the last director signs the consent, unless the consent specifies a different effective date. Such consent shall have the same effect as a unanimous vote. General Powers Section 8. In addition to the powers and authority by these by-laws expressly conferred on it, the board may exercise all such powers of the corporation and do all such lawful acts and things as are not by statute or by the Charter or by these by-laws, directed or required to be exercised or done by the stockholders. Specific Powers Section 9. Without prejudice to the general powers conferred by Section 8 of this Article IV, the board of directors shall in addition thereto have the following specific powers, that is to say: (a) From time to time to make and change rules and regulations not inconsistent with these by-laws for the management of the property and business of the corporation; (b) To purchase or otherwise acquire for the corporation any property, rights, privileges or franchises which the corporation is authorized to acquire, at such prices or consideration and generally on such terms and conditions as the board shall think fit; and at its discretion to pay for the same either wholly or partly in money, stock or other securities or property of the corporation; (c) To sell, exchange or otherwise dispose of any property of the corporation less than all, for such price or consideration, and generally on such terms and conditions as the board thinks fit; and at its discretion to accept in whole or partial payment therefor, money, stock or other securities or properties; (d) To appoint and at the discretion of the board to remove or suspend such officers, agents or employees, permanently or temporarily, as it may think fit, and to determine their duties, and to require bonds in such instances and in such amounts and with such sureties as it may think fit; (e) To appoint any person or corporation to accept and hold in trust for the corporation any property belonging to the corporation or in which it is interested, or for any other purpose, and to execute all such deeds and instruments and perform such acts as may be requisite in relation to any such trust; (f) To determine who shall be authorized on behalf of the corporation to sign bills, notes, receipts, acceptances, endorsements, checks, releases, contracts and documents; (g) To authorize the execution and delivery of notes and other evidences of indebtedness of the corporation for money borrowed or other indebtedness incurred by the corporation; and to authorize the execution, certification, delivery and sale of the mortgage bonds of the corporation, from time to time upon such terms and conditions as the board may approve; and (h) To delegate any of the powers of the board in the course of the current business of the corporation, to any standing or special committee or to any officer or agent, or to appoint any persons to be agents of the corporation, with such powers and upon such terms as the board thinks fit. Record of Proceedings Section 10. The board of directors shall cause a record of its proceedings and of all board meetings to be properly kept by the secretary of the corporation or by a secretary pro tempore. The records shall be verified by the signature of the person acting as secretary. Books of Account Section 11. The board of directors shall cause regular and correct books of account to be kept, and to be balanced and certified by some public accountant at least once every year. Election of Officers Section 12. The board of directors at its annual meeting shall elect from their own number a president and shall elect a secretary. In addition, the board of directors at its annual meeting may elect one or more vice presidents. At the annual meeting or any other meeting duly held from time to time the board may elect other vice presidents, a treasurer and such other officers as the board shall deem necessary or appropriate. Books, Papers, Etc. Section 13. The property and funds, books, correspondence and papers of the corporation, in the possession or control of any officer or agent thereof, shall at all times be subject to the inspection of the board of directors, the executive committee or a committee appointed for the purpose at a general meeting of the holders of the common stock. The minutes, including the resolutions and proceedings of the board, shall be produced when required by the stockholders at any general meeting. Transactions With Directors Section 14. A director's conflicting interest transaction may not be enjoined, set aside, or give rise to an award of damages or other sanctions, in a proceeding by a stockholder or by or in the right of the corporation, because the director, or any person with whom or which he or she has a personal, economic, or other association, has an interest in the transaction, if: (1) Director's action respecting the transaction was at any time taken in compliance with Section 10-2B-8.62 of the Alabama Code; or (2) Stockholders' action respecting the transaction was at any time taken in compliance with Section 10-2B-8.63 of the Alabama Code; or (3) The transaction, judged according to the circumstances at the time of commitment, is established to have been fair to the corporation. Vacancies Section 15. If a vacancy occurs on the board: (i) the board of directors may fill the vacancy, except that the directors shall not have the power to fill a vacancy resulting from an increase in the number of directors or (ii) if the directors remaining in office constitute fewer than a quorum of the board, they may fill the vacancy, if it is one that the directors are authorized to fill, by the affirmative vote of a majority of all the directors remaining in office. A director elected to fill a vacancy shall be elected to serve until the next annual meeting of stockholders. If there are no directors in office, then the stockholders may hold a special meeting to elect directors. ARTICLE V EXECUTIVE AND OTHER COMMITTEES Executive Committee Section 1. The board of directors may, by resolution adopted by a majority of the whole board in office, designate no fewer than three (3) of the directors to constitute an executive committee, of which the president shall be a member. Three members of such committee shall constitute a quorum. The president shall act as chairman of the executive committee. During the intervals between the meetings of the board, the executive committee shall have and may exercise all the powers of the board of directors in the management of the property and business of the corporation and shall have power to authorize the seal of the corporation to be affixed to all instruments that may require it, all except as otherwise provided by law. Other Standing Committees Section 2. The board of directors may also, by resolution or resolutions adopted by a majority of the whole board in office, designate one or more other standing committees as it deems necessary and desirable. Each such committee shall consist of at least two directors of the corporation and shall have and may exercise the powers of the board of directors in the management of the business and affairs of the corporation to the extent provided in such resolution or resolutions and these by-laws. The board of directors shall designate the name of and appoint the chairman of each such committee. A majority of the members of each such committee shall constitute a quorum. To the extent specified by the board or in the Charter or by-laws, each committee may exercise the authority of the board of directors, shall have and may exercise all the authority of the board of directors in the management of the business and affairs of the corporation; except that no such committee shall have the authority of the board of directors with reference to (1) authorizing distributions, (2) approving or proposing to stockholders actions requiring approval by stockholders, (3) filling vacancies on the board of directors or on any of its committees, (4) amending the Charter, (5) adopting, amending or repealing these by-laws, (6) approving a plan of merger not requiring stockholder approval, (7) authorizing or approving reacquisition of shares, except according to formula or method prescribed by the board of directors, or (8) authorizing or approving the issuance or sale or contract for sale of shares, or determining the designation and relative rights, except that the board of directors may authorize a committee (or senior executive officer of the corporation) to do so within limits specifically prescribed by the board of directors. Advisory Committees Section 3. The board of directors may also, by resolution or resolutions adopted by a majority of the whole board in office, designate one or more advisory committees as it deems necessary and desirable. Each such committee shall consist of at least two directors of the corporation and shall advise the board of directors on the matter or matters provided in such resolution or resolutions. The board of directors shall designate the name of and appoint the chairman of each such committee. Each such committee shall prepare and deliver reports to the board of directors as the board of directors or the chairman thereof requests. A majority of the members of each such committee shall constitute a quorum. Election of Committee Members Section 4. The members of the executive committee, other standing committees, and the advisory committees shall be elected at the annual meeting of the board of directors or as soon thereafter as is practicable. The members of all such committees shall hold office until the next annual meeting of the board of directors and until their respective successors are elected. The board of directors shall have the power to fill vacancies in, to change the membership of and to dissolve any such committee. Meetings and Minutes Section 5. The executive committee and the other committees shall meet at such time and place as their respective chairman may appoint. Notice of each meeting of the executive committee and the other committees may be given by telephone, telex or telecopy or in writing specifying the place, day and hour thereof. If given in writing, such notice may be served personally at least one hour before such meeting or as otherwise provided in these by-laws. The executive committee and each of the other standing committees shall maintain regular minutes of their respective proceedings; each of the advisory committees shall maintain memoranda of their respective meetings. All actions taken by the executive committee or any of the other standing committees shall be reported to the board of directors at its next succeeding meeting and shall be subject to amendment, revision or alteration by the board of directors, provided, however, that the rights or acts of third parties shall not be affected by such amendment, revision or alteration. The members of the executive committee and the other committees shall be entitled to such fees and expenses as may be fixed by the board of directors. ARTICLE VI OFFICERS Enumeration of Section 1. The officers of the corporation shall be chosen by the board of directors, except as herein provided. The full time executive officers shall include a president and may include one or more vice presidents, all as the board of directors may from time to time determine. The administrative officers shall include a secretary and may include one or more vice presidents in charge of particular work or divisions of the corporation, a treasurer, a comptroller and such assistant secretaries, assistant treasurers and assistant comptrollers as the board of directors may from time to time determine. Two or more offices may be held by the same person, except that the same person may not serve as president and as secretary. Officers other than the president need not be members of the board. President Section 2. The president shall be the chief executive officer of the corporation, a member and chairman of the executive committee. He shall preside at meetings of the board of directors and stockholders. Subject to the control of the board of directors, the executive committee or the committees of the board having authority, he shall be vested with authority to act for the corporation in all matters and shall have general charge of the corporation and the general supervision of its affairs. Subject to the limitations stated, he shall have full power and authority to do and perform in the name of the corporation all acts necessary or proper to be done and performed, and to delegate to the vice presidents such part of his authority as may be appropriate. Vice Presidents Section 3. The vice presidents shall perform such of the duties of the president on behalf of the corporation as may be respectively assigned to them from time to time by the board of directors or the president. One or more vice presidents may be designated as either "executive vice president" or "senior vice president". Secretary Section 4. The secretary shall, unless otherwise directed, attend all sessions of the board and all meetings of the stockholders and act as clerk thereof, and record all votes and the minutes of all proceedings in a book to be kept for that purpose; and shall perform like duties for standing committees when required. He shall give or cause to be given notice of all meetings of the stockholders and of the board of directors and of standing committees when required, and shall perform such other duties as may be prescribed by the board of directors or the chief executive officer under whose supervision he shall act. He shall keep in safe custody the seal of the corporation and, when authorized, affix the same to any instrument requiring a seal and attest the signature thereof when directed or required to do so. Treasurer Section 5. The treasurer shall have the custody of the corporation funds and securities and shall be accountable for the receipts and disbursements in books belonging to the corporation, and shall deposit all moneys and other valuable effects in the name and to the credit of the corporation in such depositories as may be designated by the board of directors. Section 6. He shall disburse funds of the corporation as may be ordered by the board, taking proper vouchers for such disbursements, and shall render to the president and to the board of directors at the regular meetings of the board or whenever the board may require it, an account of all his transactions as treasurer and of the financial condition of the corporation and shall perform such other duties as may be assigned to him from time to time. Comptroller Section 7. The comptroller shall have charge of all books and accounts of the corporation, and shall keep full and accurate accounts of receipts and disbursements in books belonging to the corporation, and shall perform such other duties as may be assigned to him from time to time. Assistant Secretaries, Assistant Treasurers and Assistant Comptrollers Section 8. One or more assistant secretaries, assistant treasurers and assistant comptrollers may be elected by the board of directors or appointed by the chief executive officer to hold office until the next annual meeting of the board of directors and until their successors are elected or appointed, but may be removed at any time. They shall perform any of or all of the duties of secretary, treasurer or comptroller, as the case may be, and such other duties as may be assigned to them from time to time. Duties of Officers May Be Delegated Section 9. In case of the absence of any officer of the corporation, or for any other reason the board may deem sufficient, the board may delegate the powers or duties of such officers to any other officer or to any director, for the time being. Term of Office Section 10. The officers of the corporation shall hold office until the next succeeding annual meeting of the board of directors or until their successors are elected and qualified. Any officer elected or appointed by the board of directors may be removed at any time by the affirmative vote of a majority of the whole board of directors. All officers, agents and employees other than officers appointed by the board, shall hold office at the discretion of the officer appointing them, but shall be subject to removal by the board of directors or the executive committee at any time. ARTICLE VII VACANCIES Section 1. If the office of the president, vice president, secretary, treasurer, comptroller or other officer or agent elected by the board, becomes vacant by reason of death, resignation, retirement, disqualification, removal from office or otherwise, the directors then in office although less than a quorum, by a majority vote may choose a successor or successors who shall hold office for the unexpired term in respect of which such vacancy occurred. ARTICLE VIII CAPITAL STOCK Certificates Section 1. Unless determined otherwise by the board of directors, the certificates of stock of the corporation shall be numbered and shall be entered on the stock certificate books of the corporation as they are issued. They shall exhibit the holder's name and number of shares and shall be signed by the president or a vice president and the secretary or an assistant secretary or the treasurer or an assistant treasurer, and shall bear the corporate seal, which may be facsimile, engraved or printed. To the extent permitted under Alabama law, the signature of any such president, vice president, secretary, assistant secretary, treasurer or assistant treasurer upon such certificate may be facsimile, engraved or printed. In any case, when such officer or officers who shall have signed, or whose facsimile signature or signatures shall have been placed upon such certificate shall cease to be such either because of death, resignation or otherwise before such certificate is delivered by the corporation, such certificate may nevertheless be issued and delivered by the corporation with the same effect as if such officer or officers had not ceased to be such. No certificate shall be issued unless the stock represented thereby is fully paid up. Transfer Section 2. The transfer of all classes of stock shall be made and registered only by the person named in the certificate, or by attorney lawfully constituted in writing, upon surrender of such certificate and payment of all taxes; and the corporation shall keep in the hands of an agent or other person designated for that purpose a true statement or book showing who are the holders of the stock of the corporation and all transfers and hypothecations thereof; and the corporation may by its board of directors appoint one or more transfer agents or transfer clerks and registrars, and may require all stock certificates and certificates representing any rights or options to be signed by such transfer agents or transfer clerks acting on behalf of the corporation and by such registrars. Record Date Section 3. For the purpose of determining stockholders entitled to notice of a stockholders' meeting, to demand a special meeting, to vote, or to take any other action, the board of directors of the corporation may fix the record date but not to exceed, in any case, seventy (70) days before the meeting or action requiring a determination of stockholders. A determination of stockholders entitled to notice of or to vote at a stockholders' meeting is effective for any adjournment of the meeting unless the board fixes a new record date, which it must do if the meeting is adjourned to a date more than one hundred twenty (120) days after the date fixed for the original meeting. Record Holder Section 4. The corporation shall be entitled to treat the holder of record of any share of stock as the holder in fact thereof, and accordingly shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, save as expressly provided by the laws of Alabama. Lost, Destroyed and Mutilated Certificates Section 5. The holder of any share of stock shall immediately notify the corporation of any loss, destruction or mutilation of the certificate therefor, and the board may, in its discretion, and after the expiration of such period of time as it may determine to be advisable, cause a new certificate or certificates for shares of stock to be issued, upon the surrender of the mutilated certificate, or in case of loss or destruction of the certificate, upon proof satisfactory to the board of such loss or destruction. The board may, in its sole discretion, require the owner of the lost, destroyed or mutilated certificate, or his legal representatives, to give the corporation a bond, in such sum and with such surety or sureties as it may direct, to indemnify the corporation against any claim that may be made against it on account of the alleged loss, destruction or mutilation of any such certificate or the issuance of such new certificate. Dividends Section 6. Subject to the provisions of the Charter, dividends upon the capital stock of the corporation when earned, may be declared by the board of directors at any regular meeting, or any special meeting. Before paying any dividend or making any distribution of profits, there may be set aside out of the surplus or net profits of the corporation such sum or sums as the board of directors from time to time in its absolute discretion may determine to be proper, as a reserve fund to meet contingencies or for equalizing dividends or for repairing or maintaining any property of the corporation or for such other purpose as the board shall think proper. Annual Reports to Stockholders Section 7. The board of directors shall cause the corporation to deliver to each of its stockholders, not later than one hundred twenty (120) days after the close of each of its fiscal years, a financial statement, which may be consolidated, including a balance sheet as of the end of such fiscal year and a statement of income for such fiscal year. Such financial statement shall be prepared in accordance with generally accepted accounting principles, or, if the books of the corporation are not maintained on that basis, may be prepared either on the same basis used by the corporation for filing its United States income tax returns or as required by appropriate regulatory agencies. The financial statement shall be accompanied by a report of the president, the officer of the corporation in charge of its financial records or a certified public accountant stating whether, in his opinion, the financial statements of the corporation present fairly the financial position of the corporation and the results of its operations in accordance with generally accepted accounting principles and, if not, describing the basis of their preparation and giving his opinion of the fairness of the presentation of the data shown by them, in accordance with accounting procedures generally used in the trade, industry or business conducted by the corporation. ARTICLE IX CORPORATE SEAL Section 1. The seal of the corporation shall be circular in form and shall have inscribed thereon the name of the corporation followed by the word "Alabama," and shall have the word "Seal" inscribed in the center thereof. ARTICLE X FISCAL YEAR Section 1. The fiscal year shall begin with the first day of January in each year. ARTICLE XI NOTICES Section 1. Whenever under the provision of these by-laws notice is required to be given to any director, officer or stockholder, it shall not be construed to mean personal notice, but such written notice may be given by mail or private carrier, with postage thereon prepaid, or by e-mail transmission or other similar electronic means of communication providing evidence of transmission addressed to such stockholder, officer or director, at such address as it appears on the books of the corporation, or in default of other address, to such stockholder, director or officer at the general post office at the principal office of the corporation in the State of Alabama. Written notice to the corporation's stockholders is effective when mailed, if mailed postpaid and correctly addressed to the stockholder's address shown on the books of the corporation. Notice to directors may also be given in person, or by telephone, telecopy or facsimile transmission. Any stockholder, director or officer may waive any notice required to be given either by statute or under these by-laws; and all meetings of stockholders and directors may be held without notice, if waived, at such time and place as may be fixed. ARTICLE XII AMENDMENTS Section 1. Except as otherwise provided by law, these by-laws may be altered, amended or repealed by a majority of the board of directors present at any meeting thereof. ARTICLE XIII INDEMNIFICATION AND RELATED MATTERS Section 1. Each person who is or was a director, officer or employee of the corporation holding one or more positions of management through and inclusive of department managers or other employees explicitly designated in writing by the president or a vice president of the Company (such individuals being hereinafter referred to as "indemnified parties") and who was or is a party or was or is threatened to be made a party to any threatened, pending or completed claim, action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was a director of the corporation or officer or employee of the corporation, or is or was serving at the request of the corporation as a director, officer, employee, agent or trustee of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, shall be indemnified by the corporation as a matter of right against any and all expenses (including attorneys' fees) actually and reasonably incurred by him and against any and all claims, judgments, fines, penalties, liabilities and amounts paid in settlement actually incurred by him in defense of such claim, action, suit or proceeding, including appeals, to the full extent permitted by applicable law. The indemnification provided by this Section shall inure to the benefit of the heirs, executors and administrators of such person. Expenses (including attorneys' fees) incurred by an indemnified party with respect to the defense of any such claim, action, suit or proceeding may be advanced by the corporation prior to the final disposition of such claim, action, suit or proceeding, as authorized by the board of directors in the specific case, upon receipt of an undertaking by or on behalf of such person entitled to be indemnified by the corporation under this Section or otherwise; provided, however, that the advancement of such expenses shall not be deemed to be indemnification unless and until it shall ultimately be determined that such person is entitled to be indemnified by the corporation. The corporation may purchase and maintain insurance at the expense of the corporation on behalf of any person who is or was a director, officer, employee or agent of the corporation, or any person who is or was serving at the request of the corporation as a director (or the equivalent), officer, employee, agent or trustee of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against any liability or expense (including attorneys' fees) asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability or expense under this Section or otherwise. Without limiting the generality of the foregoing provisions of this Section, no present or future director or officer of the corporation, or his heirs, executors, or administrators, shall be liable for any act, omission, step, or conduct taken or had in good faith, which is required, authorized, or approved by any order or orders issued pursuant to the Public Utility Holding Company Act of 1935, the Federal Power Act, or any federal or state statue or municipal ordinance regulating the corporation or its parent by reason of their being holding or investment companies, public utility companies, public utility holding companies, or subsidiaries of public utility holding companies. In any action, suit, or proceeding based on any act, omission, step, or conduct, as in this paragraph described, the provisions hereof shall be brought to the attention of the court. In the event that the foregoing provisions of this paragraph are found by the court not to constitute a valid defense on the grounds of not being applicable to the particular class of plaintiff, each such director and officer, and his heirs, executors, and administrators, shall be reimbursed for, or indemnified against, all expenses and liabilities incurred by him or imposed on him, in connection with, or arising out of, any such action, suit, or proceeding based on any act, omission, step, or conduct taken or had in good faith as in this paragraph described. Such expenses and liabilities shall include, but shall not be limited to, judgments, court costs, and attorneys' fees. The foregoing rights shall not be exclusive of any other rights to which any such director or officer or employee may otherwise be entitled and shall be available whether or not the director or officer or employee continues to be a director or officer or employee at the time of incurring any such expenses and liabilities. ARTICLE XIV SEVERABILITY AND RULES OF CONSTRUCTION Section 1. If any word, clause or provision of the by-laws or any indemnification made under Article XIII hereof shall for any reason be determined to be invalid, the provisions of the by-laws shall not otherwise be affected thereby but shall remain in full force and effect. The masculine pronoun, as used in the by-laws, means the masculine and feminine wherever applicable. As amended April 25, 2003 EX-10.A.1 5 x10a1.txt Exhibit 10(a)1 - ------------------------------------------------------------------------------- AMENDED AND RESTATED CREDIT AGREEMENT Dated as of April 17, 2003 Among SOUTHERN POWER COMPANY as Borrower and THE INITIAL LENDERS NAMED HEREIN as Initial Lenders and CITIBANK, N.A. as Administrative Agent CITIGROUP GLOBAL MARKETS INC. as Lead Arranger THE BANK OF TOKYO-MITSUBISHI, LTD., NEW YORK BRANCH as Co-Arranger and Co-Syndication Agent BARCLAYS BANK PLC as Co-Documentation Agent BARCLAYS CAPITAL as Co-Arranger COMMERZBANK AG as Co-Arranger and Co-Syndication Agent ING CAPITAL LLC as Co-Arranger and Co-Documentation Agent - -------------------------------------------------------------------------------- $650,000,000 Credit Facility due April 17, 2006 TABLE OF CONTENTS Page Article I DEFINITIONS AND ACCOUNTING TERMS SECTION 1.01. Certain Defined Terms............................................1 ---------------------- SECTION 1.02. Computation of Time Periods.....................................33 ---------------------------- SECTION 1.03. Accounting Terms................................................33 ----------------- SECTION 1.04. Interpretation..................................................33 --------------- Article II AMOUNTS AND TERMS OF THE ADVANCES SECTION 2.01. The Advances....................................................34 ------------- SECTION 2.02. Making the Advances.............................................35 -------------------- SECTION 2.03. Fees 37 ----- SECTION 2.04. Termination or Reduction of the Commitments.....................37 -------------------------------------------- SECTION 2.05. Repayment of the Advances.......................................37 -------------------------- SECTION 2.06. Interest on the Advances........................................37 ------------------------- SECTION 2.07. Interest Rate Determination.....................................38 ---------------------------- SECTION 2.08. Optional Conversion of the Advances.............................40 ------------------------------------ SECTION 2.09. Prepayments.....................................................40 ------------ SECTION 2.10. Increased Costs.................................................42 ---------------- SECTION 2.11. Illegality......................................................42 ----------- SECTION 2.12. Payments and Computations.......................................43 -------------------------- SECTION 2.13. Taxes 44 ------ SECTION 2.14. Sharing of Payments, Etc........................................46 ------------------------- SECTION 2.15. Reservation of CP Commitments...................................47 ------------------------------ SECTION 2.16. Use of Proceeds.................................................48 ---------------- Article III CONDITIONS TO EFFECTIVENESS AND LENDING SECTION 3.01. Conditions Precedent to Effectiveness of this Agreement.........49 -------------------------------------------------------- SECTION 3.02. [Intentionally Omitted].........................................50 ------------------------ SECTION 3.03. Conditions Precedent to Subsequent Advances for an -------------------------------------------------- Initial Project..............................................................50 --------------- SECTION 3.04. Conditions Precedent to the Initial Advances for Each ----------------------------------------------------- Subsequent Project...........................................................51 ----------------- SECTION 3.05. Conditions Precedent to Subsequent Advances for a ------------------------------------------------- Subsequent Project...........................................................55 ------------------ SECTION 3.06. Conditions Precedent to CP Commitment Reservations..............56 --------------------------------------------------- SECTION 3.07. Conditions Precedent to the Working Capital and CP Advances.....58 ------------------------------------------------------------ SECTION 3.08. Determinations Under Sections 3.01 Through 3.07, Inclusive......59 ----------------------------------------------------------- Article IV REPRESENTATIONS AND WARRANTIES SECTION 4.01. Representations and Warranties of the Borrower..................59 ----------------------------------------------- Article V COVENANTS OF THE BORROWER SECTION 5.01. Affirmative Covenants...........................................62 ---------------------- SECTION 5.02. Negative Covenants..............................................68 ------------------- Article VI EVENTS OF DEFAULT SECTION 6.01. Events of Default...............................................73 ------------------ Article VII THE AGENT SECTION 7.01. Authorization and Action........................................75 ------------------------- SECTION 7.02. Agent's Reliance, Etc...........................................75 ---------------------- SECTION 7.03. Citibank and Affiliates.........................................76 ------------------------ SECTION 7.04. Lender Credit Decision..........................................76 ----------------------- SECTION 7.05. Indemnification.................................................76 ---------------- SECTION 7.06. Successor Agent.................................................77 ---------------- Article VIII MISCELLANEOUS SECTION 8.01. Amendments, Etc.................................................77 ---------------- SECTION 8.02. Notices, Etc....................................................78 ------------- SECTION 8.03. No Waiver; Remedies.............................................79 -------------------- SECTION 8.04. Costs and Expenses, Etc.........................................79 ------------------------ SECTION 8.05. Right of Set-off................................................82 ----------------- SECTION 8.06. Binding Effect..................................................82 --------------- SECTION 8.07. Assignments and Participations..................................82 ------------------------------- SECTION 8.08. Confidentiality.................................................87 ---------------- SECTION 8.09. Governing Law...................................................88 -------------- SECTION 8.10. Execution in Counterparts.......................................88 -------------------------- SECTION 8.11. Jurisdiction, Etc...............................................89 ------------------ SECTION 8.12. No Bankruptcy Proceedings.......................................89 -------------------------- SECTION 8.13. Waiver of Jury Trial............................................89 --------------------- SECTION 8.14. Notes and Loan Documents........................................89 ------------------------- Schedules - --------- Schedule I - List of Commitments and Applicable Lending Offices Schedule II - Terms of Subordination Schedule III - Project Limits for Initial Projects Schedule IV - Scheduled Completion Date, Guaranteed Heat Rate and Guaranteed Output for Each Initial Project Schedule V - Testing Procedures and Reliability Test Exhibits Exhibit A - Form of Note Exhibit B - Form of Notice of Utilization Exhibit C - Form of Assignment and Acceptance Exhibit D - [Intentionally Omitted] Exhibit E - Form of Opinions of Counsel for the Loan Parties Exhibit F - Form of Designation Agreement Exhibit G - Form of Letter Amendment No. 1 to Equity Contribution Agreement Exhibit H - Form of Letter Amendment No. 1 to Completion Guarantee Exhibit I-1 - [Intentionally Omitted] Exhibit I-2 - Form of Independent Engineer and Environmental Consultant Certificate Exhibit I-3 - [Intentionally Omitted] Exhibit J-1 - [Intentionally Omitted] Exhibit J-2 - Form of Independent Insurance Consultant Certificate Exhibit J-3 - [Intentionally Omitted] Exhibit K-1 - [Intentionally Omitted] Exhibit K-2 - Form of Independent Market Consultant Certificate Exhibit K-3 - [Intentionally Omitted] Exhibit L-1 - Form of Substantial Completion Certificate Exhibit L-2 - Form of Final Completion Certificate Exhibit M - Form of Development Authority Sale/Leaseback Letter AMENDED AND RESTATED CREDIT AGREEMENT, dated as of April 17, 2003, among SOUTHERN POWER COMPANY, a Delaware corporation (the "Borrower"), the financial institutions listed on the signature pages of this agreement (the "Initial Lenders") and CITIBANK, N.A. ("Citibank"), as administrative agent (the "Agent") for the Lenders (as hereinafter defined). PRELIMINARY STATEMENTS WHEREAS, the Borrower, the Agent and certain other financial institutions party thereto have heretofore entered into that certain Credit Agreement, dated as of November 15, 2001, as amended by Letter Amendment No. 1, dated as of April 22, 2002 and the Master Assignment and Acceptance, dated as of the date hereof (such Credit Agreement as so amended, the "Original Credit Agreement"); WHEREAS, the Borrower has requested certain changes or modifications be made to the Original Credit Agreement and certain documents related thereto; WHEREAS, the parties to the Original Credit Agreement and such other related documents have agreed to make such changes or modifications; and WHEREAS, subject to the terms and conditions hereof, the parties hereto have agreed to amend and restate the Original Credit Agreement. NOW, THEREFORE, in consideration of the premises and the mutual agreements contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree to amend and restate the Original Credit Agreement in its entirety to read as follows: Article I DEFINITIONS AND ACCOUNTING TERMS SECTION 1.01. Certain Defined Terms. --------------------- As used in this Agreement, the following terms shall have the following meanings: "Acceptable Credit Party" means (i) any Person whose corporate credit rating is, or whose unsecured, non-credit enhanced long-term debt securities are, rated not less than "BBB" and "Baa2" by S&P and Moody's, respectively; or (ii) an Acceptable EMC Counterparty. "Acceptable Credit Support" means, with respect to any Power Purchase Agreement, any of the following in form and substance reasonably satisfactory to the Majority Lenders: (a) a guaranty from an Acceptable Credit Party; (b) an irrevocable standby letter of credit, with a tenor not less than the term of such Power Purchase Agreement (or, if shorter than such term, which may be drawn if not automatically renewed prior to the stated maturity of such Power Purchase Agreement) and issued by a financial institution organized under the laws of the United States, or any state thereof, or the New York City branch of a commercial bank organized under the laws of any other country that is a member of the Organization for Economic Cooperation and Development or has concluded special lending arrangements with the International Monetary Fund associated with its General Arrangements to Borrow, or a political subdivision of any such country, in each case, whose unsecured, non-credit enhanced long-term debt securities are rated at least "A" by S&P and "A2" by Moody's and which has a combined capital and surplus of at least $1,000 million; or (c) any other instrument reasonably acceptable to the Majority Lenders. "Acceptable EMC Counterparty" means, as determined on any date, an EMC Counterparty as to which as of such date (A) no "MAC" (as defined in the EMC Contract with such EMC Counterparty as in effect on the date of this Agreement) has occurred with respect thereto, (B) no event of the type set forth in Section 6.01(f) hereof shall have occurred and (C) no material adverse change in the membership profile thereof shall have occurred, in each case since the date of this Agreement, and (D) the projections for the incremental requirement needs of such EMC Counterparty are reasonable as confirmed by the Independent Market Consultant. "Acceptable PPA Counterparty" means, with respect to any Power Purchase Agreement, any Person which is (a) an Acceptable Credit Party, or whose obligations under such Power Purchase Agreement are secured by Acceptable Credit Support until the stated maturity of such Power Purchase Agreement; or (b) with respect to Power Purchase Agreements for not more than twenty percent (20%) of the total output of all Plants only, any Person (i) whose corporate credit rating is, or whose unsecured, non-credit enhanced long-term debt securities are, rated not less than "BBB-" and "Baa3" by S&P and Moody's, respectively; or (ii) whose obligations under such Power Purchase Agreement are secured by a Person whose corporate credit rating is, or whose unsecured, non-credit enhanced long-term debt securities are, rated not less than "BBB-" and "Baa3" by S&P and Moody's, respectively, until the stated maturity of such Power Purchase Agreement. "Adjusted Project Budget" means, for each Project, the project budget for such Project setting forth the adjusted Project Costs for such Project (as compared to its Initial Project Budget), prepared in the same format as its Initial Project Budget or such other format reasonably acceptable to the Agent and certified by the Borrower to be complete and correct, and delivered to the Agent by the Borrower at (a) the time of any change in the Project Limit for such Project pursuant to Section 2.01(b); and (b) the earlier of the Non-Recourse Date for such Project and the Refinancing Date with respect to such Project. "Advance" means an advance by a Lender to the Borrower pursuant to Article II and refers, as the context may require, (a) to a Base Rate Advance or a Eurodollar Rate Advance (each of which shall be a "Type" of Advance); or (b) to a Project Advance, a Working Capital Advance or a CP Advance (each of which shall be a "Category" of Advance). "Affiliate" means, as to any Person (other than an individual), any other Person (other than an individual) that, directly or indirectly through one or more intermediaries, Controls, is Controlled by or is under common Control with such Person. "Affiliate Subordinated Debt" means Debt of the Borrower which is subordinated to the Borrower's obligations under the Facility on terms and conditions specified in Schedule II and which is owed to or held by an Affiliate of the Borrower other than a Subsidiary of the Borrower. "Agent" has the meaning set forth in the introductory paragraph to this Agreement. "Agent's Account" means the account of the Agent maintained by the Agent at Citibank with its office at 2 Penns Way, Suite 200, New Castle, DE 19720, Account No. 36852248, Attention: Dave Graber re Southern Power Company. "Agreement" means this agreement. "Applicable Commitment Fee Percentage" means, as of any date on or after April 17, 2003, a percentage per annum determined by reference to the Rating Level in effect on such date, as set forth below: - --------------------------------- ------------------------------- Applicable Commitment Fee Percentage Rating Level - --------------------------------- ------------------------------- - --------------------------------- ------------------------------- Level 1 0.325% - --------------------------------- ------------------------------- - --------------------------------- ------------------------------- Level 2 0.375% - --------------------------------- ------------------------------- - --------------------------------- ------------------------------- Level 3 0.425% - --------------------------------- ------------------------------- - --------------------------------- ------------------------------- Level 4 0.500% - --------------------------------- ------------------------------- - --------------------------------- ------------------------------- Level 5 0.625% - --------------------------------- ------------------------------- - --------------------------------- ------------------------------- Level 6 0.750% - --------------------------------- ------------------------------- "Amendment Effective Date" has the meaning set forth in Section 3.01. "Applicable Lending Office" means, with respect to each Lender, such Lender's Domestic Lending Office in the case of a Base Rate Advance and such Lender's Eurodollar Lending Office in the case of a Eurodollar Rate Advance. "Applicable Margin" means, as of any date on or after April 17, 2003: (a) with respect to Base Rate Advances, a percentage per annum determined by reference to the Rating Level in effect on such date, as set forth below: - --------------------------------------- ------------------------------ Rating Level Applicable Margin - --------------------------------------- ------------------------------ - --------------------------------------- ------------------------------ Level 1 0.250% - --------------------------------------- ------------------------------ - --------------------------------------- ------------------------------ Level 2 0.375% - --------------------------------------- ------------------------------ - --------------------------------------- ------------------------------ Level 3 0.500% - --------------------------------------- ------------------------------ - --------------------------------------- ------------------------------ Level 4 0.750% - --------------------------------------- ------------------------------ - --------------------------------------- ------------------------------ Level 5 1.750% - --------------------------------------- ------------------------------ - --------------------------------------- ------------------------------ Level 6 2.000% - --------------------------------------- ------------------------------ ; and with respect to Eurodollar Rate Advances, a percentage per annum determined by reference to the Rating Level in effect on such date, as set forth below: - --------------------------------------- ------------------------------ Rating Level Applicable Margin - --------------------------------------- ------------------------------ - --------------------------------------- ------------------------------ Level 1 1.250% - --------------------------------------- ------------------------------ - --------------------------------------- ------------------------------ Level 2 1.375% - --------------------------------------- ------------------------------ - --------------------------------------- ------------------------------ Level 3 1.500% - --------------------------------------- ------------------------------ - --------------------------------------- ------------------------------ Level 4 1.750% - --------------------------------------- ------------------------------ - --------------------------------------- ------------------------------ Level 5 2.750% - --------------------------------------- ------------------------------ - --------------------------------------- ------------------------------ Level 6 3.000% - --------------------------------------- ------------------------------ "Arrangers" means, collectively, the Lead Arranger and the Co-Arrangers; each individually, an "Arranger". "Assets" means, with respect to any Person, all or any part of its business, property and assets, both tangible and intangible, wherever situated. "Assignment and Acceptance" means an assignment and acceptance entered into by a Lender and one or more Eligible Assignees (or other Persons approved by the Borrower and the Agent), and, if required under this Agreement, accepted by the Agent and the Borrower, in substantially the form of Exhibit C. "Availability Period" means the period from the Funds Availability Date until the Final Maturity Date. "Base Case Projections" means the Initial Base Case Projections or, if the Agent has received any Project Base Case Projections pursuant to Section 3.04, the then most recent Updated Base Case Projections. "Base Rate" means for any day, a rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the greater of (a) the Federal Funds Effective Rate as in effect at such time plus 0.5%; and (b) the per annum rate of interest from time to time publicly announced by the Agent at its principal office in the United States as its base lending rate for domestic (United States) commercial loans (which rate may not be the lowest rate of interest charged by the Agent in connection with extensions of credit to its other customers); provided that (i) if for any reason the Agent shall have determined (which determination shall be conclusive absent manifest error) that it is unable to ascertain the Federal Funds Effective Rate for any reason, the Base Rate shall be determined without regard to clause (a) of this definition until the circumstances giving rise to such inability no longer exist; and (ii) any change in the Base Rate due to a change in the rate referred to in clause (b) of this definition or in the Federal Funds Effective Rate shall be effective as of the opening of business on the date of such change in the rate referred to in such clause (b) or the Federal Funds Effective Rate, respectively. "Base Rate Advance" means an Advance that bears interest as provided in Section 2.06(a)(i). "Baseload" means, on any date, an electric generation plant which is projected (in the then most recent Independent Market Consultant report delivered pursuant to Article III or Section 5.01(r)) to have an average Capacity Factor of 65% or more during the Remaining Base Case Period. "Borrower" has the meaning set forth in the introductory paragraph to this Agreement. "Borrower Group Members" means, collectively, the Borrower and all Relevant Subsidiaries; each individually, a "Borrower Group Member". "Borrowing" means a borrowing consisting of simultaneous Advances of the same Type and Category made by each of the Lenders pursuant to Section 2.01. "Borrowing Limit" means, with respect to (a) all Utilizations for any Project, the Project Limit applicable to such Project; and (b) all Utilizations for the Borrower's general corporate purposes or to provide working capital for the Borrower, $50,000,000. "Business Day" means any day other than a Saturday, Sunday or any day on which any Lender specifically or banking institutions generally are not required or authorized by law to close in New York City and, if the applicable Business Day relates to any Eurodollar Rate Advances, on which dealings in Dollars are carried on in the London interbank market. "Buydown Amount" means, with respect to any Substantially Completed Project, the aggregate principal amount of all Project Debt with respect to such Substantially Completed Project required to be prepaid upon the occurrence of a Southern Event of Default or the Buydown Date for such Substantially Completed Project pursuant to Sections 2.09(b)(i)(B) and 2.09(b)(ii)(B), respectively, in each case, so as to result in the minimum and average Portfolio Adjusted Base Case Projections, calculated on the assumptions that (a) all Recourse Debt of the Borrower Group Members (other than Recourse Debt incurred with respect to Uncompleted Plants) outstanding immediately after such prepayment is repaid in full on or prior to the end of the Remaining Base Case Period; and (b) all liquidated damages for completion of such Substantially Completed Project at a reduced capacity from that contracted for under each Power Purchase Agreement for such Substantially Completed Project which are then payable or which, after the date of determination, would become payable as a result thereof (in each case, calculated by reference to the performance of such Substantially Completed Plant, as certified by Southern to the Agent for purposes of its Substantial Completion), are paid in full when due. If on any date the Buydown Amount for more than one Substantially Completed Project is to be calculated, for purposes of calculating the Buydown Amount for each such Substantially Completed Project, all other Substantially Completed Projects shall be deemed to be Uncompleted Projects. "Buydown Date" means, with respect to any Project, the date which is twenty-four (24) months after the Scheduled Completion Date for such Project, or such earlier date as may be notified in writing to the Agent by Southern. "Buydown Event" means, with respect to any Project which achieves Substantial Completion, the occurrence of the Buydown Date for such Project before such Project achieves Final Completion. "Capacity Factor" means, with respect to an electric generation plant in connection with determining the Required Project DSCR applicable to such plant at any time, the ratio, expressed as a percentage, of (a) the total electrical energy expected to be generated by such electric generation plant during the relevant period, as projected in the then most recent Independent Market Consultant report delivered pursuant to Article III or Section 5.01(r), to (b) the maximum possible electrical energy such electric generation plant could have generated during such period if operated at its maximum capacity rating, (i) as determined for purposes of the Power Purchase Agreement in effect with respect to such electric generation plant at such time, if any (or, if there is more than one such Power Purchase Agreement, the lowest such output under all such Power Purchase Agreements); or (ii) if there is no such Power Purchase Agreement then in effect, as determined as of the Non-Recourse Date for such Project. "Cash Available for Corporate Debt Service" for any period means, without duplication, (a) cash earnings from operations prior to interest, principal and tax payments based on income with reference to the Borrower's consolidated financial statements (but excluding any such cash earnings attributable to Unrestricted Subsidiaries); plus (b) cash received (net of transaction costs and expenses) during such period by the Borrower and its consolidated Subsidiaries (other than Unrestricted Subsidiaries) from Sales or other dispositions of Assets not required to prepay Debt; plus (c) cash received by the Borrower from Southern in the form of equity contributions (other than Equity Contributions) or Affiliate Subordinated Debt, which cash is received during such period; plus (d) cash dividends or cash distributions received by the Borrower from Unrestricted Subsidiaries. "Category" has the meaning specified in the definition of "Advance". "Citibank" has the meaning set forth in the introductory paragraph to this Agreement. "Co-Arrangers" means The Bank of Tokyo-Mitsubishi, Ltd., New York Branch, Barclays Capital, Commerzbank AG, and ING Capital LLC. "Code" means the Internal Revenue Code of 1986, as amended from time to time. "Commercial Paper" means commercial paper issued by the Borrower (a) rated at least "A-2" or better by S&P and at least "P-2" or better by Moody's; (b) having a maturity not exceeding 180 days from its issuance and occurring on or before the Final Maturity Date; and (c) the obligations with respect to which are not secured by any Liens or subject to any form of credit enhancement other than liquidity support provided pursuant to this Facility. "Commitment" has the meaning specified in Section 2.01. "Commitment Termination Date" means the date on which the Commitments of all Lenders have been terminated or cancelled in accordance with this Agreement. "Completed Plants" means, as at any relevant time, (a) all Projects which (i) have then achieved Final Completion; or (ii) have then achieved Substantial Completion, the relevant Buydown Dates for which have occurred and for which the relevant Buydown Amounts, if required, have been paid; and (b) all other Plants which have then commenced commercial operation and achieved Substantial Completion. "Completed Project Advances" means, at any time, all Advances then outstanding with respect to Completed Projects; each individually, a "Completed Project Advance". "Completed Projects" means all Projects the Non-Recourse Date for which has occurred; each individually, a "Completed Project". "Confidential Information" has the meaning specified in Section 8.08. "Contracted Operating Cash Flow" means the projection done at the end of each fiscal quarter of the next four fiscal quarters of the Borrower's and the Borrower's Subsidiaries' (other than Unrestricted Subsidiaries) total cash flow available for debt service from fixed-price capacity power contracts, each such contract having a term from initial commencement to expiry of at least five years; provided, however, that up to 12.5% of the Contracted Operating Cash Flow may be derived from fixed-price capacity power contracts that have contract terms of at least two years but less than five years from initial commencement to expiry. The projection shall be consistent with the Borrower's financial reporting procedures. The term fixed-price capacity power contract includes any power contract that states the base capacity price on a per unit basis (for example, in dollars per megawatt) and which may allow for adjustments to that base price that are generally encompassed with the Borrower's or the electric generation industry's commercial expectations for a power contract of a similar duration (including but not limited to adjustments to accommodate changed capacity purchase levels, variations in expected or actual construction costs or demonstrated capability levels, changes in equipment or law and force majeure); provided, however, that a power contract will not be considered to be a fixed-price capacity power contract if a material portion of the capacity price varies based upon a market index for electric capacity or energy, fuel, weather or other factor that is external to the facility and the transaction between the Borrower and the Borrower's customer. The method of calculating the energy price shall not be considered in assessing whether a power contract is a fixed-price capacity power contract. "Control" has the meaning set forth in rule 12b-2 promulgated under the Securities Exchange Act of 1934. "Controlled Group" means (a) the controlled group of corporations as defined in Section 414(b) of the Code and the applicable regulations thereunder; or (b) the group of trades or businesses under common control as defined in Section 414(c) of the Code and the applicable regulations thereunder, of which the Borrower is a part or may become a part. "Convert", "Conversion" and "Converted" each refers to a conversion of Advances of one Type into Advances of the other Type pursuant to Section 2.07 or 2.08. "Corporate Interest" means, for any period, the sum of (a) the aggregate of interest expense accrued during such period by the Borrower and the Relevant Subsidiaries on Recourse Debt less the amount of interest, if any, included in such interest expense which was capitalized in accordance with GAAP, plus (b) to the extent not included in clause (a), rent or similar payments on Recourse Debt consisting of Finance Leases, capital leases, sale-leasebacks that are capitalized in accordance with GAAP, Synthetic Leases, all amortizations of the discount on Debt issued at discount, or other similar arrangements. "CP Advance" has the meaning specified in Section 2.16. "CP Commitment" has the meaning specified in Section 2.15. "CP Commitment Reservation" means the simultaneous creation of CP Commitments by each of the Lenders pursuant to Section 2.15, and refers, as the context may require, to a CP Commitment (Original CP) Reservation or a CP Commitment (Refinancing CP) Reservation (each of which shall be a "Kind" of CP Commitment Reservation). "CP Commitment (Original CP) Reservation" means a CP Commitment Reservation which is made with respect to Original Commercial Paper. "CP Commitment (Refinancing CP) Reservation" means a CP Commitment Reservation which is made with respect to Refinancing Commercial Paper. "Dahlberg Project" means the ten unit, approximately 810MW gas-fired electric generation plant constructed by Georgia Power Company and located in Jackson County, Georgia. "Debt" means for any Person any obligations of such Person for or in respect of (a) moneys borrowed or raised (whether or not for cash) by whatever means (including acceptances, deposits, discounting, letters of credit, factoring (other than on a non-recourse basis), Finance Leases, Lease Obligations and any other form of financing which is recognized in accordance with GAAP in such Person's financial statements as being in the nature of a borrowing (excluding for the avoidance of doubt, share capital, share premium account and any capital prepayment reserve) or is treated as "off-balance" sheet financing (including all amounts financed under any Synthetic Lease or other synthetic financing transaction (excluding, in the case of any Person other than Southern, such portion of such amounts for which Southern is also directly liable and such portion of such amounts equal to any committed equity amounts from Southern in respect thereof) and all minority equity investments)); (b) the deferred purchase price of Assets or services (other than goods and services obtained on normal commercial terms in the ordinary course of business or operations); and (c) guarantees by such Person of obligations which constitute Debt of another Person under clause (a) or (b) above; provided that (i) for any Subsidiary of the Borrower, "Debt" shall not include any such obligation owed to the Borrower or to any Relevant Subsidiary; (ii) except for purposes of Section 6.01(d), "Debt" shall not include any obligations in connection with Trust Preferred Securities; and (iii) with respect to the Borrower, "Debt" for purposes of Section 5.01(a) shall not include up to $10,000,000 of obligations, in the aggregate amount at any time outstanding, which are secured by Liens referred to in any of paragraphs (iv), (vii), (viii), (ix), (xv) and (xvi) of Section 5.02(c). "Debt/Equity Ratio" means with respect to any (a) Initial Project, 65:35; and (b) Subsequent Project, the ratio of (i) the Project Limit for such Project to (ii) the amount by which the Project Costs for such Project (as set forth in its Project Budget) exceeds such Project Limit. "Default" means any Event of Default or any event that would constitute an Event of Default but for the requirement that notice be given or time elapse or both. "Designated Lender" means a special purpose corporation that is identified as such on the signature pages of this Agreement, as well as each special purpose corporation that (a) shall have become a party to this Agreement pursuant to Section 8.07(i); and (b) is not otherwise a Lender. "Designated Lender Note" means a Note evidencing the obligation of the Borrower to repay Advances made by a Designated Lender. "Designating Lender" means each Lender that is identified as such on the signature pages of this Agreement, as well as each Lender that shall designate a Designated Lender pursuant to Section 8.07(i). "Designation Agreement" means a designation agreement in substantially the form of Exhibit F, entered into by a Lender and a Designated Lender and accepted by the Agent. "Development Authority Sale/Leaseback" means (a) the Wansley Sale/Leaseback; and (b) any sale of a Project (other than the Wansley Project) to a development authority created and existing under the laws of the State of Georgia (or any political sub-division thereof), where (i) such development authority is a political sub-division or agency of a local government of the State of Georgia; (ii) the purchase price for such Project is paid for with proceeds from the issuance of Project Bonds which are purchased by the Borrower or a wholly owned Subsidiary of the Borrower; (iii) such Project is leased by a Borrower Group Member which has the right to purchase such Project at any time at a nominal purchase price so long as all Project Bonds relating thereto have been repaid in full, (iv) Southern has issued a support letter in the form of Exhibit M; and (v) all such Project Bonds are issued at par with a repayment or maturity date which is subsequent to the Final Maturity Date and with no amortization of the Debt thereunder occurring prior thereto. "Dollars" means the lawful currency of the United States. "Domestic Lending Office" means, with respect to any Lender, the office of such Lender specified as its "Domestic Lending Office" opposite its name on Schedule I or in the Assignment and Acceptance pursuant to which it became a Lender, or such other office of such Lender as such Lender may from time to time specify to the Borrower and the Agent. "Eligible Assignee" means (a) a Lender; (b) an Affiliate of a Lender; (c) a commercial bank organized under the laws of the United States, or any State thereof; (d) a savings and loan association or savings bank organized under the laws of the United States, or any State thereof; (e) a commercial bank organized under the laws of any other country that is a member of the Organization for Economic Cooperation and Development or has concluded special lending arrangements with the International Monetary Fund associated with its General Arrangements to Borrow, or a political subdivision of any such country, so long as such bank is acting through a branch or agency located in the country in which it is organized or another country that is described in this clause (e); (f) a finance company, insurance company or other financial institution or fund (whether a corporation, partnership, trust or other entity) that is engaged in making, purchasing or otherwise investing in commercial loans in the ordinary course of its business; and (g) the central bank of any country that is a member of the Organization for Economic Cooperation and Development; provided that neither the Borrower nor an Affiliate of the Borrower shall qualify as an Eligible Assignee; provided further that the entities listed in clauses (c)-(g) above shall have a short-term credit rating of at least "Prime-2" (or the then equivalent grade) by Moody's or "A-2" (or the then equivalent grade) by S&P or "F-2" (or the then equivalent grade) by Fitch, or, if no short-term credit rating is available, a long-term credit rating of at least "Baa2" (or the then equivalent grade) by Moody's or "BBB" (or the then equivalent grade) by S&P or Fitch; provided further that if any entity listed in clause (g) above shall have no short-term or long-term credit rating, the relevant credit rating shall be the short-term or long-term credit rating of the country of which such entity is the central bank. "EMC Contracts" means the following Power Purchase Agreements: Requirements Service Agreement between the Borrower and Carroll Electric Membership Corporation dated as of February 28, 2002; Requirements Service Agreement between the Borrower and Coweta-Fayette Electric Membership Corporation dated as of February 28, 2002; Requirements Service Agreement between the Borrower and Flint Electric Membership Corporation dated as of February 28, 2002; Requirements Service Agreement between the Borrower and Irwin Electric Membership Corporation dated as of February 28, 2002; Requirements Service Agreement between the Borrower and Lamar Electric Membership Corporation dated as of February 28, 2002; Requirements Service Agreement between the Borrower and Middle Georgia Electric Membership Corporation dated as of February 28, 2002; Requirements Service Agreement between the Borrower and Oconee Electric Membership Corporation dated as of February 28, 2002; Requirements Service Agreement between the Borrower and Ocmulgee Electric Membership Corporation dated as of February 28, 2002; Requirements Service Agreement between the Borrower and Tri-County Electric Membership Corporation dated as of February 28, 2002; Requirements Service Agreement between the Borrower and Sawnee Electric Membership Corporation dated as of February 28, 2002; and Requirements Service Agreement between the Borrower and Okefenoke Rural Electric Membership Corporation dated as of February 28, 2002, which Power Purchase Agreements shall be applicable to such Plant(s) or Project(s) as identified by the Borrower. "EMC Counterparty" means each of Carroll Electric Membership Corporation, Coweta-Fayette Electric Membership Corporation, Flint Electric Membership Corporation, Irwin Electric Membership Corporation, Lamar Electric Membership Corporation, Middle Georgia Electric Membership Corporation, Oconee Electric Membership Corporation, Ocmulgee Electric Membership Corporation, Tri-County Electric Membership Corporation, Sawnee Electric Membership Corporation and Okefenoke Rural Electric Membership Corporation, counterparties to the EMC Contracts. "Equity Contributions" means, with respect to any Project, (a) all equity contributed to the Borrower by Southern with respect to such Project, if any, which, if contributed after the date of this Agreement, is contributed pursuant to the Southern Equity Agreement; and (b) all retained earnings of the Borrower available for the making of a Restricted Payment in accordance with Section 5.02(b), if any, which are applied to pay outstanding Project Costs with respect to such Project. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and the rulings issued thereunder. "ERISA Affiliate" means each person (as defined in Section 3(9) of ERISA) which together with the Borrower or any Subsidiary of the Borrower would be deemed to be a member of the same "controlled group" within the meaning of Sections 414(b), (c), (m) and (o) of the Code. "Eurocurrency Reserve Requirements" means for any day as applied to a Eurodollar Rate Advance, the aggregate (without duplication) of the rates (expressed as a decimal fraction) of reserve requirements in effect on such day (including basic, supplemental, marginal and emergency reserves under any regulations of the Board of Governors of the Federal Reserve System or other Governmental Authority having jurisdiction with respect thereto) dealing with reserve requirements prescribed for eurocurrency funding (currently referred to as "Eurocurrency Liabilities") in Regulation D of such Board maintained by a member bank of such System. "Eurodollar Base Rate" means, with respect to each day during each Interest Period pertaining to a Eurodollar Rate Advance, the rate per annum equal to the average (rounded upward, if necessary, to the nearest 1/16 of 1%) of the respective rates notified to the Agent by each of the Reference Banks as the rate at which such Reference Bank is offered Dollar deposits at or about 11:00 A.M., London time, two Business Days prior to the beginning of such Interest Period in the London interbank eurodollar market for delivery on the first day of such Interest Period, for the number of days comprised therein and in an amount comparable to the amount of its Eurodollar Rate Advance to be outstanding during such Interest Period. "Eurodollar Lending Office" means, with respect to any Lender, the office of such Lender specified as its "Eurodollar Lending Office" opposite its name on Schedule I or in the Assignment and Acceptance pursuant to which it became a Lender (or, if no such office is specified, its Domestic Lending Office), or such other office of such Lender as such Lender may from time to time specify to the Borrower and the Agent. "Eurodollar Rate" means with respect to each day during each Interest Period pertaining to a Eurodollar Rate Advance, a rate per annum determined for such day in accordance with the following formula (rounded upward, if necessary, to the nearest 1/100 of 1%): Eurodollar Base Rate 1.00 - Eurocurrency Reserve Requirements "Eurodollar Rate Advance" means an Advance that bears interest as provided in Section 2.06(a)(ii). "Events of Default" has the meaning specified in Section 6.01. "Exempt Asset Sale Proceeds" means the proceeds from any sale of Assets (a) in the ordinary course, which sale would not reasonably be expected to result in a material adverse effect to the operation and maintenance of the Projects; (b) other than Assets relating to any Project, to conform with governmental regulations; (c) consisting of short-term readily marketable investments purchased for cash management purposes; or (d) owned by an Unrestricted Subsidiary. "Facility" means the senior unsecured revolving credit facility made or to be made available by the Lenders to the Borrower under this Agreement. "Facility Rating" means, as of any date, the credit rating then in effect by S&P or Moody's as the case may be, for the Debt under the Facility, as demonstrated by written evidence delivered to the Agent which is in form and substance reasonably satisfactory to the Agent. "Federal and State Energy Law and Regulation" includes the Federal Power Act, as amended, the Public Utility Regulatory Policies Act of 1978, as amended, the Powerplant and Industrial Fuel Use Act of 1978, as amended, the Public Utility Holding Company Act of 1935, as amended, the Energy Policy Act of 1992, as amended, any State law regulating public utility companies, electric utilities, public service companies, or any similar entity, as well as any regulation implementing any of the foregoing. "Federal Funds Effective Rate" means, with respect to each day, the rate per annum (rounded upwards, if necessary, to the nearest 1/100th of 1%) equal to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day; provided that (a) if such day is not a Business Day, the Federal Funds Effective Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day; and (b) if no such rate is so published on such next succeeding Business Day, the Federal Funds Effective Rate for such day shall be the average rate quoted to the Agent on such day on such transactions as the Agent may reasonably determine. "FERC" means the Federal Energy Regulatory Commission. ---- "Filing Condition" means, with respect to any order, approval, permit or authorization issued by FERC, (a) a ministerial subsequent filing, reporting or notification condition customarily imposed on sellers with market-based rate approval from FERC; or (b) with respect to a Power Purchase Agreement only, a condition that an unredacted version of such contract be filed on a non-confidential basis but with the requirement to make such filing held in abeyance pending resolution of a proceeding as to whether a redacted or unredacted version of such Power Purchase Agreement is to be filed on a non-confidential basis. "Final Completion" means the date on which Southern certifies in the form of Exhibit L-2 to the Agent that, in the case of (a) any Project, (i) such Project has achieved Substantial Completion; and (ii) the tested output in megawatts for such Project has achieved 100% of its Guaranteed Output and such Project has achieved a tested heat rate not greater than 100% of its Guaranteed Heat Rate, in each case, as set forth in the Project Schedule for such Project and as tested in accordance with the testing procedures applicable to such Project set forth in, or determined in accordance with, Schedule V; and (b) any other electric generation plant owned or leased by the Borrower or any Relevant Subsidiary, the equivalent thereof has occurred. "Final Maturity Date" means April 17, 2006. "Finance Lease" means, for any Person, any lease, or any hire purchase, conditional sale or other form of title retention agreement which is recognized, in accordance with GAAP, in such Person's financial statements as being in the nature of a borrowing. "Fitch" means Fitch IBCA, Duff & Phelps, a division of Fitch, Inc. "Franklin 1 Project" means the approximately 571MW gas-fired electric generation plant constructed or to be constructed by the Borrower or an Affiliate of the Borrower in Lee County, Alabama. "Franklin 2 Project" means the approximately 615MW gas-fired electric generation plant constructed or to be constructed by the Borrower or an Affiliate of the Borrower in Lee County, Alabama. "Franklin 3 Plant" means the approximately 620 MW gas-fired electric generation plant constructed or to be constructed by the Borrower or an Affiliate of the Borrower in Lee County, Alabama. "Funds Availability Date" has the meaning specified in Section 3.01 of the Original Credit Agreement. "Generally Accepted Accounting Principles" or "GAAP" means those accounting principles, standards and practices generally accepted in the United States consistent with those applied by the Borrower, as in effect at the relevant time. "Governmental Authority" means any nation or government, any state, province or other political subdivision thereof, and any governmental, executive, legislative, judicial, administrative or regulatory agency, department, authority, instrumentality, commission, board or similar body, whether federal, state, provincial, territorial, local or foreign. "Granting Lender" has the meaning specified in Section 8.07(j). "Guaranteed Heat Rate" means, with respect to (a) any Initial Project, the average heat rate associated with such Project while operating in base mode (namely, at 100% combustion turbine load) at the average ambient rated conditions for such Project, as set forth in Schedule IV; and (b) any Subsequent Project, the average heat rate associated with such Project, as set forth in the Project Schedule delivered pursuant to Section 3.04 for such Project, while operating in the mode of operation and at the rated conditions set forth therein. "Guaranteed Output" means, with respect to (a) any Initial Project, the capability of such Project with all possible modes of operation in use at rated summer conditions for such Project, including the following: operation in base load (namely, 100% combustion turbine load), full pressure operation, evaporative cooling, and power augmentation modes, as set forth in Schedule IV; and (b) any Subsequent Project, the capability of such Project, as set forth in the Project Schedule delivered pursuant to Section 3.04 for such Project, while operating in the mode of operation and at the rated conditions set forth therein. "Harris 1 Project" means the approximately 618MW gas-fired electric generation plant constructed or to be constructed by the Borrower or an Affiliate of the Borrower in Autauga County, Alabama, and which is not the Harris 2 Project. "Harris 2 Project" means the approximately 618MW gas-fired electric generation plant constructed or to be constructed by the Borrower or an Affiliate of the Borrower in Autauga County, Alabama, and which is not the Harris 1 Project. "Indemnified Costs" has the meaning specified in Section 7.05. "Indemnified Party" has the meaning specified in Section 8.04(b)(i). "Independent Engineer and Environmental Consultant" means R.W. Beck, Inc. or any successor consultant appointed by the Agent and reasonably acceptable to the Borrower. "Independent Insurance Consultant" means Marsh USA Inc. or any successor consultant appointed by the Agent and reasonably acceptable to the Borrower. "Independent Market Consultant" means PA Consulting, Inc. or any successor consultant appointed by the Agent and reasonably acceptable to the Borrower. "Information Memorandum" means the information memorandum dated February 18, 2003 and used by the Arrangers in connection with the syndication of the Commitments by the Arrangers (excluding, however, the report of the Independent Market Consultant and the Independent Engineer, and the information in such information memorandum the source of which is identified as the report of the Independent Market Consultant or the Independent Engineer). "Initial Base Case Projections" means a projection prepared by the Borrower of the operating results for the Initial Projects for a period from the date of this Agreement up to and including December 31, 2023. "Initial Lenders" has the meaning set forth in the introductory paragraph to this Agreement. "Initial Project Budget" means, for each Project, the project budget setting forth the Projects Costs incurred or to be incurred for such Project delivered to the Agent by the Borrower prior to the first Utilization related to such Project pursuant to Section 3.01 or 3.02 of the Original Credit Agreement or Section 3.06 hereof, as applicable (in the case of an Initial Project) or Section 3.04 or 3.06 hereof, as applicable (in the case of a Subsequent Project). "Initial Project Limit" means, with respect to each Project, the aggregate amount of all Utilizations related to such Project that is permitted under this Agreement, which amount with respect to (a) each Initial Project, is set forth in Schedule III; and (b) each Subsequent Project, shall be calculated by the Borrower (and agreed to by the Agent) based upon the Initial Project Budget and the Project Base Case Projections for such Project as the maximum principal amount of Utilizations permitted with respect to such Project, such determination to be consistent with the Required Project DSCR for such Project (but which shall not, in any event, exceed 65% of the Project Costs, as set forth in the Initial Project Budget for such Project). "Initial Projects" means, collectively, the Harris 1 Project, the Harris 2 Project, the Dahlberg Project, the Franklin 1 Project, the Franklin 2 Project and the Wansley Project, in each case, owned or leased (pursuant to a Development Authority Sale/Leaseback) by the Borrower, and including all buildings, structures and improvements, and easements with respect thereto, all alterations thereto or replacements thereof, all fixtures, attachments, appliances, equipment, machinery and other articles attached thereto or used in connection therewith and all parts which may from time to time be incorporated or installed in or attached thereto, all contracts and agreements for the purchase or sale of commodities or other personal property related thereto, all leases of personal property related thereto, and all other real and tangible and intangible personal property related thereto; each individually, an "Initial Project". "Insurance Account" means an account of the Borrower established with the Agent pursuant to Section 5.01(l)(ii) and maintained with the Agent for purposes of holding Loss proceeds (other than business interruption insurance proceeds) in excess of $1,000,000, which are, or may become, payable with respect to Completed Projects. "Interest Period" means, for each Eurodollar Rate Advance comprising part of the same Borrowing, the period commencing on the date of such Eurodollar Rate Advance or the date of the Conversion of any Base Rate Advance into such Eurodollar Rate Advance and ending on the last day of the period selected by the Borrower pursuant to the provisions below and, thereafter with respect to each Eurodollar Rate Advance, each subsequent period commencing on the last day of the immediately preceding Interest Period and ending on the last day of the period selected by the Borrower pursuant to the provisions below. The duration of each such Interest Period shall be one (1), two (2), three (3) or six (6) months, or such other period agreed between the Borrower and the Agent (acting on the instructions of all Lenders), as the Borrower may, upon notice received by the Agent not later than 11:00 A.M. (New York City time) on the third Business Day prior to the first day of such Interest Period, select; provided that: (a) the Borrower may not select any Interest Period that ends after the Final Maturity Date; (b) Interest Periods commencing on the same date for Eurodollar Rate Advances comprising part of the same Borrowing shall be of the same duration; (c) whenever the last day of any Interest Period would otherwise occur on a day other than a Business Day, such Interest Period shall be extended to end on the next succeeding Business Day; provided that if such extension would cause the last day of such Interest Period to occur in the next following calendar month, the last day of such Interest Period shall occur on the next preceding Business Day; (d) whenever the first day of any Interest Period occurs on a day of an initial calendar month for which there is no numerically corresponding day in the calendar month that succeeds such initial calendar month by the number of months equal to the number of months in such Interest Period, such Interest Period shall end on the last Business Day of such succeeding calendar month; and (e) no more than six (6) different Interest Periods may exist concurrently with respect to all outstanding Advances of each Category. "Intermediate (High)" means, on any date, any electric generation plant which is projected, in the then most recent Independent Market Consultant report delivered pursuant to Article III or Section 5.01(r), to have an average Capacity Factor of 45% or more, but less than 65%, in each case, during the Remaining Base Case Period. "Intermediate (Low)" means, on any date, any electric generation plant which is projected, in the then most recent Independent Market Consultant report delivered pursuant to Article III or Section 5.01(r), to have an average Capacity Factor of 20% or more, but less than 45%, in each case, during the Remaining Base Case Period. "Investment Grade Rating" means (a) with respect to any Person other than the Borrower, a rating of any class of its non-credit-enhanced long-term senior unsecured Debt of at least "Baa3" by Moody's and "BBB-" by S&P; and (b) with respect to the Borrower, a rating of the Debt under the Facility (giving effect to the Southern Completion Guarantee) of at least "Baa3" by Moody's and "BBB-" by S&P. "Kind" has the meaning specified in the definition of "CP Commitment Reservation". "Law" means any constitution, decree, judgment, legislation, order, ordinance, regulation, statute, treaty or other legislative measure having the force of law (and "lawful" and "unlawful" shall be construed accordingly). "Lead Arranger" means Citigroup Global Markets Inc. ------------- "Lease Obligations" means, with respect to any Person who is a lessee under any lease which is not a Synthetic Lease or a Finance Lease, the present value of all payment obligations (without double-counting) that are in the nature of a rental payment obligation or are otherwise not avoidable at the option of the lessee without incurring other costs or risks (including for this purpose purchase rights for which the failure to exercise results in other payment obligations and guarantees of value) such Person may have under such lease and related documents, provided that (i) payments which such Person may be entitled unilaterally to determine not to pay without incurring other payment obligations, (ii) termination value obligations which may be due if events not expected to happen occur (but not excluding any which are expected to be payable), and (iii) indemnity obligations, shall not be included in the meaning of "Lease Obligations". For this purpose, the present value of such "Lease Obligations" with respect to any such lease shall equal the amount obtained by discounting all relevant obligations from their respective due dates to the date of determination in accordance with accepted financial practice and at a discount factor of 10% per annum. "Lenders" means the Initial Lenders, each Person that shall become a party to this Agreement pursuant to Section 8.07(a) and the Designated Lenders, if any; provided that the term "Lender" shall exclude each Designated Lender when used in reference to an Advance (except to the extent a Designated Lender is the obligee of an Advance actually funded by it pursuant to Section 2.01(c)), terms relating to the Advances (except as noted above) and the Commitments. "Lien" means any mortgage, pledge, lien, hypothecation, security interest or other charge, encumbrance or other arrangement in the nature of a security interest in property; provided that the term "Lien" shall not mean any easements, rights-of-way, zoning restrictions, leases, subleases, licenses, sublicenses, other restrictions on the use of property, defects in title to property or other similar encumbrances, in each case, that do not interfere materially with the use of such property for its intended purpose. "Liquidity Lender" means, with respect to any Designated Lender, any Person (other than its Designating Lender) which may be liable for the Debt of such Designated Lender. "Loan Documents" means, collectively, this Agreement, the Notes, the Southern Completion Guarantee and the Southern Equity Agreement; each individually, a "Loan Document". "Loan Parties" means, collectively, the Borrower and Southern; each individually, a "Loan Party". "Loss" means, with respect to any Completed Project (a) any total or partial loss, as a result of a casualty of such Project; or (b) if such Project (or a substantial portion thereof) is condemned, seized, compulsorily acquired or otherwise expropriated by any Governmental Authority under power of eminent domain. "Majority Lenders" means at any time Lenders owed at least a majority of the then aggregate unpaid principal amount of the Advances owing to the Lenders, or, if no such principal amount is then outstanding, Lenders having at least a majority of the aggregate amount of the Commitments. "Master Assignment and Acceptance" means the Master Assignment and Acceptance, dated as of the date hereof among the Borrower, the Agent and the financial institutions party thereto. "Material Adverse Effect" means a material adverse change in, or material adverse effect on, (a) the financial condition, operations, business or properties of the Borrower or Southern, as the case may be, which would have a material adverse effect on the ability of the Borrower or Southern to pay amounts owed by, or to perform obligations of, the Borrower from time to time under any Loan Document, or Southern under the Southern Completion Guarantee or the Southern Equity Agreement, as the case may be; or (b) the rights or remedies of the Lenders under, or the validity, enforceability or legality of, any Loan Document. "Material Documents" means the Loan Documents and the PPA Documents. "Mechanical Completion" means, with respect to any electric generation plant owned or to be owned, or leased or to be leased, by a Borrower Group Member (including the Projects), the time at which the construction manager for such plant certifies to the Borrower (a) that all construction work for such plant is complete according to the proper scope of work and such plant is ready for performance testing with the exception of Punch List Items; (b) of the satisfactory completion of the materials and equipment associated with individual turnover packages (all items within the turnover package shall be completed to the satisfaction of the Borrower's start-up or testing manager, all equipment shall be capable of operation in a safe and proper manner without voiding warranties, all equipment systems installed associated with the turnover package, including remote control systems, shall be ready to commence start-up and testing) and the satisfactory completion and documentation of the construction completion testing; and (c) of the removal of all construction, temporary facilities that may interfere with or disrupt the Borrower's start-up and plant testing activities, waste material and rubbish from the work area. "Moody's" means Moody's Investors Service, Inc. "Nature" means, with respect to any Advance, a Completed Project Advance or an Uncompleted Project Advance, as the context may require. "Non-Recourse Date" means, with respect to any Project, the earlier to occur of Final Completion of, and the Buydown Date (but, if a Buydown Amount is payable with respect to such Project, only if the Buydown Amount has been paid) for, such Project. "Note" means a promissory note of the Borrower payable to the order of any Lender, in substantially the form of Exhibit A, evidencing the aggregate maximum indebtedness of the Borrower to such Lender resulting from the Advances made by such Lender. "Notice of Utilization" has the meaning specified in Section 2.02(a). "Original Commercial Paper" means Commercial Paper other than (a) Refinancing Commercial Paper; or (b) Rollover Commercial Paper. "Original Credit Agreement" has the meaning set forth in Preliminary Statement (1) to this Agreement. "Other Taxes" has the meaning specified in Section 2.13(a). "Participant" means any Person to whom a participation has been granted by a Lender of its rights and obligations under this Agreement pursuant to Section 8.07(f). "Peaker" means (a) a quickstart gas-fired simple cycle electric generation plant; or (b) on any date, any electric generation plant which is projected, in the then most recent Independent Market Consultant report delivered pursuant to Article III or Section 5.01(r), to have an average Capacity Factor of less than 20% during the Remaining Base Case Period. "Permitted Encumbrances" shall mean liens for taxes not yet due and payable or being contested in good faith, mechanics' and similar liens arising or incurred in the ordinary course of business and representing obligations not yet due, and such other liens, imperfections in or failure of title, charges, easements, restrictions and encumbrances which do not materially detract from the value of the Projects for their contemplated use or materially interfere with the contemplated use thereof. "Person" means any individual, company, corporation, firm, partnership, joint venture, undertaking, association, organization, trust, state or agency of a state (in each case, whether or not having separate legal personality). "Plan" means any single-employer plan as defined in Section 4001 of ERISA and to which ERISA applies, which is maintained, or at any time during the five (5) calendar years preceding the date of this Agreement was maintained, for employees of the Borrower, any Subsidiary of the Borrower or an ERISA Affiliate. "Plants" means the Projects and other electric generation plants owned or leased by the Borrower or any Relevant Subsidiary. "Portfolio Adjusted Base Case Projections" means, with respect to any Relevant Event, the weighted average of each of the minimum Required Project DSCRs (for each year, or part thereof, during the Remaining Base Case Period) and the average Required Project DSCRs (for the Remaining Base Case Period) applicable, in each case, to all Relevant Completed Plants immediately after such Relevant Event, with such weighted average determined, in each case, based upon the cash earnings from operations (after all operating expenses but prior to interest and principal payments and income taxes) for each such Relevant Completed Plant during the Remaining Base Case Period, determined (a) with respect to each Plant which has achieved (i) Substantial Completion but not Final Completion, by reference to the performance of such Plant, as certified by Southern to the Agent for purposes of its Substantial Completion; and (ii) Final Completion, by reference to the performance of such Plant, as certified by Southern to the Agent for purposes of its Final Completion; and (b) using the figures in an updated Independent Market Consultant report provided in connection with such Relevant Event pursuant to Section 5.01(r). "Power Purchase Agreement" means any contract for the sale of electric capacity and energy by a Borrower Group Member with a term in excess of one year. "PPA Documents" means all Power Purchase Agreements and, if any such Power Purchase Agreement is not with an Acceptable PPA Counterparty, all Acceptable Credit Support relating thereto. "PPA Parameters" means, with respect to any electric generation plant, any Power Purchase Agreement not previously provided in the form necessary to satisfy Section 3.01(c)(ix)(D) of the Original Credit Agreement: (a) with a purchaser or off-taker which is an Acceptable PPA Counterparty; (b) which provides for capacity or fixed or other payments to the Seller which are payable regardless of availability (except to the extent caused by the Seller or by force majeure) or actual dispatch of such plant, and which are sufficient to achieve the Required Project DSCR applicable to such plant (in each case, prorated if such Power Purchase Agreement is not for the entire capacity of such plant); (c) pursuant to which (i) if such plant has not yet achieved Substantial Completion, upon Substantial Completion, all conditions precedent for commencement of the obligations of the purchaser or off-taker with respect to payment for capacity, energy or ancillary services provided under such Power Purchase Agreement (other than the passage of time) will have been satisfied; (ii) if such plant has achieved Substantial Completion, all conditions precedent for commencement of the obligations of the purchaser or off-taker with respect to payment for capacity, energy or ancillary services provided under such Power Purchase Agreement (other than the passage of time) have been satisfied; and (iii) penalties or liquidated damages for delay in completion of construction or completion of such plant at a reduced capacity from that contracted for under such Power Purchase Agreement (or equivalent sums), if any, are payable by the Seller at or are only accrued as of or prior to Substantial Completion; (d) pursuant to which the obligations of the Seller (i) with respect to the date when, and the extent to which, such plant is available for dispatch, is consistent with the Scheduled Completion Date for such Project (or the equivalent thereof, as applicable), as confirmed by the Independent Engineer and Environmental Consultant, or may otherwise be met with other resources available to the Seller; and (ii) which relate to performance of such plant (with respect to output, heat rate and availability) are consistent with the design of, and technical and performance parameters applicable to, such plant, as confirmed by the Independent Engineer and Environmental Consultant, or may otherwise be met with other resources available to the Seller; (e) pursuant to which substantially all costs and expenses payable by the Seller with respect to fuel (including any transportation thereof) for the generation of capacity, energy and/or ancillary services provided to the purchaser or off-taker thereunder are (i) subject to a full "pass-through" to, or may otherwise be recovered in full from, the purchaser or off-taker; or (ii) recoverable from the purchaser or off-taker, based on a fuel price index that matches with reasonable closeness the projected fuel type and fuel costs of such Project, to the extent that the heat rate of such plant satisfies applicable heat rates agreed between the parties in such Power Purchase Agreement; (f) pursuant to which fixed and variable operations and maintenance costs and expenses will be provided for either in the capacity payment under such Power Purchase Agreement or in a separate $/kW-year or $/MWh payment; (g) which would not subject the Seller to market damages to cover replacement costs incurred by the purchaser or off-taker for any failure by the Seller to perform its obligations under such Power Purchase Agreement, to the extent such failure is due to planned or scheduled outages of such plant or events of force majeure (whether expressly provided or after taking into account the availability factor utilized in such Power Purchase Agreement); (h) which does not require the granting of any Lien in connection therewith; and (i) which is not assignable, except to another Acceptable PPA Counterparty or unless such assignment does not release the original Acceptable Counterparty from its obligations. "Project Advance" has the meaning specified in Section 2.16. "Project Base Case Projections" means, with respect to any Subsequent Project, projections prepared by the Independent Engineer and Environmental Consultant (and approved by the Borrower) for such Project in the same format as the Initial Base Case Projections and reflecting the prices, costs and other relevant amounts set forth in the certificates from the Independent Market Consultant and the Independent Engineer and Environmental Consultant delivered in connection with such Project pursuant to Section 3.04. "Project Bonds" means industrial development revenue bonds issued by any development authority created and existing under the laws of the State of Georgia in connection with a Development Authority Sale/Leaseback. "Project Budget" means, for each Project, its Initial Project Budget or, if an Adjusted Project Budget has been received by the Agent for such Project pursuant to Section 2.01(b) or 5.01(r), the then most recent Adjusted Project Budget. "Project Costs" means, with respect to any Project, the cost of the development, design, engineering, acquisition, installation, equipping, construction, assembly, inspection, testing, completion, and start-up of such Project, including (without duplication): (a) all amounts payable under any construction contracts, any contractor bonuses, site acquisition and preparation costs, any interconnection and transmission upgrade costs payable by any Borrower Group Member, all steam and water interconnection costs, all costs related to water clarification facilities and/or water treatment facilities, all costs of acquisition and construction of natural gas fuel handling and processing equipment (if any) and interconnection expenses payable by any Borrower Group Member and all other costs payable by any Borrower Group Member under all Power Purchase Agreements and other contracts relating to such Project; (b) all other costs, including fuel-related costs and prepaid fuel costs, management services fees and expenses and expenses to complete the development, acquisition, construction and financing of such Project; and (c) interest on Advances made with respect to, and commitment fees on the unused portion of the Commitments available to, such Project; provided that in the case of Projects that are not wholly owned or leased (pursuant to a Development Authority Sale/Leaseback) by the Borrower or a wholly owned Subsidiary (other than an Unrestricted Subsidiary) of the Borrower, Project Costs shall consist of a pro rata portion (based on the Borrower's ownership or leasehold interest percentage in such Project or direct or indirect ownership percentage in the Person owning such Project, as the case may be) of the amounts of costs described above. "Project Debt" means, at any time with respect to any Project, all Advances then outstanding and all Commercial Paper then outstanding (and as to which a CP Commitment Reservation is then in effect), in each case, with respect to such Project. "Project DSCR" means, at any time with respect to any electric generation plant, a pro forma ratio, for each of the twenty (20) years (or part thereof) after the Scheduled Completion Date for such electric generation plant (or equivalent thereof if such plant is not a Project), of (a) all cash earnings from operations of such electric generation plant, prior to interest, principal and any income tax payments during such year (or part thereof, as the case may be), to (b) all Debt service during such year (or part thereof, as the case may be) with respect to Debt incurred with respect to such electric generation plant (assuming such Debt is fully amortized during such twenty (20) year period and a fixed interest rate of 8.25% per annum). "Project Finance Debt" means Debt incurred or existing in connection with the financing or refinancing of any Asset (other than a Project or the Assets comprising a Project, or any portion thereof), the repayment of which Debt is to be made from the revenues arising out of, or other proceeds of realization from, the acquired or created Asset or project, with recourse to those revenues and proceeds and Assets forming the subject matter of such Asset or project (including insurance, contracts and shares or other rights of ownership in the entity(ies) which own the relevant Assets or project) and other Assets ancillary thereto but without substantial recourse to any other Asset (other than Assets of any Unrestricted Subsidiary) or otherwise to the Borrower or any Relevant Subsidiary; provided that substantial recourse shall not be deemed to exist by reason of normal and customary sponsor support arrangements if (a) the Borrower's obligations under such arrangements, together with all other such arrangements then in existence, does not exceed the net cash available for Restricted Payments by the Borrower pursuant to Section 5.02(b) in its two (2) fiscal quarters immediately preceding the incurrence thereof; and (b) the Borrower has an Investment Grade Rating which is reaffirmed by S&P and Moody's immediately after the incurrence of such obligations. "Project Limit" means, with respect to each Project, the aggregate amount of all Utilizations related to such Project that is permitted under this Agreement, which amount with respect to (a) each Initial Project, is set forth in Schedule III; and (b) each Subsequent Project, shall be calculated by the Borrower (and agreed to by the Agent) based upon the Initial Project Budget and the Project Base Case Projections for such Subsequent Project as the maximum principal amount of Utilizations permitted with respect to such Project, such determination to be consistent with the Required Project DSCR for such Project (but which shall not, in any event, exceed the amount equal to 65% of the Project Costs, as set forth in the Initial Project Budget for such Project), in each case, as amended pursuant to Section 2.01(b); provided that the "Project Limit" for (i) each Project which is an Uncompleted Project on the date of the first Utilization with respect to such Project shall, from and after the Non-Recourse Date for such Project, be the aggregate principal amount of all Utilizations outstanding as of the date of determination (including the Utilizations, if any, made on the Non-Recourse Date or repaid or reduced (in the case of a repayment of Commercial Paper and the corresponding reduction in the outstanding CP Commitments, if any, made with respect to such Commercial Paper) on or after the Non-Recourse Date); and (ii) each Project which is a Completed Project on the date of the first Utilization with respect to such Project shall, as of each date after the date of such first Utilization, be the aggregate principal amount of all Utilizations outstanding on the date of determination (including the Utilizations, if any, made on such date or repaid or reduced (in the case of a repayment of Commercial Paper and the corresponding reduction in the outstanding CP Commitments, if any, made with respect to such Commercial Paper) on such date). "Project PPA Document" means any PPA Document that (a) has been delivered by the Borrower to the Agent (i) pursuant to Section 3.01(c)(ix)(D) or 3.02(c) of the Original Credit Agreement or Section 3.04(c), 3.06(a) or 3.06(d) hereof with respect to a Project for so long as such Project is owned by the Borrower or any of its Subsidiaries (other than an Unrestricted Subsidiary), or (ii) along with a Required Project DSCR Certificate in connection with the calculation of (A) any Buydown Amount pursuant to Section 2.09(b)(i)(B) and Section 2.09(b)(ii)(B), or (B) any amount required to be prepaid pursuant to Section 2.09(b)(iii); or (b) (i) is in respect of a Plant the construction or acquisition of which has been financed or refinanced with Recourse Debt (other than for working capital or general corporate borrowings), and (ii) is for a contract capacity of at least 250 megawatts; provided, however that in no event shall "Project PPA Document" include (x) that certain Purchased Power Agreement between Georgia Power Company and Dynegy Power Marketing, Inc., dated as of March 2, 2000, as assigned by Georgia Power Company to the Borrower as of July 31, 2001, (y) that certain Energy Contract, dated as of March 28, 2002, by and between the Borrower and Dynegy Power Marketing, Inc., and (z) that certain Power and Gas Supply Agreement, dated as of March 28, 2002, among the Borrower, Dynegy Power Marketing, Inc. and Dynegy Marketing and Trade. "Project Schedule" means, with respect to each Project, a schedule for such Project which, with respect to each (a) Initial Project, is set forth in Schedule IV; and (b) Subsequent Project, is delivered by the Borrower to the Agent prior to the first Utilization related to such Project pursuant to Section 3.04 or 3.06 (as the case may be), setting forth such Project's Scheduled Completion Date (if such Project has not yet achieved Final Completion) and the Guaranteed Output and Guaranteed Heat Rate for such Project. "Projects" means, collectively, the Initial Projects and the Subsequent Projects; each individually, a "Project". "PUHCA" means the Public Utility Holding Company Act of 1935, as amended. "Punch List Items" means, with respect to the construction of any electric generation plant, those incomplete work items that do not have a material effect on the operations and maintenance of such plant, including painting, platforms, and damaged instrument glass. "Rating Level" means, with respect to any date, any of the following levels (with Level 1 being the "highest" of such Rating Levels and Level 6 being the "lowest"), as determined by reference to the Facility Ratings, if any, on such date issued by S&P and Moody's: - --------------------------------- --------------------------------------------- Facility Rating: Rating Level S&P/Moody's - --------------------------------- --------------------------------------------- - --------------------------------- --------------------------------------------- Level 1 A-/A3 or higher - --------------------------------- --------------------------------------------- - --------------------------------- --------------------------------------------- Level 2 BBB+/Baa1 - --------------------------------- --------------------------------------------- - --------------------------------- --------------------------------------------- Level 3 BBB/Baa2 - --------------------------------- --------------------------------------------- - --------------------------------- --------------------------------------------- Level 4 BBB-/Baa3 - --------------------------------- --------------------------------------------- - --------------------------------- --------------------------------------------- Level 5 Lower than BBB-/Baa3 by either agency - --------------------------------- --------------------------------------------- - --------------------------------- --------------------------------------------- Level 6 Unrated/Partially Rated - --------------------------------- --------------------------------------------- provided that (i) if on any day the Facility Ratings established by S&P and Moody's fall within different Rating Levels, the Rating Level for such day shall be determined by reference to the lowest such Facility Rating; (ii) if any Facility Rating established by S&P or Moody's shall be changed, such change shall be effective as of the date on which such change is notified in writing to the Borrower, or is announced publicly, by the rating agency making such change; and (iii) if S&P or Moody's shall change the basis on which ratings are established, each reference to a Facility Rating announced by S&P or Moody's, as the case may be, shall refer to the then equivalent rating by S&P or Moody's, as the case may be. "Recourse Debt" means all Debt of the Borrower and each Relevant Subsidiary (including subordinated debt) other than Affiliate Subordinated Debt. "Reference Banks" means Citibank, The Bank of Tokyo-Mitsubishi, Ltd. and Commerzbank AG. "Refinancing" means the incurrence of Debt by the Borrower or any Subsidiary (other than pursuant to the issuance of Original Commercial Paper or Rollover Commercial Paper) for purposes of refinancing Project Costs for, or outstanding Utilizations made with respect to, one or more Projects. "Refinancing Commercial Paper" means Commercial Paper the proceeds of which are used to refinance outstanding Project Advances or CP Advances made with respect to the same Project, or Working Capital Advances, or to repay Affiliate Subordinated Debt or pay a Restricted Payment as permitted under Section 2.16(c) of this Agreement, as applicable. "Refinancing Date" means, with respect to any Project, the date on which there are no outstanding Advances made with respect to such Project and no Commitments available with respect to such Project. "Register" has the meaning specified in Section 8.07(d). "Relevant Completed Plants" means, when used to determine (a) the Buydown Amount to be paid in connection with the occurrence of the Buydown Date for any Substantially Completed Project, all Completed Plants as of such Buydown Date for which the Borrower has delivered to the Agent a Required Project DSCR Certificate (other than any other Substantially Completed Project for which a Buydown Amount is also paid or to be paid on such Buydown Date) and such Substantially Completed Project; (b) the Buydown Amount to be paid with respect to any Substantially Completed Project upon the occurrence of a Southern Event of Default, all Completed Plants as of such Buydown Date for which the Borrower has delivered to the Agent a Required Project DSCR Certificate (other than any other Substantially Completed Project for which a Buydown Amount is also paid or to be paid as a result of such Southern Event of Default) and such Substantially Completed Project; and (c) the amount, if any, to be prepaid pursuant to Section 2.09(b)(iii) on the Sale Prepayment Date relating to any Sale, all Completed Plants as of such Sale Prepayment Date. "Relevant Event" means, as the context may require, a Buydown Event, a Southern Event of Default or a Sale Event. "Relevant Subsidiaries" means, collectively, all Subsidiaries (other than Unrestricted Subsidiaries) of the Borrower; each individually, a "Relevant Subsidiary". "Remaining Base Case Period" means, as of any date, the period from the first day of the fiscal quarter in which such day occurs up to and including December 31, 2023. "Reportable Event" means a "reportable event" as defined in Section 403 of ERISA with respect to which the notice requirements to the Pension Benefit Guaranty Corporation established under ERISA (or any successor thereto) have not been waived. "Representatives" has the meaning specified in Section 8.08. "Required Lenders" means at any time Lenders owed at least 75% of the then aggregate unpaid principal amount of the outstanding Advances, or, if no such principal amount is then outstanding, Lenders having at least 75% of the aggregate amount of the Commitments. "Required Project DSCR" means, at any date with respect to any electric generation plant, the following minimum Project DSCR for each of the years (or part thereof) thereafter during the 20 years after the Scheduled Completion Date of such plant (if it is a Project), or the equivalent thereof (if such plant is not a Project), and the following average Project DSCR for such period: (a) if such electric generation plant is a Baseload, an average Project DSCR of 3.30:1.00 and a minimum Project DSCR of 2.50:1.00; (b) if such electric generation plant is an Intermediate (High), an average Project DSCR of 3.60:1.00 and a minimum Project DSCR of 2.80:1.00; (c) if such electric generation plant is an Intermediate (Low), an average Project DSCR of 4.30:1.00 and a minimum Project DSCR of 3.70:1:00; and (d) if such electric generation plant is a Peaker, an average Project DSCR of 5.00:1.00 and a minimum Project DSCR of 4.50:1.00; provided that (i) an average and a minimum Project DSCR of 1.60:1.00 shall be applicable during the term of any Power Purchase Agreement entered into with respect to the entire capacity of such electric generation plant which is owned by the Borrower or any Relevant Subsidiary, if the Agent has received a Required Project DSCR Certificate, dated as of such date, with respect to such electric generation plant; and (ii) if the entire capacity of such electric generation plant which is owned by the Borrower or any Relevant Subsidiary is not contracted for under all such Power Purchase Agreements, the average and minimum Project DSCRs applicable to such electric generation plant shall be determined by reference to the weighted average of 1.60:1.00 and the minimum and average Project DSCR (as the case may be) applicable to such electric generation plant if there were no such Power Purchase Agreement, with such weighted average determined based upon the portion of the capacity of such electric generation plant which is the subject of such Power Purchase Agreement(s) at any relevant time. "Required Project DSCR Certificate" means a certificate of the Borrower certifying, with respect to each Power Purchase Agreement and related Acceptable Credit Support, if any, entered into with respect to (a) any Project, and which PPA Documents were previously delivered to the Agent in satisfaction of Section 3.01(c)(ix)(D) or 3.02(c)(ii) of the Original Credit Agreement or Section 3.04(c) or 3.06(a) or (d) hereof, that each such PPA Document remains in full force and effect, all necessary approvals under all Federal and State Energy Laws and Regulations required to be obtained with respect thereto under Section 3.02 of the Original Credit Agreement or Section 3.04 or 3.06 hereof (as applicable) remain in full force and effect, and there is no litigation, arbitration or administrative proceeding currently pending against any Borrower Group Member concerning (i) the pricing terms under such Power Purchase Agreement; or (ii) any such PPA Document which has had or would reasonably be expected to have a Material Adverse Effect; and (b) any other Plant which is not a Project, and which PPA Documents are delivered to the Agent together with such certificate, that (i) such Power Purchase Agreement complies with all of the PPA Parameters and does not contain any additional terms not set forth in the PPA Parameters which impose additional material obligations outside the ordinary course of business of the industry generally on, or otherwise materially reduce the benefit to, any Borrower Group Member thereunder or that such Power Purchase Agreement is one of the EMC Contracts; (ii) such PPA Documents are in full force and effect; (iii) all necessary approvals required to be obtained with respect to such PPA Documents under all Federal and State Energy Laws and Regulations have been obtained, are in full force and effect and are final and non-appealable but for any Filing Conditions, and do not contain any restrictions, conditions or requirements which are then required to be satisfied and have not been satisfied, other than any Filing Conditions; and (iv) if such Power Purchase Agreement is an EMC Contract, (A) to the best of the Borrower's knowledge, (w) no "MAC" (as defined in such EMC Contract as in effect on the date of this Agreement) has occurred to the applicable EMC Counterparty since the date of this Agreement, (x) no event of the type specified in Section 6.01(f) hereof has occurred with respect to such EMC Counterparty since the date of this Agreement, (y) no material adverse change in the membership profile of such EMC Counterparty has occurred since the date of this Agreement, and (z) the fuel pass-through mechanism included in such EMC Contract provides a reasonable method for the Borrower to recover fuel related costs under such EMC Contract, and (B) the projections for the incremental requirement needs of the applicable EMC Counterparty have been confirmed by the Independent Market Consultant to be reasonable. "Restricted Payments" means, with respect to any Person, any dividend payment or other distribution of assets, properties, cash, rights, obligations or securities on account of any class of capital stock of such Person. "Rollover Commercial Paper" means any Commercial Paper which is issued in the amount of, and for the repayment of, existing Commercial Paper on the maturity thereof or Affiliate Subordinated Debt issued to repay Commercial Paper issued for the Borrower's general corporate purposes or to provide working capital for the Borrower, as applicable, and for which CP Commitments are then outstanding under the Facility. "S&P" means Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc. "Sale" means the sale (including by way of sale/leaseback other than a Development Authority Sale/Leaseback), in whole or in part, of any Asset of the Borrower or any of its Relevant Subsidiaries or the ownership interest in any direct or indirect Relevant Subsidiary to a Person which is not a Borrower Group Member. "Sale Event" means, with respect to any Sale, the earlier to occur of (a) the date which is six (6) months after receipt of all or any part of the Sale Proceeds arising from such Sale; and (b) issuance of a prepayment notice from the Borrower with respect to the Sale Proceeds from such Sale. "Sale Prepayment Date" has the meaning specified in Section 2.09(b)(iii). "Sale Proceeds" means, with respect to any Sale, the proceeds arising from such Sale, net of customary transaction costs and expenses, other than (a) Exempt Asset Sale Proceeds; and (b) proceeds which are applied to repay all Recourse Debt of the Borrower and its Relevant Subsidiaries, other than Debt under the Facility, incurred in connection with the acquisition, improvement, development, ownership or operation of such Asset. "Scheduled Completion Date" means, with respect to each Project, the date on which its Final Completion is expected to occur, as set forth in the Project Schedule for such Project. "Seller" means, with respect to any electric generation plant, the Borrower or any Relevant Subsidiary which owns or leases such plant, as the case may be. "Similar Asset" means any gas-fired electric generation plant (other than an Initial Project or a Subsequent Project) in, or to be constructed in, the United States, which is, or is to be, owned wholly or partially (as tenants-in-common) or leased (pursuant to a Development Authority Sale/Leaseback) by the Borrower or by any Relevant Subsidiary which is wholly or majority owned by, and is controlled by, the Borrower, including all buildings, structures and improvements, and easements with respect thereto, all alterations thereto or replacements thereof, all fixtures, attachments, appliances, equipment, machinery and other articles attached thereto or used in connection therewith and all parts which may from time to time be incorporated or installed in or attached thereto, all contracts and agreements for the purchase or sale of commodities or other personal property related thereto, all leases of personal property related thereto, and all other real and tangible and intangible personal property related thereto. "Southern" means The Southern Company, a Delaware corporation. -------- "Southern Completion Guarantee" means the Completion Guarantee, dated as of November 15, 2001, as amended by that certain Letter Amendment No. 1 to Completion Guarantee, dated as of the date hereof, among the Borrower, the Agent and Southern in the form or substantially in the form of Exhibit H. "Southern Equity Agreement" means the Equity Contribution Agreement, dated as of November 15, 2001, as amended by that certain Letter Amendment No. 1 to Equity Contribution Agreement, dated as of the date hereof, among the Borrower, the Agent and Southern in the form or substantially in the form of Exhibit G. "Southern Event" means any Southern Event of Default or any event, occurrence or circumstance which with the passage of time and/or giving of any notice would become a Southern Event of Default. "Southern Event of Default" has the meaning specified for the terms "Guarantor Event of Default" and "Southern Event of Default" in Section 5 of the Southern Completion Guarantee and Section 2(i) of the Southern Equity Agreement, respectively. "SPV" has the meaning specified in Section 8.07(j). "Stub Period" means, with respect to any Project and any Power Purchase Agreement relating to such Project, the period from the Scheduled Completion Date for such Project up to and including the date when all obligations of the purchaser or off-taker under such Power Purchase Agreement commences. "Subsequent Projects" means, collectively, (a) gas-fired electric generation plants (other than the Initial Projects) in, or to be constructed in, the United States, which are or are to be wholly or partially financed by the Facility, owned wholly or partially (as tenants-in-common) or leased (pursuant to a Development Authority Sale/Leaseback) by the Borrower or by any Relevant Subsidiary which is wholly or majority owned by, and is controlled by, the Borrower, including all buildings, structures and improvements, and easements with respect thereto, all alterations thereto or replacements thereof, all fixtures, attachments, appliances, equipment, machinery and other articles attached thereto or used in connection therewith and all parts which may from time to time be incorporated or installed in or attached thereto, all contracts and agreements for the purchase or sale of commodities or other personal property related thereto, all leases of personal property related thereto, and all other real and tangible and intangible personal property related thereto; and (b) each Similar Asset acquired in accordance with Section 5.01(l)(iii) or pursuant to a reinvestment of Sale Proceeds made in accordance with Section 5.01(m); each individually, a "Subsequent Project". "Subsidiary" means, as to any Person, a corporation, partnership, limited liability company or other entity of which (or in which) shares of stock or other ownership interests having ordinary voting power (other than stock or such other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, partnership or other entity are at the time owned, or the management of which is otherwise controlled, directly or indirectly, through one or more intermediaries, or both, by such Person. "Substantial Completion" means the date on which Southern certifies in the form of Exhibit L-1 to the Agent that, in the case of (a) any Project, (i) such Project has achieved Mechanical Completion; (ii) such Project has passed an emissions test demonstrating that it can operate in accordance with its permits; (iii) such Project has achieved at least 95% of its Guaranteed Output and has achieved a heat rate not greater than 105% of its Guaranteed Heat Rate, in each case, as set forth in the Project Schedule for such Project and as tested in accordance with the testing procedures applicable to such Project set forth in, or determined pursuant to, Schedule V; (iv) such Project has successfully completed the reliability run applicable thereto, as set forth in, or determined pursuant to, Schedule V; (v) such Project has obtained final, non-appealable permits required to operate as designed as of such date; and (vi) all necessary facilities for the transportation of natural gas to, the necessary electric interconnect facilities for, and all necessary facilities for the procurement, transportation and discharge of water to and from, such Project have been completed; and (b) any other electric generation plant owned or leased by the Borrower or any Relevant Subsidiary, the equivalent thereof has occurred. "Substantially Completed Projects" means, as at any date, all Projects which have achieved Substantial Completion but not Final Completion as of such date; each individually, a "Substantially Completed Project". "Synthetic Lease" means a financing for any Asset which is characterized as an operating lease under GAAP, but which is treated as a financing under the Code. "Taxes" has the meaning specified in Section 2.13(a). "Total Capitalization" means the sum of (a) the aggregate of the capital stock and other equity accounts (including retained earnings and paid-in capital) of the Borrower; (b) to the extent not included under clause (a) or (d), the aggregate amount of any funded Equity Contributions; (c) Recourse Debt; and (d) Affiliate Subordinated Debt; provided that "Total Capitalization" shall not include (i) the obligations of any Borrower Group Member with respect to any Trust Preferred Securities; and (ii) any capital stock or other equity (including paid-in capital and retained earnings, other than retained earnings which are permitted to be distributed by an Unrestricted Subsidiary to a Borrower Group Member) attributable, directly or indirectly, to an Unrestricted Subsidiary. "Total Operating Cash Flow" means the projection done at the end of each fiscal quarter of the next four fiscal quarters of the Borrower's and the Borrower's Subsidiaries' (other than Unrestricted Subsidiaries) total cash flow available for debt service, as projected consistent with the Borrower's financial reporting procedures. "Total Project Costs" means, with respect to each Completed Project, the Project Costs incurred with respect to such Project as of the Non-Recourse Date for such Project (including all Project Costs incurred on such date). "Trust Preferred Securities" means deferrable interest debt securities, and any related securities issued by a trust or other special purpose entity in connection therewith, as long as (a) the maturity date of all such Debt is subsequent to the Final Maturity Date and there is no amortization of such Debt prior to the Final Maturity Date; (b) the obligations with respect thereto are not secured by any Liens (other than Liens on such debt securities and any proceeds thereof); and (c) the Borrower's obligations under the Facility are senior in right of payment in full in cash to such Debt, and such Debt is expressly made fully subordinated in right of payment in full in cash to all obligations of the Borrower with respect to the Facility. "Type" has the meaning specified in the definition of "Advance". "Uncompleted Plants" means all Plants which are not Completed Plants; each individually, an "Uncompleted Plant". "Uncompleted Project Advances" means, at any time, all Advances then outstanding with respect to Uncompleted Projects; each individually, an "Uncompleted Project Advance". "Uncompleted Projects" means all Projects which are not Completed Projects; each individually, an "Uncompleted Project". "United States" means the United States of America. ------------- "Unrated/Partially Rated" means the Debt under the Facility is not rated by each of S&P and Moody's. "Unrestricted Subsidiary" means any Subsidiary of the Borrower (other than any Subsidiary of the Borrower which directly or indirectly owns a Project or any portion thereof) all the Debt of which (a) is nonrecourse to the Borrower or any of the Borrower's other Subsidiaries (other than any other Unrestricted Subsidiary), other than with respect to stock or other ownership interest of the Borrower or any of its other Subsidiaries in such Subsidiary or to the extent permitted with respect to Project Finance Debt; and (b) is not secured by any Assets of the Borrower or any of its Subsidiaries (other than the Assets of, or stock or other ownership interests in, an Unrestricted Subsidiary). "Unused" means, with respect to each Lender's Commitment, the amount which is equal to such Lender's Commitment minus all outstanding Advances made by such Lender. "Updated Base Case Projections" means, as of any date, the Initial Base Case Projections, as supplemented by all Project Base Case Projections previously delivered pursuant to Section 3.04, in each case, for a period from such date up to and including December 31, 2023. "U.S. Tax Law Change" has the meaning specified in Section 2.13(a). "Utilizations" means a Borrowing or a CP Commitment Reservation, as the context may require; each individually, a "Utilization". "Wansley Project" means the approximately 1,134MW gas-fired electric generation plant constructed or to be constructed by the Borrower or an Affiliate of the Borrower in Heard County, Georgia. "Wansley Sale/Leaseback" means the sale/leaseback of the Wansley Project, pursuant to the Lease Agreement dated as of December 1, 2000 between the Development Authority of Heard County (a public body corporate and politic created and existing under the laws of the State of Georgia), as lessor, and the Borrower (as assignee of Georgia Power Company), as lessee (as amended, modified and supplemented from time to time to extend such lease to additional real or personal property comprising the Wansley Project), and all documents relating thereto. "Working Capital Advance" has the meaning specified in Section 2.16. SECTION 1.02. Computation of Time Periods. In this Agreement in the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including" and the words "to" and "until" each mean "to but excluding". SECTION 1.03. Accounting Terms. All accounting terms not specifically defined herein shall be construed in accordance with GAAP. SECTION 1.04. Interpretation. In this Agreement: -------------- (a) the singular includes the plural and the plural includes the singular; (b) the word "or" is not exclusive; (c) the words "include", "includes" and "including" are not limiting; (d) a reference to an Article, Section, Schedule or Exhibit is to the Article, Section, Schedule or Exhibit of this Agreement unless otherwise indicated, and Schedules and Exhibits to this Agreement shall be deemed incorporated by reference in this Agreement; (e) references to any document, instrument or agreement shall include (i) all schedules, exhibits and other attachments thereto; and (ii) all documents, instruments or agreements issued or executed in replacement thereof; (f) references to any document or agreement, including this Agreement, shall be deemed to include references to such document or agreement as amended, supplemented, modified or restated and in effect from time to time in accordance with its terms and subject to the conditions set forth herein and therein; (g) references to "days" shall mean calendar days, unless the term "Business Days" shall be used; and (h) the Loan Documents are the result of negotiations among the Loan Parties, the Agent, each Initial Lender and their respective counsel. Accordingly, the Loan Documents shall be deemed the product of all parties thereto, and no ambiguity shall be construed in favor of or against the Loan Parties, the Agent or any Lender. Article II AMOUNTS AND TERMS OF THE ADVANCES SECTION 2.01. The Advances. (a) The Advances. Each Lender severally agrees, on the terms and conditions set forth in this Agreement, to make Advances to the Borrower from time to time on any Business Day during the period from the Funds Availability Date to the Final Maturity Date in an aggregate amount not to exceed at any time outstanding the amount set forth opposite such Lender's name on Schedule I or, if such Lender has entered into any Assignment and Acceptance, set forth for such Lender in the Register maintained by the Agent pursuant to Section 8.07(d), as such amount may be reduced pursuant to Section 2.04 (such Lender's "Commitment"); provided that (i) only one Borrowing of Project Advances shall be permitted with respect to each of the Dahlberg Project and any Subsequent Project which, as of the date of acquisition thereof by a Borrower Group Member, is a Completed Project; (ii) Project Advances for any Project shall be made in an aggregate amount not to exceed the Project Limit for such Project (as reduced, in accordance with Section 2.15, to reflect the aggregate amount of all outstanding CP Commitment Reservations, if any, relating to such Project); (iii) CP Advances for any purpose shall be made in an aggregate amount not to exceed the aggregate of all CP Commitment Reservations for such purpose; (iv) Working Capital Advances shall be made in an aggregate amount not to exceed the lesser of (A) the Borrowing Limit for Working Capital Advances (as reduced, in accordance with Section 2.15, to reflect the aggregate amount of all outstanding CP Commitment Reservations, if any, relating to Commercial Paper issued by the Borrower for the Borrower's general corporate purposes or to provide working capital for the Borrower); and (B) the aggregate of all Unused Commitments minus all CP Commitment Reservations; and (v) the aggregate principal amount of all outstanding Advances and CP Commitment Reservations shall not exceed $650,000,000. Each Borrowing shall be in an aggregate amount of $5,000,000 and an integral multiple of $1,000,000 in excess thereof, except for any Borrowing of the remaining Unused portion of the Commitments available for the making of Advances within the applicable Borrowing Limit. Each Borrowing shall consist of Advances of the same Type and Category made on the same day by the Lenders ratably according to their respective Commitments. The Borrower may make more than one Borrowing on the same day; provided that (x) such Borrowings are of different Categories; and (y) no more than two Borrowings of each Category may be made during any one calendar month. Within each Lender's Commitment, the applicable Borrowing Limit and the Availability Period, and subject to the conditions set forth in Article III, the Borrower may borrow under this Section 2.01, prepay pursuant to Section 2.09 and reborrow under this Section 2.01. (b) Project Limit Modification. The Borrower shall have the right, upon at least thirty (30) days' notice to the Agent, to modify the Project Limit applicable to any Uncompleted Project; provided that: (i) the aggregate principal amount of all outstanding Advances and CP Commitment Reservations shall not exceed $650,000,000; (ii) the aggregate of all increases in the Project Limit for any Project may not exceed 10% of the Initial Project Limit for such Project; (iii) other than with respect to any modification reducing such Project Limit to zero, the Agent shall have received an Adjusted Project Budget for such Project; and (iv) the aggregate principal amount of all outstanding Advances and CP Commitment Reservations with respect to such Project shall not exceed the Project Limit, upon such modification, for such Project. (c) Designated Lenders. For any Lender which is a Designating Lender, any Advance to be made by such Lender may from time to time be made by its Designated Lender in such Designated Lender's sole discretion, and nothing herein shall constitute a commitment to make Advances by such Designated Lender; provided that if any Designated Lender elects not to, or fails to, make any such Advance, its Designating Lender hereby agrees that it shall make such Advance pursuant to the terms of this Agreement. Any Advance actually funded by a Designated Lender shall constitute a utilization of the Commitment and, in the case of a CP Advance, the CP Commitment of the Designating Lender for all purposes under this Agreement. SECTION 2.02. Making the Advances. (a) Each Borrowing shall be made on notice, given not later than 11:00 A.M. (New York City time) on the third Business Day prior to the date of the proposed Borrowing in the case of a Borrowing consisting of Eurodollar Rate Advances, or not later than 11:00 A.M. (New York City time) on the date of the proposed Borrowing in the case of a Borrowing consisting of Base Rate Advances, by the Borrower to the Agent, which shall give to each Lender prompt notice thereof by telecopier. Each such notice of a Borrowing (a "Notice of Utilization") shall be by telephone, confirmed immediately by telecopier in substantially the form of Exhibit B, (i) specifying therein the requested (A) date of such Borrowing; (B) Type and Category of Advances comprising such Borrowing; (C) aggregate amount of such Borrowing; (D) in the case of a Borrowing comprising Project Advances or CP Advances, aggregate principal amount of the Advances to be made with respect to each Project; and (E) in the case of a Borrowing consisting of Eurodollar Rate Advances, initial Interest Period for each such Advance; (ii) in the case of a Borrowing comprising of Project Advances, specifying therein the relevant Project(s) and containing a representation that proceeds of the requested Borrowing will be used to finance Project Costs for such Project(s) (including, in the case of any Project, repayment of any Affiliate Subordinated Debt incurred by the Borrower (A) to fund the costs of acquiring such Project prior to the initial Advances hereunder in respect of such Project or (B) to pay Project Costs in respect of such Project at any time prior to the Non-Recourse Date for such Project);(iii) in the case of a Borrowing comprising CP Advances, specifying the relevant Project(s), if any, and CP Commitment Reservation(s) pursuant to which such CP Advances are requested; (iv) containing a representation that such Borrowing will not result in the applicable Borrowing Limit to be exceeded or the aggregate principal amount of all outstanding Advances and CP Commitment Reservations to exceed $650,000,000; and (v) specifying the aggregate principal amount of all outstanding Advances and the unused Commitments and CP Commitments, in each case, after giving effect to the proposed Borrowing. Each Lender shall, before 11:00 A.M. (New York City time) on the date of such Borrowing, make available for the account of its Applicable Lending Office to the Agent at the Agent's Account, in same day funds, such Lender's ratable portion of such Borrowing; provided that if a Notice of Utilization in respect of a proposed Borrowing consisting of Base Rate Advances is given on the date of such Borrowing, the Lenders shall so make available their ratable portions of such Borrowing before 3:00 P.M. (New York City time) on such date. After the Agent's receipt of such funds and upon fulfillment of the applicable conditions set forth in Article III, the Agent will make such funds available to the Borrower at the Agent's address referred to in Section 8.02. (b) Anything in subsection (a) above to the contrary notwithstanding, the Borrower may not select Eurodollar Rate Advances for any Borrowing if the obligation of the Lenders to make Eurodollar Rate Advances shall then be suspended pursuant to Section 2.07(e) or 2.11. (c) The Borrower shall indemnify each Lender against any actual and documented loss (excluding any loss of profit and/or margin), cost or expense reasonably incurred by such Lender as a result of (i) the revocation by the Borrower of (A) any Notice of Utilization for a Borrowing that such Notice of Utilization specifies is to be comprised of Eurodollar Rate Advances; or (B) any notice given by the Borrower pursuant to Section 2.08 of the Conversion of Base Rate Advances to Eurodollar Rate Advances; and (ii) any failure to fulfill on or before the date specified in a Notice of Utilization for a Borrowing the applicable conditions set forth in Article III, including, in each such case, any loss (excluding loss of profit and/or margin), cost or expense reasonably incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to fund the Advance to be made by such Lender as part of such Borrowing or as a result of such Conversion when such Advance, as a result of such revocation or failure, is not made on the date specified therefor in the relevant Notice of Utilization or when such Base Rate Advances, as a result of such revocation, are not converted to Eurodollar Rate Advances, but excluding, however, any such losses, costs and expenses resulting from any such revocation or failure which has occurred more than ninety (90) days prior to demand being made to the Borrower by such Lender for indemnification. The payment of such indemnity to a Lender shall be made within thirty (30) days of a demand by such Lender complying with Section 8.04(d). (d) With respect to any Borrowing, unless the Agent shall have received notice from a Lender prior to the date of such Borrowing (in the case of a proposed Borrowing consisting of Eurodollar Rate Advances) or on or before 1:00 P.M. (New York City time) on the date of such Borrowing (in the case of a Borrowing consisting of Base Rate Advances) that such Lender will not make available to the Agent such Lender's ratable portion of such Borrowing, the Agent may assume that such Lender has made such portion available to the Agent on the date of such Borrowing in accordance with Section 2.02(a) and the Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If and to the extent that such Lender shall not have so made such ratable portion available to the Agent, such Lender and the Borrower severally agree to repay to the Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Agent, at (i) in the case of the Borrower, the interest rate applicable at the time to Advances comprising such Borrowing; and (ii) in the case of such Lender, the Federal Funds Effective Rate. If such Lender shall repay to the Agent such corresponding amount, such amount so repaid shall constitute such Lender's Advance as part of such Borrowing for purposes of this Agreement. (e) The failure of any Lender to make the Advance to be made by it as part of any Borrowing shall not relieve any other Lender of its obligation, if any, under this Agreement to make its Advance on the date of such Borrowing, but no Lender shall be responsible for the failure of any other Lender to make the Advance to be made by such other Lender on the date of any Borrowing. SECTION 2.03. Fees. (a) Commitment Fee. The Borrower shall pay to the Agent for the account of each Lender a commitment fee on the daily Unused portion of such Lender's Commitment, (i) in the case of each Initial Lender, from the date of this Agreement; and (ii) in the case of each other Lender (other than a Designated Lender), from the effective date specified in the Assignment and Acceptance pursuant to which it became a Lender, in each case, until the Commitment Termination Date at a rate per annum equal to the Applicable Commitment Fee Percentage in effect from time to time, payable in arrears on the fifteenth day of each March, June, September and December, and on the Commitment Termination Date. (b) Agent's Fees. The Borrower shall pay to the Agent for its own account such fees as may from time to time be agreed between the Borrower and the Agent. SECTION 2.04. Termination or Reduction of the Commitments. The Borrower shall have the right, upon at least three (3) Business Days' notice to the Agent, to terminate in whole or reduce ratably in part the unused portions of the respective Commitments of the Lenders; provided that (a) each partial reduction shall be in the aggregate amount of $10,000,000 or an integral multiple of $1,000,000 in excess thereof; and (b) the aggregate of all Commitments, upon such reduction, shall not be less than the aggregate principal amount of all Utilizations then outstanding. SECTION 2.05. Repayment of the Advances. The Borrower shall repay to the Agent for the ratable account of the Lenders on the Final Maturity Date the aggregate principal amount of the Advances then outstanding. SECTION 2.06. Interest on the Advances. (a) Scheduled Interest. The Borrower shall pay interest on the unpaid principal amount of each Advance owing to each Lender from the date of such Advance until such principal amount shall be paid in full, at the following rates per annum: (i) Base Rate Advances. During such periods as such Advance is a Base Rate Advance, a rate per annum equal at all times to the sum of (A) the Base Rate in effect from time to time plus (B) the Applicable Margin in effect from time to time, payable in arrears on the fifteenth day of each March, June, September and December during such periods and on the date such Base Rate Advance shall be Converted or paid in full. (ii) Eurodollar Rate Advances. During such periods as such Advance is a Eurodollar Rate Advance, a rate per annum equal at all times during each Interest Period for such Advance to the sum of (A) the Eurodollar Rate for such Interest Period for such Advance plus (B) the Applicable Margin in effect from time to time, payable in arrears on the last day of such Interest Period and, if such Interest Period has a duration of more than three (3) months, on each day that occurs during such Interest Period every three months from the first day of such Interest Period and on the date such Eurodollar Rate Advance shall be Converted or paid in full. (b) Default Interest. Upon the occurrence and during the continuance of an Event of Default under Section 6.01(a) or any failure to prepay or repay any Project Debt in accordance with Section 2.09(b), the Borrower shall pay interest on (i) the unpaid principal amount of each Advance owing to each Lender (in the case of such an Event of Default or any failure to prepay or repay Project Debt in accordance with any of Section 2.09(b)(ii), (iii), (iv) or (v)) or each Advance so required to be prepaid pursuant to Section 2.09(b)(i), as the case may be, in each case, payable in arrears on the dates referred to in Section 2.06(a)(i) or (a)(ii) above and on demand, at a rate per annum equal at all times to 2% per annum above the rate per annum required to be paid on such Advance pursuant to Section 2.06(a)(i) or (a)(ii) above; and (ii) to the fullest extent permitted by Law, the amount of any interest, fee or other amount payable under this Agreement or under any Note that is not paid when due, from the date such amount shall be due until such amount shall be paid in full, payable in arrears on the date such amount shall be paid in full and on demand, at a rate per annum equal at all times to 2% per annum above the rate per annum required to be paid on Base Rate Advances pursuant to Section 2.06(a)(i) above. SECTION 2.07. Interest Rate Determination. (a) Each Reference Bank agrees to furnish to the Agent, at its request, timely information for the purpose of determining each Eurodollar Rate. If any one or more of the Reference Banks shall not furnish such timely information to the Agent for the purpose of determining any such interest rate, the Agent shall determine such interest rate on the basis of timely information furnished by the remaining Reference Banks. The Agent shall give prompt notice to the Borrower and the Lenders of the applicable interest rate determined by the Agent for purposes of Section 2.06(a)(i) or (ii), and the rate, if any, furnished by each Reference Bank for the purpose of determining the interest rate under Section 2.06(a)(ii). (b) If (i) the Agent is unable for any reason to determine the Eurodollar Rate for any Interest Period; (ii) if applicable, fewer than two Reference Banks furnish timely information to the Agent for determining the Eurodollar Rate for any Interest Period pursuant to Section 2.07(a); or (iii) the Majority Lenders notify the Agent by 12:00 noon (London time) two Business Days prior to the first day of any Interest Period that the Majority Lenders were unable to obtain, at approximately 11:00 A.M. (London time) on such Business Day and at the applicable Eurodollar Rate, Dollar deposits for a period equal to such Interest Period and in amounts substantially equal to such Majority Lenders' respective Eurodollar Rate Advances comprising part of the Borrowing to be outstanding during such Interest Period, the Agent shall promptly notify the Borrower and the Lenders of such event, whereupon: (A) within five (5) Business Days of receipt of such notification, the Agent and the Borrower shall enter into good faith negotiations for a period of fifteen (15) days (or such shorter period as is required to agree to the alternative basis referred to in this clause (A)) with a view to agreeing on an alternative basis for determining the rate of interest applicable to such Eurodollar Rate Advances; (B) any alternative basis agreed under clause (A) above with the approval of the Majority Lenders and any interest rate determined pursuant thereto will be binding on all the parties to this Agreement and will be retroactive to, and take effect from, the first day of the applicable Interest Period; (C) if no alternative basis is agreed under clause (A) above within the 15-day period there specified, the Agent, upon instructions of the Majority Lenders, shall, on behalf of each of the Lenders, set forth an alternative basis for determining the rate of interest applicable to such Eurodollar Rate Advances on or before the last day of the Interest Period to which the notification relates or, if earlier, within ten (10) days after the expiration of the 15-day period set forth in clause (A) above. Each Lender shall certify to the Agent and to the Borrower such Lender's actual cost of funds for funding its applicable Eurodollar Rate Advances, and the Majority Lenders shall certify to the Agent and the Borrower in reasonable detail the alternative basis for determining the rate of interest to be applicable to such Eurodollar Rate Advances and such interest rate as so determined; (D) any interest rate determined pursuant to clause (C) above shall not, in any event, exceed (1) the Majority Lenders' reasonable determination of the cost to the Lenders, as certified by them pursuant to clause (C) above, of funding their applicable Eurodollar Rate Advances plus (2) the Applicable Margin; (E) each alternative basis so certified by the Majority Lenders pursuant to clause (C) above and each interest rate determined pursuant thereto shall be binding on the Borrower and the Lenders and shall be retroactive to, and take effect from, the first day of the applicable Interest Period; and (F) so long as any alternative basis referred to above is in force, the Agent, in consultation with the Borrower and the Majority Lenders, shall from time to time, but not less frequently than monthly, review whether or not the circumstances referred to in this Section 2.07(b) still prevail with a view to returning to the normal provisions of this Agreement in relation to the method of determining interest as soon as practicably possible. (c) If the Borrower shall fail to select the duration of any Interest Period for any Eurodollar Rate Advances in accordance with the provisions contained in the definition of "Interest Period" in Section 1.01, then on the last day of the then existing Interest Period therefor, if the Borrower could have selected an Interest Period for such Eurodollar Rate Advances in accordance with such provisions, an Interest Period with a duration of three (3) months shall be applicable to such Eurodollar Rate Advances or, if the Borrower could not have selected any Interest Period for such Eurodollar Rate Advances in accordance with such provisions, such Eurodollar Rate Advances will automatically, on such last day, Convert into Base Rate Advances, and the Agent shall promptly notify the Borrower and the Lenders thereof. (d) On the date on which the aggregate unpaid principal amount of Eurodollar Rate Advances comprising any Borrowing shall be reduced, by payment or prepayment or otherwise, to less than $10,000,000, such Advances shall automatically Convert into Base Rate Advances. (e) Upon the occurrence and during the continuance of (i) any Event of Default, (A) each Eurodollar Rate Advance then outstanding will automatically, on the last day of the then existing Interest Period therefor, Convert into a Base Rate Advance; and (B) the obligation of the Lenders to make, or to Convert Base Rate Advances into, Eurodollar Rate Advances shall be suspended until all Events of Default have been cured or waived; and (ii) any failure to prepay any Eurodollar Rate Advance in accordance with Section 2.09(b)(i), (A) each Eurodollar Rate Advance required to be so prepaid will automatically, on the last day of the then existing Interest Period therefor, Convert into a Base Rate Advance; and (B) the Lenders shall have no obligation to Convert any Base Rate Advances required to be prepaid pursuant to Section 2.09(b)(i) into Eurodollar Rate Advances. SECTION 2.08. Optional Conversion of the Advances. The Borrower may on any Business Day, upon notice given to the Agent not later than 11:00 A.M. (New York City time) on the third Business Day prior to the date of the proposed Conversion and subject to the provisions of Sections 2.07 and 2.11, Convert all Advances of one Type comprising the same Borrowing into Advances of the other Type; provided that any Conversion of Eurodollar Rate Advances into Base Rate Advances shall be made only on the last day of an Interest Period for such Eurodollar Rate Advances and any Conversion of Base Rate Advances into Eurodollar Rate Advances shall be in an amount not less than the minimum amount specified in Section 2.01(a). Each such notice of a Conversion shall, within the restrictions specified above, specify (a) the date of such Conversion; (b) the Advances to be Converted; and (c) if such Conversion is into Eurodollar Rate Advances, the duration of the initial Interest Period for each such Advance. SECTION 2.09. Prepayments. (a) Optional Prepayments. The Borrower may, upon at least three (3) Business Days' notice (in the case of Eurodollar Rate Advances) or upon at least one Business Day's notice (in the case of Base Rate Advances) to the Agent stating the proposed date and aggregate principal amount of the prepayment, and if such notice is given the Borrower shall, prepay the outstanding principal amount of the Advances comprising part of the same Borrowing in whole or ratably in part, together with accrued interest to the date of such prepayment on the principal amount prepaid; provided that (i) each partial prepayment shall be in an aggregate principal amount of $10,000,000 or an integral multiple of $1,000,000 in excess thereof; and (ii) in the event of any such prepayment of a Eurodollar Rate Advance, the Borrower shall be obligated to reimburse the Lenders in respect thereof pursuant to Section 8.04(c). (b) Mandatory Prepayments. (i) Upon the occurrence of a Southern Event of Default, the Borrower shall prepay, (A) with respect to all Projects which have not yet achieved Substantial Completion, all Project Debt then outstanding with respect to such Projects; and (B) with respect to each Substantially Completed Project the Buydown Date for which has not then occurred, such portion of Project Debt then outstanding with respect to such Substantially Completed Project as is equal to the Buydown Amount for such Substantially Completed Project, in each case, in accordance with clause (c) below. (ii) Upon the occurrence of the Buydown Date for any Project, the Borrower shall prepay (A) if Substantial Completion of such Project has not then been achieved, all Project Debt then outstanding with respect to such Project; or (B) if Substantial Completion of such Project has then been achieved, such portion of such Project Debt as is equal to the Buydown Amount for such Project, in each case, in accordance with clause (c) below. (iii) On the date (the "Sale Prepayment Date") which is either (1) the earlier of (A) the date falling six (6) months after any Sale; and (B) the prepayment date specified in a prepayment notice from the Borrower with respect to the Sale Proceeds from such Sale, or (2) the date specified in sub-clauses (B), (D) or (F) below, if applicable, to the extent any Sale Proceeds from such Sale have not been reinvested in a Similar Asset in accordance with Section 5.01(m), the Borrower shall use such Sale Proceeds to prepay the then outstanding Project Debt (but in no event more than in an amount equal to such Sale Proceeds) to the extent necessary to result in the minimum and average Portfolio Adjusted Base Case Projections, calculated on the assumption that all Recourse Debt of the Borrower and the Relevant Subsidiaries outstanding immediately following such prepayment is repaid in full on or prior to the end of the Remaining Base Case Period, with such Debt being prepaid or repaid (as the case may be) in the following order of priority: (A) Completed Project Advances, if any, on a pro rata basis, together with interest thereon; (B) to the extent of any such Sale Proceeds remaining thereafter, Commercial Paper, if any, then outstanding with respect to Completed Projects, on the maturity date thereof and on a pro rata basis, together with interest thereon (if any); (C) to the extent of any such Sale Proceeds remaining thereafter, Advances, if any, then outstanding with respect to the Asset the sale of which resulted in such Sale Proceeds, on a pro rata basis, together with interest thereon; (D) to the extent of any such Sale Proceeds remaining thereafter, Commercial Paper, if any, then outstanding with respect to such Asset, on the maturity date thereof and on a pro rata basis, together with interest thereon; (E) to the extent of any such Sale Proceeds remaining thereafter, all other Advances, if any, then outstanding, on a pro rata basis, together with interest thereon; and (F) to the extent of any such Sale Proceeds remaining thereafter, all other Commercial Paper, if any, then outstanding, on the maturity date thereof and on a pro rata basis, together with interest thereon. Contemporaneously with (AA) such prepayment of Advances, the Project Limit for the relevant Project shall automatically be reduced by the amount of such prepayment; and (BB) such repayment of Commercial Paper, each of the Project Limit for the relevant Project and the CP Commitments of the Lenders with respect to such Commercial Paper, if any, shall automatically be reduced (on a pro rata basis) by the amount of such repayment. (iv) Upon any Loss with respect to a Completed Project, the Borrower shall repay, if required, the relevant Project Debt then outstanding in accordance with Section 5.01(l). (v) Within five (5) Business Days after receipt of the proceeds of any Refinancing relating to any Project, and upon at least three (3) Business Days' notice (in the case of Eurodollar Rate Advances) or upon at least one Business Day's notice (in the case of Base Rate Advances) to the Agent stating the proposed date and aggregate principal amount of the payment, apply such proceeds to repay Project Debt then outstanding with respect to such Project, and interest thereon, in accordance with clause (c) below. (c) All prepayments or repayments (as the case may be) of Project Debt with respect to any particular Project pursuant to clause (b)(i), (ii), (iv) and (v) above and Section 5.01(l) shall be made using funds other than the proceeds of any Borrowing or any Commercial Paper as to which CP Commitments are outstanding or requested, in the following order of priority: (i) firstly, to all Project Advances and all CP Advances, if any, made with respect to such Project, on a pro rata basis, together with interest thereon; and (ii) secondly, upon the maturity thereof, to all Commercial Paper, if any, then outstanding with respect to such Project and as to which CP Commitments are then in effect, on a pro rata basis, together with interest thereon (if any). Contemporaneously with (A) such prepayment of Advances, the Project Limit for the relevant Project shall automatically be reduced by the amount of such prepayment; and (B) such repayment of Commercial Paper, each of the Project Limit for the relevant Project and the CP Commitments of the Lenders with respect to such Commercial Paper, if any, shall automatically be reduced (on a pro rata basis) by the amount of such repayment. SECTION 2.10. Increased Costs. The Borrower agrees to indemnify each Lender for its actual and documented losses (whether due to decreased revenues or increased costs) that are the result of a change of Law or in the official interpretation thereof or compliance with any guideline or request from any central bank or other Governmental Authority having jurisdiction over such Lender (whether or not having the force of law) adopted or made (a) in the case of the Initial Lenders, after the date of this Agreement; and (b) in the case of any other Lender, after the date such Lender shall have become a party to this Agreement by executing and delivering an Assignment and Acceptance or a Designation Agreement (as the case may be), which costs are reasonably incurred by such Lender and are the result of (i) such Lender agreeing to make or making, funding or maintaining Eurodollar Rate Advances; or (ii) any increase in the amount of capital required to be maintained by such Lender or any corporation controlling such Lender, based upon the existence of such Lender's commitment to lend under this Agreement and other commitments of this type, to the extent that such Lender reasonably determines such increase in capital to be allocable to the existence of such Lender's commitment to lend under this Agreement. The foregoing indemnity shall not apply to (A) any such change of Law or interpretation or any adoption or making of any such guideline or request that is anticipated on the date of this Agreement, (B) any period or periods ending more than one hundred and twenty (120) days prior to demand for indemnification being made or (C) any such losses resulting from (1) Taxes or Other Taxes (as to which Section 2.13 shall govern); or (2) changes in the basis of taxation of overall net income or overall gross income by the United States or by the foreign jurisdiction or state under the laws of which such Lender is organized or has its Applicable Lending Office or any political subdivision thereof. The Borrower shall from time to time, within thirty (30) days following demand by such Lender complying with Section 8.04(d) (with a copy of such demand to the Agent), pay to the Agent for the account of such Lender additional amounts sufficient to compensate such Lender for such losses. SECTION 2.11. Illegality. If as a result of a change in Law or in the official interpretation thereof (a) in the case of the Initial Lenders, after the date of this Agreement; and (b) in the case of any other Lender, after the date such Lender shall have become a party to this Agreement by executing and delivering an Assignment and Acceptance or a Designation Agreement (as the case may be), it shall have become unlawful, or if after the applicable date set forth above any central bank or other Governmental Authority having jurisdiction over such Lender asserts that it is unlawful, for such Lender to (i) allow all or part of its commitment to make Eurodollar Rate Advances to remain outstanding; or (ii) make, fund or allow to remain outstanding all or part of its Eurodollar Rate Advances, such Lender may notify the Borrower and the Agent thereof in reasonable detail (together with supporting documentation) of such event, whereupon: (A) such Lender's obligations to make Eurodollar Rate Advances shall be suspended and, forty-five (45) days following such notification, shall be canceled if such unlawfulness shall then be continuing; and (B) the Borrower will prepay such Lender's Eurodollar Rate Advances or convert them to Base Rate Advances at the time or times and to the extent necessary to avoid such unlawfulness, together with unpaid accrued interest thereon, unpaid accrued fees and any other amounts due and payable to such Lender, unless, in either case, prior thereto, the Borrower shall have given notice to such Lender that the Borrower will require such Lender to assign and transfer all of its interests in this Agreement pursuant to Section 8.07(b) and shall have caused such Lender to have so assigned and transferred such interests. SECTION 2.12. Payments and Computations. (a) The Borrower shall make each payment under this Agreement and under the Notes not later than 11:00 A.M. (New York City time) on the day when due in Dollars to the Agent at the Agent's Account in same day funds. The Agent will promptly thereafter cause to be distributed like funds relating to the payment of principal or interest or commitment fees to the Lenders ratably in accordance with such amounts owing to the Lenders for the account of their respective Applicable Lending Offices, and like funds relating to the payment of any other amount payable to any Lender to such Lender for the account of its Applicable Lending Office, in each case to be applied in accordance with the terms of this Agreement; provided that unless otherwise expressly provided in this Agreement, funds so paid by the Borrower on account of any principal or interest due under this Agreement shall be applied first to satisfy such amounts due with respect to Completed Project Advances and Working Capital Advances, pari passu (or as otherwise specified by the Borrower), and, after all such amounts are paid, to the corresponding amounts due with respect to Uncompleted Project Advances. Upon its acceptance of an Assignment and Acceptance or a Designation Agreement and recording of the information contained therein in the Register pursuant to Section 8.07(d), from and after the effective date specified in such Assignment and Acceptance or Designation Agreement (as the case may be), the Agent shall make all payments hereunder and under the Notes in respect of the interest assigned thereby to the Lender assignee thereunder, and the parties to such Assignment and Acceptance or Designation Agreement (as the case may be) shall make all appropriate adjustments in such payments for periods prior to such effective date directly between themselves. (b) All computations of interest based on the Base Rate shall be made by the Agent on the basis of a year of 365 or 366 days, as the case may be, and all computations of interest based on the Eurodollar Rate or the Federal Funds Effective Rate and of commitment fees shall be made by the Agent on the basis of a year of 360 days, in each case for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest or commitment fees are payable. Each determination by the Agent of an interest rate under this Agreement shall be conclusive and binding for all purposes, absent manifest error. (c) Whenever any payment under this Agreement or under the Notes shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day; provided that if such extension would cause payment of interest on or principal of Eurodollar Rate Advances to be made in the next following calendar month, such payment shall be made on the next preceding Business Day. Any such extension or reduction of time shall be included in the computation of payment of interest or commitment fee, as the case may be. (d) Unless the Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Lenders under this Agreement that the Borrower will not make such payment in full, the Agent may assume that the Borrower has made such payment in full to the Agent on such date and the Agent may, in reliance upon such assumption, cause to be distributed to each Lender on such due date an amount equal to the amount then due such Lender. If and to the extent the Borrower shall not have so made such payment in full to the Agent, each Lender shall repay to the Agent forthwith on demand such amount distributed to such Lender together with interest thereon, for each day from the date such amount is distributed to such Lender until the date such Lender repays such amount to the Agent, at the Federal Funds Effective Rate. SECTION 2.13. Taxes. (a) Any and all payments by the Borrower under this Agreement or under the Notes shall be made, in accordance with Section 2.12, without deduction for any Taxes or Other Taxes (each as defined below). "Taxes" means any and all present or future taxes, levies, imposts, deductions, charges or withholdings with respect to any payment by the Borrower pursuant to this Agreement or any Note, and all liabilities with respect thereto, excluding (i) in the case of each Lender and the Agent, taxes imposed on its income, net worth or gross receipts and franchise or similar taxes imposed on it by a jurisdiction under the laws of which such Lender or the Agent (as the case may be) is organized or in which its principal executive office is located or any political subdivision thereof or, in the case of each Lender, in which its Applicable Lending Office is located or any political subdivision thereof; and (ii) in the case of each Lender, any United States withholding tax imposed on such payments except to the extent that such Lender is subject to United States withholding tax by reason of a U.S. Tax Law Change. "Other Taxes" means any present or future stamp or documentary taxes and any other excise or property taxes, or similar charges or levies, which arise from any payment made pursuant to this Agreement or under any Note or from the execution or delivery of, or otherwise with respect to, this Agreement or any Note. "U.S. Tax Law Change" means with respect to any Lender the occurrence (i) in the case of the Initial Lenders, after the date of this Agreement; and (ii) in the case of any other Lender, after the date such Lender shall have become a party to this Agreement by executing and delivering an Assignment and Acceptance or a Designation Agreement (as the case may be), of the adoption of any applicable United States federal law or regulation relating to taxation, or any change therein or in the official interpretation thereof, or the entry into force, modification or revocation of any income tax convention or treaty to which the United States is a party. If the Borrower shall be required by Law to deduct any Taxes or Other Taxes from or in respect of any sum payable under this Agreement or under any Note to any Lender or the Agent, (i) the sum payable shall be increased as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 2.13) such Lender or the Agent (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made; (ii) the Borrower shall make such deductions; (iii) the Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable Law; and (iv) the Borrower shall furnish to the Agent, at its address referred to in Section 8.02, the original or a certified copy of a receipt evidencing payment thereof. (b) The Borrower agrees to indemnify each Lender and the Agent for the full amount of actual and documented Taxes or Other Taxes (including taxes of any kind imposed by any jurisdiction on amounts payable under this Section 2.13) paid by such Lender or the Agent (as the case may be) as a result of any U.S. Tax Law Change and any actual and documented liability (including penalties, interest and expenses) arising therefrom or with respect thereto paid by such Lender or the Agent (as the case may be), but excluding, however, any Taxes or Other Taxes so paid by such Lender or the Agent more than one hundred and twenty (120) days prior to demand being made to the Borrower by such Lender or the Agent for indemnification. The payment of such indemnity shall be made within thirty (30) days from the date such Lender or the Agent (as the case may be) makes written demand therefor complying with Section 8.04(d). (c) Each Lender organized under the laws of a jurisdiction outside the United States, on or prior to the date of its execution and delivery of this Agreement in the case of the Initial Lenders and on the date of the Assignment and Acceptance or Designation Agreement (as the case may be) pursuant to which it becomes a Lender in the case of any other Lender, and from time to time thereafter as requested in writing by the Borrower or the Agent (but only so long as such Lender remains lawfully able to do so), shall provide each of the Agent and the Borrower with two completed and duly executed original Internal Revenue Service forms W-8 W-8ECI or W-8BEN, as appropriate, or any successor or other form prescribed by the Internal Revenue Service, or other documentation reasonably requested by the Borrower or the Agent, certifying that such Lender is exempt from or entitled to a reduced rate of United States withholding tax on payments pursuant to this Agreement or the Notes. If the form provided by a Lender at the time such Lender first becomes a party to this Agreement indicates a United States interest withholding tax rate in excess of zero, withholding tax at such rate shall be considered excluded from Taxes unless and until such Lender provides the appropriate forms certifying that a lesser rate applies, whereupon withholding tax at such lesser rate only shall be considered excluded from Taxes for periods governed by such form. If any form or document referred to in this subsection (c) requires the disclosure of information, other than information necessary to compute the tax payable and information required on the date of this Agreement by Internal Revenue Service form W-8, W-8ECI or W-8BEN, that the Lender reasonably considers to be confidential, the Lender shall give notice thereof to the Borrower and shall not be obligated to include in such form or document such confidential information. (d) For any period with respect to which a Lender has failed to provide the Borrower with the appropriate form or document (or information required by such form or document) described in Section 2.13(c) (other than if such failure is due to a U.S. Tax Law Change), such Lender shall not be entitled to payments without deduction and indemnification under Section 2.13(a) or (b) with respect to any Taxes or Other Taxes which would not have been payable had such form or document (or information required thereby) been so provided; provided that should a Lender, which is otherwise exempt from or subject to a reduced rate of withholding tax, become subject to Taxes because of its failure to deliver a form or document (or information required thereby), required under Section 2.13(c), the Borrower shall take such reasonable steps as the Lender shall request to assist the Lender to recover such Taxes (it being understood, however, that the Borrower shall have no liability to such Lender in respect of such Taxes). (e) If the Borrower is required to indemnify or pay additional amounts to or for the account of any Lender pursuant to this Section 2.13, then such Lender will take such action (including changing the jurisdiction of its Applicable Lending Office) as in the reasonable judgment of such Lender (i) will eliminate or reduce any such additional payment which may thereafter accrue; and (ii) is not otherwise commercially unreasonable. (f) Each Lender and the Agent shall use its reasonable efforts to obtain in a timely fashion any refund, deduction or credit of any Taxes and Other Taxes paid or reimbursed by the Borrower pursuant to this Section 2.13. If any Lender or the Agent receives a benefit in the nature of a refund, deduction or credit (including a refund in the form of a deduction from or credit against taxes that are otherwise payable by the Lender or the Agent) of any Taxes or Other Taxes with respect to which the Borrower has made a payment under Section 2.13(a) or (b), such Lender or the Agent (as the case may be) agrees to reimburse the Borrower to the extent of the benefit of such refund, deduction or credit promptly after the Agent or such Lender reasonably determines that such refund, deduction or credit has become final; provided that nothing contained in this subsection (f) shall require any Lender or the Agent (as the case may be) to make available its tax returns (or any other information relating to its taxes which it deems to be confidential) or to attempt to obtain any such refund, deduction or credit, which attempt would be inconsistent with any reporting position otherwise taken by the Agent or such Lender on its applicable tax returns. SECTION 2.14. Sharing of Payments, Etc. If any Lender shall obtain any payment (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise) on account of the Advances of any Nature owing to it (other than pursuant to Section 2.02(c), 2.03, 2.10, 2.11, 2.13 or 8.04) in excess of its ratable share of payments on account of Advances of the same Nature obtained by all the Lenders, such Lender shall forthwith purchase from the other Lenders such participations in the Advances of such Nature owing to them as shall be necessary to cause such purchasing Lender to share the excess payment ratably with each of them; provided that if all or any portion of such excess payment is thereafter recovered from such purchasing Lender, such purchase from each Lender shall be rescinded and each Lender shall repay to the purchasing Lender such purchase price to the extent of such recovery together with an amount equal to such Lender's ratable share (according to the proportion of (i) the amount of such Lender's required repayment to (ii) the total amount so recovered from the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered. The Borrower agrees that any Lender so purchasing a participation from another Lender pursuant to this Section 2.14 may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of set-off) with respect to such participation as fully as if such Lender were the direct creditor of the Borrower in the amount of such participation. SECTION 2.15. Reservation of CP Commitments. On the terms and conditions set forth in this Agreement, each Lender shall allocate from time to time all or any portion of its Commitment (such Lender's "CP Commitment") to provide liquidity support for Commercial Paper issued or to be issued by the Borrower (i) with respect to any Project, (ii) for the Borrower's general corporate purposes or to provide working capital for the Borrower, and/or (iii) to allow the Borrower, as permitted under this Agreement, to make a Restricted Payment or to repay Affiliate Subordinated Debt; provided that such CP Commitment shall be automatically reduced if and to the extent of all CP Advances made with respect to such CP Commitment and, if requested by the Borrower, if and to the extent the Commercial Paper issued with respect to which such CP Commitment was established is not refinanced on its maturity by the issuance of Rollover Commercial Paper. The Borrower may make more than one CP Commitment Reservation on the same day; provided that (a) no more than two CP Commitment Reservations of each Kind may be made during any one calendar month; and (b) only one CP Commitment (Original CP) Reservation shall be permitted with respect to any Project which is a Completed Project as of the Funds Availability Date or, if later, the date of acquisition of such Project by a Borrower Group Member. Each CP Commitment Reservation shall be made during the Availability Period, in an aggregate amount of $10,000,000 or an integral multiple of $1,000,000 in excess thereof and shall be made pro rata among all Lenders (according to their respective Commitments) following notice by the Borrower, given not later than the third Business Day prior to the date of a proposed CP Commitment Reservation, to the Agent (which shall give to each Lender prompt notice thereof), and upon a Utilization by way of CP Commitment Reservation, and to the extent it is still outstanding, (A) the unused portion of the Commitments available to the Borrower for Project Advances, Working Capital Advances and other CP Commitment Reservations shall be reduced by the outstanding amount of such Utilization; and (B) the Project Limit for such Project or the Borrowing Limit for Working Capital Advances, as applicable, shall be reduced by the outstanding amount of such Utilization. Each such notice of a CP Commitment Reservation shall be by telephone, confirmed immediately by telecopier in substantially the form of Exhibit B, (a) specifying therein (i) the requested date of such CP Commitment Reservation and aggregate amount of such CP Commitment Reservation; (ii) in the case of Original Commercial Paper, the aggregate principal amount of the Commercial Paper issued, or to be issued, for which such CP Commitment Reservation is requested (the amount of which Commercial Paper shall equal the CP Commitment Reservation requested) and specifying the relevant Project with respect to, or other purpose for, which such Commercial Paper is, or is to be, issued; and (iii) in the case of Refinancing Commercial Paper, the Project Advances, CP Advances, Working Capital Advances or, as otherwise permitted hereunder, Affiliate Subordinated Debt or Restricted Payments, as applicable, to be repaid or paid with proceeds from such Commercial Paper; (b) containing a representation that proceeds of such Commercial Paper will be used (i) to finance or refinance Project Costs (including, in the case of any Project, repayment of any Affiliate Subordinated Debt incurred by the Borrower (A) to fund the costs of acquiring such Project and Project Costs paid in respect of such Project prior to the initial Advances hereunder in respect of such Project, or (B) to pay Project Costs in respect of such Project at any time prior to the Non-Recourse Date for such Project) incurred for such Project, for the Borrower's general corporate purposes or to provide working capital for the Borrower, and/or to allow the Borrower, as permitted under this Agreement, to make a Restricted Payment or to repay Affiliate Subordinated Debt (in the case of a CP Commitment (Original CP) Reservation), and/or (ii) to repay outstanding Project Advances made with respect to such Project or to repay outstanding Working Capital Advances (in the case of a CP Commitment (Refinancing CP) Reservation); and (c) specifying the aggregate principal amount of all outstanding Advances, the unused Commitments and all outstanding CP Commitments, in each case, after giving effect to the proposed CP Commitment Reservation, issuance of such Commercial Paper and application of proceeds therefrom. All repayments of Commercial Paper made on the same day shall be applied (I) first, to amounts due on such date with respect to Commercial Paper relating to Completed Projects, Commercial Paper issued for the Borrower's general corporate purposes or to provide working capital for the Borrower and Commercial Paper issued to make a Restricted Payment or to repay Affiliate Subordinated Debt (as permitted by this Agreement), pari passu (or as otherwise specified by the Borrower), and (II) after all such amounts are paid, to amounts due on such date with respect to Commercial Paper relating to Uncompleted Projects. SECTION 2.16. Use of Proceeds. The proceeds of Advances shall be used (a) to finance Project Costs, to repay any Affiliate Subordinated Debt incurred by the Borrower to fund the acquisition and construction of any Project prior to the date of the initial Advances hereunder with respect to such Project or to repay any Affiliate Subordinated Debt incurred by the Borrower to pay Project Costs of any Project at any time prior to the Non-Recourse Date for such Project (such Advances, "Project Advances"); (b) for the Borrower's general corporate purposes or to provide working capital for the Borrower (such Advances, "Working Capital Advances"); or (c)(i) to pay amounts due under Commercial Paper issued by the Borrower (A) to finance or refinance Project Costs (including to repay CP Advances used to pay amounts due under Commercial Paper issued to finance or refinance Project Costs) with respect to any Project up to the CP Commitment Reservation(s) previously established for such Project, (B) for the Borrower's general corporate purposes or to provide working capital for the Borrower up to the CP Commitment Reservation(s) previously established for such purpose, and/or (C) to allow the Borrower, as permitted under this Agreement, to make a Restricted Payment or to repay Affiliate Subordinated Debt up to the CP Commitment Reservation(s) previously established for such purpose; or (ii) to pay amounts due or owing under Affiliate Subordinated Debt issued to repay Commercial Paper issued by the Borrower up to the CP Commitment Reservation(s) previously established in connection with such Commercial Paper (any of such Advances under subparagraphs (c)(i) and (c)(ii), "CP Advances"). Article III CONDITIONS TO EFFECTIVENESS AND LENDING SECTION 3.01. Conditions Precedent to Effectiveness of this Agreement. This Agreement shall become effective on and as of the first date (the "Amendment Effective Date") on which the following conditions precedent have been satisfied: (a) The Borrower shall have paid all accrued fees and expenses of the Agent and the Lenders (including the accrued fees and expenses of each of special New York counsel and regulatory counsel to the Agent) that are then due and payable. (b) On the Amendment Effective Date, (i)(a) the Borrower shall represent and warrant that no approval or authorization or other action by, or notice to or filing, registration or qualification with, any Governmental Authority is required for the due execution, delivery or performance by the Borrower of this Agreement and the transactions contemplated hereby, except for those which have been duly obtained or made and are in full force and effect, and (b) the Borrower shall represent and warrant that as of the Amendment Effective Date no Affiliate Subordinated Debt is outstanding other than Affiliate Subordinated Debt held by Southern, and (ii) the Agent shall have received for the account of each Lender a certificate to such effect signed by a duly authorized officer of the Borrower. (c) The Agent shall have received on or before the Amendment Effective Date the following, each dated such day and in sufficient copies for each Lender: (i) Letter Amendment No. 1 to Completion Guarantee, dated the date hereof, among the Borrower, Southern and the Agent and Letter Amendment No. 1 to Equity Contribution Agreement, dated the date hereof, among the Borrower, Southern and the Agent, each duly executed by the Loan Parties; (ii) the Master Assignment and Acceptance, duly executed by the parties thereto; (iii) a Note payable to the order of each Lender, duly executed by the Borrower; (iv) opinions of counsel for the Loan Parties, substantially in the respective forms of Exhibit E; and (v) an opinion of Shearman & Sterling, counsel for the Agent. (d) The Borrower shall have received a reaffirmation from S&P and Moody's of a rating of BBB+/Baa1, respectively, on the Debt under the Facility (giving effect to the Southern Completion Guarantee) as of the Amendment Effective Date, a copy of which shall have been delivered to the Agent. (e) Prior to delivering an executed counterpart of this Agreement, the Lenders shall have received a reasonably satisfactory report from the Independent Engineer and Environmental Consultant and a reasonably satisfactory report from the Independent Market Consultant. SECTION 3.02. [Intentionally Omitted]. SECTION 3.03. Conditions Precedent to Subsequent Advances for an Initial Project. The obligation of each Lender to make a Project Advance on the occasion of each Borrowing after the first Borrowing, in each case, with respect to any Initial Project shall be subject to the following conditions precedent: (a) All representations and warranties contained in Section 4.01 (other than those listed in Sections 4.01(h) and (j)) and all representations and warranties contained in Sections 4 and 2 of the Southern Completion Guarantee and the Southern Equity Agreement (other than Sections 4(f) and (h) and 2(f) and (h), respectively), are true and correct in all material respects on and as of the date of such Borrowing, before and after giving effect to such Borrowing and to the application of the proceeds therefrom, as though made on and as of such date (and each of the giving of the applicable Notice of Utilization and the acceptance by the Borrower of the proceeds of such Borrowing shall constitute a representation and warranty made herein, with respect to Section 4.01 and to Sections 4 and 2 of the Southern Completion Guarantee and the Southern Equity Agreement, respectively, by the Borrower to such effect). (b) The Agent shall have received, together with or prior to delivery of the Notice of Utilization with respect to such Borrowing, a certificate of the Borrower: (i) certifying the Project Costs, including construction and related costs, interest and commitment fees, that have been incurred in connection with such Project since the immediately preceding Borrowing related to it; (ii) confirming that (A) except as otherwise provided in clause (B) below, all Borrowings previously made to the Borrower for such Project were applied to pay Project Costs for, or to repay Affiliate Subordinated Debt incurred with respect to, such Project in accordance with this Agreement; and (B) the proceeds of such Borrowing, and of the immediately preceding Borrowing (but only to the extent not previously applied in accordance with clause (A) above), will be applied (1) to Project Costs in respect of such Project which have been paid, are then due or will become due within three (3) months from the date of such Borrowing (or, in the case of the last Borrowing with respect to such Project only, then due or to become due after the date of such Borrowing), in each case, in accordance with this Agreement; or (2) to repay any Affiliate Subordinated Debt incurred by the Borrower to pay Project Costs in respect of such Project at any time prior to the Non-Recourse Date for such Project; and (iii) certifying that proceeds of the Borrowing shall be used to fund, pro rata with Equity Contributions, Project Costs for such Project so that the ratio of outstanding Debt to Equity Contributions, in each case, with respect to such Project does not exceed the Debt/Equity Ratio applicable to such Project, as at the date of such Borrowing and after giving effect to such Borrowing and such Equity Contributions, and the application of proceeds therefrom. SECTION 3.04. Conditions Precedent to the Initial Advances for Each Subsequent Project. The obligation of each Lender to make a Project Advance on the occasion of the first Borrowing with respect to any Subsequent Project shall be subject to the following conditions precedent: (a) If, at the time of such Borrowing, the Borrower does not have an Investment Grade Rating: (i) All representations and warranties of the Borrower contained in Section 4.01 and all representations and warranties of Southern contained in Sections 4 and 2 of the Southern Completion Guarantee and the Southern Equity Agreement, respectively, are true and correct in all material respects on and as of the date of such Borrowing, before and after giving effect to such Borrowing and to the application of the proceeds therefrom, as though made on and as of such date (and each of the giving of the applicable Notice of Utilization and the acceptance by the Borrower of the proceeds of such Borrowing shall constitute a representation and warranty made herein, with respect to Section 4.01, by the Borrower to such effect). (ii) The Agent shall have received no later than thirty (30) days before such Borrowing a certificate of the Borrower: (A) certifying that such Project will not cause the number of Subsequent Projects (including such Project) to be greater than two (2) or cause the projected aggregate amount of Utilizations made or to be made under the Facility related to Subsequent Projects, including such Project (in each case, as set forth in their respective Project Budgets), to exceed $500,000,000; (B) attaching an Initial Project Budget (together with a calculation by the Borrower, and agreed to by the Agent, showing a determination of the Initial Project Limit for such Project) and a Project Schedule for such Project; (C) attaching Project Base Case Projections for such Project, together with a statement of the assumptions underlying such projections demonstrating the Required Project DSCR applicable to such Project; (D) certifying that, including such Project, Peakers represent no more than 25% of the total megawatt capacity owned by the Borrower and all Relevant Subsidiaries; and (E) certifying the Project Costs, including construction and related costs, acquisition cost, construction interest and commitment fees, as the case may be, incurred in connection with such Project prior to such Borrowing. (iii) The Agent shall have received, together with or prior to delivery of the Notice of Utilization with respect to such Borrowing, a certificate of the Borrower: (A) certifying that proceeds of the Borrowing shall be used to fund, pro rata with Equity Contributions, Project Costs for such Project so that the ratio of outstanding Debt to Equity Contributions, in each case, with respect to such Project does not exceed the Debt/Equity Ratio applicable to such Project, as at the date of such Borrowing and after giving effect to such Borrowing and such Equity Contributions, and the application of proceeds therefrom; (B) attaching resolutions of the Borrower authorizing such Project; and (C) if such Project is a Peaker only, attaching details (as agreed with the Independent Engineer and Environmental Consultant) of testing procedures applicable to, and a seven day reliability run to be successfully completed as a condition for, Substantial Completion of such Project. (iv) The Agent shall have received no later than thirty (30) days before such Borrowing: (A) If such Project is an Uncompleted Project, a certificate of Southern certifying that each of the Southern Completion Guarantee and the Southern Equity Agreement is still in full force and effect and has not been amended since the Amendment Effective Date except to apply to Subsequent Projects. (B) If such Project is an Uncompleted Project, the Southern Completion Guarantee and the Southern Equity Agreement, in each case, amended in accordance with the terms thereof to extend its terms to apply to such Project. (C) A certificate of the Independent Engineer and Environmental Consultant with respect to such Project, substantially in the form of Exhibit I-2. (D) A certificate of the Independent Insurance Consultant with respect to such Project, substantially in the form of Exhibit J-2. (E) A certificate of the Independent Market Consultant with respect to such Project, substantially in the form of Exhibit K-2. (v) If such Project is not wholly owned by a Borrower Group Member, each other owner shall, on or before the date of such Borrowing, have contributed its pro rata share of Project Costs or in the event that any such third party owner fails to contribute its pro rata share of Project Costs, the Borrower shall have funded such Project Costs through Equity Contributions. (b) If, at the time of such Borrowing, the Borrower has an Investment Grade Rating: (i) All representations and warranties contained in Section 4.01 and all representations and warranties contained in Sections 4 and 2 of the Southern Completion Guarantee and the Southern Equity Agreement, respectively, are true and correct in all material respects on and as of the date of such Borrowing, before and after giving effect to such Borrowing and to the application of the proceeds therefrom, as though made on and as of such date (and each of the giving of the applicable Notice of Utilization and the acceptance by the Borrower of the proceeds of such Borrowing shall constitute a representation and warranty made herein, with respect to Section 4.01, by the Borrower to such effect). (ii) The Agent shall have received, together with or prior to delivery of the Notice of Utilization with respect to such Borrowing, an affirmation by Moody's and S&P of the Investment Grade Rating for the Borrower, taking into account such Project and the Debt to be incurred with respect thereto. (iii) The Agent shall have received no later than thirty (30) days before such Borrowing a certificate of the Borrower: (A) attaching an Initial Project Budget (together with a calculation by the Borrower, and agreed to by the Agent, showing a determination of the Initial Project Limit for such Project) and a Project Schedule for such Project; (B) attaching Project Base Case Projections for such Project, together with a statement of the assumptions underlying such projections demonstrating the Required Project DSCR applicable to such Project; provided that the Required Project DSCR need not be satisfied during any Stub Period for such Project if (1) such Stub Period does not exceed one year in duration; (2) the relevant PPA Documents for such Project are executed on or before such Borrowing; and (3) Stub Periods shall apply to no more than two Subsequent Projects (including such Project, and no more than one of which may be a Peaker), at any time, the aggregate Project Costs of which does not exceed $400,000,000; (C) certifying that, including such Project, Peakers represent no more than 25% of the total megawatt capacity owned by the Borrower and all Relevant Subsidiaries; and (D) certifying the Project Costs, including construction and related costs, acquisition cost, construction interest and commitment fees, as the case may be, incurred in connection with such Project prior to such Borrowing. (iv) The Agent shall have received, together with or prior to delivery of the Notice of Utilization with respect to such Borrowing, a certificate of the Borrower: (A) certifying that proceeds of such Borrowing are used to fund, pro rata with Equity Contributions, Project Costs for such Project so that the ratio of outstanding Debt to Equity Contributions, in each case, with respect to such Project does not exceed the Debt/Equity Ratio applicable to such Project, as at the date of such Borrowing and after giving effect to such Borrowing and such Equity Contributions, and the application of proceeds therefrom; (B) attaching resolutions of the Borrower authorizing such Project; and (C) if such Project is a Peaker only, attaching details (as agreed with the Independent Engineer and Environmental Consultant) of testing procedures applicable to, and a seven day reliability run to be successfully completed as a condition for, Substantial Completion of such Project. (v) The Agent shall have received no later than thirty (30) days before such Borrowing: (A) If such Project is an Uncompleted Project, a certificate of Southern certifying that each of the Southern Completion Guarantee and the Southern Equity Agreement are still in full force and effect and has not been amended since the Amendment Effective Date except to apply to Subsequent Projects. (B) If such Project is an Uncompleted Project, the Southern Completion Guarantee and the Southern Equity Agreement, in each case, amended in accordance with the terms thereof to extend its terms to apply to such Project. (C) A certificate of the Independent Engineer and Environmental Consultant with respect to such Project, substantially in the form of Exhibit I-2. (D) A certificate of the Independent Insurance Consultant with respect to such Project, substantially in the form of Exhibit J-2. (E) A certificate of the Independent Market Consultant with respect to such Project, substantially in the form of Exhibit K-2. (vi) If such Project is not wholly owned by any Borrower Group Member, each other owner shall, on or before the date of such Borrowing, have contributed its pro rata share of Project Costs or in the event that any such third party owner so fails to contribute its pro rata share of Project Costs, the Borrower shall have funded such Project Costs through Equity Contributions. (c) The Agent shall have received no later than thirty (30) days before such Borrowing, a certificate of the Borrower attaching certified copies of the executed PPA Documents for such Project (if any, and if not previously provided to the Lenders in satisfaction of Section 3.01(c)(ix)(D) of the Original Credit Agreement, and certifying that such PPA Documents (i) either (A) conform to the relevant form provided to the Lenders in satisfaction of Section 3.01(c)(ix)(D) of the Original Credit Agreement; or (B) substantially and accurately reflect the term sheet provided to the Lenders in satisfaction of Section 3.01(c)(ix)(D) of the Original Credit Agreement or comply with all of the PPA Parameters, and do not contain any additional terms not set forth in such term sheet or the PPA Parameters (as applicable) which impose additional material obligations outside the ordinary course of business of the industry generally on, or otherwise materially reduce the benefit to, any Borrower Group Member under such PPA Documents; or (C) are one or more of the EMC Contracts; and (ii) are in full force and effect, and that all necessary regulatory approvals required to be obtained with respect to such PPA Documents under all Federal and State Energy Laws and Regulations have been obtained, are in full force and effect and are final and non-appealable but for any Filing Conditions, and do not contain any restrictions, conditions or requirements which are then required to be satisfied and have not been satisfied, other than any Filing Conditions. If such PPA Documents are one or more of the EMC Contracts, the certificate of the Borrower shall also certify that, to the best of the Borrower's knowledge, (A) no "MAC" (as defined in such EMC Contract) has occurred to the applicable EMC Counterparty since the date of this Agreement, (B) no event of the type specified in Section 6.01(f) hereof has occurred in respect of the EMC Counterparty since the date of this Agreement, (C) no material adverse change in the membership profile of the EMC Counterparty has occurred since the date of this Agreement, (D) the fuel pass-through mechanism included in such EMC Contract provides a reasonable method for the Borrower to recover fuel related costs under such EMC Contract, and (E) the capacity and variable O&M charges included in such EMC Contract are reasonably sufficient to cover the fixed and variable operations and maintenance costs of the Borrower in meeting its obligations thereunder. SECTION 3.05. Conditions Precedent to Subsequent Advances for a Subsequent Project. The obligation of each Lender to make a Project Advance on the occasion of each Borrowing after the first Borrowing, in each case, with respect to any Subsequent Project shall be subject to the following conditions precedent: (a) All representations and warranties contained in Section 4.01 (other than those listed in Sections 4.01(h) and (j)) and all representations and warranties contained in Sections 4 and 2 of the Southern Completion Guarantee and the Southern Equity Agreement (other than Sections 4(f) and (h) and 2(f) and (h), respectively), are true and correct in all material respects on and as of the date of such Borrowing, before and after giving effect to such Borrowing and to the application of the proceeds therefrom, as though made on and as of such date (and each of the giving of the applicable Notice of Utilization and the acceptance by the Borrower of the proceeds of such Borrowing shall constitute a representation and warranty made herein, with respect to Section 4.01 and to Sections 4 and 2 of the Southern Completion Guarantee and the Southern Equity Agreement, respectively, by the Borrower to such effect). (b) The Agent shall have received, together with or prior to delivery of the Notice of Utilization with respect to such Borrowing, a certificate of the Borrower: (i) certifying the Project Costs, including construction and related costs, construction interest and commitment fees, that have been incurred in connection with such Project since the immediately preceding Borrowing related to it; (ii) confirming that (A) except as otherwise provided in clause (B) below, all Borrowings previously made to the Borrower for such Project were applied to pay Project Costs for, or to repay Affiliate Subordinated Debt incurred with respect to, such Project in accordance with this Agreement; and (B) the proceeds of such Borrowing, and of the immediately preceding Borrowing (but only to the extent not previously applied in accordance with clause (A) above), will be applied (1) to Project Costs in respect of such Project which have been paid, are then due or will become due within three (3) months from the date of such Borrowing (or, in the case of the last Borrowing with respect to such Project only, then due or to become due after the date of such Borrowing), in each case, in accordance with this Agreement; or (2) to repay any Affiliate Subordinated Debt incurred by the Borrower to pay Project Costs in respect of such Project at any time prior to the Non-Recourse Date for such Project; and (iii) certifying that proceeds of the Borrowing shall be used to fund, pro rata with Equity Contributions, Project Costs for such Project so that the ratio of outstanding Debt to Equity Contributions, in each case, with respect to such Project does not exceed the Debt/Equity Ratio applicable to such Project, as at the date of such Borrowing and after giving effect to such Borrowing and such Equity Contributions, and the application of proceeds therefrom. SECTION 3.06. Conditions Precedent to CP Commitment Reservations. The obligation of each Lender to establish a CP Commitment on the occasion of each CP Commitment Reservation shall be subject to the following conditions precedent: (a) In the case of the first CP Commitment (Original CP) Reservation for any Initial Project requested prior to the first Borrowing with respect to such Initial Project, the satisfaction of all conditions referred to in Sections 3.02(a) through (e) inclusive of the Original Credit Agreement, with all references therein to "Borrowing" and proceeds of any Borrowing thereunder being read and construed as references to "CP Commitment (Original CP) Reservation" and the proceeds of the Commercial Paper with respect to which such CP Commitment (Original CP) Reservation is being requested, where appropriate. (b) In the case of any CP Commitment (Original CP) Reservation requested after the first Borrowing or the first CP Commitment Reservation, in each case with respect to an Initial Project, the satisfaction of all conditions referred to in Section 3.03(a) and (b), with all references therein to "Borrowing" and proceeds of any Borrowing thereunder being read and construed as references to "CP Commitment (Original CP) Reservation" and the proceeds of the Commercial Paper for which such CP Commitment (Original CP) Reservation is being requested, where appropriate. (c) In the case of any CP Commitment (Refinancing CP) Reservation requested with respect to any Initial Project, the satisfaction of the condition referred to in Section 3.03(a), with all references therein to "Borrowing" and proceeds of any Borrowing thereunder being read and construed as references to "CP Commitment (Refinancing CP) Reservation" and the proceeds of the Project Advances being refinanced by the Refinancing Commercial Paper for which such CP Commitment (Refinancing CP) Reservation is being requested, where appropriate. (d) In the case of the first CP Commitment (Original CP) Reservation for any Subsequent Project requested prior to the first Borrowing with respect to such Subsequent Project, the satisfaction of all conditions referred to in Sections 3.04(a) through (c) inclusive, with all references therein to "Borrowing" and proceeds of any Borrowing thereunder being read and construed as references to "CP Commitment (Original CP) Reservation" and the proceeds of the Commercial Paper with respect to which such CP Commitment (Original CP) Reservation is being requested, where appropriate. (e) In the case of any CP Commitment (Original CP) Reservation requested after the first Borrowing or the first CP Commitment Reservation, in each case, with respect to a Subsequent Project, the satisfaction of all conditions referred to in Section 3.05(a) and (b), with all references therein to "Borrowing" and proceeds of any Borrowing thereunder being read and construed as references to "CP Commitment (Original CP) Reservation" and the proceeds of the Commercial Paper for which such CP Commitment (Original CP) Reservation is being requested, where appropriate. (f) In the case of any CP Commitment (Refinancing CP) Reservation requested with respect to any Subsequent Project, the satisfaction of the condition referred to in Section 3.05(a), with all references therein to "Borrowing" and proceeds of any Borrowing thereunder being read and construed as references to "CP Commitment (Refinancing CP) Reservation" and the proceeds of the Project Advances being refinanced by the Refinancing Commercial Paper for which such CP Commitment (Refinancing CP) Reservation is being requested, where appropriate. (g) In the case of any CP Commitment Reservation requested in connection with Commercial Paper issued, or to be issued, for the Borrower's general corporate purposes or to provide working capital for the Borrower or to repay CP Advances, the satisfaction of all conditions referred to in Section 3.07(a), and (b), with all references therein to "Borrowing" and proceeds of any Borrowing thereunder being read and construed as references to "CP Commitment (Original CP) Reservation" or "CP Commitment (Refinancing CP) Reservation", as applicable, and the proceeds of the Commercial Paper with respect to which such CP Commitment Reservation is being requested, where appropriate. (h) In the case of any CP Commitment Reservation requested in connection with Commercial Paper issued, or to be issued, to allow the Borrower to make a Restricted Payment or repay Affiliate Subordinated Debt, in each case as permitted under this Agreement, the satisfaction of (i) all conditions referred to in Section 3.07(a), with all references therein to "Borrowing" and proceeds of any Borrowing thereunder being read and construed as references to "CP Commitment (Original CP) Reservation" and the proceeds of the Commercial Paper with respect to which such CP Commitment Reservation is being requested, where appropriate, and (ii) the condition that the amount of such CP Commitment Reservation shall not exceed the aggregate principal amount of Debt and/or Commercial Paper repaid by the Borrower with the Borrower's cash generated from operations, as certified by the Borrower quarterly and at the time of any CP Commitment Reservation under this Section 3.06(h) in notice(s) to the Agent, less any amount that the Borrower would have been required to prepay under Sections 2.09(b)(i), 2.09(b)(ii) or 2.09(b)(iii), but for the repayment for which such notice(s) is given, if a Relevant Event occurred during the period from the earliest date of any such repayment specified in the relevant notice(s) up to and including the date of such CP Commitment Reservation. SECTION 3.07. Conditions Precedent to the Working Capital and CP Advances. The obligation of each Lender to make a Working Capital Advance or a CP Advance with respect to an existing CP Commitment Reservation on the occasion of the related Borrowing thereto, shall be subject to the following conditions precedent: (a) All representations and warranties contained in Section 4.01 (other than those listed in Sections 4.01(h) and (j)) and all representations and warranties contained in Sections 4 and 2 of the Southern Completion Guarantee and the Southern Equity Agreement (other than Sections 4(f) and (h) and 2(f) and (h), respectively), are true and correct in all material respects on and as of the date of such Borrowing, before and after giving effect to such Borrowing and to the application of the proceeds therefrom, as though made on and as of such date (and each of the giving of the applicable Notice of Utilization and the acceptance by the Borrower of the proceeds of such Borrowing shall constitute a representation and warranty made herein, with respect to Section 4.01 and to Sections 4 and 2 of the Southern Completion Guarantee and the Southern Equity Agreement, respectively, by the Borrower to such effect); provided, however, that in addition to the foregoing requirements of this Section 3.07(a), if such Borrowing is to repay Affiliate Subordinated Debt issued to repay Commercial Paper for which such CP Commitment Reservation was established, (i) the representations and warranties contained in Sections 4.01(h) and (j) shall be true and correct in all material respects on and as of the date of such Borrowing, before and after giving effect to such Borrowing and to the application of proceeds therefrom, as though made on and as of such date, and (ii) to the extent such Borrowing is in respect of an Uncompleted Project for which there are outstanding Utilizations, the representations and warranties contained in Sections 4(f) and (h) of the Southern Completion Guarantee and Sections 2(f) and (h) of the Southern Equity Agreement shall be true and correct in all material respects on and as of the date of such Borrowing, before and after giving effect to such Borrowing and to the application of proceeds therefrom, as though made on and as of such date. (b) The Agent shall have received a certificate of the Borrower certifying that the proceeds of such Borrowings shall be used (i) in the case of a Borrowing comprising of Working Capital Advances, for the Borrower's working capital or general corporate purposes; and (ii) in the case of a Borrowing comprising CP Advances, for payment of (A) obligations owing with respect to Commercial Paper for which such CP Commitment Reservation was established, or (B) Affiliate Subordinated Debt issued to repay Commercial Paper for which such CP Commitment Reservation was established. (c) In the case of a Borrowing comprising of Working Capital Advances, the Agent shall have received a certificate of the Borrower certifying that the aggregate outstanding amount of all Working Capital Advances, before and after giving effect to such Advance and to the application of the proceeds therefrom, does not exceed $50,000,000. SECTION 3.08. Determinations Under Sections 3.01 Through 3.07, Inclusive. For purposes of determining compliance with the conditions specified in Sections 3.01 through 3.07, inclusive, each Lender shall be deemed to have consented to, approved or accepted or to be satisfied with each document or other matter required thereunder to be consented to or approved by or acceptable or satisfactory to the Lenders unless an officer of the Agent responsible for the transactions contemplated by this Agreement shall have received notice from such Lender prior to the Amendment Effective Date (in the case of Section 3.01) or the date of the relevant Borrowing or CP Commitment Reservation, as applicable (in all other cases), specifying its objection thereto. The Agent shall promptly notify the Lenders of the occurrence of the Amendment Effective Date. Article IV REPRESENTATIONS AND WARRANTIES SECTION 4.01. Representations and Warranties of the Borrower. The Borrower represents and warrants as follows: (a) Organization. The Borrower is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Each Relevant Subsidiary is a limited liability company or a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization. Each Borrower Group Member is duly qualified or licensed and in good standing in each other jurisdiction in which it owns or leases property or in which the conduct of its business requires it to so qualify or be licensed. (b) Power and Authority. Each Borrower Group Member has the power to execute, deliver and perform its obligations under each Material Document to which it is or is to be a party and to take all action necessary to consummate the transactions contemplated by each such Material Document. (c) Due Authorization. The execution, delivery and performance by each Borrower Group Member of each Material Document to which it is or is to be a party (including, with respect to any applicable PPA Document, the assignment of rights to, and the assumption of liabilities by, such Borrower Group Member thereunder) and the transactions contemplated thereby have been duly authorized by all necessary action and do not (i) contravene its certificate of incorporation or bylaws (or similar constitutive or governing documents); or (ii) conflict with or contravene any Law to which it or any of its Assets are subject which has had or would reasonably be expected to have a Material Adverse Effect as to the Borrower. (d) Governmental Approval. No authorization or approval or other action by, and no notice to or filing with, any Governmental Authority is required for the due execution, delivery and performance by the Borrower of the Loan Documents, or the transactions contemplated thereby, except for those which have been duly obtained or made and are in full force and effect. With respect to each Project for which a Utilization is then outstanding or a Notice of Utilization has been issued by the Borrower, no authorization or approval or other action by, and no notice to or filing with, any Governmental Authority is then required for the due execution, delivery and performance by each Borrower Group Member of the PPA Documents relating to such Project and to which it is or is to be a party, or the transactions contemplated thereby, except for those which have been duly obtained or made and are in full force and effect. (e) Binding and Enforceable. The Material Documents constitute the legal, valid and binding obligation of each Borrower Group Member party thereto, enforceable against the Borrower Group Member party thereto in accordance with their respective terms, subject to Laws affecting the enforcement of creditors' rights generally and to general principles of equity. (f) No Violation. The execution, delivery and performance by each Borrower Group Member of each Material Document to which it is a party do not violate, in a manner which has had or would reasonably be expected to have a Material Adverse Effect as to the Borrower, any agreement binding on it. (g) No Default. No Default or Event of Default has occurred and is continuing, other than any Default or Event of Default which has been waived. (h) Litigation. No litigation, arbitration or administrative proceeding is currently pending or, to the Borrower's knowledge, threatened against any Borrower Group Member (i) to restrain the entry by such Borrower Group Member into, the enforcement of, or exercise of any rights by the Lenders or the Agent under, or the performance or compliance by such Borrower Group Member with any obligations under, any Material Document to which it is a party; (ii) which has had or would reasonably be expected to have a Material Adverse Effect; or (iii) which purports to affect the legality, validity or enforceability of any such Material Document or the transactions contemplated thereby. (i) Financial Condition. The unaudited consolidated balance sheet of the Borrower and its consolidated Subsidiaries as at December 31, 2002, heretofore furnished to the Lenders, fairly presents in all material respects the consolidated financial condition of the Borrower and its consolidated Subsidiaries as at such date in accordance with GAAP. (j) Material Adverse Change. There has been no change in the business, condition (financial or otherwise) or results of operations of the Borrower or its consolidated Subsidiaries since December 31, 2002 which has had or would reasonably be expected to have a Material Adverse Effect as to the Borrower. (k) Taxes. There has been no matter with respect to payment of taxes or filing of tax returns which has had or would reasonably be expected to have a Material Adverse Effect as to the Borrower. (l) Investment Company Act. Neither the Borrower nor any of its Subsidiaries is an "investment company" registered or required to be registered under the Investment Company Act of 1940, as amended, or is a company "controlled" by an "investment company", in each case, as such terms are defined in such Act. (m) Environmental Matters. To the knowledge of the Borrower, there has been no matter with respect to environmental compliance which has had or would reasonably be expected to have a Material Adverse Effect as to the Borrower. (n) Accuracy of Information. To the knowledge of the Borrower (i) the Information Memorandum (other than the projections included therein) was complete and correct in all material respects on and as of the date thereof; and (ii) all financial projections contained in the Information Memorandum were prepared in good faith and based upon assumptions which management of the Borrower believed to be not unreasonable at the time the projections were prepared (it being understood that (A) such projections are subject to significant uncertainties and contingencies, many of which are beyond the Borrower's control; (B) no assurance can be given that the projections will be realized; and (C) no representation or warranty can be made as to the accuracy of such projections). (o) Affiliate Transactions. All transactions between a Borrower Group Member and an Affiliate thereof are on arm's-length terms or are "at cost", in each case, in accordance with PUHCA or applicable rules and regulations issued pursuant thereto. (p) ERISA. (i) No Reportable Event has occurred and is continuing with respect to any Plan; (ii) no Plan has an accumulated funding deficiency determined under Section 412 of the Code; (iii) no proceedings have been instituted or, to the knowledge of the Borrower, planned to terminate any Plan; (iv) neither the Borrower, nor any member of a Controlled Group, nor any duly appointed administrator of a Plan has instituted or intends to institute proceedings to withdraw from any Multiemployer Pension Plan (as defined in Section 3(37) of ERISA); and (v) each Plan has been maintained and funded in all material respects in accordance with its terms and with the provisions of ERISA applicable thereto. (q) PUHCA and FPA. The Borrower is an "electric utility company" (as defined in PUHCA). No authorization or approval by, or notice to or filing with, any Governmental Authority is required for (i) the acquisition of each Project by a Borrower Group Member, other than those which, on or prior to the first Utilization with respect to such Project, have been duly obtained or made and are in full force and effect; or (ii) the issuance of the Notes, the incurrence of the Debt contemplated under this Agreement and the borrowing, repayment and reborrowing of the Advances, other than those which have been duly obtained or made and are in full force and effect. All necessary rate schedules are on file and effective with the Federal Energy Regulatory Commission for the Borrower Group Members to sell power at wholesale. The Borrower reasonably believes that timely interconnection agreements for the Projects will be available in the ordinary course. (r) No Subsidiary. The Borrower has not had any Subsidiaries on or prior to the Amendment Effective Date other than Southern Company-Florida LLC and limited liability companies wholly owned by the Borrower and formed for the purpose of acquiring land on which future generation Plants may be built. (s) Title to Property. Except for the Permitted Encumbrances, with respect to all real property necessary for, or material to, the development, ownership, operation and maintenance of the Projects and which is not leased by it, each Borrower Group Member has such title as a reputable title company doing business in the state in which such real property is located would insure, subject to such exceptions as would not materially affect the contemplated use of such property by such Borrower Group Member, and with respect to all such real property which is leased by a Borrower Group Member, such lease is the legal, valid and binding obligation of the lessor thereof, enforceable in accordance with its terms. Article V COVENANTS OF THE BORROWER SECTION 5.01. Affirmative Covenants. So long as any Advance shall remain unpaid or any Lender shall have any Commitment under this Agreement, the Borrower will: (a) Ratio of Recourse Debt to Recourse Capital. At the end of each fiscal quarter (including the fourth fiscal quarter) of the Borrower for which financial statements have most recently been delivered to the Agent by the Borrower pursuant to Section 5.01(d) or (e), cause the ratio of Recourse Debt to Total Capitalization to be not more than 0.65:1:00 (65%), calculated as of the date of such financial statements; provided that at the Borrower's election, (i) capital contributions or Affiliate Subordinated Debt made to the Borrower within forty-five (45) days after the end of such fiscal quarter, net of Restricted Payments made by the Borrower during such 45-day period, shall be taken into account in calculating Total Capitalization as at the end of such fiscal quarter; and (ii) if any such capital contribution or Affiliate Subordinated Debt is made to the Borrower and included for such calculation, the incurrence or repayment, if any, of Debt during such 45-day period, shall also be taken into account in calculating Recourse Debt as at the end of such fiscal quarter; provided further that until such time ---------------- as the Franklin 3 Plant meets the conditions precedent that would entitle such Plant to become a Subsequent Project under this Agreement, an amount of equity and/or Affiliate Subordinated Debt equal to any capital costs paid or incurred by the Borrower with respect to the acquisition and construction of the Franklin 3 Plant shall not be included in the calculation of the ratio of Recourse Debt to Total Capitalization under this Section 5.01(a). (b) Compliance with Law. Comply, and cause each Relevant Subsidiary to comply, with the requirements of all Laws applicable to it in the conduct of its business, where failure to do so would reasonably be expected to have a Material Adverse Effect. (c) Maintenance of Existence. Preserve and maintain, and cause each Relevant Subsidiary to preserve and maintain, its legal existence as a corporation or limited liability company and the rights, licenses, permits, privileges, properties and franchises material to its business, except that (i) the Borrower may be merged or consolidated with or into another Person if the continuing or surviving Person is the Borrower or is organized under the laws of any State of the United States; and (ii) the Borrower may be converted into a limited liability company upon giving notice to the Agent at least ten (10) Business Days prior to such conversion if such limited liability company expressly assumes all of the obligations of the Borrower under each Material Document to which it is a party; provided that in each case (A) -------- immediately before the consummation of such transaction there is no Default or Event of Default; (B) such consummation shall not result in a Default or Event of Default; and (C) the resulting Person shall have delivered evidence of its due organization, incumbency of officers or managers, and unless all of the Borrower's obligations under the Material Documents to which the Borrower is a party have been assumed by operation of law by such resulting Person, a certified copy of the agreement pursuant to which such resulting Person assumes all such obligations, and an opinion of counsel, in each case, in form reasonably satisfactory to the Agent, and certified copies of such Person's constitutive and other governing documents. (d) Annual Financial Statements, Etc. Within one hundred and twenty (120) days after the end of each fiscal year of the Borrower (beginning with the fiscal year 2002), deliver to the Agent copies for the Lenders of its consolidated financial statements as of the end of and for such fiscal year duly certified by the independent accountants of the Borrower. Such financial statements shall be prepared in accordance with GAAP and shall be accompanied by a certificate of the chief financial officer or the treasurer of the Borrower as to compliance with the terms of this Agreement and setting forth in reasonable detail the calculations necessary to demonstrate compliance with Section 5.01(a). (e) Interim Financial Statements, Etc. Within sixty (60) days after the end of each of the first three fiscal quarters of each fiscal year of the Borrower (beginning with the first such fiscal quarter to end after December 31, 2002), deliver to the Agent copies for the Lenders of its unaudited consolidated financial statements as of the end of and for such fiscal quarter duly certified (subject to year-end adjustments) by the chief financial officer or the treasurer of the Borrower as having been prepared in accordance with GAAP (except as to the omission of footnotes). Such financial statements shall be accompanied by a certificate of the chief financial officer or the treasurer of the Borrower as to compliance with the terms of this Agreement and setting forth in reasonable detail the calculations necessary to demonstrate compliance with Section 5.01(a). (f) Other Information. Deliver to the Agent as soon as reasonably practicable such other information relating to the then existing financial condition of the Borrower and its consolidated Subsidiaries as the Agent may from time to time reasonably request, except such information the disclosure of which is prohibited by Law or by regulatory requirement applicable to the Borrower. (g) Notice of Default. Promptly, and in any event within ten (10) Business Days, notify the Agent of the occurrence of any Default or Event of Default of which the chief financial officer or treasurer of the Borrower has actual knowledge. (h) Notice Concerning PPA Documents. Promptly notify the Agent of (i) the entry by any Borrower Group Member into a PPA Document and any issuance of Acceptable Credit Support in favor of a Borrower Group Member; and (ii) the termination of any PPA Document prior to its stated expiration. (i) Project Information. Promptly, and in any event within ten (10) Business Days, after delivery of a cash basis financial statement to the Agent pursuant to Section 5.01(d) or (e), notify the Agent if the ratio of Cash Available for Corporate Debt Service to Corporate Interest is 2.00:1.00 or less or, if the Borrower does not have at least an Investment Grade Rating, 2.25:1.00 or less, in each case, as calculated on a rolling four (4) fiscal quarter basis commencing from the first fiscal quarter to commence after Substantial Completion is achieved for any Project which, as of the date of this Agreement or the date of the first Utilization with respect thereto, is an Uncompleted Project and ending on the date of such financial statement (or, if at such time less than four (4), but at least two (2), such fiscal quarters have ended, as calculated for the fiscal quarters ending on the date of such financial statement), and deliver to the Agent as soon as reasonably practicable such information relating to the completion testing, operations and maintenance of any Completed Project for review by the Independent Engineer and Environmental Consultant as the Agent (acting upon the instructions of the Majority Lenders) may from time to time thereafter reasonably request, except such information the disclosure of which is prohibited by Law or by regulatory requirement applicable to the Borrower. (j) Inspection Rights, Etc. Permit the Agent or any Lender or any agents or representatives thereof to examine and make copies of and abstracts from records and books of, and visit the properties of, any Borrower Group Member to discuss the affairs, finances and accounts of, any Borrower Group Member with any of its officers or directors and with its independent certified public accountants from time to time during normal business hours upon reasonable notice. The Lenders and the Agent agree that the Agent shall coordinate and consolidate visits by Lenders and their agents and representatives (including the examination of records and books and the making of copies and abstracts of records and books) at mutually convenient times and in such a manner so as to minimize the disruption to the operations of the Borrower Group Members and the costs associated with such visits. (k) Project PPA Documents. Obtain the consent of the Majority Lenders prior to any material amendment to, or termination prior to its stated expiration by any Borrower Group Member of, any Project PPA Document, which in the case of any such termination, is not replaced by another Project PPA Document satisfying the PPA Parameters. (l) Insurance. (i) Insurance. (A) At all times maintain in full force and effect insurance (including worker's compensation insurance, liability insurance, casualty insurance and business interruption insurance) in such amounts, covering such risks and liabilities and with such deductibles or self-insurance retentions as are in accordance with normal industry practice; provided that such coverages (and limits and deductibles) may be modified due to, but only to the extent of, the unavailability of such coverages at commercially reasonable rates or on commercially reasonable terms. (B) Review its insurance program at least annually, on each anniversary of the Funds Availability Date. (ii) Insurance Account. Upon the occurrence of any Loss which may reasonably be expected to result in payment of Loss proceeds exceeding, in the aggregate, $1,000,000, and in any event prior to receipt by any Borrower Group Member of such proceeds, establish an account with the Agent to hold and disburse such proceeds in accordance with this Section 5.01(l). (iii) Total Loss. Except as otherwise provided in the last sentence of this sub-clause (iii), in the event of a total Loss of any Completed Project (with respect to which there are Utilizations then outstanding or Commitments then available under the Facility), promptly apply all proceeds of insurance (other than business interruption insurance), condemnation awards or other recoveries to prepay all outstanding Project Debt associated with such Project in accordance with Section 2.09(c), unless the Borrower certifies to the Agent, within sixty (60) days after receipt of such proceeds in an aggregate amount equal to at least 30% of the Total Project Costs for such Completed Project that: (1) all such insurance proceeds have been, or upon receipt shall be immediately, deposited by a Borrower Group Member into the Insurance Account; (2) it will reinstate such Project or replace it with a Similar Asset; (3) all conditions precedent specified in Sections 3.04(a) through (c) inclusive (but with (x) all references to "Borrowing" therein being read and construed as references to the first disbursement from the Insurance Account and all references therein to "Project" being read and construed as references to such Project (in the case of a reinstatement) or such Similar Asset (in the case of a replacement); and (y) the certification referred to in Section 3.04(a)(iii)(A) certifying instead that the ratio of outstanding Debt to Equity Contributions for such Project or Similar Asset (as the case may be) does not exceed the Debt/Equity Ratio applicable thereto, as at the date of the first disbursement from the Insurance Account, and after giving effect to such disbursement and any Equity Contributions as of the date thereof, and the application of proceeds therefrom) are then satisfied with respect to the reinstatement or replacement of such Project; (4) there are sufficient funds to do so (taking into account all undisputed proceeds to be paid and all committed equity contributions into the Borrower); and (5) such reinstatement or replacement is technically feasible, then, such proceeds may be held in the Insurance Account and disbursed from time to time to pay Project Costs for reinstating such Project or for such replacement Similar Asset (x) if all conditions precedent specified in Section 3.05(a) and (b) (but with (AA) all references to "Borrowing" therein being read and construed as references to a disbursement from the Insurance Account and all references therein to "Project" being read and construed as references to such Project (in the case of a reinstatement) or such Similar Asset (in the case of a replacement); and (BB) the certification referred to in Section 3.05(b)(iii) certifying instead that the ratio of outstanding Debt to Equity Contributions for such Project or Similar Asset (as the case may be) does not exceed the Debt/Equity Ratio applicable thereto, as at the date of the relevant disbursement from the Insurance Account, and after giving effect to such disbursement and any Equity Contributions as of the date thereof, and the application of proceeds therefrom) are then satisfied; and (y) where the aggregate of all such proceeds is less than the Project Costs for such reinstatement or replacement (as the case may be), if Project Costs are funded pro rata between disbursements from the Insurance Account and Equity Contributions to be paid with respect to such reinstatement or replacement. To the extent any such proceeds in excess of $1,000,000 are not used for such reinstatement or replacement, they shall, upon completion of such reinstatement or replacement (as applicable) be applied to prepay the outstanding Project Debt made with respect to such Project in accordance with Section 2.09(c). (iv) Partial Loss. In the event of a partial Loss of any Completed Project (with respect to which there are Utilizations then outstanding or Commitments then available under the Facility), deal with such proceeds of insurance (other than business interruption), condemnation awards or other recoveries in the following manner: if such proceeds (A) do not exceed $1,000,000 in the aggregate with respect to such Loss, apply them at the Borrower's sole discretion; (B) exceed $1,000,000 but not $5,000,000 in the aggregate with respect to such Loss, use such proceeds to prepay the outstanding Project Debt made with respect to such Project in accordance with Section 2.09(c) to the extent such proceeds (in excess of $1,000,000 in the aggregate with respect to such Loss) are not used to repair or reinstate such Project, upon completion of such repair or reinstatement; (C) exceed $5,000,000 but not 10% of the Total Project Costs for such Project with respect to such Loss, apply such proceeds to repair or reinstate the affected Project if the Borrower certifies to the Agent, within sixty (60) days after receipt of proceeds equal to at least $5,000,000 (but with all such proceeds to be reserved by the Borrower until such certification is made or until prepayment is required pursuant to this Section 5.01(l)(iv)) that (1) it will repair or reinstate such Project; (2) there are sufficient funds to do so (taking into account all undisputed proceeds to be paid and committed equity contributions into the Borrower); and (3) such repairs or reinstatements are technically feasible; otherwise, all such proceeds in excess of --------- $1,000,000 not used for such repair or reinstatement shall, upon completion of such repair or reinstatement, be promptly applied to prepay the outstanding Project Debt made with respect to such Project in accordance with Section 2.09(c); and (D) exceed 10% of the Total Project Costs for such Completed Project, apply such proceeds to repair or reinstate the affected Project if consent from the Majority Lenders shall have been obtained; otherwise, all such proceeds shall be used promptly to prepay --------- the outstanding Project Debt made with respect to such Project in accordance with Section 2.09(c). (m) Asset Sales. To the extent the Borrower has not reinvested Sale Proceeds arising from any Sale in a Similar Asset, by way of the purchase or lease (pursuant to a Development Authority Sale/Leaseback) of such Similar Asset, within six (6) months after such Sale (any such reinvestment being subject to satisfaction of all conditions precedent specified in Sections 3.04(a) through (c) inclusive as of the date of the Borrower's initial investment in such Similar Asset (but (i) with all references to "Borrowing" therein being read and construed as references to such investment and all references therein to "Project" being read and construed as references to such Similar Asset; and (ii) the certification referred to in Section 3.04(a)(iii)(A) certifying instead that the ratio of outstanding Debt to Equity Contributions for such Similar Asset does not exceed the Debt/Equity Ratio applicable thereto, as at the date of such investment, and after giving effect to such investment and any Equity Contributions as of the date thereof, and the application of proceeds therefrom)), the Borrower shall prepay the outstanding Debt under the Facility to the extent required under Section 2.09(b)(iii); provided that the Borrower -------- shall be permitted to apply all Sale Proceeds remaining thereafter, if any, to make a Restricted Payment in accordance with Section 5.02(b). (n) Regulatory Approvals. Obtain and maintain, and cause each Relevant Subsidiary to obtain and maintain, in full force and effect all necessary authorizations and approvals by, and deliver all necessary notices to and undertake all necessary filings with, each Governmental Authority which are required, in each case, for the Borrower and such Subsidiary to sell, at wholesale, the entire output of each electric generation plant (including the Projects) owned by the Borrower or such Subsidiary, as the case may be. (o) Initial Projects. As long as an Initial Project is owned, directly or indirectly, by the Borrower, own, or procure that a wholly owned Subsidiary of the Borrower (other than an Unrestricted Subsidiary) will own, such Project. (p) Granting of Benefits under Certain Circumstances. If in connection with obtaining a waiver or a curative amendment of a "default" or an "event of default" under a document under which any Debt of the Borrower in a principal or notional amount equal to or in excess of $50,000,000 is outstanding or which evidences any such Debt, any creditor in respect of such Debt will obtain any benefit (including collateral security, a guarantee or other third-party support and improved financial terms), offer to the Lenders the same benefit (including ratable collateral security and guarantees and third-party support and comparably improved terms) and, upon the acceptance by the Majority Lenders of such offer, cause such benefit to be made available to the Lenders concurrently with making such benefit available, and on substantially the same terms as it is made available, to such other creditor. (q) Notice of Change of Investment Grade Rating. Promptly, and in any event within ten (10) days, after the Borrower is notified thereof in writing by S&P or Moody's (as applicable), or the chief financial officer or the treasurer of the Borrower becomes aware of the public announcement thereof by S&P or Moody's (as applicable), notify the Agent of either (i) any downgrade in the Borrower's Investment Grade Rating by S&P or Moody's, as the case may be; or (ii) mention of the Borrower with negative implication in "Credit Watch", or the equivalent thereof by either of S&P or Moody's. (r) Updated Documents. Upon (i) the earlier of the Non-Recourse Date and the Refinancing Date for any Project, deliver to the Agent an Adjusted Project Budget setting forth Project Costs incurred, as of such date, with respect to such Project; and (ii) each Relevant Event, deliver to the Agent an updated Independent Market Consultant report with respect to all Relevant Completed Plants as at such Relevant Event (including where such Relevant Event is a Southern Event of Default or a Buydown Event, all Substantially Completed Projects for which a Buydown Amount is to be paid as a result of such Relevant Event) based, in the case of each Plant which has then achieved (A) Final Completion, on the performance of such Plant, as certified by Southern to the Agent for purposes of its Final Completion; and (B) Substantial Completion but not Final Completion, on the performance of such Plant, as certified by Southern to the Agent for purposes of its Substantial Completion, and, in each case, which is verified by the Independent Engineer and Environmental Consultant as being consistent with the performance (output, heat rate, environmental and permit compliance and availability) of such Plant. (s) Project Bonds. As long as any Project is owned by a development authority created and existing under the laws of the State of Georgia and is leased by a Borrower Group Member, hold, or procure that a wholly owned Subsidiary of the Borrower shall hold, free and clear of any Liens, all legal and beneficial title to all Project Bonds issued with respect to a Development Authority Sale/Leaseback of such Project. SECTION 5.02. Negative Covenants. So long as any Advance shall remain unpaid or any Lender shall have any Commitment under this Agreement, the Borrower will not: (a) Debt. Incur, and will not permit any Subsidiary of the Borrower to incur, any Debt other than (i) Recourse Debt under the Facility; (ii) Recourse Debt the proceeds of which (after customary transaction fees and costs) are applied to the concurrent repayment of Debt; (iii) if the Borrower has at least an Investment Grade Rating and such rating of the Borrower is reaffirmed after incurrence of such other Debt, Recourse Debt or, in the case of Lease Obligations, Debt of the related lessor, that has been rated at least "Baa3" by Moody's and "BBB-" by S&P; (iv) Recourse Debt the repayment in full of which is guaranteed by Southern or another Affiliate which has at least an Investment Grade Rating; (v) Debt that is incurred by an Unrestricted Subsidiary on a basis that is without recourse to the Borrower other than with respect to the Borrower's ownership interest in such Unrestricted Subsidiary; (vi) Debt which is secured by Liens referred to in Section 5.02(c)(iv), (vi), (vii), (viii), (ix), (x), (xvi) or (xvii) or (vii) Affiliate Subordinated Debt. Notwithstanding the above, the Borrower will ensure that no Relevant Subsidiary which owns or leases a Project with respect to which Advances are then outstanding, or for which Commitments are then available, shall incur any Debt, other than Debt referred to in clause (vi) above. (b) Restricted Payments. (i) Declare or make any Restricted Payment; (ii) make any payments with respect to Affiliate Subordinated Debt (other than any Affiliate Subordinated Debt loaned (A) prior to the initial Utilization hereunder in respect of any Project, to the Borrower to fund its acquisitions of such Project, (B) to the Borrower to pay Project Costs of any Project at any time prior to the Non-Recourse Date for such Project, or (C) to the Borrower to repay any Commercial Paper issued by the Borrower for which a CP Commitment Reservation has previously been established) or make any redemption or repurchase of any Affiliate Subordinated Debt (except for any payment, redemption or repurchase of Affiliate Subordinated Debt from insurance proceeds for casualties which have been restored with the proceeds of such Affiliate Subordinated Debt); or (iii) purchase, redeem or otherwise acquire for value any shares of any class of capital stock of the Borrower or any warrants, rights or options to acquire any such shares, now or hereafter outstanding, or reduce the Borrower's capital (except for any purchase, redemption or acquisition of such shares held by Southern or any reduction of capital paid to an Affiliate of the Borrower from insurance proceeds for casualties which have been restored with the proceeds of such shares or such capital, as the case may be); provided that the Borrower may once each -------- calendar month on, or within three (3) Business Days after, the date of, and (x) using proceeds of the Project Advances or Commercial Paper (as applicable) arising from, or relating to, a Utilization with respect to any Project, repay any Affiliate Subordinated Debt loaned to the Borrower to pay Project Costs of such Project at any time prior to the Non-Recourse Date thereof (including interest, fees and other charges, if any, paid with respect to such Affiliate Subordinated Debt to the extent that the same does not exceed the maximum rate or amount permitted under PUHCA (whether or not such law is repealed)), and/or (y) using proceeds of CP Advances or Commercial Paper (as applicable) arising from, or relating to, a Utilization, repay any Affiliate Subordinated Debt loaned to the Borrower to repay Commercial Paper issued by the Borrower for the Borrower's general corporate purposes or to provide working capital for the Borrower (including interest, fees and other charges, if any, paid with respect to such Affiliate Subordinated Debt to the extent that the same does not exceed the maximum rate or amount permitted under PUHCA (whether or not such law is repealed)); and provided further, that the Borrower -------- ------- may (A) declare and make any Restricted Payment payable in common stock of the Borrower; (B) purchase, redeem or otherwise acquire shares of its common stock or warrants, rights or options to acquire any such shares with the proceeds received from the substantially concurrent contribution to the Borrower's capital or the issue of new shares of the Borrower's common stock; and (C) make any payments with respect to Affiliate Subordinated Debt (other than Affiliate Subordinated Debt referenced to in the preceding proviso), make any redemption or repurchase of Affiliate Subordinated Debt and take any other action specified in clauses (i), (ii) and (iii) above if, in any such case, (x) no Default or Event of Default shall have occurred and is continuing; and (y) at the end of the fiscal quarter (including the fourth fiscal quarter) of the Borrower for which a cash basis financial statement has been delivered to the Agent pursuant to Section 5.01(d) or (e) most recently preceding the date on which the Borrower takes such action, (1) the ratio of Cash Available for Corporate Debt Service to Corporate Interest was at least 2.00:1.00 or, if the Borrower does not have at least an Investment Grade Rating, 2.25:1.00, in each case, calculated on a rolling four (4) fiscal quarter basis ending on the date of such financial statement (or, if at such time less than four (4) fiscal quarters have ended, such lesser number of fiscal quarters and with effect from the date of such delivery of such financial statement) and (2) either (x) the percentage derived from dividing Contracted Operating Cash Flow by Total Operating Cash Flow is at least 80% or (y) the Borrower's ratio of Recourse Debt to Total Capitalization is 0.60:1.00 (60%) or lower. Any such cash basis financial statement shall be certified by the chief financial officer or the treasurer of the Borrower as having been prepared in accordance with the books and records of the Borrower. (c) Liens. Without the consent of the Majority Lenders, create or have outstanding, or permit the creation of, any Lien on or over any Assets of the Borrower or any of its Subsidiaries except for: (i) Liens arising solely by operation of law or by order of a court or tribunal or other Governmental Authority (or by an agreement of similar effect); (ii) Liens arising in the ordinary course of business or operations, in respect of overdue amounts which either (A) have not been overdue for more than thirty (30) days; or (B) are being contested in good faith and for which adequate reserves have been set aside in accordance with GAAP; (iii) Liens created for the sole purpose of refinancing all outstanding Advances; provided that the Advances are simultaneously prepaid in full, all Commitments cancelled and no amounts are then owing under this Agreement; (iv) Liens arising out of title retention or like provisions in relation to the acquisition of goods or equipment acquired in the ordinary course of business or operations; (v) Liens created or arising on ownership interests and documents evidencing ownership interests in (A) an Unrestricted Subsidiary which is the primary obligor in respect of Project Finance Debt; or (B) a Subsidiary all the Assets of which consist of ownership interests in (x) an Unrestricted Subsidiary which is the primary obligor in respect of Project Finance Debt; or (y) another Person described in this clause (B), which Liens secure such Project Finance Debt only; (vi) Liens on deposits to secure, or any Lien otherwise securing, the performance of bids, trade contracts (other than for borrowed money), operating leases other than Synthetic Leases, statutory obligations, surety bonds, appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business; (vii) Liens, other than Liens on a Project or the Assets comprising a Project or the ownership interests in all Persons directly or indirectly owning such Project, securing reimbursement obligations under letters of credit, guarantees and other forms of credit enhancement given in the ordinary course of business; (viii) Liens created or arising over any Asset which is acquired, constructed or created by the Borrower (excluding any Assets acquired or constructed with the use of a Synthetic Lease), but only if (A) such Lien secures only principal amounts (not exceeding the cost of such acquisition, construction or creation) raised for the purposes of such acquisition, construction or creation, together with any costs, expenses, interest and fees incurred in relation thereto or a guarantee given in respect thereof; (B) such Lien is created or arises on or before ninety (90) days after the completion of such acquisition, construction or creation; (C) such Lien is confined solely to the property so acquired, constructed or created; and (D) the aggregate principal amount secured by all such Liens and by Liens (if any) under subparagraphs (ix) and (xvii) below, does not exceed $75,000,000; (ix) Liens (A) outstanding on or over any Asset acquired after the date of this Agreement; (B) in existence at the date of such acquisition; (C) where the Borrower does not take any step to increase the principal amount secured thereby from that so secured and outstanding at the time of such acquisition (other than in the case of Liens for a fluctuating balance facility, by way of utilization of that facility within the limits applicable thereto at the time of acquisition); and (D) the aggregate principal amount secured under such Liens, and by Liens (if any) under subparagraphs (viii) above and (xvii) below, does not exceed $75,000,000; (x) Liens created or arising over any Asset which is acquired or constructed by the Borrower with the use of a synthetic financing or Synthetic Lease, but only if (A) such Lien secures only principal amounts (not exceeding the cost of such acquisition or construction (including any contingency amount relating to such acquisition or construction)) raised for the purposes of such acquisition or construction through such synthetic financing or Synthetic Lease, together with any costs, expenses, interest and fees and indemnities incurred in relation thereto or a guarantee given in respect thereof; (B) such Lien is created or arises on or before ninety (90) days after the completion of such acquisition or construction; and (C) such Lien is confined solely to the property so acquired or constructed; (xi) Liens constituted by a right of set-off (including a bank's right of set-off with respect to deposit accounts) or rights over a margin call account or any form of cash collateral or any similar arrangement for obligations incurred in respect of any currency, commodity or interest rate swap, option, forward rate, or futures contracts or any other arrangement for the hedging or management of risks entered into on commercial terms; (xii) Liens in favor of a plaintiff or defendant in any action before a court or tribunal as security for costs or expenses where such action is being prosecuted or defended in the bona fide interest of the Borrower; (xiii) Liens described in any of subparagraphs (iv) through (xi) above or (xiv) through (xvii) below and renewed or extended upon the renewal or extension or refinancing or replacement of the indebtedness secured thereby; provided that there is no increase in the principal amount of the indebtedness secured thereby over the principal, capital or nominal amount thereof outstanding immediately prior to such refinancing; (xiv) Liens existing on the date of this Agreement; (xv) Liens on the property of a Person existing at the time such Person is merged into or consolidated with the Borrower or any of its Subsidiaries and not incurred in contemplation with such merger or consolidation; (xvi) Liens created or arising over any land which is acquired by the Borrower or any of its Subsidiaries, but only if (A) such Lien secures only principal amounts (not exceeding the cost of such acquisition) raised for the purpose of such acquisition or which are secured by such land at the time of its acquisition, together with any costs, expenses, interest and fees incurred in relation thereto or a guarantee given in respect thereof; (B) such Lien is created or arises on or before ninety (90) days after the completion of such acquisition; (C) such Lien is confined solely to the land so acquired; and (D) the aggregate principal amount secured by all such Liens does not exceed $25,000,000; and (xvii) Liens created or outstanding on or over Assets of the Borrower or any Relevant Subsidiary; provided that the aggregate outstanding principal, capital or nominal amount secured by all Liens created or outstanding under this subparagraph (xvii) on or over Assets of the Borrower and all Relevant Subsidiaries shall not at any time exceed $25,000,000. Notwithstanding anything else contained herein, an Unrestricted Subsidiary may create or have outstanding any Lien on or over its Assets to secure the payment of such Unrestricted Subsidiary's Debt. (d) Activities. Engage in, and will not permit any of its Subsidiaries to engage in, any business activities other than activities which the Borrower and its Subsidiaries may undertake under PUHCA (whether or not such law is repealed); provided that in the event PUHCA is repealed, any Unrestricted Subsidiary shall not be so restricted. (e) Acquisitions. Acquire, and will ensure that no Relevant Subsidiary will acquire, from a non-Affiliate of the Borrower any Project that has achieved Final Completion without first obtaining the consent of the Majority Lenders. (f) Affiliate Transactions. Except as otherwise required by Law, enter into, or permit any Relevant Subsidiary to enter into, any transaction or series of transactions, whether or not in the ordinary course of business, with any of its Affiliates other than on terms and conditions substantially as favorable as would be obtainable in a comparable arm's-length transaction with a Person other than an Affiliate. Article VI EVENTS OF DEFAULT SECTION 6.01. Events of Default. If any of the following events ("Events of Default") shall occur and be continuing: (a) Payments. The Borrower shall fail to pay (i) any principal of any Advance when the same becomes due and payable; or (ii) any interest on any Advance or any fees or other amounts payable under this Agreement within five (5) Business Days after the same becomes due and payable; provided that failure to pay any principal, interest or other amounts required under Section 2.09(b)(i) shall not constitute a default by the Borrower or an Event of Default unless such failure is still continuing as of the Final Maturity Date, whereupon it shall, on such date, become an Event of Default; or (b) Representations and Warranties. Any representation or warranty made by the Borrower in this Agreement shall prove to have been materially incorrect when made and, if the underlying facts or circumstances making such representation or warranty incorrect are susceptible of cure, it shall not have been cured within thirty (30) days after written notice thereof has been given by the Agent to the Borrower (or such longer period as the Majority Lenders may permit); or (c) Covenants. The Borrower shall fail to perform or comply with (i) Section 5.01(g); or (ii) any other material term, covenant or agreement contained in this Agreement on its part to be performed or observed and such failure under clause (ii) shall remain unremedied for thirty (30) days after written notice thereof has been given by the Agent to the Borrower (or such longer period as the Majority Lenders may permit); or (d) Cross-default. The Borrower or any Relevant Subsidiary shall fail to pay any principal of, or premium or interest on, any of its Debt that is outstanding in a principal or notional amount equal to or in excess of $50,000,000, in the aggregate, for all such unpaid Debt (but excluding Debt outstanding under the Facility) when such Debt becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise), and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Debt; or any other event shall occur or condition shall exist under the agreement or instrument relating to any such Debt and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such event or condition is to accelerate the maturity of such Debt by reason of default; or any such Debt shall be declared due and payable, or be required to be prepaid or redeemed (other than by a regularly scheduled required prepayment or redemption), purchased or defeased, or an offer to prepay, redeem, purchase or defease such Debt shall be required to be made, in each case, prior to the scheduled maturity thereof by reason of default; or (e) Judgment. Any judgment or order for the payment of money in excess of $50,000,000, in the aggregate, shall be rendered against the Borrower and the Relevant Subsidiaries and there shall be any period of thirty (30) consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or (f) Bankruptcy, Etc. The Borrower or any Relevant Subsidiary shall (i) apply for or consent to the appointment of, or the taking of possession by, a receiver, custodian, trustee or liquidator of itself or of all or a substantial part of its property; (ii) make a general assignment for the benefit of its creditors; (iii) commence a voluntary case under the U.S. Bankruptcy Code (as now or hereafter in effect) or any similar law of any applicable jurisdiction; (iv) file a petition seeking to take advantage of any other law relating to bankruptcy, insolvency, reorganization, winding-up, or composition or readjustment of debts; or (v) fail to controvert in a timely and appropriate manner, or acquiesce in writing to, any petition filed against it in an involuntary case under the U.S. Bankruptcy Code or any similar law of any applicable jurisdiction; or a proceeding or case shall be commenced, without the application or consent of the Borrower or any of its Relevant Subsidiaries, in any court of competent jurisdiction, seeking (A) its liquidation, reorganization, dissolution or winding-up, or the composition or readjustment of its debts; (B) the appointment of a trustee, receiver, custodian, liquidator or the like of the Borrower or such Relevant Subsidiary (as applicable) or of all or any substantial part of its assets; or (C) similar relief in respect of the Borrower or such Relevant Subsidiary (as applicable) under any law relating to bankruptcy, insolvency, reorganization, winding-up, or composition or adjustment of debts, and such proceeding or case shall continue unstayed and in effect for a period of ninety (90) or more days; or (g) Change of Control. Southern shall at any time cease to beneficially own, directly or indirectly, (i) at least a majority of each of the non-voting common stock (if any) and the voting common stock of the Borrower; or (ii) sufficient shares of the capital stock of the Borrower to elect a majority of the board of directors of the Borrower; or (h) Credit Agreement. Any material provision of this Agreement shall fail to be in full force and effect, or the Borrower so asserts in writing; then, and in any such event, the Agent (i) shall at the request, or may with the consent, of the Majority Lenders, by notice to the Borrower, declare the obligation of each Lender to make Advances or establish CP Commitments to be terminated, whereupon the same shall forthwith terminate; and/or (ii) shall at the request, or may with the consent, of the Majority Lenders, by notice to the Borrower, declare the Advances and the Notes, all interest thereon and all other amounts payable under this Agreement to be forthwith due and payable, whereupon the Advances and the Notes, all such interest and all such amounts shall become and be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Borrower; provided that in the event of an actual or deemed entry of an order for relief with respect to the Borrower under the Federal Bankruptcy Code, (A) the obligation of each Lender to make Advances or establish CP Commitments shall automatically be terminated; and (B) the Advances and the Notes, all such interest and all such amounts shall automatically become and be due and payable, without presentment, demand, protest or any notice of any kind, all of which are hereby expressly waived by the Borrower. Any Default or Event of Default which has been waived in the manner required by the applicable provisions of this Agreement shall not be considered to be continuing from and after the time as of which such waiver has become effective. Article VII THE AGENT SECTION 7.01. Authorization and Action. Each Lender hereby appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers and discretion under this Agreement and the other Loan Documents as are delegated to the Agent by their respective terms, together with such powers and discretion as are reasonably incidental thereto and further authorizes the Agent to execute that certain Letter Amendment No. 1 to Completion Guarantee and that certain Letter Amendment No. 1 to Equity Contribution Agreement, each to be dated as of the date hereof and each among the Borrower, Southern and the Agent. As to any matters not expressly provided for by this Agreement or any other Loan Document (including enforcement or collection of the Notes), the Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Majority Lenders, and such instructions shall be binding upon all Lenders and all holders of Notes; provided that the Agent shall not be required to take any action that exposes the Agent to personal liability or that is contrary to this Agreement, the other Loan Documents or applicable Law. The Agent agrees to give to each Lender prompt notice of each notice given to it by any Loan Party pursuant to the terms of the relevant Loan Document. SECTION 7.02. Agent's Reliance, Etc. Neither the Agent nor any of its directors, officers, agents or employees shall be liable for any action taken or omitted to be taken by it or them under or in connection with this Agreement or any other Loan Document, except for its or their own gross negligence or willful misconduct. Without limitation to the generality of the foregoing, the Agent: (a) may treat the payee of any Note as the holder thereof until the Agent receives and accepts an Assignment and Acceptance entered into by the Lender that is the payee of such Note, as assignor, and an Eligible Assignee, as assignee, as provided in Section 8.07; (b) may consult with legal counsel (including counsel for the Borrower), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (c) makes no warranty or representation to any Lender and shall not be responsible to any Lender for any statements, warranties or representations (whether written or oral) made in or in connection with this Agreement, any other Loan Document or any PPA Document; (d) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement or any other Material Document on the part of the Borrower or Southern or any other party thereto, or to inspect the property (including the books and records) of the Borrower or Southern; (e) shall not be responsible to any Lender for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other Material Document or any other instrument or document furnished pursuant hereto or thereto; and (f) shall incur no liability under or in respect of this Agreement or any other Loan Document by acting upon any notice, consent, certificate or other instrument or writing (which may be by telecopier, telegram or telex) believed by it to be genuine and signed or sent by the proper party or parties. SECTION 7.03. Citibank and Affiliates. With respect to its Commitment, the Advances made by it and the Note issued to it, Citibank shall have the same rights and powers under this Agreement as any other Lender and may exercise such rights and powers as though it were not the Agent; and the term "Lender" or "Lenders" shall, unless otherwise expressly indicated, include Citibank in its individual capacity. Citibank and its Affiliates may accept deposits from, lend money to, act as trustee under indentures of, accept investment banking engagements from, and generally engage in any kind of business with, the Borrower, Southern, any of their respective Subsidiaries and any Person who may do business with, or own securities of, the Borrower, Southern or any such Subsidiary, all as if Citibank were not the Agent and without any duty to account therefor to the Lenders. SECTION 7.04. Lender Credit Decision. Each Lender acknowledges that it has, independently and without reliance upon the Agent, any Arranger or any other Lender and based on the financial statements referred to in Section 4.01 and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement and the other Loan Documents. Each Lender also acknowledges that it will, independently and without reliance upon the Agent, any Arranger or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement or any other Loan Document. SECTION 7.05. Indemnification. The Lenders agree to indemnify the Agent (to the extent not reimbursed by the Borrower), ratably according to the respective principal amounts of the Notes then held by each of them (or if no Notes are at the time outstanding or if any Notes are held by Persons that are not Lenders, ratably according to the respective amounts of their Commitments), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever that may be imposed on, incurred by, or asserted against the Agent in any way relating to or arising out of this Agreement or any other Loan Document or any action taken or omitted by the Agent under this Agreement or any other Loan Document (collectively, the "Indemnified Costs"); provided that no Lender shall be liable for any portion of the Indemnified Costs resulting from the Agent's gross negligence or willful misconduct; provided further that no Designated Lender shall be liable for any payment under this Section 7.05 so long as, and to the extent that, its Designating Lender makes such payment. Without limitation to the generality of the foregoing, each Lender agrees to reimburse the Agent promptly upon demand for its ratable share of any out-of-pocket expenses (including counsel fees) incurred by the Agent in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement, any other Material Document or any other instrument or agreement furnished pursuant hereto or thereto, to the extent that the Agent is not reimbursed for such expenses by the Borrower. In the case of any investigation, litigation or proceeding giving rise to any Indemnified Costs, this Section 7.05 applies whether any such investigation, litigation or proceeding is brought by the Agent, any Lender or a third party. SECTION 7.06. Successor Agent. The Agent may resign at any time by giving written notice thereof to the Lenders and the Borrower and may be removed at any time with or without cause by the Majority Lenders. Upon any such resignation or removal, the Borrower shall have the right to appoint a successor Agent, subject to the approval of the Majority Lenders, such approval not to be unreasonably withheld or delayed. If no successor Agent shall have been so appointed by the Borrower and approved by the Majority Lenders, and shall have accepted such appointment, within thirty (30) days after the retiring Agent's giving of notice of resignation or the Majority Lenders' removal of the retiring Agent, then the retiring Agent may, on behalf of the Lenders, appoint a successor Agent subject to the approval of the Borrower and the Majority Lenders, such approval not to be unreasonably withheld or delayed, which shall be a commercial bank organized under the laws of the United States or of any State thereof and having a combined capital and surplus of at least $500,000,000. Upon the acceptance of any appointment as Agent under this Section 7.06 by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, discretion, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations under this Agreement and the other Loan Documents. After any retiring Agent's resignation or removal under this Section 7.06 as Agent, the provisions of this Article VII shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement and the other Loan Documents. Article VIII MISCELLANEOUS SECTION 8.01. Amendments, Etc. No amendment or waiver of any provision of this Agreement, the Notes or any other Loan Document, nor consent to any departure by the Borrower or Southern therefrom, shall in any event be effective unless the same shall be in writing and signed by or on behalf of the Borrower (and, in the case only of the Southern Completion Guarantee and the Southern Equity Agreement, Southern) and the Majority Lenders, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided that: (a) no amendment, waiver or consent shall, unless in writing and signed by or on behalf of the Borrower (and, in the case only of the Southern Completion Guarantee and the Southern Equity Agreement, Southern) and all the Lenders, do any of the following: (i) increase the Commitments of the Lenders or subject the Lenders to any additional obligations; (ii) reduce the principal of, or interest on, the Notes or any fees payable under this Agreement or the other Loan Documents; (iii) postpone any date fixed for, or change the place or currency of, any payment of principal of, or interest on, the Notes or any fees payable under this Agreement or the other Loan Documents; (iv) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Notes, or the number of Lenders, that shall be required for the Lenders or any of them to take any action under this Agreement or any other Loan Document; (v) amend the definition of "Majority Lenders" or "Required Lenders"; or (vi) amend this Section 8.01; (b) no amendment or waiver of any of the conditions specified in Section 3.04, 3.06(a) or 3.06(d) shall be effective unless in writing and signed by or on behalf of the Borrower and the Required Lenders; (c) no amendment (other than an amendment to extend its provisions, in accordance with the terms thereof, to a Subsequent Project), waiver or consent shall, unless in writing and signed by or on behalf of the Borrower, Southern and the Required Lenders (or, all of the Lenders with respect to any matters relating to those matters expressly referred to in subsection (a) above), be made to or given under the Southern Completion Guarantee or the Southern Equity Agreement; and (d) no amendment, waiver or consent shall, unless in writing and signed by or on behalf of the Agent in addition to the Persons required pursuant to subsection (a), (b) or (c) above, as the case may be, to take such action, affect the rights or duties of the Agent under this Agreement, any Note or any other Loan Document. Each Designating Lender may act on behalf of its Designated Lender with respect to any rights of its Designated Lender to grant or withhold any amendment, waiver or consent under this Agreement and the other Loan Documents or with respect to the Notes. SECTION 8.02. Notices, Etc. All notices and other communications provided for under this Agreement shall be in writing (including telecopier) and mailed, telecopied, or delivered, (a) if to the Borrower, at its address at 270 Peachtree Street NW, Suite 2000, Atlanta, GA 30303, Attention: Allen Leverett, Treasurer, facsimile: (404) 506-0708; with a copy to Chris J. Kysar, Southern Power Company, 270 Peachtree Street NW, Suite 2000, Atlanta, GA 30303, facsimile: (404) 506-0708, and Richard H. Brody, Troutman Sanders LLP, Bank of America Plaza, Suite 5200, 600 Peachtree Street NE, Atlanta, GA 30308, facsimile: (404) 962-6514; (b) if to an Initial Lender, at its Domestic Lending Office specified opposite its name on Schedule I; (c) if to any other Lender, at its Domestic Lending Office specified in the Assignment and Acceptance pursuant to which it became a Lender; (d) if to any Designated Lender, to its Designating Lender in accordance with subsection (c) above; and (e) if to the Agent, at its address at 2 Penns Way, Suite 200, New Castle, DE 19720, Attention: Dave Graber, telephone: (302) 894-6034, facsimile: (302) 894-6120; with a copy to Citibank, N.A., 388 Greenwich Street, 20th Floor, New York, NY 10013, Attention: John Maguire, telephone: (212) 816-1081, facsimile: (212) 816-0584; or, as to the Borrower or the Agent, at such other address as shall be designated by such party in a written notice to the other parties and, as to each other party, at such other address as shall be designated by such party in a written notice to the Borrower and the Agent. All such notices and communications shall, when mailed or telecopied, be effective when deposited in the mails or telecopied, respectively, except that notices and communications to the Agent pursuant to Article II, III or VII shall not be effective until received by the Agent. Delivery by telecopier of an executed counterpart of this Agreement or of any amendment or waiver of any provision of this Agreement or the Notes or any other Loan Document or of any Exhibit to be executed and delivered under this Agreement shall be effective as delivery of a manually executed counterpart thereof. SECTION 8.03. No Waiver; Remedies. No failure on the part of any Lender or the Agent to exercise, and no delay in exercising, any right under this Agreement or under any Note shall operate as a waiver thereof; nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right. The remedies provided under this Agreement are cumulative and not exclusive of any remedies provided by Law. SECTION 8.04. Costs and Expenses, Etc. (a) The Borrower agrees to pay, upon demand and presentation to the Borrower of a statement of account, all reasonable and documented third-party out-of-pocket costs and expenses of the Agent in connection with the preparation, execution, delivery, syndication, administration, modification and amendment of this Agreement, the Notes, the other Loan Documents and the other documents to be delivered hereunder or thereunder (including (i) all costs and expenses in connection with due diligence and syndication (including printing, travel, communication, document preparation, printing and distribution and bank meetings); (ii) the reasonable fees and expenses of each of New York special counsel and regulatory counsel for the Agent (but excluding the Agent's in-house counsel) with respect thereto and with respect to advising the Agent as to its rights and responsibilities under this Agreement and the other Loan Documents; and (iii) the fees and expenses of each of the Independent Engineer and Environmental Consultant, the Independent Insurance Consultant and the Independent Market Consultant). The Borrower further agrees to pay, upon demand and presentation to the Borrower of a statement of account, all reasonable and documented third-party out-of-pocket costs and expenses of the Agent and the Lenders, if any (including, without limitation, reasonable fees and expenses of counsel), in connection with the enforcement (whether through negotiations, legal proceedings or otherwise) of this Agreement, the Notes, the other Loan Documents and the other documents to be delivered hereunder and thereunder, including reasonable fees and expenses of counsel for the Agent and the Lenders in connection with the enforcement of rights under this Section 8.04(a); provided that the Borrower shall be required to pay the reasonable fees and expenses of only one special counsel and, if applicable, one regulatory counsel selected by the Indemnified Parties under the circumstances contemplated by the proviso to Section 8.04(b)(iii). (b) (i) The Borrower agrees to indemnify each of the Arrangers, the Agent, the Lenders and their respective Affiliates, officers, directors, employees and agents (each, an "Indemnified Party") from, and hold each of them harmless against, any and all losses, liabilities, claims, damages and expenses incurred by any of them relating to, or arising out of or in connection with, this Agreement, the Notes, the other Loan Documents and the actual or proposed use of the proceeds of the Advances or the consummation of any matter contemplated by this Agreement or the other Loan Documents, including any investigation, litigation or other proceeding (whether or not any of the Indemnified Parties is a party thereto) related to the entering into of any Loan Document and, to the extent provided in this subsection (b), the reasonable fees and disbursements of counsel incurred in connection with any such claim, investigation, litigation or other proceeding; provided that the Borrower shall not be responsible for any such losses, liabilities, claims, damages or expenses of any Indemnified Party to the extent incurred by reason of gross negligence or willful misconduct on the part of such Indemnified Party. (ii) The Borrower shall be entitled to participate in any action or proceeding of which it has been notified by any Indemnified Party except any action or proceeding brought by or for the benefit of the Borrower, Southern or any Subsidiary of the Borrower or Southern against an Indemnified Party. (iii) Promptly after receipt by an Indemnified Party of written notice of any investigation, litigation or proceeding in respect of which indemnity is sought by it under this Agreement, such Indemnified Party will, if a claim is to be made against the Borrower, notify the Borrower thereof in writing, but the omission so to notify the Borrower will not relieve the Borrower from (A) any liability under this Section which it may have to such Indemnified Party except to the extent the Borrower was prejudiced by such omission; or (B) any liability other than under this Section. Thereafter, the Indemnified Party and the Borrower shall consult, to the extent appropriate, with a view to minimizing the cost to the Borrower of its obligations under this Agreement. In case any Indemnified Party receives written notice of any investigation, litigation or proceeding in respect of which indemnity may be sought by it under this Agreement and it notifies the Borrower thereof, the Borrower will be entitled to participate therein, and to the extent that it may elect by written notice delivered to the Indemnified Party promptly after receiving the aforesaid notice from the Indemnified Party, to assume the defense thereof with counsel reasonably satisfactory to the Indemnified Parties (and, if the Agent or one or more Lenders are the Indemnified Parties, the Agent and such Lenders shall be entitled jointly to direct the conduct of their defense); provided that if the parties against which any loss, claim, damage, expense or liability may arise under any such investigation, litigation or proceeding include both an Indemnified Party and the Borrower, Southern or any Subsidiary of the Borrower or Southern, and such Indemnified Party shall have reasonably concluded that (1) there may be legal defenses available to it or other Indemnified Parties which are different from or additional to those available to the Borrower, Southern or any Subsidiary of the Borrower or Southern, and may conflict therewith; or (2) if any liability, loss, claim, damage or expense arises out of actions brought by or for the benefit of the Borrower, Southern or any Subsidiary of the Borrower or Southern, the Indemnified Parties collectively shall have the right to select one separate counsel to assume such legal defenses and otherwise to participate in the defense of such investigation, litigation or proceeding on behalf of the Indemnified Parties. Upon receipt by the Indemnified Party of notice from the Borrower of its election to assume the defense of such investigation, litigation or proceeding and approval by the Indemnified Party of counsel, the Borrower shall not be liable to the Indemnified Party for any legal or other expenses subsequently incurred by the Indemnified Party in connection with the defense thereof unless (x) the Indemnified Party shall have employed such counsel in connection with the assumption of legal defenses in accordance with the proviso to the preceding sentence; (y) the Borrower shall not have employed and continued to employ counsel reasonably satisfactory to the Indemnified Party to represent the Indemnified Party within a reasonable time after notice of commencement of the action; or (z) the Borrower shall have authorized in writing the employment of separate counsel for the Indemnified Party at the expense of the Borrower. At the Borrower's request, an Indemnified Party will settle, compromise or consent to the entry of any order adjudicating or otherwise disposing of any loss, claim, damage or liability resulting from such investigation, litigation or proceeding for which the Borrower is liable under this Agreement if such settlement, compromise or consent to entry of any order (AA) includes a provision unconditionally releasing each Indemnified Party from and holding each Indemnified Party harmless against all liability in respect of claims by any releasing party relating to or arising out of this Agreement, the Notes and the matters contemplated herein; (BB) does not require any admission or acknowledgment of culpability or wrongdoing by such Indemnified Party; and (CC) does not involve performance by, or the payment of money damages or posting any collateral or bond by, such Indemnified Party. The Borrower shall not be liable for any settlement, compromise or consent to the entry of any order adjudicating or otherwise disposing of any investigation, litigation or proceeding effected without its consent. (c) The Borrower agrees to indemnify each Lender for its actual and documented (to the extent practicable) losses (excluding any loss of profit and/or margin), costs and expenses reasonably incurred by it resulting from any payment or prepayment of principal of, or Conversion of, any Eurodollar Rate Advance which is made on a day other than the last day of the relevant Interest Period or in an amount other than given in the Borrower's notice of such payment or prepayment, excluding, however, any such losses, costs and expenses resulting from a payment or prepayment made more than ninety (90) days prior to demand being made to the Borrower by such Lender for indemnification. The payment of such indemnity to a Lender shall be made within thirty (30) days of a demand by such Lender complying with Section 8.04(d). (d) Any demand by a Lender for payment under Section 2.02(c), 2.10, 2.13, 8.04(b) or 8.04(c) or under any other indemnity made by the Borrower under this Agreement shall be made in writing to the Borrower (with a copy to the Agent) and shall be accompanied by a certificate of an officer of the Agent or the relevant Lender, as may be appropriate, setting forth in reasonable detail the calculation of the amount demanded. (e) To the extent permitted by Law, if any Lender notifies the Borrower that additional amounts will be due under Section 2.10 or that any of the events outlined in Section 2.11 have occurred, such Lender will, if it determines that such change is not commercially unreasonable, change its Applicable Lending Office if as a result of such change such increased costs would not be required to be so paid or it would not be illegal for such Lender to make, fund or maintain its Eurodollar Rate Advances. The Borrower will reimburse such Lender for all reasonable expenses it may incur as a result of complying with this Section 8.04(e). (f) If any circumstances arise which result, or such Lender becomes aware of any circumstances which might result, in the Borrower having to make such compensation or indemnification or in it becoming illegal for such Lender to make, fund or maintain such Lender's Eurodollar Rate Advances, such Lender will promptly notify the Borrower thereof and, in consultation with the Borrower, such Lender shall take all such steps, if any, as it determines are reasonable and the Borrower determines are acceptable to mitigate the effect of those circumstances. (g) Without prejudice to the survival of any other agreement of the Borrower or of the Lenders under this Agreement, the agreements and obligations of the Borrower contained in Sections 2.10, 2.13 and 8.04 and the obligations of the Lenders contained in Sections 2.13, 8.04, 8.07(g) and 8.08 shall survive the payment in full of principal, interest and all other amounts payable under this Agreement and under the Notes. SECTION 8.05. Right of Set-off. Upon declaration by the Agent that the Advances and the Notes are due and payable pursuant to the provisions of Section 6.01, each Lender is hereby authorized at any time and from time to time, to the fullest extent permitted by Law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held by such Lender to, or for the credit or the account of, the Borrower against any and all of the obligations of the Borrower now or hereafter existing under this Agreement, the Notes held by such Lender and the other Loan Documents, whether or not such Lender shall have made any demand under this Agreement, such Notes or any other Loan Document and although such obligations may be unmatured. Each Lender agrees promptly to notify the Borrower after any such set-off and application; provided that the failure to give such notice shall not affect the validity of such set-off and application. The rights of each Lender under this Section are in addition to other rights and remedies (including other rights of set-off) that such Lender may have. SECTION 8.06. Binding Effect. This Agreement shall become effective (other than Section 2.01 and 2.15, each of which shall only become effective upon satisfaction of the conditions precedent set forth in Section 3.01) when it shall have been executed by the Borrower and the Agent and when the Agent shall have been notified by the Initial Lenders that such Initial Lenders have executed it and thereafter shall be binding upon and inure to the benefit of the Borrower, the Agent and each Lender and their respective successors and assigns, except that the Borrower shall not have the right to assign its rights hereunder or any interest herein without the prior written consent of the Lenders. SECTION 8.07. Assignments and Participations. (a) Each Lender may assign to (i) one or more Eligible Assignees without the approval of the Borrower or the Agent in the case of any Eligible Assignee that is already a Lender or an Affiliate of a Lender, and with the approval of the Borrower (unless an Event of Default or Default has occurred and is then continuing) and the Agent, in the case of any other Eligible Assignee (such approval not to be unreasonably withheld or delayed); and (ii) one or more other entities with the approval of the Agent and, so long as no Event of Default exists, the Borrower, all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment, the Advances owing to it and the Note or Notes held by it); provided that (A) each such assignment shall be of a pro rata share of each outstanding Advance made by such Lender and the Commitment and CP Commitment of such Lender; (B) each such assignment shall be of a constant, and not a varying, percentage of all rights and obligations under this Agreement; (C) except in the case of an assignment to a Person that, immediately prior to such assignment, was a Lender or an assignment of all of a Lender's rights and obligations under this Agreement, the amount of the Commitment of the assigning Lender being assigned pursuant to each such assignment (determined as of the date of the Assignment and Acceptance with respect to such assignment) shall be $10,000,000 or a larger integral multiple of $1,000,000; and (D) the parties to each such assignment shall execute and deliver to the Agent, for recording in the Register, and, if the relevant assignee is not a Lender or an Affiliate of a Lender, to each of the Agent and the Borrower for its acceptance (provided that no such acceptance is required (1) from the Borrower or the Agent with respect to an assignee that is a Lender or an Affiliate of a Lender; or (2) from the Borrower with respect to any other Eligible Assignee while an Event of Default or Default has occurred and is continuing), an appropriate Assignment and Acceptance, together with any Note subject to such assignment and a processing and recordation fee of $3,000 (which shall not be payable by the Borrower). Upon such execution, delivery, acceptance (if applicable) and recording, from and after the effective date specified in each Assignment and Acceptance, (x) the assignee thereunder shall be a party to this Agreement and, to the extent that rights and obligations under this Agreement have been assigned to it pursuant to such Assignment and Acceptance, have the rights and obligations of a Lender under this Agreement; and (y) the Lender assignor thereunder shall, to the extent that rights and obligations under this Agreement have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations under this Agreement (other than under Sections 2.13(f), 8.07(g) and 8.08) (and, in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party to this Agreement). (b) If any Lender shall make a demand under Section 8.04(d) for payment in respect of a claim under Section 2.10 or shall give a notice under Section 2.11 of any unlawfulness or assertion of unlawfulness contemplated by such Section or any demand shall be made or any amount shall be payable with respect to any Lender under Section 2.13, the Borrower may, by written notice given to such Lender within forty-five (45) days of the making by such Lender of such demand or the giving by such Lender of such notice, require by written notice to such Lender that such Lender assign, by executing and delivering an Acceptance and Assignment with such Person as directed by the Borrower (it being understood that such Lender shall not be obligated to find an assignee), within fifteen (15) days of the giving by the Borrower of such notice but on at least three (3) Business Days' notice to one or more Persons in accordance with Section 8.07(a) such Lender's Commitment and its Advances against payment to such Lender in immediately available funds of the principal amount of such Advances, all interest accrued thereon to the date of payment, all fees accrued by such Lender to the date of payment, any amounts payable to such Lender under Section 8.04(c) and all other amounts payable hereunder to such Lender. (c) By executing and delivering an Assignment and Acceptance, the Lender assignor thereunder and the assignee thereunder confirm to and agree with each other and the other parties to this Agreement as follows: (i) other than as provided in such Assignment and Acceptance, such assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement or any other Material Document or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other Material Document or any other instrument or document furnished pursuant hereto or thereto; (ii) such assigning Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower, Southern or any Subsidiary of the Borrower or Southern, or the performance or observance by the Borrower or Southern or any other party of any of its obligations under any Material Document to which it is a party or any other instrument or document furnished pursuant thereto; (iii) such assignee confirms that it has received a copy of this Agreement, together with copies of the financial statements referred to in Section 4.01 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (iv) such assignee will, independently and without reliance upon the Agent, such assigning Lender or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement and the other Loan Documents; (v) such assignee confirms that it is an Eligible Assignee or that it is an entity that has been approved by the Borrower and the Agent to the extent any such approval is required under Section 8.07(a); (vi) such assignee appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers and discretion under this Agreement and the other Loan Documents as are delegated to the Agent by the terms hereof and thereof, together with such powers and discretion as are reasonably incidental thereto; and (vii) such assignee agrees that it will perform in accordance with their terms all of the obligations that by the terms of this Agreement and the other Loan Documents are required to be performed by it as a Lender. (d) The Agent shall maintain at its address referred to in Section 8.02 a copy of each Assignment and Acceptance and each Designation Agreement delivered to and (if applicable) accepted by it and a register for the recordation of the names and addresses of the Lenders and the Commitment of, and principal amount of the Advances owing to, each Lender from time to time (the "Register"). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Borrower, the Agent and the Lenders may treat each Person whose name is recorded in the Register as a Lender under this Agreement for all purposes of this Agreement. The Register shall be available for inspection by the Borrower or any Lender at any reasonable time and from time to time upon reasonable prior notice. (e) Upon its receipt of an Assignment and Acceptance executed by an assigning Lender and an assignee representing that it is an existing Lender or Affiliate of a Lender or that it is an entity that has been approved by the Borrower and the Agent under Section 8.07(a), together with any Note or Notes subject to such assignment, the Agent shall, if such Assignment and Acceptance has been completed and is in substantially the form of Exhibit C, (i) accept such Assignment and Acceptance; (ii) record the information contained therein in the Register; and (iii) promptly give notice and a copy thereof to the Borrower. Within five (5) Business Days after its receipt of such notice, the Borrower, at its own expense, shall execute and deliver to the Agent in exchange for the surrendered Note a new Note to such Eligible Assignee or other entity in an amount equal to the Commitment assumed by it pursuant to such Assignment and Acceptance and, if the assigning Lender has retained a Commitment under this Agreement, a new Note to the assigning Lender in an amount equal to the Commitment retained by it under this Agreement. Such new Note or Notes shall be in an aggregate principal amount equal to the aggregate principal amount of such surrendered Note or Notes, shall be dated the effective date of such Assignment and Acceptance and shall otherwise be in substantially the form of Exhibit A. (f) Each Lender may sell participations to one or more banks or other entities (other than the Borrower or any of its Affiliates) in or to all or a portion of its rights and/or obligations under this Agreement (including all or a portion of its Commitment, the Advances owing to it and/or the Note or Notes held by it); provided that (i) such Lender's obligations under this Agreement and the other Loan Documents (including its Commitment) shall remain unchanged; (ii) such Lender shall remain solely responsible to the other parties to this Agreement and the other Loan Documents for the performance of such obligations; (iii) such Lender shall remain the holder of any such Note for all purposes of this Agreement and the other Loan Documents; (iv) the Borrower, the Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement and the other Loan Documents; and (v) no participant under any such participation shall have any right to approve any amendment or waiver of any provision of this Agreement, any Note or any other Loan Document, or any consent to any departure by the Borrower or Southern therefrom, except to the extent that such amendment, waiver or consent would reduce the principal of, or interest on, the Notes or any fees or other amounts payable under this Agreement, the Notes or any other Loan Document, or postpone any date fixed for any payment of principal of, or interest on, the Notes or any fees or other amounts payable under this Agreement, the Notes or any other Loan Document, in each case to the extent subject to such participation, or any other matter for which unanimous consent of the Lenders is required pursuant to this Agreement or any other Loan Document. (g) Any Lender may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section 8.07, disclose to the assignee or participant or proposed assignee or participant, any Confidential Information; provided that prior to any such disclosure, the assignee or participant or proposed assignee or participant shall (if it is not an existing Lender or Participant) have executed and delivered to such Lender and to the Borrower a duly authorized confidentiality agreement containing provisions substantially the same as those of Section 8.08. (h) Notwithstanding any other provision set forth in this Agreement, any Lender may at any time create a security interest in all or any portion of its rights under this Agreement (including the Advances owing to it and the Note held by it) in favor of any Federal Reserve Bank in accordance with Regulation A of the Board of Governors of the Federal Reserve System. (i) Any Lender may at any time, without the consent of the Borrower, designate not more than one Designated Lender to fund Advances on behalf of such Designating Lender subject to the terms of this Section 8.07(i), and the provisions of Sections 8.07(a) through (h) shall not apply to such designation. No Lender may have more than one Designated Lender at any time. Such designation may occur either by the execution before the Funds Availability Date of the signature pages of an Assignment and Acceptance by such Lender and Designated Lender next to the appropriate "Designating Lender" and "Designated Lender" captions, or by execution by such parties of a Designation Agreement on or after the Funds Availability Date; provided that any Lender and its Designated Lender executing the signature pages of any Assignment and Acceptance as "Designating Lender" and "Designated Lender", respectively, before the Funds Availability Date shall be deemed to have executed a Designation Agreement, and shall be bound by the respective representations, warranties and covenants contained therein. The parties to each such designation occurring on or after the Funds Availability Date shall execute and deliver to the Agent and the Borrower a Designation Agreement. Upon receipt of an appropriately completed Designation Agreement executed by a Designating Lender and a designee representing that it is a Designated Lender, the Agent will accept such Designation Agreement and will give prompt notice thereof to the Borrower and the other Lenders, whereupon (i) the Borrower shall execute and deliver to the Designating Lender a Designated Lender Note payable to the order of the Designated Lender; (ii) from and after the effective date specified in the Designation Agreement, the Designated Lender shall become a party to this Agreement with a right to make Advances on behalf of its Designating Lender pursuant to Section 2.01(c); and (iii) the Designated Lender shall not be required to make payments with respect to any obligations in this Agreement except to the extent of excess cash flow of such Designated Lender which is not otherwise required to repay obligations of such Designated Lender which are then due and payable; provided that regardless of such designation and assumption by the Designated Lender, the Designating Lender shall be and remain obligated to the Borrower, the Agent and the Lenders for each and every of the obligations of the Designating Lender and its related Designated Lender with respect to this Agreement and the other Loan Documents, including any indemnification obligations under Section 7.05, and any sums otherwise payable to the Borrower by the Designated Lender. Each Designating Lender, or specified branch or affiliate thereof, shall serve as the administrative agent of its Designated Lender and shall on behalf of its Designated Lender: (A) receive any and all payments made for the benefit of such Designated Lender; and (B) give and receive all communications and notices and take all actions under this Agreement and the other Loan Documents, including votes, approvals, waivers, consents and amendments under or relating to this Agreement and the other Loan Documents. Any such notice, communication, vote, approval, waiver, consent or amendment shall be signed by a Designating Lender, or specified branch or affiliate thereof, as administrative agent for its Designated Lender and need not be signed by such Designated Lender on its own behalf. The Borrower, the Agent and the Lenders may rely thereon without any requirement that the Designated Lender sign or acknowledge the same. No Designated Lender may assign or transfer all or any portion of its interest under this Agreement, other than via an assignment to its Designating Lender or Liquidity Lender, if any, or otherwise in accordance with the provisions of Sections 8.07(a) through (h). (j) Notwithstanding anything in this Agreement to the contrary (including any other provision regarding assignments, participations, transfers or novations), any Lender (a "Granting Lender") may, without the consent of any other party hereto, grant to a special purpose vehicle (whether a corporation, partnership, limited liability company, trust or otherwise, an "SPV") sponsored or managed by the Granting Lender or any Affiliate thereof, a participation in all or any part of any existing or future Advances hereunder (including Commitments therefor) that such Granting Lender has made or will make pursuant to this Agreement; provided that (i) such Granting Lender's obligations under this Agreement (including its Commitments) shall remain unchanged; (ii) such Granting Lender shall remain the holder of the Notes for all purposes under this Agreement; and (iii) the Borrower, Agent and other Lenders shall continue to deal solely and directly with such Granting Lender in connection with such Granting Lender's rights and obligations under this Agreement. Each party hereto hereby agrees that (A) no SPV will be entitled to any rights or benefits that a Participant would not otherwise be entitled to under this Agreement; and (B) an SPV may assign its interest in any existing or future Advances under this Agreement to any Person that would constitute a Participant. Notwithstanding anything in this Agreement to the contrary, the Granting Lender and any SPV may, without the consent of any other party to this Agreement, and without limiting any other rights of disclosure of the Granting Lender under this Agreement, disclose on a confidential basis any non-public information relating to its funding of Advances to (1) (in the case of the Granting Lender) any actual or prospective SPV, (2) (in the case of an SPV) its lenders, sureties, reinsurers, guarantors or credit liquidity enhancers, (3) their respective directors, officers, and advisors, and (4) any rating agency. SECTION 8.08. Confidentiality. (a) Neither the Agent, any Arranger nor any Lender may, without the prior written consent of the Borrower, disclose to any Person (i) any confidential, proprietary or non-public information of the Borrower furnished to the Agent, the Arrangers or the Lenders by the Borrower (such information being referred to collectively herein as the "Confidential Information") or (ii) the fact that the Confidential Information has been made available or any of the terms, conditions or other facts with respect to the Confidential Information, in each case except as permitted by Section 8.07(d) or (g) or this Section 8.08 and except that each of the Agent, each of the Arrangers and each of the Lenders may disclose Confidential Information (i) to its and its Affiliates' employees, officers, directors, agents and advisors (collectively, "Representatives") who need to know the Confidential Information for the purpose of administering or enforcing its rights under this Agreement and the other Loan Documents and the transactions contemplated hereby and thereby or for the discharge of their duties (it being understood that the Representatives to whom such disclosure is made will be informed of the confidential nature of such Confidential Information and instructed to keep such Confidential Information confidential on substantially the same terms as provided herein), (ii) to the extent requested by any regulatory authority having jurisdiction over it or to the extent necessary for purposes of enforcing this Agreement or any other Loan Document, (iii) to the extent required by applicable laws or regulations or by any subpoena or similar legal process, (iv) to any other party to this Agreement, (v) in connection with the exercise of any remedies hereunder or under any other Loan Document or any suit, action or proceeding relating to this Agreement or any other Loan Document or the enforcement of rights hereunder or thereunder, (vi) subject to an agreement containing provisions substantially the same as those of this Section 8.08, to any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights or obligations under this Agreement including, in the case of any securitization or collateralization of, or other similar transaction relating to, its Commitments by any Lender, disclosure to any necessary Person in connection with such securitization, collateralization or other transaction (including any funding vehicle organized to undertake or effectuate such securitization, collateralization or other transaction, its lenders, sureties, reinsurers, swap counterparties, guarantors or credit liquidity enhancers, their respective directors, officers, and advisors, and any rating agency) so long as the Persons to whom such disclosure is made will be informed of the confidential nature of such Confidential Information and such Persons have agreed in writing (or with respect to any rating agency, in writing or otherwise) to keep such Confidential Information confidential on substantially the same terms as provided herein, and (vii) to the extent such Confidential Information (A) is or becomes generally available to the public on a non-confidential basis other than as a result of a breach of this Section 8.08 by the Agent, such Arranger or such Lender, or (B) is or becomes available to the Agent, such Arranger or such Lender on a nonconfidential basis from a source other than the Borrower and (viii) with the consent of the Borrower. (b) Neither the Agent, any Arranger nor any Lender shall, without the prior written consent of the Borrower, use, either directly or indirectly, any of the Confidential Information except in connection with this Agreement and the other Loan Documents and the transactions contemplated hereby and thereby. (c) Notwithstanding the foregoing, any of the parties hereto may disclose to any and all persons, without limitation of any kind, the U.S. tax treatment and U.S. tax structure of the transactions contemplated by this Agreement and the other Loan Documents and all materials of any kind (including opinions or other tax analyses) that are provided to such parties relating to such U.S. tax treatment and U.S. tax structure. (d) In the event that the Agent, any Arranger or any Lender becomes legally compelled to disclose any of the Confidential Information otherwise than as contemplated by Section 8.08(a), the Agent, such Arranger or such Lender shall provide the Borrower with notice of such event promptly upon its obtaining knowledge thereof (provided that it is not otherwise prohibited by Law from giving such notice) so that the Borrower may seek a protective order or other appropriate remedy. In the event that such protective order or other remedy is not obtained, the Agent, such Arranger or such Lender shall furnish only that portion of the Confidential Information that it is legally required to furnish and shall cooperate with the Borrower's counsel to enable the Borrower to obtain a protective order or other reliable assurance that confidential treatment will be accorded the Confidential Information. (e) In the event of any breach of this Section 8.08, the Borrower shall be entitled to equitable relief (including injunction and specific performance) in addition to all other remedies available to it at Law or in equity. (f) Neither the Agent, any Arranger nor any Lender shall make any public announcement, advertisement, statement or communication regarding the Borrower, its Affiliates (insofar as such announcement, advertisement, statement or communication relates to the Borrower or the transactions contemplated hereby) or this Agreement or the transactions contemplated hereby without the prior written consent of the Borrower (such consent not to be unreasonably withheld or delayed). (g) Any Designated Lender may disclose any Confidential Information to any rating agency, commercial paper dealer, Liquidity Lender, sureties, reinsurers, guarantors or credit liquidity enhancers for or to such Designated Lender, and their respective directors, officers and advisors; provided that each of such Persons is informed by the Designated Lender of the confidential nature of the Confidential Information and each such commercial paper dealer, Liquidity Lender, surety, reinsurer, guarantor or credit liquidity enhancer agrees to be bound by the terms and conditions of this Section 8.08 to the same extent as the Designated Lender. (h) The obligations of the Agent, each Arranger and each Lender under this Section 8.08 shall survive the termination or expiration of this Agreement. SECTION 8.09. Governing Law. This Agreement and the Notes shall be governed by, and construed in accordance with, the Laws of the State of New York. SECTION 8.10. Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties to this Agreement in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. SECTION 8.11. Jurisdiction, Etc. (a) Each of the parties to this Agreement hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of the Supreme Court, New York County, United States District Court for the Southern District of New York, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or the Notes, or for recognition or enforcement of any judgment, and each of the parties to this Agreement hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State court or, to the extent permitted by Law, in such federal court. Each of the parties to this Agreement agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by Law. Nothing in this Agreement shall affect any right that any party may otherwise have to bring any action or proceeding relating to this Agreement or the Notes in the courts of any jurisdiction. (b) Each of the parties to this Agreement irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or the Notes in any New York State or federal court. Each of the parties to this Agreement hereby irrevocably waives, to the fullest extent permitted by Law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. SECTION 8.12. No Bankruptcy Proceedings. Each of the Borrower, the Lenders and the Agent agrees that it will not institute against any Designated Lender or join any other Person in instituting against any Designated Lender any bankruptcy, reorganization, arrangement, insolvency or liquidation proceeding under any federal or state bankruptcy or similar law, for one year and one day after the payment in full of the latest maturing commercial paper note issued by such Designated Lender. SECTION 8.13. Waiver of Jury Trial. Each of the Borrower, the Agent and the Lenders hereby irrevocably waives all right to trial by jury in any action, proceeding or counterclaim (whether based on contract, tort or otherwise) arising out of or relating to this Agreement, the Notes or any other Loan Document or the actions of the Agent or any Lender in the negotiation, administration, performance or enforcement of any such document. SECTION 8.14. Notes and Loan Documents. Each of the Borrower, the Lenders and the Agent agrees that the Notes and each of the other Loan Documents are and shall continue to be in full force and effect and are hereby ratified and confirmed in all respects. The execution, delivery and effectiveness of this Agreement shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of any Lender or the Agent under any of the Loan Documents, nor constitute a waiver of any provision of any of the Loan Documents. On and after the effectiveness of this Agreement, each reference in each exhibit, schedule, supplement or attachment to the Original Credit Agreement to "this Agreement," "hereunder," "hereof" or words of like import referring to the Original Credit Agreement, and each reference in the Notes and each of the other Loan Documents and in each exhibit, schedule, supplement or attachment thereto to "the Credit Agreement," "thereunder," "thereof" or words of like import referring to the Original Credit Agreement, shall mean and be a reference to this Agreement, as amended, amended and restated, supplemented or otherwise modified from time to time. IN WITNESS WHEREOF, the parties to this Agreement have caused this Agreement to be executed by their respective officers duly authorized for such purpose, as of the date first above written. The Borrower SOUTHERN POWER COMPANY By: -------------------------------------------------- Name: Title: The Agent CITIBANK, N.A. By: ------------------------------------------------- Name: Title: The Initial Lenders CITIBANK, N.A. By: ------------------------------------------------- Name: Title: BARCLAYS BANK PLC By: ------------------------------------------------- Name: Title: THE BANK OF TOKYO-MITSUBISHI, LTD., NEW YORK BRANCH By: ------------------------------------------------- Name: Title: ING CAPITAL LLC By: ------------------------------------------------- Name: Title: COMMERZBANK AG, NEW YORK AND GRAND CAYMAN BRANCHES By: ------------------------------------------------- Name: Title: By: ------------------------------------------------- Name: Title: WACHOVIA BANK, NATIONAL ASSOCIATION By: ------------------------------------------------- Name: Title: BAYERISCHE LANDESBANK, CAYMAN ISLANDS BRANCH By: ------------------------------------------------- Name: Title: By: ------------------------------------------------- Name: Title: KBC BANK N.V. By: ------------------------------------------------- Name: Title: By: ------------------------------------------------- Name: Title: BANK ONE, NA By: ------------------------------------------------- Name: Title: LEHMAN COMMERCIAL PAPER INC. By: ------------------------------------------------- Name: Title: MIZUHO CORPORATE BANK, LTD. By: ------------------------------------------------- Name: Title: MORGAN STANLEY SENIOR FUNDING, INC. By: ------------------------------------------------- Name: Title: SCOTIABANC INC By: ------------------------------------------------- Name: Title: SANPAOLO IMI S.p.A. By: ------------------------------------------------- Name: Title: By: ------------------------------------------------- Name: Title: NORDDEUTSCHE LANDESBANK GIROZENTRALE NEW YORK BRANCH AND/OR CAYMAN ISLANDS BRANCH By: ------------------------------------------------- Name: Title: By: ------------------------------------------------- Name: Title: WESTLB AG, NEW YORK BRANCH By: ------------------------------------------------- Name: Title: By: ------------------------------------------------- Name: Title: SCHEDULE I AMENDED AND RESTATED CREDIT AGREEMENT
COMMITMENTS AND APPLICABLE LENDING OFFICES - ------------------------------- --------------------- ----------------------------------- ------------------------------------ Initial Lenders Commitments Domestic Lending Offices Eurodollar Lending Offices - ------------------------------- --------------------- ----------------------------------- ------------------------------------ - ------------------------------- --------------------- ----------------------------------- ------------------------------------ Citibank, N.A. $59,000,000 Citibank, N.A. Citibank, N.A. 2 Penns Way, Suite 200 2 Penns Way, Suite 200 New Castle, DE 19720 New Castle, DE 19720 Attention: David Graber Attention: David Graber Tel: (302) 894-6034 Tel: (302) 894-6034 Fax: (212) 994-0961 Fax: (212) 994-0961 Copy to: Copy to: Citibank, N.A. Citibank, N.A. 388 Greenwich Street, 20th Floor, 388 Greenwich Street, 20th Floor New York, NY 10013 New York, NY 10013 Attention: John Maguire Attention: John Maguire Tel: (212) 816-1081 Tel: (212) 816-1081 Fax: (212) 816-0584 Fax: (212) 816-0584 - ------------------------------- --------------------- ----------------------------------- ------------------------------------ - ------------------------------- --------------------- ----------------------------------- ------------------------------------ Barclays Bank PLC $54,000,000 Barclays Bank PLC, New York Branch Barclays Bank PLC, New York Branch 200 Park Avenue- 4th Floor 200 Park Avenue- 4th Floor New York, NY 10166 New York, NY 10166 Attention: Sydney Dennis/ Gary Attention: Sydney Dennis/ Gary Wenslow Wenslow Tel: (212) 412-2470/1562 Tel: (212) 412-2470/1562 Fax: (212) 412-2441/2879 Fax: (212) 412-52441/2879 - ------------------------------- --------------------- ----------------------------------- ------------------------------------ - ------------------------------- --------------------- ----------------------------------- ------------------------------------ The Bank of Tokyo-Mitsubishi, $54,000,000 The Bank of Tokyo-Mitsubishi The Bank of Tokyo-Mitsubishi Ltd., Ltd., New York Branch Ltd., New York Branch New York Branch 1251 Avenue of the Americas 1251 Avenue of the Americas New York, NY 10020-1104 New York, NY 10020-1104 Attention: Mr. Rolando Uy, AVP, Attention: Mr. Rolando Uy, AVP, Loan Operations Dept. Loan Operations Dept. BTM Information Services, Inc. BTM Information Services, Inc. Tel: (201) 413-8570 Tel: (201) 413-8570 Fax: (201) 521-2304/2305 Fax: (201) 521-2304/2305 - ------------------------------- --------------------- ----------------------------------- ------------------------------------ - ------------------------------- --------------------- ----------------------------------- ------------------------------------ ING Capital LLC $54,000,000 ING Capital LLC ING Capital LLC 1325 Avenue of the Americas, 7th 1325 Avenue of the Americas, 7th floor floor New York, NY 10019 New York, NY 10019 Attention: Charmen Smith Attention: Charmen Smith Tel: (646) 424-6458 Tel: (646) 424-6458 Fax: (646) 424-6441 Fax: (646) 424-6441 - ------------------------------- --------------------- ----------------------------------- ------------------------------------ - ------------------------------- --------------------- ----------------------------------- ------------------------------------ Commerzbank AG, New York and $54,000,000 Commerzbank AG, Atlanta Agency Commerzbank AG, Atlanta Agency Grand Cayman Branches 1230 Peachtree St., N.E. 1230 Peachtree St., N.E. Suite 3500 Suite 3500 Atlanta, GA 30309 Atlanta, GA 30309 Attention: Brian Campbell, Senior Attention: Brian Campbell, Senior Vice President Vice President Tel: (404) 888-6518 Tel: (404) 888-6518 Fax: (404) 888-6539 Fax: (404) 888-6539 Copy to: Commerzbank AG, Copy to: Commerzbank AG, 2 World Financial Center, 32nd 2 World Financial Center, 32nd floor floor New York, NY 10281 New York, NY 10281 Attention: Joy Lynn Jarvis Attention: Joy Lynn Jarvis Tel: (212) 266-7348 Tel: (212) 266-7348 Fax: (212) 298-8111 Fax: (212) 298-8111 - ------------------------------- --------------------- ----------------------------------- ------------------------------------ - ------------------------------- --------------------- ----------------------------------- ------------------------------------ Wachovia Bank, National $41,000,000 Wachovia Bank, National Wachovia Bank, National Association Association Association 201 South College Street NC1183 201 South College Street NC1183 Charlotte, NC 28288-1183 Charlotte, NC 28288-1183 Attention: Chanue Michael Attention: Chanue Michael Tel: (704) 715-1195 Tel: (704) 715-1195 Fax: (704) 383-7201 Fax: (704) 383-7201 - ------------------------------- --------------------- ----------------------------------- ------------------------------------ - ------------------------------- --------------------- ----------------------------------- ------------------------------------ Bayerische Landesbank, Cayman $41,000,000 Bayerische Landesbank Bayerische Landesbank Islands Branch 560 Lexington Avenue 560 Lexington Avenue New York, NY 10022 New York, NY 10022 Attention: Sean O'Sullivan/ Attention: Sean O'Sullivan/ Patricia Sanchez Patricia Sanchez Tel: (212) 310-9913/9810 Tel: (212) 310-9913/9810 Fax: (212) 310-9868/9930 Fax: (212) 310-9868/9930 - ------------------------------- --------------------- ----------------------------------- ------------------------------------ - ------------------------------- --------------------- ----------------------------------- ------------------------------------ KBC Bank N.V. $41,000,000 KBC Bank N.V. KBC Bank N.V. New York Branch New York Branch 125 West 55th Street, 10th floor 125 West 55th Street, 10th floor New York, NY 10019 New York, NY 10019 Attention: Robert Pacifici/ Loan Attention: Robert Pacifici/ Loan Administration Administration Tel: (212) 541-0671 Tel: (212).541-0671 Fax: (212) 541-5581 Fax: (212) 541-5581 Copy to: Copy to: KBC Bank N.V. KBC Bank N.V. 245 Peachtree Center Avenue, 245 Peachtree Center Avenue, Suite Suite 2550 2550 Atlanta, Georgia 30303 Atlanta, Georgia 30303 Attention: Jacqueline Brunetto, Attention: Jacqueline Brunetto, VP/ Filip Berton, AVP VP/ Filip Berton, AVP Tel: (404) 584-5466 Tel: (404) 584-5466 Fax: (404) 584-5465 Fax: (404) 584-5465 - ------------------------------- --------------------- ----------------------------------- ------------------------------------ - ------------------------------- --------------------- ----------------------------------- ------------------------------------ Bank One, NA $41,000,000 Bank One, NA Bank One, NA 21 South Clark 21 South Clark Suite IL1-0363 Suite IL1-0363 Chicago IL 60670 Chicago IL 60670 Attention: Dawn M. Lawler/ Dawn. Attention: Dawn M. Lawler/ Dawn. M. Hamm M. Hamm Tel: (312) 732-3857/6899 Tel: (312) 732-3857/6899 Fax: (312) 732-5435/3055 Fax: (312) 732-5435/3055 - ------------------------------- --------------------- ----------------------------------- ------------------------------------ - ------------------------------- --------------------- ----------------------------------- ------------------------------------ Lehman Commercial Paper Inc. $41,000,000 Lehman Commercial Paper Inc. Lehman Commercial Paper Inc. 745 7th Avenue 745 7th Avenue New York, NY 10019 New York, NY 10019 Attention: Suzanne Flynn/ Attention: Suzanne Flynn/ Priyanka Mathew Priyanka Mathew Tel: (212) 526-3163/6560 Tel: (212) 526-3163/6560 Fax: (646) 758-2096/ Fax: (646) 758-2096/ (212) 526-6653 (212) 526-6653 - ------------------------------- --------------------- ----------------------------------- ------------------------------------ - ------------------------------- --------------------- ----------------------------------- ------------------------------------ Mizuho Corporate Bank, LTD. $41,000,000 Mizuho Corporate Bank, LTD Mizuho Corporate Bank, LTD 1251 Avenue of the Americas 1251 Avenue of the Americas New York, NY 10020-1104 New York, NY 10020-1104 Attention: Noreen Dowers Attention: Noreen Dowers Tel: (201) 626-9158 Tel: (201) 626-9158 Fax: (201) 626-9941 Fax: (201) 626-9941 - ------------------------------- --------------------- ----------------------------------- ------------------------------------ - ------------------------------- --------------------- ----------------------------------- ------------------------------------ Morgan Stanley Senior $41,000,000 Morgan Stanley Senior Funding, Morgan Stanley Senior Funding, Inc. Funding, Inc. Inc. 1585 Broadway 1585 Broadway New York NY 10036 New York NY 10036 Attention: Larry Benison/ Theresa Attention: Larry Benison/ Amato Theresa Amato Tel: (212) 537-1439/1384 Tel: (212) 537-1439/1384 Fax: (212) 537-1867/1866 Fax: (212) 537-1867/1866 - ------------------------------- --------------------- ----------------------------------- ------------------------------------ - ------------------------------- --------------------- ----------------------------------- ------------------------------------ Scotiabanc Inc $38,000,000 Scotiabanc Inc Scotiabanc Inc Suite 2700, 600 Peachtree St. N.E. Suite 2700, 600 Peachtree St. N.E. Atlanta GA 30308 Atlanta GA 30308 Attention: William E. Zarrett/ Attention: William E. Zarrett/ Jay Willson Jay Willson Tel: (404) 877-1504 Tel: (404) 877-1504 Fax: (404) 888-8998 Fax: (404) 888-8998 - ------------------------------- --------------------- ----------------------------------- ------------------------------------ - ------------------------------- --------------------- ----------------------------------- ------------------------------------ SANPAOLO IMI S.p.A. $20,000,000 SANPAOLO IMI S.p.A. SANPAOLO IMI S.p.A. 245 Park Avenue, 35th Floor 245 Park Avenue, 35th Floor New York, NY 10167 New York, NY 10167 Attention: Glen Binder Attention: Glen Binder Tel: (212) 692-3016 Tel: (212) 692-3016 Fax: (212) 692-3178 Fax: (212) 692-3178 - ------------------------------- --------------------- ----------------------------------- ------------------------------------ - ------------------------------- --------------------- ----------------------------------- ------------------------------------ Norddeutsche Landesbank $15,000,000 NORD/LB New York Branch NORD/LB Cayman Islands Branch Girozentrale New York Branch 1114 Avenue of the Americas, 37th 1114 Avenue of the Americas, 37th and/or Cayman Islands Branch Floor Floor New York, NY 10036 New York, NY 10036 Attention: Andrea Johann, Loan Attention: Andrea Johann, Loan Administration Group Administration Group Tel: (212) 812-6830/6984 Tel: (212) 812-6830/6984 Fax: (212) 812-6930 Fax: (212) 812-6930 - ------------------------------- --------------------- ----------------------------------- ------------------------------------ - ------------------------------- --------------------- ----------------------------------- ------------------------------------ WestLB AG, New York Branch $15,000,000 WestLB AG, New York Branch WestLB AG, New York Branch 1211 Avenue of the Americas 1211 Avenue of the Americas New York, NY 10036 New York, NY 10036 Attention: Felicia La Forgia Attention: Felicia La Forgia Tel: (212) 852-6096 Tel: (212) 852-6096 Fax: (212) 852-6307 Fax: (212) 852-6307 - ------------------------------- --------------------- ----------------------------------- ------------------------------------
SCHEDULE II AMENDED AND RESTATED CREDIT AGREEMENT TERMS OF SUBORDINATION Terms defined in the Credit Agreement referred to below are used in these Terms of Subordination with their defined meanings except as otherwise defined herein. SECTION 1. "Affiliate Subordinated Debt" Defined. "Affiliate Subordinated Debt" means, for purposes of these Terms of Subordination (the "Agreement"), [describe the specific Affiliate Subordinated Debt that is being subordinated hereby -- to include all amounts payable in connection therewith], which constitutes debt of the Borrower originally issued to a Person that is an Affiliate of the Borrower and which is subordinated on the terms set forth below. Debt of the Borrower payable to any entity that is formed by the Borrower or an Affiliate of the Borrower for the purpose of issuing securities in the public or capital markets, or in a private placement, shall not constitute "Affiliate Subordinated Debt" for all purposes hereof. SECTION 2. Agreement to Subordinate. The holder hereof (the "Subordinated Creditor") and the Borrower each agree that the Affiliate Subordinated Debt is and shall be subordinate and subject in right of payment, to the extent and in the manner hereinafter set forth, to the prior payment in full of all obligations of the Borrower now or hereafter existing under (a) the Amended and Restated Credit Agreement, dated as of April 17, 2003, as from time to time in effect (the "Credit Agreement"), among the Borrower, the financial institution(s) party thereto and Citibank, N.A., as Agent for such financial institution(s), and any promissory notes (the "Notes") issued pursuant thereto and (b) such documents as may be listed on Schedule I hereto on the date of execution hereof or from time to time added to said Schedule I (other than any such document which the Senior Creditors (as hereinafter defined) thereunder have agreed may be deleted from said Schedule I from time to time) by a writing signed by the Borrower and the Subordinated Creditor (such documents being referred to herein collectively as the "Senior Debt Documents"), whether for principal, interest (including, without limitation, interest, as provided in the Notes and in the debt instruments included in the Senior Debt Documents (such debt instruments included in the Senior Debt Documents being referred to herein collectively as the "Senior Debt Instruments"), accruing after the filing of a petition initiating any proceeding referred to in Section 3(a), whether or not such interest accrues after the filing of such petition for purposes of the Federal Bankruptcy Code or is an allowed claim in such proceeding), fees, expenses, indemnity or other amounts due thereunder (such obligations of the Borrower under the Credit Agreement and the Senior Debt Documents being the "Obligations"). For the purposes of this Agreement, the Obligations shall not be deemed to have been paid in full until (i) with respect to the Lenders, the earlier of (A) the Final Maturity Date, and (B) the date of termination in whole of each Lender's commitment (the "Termination Date") under the Credit Agreement shall have occurred and (ii) with respect to each Senior Creditor, the obligation under each of its respective Senior Debt Documents to extend credit, disburse funds or acquire a debt instrument shall have terminated and unless the Lenders, the creditors under the Senior Debt Documents and the holders (other than the Lenders) of the Senior Debt Instruments (such creditors and holders being referred to collectively herein as the "Senior Creditors") shall have received payment of their respective Obligations in full in cash. The Borrower and the Subordinated Creditor shall endorse on any instrument evidencing Affiliate Subordinated Debt a statement to the effect that it is subject to these terms of subordination. SECTION 3. Events of Subordination. (a) In the event of any dissolution, winding up, liquidation, arrangement, reorganization, adjustment, protection, relief or composition of the Borrower or its debts, whether voluntary or involuntary, in any bankruptcy, insolvency, arrangement, reorganization, receivership, relief or other similar case or proceeding under any federal or state bankruptcy or similar law or upon an assignment for the benefit of creditors or any other marshaling of the assets and liabilities of the Borrower or otherwise, the Lenders and the Senior Creditors shall be entitled to receive payment in full of their respective Obligations before the Subordinated Creditor is entitled to receive any payment of all or any of the Affiliate Subordinated Debt, and any payment or distribution of any kind (whether in cash, property or securities) that otherwise would be payable or deliverable upon or with respect to the Affiliate Subordinated Debt in any such case, proceeding, assignment or marshaling (including any payment that may be payable by reason of any other Debt of the Borrower being subordinated to payment of the Affiliate Subordinated Debt) shall be paid or delivered directly to Citibank, as Agent under the Credit Agreement, for the account of the Lenders, and to the Senior Creditors or to a trustee or other agent for the Senior Creditors or for any group of the Senior Creditors (any such trustee or agent being referred to herein as a "Representative") which may be listed on Schedule I hereto, pro rata according to the principal amount of the Obligations then owed by the Borrower to each of the Lenders and the Senior Creditors, for application (in the case of cash) to, or as collateral (in the case of non-cash property or securities) for, the payment or prepayment of the Obligations until the Obligations shall have been paid in full. (b) In the event that (i) any Default or Event of Default described in Section 6.01 of the Credit Agreement or any payment default by the Borrower under a Senior Debt Document shall have occurred and be continuing, (ii) any Event of Default or any "event of default" under a Senior Debt Document that would entitle the creditors under such Senior Debt Document to accelerate the maturity of indebtedness evidenced by such Senior Debt Document (a "Senior Event of Default") (other than as referred to in the preceding clause (i)) shall have occurred and be continuing or (iii) any judicial proceeding shall be pending with respect to any Event of Default or Senior Event of Default, then no payment (including any payment that may be payable by reason of any other Debt of the Borrower being subordinated to payment of the Affiliate Subordinated Debt) or distribution of any kind, whether in cash, property or securities, shall be made by or on behalf of the Borrower for or on account of any Affiliate Subordinated Debt, and the Subordinated Creditor shall not take or receive from the Borrower, directly or indirectly, in cash or other property or by set-off in any other manner, including, without limitation, from or by way of collateral, payment of all or any of the Affiliate Subordinated Debt until the Obligations shall have been paid in full. (c) Until the Termination Date under the Credit Agreement shall have occurred and the Obligations thereunder then owned by the Borrower to the Lenders shall have been paid in full in cash, no payment (including any payment that may be payable by reason of any other Debt of the Borrower being subordinated to the payment of the Affiliate Subordinated Debt) or distribution of any kind, whether in cash, property or securities, shall be made by or on behalf of the Borrower for or on account of any Affiliate Subordinated Debt, and the Subordinated Creditor shall not take or receive from the Borrower, directly or indirectly, in cash, property or securities or by set-off or in any other manner, including, without limitation, from or by way of collateral, payment of all or any of the Affiliate Subordinated Debt at any time (i) unless at the end of the fiscal quarter (including the fourth fiscal quarter) of the Borrower for which financial statements have most recently been delivered to the Agent by the Borrower pursuant to Section 5.01(d) or (e) of the Credit Agreement on or preceding the date on which the Borrower takes such action, the ratio of Cash Available for Corporate Debt Service to Corporate Interest was at least 2.00:1.00 or, if the Borrower does not have at least an Investment Grade Rating, 2.25:1.00, in each case, for the period comprised of the four fiscal quarters ending on the date of such financial statements and with effect from the date of delivery of such financial statements; or (ii) with respect solely to Affiliate Subordinated Debt loaned to the Borrower to pay Project Costs of any Project at any time prior to the Non-Recourse Date for such Project, if, no more frequently than once each calendar month, such payment or distribution is made on, or within three (3) Business Days after, the date of, and using the proceeds of the Project Advances or Commercial Paper (as applicable) arising from, or relating to, a Utilization with respect to such Project; provided, that the amount of interest, fees and other charges, if any, paid with respect to any Affiliate Subordinated Debt under this subsection (ii) will not exceed the maximum rate or amount permitted under PUHCA (whether or not such law is repealed). SECTION 4. In Furtherance of Subordination. The Subordinated Creditor agrees as follows: (a) If any proceeding referred to in Section 3(a) above is commenced by or against the Borrower, (i) Citibank, as Agent for the Lenders, and the Senior Creditors, acting directly or through one or more Representatives, are hereby irrevocably authorized and empowered (in their own names or in the name of the Subordinated Creditor or otherwise), but shall have no obligation, to demand, sue for, collect and receive every payment or distribution referred to in Section 3(a) to which they are entitled thereunder and give acquittance therefor and to file claims and proofs of claim and take such other action (including, without limitation, voting the Affiliate Subordinated Debt pro rata according to the principal amount of the Obligations then owed by the Borrower to each of the Lenders and the Senior Creditors or enforcing any security interest or other lien securing payment of the Affiliate Subordinated Debt) as it may deem necessary or advisable for the exercise or enforcement of any of the rights or interests of the Agent, the Lenders, the Representatives and the Senior Creditors hereunder; and (ii) the Subordinated Creditor shall duly and promptly take such reasonable actions as Citibank, as Agent for the Lenders and the Senior Creditors or the Representatives may request (A) to permit Citibank, as Agent of the Lenders, and the Senior Creditors or the Representatives to collect the Subordinated Debt for the account of the Lenders and the Senior Creditors and to file appropriate claims or proofs of claim in respect of the Subordinated Debt, (B) to execute and deliver to Citibank, as Agent for the Lenders, and to the Senior Creditors or their Representatives such documents as Citibank, as Agents for the Lenders and the Senior Creditors or the Representatives may reasonably request in order to enable Citibank, as Agent for the Lenders, and the Senior Creditors or the Representatives to enforce any and all claims with respect to, and any security interest and other liens securing payment of, the Subordinated Debt, and (C) to collect and receive any and all payments or distributions which may be payable or deliverable upon or with respect to the Subordinated Debt, which payments and distributions shall be distributed pro rata according to the principal amount of the Obligations then owed by the Borrower to each of the Lenders and the Senior Creditors. (b) All payments or distributions upon or with respect to the Affiliate Subordinated Debt which are received by the Subordinated Creditor contrary to the provisions of this Agreement shall be received in trust for the benefit of the Lenders and the Senior Creditors pro rata according to the principal amount of the Obligations then owed by the Borrower to each of the Lenders and the Senior Creditors, shall be segregated from other funds and property held by the Subordinated Creditor and shall be forthwith paid over to Citibank, as Agent for the Lenders, for the account of the Lenders, and to the Senior Creditors or their Representatives pro rata according to the principal amount of the Obligations then owed by the Borrower to each of the Lenders and the Senior Creditors, in the same form as so received (with any necessary indorsement) to be applied (in the case of cash) to, or held as collateral (in the case of non-cash property or securities) for, the payment or prepayment of the Obligations in accordance with the terms of the Credit Agreement and the Senior Debt Documents. Any portion of a payment or distribution received by a Lender or Senior Creditor (or by the Agent or a Representative) which is in excess of its pro rata portion of such payment or distribution shall be held in trust by such Lender or Senior Creditor (or Agent or Representative) for the benefit of the other Lenders and Senior Creditors to be paid promptly to the other Lenders and Senior Creditors (or to the Agent and the Representatives on behalf of such Lenders and Senior Creditors) pro rata according to the principal amount of the Obligations then owed by the Borrower to each of such Lenders and Senior Creditors. (c) Citibank, as Agent for the Lenders, and the Senior Creditors or their Representatives are hereby authorized to seek specific performance of this Agreement, whether or not the Borrower shall have complied with any of the provisions hereof applicable to it, at any time when the Subordinated Creditor shall have failed to comply with any of the provisions of this Agreement applicable to it. SECTION 5. No Commencement of Any Proceeding. The Subordinated Creditor agrees that, so long as the Obligations shall not have been paid in full in cash, the Subordinated Creditor will not sue for payment of all or any of the Affiliate Subordinated Debt, or commence, or join with any creditor other than the Lenders, Citibank, as Agent for the Lenders, the Senior Creditors and the Representatives, in commencing any proceeding referred to in Section 3(a); provided, however, that the foregoing provisions shall not prevent the Subordinated Creditor from commencing and prosecuting to judgment any action necessary to enforce such Affiliate Subordinated Debt during the period commencing one year prior to the expiration of the limitation period governing such Affiliate Subordinated Debt under any applicable statute of limitations. SECTION 6. Rights of Subrogation. The Subordinated Creditor agrees that no payment or distribution to Citibank, as Agent for the Lenders, the Lenders, the Senior Creditors or the Representatives pursuant to the provisions of this Agreement shall entitle the Subordinated Creditor to exercise any right of subrogation in respect thereof until the Obligations shall have been paid in full. From and after the payment in full of the Obligations, the Subordinated Creditor shall be subrogated to all rights of the Agent, the Lenders, the Senior Creditors and the Representatives to receive any further payments or distributions applicable to the Obligations until the Affiliate Subordinated Debt shall have been paid in full, in addition to all other rights of subrogation that the Subordinated Creditor may have. For purposes of any such subrogation, no payments or distributions on the Obligations pursuant to this Agreement shall, as between the Borrower, its creditors other than the Lenders and the Senior Creditors, and the Subordinated Creditor, be deemed to be a payment by the Borrower to or on account of the Obligations, and no payments or distributions to the Subordinated Creditor of assets by virtue of the subrogation herein provided for shall, as between the Borrower, its creditors other than the Lenders and the Senior Creditors, and the Subordinated Creditor, be deemed to be a payment by the Borrower to or on account of the Obligations, and no payments or distributions to the Subordinated Creditor of assets by virtue of the subrogation herein provided for shall, as between the Borrower, its creditors other than the Lenders and the Senior Creditors, and the Subordinated Creditor, be deemed to be a payment to or on account of the Affiliate Subordinated Debt. The provisions of this Agreement are and are intended solely for the purpose of defining the relative rights of the Subordinated Creditor, on the one hand, and the Lenders, the Agent for the benefit of the Lenders, the Senior Creditors and the Representatives, on the other hand, and nothing contained in this Agreement is intended to or shall impair the obligation of the Borrower, which is unconditional and absolute, to pay the principal of (and premium, if any) and interest on the Affiliate Subordinated Debt as and when the same shall become due and payable in accordance with its terms, or, except as provided in Section 10 below, to affect the relative rights of the Subordinated Creditor and the creditors of the Borrower other than the Lenders and the Senior Creditors, nor shall anything herein prevent the Subordinated Creditor from exercising all remedies otherwise permitted by applicable law upon default under the Affiliate Subordinated Debt, subject to the rights, if any, under this Agreement, of the Lenders, the Agent for the benefit of the Lenders, the Senior Creditor and the Representatives in respect of cash, property or securities of the Borrower otherwise payable or delivered to the Subordinated Creditor upon the exercise of any such remedy. SECTION 7. Agreements in Respect of Affiliate Subordinated Debt. The Subordinated Creditor will not sell, assign, pledge, encumber or otherwise dispose of any of the Affiliate Subordinated Debt unless such sale, assignment, pledge, encumbrance or disposition (i) is to an Affiliate of the Borrower other than a Subsidiary of the Borrower (ii) is made expressly subject to this Agreement. SECTION 8. Obligations Hereunder Not Affected. All rights and interest of Citibank, as Agent for the Lenders, the Lenders, the Senior Creditors and the Representatives hereunder, and all agreements and obligations of the Subordinated Creditor and the Borrower under this Agreement, shall remain in full force and effect irrespective of: (i) any lack of validity or enforceability of the Credit Agreement, a Note, a Senior Debt Document or any other agreement or instrument relating thereto; (ii) any change in the time, manner or place of payment of, or in any other term of, all or any of the Obligations, or any other amendment or waiver of or any consent to any departure from the Credit Agreement, a Note or a Senior Debt Document, including, without limitation, any increase in the Obligations resulting from the extension of additional credit to the Borrower or otherwise; (iii) any taking, exchange, release or non-perfection of any collateral, or any taking, release or amendment or waiver of or consent to departure from any guaranty, for all or any of the Obligations; (iv) any manner of application of collateral, or proceeds thereof, to all or any of the Obligations, or any manner of sale or other disposition of any collateral for all or any of the Obligations or any other assets of the Borrower or any of its subsidiaries; (v) any change, restructuring or termination of the corporate structure or existence of the Borrower; or (vi) any other circumstance which might otherwise constitute a defense available to, or a discharge of, the Borrower or a subordinated creditor. This Agreement shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any of the Obligations is rescinded or must otherwise be returned by Citibank, as Agent for the Lenders, any Lender, any Senior Creditor or any Representative upon the insolvency, bankruptcy or reorganization of the Borrower or otherwise, all as though such payment had not been made. SECTION 9. Waiver. The Subordinated Creditor and the Borrower each hereby waives promptness, diligence, notice of acceptance and any other notice with respect to any of the Obligations and this Agreement and any requirement that Citibank, as Agent for the Lenders, any Lender, any Senior Creditor or any Representative protect, secure, perfect or insure any security interest or lien or any property subject thereto or exhaust any right or take any action against the Borrower or any other person or entity or any collateral. SECTION 10. Extension of Subordination. The Borrower and the Subordinated Creditor shall not subordinate the Affiliate Subordinated Debt for the benefit of any one or more other creditors of the Borrower, now or hereafter existing, upon any terms other than those set forth in this Agreement. The Borrower and the Subordinated Creditor shall have the right to subordinate the Affiliate Subordinated Debt for the benefit of any one or more other creditors of the Borrower, now or hereafter existing, upon the same terms as are set forth in this Agreement. SCHEDULE I Senior Debt Documents Title and Date Party(ies) Representative SCHEDULE III AMENDED AND RESTATED CREDIT AGREEMENT PROJECT LIMITS FOR INITIAL PROJECTS Initial Project Total Project Costs (Estimated if an Project Limit --------------- ------------------------------------- ------------- Uncompleted Project, and actual, if a Completed Project) Harris 1 Project $270,512,613 $175,833,199 Harris 2 Project $242,292,211 $157,489,937 Dahlberg $265,341,836 $159,205,102 Franklin 1 Project $229,183,570 $137,510,142 Franklin 2 Project $246,205,077 $160,033,300 Wansley $451,387,132 $270,832,279 SCHEDULE IV AMENDED AND RESTATED CREDIT AGREEMENT SCHEDULED COMPLETION DATE, GUARANTEED HEAT RATE AND GUARANTEED OUTPUT FOR EACH INITIAL PROJECT 1. Scheduled Completion Dates --------------------------- ------------------------- Initial Project Scheduled Completion Date --------------------------- ------------------------- --------------------------- ------------------------- Harris 1 Project June 1, 2003 --------------------------- ------------------------- --------------------------- ------------------------- Harris 2 Project June 1, 2003 --------------------------- ------------------------- --------------------------- ------------------------- Dahlberg June 1, 2001 (Completed) --------------------------- ------------------------- --------------------------- ------------------------- Franklin 1 Project April 1, 2002 --------------------------- ------------------------- --------------------------- ------------------------- Franklin 2 Project June 1, 2003 --------------------------- ------------------------- --------------------------- ------------------------- Wansley Project June 1, 2002 --------------------------- ------------------------- 2. Guaranteed Heat Rates Guaranteed Heat Rate with respect to the following Initial Projects, at the relevant average ambient rated conditions for such Project, are set forth below:
-------------------------------------------------------------------------------------------------------------------- Power Power HP IP Condenser Condenser Average Base Mode Dry Bulb Relative Fuel Factor Factor Blowdown Blowdown Makeup Makeup Annual Heat Rate* Temperature Humidity Elevation Temperature** (GT) (ST) Flow Flow Flow Temp. Ambient -------------------------------------------------------------------------------------------------------------------- Btu/kWh F % Ft. F - - % % Lb/Hr F -------------------------------------------------------------------------------------------------------------------- Franklin 1 6,711 64.0 74.5 560 25.0 0.85 0.85 0.5 1.0 1169 65 Franklin 2 6,728 64.0 74.5 560 25.0 0.85 0.90 0.5 1.0 1049 65 Harris 1 6,730 64.8 73.8 200 25.0 0.85 0.90 0.5 1.0 1068 65 Harris 2 6,730 64.8 73.8 200 25.0 0.85 0.90 0.5 1.0 1068 65 Wansley 6,706 61.0 69.0 740 25.0 0.85 0.85 0.5 1.0 1172 63 --------------------------------------------------------------------------------------------------------------------
* All to the high side of the generator step-up transformer ** 25F is as of the gas is delivered to each combustion turbine. The gas is then heated by the Project's process before entry to the combustion turbine burner 3. Guaranteed Output Guaranteed Output with respect to the following Initial Project, at the relevant rated summer conditions for such Project, are set forth below:
-------------------------------------------------------------------------------------------------------------------- Summer Power Power HP IP Condenser Condenser Peak Dry Bulb Relative Fuel Factor Factor Blowdown Blowdown Makeup Makeup Summer Capacity* Temperature Humidity Elevation Temperature** (GT) (ST) Flow Flow Flow Temp. -------------------------------------------------------------------------------------------------------------------- MW F % Ft. F - - % % Lb/Hr F -------------------------------------------------------------------------------------------------------------------- Franklin 1 571 95.0 40.0 560 25.0 0.82 0.98 0.5 1.0 224,005 83 Franklin 2 615 95.0 39.8 560 25.0 0.82 0.95 0.5 1.0 226,689 83 Harris 1 618 95.0 44.3 200 25.0 0.82 0.95 0.5 1.0 229,045 83 Harris 2 618 95.0 44.3 200 25.0 0.82 0.95 0.5 1.0 229,045 83 Wansley 1134 95.0 42.5 740 25.0 0.83 0.98 0.5 1.0 221,913 80 --------------------------------------------------------------------------------------------------------------------
* All to the high side of the generator step-up transformer ** 25F is as of the gas is delivered to each combustion turbine. The gas is then heated by the Project's process before entry to the combustion turbine burner SCHEDULE V AMENDED AND RESTATED CREDIT AGREEMENT TESTING PROCEDURES A. COMBINED-CYCLE PROJECTS Introduction: The procedures and required tests which must be completed prior to Southern's certification of Substantial Completion and Final Completion with respect to an Uncompleted Project which is a combined-cycle electric generation plant are set forth below. The capacity and heat rate tests for such Project may be conducted independently; provided that if the Guaranteed Heat Rate and Guaranteed Output for such Project are based upon the same ambient conditions and operating mode (e.g., base mode, full pressure and power augmentation), the capacity and heat rate tests for such Project shall be conducted simultaneously. The tests will be conducted by the owner according to a test procedure (incorporating the relevant matters set forth herein) provided by the owner and approved by Southern Company Services, Inc. ("SCS") and the purchaser of energy from such Project under each Power Purchase Agreement, if any, applicable thereto. The test procedure will be based on ASME PTC 46-1996 ("PTC 46"). This code determines the net electrical output and heat rate of the Project, corrected to design operating conditions. The Uncompleted Project shall demonstrate compliance with the air permit limits during the tests (using certified plant continuous emissions monitoring system ("CEMS"), calibrated portable CEMS, or by certified emissions testing contractor) and all applicable laws and other permits, with no waivers or variances for construction, start-up, testing or otherwise. The tests will encompass a control volume including the cooling tower as shown in Figure 5.1 of PTC 46. The only essential data required are those parameters which cross the test boundary. Correction curves will be utilized to correct net unit performance from test conditions to design conditions. The tests will be conducted after all required systems are fully commissioned and at actual ambient and operating conditions as close as practical to design conditions. Heat recovery steam generator ("HRSG") blowdown will be isolated during the tests since these flows are unmetered; however, corrections to account for design flows will be applied. All auxiliary components must be operated in a normal manner consistent with Prudent Utility Practices. "Prudent Utility Practices" shall mean at a particular time, any of the practices, methods and acts engaged in or approved by a significant portion of the United States electric utility industry as at such time, or any of the practices, methods and acts which, in the exercise of reasonable judgment in light of the facts known at the time the decision was made, could have been expected to accomplish the desired results at a reasonable cost consistent with good business practices, reliability, safety and expedition. Prudent Utility Practices is not intended to be limited to the optimum practice, method or act to the exclusion of all others, but rather to be a spectrum of possible practices, methods or acts expected to accomplish the desired results, having due regard for, among other things, manufacturers' warranties and the requirements of governmental authorities of competent jurisdiction. Capacity Testing: Capacity test results will be corrected to the rated conditions (the "Output Rated Conditions") applicable to the Guaranteed Output for such Project, as set forth, (a) in the case of an Initial Project, in Schedule IV to the Credit Agreement; or (b) in the case of a Subsequent Project, in the Project Schedule delivered pursuant to Section 3.04 of the Credit Agreement for such Project. The demonstrated net output of the Project will be as measured by the test metering system and corrected to such Project's Output Rated Conditions. PTC 46 correction curves will be produced by SCS using a GateCycle computer model, created from design input provided by the equipment vendors. Combustion turbine evaporative coolers, HRSG ductburners and power augmentation steam injection will be in service. Net unit capacity will be corrected from test to design conditions for the following parameters as required by PTC 46: Ambient Dry Bulb Temperature Ambient Humidity (or wet bulb temperature) Barometric Pressure (or elevation) HRSG Blowdown Flow Condenser Makeup Flow and Temperature Fuel Temperature (upstream of fuel heaters) Power Factor (each generator) Abnormal Auxiliary Power Loads Abnormal Fuel Properties Abnormal Unit Operating Conditions Heat Rate Testing: Heat rate test results will be corrected to the rated operating conditions (the "Heat Rate Rated Conditions") applicable to the Guaranteed Heat Rate for such Project, as set forth, (a) in the case of an Initial Project, in Schedule IV to the Credit Agreement; or (b) in the case of a Subsequent Project, in the Project Schedule delivered pursuant to Section 3.04 of the Credit Agreement for such Project. The demonstrated net heat rate of the Project will be as measured by the test metering system and corrected to such Project's Heat Rate Rated Conditions. PTC 46 heat rate correction curves will be produced by SCS using a GateCycle computer model, created from design input provided by the equipment vendors. Combustion turbine evaporative coolers will be in service or appropriate corrections will be applied. HRSG ductburners and power augmentation will be out of service. Net unit heat rate will be corrected from test to design conditions for the following parameters, as required by PTC 46: Ambient Dry Bulb Temperature Ambient Humidity (or wet bulb temperature) HRSG Blowdown Flow - Condenser Makeup Flow and Temperature - Fuel Temperature (Upstream of fuel heaters) Power Factor (each generator) Abnormal Aux. Power Loads Abnormal Fuel Properties Abnormal Unit Operating Conditions Essential Data Requirements: Test data will be obtained using test instruments which meet the requirements of PTC 46. Specific methods which will be employed for significant data points are as follows: 1. Net power will be determined from the sum of gross combustion turbine output and steam turbine output, less station service and main transformer losses. 2. Combustion turbine gross output will be measured using temporary test watt meters installed in parallel with station watt meters. 3. Steam turbine gross output will be measured using temporary test watt meters installed in parallel with station watt meters. 4. Station service will be measured using installed station watt hour meters. 5. Main transformer losses will be calculated from transformer shop test data. 6. Net fuel consumption will be the sum of fuel flow to each combustion turbine and the ductburners. 7. Natural gas flows to each combustion turbine and ductburner will be determined using test differential pressure transmitters installed in parallel with station instruments across the existing plant orifice meter tubes. Test instruments also will be used to measure gas pressure and temperatures. 8. Natural gas flowrates will be calculated using the formulas provided in ASME MFC-3M. 9. Fuel properties will be determined from gas samples taken during each test and analyzed by an independent analysis laboratory. 10. Ambient pressure will be measured using an electronic test barometer meeting ASME PTC 22 requirements. 11. Combustion turbine inlet dry bulb temperatures will be determined by a test temperature grid installed in the inlet of each combustion turbine unit. 12. Combustion turbine inlet wet bulb temperature and relative humidity will be determined using a test psychrometer in the inlet of each combustion turbine unit. 13. Substitute or temporary plant equipment shall not be used during testing, and the Uncompleted Project shall be tested while in an "automatic mode" to an extent consistent with normal operating practice. 14. Cooling tower inlet dry and wet bulb temperatures will be determined based on dedicated temperature readings near the cooling tower(s). Test Conditions: At least two test runs of one hour each will be conducted and compared for repeatability. The tests will be conducted after all required systems are fully commissioned and at actual ambient and operating conditions as close as practical to Output Rated Conditions (in the case of capacity tests) or Heat Rate Rated Conditions (in the case of heat rate tests). HRSG blowdown will be isolated during the tests since these flows are unmetered; however, corrections back to design flows will be applied. If the corrected results of the two test runs do not agree within 0.25%, then the cause of the discrepancy will be investigated, eliminated if possible, and a third test performed. If the results of all tests vary by more than 0.25% from the mean of all tests, then the results of all three tests will be averaged. If one test varies by more than 0.25% from the mean of the other two tests, then its results will be discarded and the results of the other two will be averaged. B. PEAKER PROJECTS To be agreed between the Borrower and the Independent Engineer and Environmental Consultant (acting on the instructions of the Majority Lenders) with respect to each Subsequent Project which is a Peaker on or prior to the first Utilization relating thereto. RELIABILITY TEST A. COMBINED-CYCLE PROJECTS The Borrower will conduct a 7-day reliability test which is intended to demonstrate that each of the Harris 1 Project, the Harris 2 Project, the Franklin 1 Project, the Franklin 2 Project and the Wansley Project (and any other Subsequent Project which is a combined-cycle electric generation plant) are capable of continuous, reliable operation at various load points. The reliability test shall be conducted during a continuous 168-hour period during which the relevant Project shall demonstrate the following requirements: o Achieve an Equivalent Availability Factor (as calculated by the North American Electric Reliability Council) of at least 97 percent; o During such test, the Project shall operate for 124 or more hours at the mode of operation applicable to either the Guaranteed Output or the Guaranteed Heat Rate for such Project, provided that the Project shall operate (a) for at least 24 hours in the mode of operation applicable to the Guaranteed Output for such Project, if ambient conditions allow; and (b) for at least 6 continuous hours in the mode of operation applicable to the Guaranteed Output for such Project; o During the reliability test, data will be recorded from plant instrumentation at one-hour intervals (ambient conditions recorded manually if necessary); o All plant emissions shall be recorded by the plant CEMS during the reliability test; o During the reliability test, the Project shall be operated in accordance with prudent utility practice and all laws, permits and regulations applicable to such Project (including, without limitation, all emissions requirements imposed by the Project's air permit); and o The facility controls shall be placed in an "automatic mode" to an extent consistent with normal operating practice, and manual control of facility equipment and systems shall be minimized. Operating personnel shall be staffed consistent with normal operating plans. B. PEAKER PROJECTS To be agreed between the Borrower and the Independent Engineer and Environmental Consultant (acting on the instructions of the Majority Lenders) with respect to each Subsequent Project which is a Peaker on or prior to the first Utilization relating thereto. EXHIBIT A AMENDED AND RESTATED CREDIT AGREEMENT FORM OF NOTE PROMISSORY NOTE U.S.$_______________ Dated: _______________, _____ FOR VALUE RECEIVED, the undersigned, SOUTHERN POWER COMPANY, a Delaware corporation (the "Borrower"), HEREBY PROMISES TO PAY to _________________________ (the "Lender") for the account of its Applicable Lending Office on the Final Maturity Date (each as defined in the Credit Agreement referred to below) the principal sum of U.S.$[amount of the Lender's Commitment in figures] or, if less, the aggregate outstanding principal amount of the Advances made by the Lender to the Borrower pursuant to the Amended and Restated Credit Agreement dated as of April 17, 2003 among the Borrower, the Lender and certain other financial institutions parties thereto and Citibank, N.A., as Agent for the Lender and such other financial institutions (as amended or modified from time to time, the "Credit Agreement"; the terms defined therein being used herein as therein defined) outstanding on the Final Maturity Date. The Borrower promises to pay interest on the unpaid principal amount of each Advance from the date of such Advance until such principal amount is paid in full, at such interest rates, and payable at such times, as are specified in the Credit Agreement. Both principal and interest are payable in lawful money of the United States of America to Citibank, N.A., as Agent, at 2 Penns Way, Suite 200, New Castle, DE 19720, Attention: Dave Graber, in same day funds. Each Advance owing to the Lender by the Borrower pursuant to the Credit Agreement, and all payments made on account of principal thereof, shall be recorded by the Lender and, prior to any transfer hereof, endorsed on the grid attached hereto which is part of this Promissory Note. This Promissory Note is one of the Notes referred to in, and is entitled to the benefits of, the Credit Agreement. The Credit Agreement, among other things, (i) provides for the making of Advances by the Lender to the Borrower from time to time in an aggregate amount not to exceed at any time outstanding the Dollar amount first above mentioned, the debt of the Borrower resulting from each such Advance being evidenced by this Promissory Note; and (ii) contains provisions for acceleration of the maturity hereof upon the happening of certain stated events and also for prepayments on account of principal hereof prior to the maturity hereof upon the terms and conditions therein specified. SOUTHERN POWER COMPANY By: --------------------------- Title: ADVANCES AND PAYMENTS OF PRINCIPAL
- ------------------ ---------------- --------------- -------------------- ------------------- ------------------ ----------------- Amount of Amount of Category of Project (if Principal Paid Unpaid Principal Notation Date Advance Advance applicable)1 or Prepaid Balance Made By - ------------------ ---------------- --------------- -------------------- ------------------- ------------------ ----------------- - ------------------ ---------------- --------------- -------------------- ------------------- ------------------ ----------------- - ------------------ ---------------- --------------- -------------------- ------------------- ------------------ ----------------- - ------------------ ---------------- --------------- -------------------- ------------------- ------------------ ----------------- - ------------------ ---------------- --------------- -------------------- ------------------- ------------------ ----------------- - ------------------ ---------------- --------------- -------------------- ------------------- ------------------ ----------------- - ------------------ ---------------- --------------- -------------------- ------------------- ------------------ ----------------- - ------------------ ---------------- --------------- -------------------- ------------------- ------------------ ----------------- - ------------------ ---------------- --------------- -------------------- ------------------- ------------------ ----------------- - ------------------ ---------------- --------------- -------------------- ------------------- ------------------ ----------------- - ------------------ ---------------- --------------- -------------------- ------------------- ------------------ ----------------- - ------------------ ---------------- --------------- -------------------- ------------------- ------------------ ----------------- - ------------------ ---------------- --------------- -------------------- ------------------- ------------------ ----------------- - ------------------ ---------------- --------------- -------------------- ------------------- ------------------ ----------------- - ------------------ ---------------- --------------- -------------------- ------------------- ------------------ ----------------- - ------------------ ---------------- --------------- -------------------- ------------------- ------------------ ----------------- - ------------------ ---------------- --------------- -------------------- ------------------- ------------------ ----------------- - ------------------ ---------------- --------------- -------------------- ------------------- ------------------ ----------------- - ------------------ ---------------- --------------- -------------------- ------------------- ------------------ ----------------- - ------------------ ---------------- --------------- -------------------- ------------------- ------------------ ----------------- - ------------------ ---------------- --------------- -------------------- ------------------- ------------------ ----------------- - ------------------ ---------------- --------------- -------------------- ------------------- ------------------ ----------------- - ------------------ ---------------- --------------- -------------------- ------------------- ------------------ ----------------- - ------------------ ---------------- --------------- -------------------- ------------------- ------------------ ----------------- - ------------------ ---------------- --------------- -------------------- ------------------- ------------------ ----------------- - ------------------ ---------------- --------------- -------------------- ------------------- ------------------ ----------------- - ------------------ ---------------- --------------- -------------------- ------------------- ------------------ ----------------- - ------------------ ---------------- --------------- -------------------- ------------------- ------------------ ----------------- - ------------------ ---------------- --------------- -------------------- ------------------- ------------------ ----------------- - ------------------ ---------------- --------------- -------------------- ------------------- ------------------ ----------------- - ------------------ ---------------- --------------- -------------------- ------------------- ------------------ ----------------- - ------------------ ---------------- --------------- -------------------- ------------------- ------------------ ----------------- - ------------------ ---------------- --------------- -------------------- ------------------- ------------------ -----------------
- ----------------------- 1 Insert name of Project, unless Working Capital Advance. EXHIBIT B AMENDED AND RESTATED CREDIT AGREEMENT FORM OF NOTICE OF UTILIZATION Citibank, N.A., as Agent for the Lenders parties to the Credit Agreement referred to below 2 Penns Way Suite 200 New Castle, DE 19720 Attention: Dave Graber [Date] Attention: ____________________ Ladies and Gentlemen: The undersigned, SOUTHERN POWER COMPANY, refers to the Amended and Restated Credit Agreement, dated as of April 17, 2003 (as amended or modified from time to time, the "Credit Agreement", the terms defined therein being used herein as therein defined), among the undersigned, certain financial institutions parties thereto and CITIBANK, N.A., as Agent for said financial institutions, and hereby gives you notice, irrevocably, pursuant to Article II of the Credit Agreement that the undersigned hereby requests a Utilization under the Credit Agreement, and in that connection sets forth below the information relating to such Utilization (the "Proposed Utilization") as required by Section 2.02(a) (if the Proposed Utilization is to be a Borrowing) or 2.15 (if the Proposed Utilization is to be a CP Commitment Reservation) of the Credit Agreement, as the case may be: (a) The Proposed Utilization shall consist of a [Borrowing in the aggregate amount of $_______________] / [CP Commitment Reservation in the aggregate amount of $_______________, and is being made with respect to Commercial Paper in an aggregate principal amount equal to such amount which will be issued on or after the date of the Proposed Utilization]*. (b) The Business Day of the Proposed Utilization is _______________, ____. ________________________ * Include only if Utilization is CP Commitment Reservation. [(c) [The Type of Advances comprising the Proposed Utilization is [Base Rate Advances] / [Eurodollar Rate Advances].] The initial Interest Period for each Eurodollar Rate Advance made as part of the Proposed Utilization is __________ month[s].]** (d) The aggregate principal amount of all outstanding Advances and the unused Commitments and CP Commitments, in each case, with respect to the Project(s) relating to the Proposed Utilization, before and after giving effect to the Proposed Utilization, are as follows:
- ---------------- --------------- -------------- ----------------------------------- ---------------------------------- Outstanding Utilizations Outstanding Utilizations After Before Proposed Utilization Proposed Utilization Estimated Aggregate Aggregate Aggregate CP Aggregate Aggregate CP Project Project Costs Project Limit Borrowings Commitments Borrowings Commitments - ---------------- --------------- -------------- --------------- ------------------- --------------- ------------------ - ---------------- --------------- -------------- --------------- ------------------- --------------- ------------------ - ---------------- --------------- -------------- --------------- ------------------- --------------- ------------------ - ---------------- --------------- -------------- --------------- ------------------- --------------- ------------------ - ---------------- --------------- -------------- --------------- ------------------- --------------- ------------------ - ---------------- --------------- -------------- --------------- ------------------- --------------- ------------------ - ---------------- --------------- -------------- --------------- ------------------- --------------- ------------------ - ---------------- --------------- -------------- --------------- ------------------- --------------- ------------------ - ---------------- --------------- -------------- --------------- ------------------- --------------- ------------------
[(e) The Advances comprising the Proposed Utilization are Project Advances, the proceeds of which are to [(i)] finance Project Costs in the following amounts with respect to the following Project(s): - -------------- ------------------ ------------------ -------------------- Project(s) Aggregate Project Costs Project Project Costs to be Costs to be Funded by Funded with Proposed Equity Utilization Contributions - -------------- ------------------ ------------------ -------------------- - -------------- ------------------ ------------------ -------------------- - -------------- ------------------ ------------------ -------------------- - -------------- ------------------ ------------------ -------------------- - -------------- ------------------ ------------------ -------------------- [[and][or] (ii)] repay Affiliate Subordinated Debt incurred to pay Project Costs in the following amounts with respect to the following Projects: __________________________ ** Include only if Utilization is Borrowing. - ----------- ------------ --------------- ---------------------- ---------------- Project(s) Aggregate Affiliated Project Costs Project Project Subordinated Funded Costs Funded Costs Debt to by Advances with Equity be Repaid by (including Proposed Contributions Proposed Utilization) Utilization - ----------- ------------ --------------- ---------------------- ---------------- - ----------- ------------ --------------- ---------------------- ---------------- - ----------- ------------ --------------- ---------------------- ---------------- - ----------- ------------ --------------- ---------------------- ---------------- - ----------- ------------ --------------- ---------------------- ---------------- ]]; OR [(e) The Advances comprising the Proposed Utilization are CP Advances in the following amounts, the proceeds of which are to repay Commercial Paper issued with respect to the following Project(s) in connection with the CP Commitment Reservation(s) established on the following dates for such Project(s): - ------------ --------------- ------------------ --------------- ---------------- Project(s) Aggregate Aggregate Amount Amount(s) and Project Costs Project Costs of CP Advances Date(s) of CP Funded Commitment with Equity Reservation Contributions - ------------ --------------- ------------------ --------------- ---------------- - ------------ --------------- ------------------ --------------- ---------------- - ------------ --------------- ------------------ --------------- ---------------- - ------------ --------------- ------------------ --------------- ---------------- - ------------ --------------- ------------------ --------------- ---------------- ]; OR [(e) The Advances comprising the Proposed Utilization are Working Capital Advances. ]; OR [(e) The Proposed Utilization is a CP Commitment (Refinancing CP) Reservation which is to be made with respect to Refinancing Commercial Paper the proceeds of which are to be used to repay Project Advances in the following amounts with respect to the following Project(s): - ------------------------- -------------------------------------------- Project(s) Aggregate Amount(s)and Date(s) of Project Advances - ------------------------- -------------------------------------------- - ------------------------- -------------------------------------------- - ------------------------- -------------------------------------------- - ------------------------- -------------------------------------------- - ------------------------- -------------------------------------------- ]; OR [(e) The Proposed Utilization is a CP Commitment (Original CP) Reservation which is to be made with respect to Original Commercial Paper, the proceeds of which are to finance Project Costs in the following amounts with respect to the following Project(s): - ------------ ----------- ------------------ ------------------ ---------------- Project(s) Aggregate Project Costs Project Costs to Project Costs Project to be be Funded by to be Funded Costs Funded by Advances with Equity Commercial Paper (including Contributions Proposed Utilization) - ------------ ----------- ------------------ ------------------ ---------------- - ------------ ----------- ------------------ ------------------ ---------------- - ------------ ----------- ------------------ ------------------ ---------------- - ------------ ----------- ------------------ ------------------ ---------------- - ------------ ----------- ------------------ ------------------ ---------------- ]; OR [(e) The Proposed Utilization is a CP Commitment (Original CP) Reservation which is to be made with respect to Original Commercial Paper, the proceeds of which are to be used for the Borrower's general corporate purposes or to provide working capital for the Borrower in the amount of $__________________.]; OR [(e) The Proposed Utilization is a CP Commitment (Refinancing CP) Reservation which is to be made with respect to Refinancing Commercial Paper, the proceeds of which are to be used to repay Working Capital Advances in the amount of $_________________.]; OR [(e) The Proposed Utilization is a CP Commitment (Original CP) Reservation which is to be made with respect to Original Commercial Paper, the proceeds of which are to be used to allow the Borrower to make a Restricted Payment or repay Affiliate Subordinated Debt issued for such purpose, in each case as permitted under this Agreement in the aggregate amount of $__________________.]; OR [(e) The Advances comprising the Proposed Utilization are CP Advances in the amount of $___________, the proceeds of which are to repay (i) Commercial Paper issued for the Borrower's general corporate purposes or to provide working capital for the Borrower, or (ii) Affiliate Subordinated Debt issued by the Borrower to repay Commercial Paper issued for such purpose, in each case in connection with the following CP Commitment Reservation(s):
- ------------------------------------------------------------ --------------------------------------------------------- Purpose Amount(s) and Date(s) of CP Commitment Reservation - ------------------------------------------------------------ --------------------------------------------------------- - ------------------------------------------------------------ --------------------------------------------------------- (1) Repay Commercial Paper - ------------------------------------------------------------ --------------------------------------------------------- - ------------------------------------------------------------ --------------------------------------------------------- (2) Repay Affiliate Subordinated Debt - ------------------------------------------------------------ ---------------------------------------------------------
.]; OR [(e) The Advances comprising the Proposed Utilization are CP Advances in the amount of $___________, the proceeds of which are to repay (i) Commercial Paper issued to allow the Borrower to make a Restricted Payment or repay Affiliate Subordinated Debt issued for such purpose, in each case as permitted under this Agreement in connection with the CP Commitment Reservations established on the following dates for such purposes:
- --------------------------------------------- --------------------------------- --------------------------------------- Purpose Aggregate Amount of CP Advances Amount(s) and Date(s) of CP Commitment Reservation - --------------------------------------------- --------------------------------- --------------------------------------- - --------------------------------------------- --------------------------------- --------------------------------------- (1) Fund Restricted Payments - --------------------------------------------- --------------------------------- --------------------------------------- - --------------------------------------------- --------------------------------- --------------------------------------- (2) Repay Affiliate Subordinated Debt issued for such purpose - --------------------------------------------- --------------------------------- ---------------------------------------
.]; and (f) The Proposed Utilization will not result in the applicable Borrowing Limit(s) to be exceeded or in the aggregate principal amount of all outstanding Advances and CP Commitment Reservations (including the Proposed Utilization) to exceed $650,000,000. The undersigned hereby certifies that on the date hereof and on the date of the Proposed Utilization the representations and warranties contained in Section 4.01 of the Credit Agreement [(except those contained in Sections 4.01(h) and (j)) and all representations and warranties contained in Sections 4 and 2 of the Southern Completion Guarantee and the Southern Equity Agreement (other than Sections 4(f) and (h) and 2(f) and (h), respectively)]* are or will be, as the case may be, correct [in all material respects]**, before and after giving effect to the Proposed Utilization and to the application of ___________________________ * Include only to the extent required under Section 3.03, 3.05, 3.06(b), (c), (e) or (f) or 3.07. ** Include unless Utilization is on Funds Availability Date. the proceeds therefrom (or, if the Proposed Utilization is a CP Commitment Reservation, after giving effect to the application of the proceeds of the Commercial Paper for which such CP Commitment Reservation is being requested), as though made on and as of such date. Very truly yours, SOUTHERN POWER COMPANY By: ------------------------------------------------- Title: EXHIBIT C AMENDED AND RESTATED CREDIT AGREEMENT FORM OF ASSIGNMENT AND ACCEPTANCE Reference is made to the Amended and Restated Credit Agreement dated as of April 17, 2003 (as amended or modified from time to time, the "Credit Agreement") among SOUTHERN POWER COMPANY, a Delaware corporation (the "Borrower"), certain financial institutions parties thereto and CITIBANK, N.A., as agent for said financial institutions (the "Agent"). Terms defined in the Credit Agreement are used herein with the same meaning. The "Assignor" and the "Assignee" referred to on Schedule 1 hereto agree as follows: 1. The Assignor hereby sells and assigns to the Assignee, and the Assignee hereby purchases and assumes from the Assignor, an interest in and to the Assignor's rights and obligations under the Credit Agreement as of the date hereof equal to the percentage interest specified on Schedule 1 hereto. After giving effect to such sale and assignment, the Assignee's Commitment, CP Commitment and the amount of the Advances (and Categories thereof) owing to the Assignee will be as set forth on Schedule 1 hereto. 2. The Assignor (i) represents and warrants that it is the legal and beneficial owner of the interest being assigned by it hereunder and that such interest is free and clear of any adverse claim; (ii) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Credit Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Agreement or any other instrument or document furnished pursuant thereto; (iii) makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower, Southern or any Subsidiary of the Borrower or Southern, or the performance or observance by any of the Borrower, Southern or any Subsidiary of the Borrower or Southern, or any other party, of any of its obligations under the Credit Agreement and the other Material Documents to which it is a party, or any other instrument or document furnished pursuant thereto; and (iv) attaches the Note held by the Assignor and requests that the Agent exchange such Note for a new Note payable to the Assignee in an amount equal to the Commitment assumed by the Assignee pursuant hereto or new Notes payable to the Assignee in an amount equal to the Commitment assumed by the Assignee pursuant hereto and the Assignor in an amount equal to the Commitment retained by the Assignor under the Credit Agreement, respectively, as specified on Schedule 1 hereto. 3. The Assignee (i) confirms that it has received a copy of the Credit Agreement, together with copies of the financial statements referred to in Section 4.01 thereof and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Acceptance; (ii) agrees that it will, independently and without reliance upon the Agent, the Assignor or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Credit Agreement and the other Loan Documents; (iii) confirms that it is an Eligible Assignee or that it is an entity that has been approved by the Borrower and the Agent to the extent any such approval is required under Section 8.07(a) of the Credit Agreement; (iv) appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers and discretion under the Credit Agreement and the other Loan Documents as are delegated to the Agent by the terms thereof, together with such powers and discretion as are reasonably incidental thereto; (v) agrees that it will perform in accordance with their terms all of the obligations that by the terms of the Credit Agreement and the other Loan Documents are required to be performed by it as a Lender; and (vi) attaches any U.S. Internal Revenue Service forms required under Section 2.13 of the Credit Agreement. 4. Following the execution of this Assignment and Acceptance, it will be delivered to the Agent for acceptance and recording by the Agent. The effective date for this Assignment and Acceptance (the "Effective Date") shall be the date of acceptance hereof by the Agent, unless otherwise specified on Schedule 1 hereto. 5. Upon such acceptance and recording by the Agent, as of the Effective Date, (i) the Assignee shall be a party to the Credit Agreement and, to the extent provided in this Assignment and Acceptance, have the rights and obligations of a Lender thereunder and (ii) the Assignor shall, to the extent provided in this Assignment and Acceptance, relinquish its rights and be released from its obligations (other than under Sections 2.13(f), 8.07(g) and 8.08) under the Credit Agreement. 6. Upon such acceptance and recording by the Agent, from and after the Effective Date, the Agent shall make all payments under the Credit Agreement and the Notes in respect of the interest assigned hereby (including all payments of principal, interest and commitment fees with respect thereto) to the Assignee. The Assignor and Assignee shall make all appropriate adjustments in payments under the Credit Agreement and the Notes for periods prior to the Effective Date directly between themselves. 7. This Assignment and Acceptance shall be governed by, and construed in accordance with, the Laws of the State of New York. 8. This Assignment and Acceptance may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of Schedule 1 to this Assignment and Acceptance by telecopier shall be effective as delivery of a manually executed counterpart of this Assignment and Acceptance. IN WITNESS WHEREOF, the Assignor and the Assignee have caused Schedule 1 to this Assignment and Acceptance to be executed by their officers duly authorized for such purpose, as of the date specified thereon. [NAME OF ASSIGNOR], as Assignor By: ------------------------------------------------- Title: Dated: _______________, ____ [NAME OF ASSIGNEE], as Assignee By: ------------------------------------------------- Title: Domestic Lending Office: [Address] Eurodollar Lending Office: [Address] Accepted this __________ day of _______________, ____ CITIBANK, N.A., as Agent By: _____________________ Title: By: _____________________ Title: **Agreed this ___ day of ________, ____ SOUTHERN POWER COMPANY By: _____________________ Title: - --------------------- ** Include if Borrower's consent is required. Schedule 1 to Assignment and Acceptance 1. Percentage interest assigned: _____% 2. Commitments (a) Assignee's Commitment: $_______________ (b) Assignee's CP Commitment $_______________ 3. Outstanding Advances (a) Aggregate outstanding principal amount of Project Advances assigned: $_______________ (b) Aggregate outstanding principal amount of CP Advances assigned: $_______________ (c) Aggregate outstanding principal amount of Working Capital Advances assigned: $_______________ 4. Principal amount of Note payable to Assignee: $_______________ 5. Principal amount of Note payable to Assignor: $_______________ 6. Effective Date*: _______________, _____ ________________________ * This date should be no earlier than five (5) Business Days after the delivery of this Assignment and Acceptance to the Agent. EXHIBIT D AMENDED AND RESTATED CREDIT AGREEMENT [Intentionally Omitted] EXHIBIT E AMENDED AND RESTATED CREDIT AGREEMENT FORM OF OPINIONS OF COUNSEL FOR THE LOAN PARTIES EXHIBIT F AMENDED AND RESTATED CREDIT AGREEMENT DESIGNATION AGREEMENT Dated Reference is made to that certain Amended and Restated Credit Agreement dated as of April 17, 2003 (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement") by and among SOUTHERN POWER COMPANY, the Lenders parties thereto and CITIBANK, N.A., as Agent. Terms defined in the Credit Agreement are used herein with the same meaning. [NAME OF DESIGNATING LENDER] (the "Designating Lender"), [NAME OF DESIGNEE] (the "Designee") and the Agent agree as follows: 1. Pursuant to Section 8.07(i) of the Credit Agreement, the Designating Lender hereby designates the Designee, and the Designee hereby accepts such designation, to have a right to make Advances pursuant to Article II of the Credit Agreement. Any delegation by Designating Lender to Designee of its rights to make an Advance pursuant to such Article II shall be effective at the time of the funding of such Advance and not before such time. 2. Except as set forth in Section 7 below, the Designating Lender makes no representation or warranty and assumes no responsibility pursuant to this Designation Agreement with respect to (a) any statements, warranties or representations made in or in connection with the Credit Agreement or any document related thereto (each, a "Loan Document") or the execution, legality, validity, enforceability, genuineness, sufficiency or value of any Loan Document or any other instrument and document furnished pursuant thereto; and (b) the financial condition of the Borrower or Southern or any other party or the performance or observance by the Borrower or Southern or any other party of any of its obligations under any Loan Document or other Material Document to which it is a party or any other instrument or document furnished pursuant thereto. 3. The Designee (a) confirms that it has received a copy of each Loan Document, together with copies of the financial statements referred to in Article IV of the Credit Agreement and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Designation Agreement; (b) agrees that it will independently and without reliance upon the Agent, any Arranger, the Designating Lender or any other Lender and, based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under any Loan Document; (c) confirms that it is a Designated Lender; (d) appoints and authorizes the Agent to take such action as Agent on its behalf and to exercise such powers and discretion under any Loan Document as are delegated to the Agent by the terms thereof, together with such powers and discretion as are reasonably incidental thereto; and (e) agrees that it will perform in accordance with their terms all of the obligations which by the terms of any Loan Document are required to be performed by it as a Lender. 4. The Designee hereby appoints Designating Lender or a specified branch or affiliate of Designating Lender as Designee's agent and attorney in fact and grants to Designating Lender or a specified branch or affiliate of Designating Lender an irrevocable power of attorney to receive payments made for the benefit of Designee under the Loan Documents, to deliver and receive all communications and notices under the Credit Agreement and other Loan Documents and to exercise on Designee's behalf all rights to vote and to grant and make approvals, waivers, consents and amendments to or under the Credit Agreement or other Loan Documents. Designee shall not have any right to approve any waiver or amendment of the Credit Agreement, any Note or any other Loan Document, or any consent to any departure by the Borrower or Southern therefrom, except to the extent that such waiver, amendment or consent would reduce the principal of, or interest on, the Notes or any fees or any other amounts payable under any Loan Document or postpone any date fixed for any payment of principal of, or interest on, the Notes or any fees or any other amounts payable under any Loan Document. Any document executed by such agent on the Designee's behalf in connection with the Credit Agreement or other Loan Documents shall be binding on the Designee. The Borrower, the Agent and each of the Lenders may rely on and are beneficiaries of the preceding provisions. 5. Following the execution of this Designation Agreement by the Designating Lender and its Designee, it will be delivered to the Agent for acceptance and recording by the Agent. The effective date for this Designation Agreement (the "Effective Date") shall be the date of acceptance hereof by the Agent, unless otherwise specified on the signature page of this Designation Agreement. 6. Each of the Designating Lender and the Agent hereby (a) acknowledges that the Designee is relying on the non-petition provisions of Section 8.12 of the Credit Agreement as agreed to by all signatories thereto; and (b) reaffirms that it will not institute against the Designee or join any other Person in instituting against the Designee any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings under any federal or state bankruptcy or similar law for one year and one day after the payment in full of the latest maturing commercial paper note issued by the Designee. 7. The Designating Lender unconditionally agrees to pay or reimburse the Designee and save the Designee harmless against all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses, or disbursements of any kind or nature whatsoever which may be imposed or asserted by any of the parties to the Loan Documents against the Designee, in its capacity as such, in any way relating to or arising out of this Designation Agreement or any Loan Documents or any action taken or omitted by the Designee hereunder or thereunder; provided that the Designating Lender shall not be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements if the same results from the Designee's gross negligence or willful misconduct. 8. Upon such acceptance and recording by the Agent, as of the Effective Date, the Designee shall be a party to the Credit Agreement with a right to make Advances as a Designated Lender pursuant to Article II of the Credit Agreement and the rights and obligations of a Designated Lender related thereto; provided that the Designee shall not be required to make payments with respect to such obligations except to the extent of excess cash flow of the Designee which is not otherwise required to repay obligations of the Designee Lender which are then due and payable. Notwithstanding the foregoing, the Designating Lender or a specified branch or affiliate of Designating Lender, as administrative agent for the Designee, shall be and remain obligated to the Borrower, the Agent and the Lenders for each and every of the obligations of the Designee and the Designating Lender with respect to the Credit Agreement, including any indemnification obligations under Section 7.05 of the Credit Agreement and any sums otherwise payable to any Loan Party by the Designee. 9. This Designation Agreement shall be governed by and construed in accordance with the Laws of the State of New York. 10. This Designation Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Designation Agreement by facsimile transmission shall be effective as delivery of a manually executed counterpart of this Designation Agreement. IN WITNESS WHEREOF, the Designating Lender and the Designee intending to be legally bound, have caused this Designation Agreement to be executed by their officers duly authorized for such purpose, as of the date first above written. [NAME OF DESIGNATING LENDER], as Designating Lender By: Name: Title: [NAME OF DESIGNEE], as Designee By: Name: Title: Lending Office (and address for notices): Accepted this __ day of ________, ____ Effective Date: CITIBANK, N.A. as Agent By: ----------------------------------------------- Name: Title: EXHIBIT I-1 AMENDED AND RESTATED CREDIT AGREEMENT [Intentionally Omitted] EXHIBIT I-2 AMENDED AND RESTATED CREDIT AGREEMENT [Letterhead of R.W. Beck, Inc.] [Date of Initial Borrowing for relevant Subsequent Project] Citibank, N.A. 388 Greenwich Street, 20th Floor New York, New York 10013 (as Agent for the Lenders) Subject: Independent Engineer's Report Southern Power Company Subsequent Project(s) Ladies and Gentlemen: This letter is furnished pursuant to Section [3.04(a)(iv)(C)] / [3.04(b)(v)(C)] / [3.06(d)] of the Amended and Restated Credit Agreement dated as of April 17, 2003 (the "Credit Agreement") by and among Southern Power Company (the "Borrower"), Citibank, N.A. (the "Agent"), Citigroup Global Markets Inc., as Lead Arranger, the Co-Arrangers and the financial institutions named therein (the "Lenders"). Capitalized terms used in this letter and not otherwise defined herein shall have the respective meanings specified in the Credit Agreement. R. W. Beck, Inc. (the "Independent Engineer") has been retained by the Agent, on behalf of the Lenders, as the Independent Engineer and it has prepared an Independent Engineer's Report dated _______ __, ____ (the "Report") relating to the [insert name(s) of Subsequent Project(s)](the "Subsequent Project(s)"), a copy of which is attached as Annex A. The Report was prepared pursuant to the scope of services under our Professional Services Agreement with the Agent on behalf of the Lenders and those services were provided in accordance with generally accepted engineering practices. In connection with the preparation of the Report, personnel of the Independent Engineer have participated in meetings or telephone discussions with representatives of the Borrower[, counsel to the Borrower, the Agent, and counsel to the Agent] in regard to the Subsequent Project(s). Based on our review of the information made available to us by the Borrower on the Subsequent Project(s) as of the date of the Report, we have noted, among other things as set forth in the Report, certain observations and have arrived at certain conclusions regarding the design, technical provisions of the agreements and other aspects of the Subsequent Project(s) as set forth below. The Agent and the Lenders are encouraged to read the Report in its entirety for the purpose of understanding the following observations and conclusions: 1. Each of the Subsequent Projects, from a technical and engineering perspective, appears to have been, or is expected to be, designed by Southern Company Services, Inc. ("SCS") in accordance with prudent industry standards and practices for similar plants. 2. SCS has demonstrated experience in the design, engineering, procurement, and construction of power plants similar to each of the Subsequent Projects. [An affiliate of Southern Company] has demonstrated experience in the operation of power plants similar to each of the Subsequent Projects. 3. The major components of each of the Subsequent Projects (including, without limitation, the turbines, generators, and heat recovery steam generators) are identical to the components incorporated in one or more of the Initial Projects. 4. Each of the Subsequent Projects utilizes sound technology and proven methods of electric generation in accordance with generally accepted industry practice. If operated and maintained consistent with generally accepted industry practices, each of the Subsequent Projects should be capable of meeting: (1) the heat rate, output, and availabilities assumed in its Project Base Case Projections as set forth in Section [ ] of the Report; (2) the requirements set forth in each Power Purchase Agreement (if any) entered into with respect to such Subsequent Project and referred to in Section [ ] of the Report (collectively, the "Relevant Power Purchase Agreements"); and (3) the requirements of the major permits and approvals required for the construction and operation of each of the Subsequent Projects (the "Project Permits"). 5. The performance tests used, or to be used, to determine whether each of Substantial Completion and Final Completion with respect to each of the Subsequent Projects has been achieved are (a) consistent with the testing procedures set forth in, or determined pursuant to, Schedule V of the Credit Agreement; (b) similar to performance test programs conducted for electric generating plants of the type and size of such Subsequent Project with which we are familiar; (c) adequate for demonstrating the capability of the Subsequent Project(s) to meet the Guaranteed Heat Rate, Guaranteed Output, and the air emissions requirements under the Project Permits, in each case, applicable thereto; and (d) consistent with the testing procedures set forth in the Relevant Power Purchase Agreements. 6. The construction schedule applicable to each of the Subsequent Projects, as determined pursuant to the major equipment supply contracts and major construction contracts, is consistent with (a) the Scheduled Completion Date, as set forth in the Project Schedule for that Subsequent Project; and (b) the requirements under all Relevant Power Purchase Agreements entered into with respect to such Subsequent Project. The performance guarantees applicable to each of the Subsequent Projects, as contained in the major equipment supply contracts and major construction contracts are consistent with (i) the Guaranteed Output and Guaranteed Heat Rate applicable thereto, each as set forth in the Project Schedule for that Subsequent Project; and (ii) all corresponding performance guarantees in all Relevant Power Purchase Agreements entered into with respect to such Subsequent Project. 7. Upon achievement of Substantial Completion, the [proposed] design of each of the Subsequent Projects was, or will be, consistent with the obligations relating to performance of such Subsequent Project under the Relevant Power Purchase Agreements applicable thereto. 8. Set out in Sections [ ] and [ ] of the Report is a description of each material project contract for the construction (if applicable), operation and maintenance of each of the Subsequent Projects, including, without limitation, all equipment supply contracts with respect to major components and construction contracts (if such Subsequent Project is not a Completed Project), interconnection contracts, contracts for the supply and transportation of fuel (unless one or more of the Relevant Power Purchase Agreements have been entered into with respect to the entire output of such Subsequent Project, and the purchaser(s) thereunder are solely responsible for fuel supply and transportation), the supply and discharge of water and the operation and maintenance of such Subsequent Project, and long term service contract(s) with respect to turbines and generators, in each case, in existence as of the date hereof (with respect to each of the Subsequent Projects, the "Project Contracts"). The term and technical and pricing provisions of the Project Contracts with respect to each of the Subsequent Projects have been taken into consideration in the preparation of the Project Base Case Projections. 9. Set out in Section [ ] of the Report is a list and brief description of the Project Permits. Although all Project Permits have not been obtained to date, some of which cannot be obtained until a respective project is ready to operate, we are not aware of any technical or engineering circumstances that would prevent the issuance of the remaining Project Permits. The technical provisions of the Project Permits with respect to each of the Subsequent Projects have been taken into consideration in the preparation of the Project Base Case Projections. 10. The Initial Project Budget for each of the Subsequent Projects includes all Project Costs anticipated to be incurred up to Final Completion of such Subsequent Project (including contingency). The construction cost included in the Initial Project Budget has been developed in accordance with generally accepted estimating practices and is comparable to the like costs of other projects similar in size and technology with which we are familiar. 11. The Project Base Case Projections for each of the Subsequent Projects (a) incorporate the forecasted prices for electricity and fuel provided to us by the Independent Market Consultant applicable to such Subsequent Project; (b) incorporate assumptions regarding heat rates, outputs and availabilities that we believe to be achievable; and (c) include the assumption (as agreed between the Borrower and the Lenders) that the debt referred to in such Project Base Case Projections has a term of 20 years and that such debt will bear interest at the rate of 8.25% per annum throughout its term. 12. Environmental site assessments for each of the Subsequent Projects performed by [Insert name of environmental consultant that performed assessment] were conducted in a manner consistent with industry standards, using comparable industry protocols for similar studies with which we are familiar. The results of the environmental site assessments with respect to each of the Subsequent Projects have been taken into consideration in the preparation of the Project Base Case Projections. For purposes of this letter, the Independent Engineer has, at the request of the Agent, carried out certain limited procedures for the period commencing ____________ ___, ___ [Insert the date one day after the date of the Report] and ending on____________ ___, ___ [Insert the date of this certificate], consisting solely of the making of inquiries of the Borrower as to whether there has been any material change in the information provided by them, and upon which the Independent Engineer relied, for purposes of the Report. These procedures would not be sufficient under generally accepted engineering practices to enable the Independent Engineer to express an opinion as to the matters covered by the Report and would not necessarily reveal matters of significance with respect to the statement in the last sentence of this paragraph. The Independent Engineer, therefore, expresses no opinion as to the matters covered by the Report as of any date subsequent to the date of the Report and makes no representations as to the sufficiency of the foregoing procedures for the Agent's purposes. Nothing has come to the attention of the Independent Engineer as a result of the foregoing procedures, however, that caused the Independent Engineer to believe that, as of the date to which the procedures were carried out, the opinions of the Independent Engineer set forth in the Report were not correct. This letter is solely for the information of, and assistance to, the Agent and the Lenders in conducting and documenting their investigation of the matters covered by the Report in connection with the Subsequent Project(s) and is not to be used, circulated, quoted, or otherwise referred to within or without the lending group for any purpose, nor is it to be referred to in whole or in part in any other document, except that reference may be made to it in the above-mentioned Credit Agreement or in any list of closing documents pertaining to the Subsequent Project(s). The Independent Engineer disclaims any obligation to update this letter. This letter is not intended to, and may not, be relied upon by any party other than the Agent and the Lenders. Very truly yours, R. W. BECK, INC. [Name] Principal and Senior Director EXHIBIT I-3 AMENDED AND RESTATED CREDIT AGREEMENT [Intentionally Omitted] EXHIBIT J-1 AMENDED AND RESTATED CREDIT AGREEMENT [Intentionally Omitted] EXHIBIT J-2 AMENDED AND RESTATED CREDIT AGREEMENT [Letterhead of Marsh USA Inc.] [Date of initial Borrowing for relevant Subsequent Project] The Lenders referred to below and Citibank, N.A. (as Agent for such Lenders) Ladies and Gentlemen: We refer to the Amended and Restated Credit Agreement dated as of April 17, 2003 (as amended, amended and restated, supplemented or otherwise modified from time to time, the "Credit Agreement") by and among Southern Power Company (the "Borrower"), Citigroup Global Markets Inc., as Lead Arranger, the Co-Arrangers and Lenders party thereto and Citibank, N.A., as administrative agent (the "Agent") for the Lenders. Defined terms used in this certificate and not otherwise defined herein shall have the respective meanings specified in the Credit Agreement. The undersigned, a duly authorized representative of Marsh USA Inc. (the "Insurance Consultant"), hereby certifies that: 1. This certificate is delivered pursuant to Section [3.04(a)(iv)(D)] / [3.04(b)(v)(D)] / [3.06(d)] of the Credit Agreement. 2. In connection with the Credit Agreement, the Insurance Consultant has been retained to prepare the Independent Insurance Consultant's Report dated [________] (the "Report") relating to [insert name(s) of Subsequent Project(s)] (each a "Subsequent Project"), a true and correct copy of which is attached hereto as Annex A. The Report represents the Insurance Consultant's professional opinion as of the date thereof and was prepared in accordance with generally accepted practices for independent insurance consulting and with the standards of care practiced by leading independent insurance consultants in performing similar tasks on like projects and financings. 3. The Insurance Consultant acknowledges that pursuant to the Credit Agreement, the Lenders will be providing financing to the Borrower for the acquisition, development, construction, operation and/or maintenance of each Subsequent Project. 4. After due inquiry, we hereby confirm that since the date of the Report, no event or circumstance has occurred which: (a) makes, as of the date hereof, any material information or material statement contained in the Report, read as a whole, untrue or incorrect; or (b) should be reflected in the Report in order to make the statements and information contained therein, read as a whole and in light of the circumstances under which they were made, not misleading; or (c) results, as of the date hereof, in the Report, read as a whole, omitting to state any material matter relevant to the insurance program for, or insurable events, losses or casualties relating to, the Subsequent Projects. 5. We have reviewed the insurance program put in place by the Borrower to insure the Subsequent Projects and conclude that (a) the insurance coverages (including, without limitation, the types and amounts of insurances, the risks insured against, and the limits, deductibles, exclusions and excesses applicable to such insurances) are consistent with the customs and practices of the utility power industry in the United States, and (b) such insurance program is maintained with insurance companies and underwriters which are customarily used by the utility power industry in the United States to insure against the relevant risks, and the use of all such insurance companies and underwriters in accordance with such insurance program is appropriate (taking into account all applicable coverages under the relevant policies). 6. This certificate is solely for the information of, and assistance to, Citibank, N.A. as Agent and the Lenders from time to time under the Credit Agreement, and is not to be otherwise used, circulated, quoted or referred to within any document, unless specifically consented to in writing by the Insurance Consultant. Marsh USA Inc. By: --------------------------------- Name: Title: EXHIBIT J-3 AMENDED AND RESTATED CREDIT AGREEMENT [Intentionally Omitted] EXHIBIT K-1 AMENDED AND RESTATED CREDIT AGREEMENT [Intentionally Omitted] EXHIBIT K-2 AMENDED AND RESTATED CREDIT AGREEMENT [Letterhead of PA Consulting, Inc.] [Date of initial Borrowing for relevant Subsequent Project] The Lenders referred to below and Citibank, N.A. (as Agent for such Lenders) Ladies and Gentlemen: We refer to the Amended and Restated Credit Agreement dated as of April 17, 2003 (as amended, amended and restated, supplemented or otherwise modified from time to time, the "Credit Agreement") by and among Southern Power Company (the "Borrower"), Citigroup Global Markets Inc., as Lead Arranger, the Co-Arrangers and Lenders party thereto and Citibank, N.A., as administrative agent (the "Agent") for the Lenders. Defined terms used in this certificate and not otherwise defined herein shall have the respective meanings specified in the Credit Agreement. The undersigned, a duly authorized representative of PA Consulting, Inc. (the "Independent Market Consultant"), hereby certifies that: 1. This certificate is delivered pursuant to section [3.04(a)(iv)(E)] / [3.04(b)(v)(E)] / [3.06(d)] of the Credit Agreement. 2. In connection with the Credit Agreement, the Independent Market Consultant has been retained to prepare the Independent Market Consultant's Report dated [________] (the "Report") relating to [insert name(s) of Subsequent Project(s)] (each a "Subsequent Project"), a true and correct copy of which is attached hereto as Exhibit A. The Report represents the Independent Market Consultant's professional opinion as of the date thereof and was prepared in accordance with generally accepted practices for independent market consulting and with the standards of care practiced by leading independent market consultants in performing similar tasks on like projects and financings. 3. The Independent Market Consultant acknowledges that pursuant to the Credit Agreement, the Lenders will be providing financing to the Borrower for the acquisition, development, construction, operation and/or maintenance of each Subsequent Project. 4. After due inquiry, we hereby confirm that since the date of the Report, no event or circumstance has occurred which: (a) makes, as of the date hereof, any material information or material statement contained in the Report, read as a whole, untrue or incorrect; or (b) should be reflected in the Report in order to make the statements and information contained therein, read as a whole and in light of the circumstances under which they were made, not misleading; or (c) results, as of the date hereof, in the Report, read as a whole, omitting to state any material matter relevant to each electric power market relevant to the Subsequent Projects. 5. If the Power Purchase Agreement entered into with respect to such Subsequent Project is an EMC Contract, the projections for the incremental requirement needs of the applicable EMC Counterparty are reasonable. This certificate is solely for the information of, and assistance to, Citibank, N.A. as Agent and the Lenders from time to time under the Credit Agreement, and is not to be otherwise used, circulated, quoted or referred to within any document, unless specifically consented to in writing by the Independent Market Consultant. PA Consulting, Inc. By: --------------------------------- Name: Title: EXHIBIT K-3 AMENDED AND RESTATED CREDIT AGREEMENT [Intentionally Omitted] EXHIBIT L-1 AMENDED AND RESTATED CREDIT AGREEMENT CERTIFICATE OF SUBSTANTIAL COMPLETION Pursuant to that certain Amended and Restated Credit Agreement, dated as of April 17, 2003 (as amended, supplemented or otherwise modified from time to time in accordance with the terms thereof, the "Credit Agreement"), by and among Southern Power Company (the "Borrower"), Citigroup Global Markets Inc., as Lead Arranger, the Co-Arrangers and Lenders party thereto, and Citibank, N.A., as administrative agent for the Lenders (the "Agent"), The Southern Company ("Southern") hereby delivers this Certificate to the Agent. Except as otherwise defined herein, capitalized terms used herein but not defined shall have the respective meanings given to them in Exhibit A attached hereto. Southern hereby certifies as follows: (i) the [relevant] Project has achieved Mechanical Completion; (ii) the [relevant] Project has passed an emissions test demonstrating that it can operate in accordance with its permits; (iii) the [relevant] Project has achieved at least 95% of its Guaranteed Output as set forth in Schedule I hereto, has achieved a heat rate not greater than 105% of its Guaranteed Heat Rate as set forth in Schedule I hereto, in each case, pursuant to tests conducted in accordance with Schedule V to the Credit Agreement; (iv) the [relevant] Project has successfully completed the reliability run required pursuant to Schedule V to the Credit Agreement; (v) the [relevant] Project has obtained final, non-appealable permits required to operate as designed as of the date hereof; (vi) all necessary facilities for the transportation of natural gas to, the necessary electric interconnect facilities for, and all necessary facilities for the procurement, transportation and discharge of water to and from, the [relevant] Project have been completed; and (vii) based upon the foregoing, the [relevant] Project has achieved Substantial Completion as of the date hereof. Southern has caused this Certificate to be executed and delivered by its duly authorized officer as of the _____ day of ___________, 200__. THE SOUTHERN COMPANY By: -------------------------------------------- Name: -------------------------------------------- Title: -------------------------------------------- EXHIBIT A Definitions "[Relevant] Project" means the [Project description]. "Guaranteed Heat Rate" means the average heat rate associated with the [relevant] Project while operating in [base mode (namely, at 100% combustion turbine load)] / [ specify mode of operation applicable to Guaranteed Heat Rate ] at the rated conditions for the [relevant] Project, as set forth in Schedule I hereto. "Guaranteed Output" means the capability of the [relevant] Project with [all possible modes of operation in use] / [ specify mode of operation applicable to Guaranteed Output ] at the rated conditions for the [relevant] Project, as set forth in Schedule I hereto. "Mechanical Completion" means (a) all construction work for the [relevant] Project has been completed according to the proper scope of work and the [relevant] Project is ready for performance testing with the exception of Punch List Items; (b) satisfactory completion of the materials and equipment associated with individual turnover packages (with all items within the turnover package completed to the satisfaction of the Borrower's start-up or testing manager, all equipment capable of operation in a safe and proper manner without voiding warranties, all equipment systems installed associated with the turnover package, including remote control systems, ready to commence start-up and testing) and the satisfactory completion and documentation of the construction completion testing; and (c) all construction, temporary facilities that may interfere with or disrupt the Borrower's start-up and plant testing activities, waste material and rubbish have been removed from the work area. "Punch List Items" means those incomplete work items that do not have a material effect on the operations and maintenance of the [relevant] Project, including painting, platforms, and damaged instrument glass. "Substantial Completion" means (a) achievement of Mechanical Completion; (b) the [relevant] Project has passed an emissions test demonstrating that it can operate in accordance with its permits; (c) the [relevant] Project has achieved at least 95% of its Guaranteed Output, has achieved a heat rate not greater than 105% of its Guaranteed Heat Rate, in each case, as set forth in Schedule I hereto and as tested in accordance with the testing procedures applicable to the [relevant] Project set forth in, or determined in accordance with, Schedule V to the Credit Agreement; (d) the [relevant] Project has successfully completed the reliability run applicable thereto, as set forth in, or determined in accordance with, Schedule V to the Credit Agreement; (e) the [relevant] Project has obtained final, non-appealable permits required to operate as designed as of the date hereof; and (f) all necessary facilities for the transportation of natural gas to, the necessary electric interconnect facilities for, and all necessary facilities for the procurement, transportation and discharge of water to and from, the [relevant] Project have been completed. Schedule I Rated Conditions EXHIBIT L-2 AMENDED AND RESTATED CREDIT AGREEMENT CERTIFICATE OF FINAL COMPLETION Pursuant to that certain Amended and Restated Credit Agreement, dated as of April 17, 2003 (as amended, supplemented or otherwise modified from time to time in accordance with the terms thereof, the "Credit Agreement"), by and among Southern Power Company (the "Borrower"), Citigroup Global Markets Inc., as Lead Arranger, the Co-Arrangers and Lenders party thereto, and Citibank, N.A., as administrative agent for the Lenders (the "Agent"), The Southern Company ("Southern") hereby delivers this Certificate to the Agent. Except as otherwise defined herein, capitalized terms used herein but not defined shall have the respective meanings given to them in Exhibit A attached hereto. Southern hereby certifies as follows: (i) the [relevant] Project has achieved Substantial Completion; (ii) the tested output in megawatts for the [relevant] Project has achieved 100% of its Guaranteed Output and the [relevant] Project has achieved an average tested heat rate not greater than 100% of its Guaranteed Heat Rate, in each case, as set forth in Schedule I hereto and pursuant to tests conducted in accordance with Schedule V to the Credit Agreement; and (iii) based upon the foregoing, the [relevant] Project has achieved Final Completion as of the date hereof. Southern has caused this Certificate to be executed and delivered by its duly authorized officer as of the _____ day of ___________, 200__. THE SOUTHERN COMPANY By: -------------------------------------------- Name: -------------------------------------------- Title: -------------------------------------------- EXHIBIT A Definitions "[Relevant] Project" means the [Project description]. "Final Completion" means (a) the [relevant] Project has achieved Substantial Completion; (b) the tested output in megawatts for the [relevant] Project has achieved 100% of its Guaranteed Output pursuant to tests conducted in accordance with Schedule V to the Credit Agreement; and (c) the [relevant] Project has achieved a tested heat rate not greater than 100% of its Guaranteed Heat Rate pursuant to tests conducted in accordance with Schedule V to the Credit Agreement. "Guaranteed Heat Rate" means the average heat rate associated with the [relevant] Project while operating in [base mode (namely, at 100% combustion turbine load)] / [ specify mode of operation applicable to Guaranteed Heat Rate ] at the rated conditions for the [relevant] Project, as set forth in Schedule I hereto. "Guaranteed Output" means the capability of the [relevant] Project with [all possible modes of operation in use] / [ specify mode of operation applicable to Guaranteed Output ] at the rated conditions for the [relevant] Project, as set forth in Schedule I hereto. "Mechanical Completion" means (a) all construction work for the [relevant] Project has been completed according to the proper scope of work and the [relevant] Project is ready for performance testing with the exception of Punch List Items; (b) satisfactory completion of the materials and equipment associated with individual turnover packages (with all items within the turnover package completed to the satisfaction of the Borrower's start-up or testing manager, all equipment capable of operation in a safe and proper manner without voiding warranties, all equipment systems installed associated with the turnover package, including remote control systems, ready to commence start-up and testing) and the satisfactory completion and documentation of the construction completion testing; and (c) all construction, temporary facilities that may interfere with or disrupt the Borrower's start-up and plant testing activities, waste material and rubbish have been removed from the work area. "Punch List Items" means those incomplete work items that do not have a material effect on the operations and maintenance of the [relevant] Project, including painting, platforms, and damaged instrument glass. "Substantial Completion" means (a) achievement of Mechanical Completion; (b) the [relevant] Project has passed an emissions test demonstrating that it can operate in accordance with its permits; (c) the [relevant] Project has achieved at least 95% of its Guaranteed Output, has achieved a heat rate not greater than 105% of its Guaranteed Heat Rate, in each case, as set forth in Schedule I hereto and as tested in accordance with the testing procedures applicable to the [relevant] Project set forth in, or determined in accordance with, Schedule V to the Credit Agreement; (d) the [relevant] Project has successfully completed the reliability run applicable thereto, as set forth in, or determined in accordance with, Schedule V to the Credit Agreement; (e) the [relevant] Project has obtained final, non-appealable permits required to operate as designed as of the date hereof; and (f) all necessary facilities for the transportation of natural gas to, the necessary electric interconnect facilities for, and all necessary facilities for the procurement, transportation and discharge of water to and from, the [relevant] Project have been completed. Schedule I Rated Conditions EXHIBIT M AMENDED AND RESTATED CREDIT AGREEMENT [SOUTHERN COMPANY LETTERHEAD] ____________, 200_ Citibank, N.A., as Agent for the Lenders under, and as defined in, the Credit Agreement referred to below Ladies and Gentlemen: The Southern Company ("Southern") hereby refers to that certain Amended and Restated Credit Agreement, dated as of April 17, 2003 (the "Credit Agreement"), among Southern Power Company (the "Borrower"), the Initial Lenders named therein, Citibank, N.A., as Agent, Citigroup Global Markets Inc., as Lead Arranger, and the Co-Arrangers. Except as otherwise defined in this letter agreement (the "Agreement"), capitalized terms used herein but not defined shall have the respective meanings given to them in the Credit Agreement. Southern owns all of the outstanding stock of the Borrower and acknowledges that it will benefit from the Credit Agreement. Southern, therefore, hereby agrees as follows: (a) if (1) the [name of development authority] (including its successors and permitted assigns, the "Development Authority") shall: (i) apply for or consent to the appointment of, or the taking of possession by, a receiver, custodian, trustee or liquidator of itself or of all or substantially all of its property; (ii) make a general assignment for the benefit of its creditors; (iii) commence a voluntary case under the U.S. Bankruptcy Code (as now or hereafter in effect) or any similar law of any applicable jurisdiction; (iv) file a petition seeking to take advantage of any other law relating to bankruptcy, insolvency, reorganization, winding-up, or composition or readjustment of debts; or (v) fail to controvert in a timely and appropriate manner, or acquiesce in writing to, any petition filed against it in an involuntary case under the U.S. Bankruptcy Code or any similar law of any applicable jurisdiction; or (2) a proceeding or case shall be commenced, without the application or consent of the Development Authority, in any court of competent jurisdiction, seeking (A) its liquidation, reorganization, dissolution or winding-up, or the composition or readjustment of its debts; (B) the appointment of a trustee, receiver, custodian, liquidator or the like of the Development Authority or of all or substantially all of its assets; or (C) similar relief in respect of the Development Authority under any law relating to bankruptcy, insolvency, reorganization, winding-up, or composition or adjustment of debts, and such proceeding or case shall continue unstayed and in effect for a period of ninety (90) or more days (each a "Bankruptcy Event"); (b) if, as a result of such Bankruptcy Event, the Borrower's leasehold interest with the Development Authority in respect of the [name of leased project], or any of the Borrower's rights, powers and remedies under or in connection with the lease of the [name of leased project] with the Development Authority, or any documents related thereto, is materially and adversely affected; and (c) if revenues of the Borrower (after payment of (i) all operating expenses; and (ii) all Recourse Debt of the Borrower (other than the Project Debt relating to the [name of leased project]) then due and payable, and accrued interest thereon) are insufficient to repay any or all of the principal amount of the Project Debt outstanding with respect to the [name of leased project], and accrued interest thereon, in each case, as and when due; then, Southern shall (A) on the Final Maturity Date (or, if required to be prepaid prior to the Final Maturity Date pursuant to the Credit Agreement, on such earlier date), pay to the Agent, for the account of the Lenders and on behalf of the Borrower, such amount as may be required to pay in full the outstanding principal of all Advances then outstanding with respect to the [name of leased project] and all accrued and unpaid interest related thereto; (B) pay all interest due and payable, from time to time, on the outstanding Advances made with respect to the [name of leased project]; and (C) upon the maturity thereof, pay to the holders of all Commercial Paper then outstanding with respect to the [name of leased project] and for which there are one or more CP Commitment Reservations then outstanding (or a trustee on behalf of such holders), for the account of the Borrower, such amount as may be required to pay in full the outstanding principal of all such Commercial Paper and all accrued and unpaid interest related thereto. This Agreement has been duly executed and delivered by Southern and constitutes the legal, valid and binding obligation of Southern enforceable against Southern in accordance with its terms, subject to laws affecting the enforcement of creditors' rights generally and to general principles of equity. This Agreement is intended to be solely for the benefit of the Borrower, the Agent and the Lenders and is not intended to and shall not confer any rights or benefits on any other party. Very truly yours, The Southern Company By: --------------------------------------------------- Name: ------------------------------------------------- Title: ------------------------------------------------ Agreed and accepted by Citibank, N.A., As Agent for and on behalf of the Lenders By: ----------------------------------------------------------- Name: --------------------------------------------------------- Title: -------------------------------------------------------- EX-10.A.2 6 x10a2.txt Exhibit 10(a)2 LETTER AMENDMENT No. 1 TO COMPLETION GUARANTEE Dated as of April 17, 2003 To Citibank, N.A., as agent for the Lenders (as defined in the Credit Agreement referred to below) and to Southern (as defined below) Ladies and Gentlemen: We refer to the Completion Guarantee, dated as of November 15, 2001 (as supplemented by the Completion Guarantee Supplement, dated April 22, 2002, among the undersigned, Southern and the Agent, the "Southern Completion Guarantee"), among the undersigned, The Southern Company ("Southern") and Citibank, N.A., as Agent (the "Agent"). Capitalized terms not otherwise defined in this Letter Amendment have the same meanings as specified in the Amended and Restated Credit Agreement, dated as of April 17, 2003, among the Borrower, the Lenders and the Agent. It is hereby agreed by you and us as follows: 1. The Southern Completion Guarantee is amended by: (a) deleting from Section 1(b) thereof the phrase "as set forth on Schedule 1 hereto;" (b) deleting from Sections 4(g) and 4(h) the year "2000" each time it appears and inserting in each such place the year "2002;" and (c) deleting from Schedule 1 thereto the words "Autaugaville" and "Goat Rock" each time they appear and inserting in the place of "Autaugaville" the word "Harris" and in the place of "Goat Rock" the word "Franklin." 2. This Letter Amendment shall become effective as of the date first above written when, and only when, the Agent shall have received counterparts of this Letter Amendment executed by the Borrower and Southern. 3. On and after the effectiveness of this Letter Amendment, each reference in the Southern Completion Guarantee and in each exhibit, schedule, supplement or attachment thereto to "this Agreement," "hereunder," "hereof" or words of like import referring to the Southern Completion Guarantee, and each reference in each of the other Loan Documents and in each exhibit, schedule, supplement or attachment thereto to "the Southern Completion Guarantee," "thereunder," "thereof" or words of like import referring to the Southern Completion Guarantee, shall mean and be a reference to the Southern Completion Guarantee, as amended by this Letter Amendment and as amended, supplemented or otherwise modified from time to time. 4. The Southern Completion Guarantee, as specifically amended by this Letter Amendment, is and shall continue to be in full force and effect and is hereby in all respects ratified and confirmed. The execution, delivery and effectiveness of this Letter Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of any Lender or the Agent under any of the Loan Documents, nor constitute a waiver of any provision of any of the Loan Documents. 5. This Letter Amendment has been duly executed and delivered by the Borrower. This Letter Amendment and the Southern Completion Guarantee, as amended hereby, are legal, valid and binding obligations of the Borrower, enforceable against the Borrower in accordance with their respective terms, subject to Laws affecting the enforcement of creditors' rights generally and to general principles of equity. 6. This Letter Amendment has been duly executed and delivered by Southern. This Letter Amendment and the Southern Completion Guarantee, as amended hereby, are legal, valid and binding obligations of Southern, enforceable against Southern in accordance with their respective terms, subject to Laws affecting the enforcement of creditors' rights generally and to general principles of equity. If you agree to the terms and provisions hereof, please evidence such agreement by executing and returning at least twenty counterparts of this Letter Amendment to the attention of Citibank, N.A., as Agent, Attention: Dave Graber, 2 Penns Way, Suite 200, New Castle, DE 19720, Facsimile 302-894-6120, with a copy to Shearman & Sterling, 599 Lexington Avenue, New York, NY 10022, Attention: Nick Dembowski, Facsimile: 646-848-4542. This Letter Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Letter Amendment by telecopier shall be effective as delivery of a manually executed counterpart of this Letter Amendment. This Letter Amendment shall be governed by, and construed in accordance with, the laws of the State of New York. Very truly yours, SOUTHERN POWER COMPANY, as Borrower By: -------------------------------- Name: ------------------------------ Title: ----------------------------- Agreed: THE SOUTHERN COMPANY By: ----------------------------------------- Name: --------------------------------------- Title: -------------------------------------- Agreed: CITIBANK, N.A. By: ----------------------------------------- Name: --------------------------------------- Title: -------------------------------------- EX-10.A.3 7 x10a3.txt Exhibit 10(a)3 LETTER AMENDMENT No. 1 TO EQUITY CONTRIBUTION AGREEMENT Dated as of April 17, 2003 To Citibank, N.A., as agent for the Lenders (as defined in the Credit Agreement referred to below) and to Southern (as defined below) Ladies and Gentlemen: We refer to the Equity Contribution Agreement, dated as of November 15, 2001 (as supplemented by the Equity Contribution Agreement Supplement, dated April 22, 2002, among the undersigned, Southern and the Agent, the "Southern Equity Agreement"), among the undersigned, The Southern Company ("Southern") and Citibank, N.A., as Agent (the "Agent"). Capitalized terms not otherwise defined in this Letter Amendment have the same meanings as specified in the Amended and Restated Credit Agreement, dated as of April 17, 2003, among the Borrower, the Lenders and the Agent. It is hereby agreed by you and us as follows: 1. The Southern Equity Agreement is amended by: (a) deleting from the third recital thereof the percentage "60%" and inserting in its place the percentage "65%;" (b) deleting from Section 1(a) thereof the ratio of "60:40" and inserting in its place the ratio of "65:35;" (c) deleting from Sections 2(g) and 2(h) the year "2000" each time it appears and inserting in each such place the year "2002;" (d) deleting from Schedule 1 thereto the words "Autaugaville" and "Goat Rock" each time they appear and inserting in the place of "Autaugaville" the word "Harris" and in the place of "Goat Rock" the word "Franklin;" and (e) deleting from Schedule 1 thereto the amount of "$102,166,631" as the Project Limit for the Orlando Project and inserting in its place the amount of "110,680,517." 2. This Letter Amendment shall become effective as of the date first above written when, and only when, the Agent shall have received counterparts of this Letter Amendment executed by the Borrower and Southern. 3. On and after the effectiveness of this Letter Amendment, each reference in the Southern Equity Agreement and in each exhibit, schedule, supplement or attachment thereto to "this Agreement," "hereunder," "hereof" or words of like import referring to the Southern Equity Agreement, and each reference in each of the other Loan Documents and in each exhibit, schedule, supplement or attachment thereto to "the Southern Equity Agreement," "thereunder," "thereof" or words of like import referring to the Southern Equity Agreement, shall mean and be a reference to the Southern Equity Agreement, as amended by this Letter Amendment and as amended, supplemented or otherwise modified from time to time. 4. The Southern Equity Agreement, as specifically amended by this Letter Amendment, is and shall continue to be in full force and effect and is hereby in all respects ratified and confirmed. The execution, delivery and effectiveness of this Letter Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of any Lender or the Agent under any of the Loan Documents, nor constitute a waiver of any provision of any of the Loan Documents. 5. This Letter Amendment has been duly executed and delivered by the Borrower. This Letter Amendment and the Southern Equity Agreement, as amended hereby, are legal, valid and binding obligations of the Borrower, enforceable against the Borrower in accordance with their respective terms, subject to Laws affecting the enforcement of creditors' rights generally and to general principles of equity. 6. This Letter Amendment has been duly executed and delivered by Southern. This Letter Amendment and the Southern Equity Agreement, as amended hereby, are legal, valid and binding obligations of Southern, enforceable against Southern in accordance with their respective terms, subject to Laws affecting the enforcement of creditors' rights generally and to general principles of equity. If you agree to the terms and provisions hereof, please evidence such agreement by executing and returning at least twenty counterparts of this Letter Amendment to the attention of Citibank, N.A., as Agent, Attention: Dave Graber, 2 Penns Way, Suite 200, New Castle, DE 19720, Facsimile 302-894-6120, with a copy to Shearman & Sterling, 599 Lexington Avenue, New York, NY 10022, Attention: Nick Dembowski, Facsimile: 646-848-4542. This Letter Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Letter Amendment by telecopier shall be effective as delivery of a manually executed counterpart of this Letter Amendment. This Letter Amendment shall be governed by, and construed in accordance with, the laws of the State of New York. Very truly yours, SOUTHERN POWER COMPANY, as Borrower By: -------------------------------- Name: ------------------------------ Title: ----------------------------- Agreed: THE SOUTHERN COMPANY By: ----------------------------------------- Name: --------------------------------------- Title: -------------------------------------- Agreed: CITIBANK, N.A. By: ----------------------------------------- Name: --------------------------------------- Title: -------------------------------------- EX-10.B.1 8 x10b1.txt Exhibit 10(b)1 DEFERRED COMPENSATION AGREEMENT THIS DEFERRED COMPENSATION AGREEMENT ("Agreement") is made and entered into by and between ALABAMA POWER COMPANY (the "Company") and WILLIAM BRUCE HUTCHINS, III ("Employee"). W I T N E S S E T H WHEREAS, Employee has been employed by the Company for approximately thirty-seven (37) years; WHEREAS, Employee is a highly compensated employee of the Company and is a member of its management; WHEREAS, the Company wishes to retain Employee as Chief Financial Officer of the Company through April 1, 2004; WHEREAS, the parties desire to delineate their respective rights, duties, and obligations attendant to the termination of employment of the Employee, and desire to reach an accord and satisfaction of all then existing claims arising from Employee's employment and his termination of employment, with appropriate releases; and WHEREAS, the Company desires to compensate Employee for service he has provided or will provide for the Company; NOW, THEREFORE, in consideration of the premises, and the agreements of the parties set forth in this Agreement, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby covenant and agree as follows: 1. Events Rendering Employee Eligible for Deferred Compensation. Subject to the terms of this Agreement, the Employee shall become eligible to receive Deferred Compensation (as defined in Paragraph 3) if one of the events listed in Paragraph 1(a), (b), (c) or (d) below ("Eligibility Events") occurs. (a) The Employee remains in Active Service (as defined below) with the Company as Chief Financial Officer through April 1, 2004, and either the Company obtains from the Employee an effective Release in the form attached hereto as Exhibit 1 (the effectiveness of such Release being no earlier than the date Employee's employment is terminated (the "Termination Date")) or the Employee dies while in Active Service after April 1, 2004; (b) The Employee dies prior to April 1, 2004, while in Active Service with the Company as Chief Financial Officer; (c) The Employee becomes Disabled (as defined below) prior to April 1, 2004, while in Active Service with the Company as Chief Financial Officer, and the Company obtains from the Employee an effective Release in the form attached hereto as Exhibit 1 (the effectiveness of such Release being no earlier than the Employee's Termination Date); or (d) A Southern Change in Control or Subsidiary Change in Control affecting Employee as defined in The Southern Company Change in Control Benefit Plan Determination Policy ("Change in Control") occurs while Employee is in Active Service and the Company obtains from the Employee an effective Release in the form attached hereto as Exhibit 1 (the effectiveness of such Release being no earlier than the Employee's Termination Date). For purposes of this Paragraph: "Active Service" includes any period during which the Employee is on the active payroll of the Company, including any period of sick leave, vacation, absences under the Family and Medical Leave Act, short-term disability leave or approved but unpaid leave that is unrelated to Cause (as defined in Paragraph 4). The term "Disabled" shall have the same meaning as the term is used in The Southern Company Long Term Disability Plan (or any successor arrangement or plan) (the "Company LTD Plan"), and Employee is determined to be disabled under the terms of said plan. The Employee represents that he currently maintains coverage under the Company LTD Plan and hereby agrees to continue to maintain coverage under the Company LTD Plan through April 1, 2004. The application period for long-term disability benefits under the Company LTD Plan shall be treated as a period of sick leave. 2. Complete Consideration. Employee covenants and agrees that the consideration set forth in Paragraph 3 shall be in full satisfaction of all sums owed to Employee, if any, by the Company upon the occurrence of an Eligibility Event, and shall constitute good and complete consideration for meeting the requirements of the applicable Eligibility Event and for the Release attached hereto as Exhibit 1, those non-disclosure and non-interference obligations under Paragraphs 7, 8, 9, 10 and 11 hereof and all other obligations and covenants of Employee contained herein, including, but not limited to, Paragraph 6. Employee agrees that this Agreement provides him certain benefits to which he would not otherwise be entitled. 3. Deferred Compensation Payment to Employee. (a) Except as provided below, following the occurrence of one of the Eligibility Events set forth in Paragraph 1 hereto, the Company shall pay to the Employee deferred compensation according to one of the following subparagraphs ("Deferred Compensation"). (i) Following the occurrence of an Eligibility Event set forth in Paragraph 1(a), (b) or (c) hereto, the Company shall pay to Employee (or his spouse or estate as described below) Deferred Compensation equal to 2.6 times Employee's base salary as of the day immediately preceding his Termination Date. The Deferred Compensation described in the preceding sentence shall be paid to Employee (or his spouse or estate as described below) in five equal, annual installments which shall be calculated based on an effective interest rate of 7.5% per annum (0.6045% per month) and commence on the first day of the first month following the occurrence of an Eligibility Event under Paragraph 1(a), (b) or (c). (ii) Following the occurrence of the Eligibility Event set forth in Paragraph 1(d) hereto, the Company shall pay to Employee (or his spouse or estate as described below) a lump sum amount equal to 2.6 times Employee's base salary as of the day immediately preceding his Termination Date, as soon as practicable following the occurrence of such Eligibility Event. The lump sum payment described in the preceding sentence shall be reduced in such an amount and to such extent that no amount of the payment, plus all other "parachute payments" under Internal Revenue Code ("Code") Section 280G, would constitute an "excess parachute payment" under Code Section 280G, but only to the extent that if the payment under this Paragraph 3(a)(ii) were increased by one additional dollar ($1.00), a portion of the payment under this Paragraph 3(a)(ii) would be an "excess parachute payment" under Code Section 280G. The payment under this Paragraph 3(a)(ii) and any other determination relating to the applicability of Code Section 280G (and the rules and regulations thereunder) to the payment contemplated by Paragraph 3(a)(ii) of this Agreement shall be made by the tax department of the independent public accounting firm then responsible for preparing the Company's consolidated federal income tax return, and such determination shall be binding upon the Employee and the Company. (iii) Notwithstanding subparagraphs (i) and (ii) above, in the event the Eligibility Event set forth in Paragraph 1(d) occurs together with any of the other Eligibility Events set forth in Paragraph 1, Employee shall receive Deferred Compensation in accordance with subparagraph (ii) above. Notwithstanding the foregoing, the amount of Deferred Compensation payable under this Agreement shall be reduced by the amount of benefits, if any, payable to Employee under any career transition, severance or separation plan or program sponsored by the Company. (b) In the event of a Change in Control which occurs after an Eligibility Event set forth in Paragraph 1(a), (b) or (c) hereto, any unpaid Deferred Compensation under this Paragraph 3 shall be paid in a lump sum as soon as practicable after the occurrence of such Change in Control. The lump sum shall be equal to the present value of any unpaid amount based on an effective interest rate of 7.5% per annum (0.6045% per month). (c) In the event the Eligibility Event described in Paragraph 1(b) occurs or the Employee dies after or in conjunction with an Eligibility Event described in Paragraph 1(a), (c) or (d), but before receiving payment of Deferred Compensation described in this Paragraph 3, such unpaid Deferred Compensation shall be paid to Employee's spouse, if living, or if not, to the Employee's estate. (d) In accordance with Paragraph 21, Employee shall be responsible for all payroll taxes, including, without limitation, local, state and federal income taxes and his share of FICA taxes owed on the Deferred Compensation, and Company shall make appropriate withholding of these amounts. (e) Notwithstanding the foregoing, in the event Employee engages in Misconduct, as defined below, before or after Employee's Eligibility Event but prior to receiving the Deferred Compensation described in this Paragraph 3, Company may not pay the Deferred Compensation to Employee under this Paragraph 3, and Company shall have no further obligations with respect to any amounts under this Agreement. For purposes of this Paragraph 3(e), "Misconduct" shall mean (i) the final conviction of any felony, or (ii) the carrying out of any activity or the making of any public statement which materially diminishes or materially and untruthfully brings Southern into contempt, ridicule or materially and reasonably shocks or offends the community in which the Southern affiliate is located. 4. Termination with Cause. In the event of Employee's termination of employment for Cause at any time, the Employee shall forfeit the entire benefit provided in Paragraph 3 and the Company shall have no further obligations with respect to any amount under this Agreement. As used in this Agreement, the term "Cause" shall mean gross negligence or willful misconduct in the performance of the duties and services required in the course of employment by the Company; the final conviction of a felony or misdemeanor involving moral turpitude; the carrying out of any activity or the making of any statement which would prejudice the good name and standing of any of the Southern Entities or would bring any of the Southern Entities into contempt, ridicule or would reasonably shock or offend any community in which any of the Southern Entities is located; a material breach of the fiduciary obligations owed by an officer and an employee to any of the Southern Entities; or the Employee's unsatisfactory performance of the duties and services required by his or her employment. 5. Publicity; No Disparaging Statement. Except as otherwise provided in Paragraph 14 hereof, Employee and the Company covenant and agree that they shall not engage in any communications which shall disparage one another or interfere with their existing or prospective business relationships. 6. No Employment. Employee agrees that he shall not seek re-employment as an employee, leased employee or independent contractor with the Company or the Southern Company or any of its subsidiaries or affiliates (collectively, for purposes of this Paragraph 6, "Southern Company System"), for a period of twenty-four (24) months following the execution of the Release attached hereto as Exhibit 1. The Company or any member of the Southern Company System shall not rehire the Employee as an employee, leased employee or independent contractor for a period of twenty-four (24) months following the Employee's execution of the Release attached hereto as Exhibit 1, unless an exceptional business reason exists for rehiring the Employee and a committee, comprised of (i) an officer from the business unit seeking to rehire the Employee and (ii) the Southern Company Senior Vice President, Human Resources, approves of such rehiring. 7. Business Protection Provision Definitions. (a) Preamble. As a material inducement to the Company to enter into this Agreement, and its recognition of the valuable experience, knowledge and proprietary information Employee gained from his employment with the Company, Employee warrants and agrees he will abide by and adhere to the following business protection provisions in Paragraphs 7, 8, 9 , 10 and 11 herein. (b) Definitions. For purposes of Paragraphs 7, 8, 9, 10 and 11 herein, the following terms shall have the following meanings: (i) "Competitive Position" shall mean any employment, consulting, advisory, directorship, agency, promotional or independent contractor arrangement between the Employee and any person or Entity engaged wholly or in material part in the business that the Company is engaged in (the "Business") whereby the Employee is required to or does perform services on behalf of or for the benefit of such person or Entity which are substantially similar to the services Employee participated in or directed while employed by the Company, the Southern Company or any of their respective affiliates (collectively the "Southern Entities"). (ii) "Confidential Information" shall mean the proprietary or confidential data, information, documents or materials (whether oral, written, electronic or otherwise) belonging to or pertaining to the Company or other Southern Entities, other than "Trade Secrets" (as defined below), which is of tangible or intangible value to any of the Southern Entities and the details of which are not generally known to the competitors of the Southern Entities. Confidential Information shall also include: (A) any items that any of the Southern Entities have marked "CONFIDENTIAL" or some similar designation or are otherwise identified as being confidential; and (B) all non-public information known by or in the possession of Employee related to or regarding any proceedings involving or related to the Southern Entities before the Alabama Public Service Commission or other Entities. (iii) "Entity" or "Entities" shall mean any business, individual, partnership, joint venture, agency, governmental agency, body or subdivision, association, firm, corporation, limited liability company or other entity of any kind. (iv) "Territory" shall include the States of Georgia, Alabama, Mississippi or Florida. (v) "Trade Secrets" shall mean information or data of or about any of the Southern Entities, including, but not limited to, technical or non-technical data, formulas, patterns, compilations, programs, devices, methods, techniques, drawings, processes, financial data, financial plans, product plans or lists of actual or potential customers or suppliers that: (A) derives economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and (B) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. The Employee agrees that trade secrets include non-public information related to the rate making process of the Southern Entities and any other information which is defined as a "trade secret" under applicable law. (vi) "Work Product" shall mean all tangible work product, property, data, documentation, "know-how," concepts or plans, inventions, improvements, techniques and processes relating to the Southern Entities that were conceived, discovered, created, written, revised or developed by Employee during the term of his employment with the Company. 8. Nondisclosure: Ownership of Proprietary Property. (a) In recognition of the need of the Company to protect its legitimate business interests, Confidential Information and Trade Secrets, Employee hereby covenants and agrees that Employee shall regard and treat Trade Secrets and all Confidential Information as strictly confidential and wholly-owned by the Company and shall not, for any reason, in any fashion, either directly or indirectly, use, sell, lend, lease, distribute, license, give, transfer, assign, show, disclose, disseminate, reproduce, copy, misappropriate or otherwise communicate any such item or information to any third party or Entity for any purpose other than in accordance with this Agreement or as required by applicable law: (i) with regard to each item constituting a Trade Secret, at all times such information remains a "trade secret" under applicable law, and (ii) with regard to any Confidential Information, for a period ending three (3) years following the Termination Date (hereafter the "Restricted Period"). (b) Employee shall exercise best efforts to ensure the continued confidentiality of all Trade Secrets and Confidential Information, and he shall immediately notify the Company of any unauthorized disclosure or use of any Trade Secrets or Confidential Information of which Employee becomes aware. Employee shall assist the Company, to the extent necessary, in the protection of or procurement of any intellectual property protection or other rights in any of the Trade Secrets or Confidential Information. (c) All Work Product shall be owned exclusively by the Company. To the greatest extent possible, any Work Product shall be deemed to be "work made for hire" (as defined in the Copyright Act, 17 U.S.C.A. ss. 101 et seq., as amended), and Employee hereby unconditionally and irrevocably transfers and assigns to the Company all right, title and interest Employee currently has or may have by operation of law or otherwise in or to any Work Product, including, without limitation, all patents, copyrights, trademarks (and the goodwill associated therewith), trade secrets, service marks (and the goodwill associated therewith) and other intellectual property rights. Employee agrees to execute and deliver to the Company any transfers, assignments, documents or other instruments which the Company may deem necessary or appropriate, from time to time, to protect the rights granted herein or to vest complete title and ownership of any and all Work Product, and all associated intellectual property and other rights therein, exclusively in the Company. (d) Employee represents and agrees that he will keep all terms and provisions of this Agreement completely confidential, except for possible disclosures to his legal advisors or to the extent required by law, and Employee further agrees that he will not disclose the terms, provisions or information contained in or concerning this Agreement to anyone, including, but not limited to, any past, present, or prospective employee or applicant for employment with the Company. Employee agrees that he may only disclose to future, potential employers of Employee that he participates in a Deferred Compensation Agreement with the Company which imposes certain restrictions on him. 9. Non-Interference With Employees. Employee covenants and agrees that during the Restricted Period he will not, either directly or indirectly, alone or in conjunction with any other person or Entity: (A) actively recruit, solicit, attempt to solicit, or induce any person who, during such Restricted Period, or within one year prior to the Termination Date, was an exempt employee of the Company or any of its subsidiaries, or was an officer of any of the other Southern Entities to leave or cease such employment for any reason whatsoever; or (B) hire or engage the services of any such person described in Paragraph 9(A) in any business substantially similar or competitive with that in which the Southern Entities were engaged during his employment. 10. Non-Interference With Customers. (a) Employee acknowledges that in the course of employment, he has learned about Company's business, services, materials, programs and products and the manner in which they are developed, marketed, serviced and provided. Employee knows and acknowledges that the Company has invested considerable time and money in developing its programs, agreements, offices, representatives, services, products and marketing techniques and that they are unique and original. Employee further acknowledges that the Company must keep secret all pertinent information divulged to Employee and Company's business concepts, ideas, programs, plans and processes, so as not to aid Company's competitors. Accordingly, Company is entitled to the protection described in Paragraph 10(b), which Employee agrees is reasonable. (b) Employee covenants and agrees that for a period ending two (2) years following the Termination Date, he will not, on his own behalf or on behalf of any person or Entity, solicit, direct, appropriate, call upon, or initiate communication or contact with any person or Entity or any representative of any person or Entity, with whom Employee had contact during his employment, with a view toward the sale or the providing of any product, equipment or service sold or provided or under development by Company during the period of two (2) years immediately preceding the date of Employee's termination. The restrictions set forth in this section shall apply only to persons or Entities with whom Employee had actual contact during the two (2) years prior to termination of employment with a view toward the sale or providing of any product, equipment or service sold or provided or under development by Company. 11. Non-Interference With Business. (a) Employee and Company expressly covenant and agree that the scope, territorial, time and other restrictions contained in this entire Agreement constitute the most reasonable and equitable restrictions possible to protect the business interest of the Company given: (i) the business of the Company; (ii) the competitive nature of the Company's industry; and (iii) that Employee's skills are such that he could easily find alternative, commensurate employment or consulting work in his field which would not violate any of the provisions of this Agreement. The Employee further acknowledges that the payment described in Paragraph 3 is also in consideration of his covenants and agreements contained in Paragraphs 7 through 11 hereof. (b) Employee covenants and agrees to not obtain or work in a Competitive Position within the Territory for a period of two (2) years from the Termination Date. 12. Return of Materials. Upon the Employee's termination, or at any point after that time upon the specific request of the Company, Employee shall return to the Company all written or descriptive materials of any kind belonging or relating to the Company or its affiliates, including, without limitation, any originals, copies and abstracts containing any Work Product, intellectual property, Confidential Information and Trade Secrets in Employee's possession or control. 13. Cooperation. The parties agree that as a result of Employee's duties and activities during his employment, Employee's reasonable availability may be necessary for the Company to meaningfully respond to or address actual or threatened litigation, or government inquiries or investigations, or required filings with state, federal or foreign agencies (hereinafter "Company Matters"). Upon request of the Company, and at any point following termination of employment, Employee will make himself available to the Company for reasonable periods consistent with his future employment, if any, by other Entities and will cooperate with its agents and attorneys as reasonably required by such Company Matters. The Company will reimburse Employee for any reasonable out-of-pocket expenses associated with providing such cooperation. 14. Confidentiality and Legal Process. Employee represents and agrees that he will keep the terms, amount and fact of this Agreement confidential and that he will not hereafter disclose any information concerning this Agreement to anyone other than his personal agents, including, but not limited to, any past, present, or prospective employee or applicant for employment with Company. Notwithstanding the foregoing, nothing in this Agreement is intended to prohibit Employee from performing any duty or obligation that shall arise as a matter of law. Specifically, Employee shall continue to be under a duty to truthfully respond to any legal and valid subpoena or other legal process. This Agreement is not intended in any way to proscribe Employee's right and ability to provide information to any federal, state or local government in the lawful exercise of such governments' governmental functions. 15. Successors And Assigns; Applicable Law. This Agreement shall be binding upon and inure to the benefit of Employee and his heirs, administrators, representatives, executors, successors and assigns, and shall be binding upon and inure to the benefit of the Company and its officers, directors, employees, agents, shareholders, parent corporation and affiliates, and their respective predecessors, successors, assigns, heirs, executors and administrators and each of them, and to their heirs, administrators, representatives, executors, successors and assigns. This Agreement shall be construed and interpreted in accordance with the laws of the State of Alabama, United States of America (without giving effect to principles of conflicts of laws). 16. Complete Agreement. This Agreement shall constitute the full and complete Agreement between the parties concerning its subject matter and fully supersedes any and all other prior agreements or understandings, in whatever form, between the parties concerning the subject matter hereof, including, but not limited to, that certain letter from Mr. Charles McCrary on behalf of Alabama Power Company dated August 22, 2002 and any other discussions, agreements, letters, memorandums or understandings concerning payments to be made by the Company in order to induce Employee to remain Chief Financial Officer of the Company or in connection with Employee's termination of employment. This Agreement shall not be modified or amended except by a written instrument signed by both Employee and an authorized representative of the Company. 17. Severability. The unenforceability or invalidity of any particular provision of this Agreement shall not affect its other provisions, and to the extent necessary to give such other provisions effect, they shall be deemed severable. The judicial body interpreting this Agreement shall be authorized and instructed to rewrite any of the sections which are enforceable as written in such a fashion so that they may be enforced to the greatest extent legally possible. Employee acknowledges and agrees that the covenants and agreements contained in this Agreement, including, without limitation, the covenants and agreements contained in Paragraphs 7, 8, 9, 10 and 11, shall be construed as covenants and agreements independent of each other or any other contract between the parties hereto and that the existence of any claim or cause of action by Employee against Company, whether predicated upon this Agreement or any other contract, shall not constitute a defense to the enforcement by Company of said covenants and agreements. 18. Waiver Of Breach; Specific Performance. The waiver of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any other breach. Each of the parties to this Agreement will be entitled to enforce its or his rights under this Agreement, specifically, to recover damages by reason of any breach of any provision of this Agreement and to exercise all other rights existing in its or his favor. The parties hereto agree and acknowledge that money damages may not be an adequate remedy for any breach of the provisions of this Agreement and that any party may in its or his sole discretion apply to any court of law or equity of competent jurisdiction for specific performance or injunctive relief in order to enforce or prevent any violations of the provisions of this Agreement. 19. Unsecured General Creditor. The Company shall neither reserve nor specifically set aside funds for the payment of its obligations under this Agreement, and such obligations shall be paid solely from the general assets of the Company. Notwithstanding that Employee may be entitled to receive the value of his benefit under the terms and conditions of this Agreement, the assets from which such amount may be paid shall at all times be subject to the claims of the Company's creditors. 20. No Effect On Other Arrangements. It is expressly understood and agreed that the payment made in accordance with this Agreement is in addition to any other benefits or compensation to which Employee may be entitled or for which he may be eligible, whether funded or unfunded, by reason of his employment with the Company. 21. Tax Withholding. There shall be deducted from the payment under this Agreement the amount of any tax required by any governmental authority to be withheld and paid over by the Company to such governmental authority for the account of Employee. 22. Compensation. Any compensation paid on behalf of Employee under this Agreement shall not be considered "compensation," as the term is defined in The Southern Company Employee Savings Plan, The Southern Company Employee Stock Ownership Plan, The Southern Company Performance Sharing Plan or The Southern Company Pension Plan. The payment under this Agreement shall not be considered wages, salaries or compensation under any other employee benefit plan. 23. No Guarantee of Employment. No provision of this Agreement shall be construed to affect in any manner the existing rights of the Company to suspend, terminate, alter, modify, whether or not for cause, the employment relationship of Employee and the Company. 24. Interpretation. The judicial body interpreting this Agreement shall not more strictly construe the terms of this Agreement against one party, it being agreed that both parties and/or their attorneys or agents have negotiated and participated in the preparation hereof. IN WITNESS WHEREOF, the parties hereto have executed this Agreement, this 11th day of April, 2003. "COMPANY" ALABAMA POWER COMPANY By: /s/C. D. McCrary ------------------------------------------- Its: President ------------------------------------------- "EMPLOYEE" WILLIAM BRUCE HUTCHINS, III /s/William Bruce Hutchins, III EXHIBIT 1 to Deferred Compensation Agreement with William Bruce Hutchins, III RELEASE AGREEMENT THIS RELEASE ("Release") is made and entered into by and between WILLIAM BRUCE HUTCHINS, III ("Employee") and ALABAMA POWER COMPANY, and its successor or assigns ("Company"). WHEREAS, Employee and Company have agreed that Employee's employment with Alabama Power Company shall terminate on ; WHEREAS, Employee and the Company have previously entered into that certain Deferred Compensation Agreement, dated _________________, 2003 ("Agreement"), that this Release is incorporated therein by reference; WHEREAS, Employee and Company desire to delineate their respective rights, duties and obligations attendant to such termination and desire to reach an accord and satisfaction of all claims arising from Employee's employment, and his termination of employment, with appropriate releases, in accordance with the Agreement; WHEREAS, the Company desires to compensate Employee in accordance with the Agreement for service he has or will provide for the Company; NOW, THEREFORE, in consideration of the premises and the agreements of the parties set forth in this Release, and other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby covenant and agree as follows: 1. Release. Employee does hereby remise, release and forever discharge the Company and its officers, directors, employees, agents, shareholders, parent corporation and affiliates, and their respective predecessors, successors, assigns, heirs, executors and administrators (collectively, "Releasees"), of and from all manner of actions and causes of action, suits, debts, claims and demands whatsoever at law or in equity, known or unknown, actual or contingent, including, but not limited to, any claims which have been asserted, or could be asserted now or in the future, against any Releasees arising under any and all federal, state or local laws and any common law claims, and including, but not limited to, any claims Employee may have pursuant to the Age Discrimination in Employment Act or the Sarbanes-Oxley Act of 2002, and any claims to benefits under any and all offer letters, employment or separation agreements, or bonus, severance, workforce reduction, early retirement, out-placement, or other similar plans sponsored by the Company, now or hereafter recognized (collectively, "Claims"), which he ever had or now has or may in the future have, by reason of any matter, cause or thing arising out of his employment relationship and privileges, his serving as an employee of the Company or the separation from his employment relationship or affiliation as an employee of the Company as of the date of this Release against each of the Releasees. Notwithstanding the foregoing, Employee does not release any Claims under the Age Discrimination in Employment Act that may arise after his execution of this Release. 2. No Assignment of Claim. Employee represents that he has not assigned or transferred, or purported to assign or transfer, any Claims or any portion thereof or interest therein to any party prior to the date of this Release. 3. Compensation. In accordance with the Deferred Compensation Agreement, the Company agrees to pay the Employee, his spouse or his estate, as the case may be, the amount provided in Paragraph 3 of the Agreement. 4. No Admission Of Liability. This Release shall not in any way be construed as an admission by the Company or Employee of any improper actions or liability whatsoever as to one another, and each specifically disclaims any liability to or improper actions against the other or any other person, on the part of itself or himself, its or his employees or agents. 5. Voluntary Execution. Employee warrants, represents and agrees that he has been encouraged in writing to seek advice from anyone of his choosing regarding this Release, including his attorney and accountant or tax advisor prior to his signing it; that this Release represents written notice to do so; that he has been given the opportunity and sufficient time to seek such advice; and that he fully understands the meaning and contents of this Release. He further represents and warrants that he was not coerced, threatened or otherwise forced to sign this Release, and that his signature appearing hereinafter is voluntary and genuine. EMPLOYEE UNDERSTANDS THAT HE MAY TAKE UP TO TWENTY-ONE (21) DAYS TO CONSIDER WHETHER OR NOT HE DESIRES TO ENTER INTO THIS RELEASE. 6. Ability to Revoke Agreement. EMPLOYEE UNDERSTANDS THAT HE MAY REVOKE THIS RELEASE BY NOTIFYING THE COMPANY IN WRITING OF SUCH REVOCATION WITHIN SEVEN (7) DAYS OF HIS EXECUTION OF THIS RELEASE AND THAT THIS RELEASE IS NOT EFFECTIVE UNTIL THE EXPIRATION OF SUCH SEVEN (7) DAY PERIOD. HE UNDERSTANDS THAT UPON THE EXPIRATION OF SUCH SEVEN (7) DAY PERIOD THIS RELEASE WILL BE BINDING UPON HIM AND HIS HEIRS, ADMINISTRATORS, REPRESENTATIVES, EXECUTORS, SUCCESSORS AND ASSIGNS AND WILL BE IRREVOCABLE. Acknowledged and Agreed To: "COMPANY" ALABAMA POWER COMPANY By: ------------------- Its: ------------------- I UNDERSTAND THAT BY SIGNING THIS RELEASE, I AM GIVING UP RIGHTS I MAY HAVE. I UNDERSTAND THAT I DO NOT HAVE TO SIGN THIS RELEASE. "EMPLOYEE" WILLIAM BRUCE HUTCHINS, III - ------------------------------------ ----------------------------------- Date_____ _________ WITNESSED BY: - -------------------------------------------- - -------------------------------------------- Date EX-24.A.2 9 x24a2.txt Exhibit 24(a)2 Thomas A. Fanning Bin914 Executive Vice President 270 Peachtree Street NW and Chief Financial Officer Atlanta, Georgia 30303 May 1, 2003 Tommy Chisholm and Wayne Boston Dear Sirs: As an officer of The Southern Company, I hereby make, constitute, and appoint each of you my true and lawful Attorney in my name, place, and stead, to sign and cause to be filed with the Securities and Exchange Commission (1) this Company's Quarterly Reports on Form 10-Q during 2003, (2) any Current Reports on Form 8-K, and (3) any necessary or appropriate amendment or amendments to any such reports and any necessary or appropriate amendment or amendments to the Annual Report on Form 10-K for the year ended December 31, 2002, each such report or amendments to such reports to be accompanied in each case by any necessary or appropriate exhibits or schedules thereto. Yours very truly, /s/Thomas A. Fanning EX-24.D.2 10 x24d2.txt Exhibit 24(d)2 Susan N. Story One Energy Place President and Pensacola, Florida 32520-0100 Chief Executive Officer April 18, 2003 Mr. Wayne Boston Southern Company Services, Inc. 241 Ralph McGill Blvd. NE Atlanta GA 30308-3374 Dear Mr. Boston: Re: Forms 10-K and 10-Q As an officer of Gulf Power Company, I hereby make, constitute, and appoint you as my true and lawful Attorney in my name, place, and stead, to sign and cause to be filed with the Securities and Exchange Commission (1) this Company's Quarterly Reports on Form 10-Q during 2003, and (2) any necessary or appropriate amendment or amendments to any such reports and to this Company's Annual Report on Form 10-K for the year ended December 31, 2002, each such report or amendments to such reports to be accompanied in each case by any necessary or appropriate exhibits or schedules thereto. Sincerely, /s/Susan N. Story lw EX-99.A.1 11 x99a1.txt Exhibit 99(a)1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350 In connection with the accompanying Quarterly Report on Form 10-Q of The Southern Company for the quarter ended March 31, 2003, I, Allen Franklin, Chairman and Chief Executive Officer, hereby certify pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge and belief, that: (1) such Quarterly Report on Form 10-Q of The Southern Company for the quarter ended March 31, 2003, which this statement accompanies, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in such Quarterly Report on Form 10-Q of The Southern Company for the quarter ended March 31, 2003, fairly presents, in all material respects, the financial condition and results of operations of The Southern Company. /s/H. Allen Franklin Allen Franklin Chairman and Chief Executive Officer Date: May 13, 2003 A signed original of this written statement required by Section 906 has been provided to The Southern Company and will be retained by The Southern Company and furnished to the Securities and Exchange Commission or its staff upon request. EX-99.A.2 12 x99a2.txt Exhibit 99(a)2 CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350 In connection with the accompanying Quarterly Report on Form 10-Q of The Southern Company for the quarter ended March 31, 2003, I, Thomas A. Fanning, Executive Vice President, Chief Financial Officer and Treasurer, hereby certify pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge and belief, that: (1) such Quarterly Report on Form 10-Q of The Southern Company for the quarter ended March 31, 2003, which this statement accompanies, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in such Quarterly Report on Form 10-Q of The Southern Company for the quarter ended March 31, 2003, fairly presents, in all material respects, the financial condition and results of operations of The Southern Company. /s/Thomas A. Fanning Thomas A. Fanning Executive Vice President, Chief Financial Officer and Treasurer Date: May 13, 2003 A signed original of this written statement required by Section 906 has been provided to The Southern Company and will be retained by The Southern Company and furnished to the Securities and Exchange Commission or its staff upon request. EX-99.B.1 13 x99b1.txt Exhibit 99(b)1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350 In connection with the accompanying Quarterly Report on Form 10-Q of Alabama Power Company for the quarter ended March 31, 2003, I, Charles D. McCrary, President and Chief Executive Officer, hereby certify pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge and belief, that: (1) such Quarterly Report on Form 10-Q of Alabama Power Company for the quarter ended March 31, 2003, which this statement accompanies, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in such Quarterly Report on Form 10-Q of Alabama Power Company for the quarter ended March 31, 2003, fairly presents, in all material respects, the financial condition and results of operations of Alabama Power Company. /s/Charles D. McCrary Charles D. McCrary President and Chief Executive Officer Date: May 13, 2003 A signed original of this written statement required by Section 906 has been provided to Alabama Power Company and will be retained by Alabama Power Company and furnished to the Securities and Exchange Commission or its staff upon request. EX-99.B.2 14 x99b2.txt Exhibit 99(b)2 CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350 In connection with the accompanying Quarterly Report on Form 10-Q of Alabama Power Company for the quarter ended March 31, 2003, I, William B. Hutchins, III, Executive Vice President, Chief Financial Officer and Treasurer, hereby certify pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge and belief, that: (1) such Quarterly Report on Form 10-Q of Alabama Power Company for the quarter ended March 31, 2003, which this statement accompanies, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in such Quarterly Report on Form 10-Q of Alabama Power Company for the quarter ended March 31, 2003, fairly presents, in all material respects, the financial condition and results of operations of Alabama Power Company. /s/William B. Hutchins, III William B. Hutchins, III Executive Vice President, Chief Financial Officer and Treasurer Date: May 13, 2003 A signed original of this written statement required by Section 906 has been provided to Alabama Power Company and will be retained by Alabama Power Company and furnished to the Securities and Exchange Commission or its staff upon request. EX-99.C.1 15 x99c1.txt Exhibit 99(c)1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350 In connection with the accompanying Quarterly Report on Form 10-Q of Georgia Power Company for the quarter ended March 31, 2003, I, David M. Ratcliffe, President and Chief Executive Officer, hereby certify pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge and belief, that: (1) such Quarterly Report on Form 10-Q of Georgia Power Company for the quarter ended March 31, 2003, which this statement accompanies, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in such Quarterly Report on Form 10-Q of Georgia Power Company for the quarter ended March 31, 2003, fairly presents, in all material respects, the financial condition and results of operations of Georgia Power Company. /s/David M. Ratcliffe David M. Ratcliffe President and Chief Executive Officer Date: May 13, 2003 A signed original of this written statement required by Section 906 has been provided to Georgia Power Company and will be retained by Georgia Power Company and furnished to the Securities and Exchange Commission or its staff upon request. EX-99.C.2 16 x99c2.txt Exhibit 99(c)2 CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350 In connection with the accompanying Quarterly Report on Form 10-Q of Georgia Power Company for the quarter ended March 31, 2003, I, Allen L. Leverett, Executive Vice President, Chief Financial Officer and Treasurer, hereby certify pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge and belief, that: (1) such Quarterly Report on Form 10-Q of Georgia Power Company for the quarter ended March 31, 2003, which this statement accompanies, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in such Quarterly Report on Form 10-Q of Georgia Power Company for the quarter ended March 31, 2003, fairly presents, in all material respects, the financial condition and results of operations of Georgia Power Company. /s/Allen L. Leverett Allen L. Leverett Executive Vice President, Chief Financial Officer and Treasurer Date: May 13, 2003 A signed original of this written statement required by Section 906 has been provided to Georgia Power Company and will be retained by Georgia Power Company and furnished to the Securities and Exchange Commission or its staff upon request. EX-99.D.1 17 x99d1.txt Exhibit 99(d)1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350 In connection with the accompanying Quarterly Report on Form 10-Q of Gulf Power Company for the quarter ended March 31, 2003, I, Susan N. Story, President and Chief Executive Officer, hereby certify pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge and belief, that: (1) such Quarterly Report on Form 10-Q of Gulf Power Company for the quarter ended March 31, 2003, which this statement accompanies, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in such Quarterly Report on Form 10-Q of Gulf Power Company for the quarter ended March 31, 2003, fairly presents, in all material respects, the financial condition and results of operations of Gulf Power Company. /s/Susan N. Story Susan N. Story President and Chief Executive Officer Date: May 13, 2003 A signed original of this written statement required by Section 906 has been provided to Gulf Power Company and will be retained by Gulf Power Company and furnished to the Securities and Exchange Commission or its staff upon request. EX-99.D.2 18 x99d2.txt Exhibit 99(d)2 CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350 In connection with the accompanying Quarterly Report on Form 10-Q of Gulf Power Company for the quarter ended March 31, 2003, I, Ronnie R. Labrato, Vice President, Chief Financial Officer and Comptroller, hereby certify pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge and belief, that: (1) such Quarterly Report on Form 10-Q of Gulf Power Company for the quarter ended March 31, 2003, which this statement accompanies, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in such Quarterly Report on Form 10-Q of Gulf Power Company for the quarter ended March 31, 2003, fairly presents, in all material respects, the financial condition and results of operations of Gulf Power Company. /s/Ronnie R. Labrato Ronnie R. Labrato Vice President, Chief Financial Officer and Comptroller Date: May 13, 2003 A signed original of this written statement required by Section 906 has been provided to Gulf Power Company and will be retained by Gulf Power Company and furnished to the Securities and Exchange Commission or its staff upon request. EX-99.E.1 19 x99e1.txt Exhibit 99(e)1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350 In connection with the accompanying Quarterly Report on Form 10-Q of Mississippi Power Company for the quarter ended March 31, 2003, I, Michael D. Garrett, President and Chief Executive Officer, hereby certify pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge and belief, that: (1) such Quarterly Report on Form 10-Q of Mississippi Power Company for the quarter ended March 31, 2003, which this statement accompanies, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in such Quarterly Report on Form 10-Q of Mississippi Power Company for the quarter ended March 31, 2003, fairly presents, in all material respects, the financial condition and results of operations of Mississippi Power Company. /s/Michael D. Garrett Michael D. Garrett President and Chief Executive Officer Date: May 13, 2003 A signed original of this written statement required by Section 906 has been provided to Mississippi Power Company and will be retained by Mississippi Power Company and furnished to the Securities and Exchange Commission or its staff upon request. EX-99.E.2 20 x99e2.txt Exhibit 99(e)2 CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350 In connection with the accompanying Quarterly Report on Form 10-Q of Mississippi Power Company for the quarter ended March 31, 2003, I, Michael W. Southern, Vice President, Chief Financial Officer and Treasurer, hereby certify pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge and belief, that: (1) such Quarterly Report on Form 10-Q of Mississippi Power Company for the quarter ended March 31, 2003, which this statement accompanies, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in such Quarterly Report on Form 10-Q of Mississippi Power Company for the quarter ended March 31, 2003, fairly presents, in all material respects, the financial condition and results of operations of Mississippi Power Company. /s/Michael W. Southern Michael W. Southern Vice President, Chief Financial Officer and Treasurer Date: May 13, 2003 A signed original of this written statement required by Section 906 has been provided to Mississippi Power Company and will be retained by Mississippi Power Company and furnished to the Securities and Exchange Commission or its staff upon request. EX-99.F.1 21 x99f1.txt Exhibit 99(f)1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350 In connection with the accompanying Quarterly Report on Form 10-Q of Savannah Electric and Power Company for the quarter ended March 31, 2003, I, A. R. James, President and Chief Executive Officer, hereby certify pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge and belief, that: (1) such Quarterly Report on Form 10-Q of Savannah Electric and Power Company for the quarter ended March 31, 2003, which this statement accompanies, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in such Quarterly Report on Form 10-Q of Savannah Electric and Power Company for the quarter ended March 31, 2003, fairly presents, in all material respects, the financial condition and results of operations of Savannah Electric and Power Company. /s/A. R. James A. R. James President and Chief Executive Officer Date: May 13, 2003 A signed original of this written statement required by Section 906 has been provided to Savannah Electric and Power Company and will be retained by Savannah Electric and Power Company and furnished to the Securities and Exchange Commission or its staff upon request. EX-99.F.2 22 x99f2.txt Exhibit 99(f)2 CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350 In connection with the accompanying Quarterly Report on Form 10-Q of Savannah Electric and Power Company for the quarter ended March 31, 2003, I, Kirby R. Willis, Vice President, Chief Financial Officer and Treasurer, hereby certify pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge and belief, that: (1) such Quarterly Report on Form 10-Q of Savannah Electric and Power Company for the quarter ended March 31, 2003, which this statement accompanies, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in such Quarterly Report on Form 10-Q of Savannah Electric and Power Company for the quarter ended March 31, 2003, fairly presents, in all material respects, the financial condition and results of operations of Savannah Electric and Power Company. /s/Kirby R. Willis Kirby R. Willis Vice President, Chief Financial Officer and Treasurer Date: May 13, 2003 A signed original of this written statement required by Section 906 has been provided to Savannah Electric and Power Company and will be retained by Savannah Electric and Power Company and furnished to the Securities and Exchange Commission or its staff upon request. EX-99.G.1 23 x99g1.txt Exhibit 99(g)1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350 In connection with the accompanying Quarterly Report on Form 10-Q of Southern Power Company for the quarter ended March 31, 2003, I, William P. Bowers, President and Chief Executive Officer, hereby certify pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge and belief, that: (1) such Quarterly Report on Form 10-Q of Southern Power Company for the quarter ended March 31, 2003, which this statement accompanies, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in such Quarterly Report on Form 10-Q of Southern Power Company for the quarter ended March 31, 2003, fairly presents, in all material respects, the financial condition and results of operations of Southern Power Company. /s/William Paul Bowers William P. Bowers President and Chief Executive Officer Date: May 13, 2003 A signed original of this written statement required by Section 906 has been provided to Southern Power Company and will be retained by Southern Power Company and furnished to the Securities and Exchange Commission or its staff upon request. EX-99.G.2 24 x99g2.txt Exhibit 99(g)2 CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350 In connection with the accompanying Quarterly Report on Form 10-Q of Southern Power Company for the quarter ended March 31, 2003, I, Cliff S. Thrasher, Senior Vice President, Comptroller and Chief Financial Officer, hereby certify pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge and belief, that: (1) such Quarterly Report on Form 10-Q of Southern Power Company for the quarter ended March 31, 2003, which this statement accompanies, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in such Quarterly Report on Form 10-Q of Southern Power Company for the quarter ended March 31, 2003, fairly presents, in all material respects, the financial condition and results of operations of Southern Power Company. /s/Cliff S. Thrasher Cliff S. Thrasher Senior Vice President, Comptroller and Chief Financial Officer Date: May 13, 2003 A signed original of this written statement required by Section 906 has been provided to Southern Power Company and will be retained by Southern Power Company and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----